Form 8-K - Current report

Velocity Financial, Inc.

Date: November 8, 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): November 7, 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 November 7, 2024, we issued a press release announcing financial results for the quarter ended September 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 November 7, 2024

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

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

Third Quarter 2024 Results

Third Quarter Highlights:

•

Net income of $15.8 million, up 30.8% from $12.1 million for 3Q23. Diluted EPS of $0.44, up $0.09 from $0.35 per share for 3Q23

•

Core net income⁽¹⁾ of $16.9 million, an increase of 31.2% from $12.9 million for 3Q23. Core diluted EPS⁽¹⁾ of $0.47, up from $0.37 per share for 3Q23

•

Loan production of $476.8 million in UPB, a 12.9% and 64.1% increase from 2Q24 and 3Q23, respectively

•

Nonperforming loans as a percentage of Held for Investment (HFI)⁽²⁾ loans was 10.6%, up slightly from 10.5% as of June 30, 2024, and 10.1% as of September 30, 2023, respectively

•

Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $68.6 million in UPB

•

Realized gains of $2.3 million or 103.4% of UPB resolved

•

Portfolio net interest margin (NIM) of 3.60%, an increase of 6 bps Q/Q and 26 bps from 3.34% for 3Q23

•

Completed the VCC 2024-4 securitization totaling $253.6 million of securities issued

•

Collapsed the 2020-2 securitization allowing us to redeploy $25.1 million in retained equity more efficiently

•

Liquidity⁽³⁾ of $92.8 million and total available warehouse line capacity of $349.3 million as of September 30, 2024

•

Recourse debt to equity ratio of 1.5x due to aggregation of new loans which were securitized after quarter end

•

GAAP Book value per common share of $14.91 as of September 30, 2024, a 14.7% increase from $13.00 as of September 30, 2023

Westlake Village, CA – November 7, 2024 – Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $15.8 million and core net income of $16.9 million for 3Q24, compared to net income of $12.1 million and core net income of $12.9 million for 3Q23. Earnings and core earnings per diluted share were $0.44 and $0.47, respectively, for 3Q24, compared to $0.35 and $0.37 for 3Q23.

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

⁽²⁾	Held for Investment (HFI) includes the unpaid principal balance of loans carried on an amortized cost basis and loans carried at fair value (FVO).

⁽³⁾	Liquidity includes unrestricted cash reserves of $44.1 million and available liquidity in unfinanced loans of $48.7 million.

Third Quarter 2024 Results

“Velocity continued to expand on this year’s considerable achievements by delivering another quarter of solid production volume and portfolio growth,” said Chris Farrar, President and CEO. “The third quarter of 2024 marked the sixth consecutive quarter of profitable production volume growth in an environment where other lenders have struggled. We have successfully leveraged investments in our production platform and sales force to expand our reach into the broker community and generate greater awareness among real estate investors regarding Velocity’s financing solutions. These successes have been supported by disciplined capital and asset management. Resolution gains on nonperforming loans reached $2.3 million, or 3.4% of total unpaid principal resolved. During the quarter, we successfully issued our fourth securitization of 2024, which met with strong investor demand and improved pricing. We also collapsed capital-inefficient securitized debt that was successfully refinanced, unlocking capital to support future growth. These strong results have us on track to achieve an all-time full-year funding record for the Company in 2024 while also realizing our goal of a $5 billion loan portfolio by 2025.”

Third Quarter Operating Results


KEY PERFORMANCE INDICATORS
($ in thousands)	3Q 2024			3Q 2023			$ Variance		% Variance
Pretax income	$	21,244.2		$	17,238.5		$	4,005.7		23.2	%
Net income	$	15,803.2		$	12,085.9		$	3,717.2		30.8	%
Diluted earnings per share	$	0.44		$	0.35		$	0.09		26.5	%
Core pretax income	$	23,003.6		$	18,334.9		$	4,668.7		25.5	%
Core net income^(a)	$	16,948.7		$	12,918.1		$	4,030.6		31.2	%
Core diluted earnings per share^(a)	$	0.47		$	0.37		$	0.10		26.9	%
Pretax return on equity		17.55	%		16.82	%		n.a.		4.3	%
Core pretax return on equity^(a)		19.00	%		17.89	%		n.a.		6.2	%
Net interest margin—portfolio		3.60	%		3.34	%		n.a.		7.8	%
Net interest margin—total company		3.06	%		2.90	%		n.a.		5.6	%
Average common equity	$	484,197.4		$	409,954.3		$	74,243.1		18.1	%

