Form 8-K - Current report

Velocity Financial, Inc.

Date: August 2, 2024

/s/ Roland T. Kelly

Roland T. Kelly

Chief Legal Officer and General Counsel

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2024

Velocity Financial, Inc.

(Exact name of Registrant as Specified in Its Charter)

Delaware

001-39183

46-0659719

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)



2945 Townsgate Road, Suite 110
Westlake Village, California				91361
(Address of Principal Executive Offices)				(Zip Code)

Registrant’s Telephone Number, Including Area Code: (818) 532-3700

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common stock, par value $0.01 per share

VEL

The New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02

Results of Operations and Financial Condition.

On August 1, 2024, we issued a press release announcing financial results for the quarter ended June 30, 2024. The press release is attached as Exhibit 99 and is incorporated herein by reference.

The information provided in Item 2.02, including Exhibit 99, is intended to be furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.

Item 9.01

Exhibits.


Exhibit Number		Description

99		Press Release dated August 1, 2024

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Exhibit 99

LOGO

Investors and Media:

Chris Oltmann

(818) 532-3708

Velocity Financial, Inc. Reports

Second Quarter 2024 Results

Second Quarter Highlights:

•

Net income of $14.7 million, up 21.3% from $12.2 million for 2Q23. Diluted EPS of $0.42, up $0.06 from $0.36 per share for 2Q23

•

Core net income⁽¹⁾ of $15.9 million, an increase of 23.1% from $12.9 million for 2Q23. Core diluted EPS⁽¹⁾ of $0.45, up from $0.38 per share for 2Q23

•

Loan production of $422.2 million in UPB, an 11.5% and 63.2% increase from 1Q24 and 2Q23, respectively

•

Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.5%, up slightly from 10.1% as of March 31, 2024, and 10.0% as of June 30, 2023, respectively

•

Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $80.7 million in UPB

•

Realized gains of $1.0 million or 101.3% of UPB resolved

•

Portfolio net interest margin (NIM) of 3.54%, an increase of 19 bps Q/Q and an increase of 30 bps from 3.24% for 2Q23

•

Completed the VCC 2024-2 and VCC 2024-3 securitizations totaling $286.2 million and 204.6 million, respectively, of securities issued

•

Resulted in a $0.06 per share EPS reduction from additional issuance expenses from a second securitization during the quarter

•

Century Health & Housing Capital, LLC acquired $3.6 million in Mortgage Servicing Rights (MSRs) related to $227.6 million in UPB of commercial GNMA mortgages

•

Liquidity⁽²⁾ of $83.8 million and total available warehouse line capacity of $646.5 million as of June 30, 2024

•

Recourse debt to equity ratio of 1.1x

•

GAAP Book value per common share of $14.52 as of June 30, 2024, a 15.5% increase from $12.57 as of June 30, 2023

Westlake Village, CA – August 1, 2024 – Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $14.7 million and core net income of $15.9 million for 2Q24, compared to net income of $12.2 million and core net income of $12.9 million for 2Q23. Earnings and core earnings per diluted share were $0.42 and $0.45, respectively, for 2Q24, compared to $0.36 and $0.38 for 2Q23.

⁽¹⁾	Core income and Core EPS are non-GAAP measures that exclude nonrecurring and unusual activities from GAAP net income.

⁽²⁾	Liquidity includes unrestricted cash reserves of $47.4 million and available liquidity in unfinanced loans of $36.4 million.


		Second Quarter 2024 Results

“Velocity continued to build on its strong momentum in the second quarter, delivering continued production volume and earnings growth,” said Chris Farrar, President and CEO. “During the quarter, we expanded our loan production team and realized the benefits of earlier investments through higher production volume and market share growth, which has been particularly robust in our traditional commercial product. We also saw continued strong investor demand for Velocity’s asset-backed securities, evidenced by improving economics on the $490.8 million of new issuance during the quarter. Our discipline in maintaining higher loan coupons while increasing production volume has driven our strong earnings results through stable net interest margin growth and solid net fair market value gains. Our team has positioned Velocity for continued success, and we remain on track to achieve our year-end 2024 portfolio target of $5 billion in UPB.”

