VEL Velocity Financial Inc

 

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): November 02, 2023

 

 

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.)
30699 Russell Ranch Road, Suite 295
Westlake Village, California				91362
(Address of Principal Executive Offices)				(Zip Code)

 

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

 

(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:

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 7.01 Regulation FD Disclosure.

We posted to our Investor Relations website, www.velfinance.com, management's third quarter 2023 earnings presentation. A copy of the presentation is furnished as Exhibit 99 and is incorporated herein by reference.

 

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The information provided in this Form 8-K, including Exhibit 99, is intended to be furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act, 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 or the Securities Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits.

Exhibit Number		Description
99		Management Presentation dated November 2, 2023
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

SIGNATURES

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

			Velocity Financial, Inc.
Date:	November 3, 2023	By:	/s/ Roland T. Kelly
			Chief Legal Officer and General Counsel

 

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3Q23 Results Presentation November 2, 2023 Exhibit 99

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Forward-looking statements Some of the statements contained in this presentation may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, positioning, 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," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," or "potential" or the negative of these words and phrases. You can also identify forward-looking statements by discussions of strategy, plans, or intentions. The forward-looking statements contained in this presentation 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 COVID-19 variants and subvariants and their direct and indirect impacts (2) general economic conditions and real estate market conditions, such as a possible 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 contemplated securitizations and (6) changes in federal government fiscal and monetary policies and (7) the continued conflict in Ukraine. For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled ''Risk Factors" previously disclosed 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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3Q23 Highlights Production& Loan Portfolio Earnings Financing & Capital Net income of $12.1 million, up 21.1% from $10.0 million for 3Q22. Diluted EPS of $0.35, up $0.06 from $0.29 per share for 3Q22 Core net income(1) of $12.9 million, up 29.4% from $10.0 million for 3Q22. Core diluted EPS(1) of $0.37, up $0.08 from $0.29 per share for 3Q22 NIM of 3.34% up 10bps from 2Q23, driven by higher coupons on new production Initiated hedging strategies for new production to offset recent Treasury yield moves Loan production of $290.6 million in UPB, a 12.3% increase from 2Q23 and a decrease of 36.5% from 3Q22 October loan production of $130.8 million with an 11.2% WAC(2), our strongest monthly volume level in 12 months Total loan portfolio of $3.9 billion in UPB, an increase of 12.9% from September 30, 2022 NPLs were 10.1% of HFI loans, essentially flat Q/Q and up from 7.4% for 3Q22. Realized 1.8% gains on NPL UPB resolved Completed two securitizations - VCC 2023-3 totaling $234.7 million and the VCC 2023-RTL1 totaling $81.6 million of securities issued VCC 2023-RTL1 was Velocity's first securitization of its short-term loan product Collapsed the 2016-1 Trust, retiring older, higher cost debt Liquidity(3) of $60.3 million Total available warehouse line capacity was $594.8 million (1) “Core net income” is a non-GAAP measure which excludes non-recurring and/or unusual activities from GAAP net income. (2) Weighted Average Coupon (3) Liquidity includes unrestricted cash and cash equivalents of $29.4 million and available liquidity in unfinanced loans of $30.9 million.

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Core Income and Book Value Per Share Core Income(1) Book Value Per Share(2) Core net income totaled $12.9 million in 3Q23, an increase of 29.4% from 3Q22 Core adjustment includes equity incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP) Book value per share as of September 30, 2023, was $13.00(4), compared to $12.57(3) as of June 30, 2023 Equity award & ESPP costs $832 (1) “Core net income” is a non-GAAP measure which excludes non-recurring and/or unusual activities from GAAP net income. (2) Book value per share is the ratio of total equity divided by total shares outstanding. Total equity includes non-controlling interest of $3.62 million as of September 30, 2023, and $3.54 million as of June 30, 2023. (3) 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. (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. GAAP Net Income $12,086 (3) (4) Core Net Income $12,918 $(0.02)