^(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 3Q24 was $15.8 million, compared to $12.1 million for 3Q23

•

Strong portfolio earnings driven by production volume growth and continued focus on optimizing loan resolution gains

•

Core net income⁽¹⁾ was $16.9 million, compared to $12.9 million for 3Q23

•

3Q24 core adjustments included incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)

•

Portfolio NIM for 3Q24 was 3.60%, compared to 3.34% for 3Q23, a 7.8% Y/Y increase driven by consistent HFI portfolio growth and average loan coupons of approximately 11.0% on recent loan production

2 | Page

Third Quarter 2024 Results


TOTAL LOAN PORTFOLIO

($ of UPB in millions)	3Q 2024			3Q 2023			$ Variance			% Variance
*Held for Investment*
Investor 1-4 Rental	$	2,565.8		$	2,120.2		$	445.6			21.0	%
Mixed Use		535.8			457.1			78.7			17.2	%
Multi-Family		344.3			305.0			39.3			12.9	%
Retail		405.9			327.8			78.1			23.8	%
Warehouse		300.4			246.6			53.8			21.8	%
All Other		582.1			401.1			181.0			45.1	%

Total	$	4,734.3		$	3,857.8		$	876.5			22.7	%

*Held for Sale*
Investor 1-4 Rental	$	—		$	—		$	—			0.0	%
Government Insured Multifamily (CHHC)		18.9			—			—			n.m.
Multi-Family		—			6.6			(6.6	)		n.m.
Warehouse		—			11.2			(11.2	)		n.m.
All Other		—			1.2			(1.2	)		n.m.

Total Managed Loan Portfolio UPB	$	4,753.3		$	3,876.7		$	876.5			22.6	%

*Key loan portfolio metrics:*
Total loan count		12,235			9,953
Weighted average loan to value		67.0	%		68.0	%
Weighted average coupon		9.37	%		8.63	%
Weighted average total portfolio yield		9.18	%		8.38	%
Weighted average portfolio debt cost		6.15	%		5.63	%

n.m.—non meaningful

Discussion of results:

•

Velocity’s total loan portfolio was $4.8 billion in UPB as of September 30, 2024, an increase of 22.6% from $3.9 billion in UPB as of September 30, 2023

•

Primarily driven by 21.0% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and 45.1% Y/Y growth in loans collateralized by “Other” commercial properties

•

Government Insured Multifamily loans are originated by our subsidiary CHHC and sold to investors for cash gains shortly after closing

•

Loan prepayments totaled $173.9 million in UPB, an increase from $165.8 million for 2Q24, and $104.6 million for 3Q23

•

The UPB of fair value option (FVO) loans was $2.2 billion, or 47.3% of total loans, as of September 30, 2024, an increase from $955.6 million in UPB, or 24.7% as of September 30, 2023

•

The weighted average portfolio loan-to-value ratio was 67.0% as of September 30, 2024, down from 68.0% as of September 30, 2023, and consistent with the five-quarter trailing average of 67.5%

3 | Page

Third Quarter 2024 Results

•

The weighted average total portfolio yield was 9.18% as of September 30, 2024, an increase of 80 bps from September 30, 2023, driven by a 74 bps increase in the weighted average loan coupons over the same period

•

Portfolio-related debt cost as of September 30, 2024, was 6.15%, an increase of 52 bps from September 30, 2023, driven by the higher warehouse utilization and rates on recent securitizations


LOAN PRODUCTION VOLUMES
($ in millions)	3Q 2024		3Q 2023		$ Variance		% Variance
Investor 1-4 Rental	$	219.9	$	154.3	$	65.7		42.6	%
Traditional Commercial		175.2		97.5		77.7		79.6	%
Government Insured Multifamily (CHHC)		18.9		—		18.9		n.m.
Short-term		62.7		38.8		23.9		61.7	%

Total loan production	$	476.8	$	290.6	$	186.2		64.1	%

Acquisitions	$	—	$	—

n.m.—non meaningful

Discussion of results:

•

Loan production for 3Q24 totaled $476.8 million in UPB, a 64.1% increase from $290.6 million for 3Q23

•

Traditional Commercial financing demand led the Y/Y growth; however, Investor 1-4 rental and Short-term financing also experienced strong demand. The weighted average coupon (WAC) on 3Q24 HFI loan production was 10.8%, a modest decrease from 11.0% for 3Q23


HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)	3Q 2024			3Q 2023			$ Variance		% Variance
Nonperforming loans^(a)	$	503,939.0		$	387,725.0		$	116,214.0		30.0	%
Total HFI loans	$	4,734,319.0		$	3,857,778.7		$	876,540.3		22.7	%
Nonperforming loans % total HFI loans		10.6	%		10.1	%		n.a.		5.5	%
Average nonperforming loans subject to CECL reserve ^(b)	$	320,135.3		$	351,848.0		$	(31,712.7)		(9.0)%
Total charge offs	$	319.6		$	95.2		$	224.4		235.7	%
Charge-offs as a % of avg. nonperforming CECL loans^(c)		0.40	%		0.11	%		n.a.		269.0	%
Loan loss reserve	$	4,851.2		$	4,684.8		$	166.4		3.6	%
Gain on transfer to REO	$	2,248.6		$	1,935.4		$	312.9		16.2	%
REO valuations, net	$	(1,642.0)		$	(224.5)		$	(1,417.9)		(631.5)%
Gain (loss) on sale of REO	$	615.1		$	(137.0)		$	752.2		548.9%

^(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 $503.9 million in UPB as of September 30, 2024, or 10.6% of loans HFI, compared to $387.7 million and 10.1% as of September 30, 2023

4 | Page

Third Quarter 2024 Results

•

NPLs in foreclosure status comprised 8.1% of loans HFI as of September 30, 2024, down slightly from 8.2% as of September 30, 2023

•

Charge-offs for 3Q24 totaled $319.6 thousand, compared to $95.2 thousand for 3Q23

•

The trailing five-quarter charge-off average was $381.5 thousand

•

Net charge-off and REO activity comprises charge-offs, gain on transfer of REO, gain (loss) on sale of REO, and REO valuations. For 3Q24, net charge-off and REO activity resulted in a net gain of $0.9 million, compared to a net gain of $1.5 million for 3Q23, primarily driven by gains on loans transferred to REO

•

The loan loss reserve totaled $4.9 million as of September 30, 2024, a 3.6% increase from $4.7 million as of September 30, 2023

•

Mainly driven by updated valuation of the individually assessed NPL portfolio

•

The CECL reserve rate was 0.19% (CECL Reserve as % of Amortized Cost HFI loans), which was in line with the recent five-quarter average rate of 0.18% and within management’s expected range of 0.15% to 0.20%


NET REVENUES
($ in thousands)	3Q 2024			3Q 2023			$ Variance			% Variance
Interest income	$	105,069.6		$	79,088.4		$	25,981.2			32.9	%
Interest expense—portfolio related		(63,870.5	)		(47,583.0	)		(16,287.6	)		34.2	%

Net Interest Income—portfolio related		41,199.0			31,505.5			9,693.6			30.8	%
Interest expense—corporate debt		(6,142.8	)		(4,137.9	)		(2,004.8	)		48.4	%
Loan loss provision		68.9			(153.8	)		222.7			(144.8	)%

Net interest income after provision for loan losses	$	35,125.2		$	27,212.7		$	7,912.4			29.1	%

Gain on disposition of loans		2,291.0			3,606.3			(1,315.3	)		(36.5	)%
Unrealized (loss) gain on fair value loans		35,529.7			(1,283.5	)		36,813.2			2868.1	%
Unrealized gain (loss) on fair value of securitized debt		(24,995.4	)		9,692.3			(34,687.7	)		(357.9	)%
Unrealized gain/(loss) on mortgage servicing rights		(993.4	)		341.1			(1,334.5	)		(391.3	)%
Origination fee income^(a)		6,703.8			3,323.5			3,380.3			101.7	%
Interest income on cash balance		1,676.2			1,341.9			334.3			24.9	%
Other operating income (expense)		518.8			339.7			179.1			52.7	%

