Velocity Financial Q1 2025 Earnings Report

Velocity Financial EPS Results

• Actual EPS: $0.55
• Consensus EPS: $0.52
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

Velocity Financial Revenue Results

• Actual Revenue: $69.08 million
• Expected Revenue: $51.33 million
• Beat/Miss: Beat by +$17.75 million
• YoY Revenue Growth: N/A

Velocity Financial Announcement Details

• Quarter: Q1 2025
• Date: 5/1/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 5:00PM ET

Velocity Financial (NYSE:VEL) operates as a real estate finance company in the United States. It originates, securitizes, and manages a portfolio of loans, which are secured by first mortgage liens on income-producing and/or owner/user commercial properties, including investor 1-4, a non-owner occupied residential rental properties with 1-4 units; residential apartments combined with office or retail space; and multi-family comprising traditional apartment buildings, condominiums, and other residential properties with 5+ units. The company also finances for retail properties with various types of retail products and merchandise or services; commercial properties occupied by professional or business offices; and warehouse and other properties, which include self-storage units, auto services, hospitality, light industrial, and other commercial enterprises, as well as provides short-term and interest-only loans for acquisition and improvement of 1-4-unit residential properties. It offers its products through a network of independent mortgage brokers for independent real estate investors and small business owners. The company was founded in 2004 and is headquartered in Westlake Village, California.

Velocity Financial Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong production momentum: Q1 new loan originations totaled $640 million, up 69% year-over-year, driving a 27% increase in net revenue and a 17% rise in core pretax earnings.
• Record portfolio growth: Total loan portfolio reached $5.5 billion (up 27% YoY and 7.8% QoQ) with a normalized NIM of 3.35%, stable 10.8% nonperforming loans and a 9.59% weighted average coupon.
• Active capital management: Completed four debt transactions—including three securitizations—collapsed a re-REMIC to free $52.6 million in securities and raised ~$29 million via ATM share issuances.
• Positive outlook and scale plan: Management highlights strong demand across property types, a healthy pipeline and aims to grow the portfolio toward $10 billion over five years by leveraging technology and selective hiring.

Presentation

[Operator]

Good day, and welcome to Velocity Financial Inc. First Quarter twenty twenty five Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

[Operator]

I would now like to turn the conference over to Mr. Chris Altman, Treasurer. Please go ahead.

[Christopher Oltmann, Treasurer & Director of Investor Relations at Velocity Financial]

Thanks, Kaylee. Hello, everyone, and

[Christopher Oltmann, Treasurer & Director of Investor Relations at Velocity Financial]

thank you for joining us today for the discussion of Velocity's first quarter twenty twenty five results. Joining me today are Chris Ferrar, Velocity's President and Chief Executive Officer and Mark Zupaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our first quarter results, and you can find the press release and the accompanying presentation we will refer to during this call on our Investor Relations website at ww.dellfinance.com. I'd like to remind everyone that today's call may include forward looking statements, which are uncertain and outside of the company's control, and actual results may differ materially. For a discussion of the results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission.

[Christopher Oltmann, Treasurer & Director of Investor Relations at Velocity Financial]

Please also note that the content of this conference call contains time sensitive information that is accurate only as of today, and we do not undertake any duty to update forward looking statements. We may also refer to certain non GAAP measures on this call. For reconciliations of these non GAAP measures, you should refer to the earnings materials on our Investor Relations website. Finally, today's call is being recorded and will be available on the company's website later today. And with that, I will now turn the call over to Chris Ferrar.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Thanks, Chris, and we appreciate everyone joining our first quarter earnings call. The strong momentum we experienced in 2024 carried into the first quarter of this year as we originated $640,000,000 in new loans, an increase of 69% versus the prior year, which drove a 27% increase in net revenue and a 17% increase in core pretax earnings. Our team grew production and remained disciplined by preserving our spreads and credit standards. We continue to see increased demand for all property types with a more recent tilt towards commercial loans versus the Investor one to four residential loans and robust margins in both products. Looking forward, our pipeline is strong and growing across the board.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

With respect to the portfolio, we continue to realize consistent net interest income and healthy cash flows, and our special servicing team is doing a great job of resolving delinquent assets favorably. Our real estate markets remain healthy with plenty of dry capital ready to deploy in reasonably priced assets. From a capital markets perspective, we've been very busy this year with four successful debt transactions already completed. And we issued three new securitizations, paid down debt and collapsed one of our re REMICs and also sold new shares through our ATM program. Despite the recent volatility, we are very encouraged to see healthy investor demand and participation in our offerings.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

We appreciate all our partners that have supported our platform for so many years. Although the markets are choppy, our team is well prepared to operate in this environment, and we believe we offer a great platform for investors to earn consistent, compelling returns. I want to congratulate all Velocity team members on another fantastic quarter. And as always, we'll continue to work hard to deliver shareholder value. With that, I'll turn over to the today's presentation starting on Slide three.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