Second Quarter Operating Results


KEY PERFORMANCE INDICATORS
($ in thousands)	2Q 2024			2Q 2023			$ Variance		% Variance
Pretax income	$	19,873		$	16,824		$	3,049		18	%
Net income	$	14,711		$	12,183		$	2,527		21	%
Diluted earnings per share	$	0.42		$	0.36		$	0		16	%
Core Pretax income	$	21,507		$	17,811		$	3,696		21	%
Core net income^(a)	$	15,918		$	12,928		$	2,990		23	%
Core diluted earnings per share^(a)	$	0.45		$	0.38		$	0.07		18	%
Pretax return on equity		16.95	%		16.81	%		n.a.		1	%
Core pretax return on equity^(a)		18.34	%		17.79	%		n.a.		3	%
Net interest margin - portfolio		3.54	%		3.24	%		n.a.		9	%
Net interest margin - total company		2.98	%		2.78	%		n.a.		7	%
Average common equity	$	469,071		$	400,441		$	68,630		17	%

^(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 2Q24 was $14.7 million, compared to $12.2 million for 2Q23

•

Driven by higher production volume, net interest income growth, and continued strong loan resolution activity

•

Core net income⁽¹⁾ was $15.9 million, compared to $12.9 million for 2Q23

•

2Q24 core adjustments included incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)

•

Portfolio NIM for 2Q24 was 3.54%, compared to 3.24% for 2Q23, a 9.4% Y/Y increase driven by HFI portfolio growth and average loan coupons of more than 11.0% on recent loan production

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		Second Quarter 2024 Results


TOTAL LOAN PORTFOLIO
($ of UPB in millions)	2Q 2024			2Q 2023			$ Variance			% Variance
*Held for Investment*
Investor 1-4 Rental	$	2,425		$	2,016		$	409			20	%
Mixed Use		510			452			58			13	%
Multi-Family		336			304			33			11	%
Retail		385			322			63			20	%
Warehouse		288			235			53			23	%
All Other		535			391			144			37	%

Total	$	4,480		$	3,720		$	760			20	%

*Held for Sale*
Investor 1-4 Rental	$	—		$	—		$	—			n.m.
Multi-Family		—			—			(17	)		n.m.
Warehouse		—			—			—			n.m.
All Other		—			—			—			n.m.

Total Managed Loan Portfolio UPB	$	4,480		$	3,720		$	760			20	%

*Key loan portfolio metrics:*
Total loan count		11,582			9,541
Weighted average loan to value		67.4	%		68.2	%
Weighted average coupon		9.25	%		8.40	%
Weighted average total portfolio yield		8.98	%		8.24	%
Weighted average portfolio debt cost		6.01	%		5.58	%

n.m. -

non meaningful

Discussion of results:

•

Velocity’s total loan portfolio was $4.5 billion in UPB as of June 30, 2024, an increase of 20.4% from $3.7 billion in UPB as of June 30, 2023

•

Primarily driven by 20.3% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and 36.9% Y/Y growth in loans collateralized by “Other” commercial properties

•

Loan prepayments totaled $165.8 million in UPB, an increase from $142.0 million in UPB for 1Q24, and $105.8 million in UPB for 2Q23

•

The UPB of Fair Value Option (“FVO”) loans was $1.88 billion, or 42.0% of total HFI loans, as of June 30, 2024, an increase from $688.1 million in UPB or 18.5%, as of June 30, 2023

•

The weighted average portfolio loan-to-value ratio was 67.4% as of June 30, 2024, down from 68.2% as of June 30, 2023, and consistent with the five-quarter trailing average of 67.8%

•

The weighted average total portfolio yield was 8.98% as of June 30, 2024, an increase of 74 bps from 2Q23, driven by an 85 bps increase in weighted average loan coupons from June 30, 2023

•

Portfolio-related debt cost as of June 30, 2024, was 6.01%, an increase of 43 bps from June 30, 2023, driven by higher interest rates on warehouse financing and recent securitizations

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		Second Quarter 2024 Results


LOAN PRODUCTION VOLUMES
($ in millions)	2Q 2024		2Q 2023		$ Variance		% Variance
Investor 1-4 Rental	$	184	$	163	$	21		13	%
Traditional Commercial		175		73		101		138	%
Short-term loans		63		22		41		187	%

Total loan production	$	422	$	259	$	164		63	%

Acquisitions	$	3	$	—

Discussion of results:

•

Loan production for 2Q24 totaled $422.2 million in UPB, a 63.2% increase from $258.6 million in UPB for 2Q23

•

Driven by continued strong demand for Traditional Commercial financing. On a Y/Y basis, traditional commercial production volume rose 137.6%.