Total other operating income (expense)	$	20,731.7		$	17,360.2		$	3,371.4			19.4	%

Net revenue	$	55,856.8		$	44,573.0		$	11,283.8			25.3	%

^(a)	3Q23 includes a reclass of production fees to expenses

Discussion of results:

•

Net Revenue for 3Q24 was $55.9 million, an increase of 25.3% from $44.6 million for 3Q23

•

Driven by strong production-driven portfolio growth and disciplined focus on maintaining a net interest margin above 3.0%

•

Total net interest income for 3Q24, including corporate debt interest expense and loan loss provision, was $35.1 million, a 29.1% increase from $27.2 million for 3Q23

5 | Page

Third Quarter 2024 Results

•

Portfolio net Interest income was $41.2 million for 3Q24, an increase of 30.8% from 3Q23 resulting from portfolio growth and a 26bps increase in NIM

•

Total other operating income was $20.7 million for 3Q24, an increase from $17.4 million for 3Q23

•

Net unrealized FVO gains on loans and securitized debt were $10.5 million, compared to a net gain of $8.4 million for 3Q23

•

Origination income totaled $6.7 million, resulting from improved origination fees of 1.4% charged on 3Q24 new loan production

•

Gain on disposition of loans totaled $2.3 million for 3Q24, driven by loans transferred to Real Estate Owned (REO)


OPERATING EXPENSES
($ in thousands)	3Q 2024		3Q 2023		$ Variance			% Variance
Compensation and employee benefits	$	17,585.9	$	12,522.8	$	5,063.1			40.4	%
Origination (income)/expense^(a)		866.6		273.2		593.4			217.2	%
Securitization expenses		3,186.1		4,930.5		(1,744.3	)		(35.4	)%
Rent and occupancy		518.8		472.4		46.4			9.8	%
Loan servicing		5,656.1		4,901.4		754.6			15.4	%
Professional fees		2,304.5		853.8		1,450.7			169.9	%
Real estate owned, net		1,951.0		1,238.7		712.3			57.5	%
Other expenses		2,542.6		2,141.6		401.0			18.7	%

Total operating expenses	$	34,612.6	$	27,334.5	$	7,278.1			26.6	%

^(a)	3Q23 includes a reclass of production fees to expenses

Discussion of results:

•

Operating expenses totaled $34.6 million for 3Q24, an increase of 26.6% from 3Q23, primarily driven by the continued growth of our origination platform and higher production volume

•

Compensation expense totaled $17.6 million, compared to $12.5 million for 3Q23

•

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

•

Securitization expenses totaled $3.2 million from issuing one securitization during the quarter, compared to costs of $4.9 million for two securitizations during 3Q23

•

Loan servicing expense totaled $5.7 million, a 15.4% increase from $4.9 million for 3Q23, driven by portfolio growth

•

Professional fees totaled $2.3 million, a 169.9% increase from $0.9 million for 3Q23, driven by increased legal expenses

6 | Page

Third Quarter 2024 Results

•

REO expenses totaled $2.0 million, a 57.5% increase from $1.2 million for 3Q23, driven by higher valuation adjustment and property preservation expenses


