Velocity Financial, Inc. Reports Fourth Quarter and Full-Year 2023 Results
Fourth Quarter Highlights:
Net income of $17.4 million, up 105.1% from $8.5 million for 4Q22. Diluted EPS of $0.50, up $0.25 from $0.25 per share for 4Q22
Core net income(1) of $16.2 million, up 77.2% from $9.1 million for 4Q22. Core diluted EPS(1) of $0.46, up $0.19 from $0.27 per share for 4Q22
Loan production of $352.1 million in UPB, a 21.2% increase from 3Q23 and 26.8% from 4Q22
Year-to-date 2024 loan production through February 2024 totaled $254.4 million with an 11.1% weighted average coupon (WAC)
Nonperforming loans as a percentage of Held for Investment (HFI) loans was 9.7%, a decrease from 10.1% as of September 30, 2023, and an increase from 8.3% as of December 31, 2022
Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $70.9 million in UPB,
Realizing gains of $1.5 million or 102.2% of UPB resolved
Portfolio net interest margin (NIM) of 3.52%, up 18 bps Q/Q and an increase of 68 bps from 2.84% for 4Q22
Completed the VCC 2023-4 securitization totaling $202.9 million of securities issued
Liquidity(2) of $63.2 million as of December 31, 2023
Non-recourse debt to equity ratio of 1.2 times
Book value per common share of $13.49 as of December 31, 2023, an increase from $13.00 as of September 30, 2023
Full-Year 2023 Highlights:
Total loan portfolio of $4.1 billion in UPB, an increase of 16.0% from December 31, 2022
Loan production volume of $1.1 billion in unpaid principal balance (UPB), a decrease from $1.8 billion for FY 2022
Net income of $52.3 million, compared to $32.2 million for FY 2022. Diluted earnings per share (EPS) of $1.52 in 2023, compared to $0.94 per share for FY 2022
Core Net Income(1) totaled $53.4 million in 2023, compared to $42.2 million for FY 2022. Core diluted EPS(1) of $1.54, compared to $1.24 per share for FY 2022
Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
Portfolio NIM of 3.34%, compared to 3.64% for FY 2022
Pretax return on equity of 17.5%, an increase from 12.2% for FY 2022
WESTLAKE VILLAGE, Calif., Mar. 07 /BusinessWire/ --
Velocity Financial, Inc. (NYSE:VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $52.3 million and core net income of $53.4 million for full-year 2023, compared to net income of $32.2 million and core net income of $42.2 million for the full-year 2022. Earnings and core earnings per diluted share were $1.52 and $1.54, respectively, for the full-year 2023, compared to $0.94 and $1.24 for the full-year 2022.
"I am pleased to announce that Velocity delivered record earnings for the fourth quarter and full year 2023, driven by strategic portfolio growth and proactive asset management," said Chris Farrar, President and CEO. "While higher interest rates and rising inflation presented significant challenges for the mortgage market last year, our dedicated and experienced team turned these challenges into opportunities and delivered strong financial and operational results. We successfully increased loan production each quarter in 2023, while also increasing mortgage coupons by 86 basis point from the average rate for 4Q22. As a result, our net interest margins increased 68 basis points from 4Q22, and our asset management team continued to enhance shareholder value with positive recovery rates. Recently, we announced a $75 million capital raise we are deploying into accretive investments to fuel additional growth and attain our "5X25" goal of a $5 billion loan portfolio by 2025."
Fourth Quarter Operating Results
KEY PERFORMANCE INDICATORS
($ in thousands)
4Q 2023
4Q 2022
$ Variance
% Variance
Pretax income
$
22,307
$
11,692
$
10,615
91
%
Net income
$
17,355
$
8,462
$
8,892
105
%
Diluted earnings per share
$
0.50
$
0.25
$
0.25
100
%
Core net income(a)
$
16,161
$
9,118
$
7,043
77
%
Core diluted earnings per share(a)
$
0.46
$
0.27
$
0.19
73
%
Pretax return on equity
20.66
%
12.37
%
n.a.
67
%
Core pretax return on equity(a)
20.84
%
13.61
%
n.a.
53
%
Net interest margin - portfolio
3.52
%
2.84
%
n.a.
24
%
Net interest margin - total company
3.10
%
2.36
%
n.a.