•

The weighted average coupon (WAC) on 2Q24 HFI loan production was 11.0%, essentially unchanged from 2Q23


HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)	2Q 2024			2Q 2023			$ Variance			% Variance
Nonperforming loans^(a)	$	470,649		$	371,154		$	99,495			27	%
Average Nonperforming Loans ^(b)	$	319,342		$	328,897		$	(9,555	)		(3	)%
Average Loans HFI	$	4,345,962		$	3,634,093.1		$	711,869			20	%
Nonperforming loans % total HFI Loans		10.5	%		10.0	%		n.a.			5	%
Total Charge Offs	$	245		$	717		$	(472	)		(66	)%
Charge-offs as a % of Avg. Nonperforming Loans^(c)		0.31	%		0.87	%		n.a.			(65	)%
Loan Loss Reserve	$	5,240		$	4,626		$	614			13	%

^(a)	Total HFI nonperforming/nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.

^(b)	Reflects monthly average nonperforming loans held for investment, excluding FVO loans, during the period.

^(c)	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 $470.6 million in UPB as of June 30, 2024, or 10.5% of loans HFI, compared to $371.2 million and 10.0% as of June 30, 2023

•

Driven by the growth of loans in foreclosure

•

Charge-offs for 2Q24 totaled $244.6 thousand, compared to $716.6 thousand for 2Q23

•

The trailing five-quarter charge-off average was $461.0 thousand

•

The loan loss reserve totaled $5.2 million as of June 30, 2024, a 13.3% increase from $4.6 million as of June 30, 2023

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		Second Quarter 2024 Results

•

Primarily resulting from an increase in the individually assessed component of the CECL reserve

•

Loans carried at fair value or held for sale are not subject to a CECL reserve


NET REVENUES
($ in thousands)	2Q 2024			2Q 2023			$ Variance			% Variance
Interest income	$	97,760		$	74,897		$	22,863			31	%
Interest expense - portfolio related		(59,188	)		(45,451	)		(13,737	)		30	%

Net Interest Income - portfolio related		38,572			29,446			9,126			31	%
Interest expense - corporate debt		(6,155	)		(4,139	)		(2,016	)		49	%
Loan loss provision		(218	)		(298	)		80			(27	)%

Net interest income after provision for loan losses	$	32,199		$	25,009		$	7,190			29	%

Gain on disposition of loans		3,168			1,237			1,931			156	%
Unrealized (loss) gain on fair value loans		17,123			2,413			14,710			610	%
Unrealized gain (loss) on fair value of securitized debt		(4,643	)		5,560			(10,203	)		(184	)%
Unrealized gain/(loss) on mortgage servicing rights		(373	)		302			(675	)		(223	)%
Origination income^(a)		5,072			2,735			2,337			85	%
Bank interest income		1,731			1,189			542			46	%
Other operating income (expense)		483			601			(118	)		(20	)%

Total Other operating income (expense)	$	22,561		$	14,037		$	8,524			61	%

Net Revenue	$	54,760		$	38,749		$	16,011			41	%

^(a)	2Q23 includes a reclass of production fees to expenses

Discussion of results:

•

Net Revenue for 2Q24 was $54.8 million, an increase of 41.3% compared to $38.7 million for 2Q23

•

Driven by increased production volume and disciplined focus on maintaining spreads with 11.0% rates on loan originations since 2Q23

•

Total net interest income for 2Q24, including corporate debt interest expense and loan loss provision, was $32.2 million, a 28.7% increase from $25.0 million for 2Q23

•

Portfolio net Interest income was $38.6 million for 2Q24, an increase of 31.0% from 2Q23 resulting from portfolio growth and a 30bps increase in NIM