As I mentioned, strong net income, core earnings of $0.55 a share, up from $0.51 a share a year ago and our second best quarterly earnings in the company history, just a little bit below what we did in Q4 of last year. Mentioned the production of the on a net basis, the portfolio is up 27% and nonperforming loans continue to be relatively stable at 10.8%. Most importantly there, NPA resolutions again in the January above par resolutions continue, which is great. In the financing and capital section, I mentioned the first securitization we completed with a weighted average rate of 6.7% collapsed the re REMIC, which freed up $52,600,000 of retained securities that are available to us to do with whatever we want. We issued 1,600,000.0 common shares, just under $29,000,000 of proceeds, and those shares were accretive to book value.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

In terms of our liquidity and warehouse capacity, you can see we're in great shape there. On Page four, one of the other securitizations we did in early April was our short term backed by our short term loans, and that was another successful transaction. And the third one listed here on this page was the second deal that we did. And I highlight this one for a very important reason. It priced April 8, and that was in the heart of all of the disruption in the market.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

And as you can see, our weighted average rate actually was 30 bps better than our first deal in the first part of the year. So again, although there's all this volatility, we continue to see strong support from our investors, and we're very pleased with the execution we've seen so far this year. On Page five, walk you through just the simple adjustments that we make to get to core earnings. And then on the right, we have a bridge showing the buildup in book value. And to the far right, we make an adjustment if GAAP allowed us to adjust all of our held for cost loans to fair value, we would be reporting an adjusted book value of $18.5 a share.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

That is reflective of all of the assets that are in place and on the balance sheet at threethirty one. So you can see we're getting nice growth in book value as we retain our earnings and execute on our strategy. And with that, I'll turn the presentation back over to Mark to continue.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

Thanks, Chris. Good afternoon, everyone. In the first quarter, as Chris mentioned, we saw continued strong production, actually setting a record for the company for a single quarter's production, production of $640,400,000 for the quarter, which is a 13.7% increase from Q4 of last year. We have 1,500 loans funded in the first quarter and that was an increase of almost 18% on a loan count basis over the previous quarter. The strong production growth during Q1 included the weighted average coupon on new held for investment originations continuing to be strong at 10.5%.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

And the weighted average coupon on our held for investment originations for the last five quarter average trend was at 10.8%. The growth originations in Q1 also continued at tight credit levels with the weighted average loan to value for the quarter being just under 63%, sixty two point six % and the last five quarter average trend at 63.4%. So the strong Q1 production and record growth, the healthy WAC low LTV continues to show borrower demand for our products through all different market cycles and environments. We go to Page seven, as a result of the continued growth in production, Page seven shows the growth in Q1 for our overall loan portfolio at the end of the quarter. Total loan portfolio as of March 31 was just under $5,500,000,000 in UPB and that's a 7.8% increase from year end 2024 and a 27.3% increase year over year.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

This weighted average coupon on our total portfolio at the end of the quarter was just under 9.6% at 9.59% which is six basis points increase from the WACC at the end of the year and 52 basis points increase from the same time first quarter last year. The total portfolio weighted average loan to value remained consistently low at 66.1% at the end of the quarter. Going to Page eight, our Q1 portfolio NIM was 3.35% representing one of our more normalized NIM as compared to Q4 of twenty twenty four. Q4 of '20 '20 '4 was a little bit higher NIM due to cash interest received on non performing loans. We saw the cash that comes in non performing loans tends to come in kind of sporadically lumpy and that can cause some spikes in the NIM.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

Our Q1 NIM was consistent on a year over year basis. Our portfolio yield for Q1 of this year decreased by 23 basis points quarter over quarter again due to the high cash non performing loan interest received in Q4, but it increased year over year by 40 basis points. While our cost of funds increased by nine quarter over quarter and increased by 30 basis points year over year. On Page nine, our non performing loan rate at the end of Q1, as Chris mentioned, was 10.8%. That's been relatively flat.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

It's 10.7% at the end of twenty twenty four. And it's been consistent for the last five quarters at an average of about 10.5%. We continue to see strong collection efforts by our special servicing department that resulted in favorable game resolutions of our NPA assets. My NPA assets include our NPL loans as well as the REO assets. The table on Page 10 shows the continued positive results of our in house NPA resolution efforts.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

Our Q1 NPA resolution gains were $1,900,000 or 2.4% of the $76,400,000 in overall UPB resolved. And on a trend basis, we've been averaging about a 3.3 quarterly NPL NPA resolution gain over the last five quarters. Page 11 presents on the left hand side our CECL loan loss reserve and on the right hand side our net loan charge off gain loss in our activity. The CECL reserve at the end of the quarter was $5,000,000 or 22 basis points of our outstanding amortized cost held for investment portfolio. The CECL reserve at the end of Q1 was slightly above our expected normal range of 15 to 20 basis points And that's due to the latest macroeconomic forecast.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