SECURITIZATIONS
($ in thousands)	Securities		Balance at					Balance at
Trusts	Issued		9/30/2024		W.A. Rate			9/30/2023		W.A. Rate
2017-2 Trust		245,601		36,321		4.14	%		48,206		3.95	%
2018-1 Trust		176,816		26,820		4.14	%		35,010		3.99	%
2018-2 Trust		307,988		63,005		4.49	%		80,409		4.43	%
2019-1 Trust		235,580		64,004		4.12	%		79,215		4.06	%
2019-2 Trust		207,020		50,835		3.42	%		69,216		3.40	%
2019-3 Trust		154,419		50,268		3.28	%		60,482		3.29	%
2020-1 Trust		248,700		96,201		2.89	%		110,958		2.89	%
2020-2 Trust		96,352		—		—			49,528		4.59	%
2021-1 Trust		251,301		157,675		1.77	%		176,529		1.76	%
2021-2 Trust		194,918		129,046		2.06	%		149,431		2.02	%
2021-3 Trust		204,205		142,029		2.47	%		161,467		2.47	%
2021-4 Trust		319,116		219,627		3.23	%		250,941		3.24	%
2022-1 Trust		273,594		221,565		3.94	%		240,733		3.94	%
2022-2 Trust		241,388		198,288		5.07	%		221,631		5.08	%
2022-MC1 Trust		84,967		18,401		6.88	%		35,677		6.90	%
2022-3 Trust		296,323		239,881		5.71	%		262,308		5.71	%
2022-4 Trust		308,357		239,871		6.21	%		283,270		6.23	%
2022-5 Trust		188,754		138,941		7.08	%		171,183		7.05	%
2023-1 Trust		198,715		156,125		7.03	%		181,006		7.01	%
2023-1R Trust		64,833		44,985		7.61	%		60,515		7.69	%
2023-2 Trust		202,210		168,556		7.33	%		194,955		7.19	%
2023-RTL1 Trust		81,608		81,608		8.24	%		81,608		8.23	%
2023-3 Trust		234,741		217,620		7.94	%		232,802		7.80	%
2023-4 Trust		202,890		196,999		8.40	%
2024-1 Trust		209,862		187,751		7.64	%
2024-2 Trust		286,235		267,393		7.06	%
2024-3 Trust		204,599		196,559		7.20	%
2024-4 Trust		253,612		252,307		6.90	%

	$	5,974,704	$	3,862,681		5.72	%	$	3,237,080		5.01	%

Discussion of results

•

The weighted average rate on Velocity’s outstanding securitizations was 5.72% as of

•

September 30, 2024, an increase of 71 bps from September 30, 2023

•

The company completed one securitization during 3Q24, totaling $253.6 million of securities issued with a weighted average rate of 6.9%

•

Down from a weighted average rate of 7.6% for securitizations issued during 3Q23

•

Sold two retained tranches from 2023 securitizations during 3Q24, totaling $36.6 million of securities issued

7 | Page

Third Quarter 2024 Results

•

Subsequent to quarter end, the company completed the VCC 2024-5 securitization totaling $300.4 million of securities issued with a weighted average rate of 6.0%

•

Collapsed the VCC 2020-2 securitization totaling $39.4 million in outstanding bonds in 3Q24, which unlocked $25.1 million of retained equity

•

The collateral from the collapsed securitization was refinanced on warehouse lines and will be securitized in future periods


RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY	THIRD QUARTER 2024					THIRD QUARTER 2023
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	23,874.5	$	965.2		$	20,668.0	$	758.0
Paid current		34,956.6		567.0			26,950.0		206.0
REO sold (a)		1,431.4		290.0			6,341.0		162.0

Total resolutions	$	60,262.6	$	1,822.2		$	53,959.0	$	1,126.0

Resolutions as a % of nonperforming UPB				103.0	%				102.1	%


SHORT-8TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY	THIRD QUARTER 2024					THIRD QUARTER 2023
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	4,974.1	$	151.0		$	2,967.0	$	38.0
Paid current		2,122.0		7.3			6,292.0		—
REO sold		1,260.3		325.1			2,434.0		(11.0	)

Total resolutions	$	8,356.3	$	483.5		$	11,693.0	$	27.0

Resolutions as a % of nonperforming UPB				105.8	%				100.2	%

Grand total resolutions	$	68,618.9	$	2,305.6		$	65,652.0	$	1,153.0

Grand total resolutions as a % of nonperforming UPB				103.4	%				101.8	%

Discussion of results:

•

NPL resolution totaled $68.6 million in UPB, realizing 103.4% of UPB resolved compared to $65.7 million in UPB and realization of 101.8% of UPB resolved for 3Q23

•

The UPB of loan resolutions in 3Q24 was in line with the recent five-quarter resolution average of $68.1 million in UPB and 102.1% of UPB resolved

###

8 | Page

Third Quarter 2024 Results

Velocity’s executive management team will host a conference call and webcast on November 7th, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review 3Q24 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 November 29, 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 #8544057. 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.

9 | Page

Third 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.

10 | Page

Third 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.

11 | Page

Third Quarter 2024 Results

Velocity Financial, Inc.