•

Total other operating income was $22.6 million for 2Q24, an increase from $14.0 million for 2Q23

•

Net unrealized FVO gains on loans and securitized debt were $12.4 million, resulting from fair value gains on new 2Q24 loan production, partially offset by fair value losses on securitized debt

•

Origination income totaled $5.1 million, resulting from fee income realized from 2Q24 new loan production

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		Second Quarter 2024 Results

•

Gain on disposition of loans totaled $3.2 million for 2Q24, driven by loans transferred to Real Estate Owned (REO)


OPERATING EXPENSES
($ in thousands)	2Q 2024		2Q 2023		$ Variance		% Variance
Compensation and employee benefits	$	16,562	$	10,670	$	5,892		55	%
Origination (income)/expense^(a)		749		123		626		510	%
Securitization expenses		6,232		2,699		3,533		131	%
Rent and occupancy		617		458		159		35	%
Loan servicing		5,160		4,267		893		21	%
Professional fees		1,718		1,056		662		63	%
Real estate owned, net		1,355		1,018		337		33	%
Other expenses		2,494		1,931		563		29	%

Total operating expenses	$	34,887	$	22,222	$	12,665		57	%

^(a)	2Q23 includes a reclass of production fees to expenses

Discussion of results:

•

Operating expenses totaled $34.9 million for 2Q24, an increase of 57.0% from 2Q23, primarily driven by the continued growth of our origination platform and increased securitization expenses from issuing two transactions in the quarter

•

Compensation expense totaled $16.6 million, compared to $10.7 million for 2Q23

•

Primarily driven by higher commissions on increased production volume and growth of the production team

•

Securitization expenses totaled $6.2 million, resulting from issuance of the VCC 2024-2 and 2024-3 securitizations during the quarter, compared to costs of $2.7 million for one securitization during 2Q23.

•

Loan servicing expense totaled $5.2 million, a 20.9% increase from $4.3 million for 2Q23, driven by the growth in our portfolio

•

Professional fees totaled $1.7 million, a 62.7% increase from $1.1 million for 2Q23, driven by growth in accounting and legal fees necessary to support the Company’s growth

•

REO expenses totaled $1.4 million, a 33.1% increase from $1.0 million for 2Q23, driven by higher asset preservation expenses

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		Second Quarter 2024 Results


SECURITIZATIONS
($ in thousands)	Securities		Balance at					Balance at
Trusts	Issued		6/30/2024		W.A. Rate			6/30/2023		W.A. Rate
2016-1 Trust		319,809						$	17,704		9.29	%
2017-2 Trust		245,601		39,444		4.08	%		51,930		3.95	%
2018-1 Trust		176,816		29,170		4.09	%		36,882		4.07	%
2018-2 Trust		307,988		67,437		4.41	%		87,984		4.51	%
2019-1 Trust		235,580		69,189		4.09	%		83,435		4.04	%
2019-2 Trust		207,020		54,005		3.40	%		76,284		3.45	%
2019-3 Trust		154,419		53,431		3.32	%		63,278		3.29	%
2020-1 Trust		248,700		99,102		2.87	%		121,074		2.86	%
2020-2 Trust		96,352		40,293		4.67	%		53,309		4.61	%
2021-1 Trust		251,301		160,668		1.76	%		183,089		1.76	%
2021-2 Trust		194,918		133,508		2.02	%		156,681		2.03	%
2021-3 Trust		204,205		146,569		2.47	%		167,652		2.46	%
2021-4 Trust		319,116		223,950		3.26	%		257,369		3.22	%
2022-1 Trust		273,594		227,222		3.93	%		246,883		3.93	%
2022-2 Trust		241,388		200,677		5.06	%		226,763		5.10	%
2022-MC1 Trust		84,967		20,213		6.87	%		39,862		6.90	%
2022-3 Trust		296,323		244,398		5.73	%		268,008		5.69	%
2022-4 Trust		308,357		255,922		6.25	%		289,929		6.25	%
2022-5 Trust		188,754		147,377		7.05	%		177,075		7.07	%
2023-1 Trust		198,715		161,344		7.01	%		189,763		7.02	%
2023-1R Trust		64,833		51,383		7.61	%		63,390		7.73	%
2023-2 Trust		202,210		162,932		7.25	%		199,864		7.17	%
2023-RTL1 Trust		81,608		81,608		8.24	%
2023-3 Trust		234,741		213,787		7.86	%
2023-4 Trust		202,890		208,449		8.35	%
2024-1 Trust		209,862		195,460		7.64	%
2024-2 Trust		286,235		280,139		7.15	%
2024-3 Trust		204,599		203,662		7.24	%