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Platform Value Embedded Gain in Securitized Portfolio(1) Fully Diluted Value of Equity(2) $873,325 - $898,325 $100,000 - $125,000 Economic Value of Equity (Non-GAAP) Economic Value of Equity $25.15 - $25.87 EVPS(3) $9.86 $12.41 (1) Embedded gain in securitized portfolio assumes a 10% discount rate of projected securitization earnings and is net of $53,799,411 of deferred loan origination costs and securitization deal costs (2) Fully Diluted Value of Equity assumes 9/30/2023 GAAP Book Value of Stockholders' Equity of $420.0MM + $10.9MM from pro forma exercise of all warrants. (3) Economic Value of Equity per Share ("EVPS") calculated using 34,730,198 weighted average shares outstanding assuming dilution impact based on Velocity's average stock price for Q3 2023. The graph reflects our estimate of economic value of equity by adding the net present value of expected future gains embedded in the amortized cost portfolio and the value of our unique origination platform Fair Value Election to Capture Embedded Economic Value of Equity Over Time Prior to October 1, 2023, we elected to carry our retained interests in securitizations at amortized cost Prior M&A precedents for business purpose lenders demonstrate significant platform/franchise values that investors are ascribing to businesses like Velocity Financial These transactions have demonstrated platform values of ~10%+ of annual originations run rate $2.88 - $3.60

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Loan Production 3Q23 volumes reflect continued tightening from regulated lenders Loan production in 3Q23 totaled $290.6 million in UPB, a 12.3% increase from $258.6 million in UPB for 2Q23 and a 36.5% decrease from $457.3 million in UPB for 3Q22 The WAC on 3Q23 HFI loan production was 11.0%, essentially flat compared to 2Q23 and an increase of 211 bps from 3Q22 Loan Production Volume ($ of UPB in millions) Production Volumes Grow Q/Q Driven by Strong Investor Demand Units Average loan balance (1) Loan To Value WAC LTV(1)

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Loan Portfolio by Property Type The total loan portfolio was $3.9 billion in UPB as of September 30, 2023, a 4.2% increase from $3.7 billion in UPB as of June 30, 2023, and 12.9% from $3.4 billion as of September 30, 2022 Driven by growth in loans collateralized by Investor 1-4 Rental, Multifamily and Mixed-Use properties Loan prepayments totaled $104.5 million, a decrease of 1.0% Q/Q and 6.0% Y/Y The WAC(1) of the portfolio was 8.63% as of September 30, 2023, an increase from 8.40% as of June 30, 2023, and 7.71% as of September 30, 2022 The UPB of Fair Value (FVO) loans was $936.6 million, or 24.3% of total HFI loans, as of September 30, 2023, an increase from $0.9 million in UPB, or 0.03% as of September 30, 2022 Loan Portfolio (UPB in millions) (1) Weighted Average Coupon (2) $ in thousands. Portfolio Growth Continues Driven by Strong Production Volumes and Slower Prepayments

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Portfolio Net Interest Income & NIM(1) Portfolio Yield and Cost of Funds Portfolio Related Portfolio NIM(1) in 3Q23 was 3.34%, an increase of 10 bps from 3.24% in 2Q23, and a decrease of 25 bps from 3.59% in 3Q22 Portfolio Yield: Increased 14 bps from 2Q23 driven primarily by: Weighted average coupon of 11% on YTD 2023 production, compared to 7.7% for the same period in 2022 Growth in NPL UPB resolved and continued realization of gains from the collection of default interest and prepayment fees Cost of Funds: Increased 5 bps from 2Q23, primarily driven by higher interest rates Net Interest Margin (1) Net Interest Income and Net Interest Margin related to the loan portfolio only; excludes corporate debt. Portfolio Related ($ in millions) Continued Portfolio NIM Growth; Loan Yield Growth Outpaces Change in Cost of Funds

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Nonperforming Loans(1) Nonperforming loans (NPL) as a percentage of total HFI loans was 10.1% as of September 30, 2023, relatively flat to the 10.0% as of June 30, 2023, and an increase from 7.4% as of September 30, 2022 Continued gains on 3Q23 NPL resolutions of 1.8% $ UPB in millions Loan Investment Portfolio Performance (1) For additional detail, please see page 17 in the Appendix of this presentation. Continued Favorable NPL Resolution Activity