CECL requires you to do a macroeconomic forecast using a modeling system and the outside model that we use given all of the uncertainty and the movement around in Q1 in the markets. It just had a little bit more severe step on the macroeconomic forecast. There's only two basis points, 20 basis points at year end, it's 22 basis points. The CECL loan loss reserve remember does not include our loans being carried at fair value, just amortized cost. And then the table to the right of this page shows our net gain loss from both loan charge offs and REO related activities during the quarter.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

And for Q1, the gain on REO activities offset the net loan charge offs. Page 12 shows our durable funding and liquidity position at the end of the quarter. Total liquidity as of March 31 was $75,600,000 and that's comprised of $51,700,000 in cash and cash equivalents and another $23,900,000 in available liquidity on our unfinanced collateral. In addition, the available warehouse line capacity at the end of the quarter was $238,000,000 with a maximum line capacity of eight ten million As Chris mentioned previously in Q1, we issued our first securitization of 2025 with $342,800,000 in securities issued. And then subsequent to first quarter in April, we issued our second long term securitization twenty twenty five-two and we also issued a short term securitization 2025 RTL-one is the securitization of our short term loans.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

And that remember the very first short term securitization we ever did was in 2023. So in 2025, we simultaneously collapsed the 2023 RTL-one short term securitization and issued the 2025 RTL-one seconduritization. And the RTL-one seconduritization, I don't want to add about that is includes $59,000,000 in UPB from the old twenty twenty three seconduritization that was freed up when it was collapsed and rolled into the RTL-one for 2025. That concludes my first quarter financial recap. I'll turn the presentation back to Chris now for an overview of our 2025 outlook.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Thank you, Mark. I think from a market perspective, you could see that we're seeing very strong healthy demand. Real estate markets are functioning well, so we feel good there. From a credit perspective, still seeing very good positive resolutions. I think it remains to be seen what happens with all of the tariff talk and those types of things.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

But from our perspective, we don't think it's going to have an impact on our business materially. In terms of capital, we've been very active there and markets are supportive of us. And in terms of earnings, we feel very good about the future and the rest of this year and, excited to continue on our path. So with that, that concludes our prepared remarks and we'll open

[Operator]

Our first question comes from Don Fandidi with Wells Fargo. Please go ahead.

[Don Fandetti, Analyst at Wells Fargo]

Hi, good evening. Just wanted to clarify, it sounds like the NIM is more normalized now. So would you think Q2 would be sort of in the same zip code as Q1?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. Hi, Don. I think that's right. I mean, we generally target around 3.5%. So 3.35% to 3.5% right in there what we would say is pretty normal.

[Don Fandetti, Analyst at Wells Fargo]

Got it. And then also on new origination yields, they've been steady, ticked down a little bit. Are you thinking that we hold in this range as we go through 2025?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. I think that's right. We took coupons down a little bit to reflect the underlying reduction in our cost to borrow. So maintaining our spreads, that's what drove the coupon down. But I think it all depends on where sort of three to four year treasury we price off of three to four year interpolated rates.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So wherever those rates go, we'll price our spread accordingly. But I think our expectation is that they should be fairly stable with the possibility, I guess, of going down later in the year if the Fed continues to cut, which remains to be seen.

[Don Fandetti, Analyst at Wells Fargo]

Great. Thank you. Sure.

[Operator]

And the next question comes from Eric Hagen with BTIG. Please go ahead.

[Eric Hagen, Managing Director at BTIG]

Hey, thanks. Good afternoon. You noted some more commercial demand, I think in your opening remarks. We know that transaction volume for the market is down, right? So are you guys seeing more demand because borrowers are being shut out of other channels?

[Eric Hagen, Managing Director at BTIG]

And on maybe like a related note, is there a level that you expect for overall origination volume through call it the end of the year? And then maybe like at this point, what would maybe catalyze your origination volume to be meaningfully higher than whatever you're currently projecting?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Hi, Eric. Thanks for the questions there. Yes. In terms of the commercial aspect, we just a year and a half ago started a small commercial division that focuses just purely in commercial type lending. And so I think the vast driver there has been has just been their ramp up and their growth in production.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So it's less, I think, of a demand story and more of us opening up a new channel. That channel focuses almost exclusively on owner occupied commercial real estate. And so I think that's the driver there. Over the years, we've it modulate back and forth between the one to four and the small commercial. We're comfortable with both.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

And there's sort of ebbs and flows, but this one is more tied to our direct effort. In terms of run rate production, I think we think this current pace is sustainable. So I think that's a good run rate if you want to project out for the rest of the year. And something that would meaningfully drive volume significantly higher. I think it would only be probably just a very large drop in rates back to kind of like what we saw during the COVID levels.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

I don't expect that and I don't think that is in the cards. But if it were to happen, that would probably be the single largest boost we could get.

