Velocity Financial, Inc. Reports Fourth Quarter and Full Year 2024 Results

 Fourth Quarter Highlights:

• Net income of $20.6 million, up 18.6% from $17.4 million for 4Q23. Diluted EPS of $0.57, up $0.07 from $0.50 per share for 4Q23
• Core net income⁽¹⁾ of $21.8 million, an increase of 34.6% from $16.2 million for 4Q23. Core diluted EPS⁽¹⁾ of $0.60, up from $0.46 per share for 4Q23
• Loan production of $563.5 million in UPB, an 18.2% and 60.0% increase from 3Q24 and 4Q23, respectively
  • Year-to-date 2025 loan production through February of $429.4 million
• Nonperforming loans (NPL) as a percentage of Held for Investment (HFI)⁽²⁾ loans was 10.7%, up slightly from 10.6% as of September 30, 2024, and 9.7% as of December 31, 2023, respectively
• Resolutions of NPL and real estate owned (REO) totaled $79.4 million in UPB
  • Realized gains of $5.6 million or 107.0% of UPB resolved
• Portfolio net interest margin (NIM) of 3.70%, an increase of 10 bps from 3.60% for 3Q24 and 18 bps from 3.52% for 4Q23
• Completed the VCC 2024-5 and VCC 2024-6 securitizations totaling $292.9 million and 293.9 million, respectively, of securities issued
• Liquidity⁽³⁾ of $95.9 million and total available warehouse line capacity of $435.0 million as of December 31, 2024
• Recourse debt to equity ratio of 1.2x
• GAAP Book value per common share of $15.70 as of December 31, 2024, a 16.4% increase from $13.49 as of December 31, 2023
• Issued $7.3 million in new common equity through Velocity At The Market (ATM) program

Velocity Financial, Inc. (NYSE:VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $68.4 million and core net income of $72.9 million for the full year 2024, compared to net income of $52.3 million and core net income of $53.4 million for the full year 2023. Earnings and core earnings per diluted share were $1.91 and $2.03, respectively, for the full year 2024, compared to $1.52 and $1.54 for the full year 2023.

"Velocity delivered impressive earnings in the fourth quarter and full year 2024," said Chris Farrar, President and CEO. "The Company's record full-year 2024 earnings were driven by continued strong production, which also reached record levels in 2024, on both a UPB and loans produced basis and by maintaining high underwriting standards. Our success resulted from ongoing initiatives to grow and streamline our loan production platform to capture a greater share of the large but fragmented business purpose loan market. I'm especially proud of our team's ability to achieve outstanding production volume growth while remaining focused on maintaining strong returns with average loan coupons of 11 percent. This discipline is a key driver of our strong earnings and the reason we exceeded our 5x25 goal of $5 billion in UPB loan portfolio by 2025. Velocity is poised to build on our momentum to drive sustained earnings growth and enhanced long-term shareholder value."

Fourth Quarter Operating Results

Discussion of results:

• Net income for 4Q24 was $20.6 million, compared to $17.4 million for 4Q23
  • Driven by record production volumes and consistently strong loan resolution gains
• Core net income was $21.8 million, compared to $16.2 million for 4Q23
  • 4Q24 core adjustments included incentive compensation expenses and costs related to the Company's employee stock purchase plan (ESPP)
• Portfolio NIM for 4Q24 was 3.70%, compared to 3.52% for 4Q23, driven by consistent production-driven HFI portfolio growth and average loan coupons of 10.9% on 2024 loan production

Discussion of results:

• Velocity's total loan portfolio was $5.1 billion in UPB as of December 31, 2024, an increase of 24.1% from $4.1 billion in UPB as of December 31, 2023
  • Primarily driven by 19.3% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and 61.1% Y/Y growth in loans collateralized by "Other" commercial properties
  • Loan prepayments totaled $203.2 million in UPB, an increase from $173.9 million for 3Q24, and $118.1 million for 4Q23
• The UPB of fair value option (FVO) HFI loans was $2.7 billion, or 52.5% of total loans, as of December 31, 2024, an increase from $1.3 billion in UPB, or 30.7% as of December 31, 2023
• The weighted average portfolio loan-to-value ratio was 66.6% as of December 31, 2024, down from 67.8% as of December 31, 2023, and below the five-quarter trailing average of 67.3%
• The weighted average total portfolio yield was 9.34%, an increase of 64 bps from 4Q23, primarily driven by a corresponding increase in the weighted average loan coupons over the same period
• Portfolio-related debt cost was 6.14%, an increase of 39 bps from 4Q23, driven by an increase in the weighted average securitized debt cost

Discussion of results:

• Loan production totaled $563.5 million in UPB, a 60.0% increase from $352.1 million for 4Q23 and the second-highest quarterly volume in the Company's history
• Traditional Commercial financing demand led Y/Y growth, increasing 145.9% from 4Q23, driven by a strategic focus on increasing investment in this fragmented and underserved market
• The weighted average coupon (WAC) on 4Q24 HFI loan production was 10.8%, a modest decrease from 11.2% for 4Q23
• Government Insured Multifamily loans are originated by our subsidiary CHHC and sold to investors for cash gains shortly after closing

Discussion of results:

• Nonperforming loans (NPL) totaled $539.4 million in UPB as of December 31, 2024, or 10.7% of loans HFI, compared to $394.6 million and 9.7% as of December 31, 2023
• Charge-offs for 4Q24 totaled $698.8 thousand, compared to $743.5 thousand for 4Q23
  • The trailing five-quarter charge-off average was $502.5 thousand
• For 4Q24, total gain on REO was $3.6 million, up from a gain of $0.4 million for 4Q23, driven by gains on sale of REO and loans transferred to REO
• The loan loss reserve totaled $4.2 million as of December 31, 2024, a 12.5% decrease from $4.8 million as of December 31, 2023
  • Mainly driven by the increase in the valuation of the real estate underlying the individually assessed NPL portfolio
  • The CECL reserve rate was 0.17% (CECL Reserve as % of Amortized Cost HFI loans), which was consistent with the recent five-quarter average rate of 0.19% and within management's expected range of 0.15% to 0.20%

Discussion of results:

• Net Revenue for 4Q24 was $71.2 million, an increase of 38.0% from $51.6 million for 4Q23
  • Driven by continued strong production volumes, unrealized FV gains and NPL resolutions
• Total net interest income for 4Q24 was $38.8 million, a 29.9% increase from $29.9 million for 4Q23
  • Portfolio net Interest income was $45.0 million for 4Q24, an increase of 29.1% from 4Q23 resulting from portfolio growth and a 19 bps increase in NIM
• Total other operating income was $32.3 million for 4Q24, an increase from $21.7 million for 4Q23
  • Origination fee income totaled $7.2 million, resulting from 4Q24 new loan production
  • Net unrealized FVO gains on loans and securitized debt were $18.8 million, compared to a net gain of $15.3 million for 4Q23
  • Gain on disposition of loans totaled $2.8 million for 4Q24, driven mainly by loans transferred to REO

Discussion of results:

• Operating expenses totaled $39.1 million for 4Q24, an increase of 33.7% from 4Q23, primarily driven by securitization expenses for two securitization issuances during the quarter and production-driven compensation expenses
  • Compensation expense totaled $20.1 million, compared to $15.1 million for 4Q23
    • Primarily driven by higher commissions on increased production volume
  • Securitization expenses totaled $7.1 million from the issuance of two securitizations during the quarter, compared to costs of $2.7 million for one securitization during 4Q23
  • Loan servicing expense totaled $6.7 million, a 45.6% increase from $4.6 million for 4Q23, driven by portfolio growth and an increase in the percentage of securitized loans in the portfolio
  • Professional fees totaled $1.5 million, a 14.8% decrease from $1.7 million for 4Q23, driven by decreased legal expenses
  • REO expenses totaled $0.3 million, an 87.0% decrease from $2.1 million for 4Q23, driven by $3.4 million of realized gains on REO sales in 4Q24

Discussion of results

• The weighted average rate on Velocity's outstanding securitizations was 5.75% as of December 31, 2024, an increase of 53 bps from December 31, 2023
• The Company completed two securitizations during 4Q24, totaling $586.8 million of securities issued with a weighted average rate of 6.0%
  • Down from a weighted average rate of 8.3% for securitizations issued during 4Q23
• In 1Q25, the Company completed the VCC 2025-1 securitization totaling $351.6 million of securities issued with a weighted average rate of 6.6%

Discussion of results:

• NPL resolution totaled $79.4 million in UPB, realizing 107.0% of UPB resolved compared to $70.1 million in UPB and realization of 102.2% of UPB resolved for 4Q23
• The UPB of loan resolutions in 4Q24 was in line with the recent five-quarter resolution average of $70.8 million in UPB, and the gain was significantly above the 103.3% average of UPB resolved

Full Year 2024 Operating Results

Discussion of full-year 2024 results:

• Loan production for the full year 2024 totaled $1.8 billion in UPB, a 64.6% increase from $1.1 billion in UPB for 2023
  • 2024 loan production volume reached the highest annual volume in Velocity's history
  • Driven by strategic growth of our origination platform and focus on providing financing solutions to underserved market segments
• Portfolio net interest margin (NIM) was 3.56% for FY 2024, a 22 bps increase from 3.34% for FY 2023
  • Strong portfolio growth and disciplined focus on maintaining a weighted average coupon on FY 2024 loan production of 10.9%
  • Realized gains on the NPL loan resolutions of $10.2 million, or 103.6% of UPB resolved, compared to $5.5 million, or 102.5% for FY 2023
• NPLs as a percentage of average loans HFI was 10.7% as of December 31, 2024, compared to 9.7% as of December 31, 2023
• Charge-offs for FY 2024 totaled $1.8 million, compared to $2.0 million for FY 2023
• Net REO gains were $6.9 million, up from a net gain of $4.1 million for FY 2023, driven by gains from loans transferred to REO and positive REO sale resolutions from our special servicing efforts.
• Net income totaled $68.4 million for FY 2024, a 30.9% increase from $52.3 million for FY 2023
  • Net interest income totaled $134.6 million, a 27.2% increase from $105.8 million in FY 2023
  • Other income totaled $101.4 million, a 53.8% increase from $65.9 million for FY 2023
    • Net unrealized FVO gains on loans and securitized debt were $58.4 million, compared to a net gain of $38.8 million for FY 2023
  • For FY 2024, total expenses were $167.6 million, a 40.3% increase from $119.5 million in FY 2023, driven by higher commissions and increased operating expenses to support our growth.
• Core net income⁽¹⁾ totaled $72.9 million, a 36.5% increase from $53.4 million for FY 2023
  • Core income adjustments totaled $4.5 million, compared to $1.1 million for FY 2023
  • Core diluted EPS⁽¹⁾ was $2.03 per share, a 31.8% increase from $1.54 per share for FY 2023
• Pretax return on equity was 20.3% compared to 17.5% for FY 2023

Velocity's executive management team will host a conference call and webcast on March 6th, 2025, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review 4Q24 and the full-year 2024 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 March 28, 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 2785466. 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.

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.

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.