	$	6,040,901	$	3,771,339		5.62	%	$	3,058,208		4.72	%

Discussion of results

•

The company completed two securitizations during 2Q24 totaling $490.8 million of securities issued

•

The 2024-2 securitization was completed in April and totaled $286.2 million of securities issued with a weighted average rate of 7.15%

•

The 2024-3 securitization was completed in June and totaled $204.6 million of securities issued with a weighted average rate of 7.24%

•

The weighted average rate on Velocity’s outstanding securitizations was 5.62% as of June 30, 2024, an increase of 90 bps from June 30, 2023

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		Second Quarter 2024 Results


RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY	SECOND QUARTER 2024					SECOND QUARTER 2023
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	26,119	$	793		$	13,485	$	965
Paid current		35,292		188			19,771		280
REO sold (a)		7,859		(202	)		4,836		(382	)

Total resolutions	$	69,270	$	779		$	38,092	$	863

Resolutions as a % of nonperforming UPB				101.1	%				102.3	%

SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY	SECOND QUARTER 2024					SECOND QUARTER 2023
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	4,545	$	93		$	7,004	$	318
Paid current		2,689		1			3,290		89
REO sold		4,176		165			1,672		222

Total resolutions	$	11,410	$	259		$	11,966	$	629

Resolutions as a % of nonperforming UPB				102.3	%				105.3	%

Grand total resolutions	$	80,680	$	1,037		$	50,058	$	1,492

Grand total resolutions as a % of nonperforming UPB				101.3	%				103.0	%

Discussion of results:

•

NPL resolution totaled $80.7 million in UPB, realizing 101.3% of UPB resolved compared to $50.1 million in UPB and realization of 103.0% of UPB resolved for 2Q23

•

2Q24 NPL resolutions represented 18.7% of nonperforming loan UPB as of March 31, 2024

•

The UPB of loan resolutions in 2Q24 was in line with the recent five-quarter resolution average of $64.4 million in UPB, and the realization of 102.0% of UPB resolved

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		Second Quarter 2024 Results

Velocity’s executive management team will host a conference call and webcast on August 1st, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review 2Q24 financial results.

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 after the conference call is completed.

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 August 30, 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 #8011693. 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 20 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.

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		Second Quarter 2024 Results

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 Israel and (7) changes in federal government fiscal and monetary policies.

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		Second Quarter 2024 Results

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.

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		Second Quarter 2024 Results

Velocity Financial, Inc.

Consolidated Balance Sheet


	Quarter Ended
	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
(In thousands)	Unaudited			Unaudited			Audited			Unaudited			Unaudited
Assets
Cash and cash equivalents	$	47,366		$	34,829		$	40,566		$	29,393		$	33,987
Restricted cash		32,293			24,216			21,361			17,703			16,786
Loans held for sale, net		—			—			—			—			—
Loans held for sale, at fair value		—			—			17,590			19,536			—
Loans held for investment, at fair value		1,971,683			1,649,540			1,306,072			951,990			705,330
Loans held for investment		2,619,619			2,727,518			2,828,123			2,945,840			3,057,940

Total loans, net		4,591,302			4,377,058			4,151,785			3,917,366			3,763,270
Accrued interest receivables		31,124			29,374			27,028			24,756			22,602
Receivables due from servicers		82,359			87,523			85,077			70,139			63,896
Other receivables		6,566			2,113			8,763			236			1,306
Real estate owned, net		50,757			46,280			44,268			29,299			20,388
Property and equipment, net		1,912			2,013			2,785			2,861			3,023
Deferred tax asset		1,144			1,580			2,339			705			1,878
Mortgage Servicing Rights, at fair value		12,229			9,022			8,578			9,786			9,445
Derivative assets		—			1,967			—			1,261			—
Goodwill		6,775			6,775			6,775			6,775			6,775
Other assets		9,566			5,468			5,248			7,028			7,789