31
%
Average common equity
$
431,891
$
378,007
$
53,884
14
%
(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 4Q23 was $17.4 million, compared to $8.5 million for 4Q22
Driven by FV gains on new production and a 48.9% increase in net interest income
Core net income(1) was $16.2 million, compared to $9.1 million for 4Q22
4Q23 Core adjustments include a California apportionment tax liability reduction, incentive compensation expenses and costs related to the Company's employee stock purchase plan (ESPP)
Portfolio NIM in 4Q23 was 3.52%, compared to 2.84% for 4Q22, a 24.0% Y/Y increase driven by an increased average portfolio yield from higher loan coupons on recent loan production and growth in NPL resolution gains, partially offset by higher funding costs
The GAAP pretax return on equity was 20.7% for 4Q23, compared to 12.37% for 4Q22
TOTAL LOAN PORTFOLIO
($ of UPB in millions)
4Q 2023
4Q 2022
$ Variance
% Variance
Held for Investment
Investor 1-4 Rental
$
2,225
$
1,852
$
373
20
%
Mixed Use
475
443
32
7
%
Multi-Family
316
301
15
5
%
Retail
344
305
39
13
%
Warehouse
265
223
42
19
%
All Other
431
388
43
11
%
Total
$
4,056
$
3,512
$
543
15
%
Held for Sale
Investor 1-4 Rental
$
17
$
-
$
17
n.m.
Multi-Family
-
-
-
n.m.
Warehouse
-
-
-
n.m.
All Other
-
-
-
n.m.
Total Managed Loan Portfolio UPB
$
4,073
$
3,512
$
560
16
%
Key loan portfolio metrics:
Total loan count
10,477
8,893
Weighted average loan to value
67.8
%
68.2
%
Weighted average coupon
8.88
%
7.95
%
Weighted average total portfolio yield
8.70
%
7.51
%
Weighted average portfolio debt cost
5.75
%
5.23
%
n.m. - non meaningful
Discussion of results:
Velocity's total loan portfolio was $4.1 billion in UPB as of December 31, 2023, an increase of 16.0% from $3.5 billion in UPB as of December 31, 2022
Primarily driven by 20.2% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and a combined 15.2% Y/Y growth in loans collateralized by Retail and Warehouse properties
Loan prepayments totaled $118.0 million, an increase of 13.0% Q/Q and 35.7% Y/Y
The UPB of Fair Value (FVO) loans was $1.27 billion, or 31.1% of total HFI loans, as of December 31, 2023, an increase from $268.6 million in UPB and 7.6%, as of December 31, 2022
The company elected fair value accounting treatment for new loan originations effective October 1, 2022
The weighted average portfolio loan-to-value ratio was 67.8% as of December 31, 2023, down from 68.2% as of December 31, 2022, and consistent with the five-quarter trailing average of 68.8%
The weighted average total portfolio yield was 8.70% for 4Q23, an increase of 119 bps from 4Q22, driven by a 93 bps increase in average loan coupons from 4Q22
Portfolio-related debt cost for 4Q23 was 5.75%, an increase of 52 bps from 4Q22, driven by higher interest rates on 2023 securitizations and warehouse financing
LOAN PRODUCTION VOLUMES
($ in millions)
4Q 2023
4Q 2022
$ Variance
% Variance
Investor 1-4 Rental
$
183
$
169
$
14
9
%
Traditional Commercial
130
83
47
57
%
Short-term loans
39
26
13
49
%
Total loan production
$
352
$
278
$
74
27
%
Acquisitions
$
-
$
-
n.m. - non meaningful
Discussion of results:
Loan production for 4Q23 totaled $352.1 million in UPB, a 26.8% increase from $277.8 million in UPB for 4Q22
Driven by continued strong demand for business-purpose loans. On a Q/Q basis, production volume rose 21.2% from 3Q23.
The weighted average coupon (WAC) on 4Q23 HFI loan production was 11.2%, an increase of 86 bps from the WAC for 4Q22
HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)
4Q 2023
4Q 2022
$ Variance
% Variance
Nonperforming loans(a)
$
394,562
$
292,789
$
101,773
35
%
Average Nonperforming Loans
$
332,971
$
279,224
$
53,748
19
%
Nonperforming loans % total HFI Loans
9.7
%
8.3
%
n.a.
17
%
Total Charge Offs
$
744
$
-
$
744
n.a.
Charge-offs as a % of Avg. Nonperforming Loans(b)
0.89
%
0.00
%
n.a.
n.a.
Loan Loss Reserve
$
4,769
$
4,893
$
(124
)
(3
)%
(a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.