[Eric Hagen, Managing Director at BTIG]

Okay. That's good color. I appreciate that. Can you say what you did with the capital that you raised? Like was it to delever a little bit?

[Eric Hagen, Managing Director at BTIG]

And then when you come into maybe raise additional capital from here, is there an expectation for what you plan to maybe do with that capital?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. So we just used it to continue to make more loans. I think any capital that we do raise will be solely for the purpose of growing the portfolio. We take, as you know, all of our earnings and retain them and put them back in. So that marginal return on capital is very attractive, and we're seeing very high ROEs there.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So we think the smartest thing to do is allocate capital back to new assets. And we can we have a number of levers we can pull there and we'll just continue to support the growth.

[Eric Hagen, Managing Director at BTIG]

Yes. That's good to hear. Sorry if this is a naive question, but when you book a gain on the REO sales, does that include the back interest from the point the borrower initially defaulted or is it just a gain relative to the UPB of your cost basis?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

I'll take that Mark.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

Yes. Eric, when we look at the gain on the REO and we're showing this resolution tables and all that would just be the gain not counting the back interest because by the time it's REO that back interest has already been taken It's already been reversed, right. So the loan goes nonperforming. We take all the accrued interest to that point and we've reversed and backed it out.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

So that interest kind of hit so to speak, it has already been taken out. So we did not record the interest. So then we show the REO being disposed as any gain over and above anything else that we've already backed up.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. And I would add the same thing happens on the gain on transfer when that loan first transfers to REO same concept.

[Mark Szczepaniak, Chief Financial Officer at Velocity Financial]

Right. Once the loan stops being a loan, previous interest on that loan that never was received has already been backed out and is reflected in the financials by reducing earnings.

[Eric Hagen, Managing Director at BTIG]

Got you. Okay. Really helpful. Thank you, guys.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Thank you, And

[Operator]

the next question comes from Steve Delaney with Citizens GMP. Please go ahead.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Thanks. Hello, everyone. Congrats to a great start to 2025. Chris I guess, Chris O no, excuse me, Chris F, Chris Farrar. What was your what is your current total headcount in terms of employees?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. We're 323.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

3 20 3. Okay. And how many office locations do you have folks sitting in around the country?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So we have five office locations. We have we kind of have a hybrid model. So how many folks are sitting in those office locations is a wildcard, Steve, but

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

You can't see who's there anyway, can you?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Right.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Could be kind of a virtual business, I know. But I was just trying to get a sense for the footprint. And so as you think about growth versus execution, I mean, had great you're executing, you're knocking the ball in the park, I mean, in terms of the start to 2025. So as you talk with the Board, I mean, I guess I'm trying to get a picture, Chris, for three, five years from now, where do you want the company to be other than having been very profitable and everybody done has done well? Yes.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Is there a vision for a vision out there for say five years for where you'd like to take the company?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. I mean, I think we'd like to see the portfolio at $10,000,000,000 5 years. So we expect to continue to grow. That will require headcount. We are generally concentrated sort of East Coast and West Coast, probably add maybe we might potentially add some space in the Midwest or Texas area, something like that, maybe.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Trying to use a lot of technology to scale the business without adding too much headcount. I mean, you always have to add some headcount, but, we've been very successful. If you look at our sort of average balance funded per loan officer or account executive, balance is going So we're making our existing people more productive, which is great because you don't have to hire headcount for that. But you do have to support it on the back end with the credit and support function.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So,

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

would hope that we would add maybe a couple of hundred people over five years, but we're going to really try to implement as much technology as we can to minimize that.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Sure. And you do all your servicing in house, don't you?

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

So we do all of our special servicing in house.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Special servicing.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

The primary servicing is outsourced to bill collection, the payments, the insurance, administration, all of that is outsourced. We just manage delinquent assets because we own that risk, and we think we're the best people to resolve those risks.

[Steven Delaney, Analyst at Citizens JMP Securities, LLC]

Great. Well, thanks for those comments. I just wanted to get kind of a picture to what the company looks like, the phones and where you can go with that. Appreciate it, Chris. Thanks.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Yes. Thank you, Steve. Take care.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Mr. Farrar for any closing remarks.

[Christopher Farrar, Co-Founder, CEO & Director at Velocity Financial]

Thanks again everyone for joining the call and we appreciate your support. We'll talk to you again after the second quarter. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Christopher Oltmann, Treasurer & Director of Investor Relations
• Christopher Farrar, Co-Founder, CEO & Director
• Mark Szczepaniak, Chief Financial Officer

Analysts

• Don Fandetti, Analyst at Wells Fargo
• Eric Hagen, Managing Director at BTIG
• Steven Delaney, Analyst at Citizens JMP Securities, LLC