Total Assets	$	4,873,393		$	4,628,218		$	4,404,573		$	4,117,308		$	3,951,145

Liabilities and members’ equity
Accounts payable and accrued expenses	$	138,032		$	123,988		$	121,969		$	97,869		$	95,344
Secured financing, net		283,909			283,813			211,083			210,774			210,464
Securitized debt, net		2,228,941			2,329,906			2,418,811			2,504,334			2,622,547
Securitized debt, at fair value		1,509,952			1,073,843			877,417			669,139			381,799
Warehouse & repurchase facilities		237,437			360,216			334,755			215,176			235,749
Derivative liability		374			—			3,665			0			0

Total Liabilities		4,398,646			4,171,766			3,967,700			3,697,292			3,545,903
Stockholders’ Equity
Stockholders’ equity		471,323			452,941			433,444			416,398			401,707
Noncontrolling interest in subsidiary		3,424			3,511			3,429			3,618			3,535

Total equity		474,747			456,452			436,873			420,016			405,242

Total Liabilities and members’ equity	$	4,873,393		$	4,628,218		$	4,404,573		$	4,117,308		$	3,951,145

Book value per share	$	14.52		$	14.01		$	13.49		$	13.00		$	12.57
Shares outstanding		32,701	⁽¹⁾		32,574	⁽²⁾		32,395	⁽³⁾		32,314	⁽⁴⁾		32,239	⁽⁵⁾

⁽¹⁾	Based on 32,701,185 common shares outstanding as of June 30, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 397,450.

⁽²⁾	Based on 32,574,498 common shares outstanding as of March 31, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 411,296.

⁽³⁾	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.

⁽⁴⁾	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.

⁽⁵⁾	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.

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		Second Quarter 2024 Results

Velocity Financial, Inc.

Consolidated Statements of Income (Quarters)


	Quarter Ended
($ in thousands)	6/30/2024			3/31/2024			12/31/2023			9/30/2023			6/30/2023
	Unaudited			Unaudited			Unaudited			Unaudited			Unaudited
Revenues
Interest income	$	97,760		$	90,529		$	86,269		$	79,088		$	74,897
Interest expense - portfolio related		59,188			55,675			51,405			47,583			45,451

Net interest income - portfolio related		38,572			34,854			34,864			31,505			29,446
Interest expense - corporate debt		6,155			5,380			4,140			4,138			4,139

Net interest income		32,417			29,474			30,724			27,367			25,307
Provision for loan losses		218			1,002			827			154			298

Net interest income after provision for loan losses		32,199			28,472			29,897			27,213			25,009
Other operating income
Gain on disposition of loans		3,168			1,699			1,482			3,606			1,237
Unrealized gain (loss) on fair value loans		17,123			18,925			39,367			(1,284	)		2,413
Unrealized gain (loss) on fair value securitized debt		(4,643	)		(2,318	)		(24,085	)		9,692			5,560
Unrealized gain/(loss) on mortgage servicing rights		(373	)		444			(1,208	)		341			302
Origination income		5,072			4,986			3,981			3,323			2,735
Bank interest income		1,731			1,631			1,716			1,342			1,189
Other income (expense)		483			408			418			340			601

Total other operating income		22,561			25,775			21,670			17,360			14,037

Net revenue		54,760			54,247			51,567			44,573			39,047

Operating expenses
Compensation and employee benefits		16,562			15,357			15,143			12,523			10,670
Origination expenses		749			646			173			273			123
Securitizations expenses		6,232			2,874			2,709			4,930			2,699
Rent and occupancy		617			498			551			472			458
Loan servicing		5,160			4,824			4,636			4,901			4,267
Professional fees		1,718			2,115			1,733			854			1,056
Real estate owned, net		1,355			2,455			2,068			1,239			1,018
Other operating expenses		2,494			2,242			2,248			2,142			1,931