(b) 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 $394.6 million in UPB as of December 31, 2023, or 9.7% of loans HFI, compared to $279.2 million and 8.3% as of December 31, 2022
NPLs as a percentage of HFI loans decreased 32 bps from 10.1% as of September 30, 2023, driven by portfolio growth and a significant slowdown in the pace of loans transitioning to foreclosure
On a year-over-year basis, NPL growth was driven by the older, legacy amortized cost portfolio, and the Company's collection philosophy that places loans in foreclosure quickly for early delinquencies
Charge-offs for 4Q23 totaled $744.0 thousand, compared to no charge-offs for 4Q22
The trailing five-quarter charge-off average was $408.0 thousand
The loan loss reserve totaled $4.8 million as of December 31, 2023, a 2.5% decrease from $4.9 million as of December 31, 2022
Resulting from the continued run-off of the amortized cost HFI loan portfolio
Loans carried at fair value are not subject to a CECL reserve
NET REVENUES
($ in thousands)
4Q 2023
4Q 2022
$ Variance
% Variance
Interest income
$
86,269
$
65,632
$
20,638
31
%
Interest expense - portfolio related
(51,405
)
(40,854
)
(10,551
)
26
%
Net Interest Income - portfolio related
34,864
24,777
10,087
41
%
Interest expense - corporate debt
(4,140
)
(4,139
)
(1
)
0
%
Loan loss provision
(828
)
437
(1,264
)
(290
)%
Net interest income after provision for loan losses
$
29,897
$
21,076
$
8,821
42
%
Gain on disposition of loans
1,482
391
1,091
279
%
Unrealized (loss) gain on fair value loans
39,367
7,795
31,572
405
%
Unrealized gain (loss) on fair value of securitized debt
(24,085
)
-
(24,085
)
n.m.
Unrealized gain/(loss) on mortgage servicing rights
(1,208
)
(630
)
(578
)
92
%
Origination income
3,981
3,521
461
13
%
Bank interest income
1,716
-
1,716
n.m.
Other operating income (expense)
418
(288
)
706
(245
)%
Total Other operating income (expense)
$
21,670
$
10,789
$
10,881
101
%
Net Revenue
$
51,567
$
32,302
$
19,265
60
%
n.m. - non meaningful
Discussion of results:
Net Revenue in 4Q23 was $51.6 million, an increase of 59.6% compared to $32.3 million for 4Q22
Total net interest income, including corporate debt interest expense and loan loss provision, was $29.9 million for 4Q23, a 41.9% increase from $21.1 million for 4Q22
Portfolio net Interest income was $34.9 million for 4Q23, an increase of 40.7% from 4Q22 resulting from the increased size of our portfolio and a 68 bps increase in NIM
Total other operating income was $21.7 million for 4Q23 as compared to $10.8 million for 4Q22 driven largely by the FVO gains from 4Q23 originations
Gain on disposition of loans totaled $1.5 million for 4Q23, primarily resulting from loans transferred to REO
Net FVO marks on loans and securitized debt were $15.3 million as a result of new 4Q23 loan production and the decrease in Treasury rates during 4Q23
Origination income totaled $4.0 million, resulting from fee income realized on loans originated in 4Q23
OPERATING EXPENSES
($ in thousands)
4Q 2023
4Q 2022
$ Variance
% Variance
Compensation and employee benefits
$
15,143
$
11,793
$
3,350
28
%
Origination (income)/expense
173
1,328
(1,156
)
(87
)%
Securitization expenses
2,709
-
2,709
n.m.
Rent and occupancy
551
435
116
27
%
Loan servicing
4,636
3,244
1,392
43
%
Professional fees
1,733
1,091
642
59
%
Real estate owned, net
2,068
552
1,516
275
%
Other expenses
2,248
2,360
(112
)
(5
)%
Total operating expenses
$
29,260
$
20,804
$
8,456
41
%
n.m. - non meaningful
Discussion of results:
Operating expenses totaled $29.3 million for 4Q23, an increase of 40.7% from 4Q22, driven by higher compensation expenses from headcount growth and securitization expenses driven by impacts attributable to our fair value accounting election
Compensation expense totaled $15.1 million, compared to $11.8 million for 4Q22
Compensation growth was driven by hires of sales account executives and operational staff, in addition to commissions paid on higher loan production
Securitization expenses totaled $2.7 million, resulting from the issuance of the VCC 2023-4 securitization during the quarter. Securitization issuance costs are now expensed under fair value accounting and were deferred in 4Q22.
