Velocity Financial, Inc. Reports Second Quarter 2025 Results

Second Quarter Highlights

Financial Results

• Net income of $26.0 million, an increase of 75.9% from $14.8 million for 2Q24. Diluted EPS of $0.69, an increase of $0.27 from $0.42 per share for 2Q24
  • Driven by record production volume and strong portfolio earnings
• Core net income of $27.5 million, an increase of 72.6% from $15.9 million for 2Q24. Core diluted EPS of $0.73, an increase from $0.45 per share for 2Q24
  • Core net income and Core diluted EPS are non-GAAP financial measures. Non-GAAP core adjustments included stock-based compensation expenses and costs related to the Company's employee stock purchase plan

• Diluted book value per common share of $15.62, an increase of 17.5% from $13.29 as of June 30, 2024
• Portfolio net interest margin (NIM) of 3.82%, an increase of 47 bps from 3.35% for 1Q25 and 28 bps from 3.54% for 2Q24
  • NIM increase driven by higher cash interest received from resolved nonperforming loans
  • Consistently strong NIM levels have resulted from rate discipline on record new loan production, with average loan coupons of 10.61% on loans produced over the last five quarters

Portfolio

• Record loan production of $725.4 million in UPB, an increase of 13.3% and 71.8% from 1Q25 and 2Q24, respectively

• Nonperforming loans (NPL) as a percentage of Held for Investment (HFI) loans was 10.3%, a decrease from 10.8% and 10.5% as of March 31, 2025 and June 30, 2024, respectively
• Nonperforming assets (NPL and real estate owned) resolution totaled $104.0 million in UPB
  • Realizing 103.5% of UPB resolved with realized gains of $3.6 million

Liquidity and Capitalization

• Completed four securitizations totaling $985.5 million of securities issued
• Collapsed and refinanced two securitizations totaling $68.0 million in debt outstanding, which released $53.5 million of cash to fund future growth

• Liquidity of $139.3 million, consisting of $79.6 million in unrestricted cash and $59.7 million in available borrowings from unpledged loans

• Total available warehouse line capacity of $476.9 million

Velocity Financial, Inc. (NYSE:VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $26.0 million and core net income of $27.5 million for 2Q25, compared to $14.8 million and $15.9 million, respectively, for 2Q24. Earnings and core earnings per diluted share were $0.69 and $0.73 for 2Q25, compared to $0.42 and $0.45, respectively, for 2Q24.

"We continue to build on our strong momentum in 2025, delivering two record highs for quarterly loan production and earnings," said Chris Farrar, President and CEO. "Velocity's second quarter 2025 results were driven by higher portfolio net interest income and noninterest income from our growing production volume. Financing demand remained strong during the quarter, in both the traditional commercial and 1-4 family residential rental property markets, as investors continued to see considerable value in smaller commercial properties. We remain confident in Velocity's long-term growth prospects and our ability to sustain profitable market share growth."

• Net interest income after provision for credit losses was $46.0 million, an increase of 42.8% from $32.2 million for 2Q24
  • Driven by strong recoveries of interest income from NPLs by our asset management team and the growth in our total portfolio
• Other operating income was $39.8 million, an increase from $22.6 million for 2Q24
  • Driven primarily by fair value gains from record loan production during the quarter
  • Origination fee income totaled $8.9 million, an increase of 76.2% from $5.1 million for 2Q24
• Net revenue was $85.8 million, an increase of 56.7% from $54.8 million for 2Q24
  • Resulting from continued strong production-driven portfolio net interest income growth, net unrealized FV gains and origination fee income
• Operating expenses totaled $51.9 million, an increase of 48.8% from 2Q24, primarily resulting from higher production-driven compensation expenses
  • Compensation expense totaled $22.6 million, compared to $16.6 million for 2Q24
    • Driven by commission compensation on higher production volume
  • Securitization expense totaled $11.5 million from the issuance of four securitizations during the quarter, compared to costs of $6.2 million for two securitizations during 2Q24
  • Loan servicing expense totaled $8.2 million, from $5.2 million for 2Q24, driven by portfolio growth

• Total loan portfolio was $5.9 billion in UPB as of June 30, 2025, an increase of 30.8% from $4.5 billion as of June 30, 2024
  • Driven by healthy growth across all types of collateral securing our loans
  • Loan prepayments totaled $223.4 million in UPB, an increase of 14.0% from $196.0 million for 1Q25, and 34.8% from $165.8 million for 2Q24
• UPB of HFI FVO loans was $3.6 billion, or 62.3% of total HFI loans, as of June 30, 2025, an increase from $1.9 billion, or 42.0% as of June 30, 2024
• Weighted average portfolio loan-to-value ratio was 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%
• 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
• Portfolio-related debt cost was 6.24%, an increase of 23 bps from 2Q24, driven by higher warehouse financing utilization and securitized debt costs

• 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
  • 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
  • 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
• Government insured multifamily loans are originated by our capital light subsidiary Century Health & Housing Capital and sold to investors for cash gains shortly after closing

• 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

• Charge-offs for 2Q25 totaled $1.7 million, compared to $0.2 million for 2Q24
  • The trailing five-quarter charge-offs average was $0.8 million
• 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 our decreasing loan portfolio subject to credit loss reserve
  • 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%

• Total gain on REO was $3.8 million, compared to $2.3 million for 2Q24, driven by gain on foreclosed loans transferred to REO

• 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

• 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

Velocity's executive management team will host a conference call and webcast on August 7, 2025, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review its 2Q25 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, 2025, 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 6718651. 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 21 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, costs incurred from activities that are not normal recurring operating expenses, 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) changes in federal government fiscal and monetary policies, (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) geopolitical conflicts.

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 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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Investors and Media:

Chris Oltmann

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