Total operating expenses		34,887			31,011			29,260			27,334			22,222

Income before income taxes		19,873			23,236			22,307			17,239			16,824
Income tax expense		5,162			5,903			5,141			5,070			4,602

Net income		14,711			17,333			17,166			12,169			12,222

Net income attributable to noncontrolling interest		(67	)		82			(189	)		83			39

Net income attributable to Velocity Financial, Inc.		14,778			17,251			17,355			12,086			12,183

Less undistributed earnings attributable to participating securities		182			217			225			183			185

Net earnings attributable to common shareholders	$	14,596		$	17,034		$	17,130		$	11,903		$	11,998

Basic earnings (loss) per share	$	0.45		$	0.52		$	0.53		$	0.37		$	0.37
Diluted earnings (loss) per common share	$	0.42		$	0.49		$	0.50		$	0.35		$	0.36
Basic weighted average common shares outstanding		32,585			32,541			32,326			32,275			32,122
Diluted weighted average common shares outstanding		35,600			35,439			34,991			34,731			34,140

13 | Page


		Second Quarter 2024 Results

Velocity Financial, Inc.

Net Interest Margin – Portfolio Related and Total Company

(Unaudited)

Quarters:


	Quarter Ended June 30, 2024							Quarter Ended June 30, 2023
*($ in thousands)*	Average Balance		Interest Income / Expense		Average Yield / Rate⁽¹⁾			Average Balance		Interest Income / Expense		Average Yield / Rate⁽¹⁾
Loan portfolio:
Loans held for sale	$	9,979						$	3,477
Loans held for investment		4,345,962							3,634,093

Total loans	$	4,355,942	$	97,760		8.98	%	$	3,637,570	$	74,897		8.24	%

Debt:
Warehouse and repurchase facilities	$	263,029		6,116		9.30	%	$	238,027		5,910		9.93	%
Securitizations		3,678,478		53,072		5.77	%		3,020,624		39,541		5.24	%

Total debt - portfolio related		3,941,506		59,188		6.01	%		3,258,651		45,451		5.58	%
Corporate debt		290,000		6,155		8.49	%		215,000		4,139		7.70	%

Total debt	$	4,231,506	$	65,343		6.18	%	$	3,473,651	$	49,590		5.71	%

Net interest spread - portfolio related⁽²⁾						2.97	%						2.66	%
Net interest margin - portfolio related						3.54	%						3.24	%
Net interest spread - total company⁽³⁾						2.80	%						2.53	%
Net interest margin - total company						2.98	%						2.78	%

⁽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.

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		Second Quarter 2024 Results

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

Quarters:


Core Net Income
	Quarter Ended
	6/30/2024		3/31/2024		12/31/2023			9/30/2023		6/30/2023
Net Income	$	14,778	$	17,251	$	17,355		$	12,086	$	12,183
Corporate debt refinancing costs		—		—		—			—		—
Tax liability reduction		—		—		(1,866	)		—		—
Equity award & ESPP costs		1,140		998		673			832		745

Core Net Income	$	15,918	$	18,249	$	16,161		$	12,918	$	12,928

Diluted weighted average common shares outstanding		35,600		35,439		34,991			34,731		34,140
Core diluted earnings per share	$	0.45	$	0.51	$	0.46		$	0.37	$	0.38

15 | Page

Document and Entity Information	Aug. 01, 2024
Cover [Abstract]
Amendment Flag	false
Entity Central Index Key	0001692376
Document Type	8-K
Document Period End Date	Aug. 01, 2024
Entity Registrant Name	Velocity Financial, Inc.
Entity Incorporation State Country Code	DE
Entity File Number	001-39183
Entity Tax Identification Number	46-0659719
Entity Address, Address Line One	2945 Townsgate Road
Entity Address, Address Line Two	Suite 110
Entity Address, City or Town	Westlake Village
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	91361
City Area Code	(818)
Local Phone Number	532-3700
Written Communications	false
Soliciting Material	false
Pre Commencement Tender Offer	false
Pre Commencement Issuer Tender Offer	false
Security 12b Title	Common stock, par value $0.01 per share
Trading Symbol	VEL
Security Exchange Name	NYSE
Entity Emerging Growth Company	false