Loan servicing expense totaled $4.6 million, a 42.9% increase from $3.2 million for 4Q22, driven by the increase in our portfolio balance and nonperforming loans
REO expense increased totaled $2.1, an increase from $0.6 million for 4Q22, driven by increased valuation-related expenses
SECURITIZATIONS
($ in thousands)
Securities
Balance at
Balance at
Trusts
Issued
12/31/2023
W.A. Rate
12/31/2022
W.A. Rate
2016-1 Trust
319,809
$
-
0.00
%
$
22,369
8.59
%
2017-2 Trust
245,601
45,869
3.97
%
59,183
3.92
%
2018-1 Trust
176,816
33,505
4.03
%
43,596
4.05
%
2018-2 Trust
307,988
76,871
4.48
%
93,792
4.46
%
2019-1 Trust
235,580
76,391
4.07
%
91,167
4.06
%
2019-2 Trust
207,020
66,340
3.42
%
82,508
3.46
%
2019-3 Trust
154,419
58,089
3.29
%
67,899
3.25
%
2020-1 Trust
248,700
106,976
2.85
%
136,643
2.89
%
2020-2 Trust
96,352
45,180
4.61
%
60,445
4.60
%
2021-1 Trust
251,301
171,748
1.76
%
196,969
1.73
%
2021-2 Trust
194,918
143,797
2.02
%
170,072
2.02
%
2021-3 Trust
204,205
158,043
2.46
%
178,038
2.44
%
2021-4 Trust
319,116
244,919
3.22
%
273,489
3.20
%
2022-1 Trust
273,594
236,358
3.93
%
256,667
3.93
%
2022-2 Trust
241,388
210,217
5.07
%
233,045
5.07
%
2022-MC1 Trust
84,967
31,508
6.90
%
54,528
6.91
%
2022-3 Trust
296,323
257,047
5.70
%
280,066
5.67
%
2022-4 Trust
308,357
274,419
6.24
%
301,856
6.23
%
2022-5 Trust
188,754
162,925
7.06
%
186,577
7.10
%
2023-1 Trust
198,715
177,250
7.02
%
2023-1R Trust
64,833
58,237
7.68
%
2023-2 Trust
202,210
188,805
7.19
%
2023-RTL1 Trust
81,608
81,608
8.24
%
2023-3 Trust
234,741
227,228
7.82
%
2023-4 Trust
202,890
201,813
8.38
%
$
5,340,205
$
3,335,143
5.22
%
$
2,788,909
4.27
%
Discussion of results
The company completed one securitization during 4Q23 totaling $202.9 million of securities issued
The weighted average rate on Velocity's outstanding securitizations was 5.22% as of December 31, 2023, an increase of 94 bps from December 31, 2022
RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY
FOURTH QUARTER 2023
FOURTH QUARTER 2022
($ in thousands)
UPB $
Gain / (Loss) $
UPB $
Gain / (Loss) $
Paid in full
$
22,342
$
826
$
8,188
$
329
Paid current
36,026
206
9,648
21
REO sold (a)
1,588
140
2,404
67
Total resolutions
$
59,956
$
1,172
$
20,240
$
417
Resolutions as a % of nonperforming UPB
102.0
%
102.1
%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY
FOURTH QUARTER 2023
FOURTH QUARTER 2022
($ in thousands)
UPB $
Gain / (Loss) $
UPB $
Gain / (Loss) $
Paid in full
$
2,770
$
37
$
4,092
$
82
Paid current
7,560
13
457
-
REO sold
604
316
529
74
Total resolutions
$
10,934
$
366
$
5,078
$
156
Resolutions as a % of nonperforming UPB
103.3
%
103.1
%
Grand total resolutions
$
70,890
$
1,538
$
25,318
$
572
Grand total resolutions as a % of nonperforming UPB
102.2
%
102.3
%
Discussion of results:
NPL resolution totaled 70.9 million in UPB, realizing 102.2% of UPB resolved compared to $25.3 million in UPB and realization of 102.3% of UPB resolved for 4Q22
4Q23 NPL resolutions represented 18.3% of nonperforming loan UPB as of September 30, 2023
The UPB of loan resolutions in 4Q23 was 41.4% higher than the recent five-quarter resolution average of $50.1 million in UPB
Full-Year 2023 Operating Results
FULL-YEAR OPERATING RESULTS
($ in thousands)
FY 2023
FY 2022
$ Variance
% Variance
Investor 1-4 Rental
$
617
$
994
$
(377
)
(38
)%
Traditional Commercial
381
652
(271
)
(42
)%
Short-term loans
120
116
4
4
%
Total Loan production
$
1,118
$
1,762
$
(644
)
(37
)%
Net Interest Margin - Portfolio
3.34
%
3.64
%
n.a.