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2Q23 Asset Resolution Activity Resolution Activity NPL resolution totaled 65.7 million in UPB, realizing 101.8% of UPB resolved compared to $50.1 million in UPB, and realization of 103.0% of UPB resolved for 2Q23 and $45.2 million in UPB and realization of 105.9% of UPB resolved for 3Q22 3Q23 NPL resolutions represented 17.7% of nonperforming loan UPB as of June 30, 2023 The UPB of loan resolutions in 3Q23 exceeded the recent five-quarter resolution average of $45.0 million in UPB Continued NPL Loan Resolutions UPB and Gains

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The reserve balance was $4.7 million as of September 30, 2023, relatively flat to the $4.6 million as of June 30, 2023, and a 12.1% decrease from $5.3 million as of September 30, 2022 Velocity’s 0.16% CECL reserve rate on eligible (non-”FVO”) HFI portfolio remained consistent with the previous 4 quarters. Charge-offs in 3Q23 totaled $95.2 thousand, compared to $717.0 thousand in 2Q23, and $155.2 thousand in 3Q22 CECL Reserve and Charge-Offs Loan Loss Reserve Reserve Decreases From Prior Year As Amortized Cost HFI Loan Portfolio Pays Down Charge-offs (1) Amortized cost (2) Reflects the annualized quarterly charge-offs to average nonperforming loans for the period. $ in thousands (2) Quarterly Periods At Period End (1)

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Durable Funding and Liquidity Strategy Two Deals Issued in 3Q23(1); 2023-RTL1 Provides Permanent Financing for S-T Loans Outstanding Debt Balances(2) ($ in Millions) (1) Through September 30, 2023. (2) Debt balances are net of issuance costs and discounts as reported in the consolidated balance sheet. (3) Represents the remaining balance of securitization outstanding net of issuance costs, discounts and fair value marks as of period end. (4) As of September 30, 2023, five of six warehouse lines have non-mark-to-market features and staggered maturities. Non-Recourse Debt Recourse Debt (3) Cash reserves and unfinanced collateral of $60.3 million as of September 30, 2023 The 2023-RTL1 securitization is Velocity’s first securitization collateralized by short-term loans Reinvestment feature to replace loans that payoff with new loans up to the original issued balance for 18 months from issuance Available warehouse line capacity of $594.8 million as of September 30, 2023 Recourse debt to equity was 1.1X as of September 30, 2023, down from 1.5XSeptember 30, 2022 Outstanding debt was $3.6 billion as of September 30, 2023, a net increase of $193.3 million driven by growth in non-recourse securitization debt (4) (5)

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U.S. economic outlook still uncertain with reduced inflation expectations, but Geopolitical risks have increased Credit availability likely to tighten further Loan prepayment speeds are expected to slow Underlying property value of small commercial and residential properties remain well-supported by strong demand Gains on resolution activities to continue Outlook for Velocity’s Key Business Drivers MARKET CREDIT CAPITAL Next long-term loan securitization on target for November 2023 Continuing to pursue opportunities to expand and further diversity of our capital structure Improving Outlook for Markets and Growth Well Positioned to grow originations and capitalize on reduced bank lending Continuing to assess strategic opportunities to expand market share and product menu EARNINGS

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Appendix

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Velocity Financial, Inc. Balance Sheet

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Velocity Financial, Inc. Income Statement (Quarters)

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HFI Portfolio Delinquency Trends

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Loan Portfolio Rollforward Total Loan Portfolio UPB Rollforward (UPB in millions) $(120.0) $(15.9) $292.8 (1) (1) Includes $8.1 million in UPB of repurchased loans.

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HFI Loan Portfolio Portfolio by Property Type (100% = $3.86 billion UPB)(1) (1) As of September 30, 2023 Portfolio by State

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Adjusted Financial Metric Reconciliation: Adjusted Financial Metric Reconciliation to GAAP Net Income Quarter:

v3.23.3

Document And Entity Information	Nov. 02, 2023
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Nov. 02, 2023
Entity Registrant Name	Velocity Financial, Inc.
Entity Central Index Key	0001692376
Entity Emerging Growth Company	false
Securities Act File Number	001-39183
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-0659719
Entity Address, Address Line One	30699 Russell Ranch Road, Suite 295
Entity Address, City or Town	Westlake Village
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	91362
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
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	VEL
Security Exchange Name	NYSE

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