Consolidated Balance Sheet


	Quarter Ended
	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
	Unaudited			Unaudited			Unaudited			Audited			Unaudited
(In thousands)
Assets
Cash and cash equivalents	$	44,094		$	47,366		$	34,829		$	40,566		$	29,393
Restricted cash		23,167			32,293			24,216			21,361			17,703
Loans held for sale, at fair value		19,231			—			—			17,590			19,536
Loans held for investment, at fair value		2,354,718			1,971,683			1,649,540			1,306,072			951,990
Loans held for investment, at amortized cost		2,526,320			2,619,619			2,727,518			2,828,123			2,945,840

Total loans, net		4,900,269			4,591,302			4,377,058			4,151,785			3,917,366
Accrued interest receivables		32,944			31,124			29,374			27,028			24,756
Receivables due from servicers		93,681			82,359			87,523			85,077			70,139
Other receivables		4,265			6,566			2,113			8,763			236
Real estate owned, net		62,361			50,757			46,280			44,268			29,299
Property and equipment, net		1,693			1,912			2,013			2,785			2,861
Deferred tax asset		14,501			1,144			1,580			2,339			705
Mortgage Servicing Rights, at fair value		12,416			12,229			9,022			8,578			9,786
Derivative assets		—			—			1,967			—			1,261
Goodwill		6,775			6,775			6,775			6,775			6,775
Other assets		6,308			9,566			5,468			5,248			7,028

Total Assets	$	5,202,474		$	4,873,393		$	4,628,218		$	4,404,573		$	4,117,308

Liabilities and members’ equity
Accounts payable and accrued expenses	$	140,534		$	138,033		$	123,988		$	121,969		$	97,869
Secured financing, net		284,371			283,909			283,813			211,083			210,774
Securitized debt, at amortized cost		2,105,099			2,228,941			2,329,906			2,418,811			2,504,334
Securitized debt, at fair value		1,749,268			1,509,952			1,073,843			877,417			669,139
Warehouse & repurchase facilities		434,027			237,437			360,216			334,755			215,176
Derivative liability		1,486			374			—			3,665			—

Total Liabilities		4,714,785			4,398,646			4,171,766			3,967,700			3,697,292
Stockholders’ Equity
Stockholders’ equity		484,636			471,323			452,941			433,444			416,398
Noncontrolling interest in subsidiary		3,053			3,424			3,511			3,429			3,618

Total equity		487,689			474,747			456,452			436,873			420,016

Total Liabilities and members’ equity	$	5,202,474		$	4,873,393		$	4,628,218		$	4,404,573		$	4,117,308

Book value per share	$	14.91		$	14.52		$	14.01		$	13.49		$	13.00
Shares outstanding		32,712	⁽¹⁾		32,701	⁽²⁾		32,574	⁽³⁾		32,395	⁽⁴⁾		32,314	⁽⁵⁾

⁽¹⁾	Based on 32,711,910 common shares outstanding as of September 30, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 402,935.

⁽²⁾	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.

⁽³⁾	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.

⁽⁴⁾	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.

⁽⁵⁾	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.

12 | Page

Third Quarter 2024 Results

Velocity Financial, Inc.

Consolidated Statements of Income (Quarters)


	Quarter Ended
	9/30/2024			6/30/2024			3/31/2024			12/31/2023			9/30/2023
($ in thousands)	Unaudited			Unaudited			Unaudited			Unaudited			Unaudited
Revenues
Interest income	$	105,070		$	97,760		$	90,529		$	86,269		$	79,088
Interest expense—portfolio related		63,871			59,188			55,675			51,405			47,583

Net interest income—portfolio related		41,199			38,572			34,854			34,864			31,505
Interest expense—corporate debt		6,143			6,155			5,380			4,140			4,138

Net interest income		35,056			32,417			29,474			30,724			27,367
Provision for loan losses		(69	)		218			1,002			827			154

Net interest income after provision for loan losses		35,125			32,199			28,472			29,897			27,213
Other operating income
Gain on disposition of loans		2,291			3,168			1,699			1,482			3,606
Unrealized gain (loss) on fair value loans		35,530			17,123			18,925			39,367			(1,284	)
Unrealized gain (loss) on fair value securitized debt		(24,995	)		(4,643	)		(2,318	)		(24,085	)		9,692
Unrealized gain/(loss) on mortgage servicing rights		(993	)		(373	)		444			(1,208	)		341
Origination fee income		6,704			5,072			4,986			3,981			3,323
Interest income on cash balance		1,676			1,731			1,631			1,716			1,342
Other income (expense)		519			483			408			418			340