(8
)%
Average Nonperforming Loans
$
328,105
$
266,129
$
61,976
23
%
Total Net Interest Income(a)
105,836
81,996
$
23,840
29.1
%
Total Other Income
65,910
24,320
41,590
171.0
%
Total Expenses
119,472
74,106
45,365
61.2
%
Net Income
$
52,273
$
32,211
$
20,062
62
%
Diluted EPS
$
1.52
$
0.94
$
0.57
61
%
Core Income(b)
$
53,384
$
42,153
$
11,231
26.6
%
Core Diluted EPS(b)
$
1.54
$
1.24
$
0.30
24.5
%
Pretax Return on Equity
17.5
%
12.2
%
n.a.
42.8
%
(a) After provision for loan losses.
(b) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.
n.a.- not applicable
CHARGE-OFFS, GAIN/(LOSS) ON REO
($ in thousands)
FY 2023
FY 2022
$ Variance
% Variance
Average nonperforming loans for the period (a)
$
328,105
$
266,129
$
61,976
23
%
Charge-offs
(2,039
)
(521
)
$
(1,518
)
291
%
Charge-offs / Average nonperforming loans for the period (1)
-0.62
%
-0.20
%
$
(0
)
217
%
Gain on transfer of REO
7,412
3,408
$
4,004
117
%
Gain on sale of REO
568
2,939
$
(2,371
)
(81
)%
REO valuations, net
(3,903
)
(364
)
$
(3,539
)
972
%
Total gain/(loss) on REO
$
2,038
$
5,462
$
(3,424
)
(63
)%
(a) Reflects the monthly average of nonperforming loans held for investment during the period.
Discussion of results:
Loan production in FY 2023 totaled $1.1 billion in UPB, a 36.5% decrease from $1.8 billion in UPB for 2022
Driven by higher interest rates throughout most of FY 2023
Net interest margin (NIM) was 3.34% for FY 2023, a 30 bps decrease from 3.64% for FY 2022
Driven by higher securitization and warehouse financing costs
Partially offset by a higher weighted average coupon on 2023 loan production of 11.1% compared to 8.0% for FY 2022
Average NPLs were $328.1 million for FY 2023, an increase of 23.3% from the FY 2022 average of $266.1 million
Average NPLs as a percentage of average loans HFI were 8.7% for FY 2023, compared to 8.6% for FY 2022
Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
Net income totaled 52.3 million for FY 2023, a 62.3% increase from 32.2 million for FY 2022
Net interest income (after corporate interest expense and provision for loan losses) totaled $105.8 million, a 29.1% increase from $82.0 million in FY 2022, driven by HFI portfolio growth and higher coupons on FY 2023 loan production
Other income totaled $65.9 million, a 171.0% increase from $24.3 million in FY 2022, driven by the net impact of the Company's fair value accounting election for loan production originated after October 1, 2022, and unrealized fair value losses on securitized debt
Expenses totaled $119.5 million, a 61.2% increase from $74.1 million in FY 2022, driven by an increase in compensation expense related to the Company's fair value accounting election and securitization costs resulting from the issuance of six VCC securitizations in 2023. Under fair value accounting, securitization costs are expensed as incurred, whereas previously they were deferred and amortized over the life of the securitization.
Core net income(1) totaled $53.4 million, a 26.6% increase from $42.2 million for FY 2022
Core income adjustments totaled $1.1 million, compared to $9.9 million for FY 2022
Core diluted EPS was $1.54 per share, a 24.5% increase from $1.24 per share for FY 2022
Pretax return on equity was 17.5%, a 42.8% increase from 12.2% for FY 2022
Velocity's executive management team will host a conference call and webcast to review 4Q23 and Full-Year 2023 financial results on March 7th, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.
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 following the completion of the conference call.
Conference Call Information
To participate by phone, please dial-in 15 minutes before the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing 1-833-316-0544 in the U.S. and Canada and 1-412-317-5725 for international callers. Callers should ask to join the Velocity Financial, Inc. conference call.
A replay of the call will be available through midnight on March 14, 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 #7107943. 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 19 years.
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses non-GAAP core net income and core diluted EPS, which are non-GAAP financial measures.
Non-GAAP core net income and non-GAAP core diluted EPS are non-GAAP financial measures that represent our net income (loss) and net income (loss) per diluted share, adjusted to eliminate the effect of certain costs incurred from activities that are not normal recurring operating expenses, such as COVID-stressed charges and recoveries of loan loss provision, nonrecurring debt amortization, the impact of operational measures taken to address the COVID-19 pandemic and workforce reduction costs, and costs associated with acquisitions. To calculate non-GAAP core diluted EPS, we use the weighted-average number of shares of common stock outstanding that is used to calculate net income per diluted share under GAAP.
We have included non-GAAP core net income and non-GAAP core diluted EPS because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that non-GAAP core net income and non-GAAP core diluted EPS provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain items that we expect to be nonrecurring.
These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.
For more information on Core Income, please refer to the section of this press release below titled "Adjusted Financial Metric Reconciliation to GAAP Net Income" at the end of this press release.
Forward-Looking Statements
Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to anticipated results, expectations, projections, plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "goal," "position," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.
The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions, and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to, (1) the continued course and severity of the COVID-19 pandemic and its direct and indirect impacts, (2) general economic and real estate market conditions, including the risk of recession (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our future securitizations, and (6) the continued conflict in Ukraine and (7) changes in federal government fiscal and monetary policies.
Additional information relating to these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements can be found in the section titled ``Risk Factors" in our Form 10-Q filed with the SEC on May 14, 2020, as well as other cautionary statements we make in our current and periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.
Velocity Financial, Inc.
Consolidated Statements of Financial Condition
Quarter Ended
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Audited
Unaudited
Unaudited
Unaudited
Audited
(In thousands)
Assets
Cash and cash equivalents
$
40,566
$
29,393
$
33,987
$
39,397
$
45,248
Restricted cash
21,361
17,703
16,786
16,636
16,808
Loans held for sale, at fair value
17,590
19,536
-
18,081
-
Loans held for investment, at fair value
1,306,072
951,990
705,330
450,732
276,095
Loans held for investment
2,828,123
2,945,840
3,057,940
3,169,280
3,272,390
Total loans, net
4,151,785
3,917,366
3,763,270
3,638,093
3,548,485
Accrued interest receivables
27,028
24,756
22,602
20,931
20,463
Receivables due from servicers
85,077
70,139
63,896
64,133
65,644
Other receivables
8,763
236
1,306
2,188
1,075
Real estate owned, net
44,268
29,299
20,388
21,778
13,325
Property and equipment, net
2,785
2,861
3,023
3,209
3,356
Deferred tax asset
2,339
705
1,878
2,543
5,033
Mortgage Servicing Rights, at fair value
8,578
9,786
9,445
9,143
9,238
Derivative assets
-
1,261
-
-
-
Goodwill
6,775
6,775
6,775
6,775
6,775
Other assets
5,248
7,028
7,789
12,268
13,525
Total Assets
$
4,404,573
$
4,117,308
$
3,951,145
$
3,837,094
$
3,748,975
Liabilities and members' equity
Accounts payable and accrued expenses
$
121,969
$
97,869
$
95,344
$
84,976
$
91,525
Secured financing, net
211,083
210,774
210,464
210,155
209,846
Securitized debt, net
2,418,811
2,504,334
2,622,547
2,657,469
2,736,290
Securitized debt, at fair value
877,417
669,139
381,799
194,941
-
Warehouse & repurchase facilities
334,755
215,176
235,749
298,313
330,814
Derivative liability
3,665
-
-
-
-
Total Liabilities
3,967,700
3,697,292
3,545,903
3,445,854
3,368,475
Stockholders' Equity
Stockholders' equity
433,444
416,398
401,707
387,624
376,811
Noncontrolling interest in subsidiary
3,429
3,618
3,535
3,616
3,689
Total equity
436,873
420,016
405,242
391,240
380,500
Total Liabilities and members' equity
$
4,404,573
$
4,117,308
$
3,951,145
$
3,837,094
$
3,748,975
Book value per share
$
13.49
$
13.00
$
12.57
$
12.18
$
11.89
Shares outstanding
32,395(1)
32,314(2)
32,239(3)
32,112(4)
31,996(5)
(1) 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.
(2) 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.
(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 32,111,906 common shares outstanding as of March 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 490,526.
(5) Based on 31,955,730 common shares outstanding as of December 31, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139..
Velocity Financial, Inc.