Total other operating income		20,732			22,561			25,775			21,670			17,360

Net revenue		55,857			54,760			54,247			51,567			44,573

Operating expenses
Compensation and employee benefits		17,586			16,562			15,357			15,143			12,523
Origination expenses		867			749			646			173			273
Securitizations expenses		3,186			6,232			2,874			2,709			4,930
Rent and occupancy		519			617			498			551			472
Loan servicing		5,656			5,160			4,824			4,636			4,901
Professional fees		2,305			1,718			2,115			1,733			854
Real estate owned, net		1,951			1,355			2,455			2,068			1,239
Other operating expenses		2,543			2,494			2,242			2,248			2,142

Total operating expenses		34,613			34,887			31,011			29,260			27,334

Income before income taxes		21,244			19,873			23,236			22,307			17,239
Income tax expense		5,627			5,162			5,903			5,141			5,070

Net income		15,617			14,711			17,333			17,166			12,169

Net income attributable to noncontrolling interest		(186	)		(67	)		82			(189	)		83

Net income attributable to Velocity Financial, Inc.		15,803			14,778			17,251			17,355			12,086

Less undistributed earnings attributable to participating securities		191			182			217			225			183

Net earnings attributable to common shareholders	$	15,612		$	14,596		$	17,034		$	17,130		$	11,903

Basic earnings (loss) per share	$	0.48		$	0.45		$	0.52		$	0.53		$	0.37
Diluted earnings (loss) per common share	$	0.44		$	0.42		$	0.49		$	0.50		$	0.35
Basic weighted average common shares outstanding		32,711			32,585			32,541			32,326			32,275
Diluted weighted average common shares outstanding		35,895			35,600			35,439			34,991			34,731

13 | Page

Third Quarter 2024 Results

Velocity Financial, Inc.

Net Interest Margin – Portfolio Related and Total Company

(Unaudited)

Quarters:


	Quarter Ended September 30, 2024							Quarter Ended September 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	$	3,166						$	3,170
Loans held for investment		4,575,745							3,770,460

Total loans	$	4,578,911	$	105,070		9.18	%	$	3,773,630	$	79,088		8.38	%

Debt:
Warehouse and repurchase facilities	$	311,560		7,105		9.12	%	$	192,855		4,943		10.25	%
Securitizations		3,840,480		56,766		5.91	%		3,186,756		42,640		5.35	%

Total debt - portfolio related		4,152,040		63,871		6.15	%		3,379,611		47,583		5.63	%
Corporate debt		290,000		6,143		8.47	%		215,000		4,138		7.70	%

Total debt	$	4,442,040	$	70,014		6.30	%	$	3,594,611	$	51,721		5.76	%

Net interest spread - portfolio related⁽²⁾						3.03	%						2.75	%
Net interest margin - portfolio related						3.60	%						3.34	%
Net interest spread - total company⁽³⁾						2.87	%						2.63	%
Net interest margin - total company						3.06	%						2.90	%

⁽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.

14 | Page

Third Quarter 2024 Results

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

Quarters:

Core Net Income


	Quarter Ended
($ in thousands)	9/30/2024		6/30/2024		3/31/2024		12/31/2023			9/30/2023
Net Income	$	15,803	$	14,778	$	17,251	$	17,355		$	12,086
Tax liability reduction				—		—		(1,866	)		—
Equity award & ESPP costs		1,146		1,140		998		673			832

Core Net Income	$	16,949	$	15,918	$	18,249	$	16,161		$	12,918

Diluted weighted average common shares outstanding		35,895		35,600		35,439		34,991			34,731
Core diluted earnings per share	$	0.47	$	0.45	$	0.51	$	0.46		$	0.37

15 | Page

Document and Entity Information	Nov. 07, 2024
Cover [Abstract]
Amendment Flag	false
Entity Central Index Key	0001692376
Document Type	8-K
Document Period End Date	Nov. 07, 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