Consolidated Statements of Income (Quarters)
Quarter Ended
($ in thousands)
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Revenues
Interest income
$
86,269
$
79,088
$
74,897
$
70,521
$
65,632
Interest expense - portfolio related
51,405
47,583
45,451
42,029
40,854
Net interest income - portfolio related
34,864
31,505
29,446
28,492
24,778
Interest expense - corporate debt
4,140
4,138
4,139
4,139
4,139
Net interest income
30,724
27,367
25,307
24,353
20,639
Provision for loan losses
828
154
298
636
(437
)
Net interest income after provision for loan losses
29,897
27,213
25,009
23,717
21,076
Other operating income
Gain on disposition of loans
1,482
3,606
1,237
1,913
391
Unrealized gain (loss) on fair value loans
39,367
(1,284
)
2,413
7,354
7,795
Unrealized gain (loss) on fair value securitized debt
(24,085
)
9,692
5,560
(170
)
-
Origination income
3,981
3,323
2,735
2,411
3,521
Bank interest income
1,716
1,342
1,188
948
-
Other income (expense)
418
340
601
482
(288
)
Total other operating income
21,670
17,360
14,036
12,842
11,419
Net revenue
51,567
44,573
39,046
36,560
32,495
Operating expenses
Compensation and employee benefits
15,143
12,523
10,670
10,008
11,793
Origination expenses
173
273
123
(50
)
1,328
Securitizations expenses
2,709
4,930
2,699
2,584
-
Rent and occupancy
551
472
458
446
435
Loan servicing
4,636
4,901
4,267
3,828
3,244
Professional fees
1,733
854
1,056
955
1,091
Real estate owned, net
2,068
1,239
1,018
1,829
552
Other operating expenses
2,248
2,142
1,931
2,202
2,360
Total operating expenses
29,260
27,334
22,222
21,802
20,804
Income before income taxes
22,307
17,239
16,824
14,757
11,692
Income tax expense
5,141
5,070
4,602
4,021
3,465
Net income
17,166
12,169
12,222
10,736
8,227
Net income attributable to noncontrolling interest
(189
)
83
39
87
(235
)
Net income attributable to Velocity Financial, Inc.
17,355
12,086
12,183
10,649
8,462
Less undistributed earnings attributable to participating securities
225
183
185
160
127
Net earnings attributable to common shareholders
$
17,130
$
11,903
$
11,998
$
10,489
$
8,335
Basic earnings (loss) per share
$
0.53
$
0.37
$
0.37
$
0.33
$
0.26
Diluted earnings (loss) per common share
$
0.50
$
0.35
$
0.36
$
0.31
$
0.25
Basic weighted average common shares outstanding
32,326
32,275
32,122
32,098
31,923
Diluted weighted average common shares outstanding
34,991
34,731
34,140
34,052
34,063
Velocity Financial, Inc.
Consolidated Statements of Income (Years)
Year Ended
($ in thousands)
12/31/2023
12/31/2022
Audited
Audited
Revenues
Interest income
$
310,776
$
240,343
Interest expense - portfolio related
186,468
127,723
Net interest income - portfolio related
124,308
112,620
Interest expense - corporate debt
16,556
29,472
Net interest income
107,750
83,148
Provision for loan losses
1,915
1,152
Net interest income after provision for loan losses
105,836
81,996
Other operating income
Gain on disposition of loans
8,238
7,107
Unrealized gain (loss) on fair value loans
47,850
8,265
Unrealized gain (loss) on fair value securitized debt
(9,002
)
-
Origination income
12,450
5,225
Bank interest income
5,194
-
Other income (expense)
1,840
1,637
Total other operating income
65,910
24,320
Net revenue
171,745
106,316
Operating expenses
Compensation and employee benefits
48,344
30,458
Origination expenses
518
3,985
Securitizations expenses
12,923
-
Rent and occupancy
1,927
1,748
Loan servicing
17,631
12,298
Professional fees
4,599
4,179
Real estate owned, net
6,153
(70
)
Other operating expenses
8,524
9,166
Total operating expenses
100,618
61,764
Income before income taxes
71,127
44,553
Income tax expense
18,834
12,033
Net income
52,293
32,519
Net income attributable to noncontrolling interest
19
308
Net income attributable to Velocity Financial, Inc.
52,273
32,211
Less undistributed earnings attributable to participating securities
753
491
Net earnings attributable to common shareholders
$
51,520
$
31,720
Basic earnings (loss) per share
$
1.60
$
0.99
Diluted earnings (loss) per common share
$
1.52
$
0.94
Basic weighted average common shares outstanding
32,206
31,913
Diluted weighted average common shares outstanding
34,484
34,131
Velocity Financial, Inc.
Net Interest Margin - Portfolio Related and Total Company
(Unaudited)
Quarters:
Quarter Ended December 31, 2023
Quarter Ended September 30, 2023
Quarter Ended December 31, 2022
Interest
Average
Interest
Average
Interest
Average
Average
Income /
Yield /
Average
Income /
Yield /
Average
Income /
Yield /
($ in thousands)
Balance
Expense
Rate(1)
Balance
Expense
Rate(1)
Balance
Expense
Rate(1)
Loan portfolio:
Loans held for sale
$
14,918
$
3,170
$
64,699
Loans held for investment
3,949,642
3,770,460
3,430,296
Total loans
$
3,964,560
$
86,268
8.70
%
$
3,773,631
$
79,088
8.38
%
$
3,494,995
$
65,632
7.51
%
Debt:
Warehouse and repurchase facilities
$
255,266
6,040
9.46
%
$
192,855
4,943
10.25
%
$
286,094
5,776
8.08
%
Securitizations
3,320,467
45,365
5.46
%
3,186,756
42,640
5.35
%
2,838,315
35,078
4.94
%
Total debt - portfolio related
3,575,733
51,405
5.75
%
3,379,610
47,583
5.63
%
3,124,409
40,854
5.23
%
Corporate debt
215,000
4,138
7.70
%
215,000
4,138
7.70
%
215,000
4,139
7.70
%
Total debt
$
3,790,733
$
55,543
5.86
%
$
3,594,610
$
51,721
5.76
%
$
3,339,409
$
44,993
5.39
%
Net interest spread - portfolio related (2)
2.95
%
2.75
%
2.28
%
Net interest margin - portfolio related
3.52
%
3.34
%
2.84
%
Net interest spread - total company (3)
2.84
%
2.63
%
2.11
%
Net interest margin - total company
3.10
%
2.90
%
2.36
%
(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.
Years:
Year Ended December 31, 2023
Year Ended December 31, 2022
Year Ended December 31, 2021
Interest
Average
Interest
Average
Interest
Average
Average
Income /
Yield /
Average
Income /
Yield /
Average
Income /
Yield /
($ in thousands)
Balance
Expense
Rate
Balance
Expense
Rate
Balance
Expense
Rate
Loan portfolio:
Loans held for sale
$
8,615
$
49,194
$
15,794
Loans held for investment
3,716,582
3,043,003
2,110,053
Total loans
$
3,725,197
$
310,775
8.34
%
$
3,092,198
$
240,343
7.77
%
$
2,125,847
$
181,968
8.56
%
Debt:
Warehouse and repurchase facilities
$
227,911
21,726
9.53
%
$
292,490
17,454
5.97
%
$
183,663
9,706
5.28
%
Securitizations
3,113,500
164,742
5.29
%
2,458,332
110,269
4.49
%
1,630,385
75,680
4.64
%
Total debt - portfolio related
3,341,411
186,468
5.58
%
2,750,822
127,723
4.64
%
1,814,048
85,386
4.71
%
Corporate debt
215,000
16,556
7.70
%
205,979
29,472
14.31
%
154,890
20,609
13.31
%
Total debt
$
3,556,411
$
203,024
5.71
%
$
2,956,801
$
157,195
5.32
%
$
1,968,938
$
105,995
5.38
%
Net interest spread - portfolio related (1)
2.76
%
3.13
%
3.85
%
Net interest margin - portfolio related
3.34
%
3.64
%
4.54
%
Net interest spread - total company (2)
2.63
%
2.46
%
3.18
%
Net interest margin - total company
2.89
%
2.69
%
3.57
%
(1) 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.
(2) 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.
Velocity Financial, Inc.
Adjusted Financial Metric Reconciliation to GAAP Net Income
(Unaudited)
Quarters:
Core Net Income
Quarter Ended
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Net Income
$
17,355
$
12,086
$
12,183
$
10,649
$
8,462
Tax liability reduction
(1,866
)
-
-
-
-
Equity award & ESPP costs
673
832
745
728
656
Core Net Income
$
16,161
$
12,918
$
12,928
$
11,376
$
9,118
Diluted weighted average common shares outstanding
34,991
34,731
34,140
34,052
34,063
Core diluted earnings per share
$
0.46
$
0.37
$
0.38
$
0.33
$
0.27
Years:
Core Net Income
Year Ended
12/31/2023
12/31/2022
Net Income
$
52,273
$
32,211
Corporate debt refinancing costs
-
$
9,286
Tax liability reduction
(1,866
)
-
Equity award & ESPP costs
2,977
656
Core Net Income
$
53,384
$
42,153
Diluted weighted average common shares outstanding
