VEL Velocity Financial Inc

Fourth Quarter Highlights:

• Net income of $8.5 million and diluted earnings per share (EPS) of $0.25, compared to $8.4 million and $0.24 per share, respectively, for 4Q21
• Core net income(1) of $9.1 million and core diluted EPS(1) of $0.27, compared to $10.1 million and $0.29 per share, respectively, for 4Q21
• Loan production volume of $277.8 million in unpaid principal balance (UPB), a decrease of 44.2% from 4Q21
  • Production in 4Q22 strategically reduced due to volatility in the securitization market
• Total loan portfolio of $3.5 billion as of December 31, 2022, an increase of 35.8% from December 31, 2021
• Nonaccrual loans as a percentage of Held for Investment (HFI) loans was 8.3% as of December 31, 2022, down from 10.9% as of December 31, 2021
• Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $25.3 million in UPB, realizing gains of $0.6 million or 102.3% of UPB resolved
• Portfolio net interest margin (NIM) of 2.84%, compared to 4.27% in 4Q21
• Completed one VCC securitization in 4Q22 totaling $188.8 million of securities issued
• Liquidity(2) of $64.2 million as of December 31, 2022
• Book value per common share of $11.89 as of December 31, 2022
• Elected to apply fair value option (“FVO”) accounting to new originations effective October 1, 2022, to better align our results with economic value

Full-Year 2022 Highlights:

• Net income of $32.2 million, compared to $29.2 million in 2021
• Diluted earnings per share (EPS) of $0.94 in 2022, compared to $0.86 per share in 2021
• Core Net Income(1) totaled $42.2 million in 2022, compared to $33.3 million in 2021
• Core diluted EPS(1) of $1.24, compared to $0.98 per share in 2021
• Loan production volume of $1.8 billion in unpaid principal balance (UPB), an increase of 32.9% from 2021
• Charge-offs in 2022 totaled $0.5 million, a 59.6% decrease from $1.3 million in 2021
• Portfolio NIM of 3.64%, compared to 4.54% in 2021

(1) Core income and Core EPS are a non-GAAP measures that exclude nonrecurring and unusual activities from GAAP net income. (2) Liquidity includes unrestricted cash reserves of $45.2 million, available liquidity in unfinanced loans of $14.0 million and $5.0 million of available securities repurchase capacity.

Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company) reported net income of $32.2 million and core net income of $42.2 million for the full-year 2022, compared to net income of $29.2 million and core net income of $33.3 million in 2021. Earnings and core earnings per diluted share were $0.94 and $1.24, respectively, for the full-year 2022, compared to $0.86 and $0.98, respectively, for the full-year 2021.

“2022 was an exceptional year for Velocity,” said Chris Farrar, President and CEO. “This year, we delivered record loan production, portfolio growth of 36%, and the highest annual GAAP and Core net income in the Company’s history. While the market environment presented us with challenges resulting from the precipitous rise in interest rates, Velocity’s extensive track record of solid performance allowed us to issue six securitizations throughout the year, facilitating our impressive portfolio growth. We see considerable potential to grow our core business, which is underpinned by persistent demand for income-generating rental properties and small businesses that want to own the property where they operate. Across the broader mortgage landscape, opportunities for growth are emerging, and we remain diligent in assessing opportunities that complement our long-term strategic mission.”

Fourth Quarter Operating Results

KEY PERFORMANCE INDICATORS ($ in thousands)

4Q 2022

4Q 2021

$ Variance % Variance Pretax income

$

11,692

 

$

11,377

 

$

315

 

2.8

%

Net income

$

8,462

 

$

8,353

 

$

109

 

1.3

%

Diluted earnings per share

$

0.25

 

$

0.24

 

$

0

 

1.9

%

Core net income(a)

$

9,118

 

$

10,081

 

$

(963

)

(9.6

)%

Core diluted earnings per share(a)

$

0.27

 

$

0.29

 

$

(0

)

(9.0

)%

Pretax return on equity

 

12.37

%

 

13.75

%

n.a.

(10.0

)%

Core pretax return on equity(a)

 

13.61

%

 

16.59

%

n.a.

(18.0

)%

Net interest margin - portfolio

 

2.84

%

 

4.27

%

n.a.

(33.7

)%

Net interest margin - total company

 

2.36

%

 

3.53

%

n.a.

(33.1

)%

Average common equity

$

378,007

 

$

330,968

 

$

47,039

 

14.2

%

(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.

Discussion of results:

• Net income in 4Q22 was $8.5 million, compared to $8.4 million in 4Q21
• Core net income(1) was $9.1 million, a decrease of 9.6% from $10.1 million in 4Q21 primarily from lower NIM
• Portfolio NIM in 4Q22 was 2.84% compared to 4.27% from 4Q21, as a result of portfolio yields decreasing 70 bps and interest expense increasing 65 bps.
• The GAAP pretax return on equity was 12.37% in 4Q22, compared to 13.75% in 4Q21
  • Driven by a 14.2% year-over-year increase in the average equity balance from 4Q21

TOTAL LOAN PORTFOLIO ($ of UPB in millions)

 

4Q 2022

 

 

4Q 2021

 

$ Variance % Variance Held for Investment Investor 1-4 Rental

$

1,852

 

$

1,225

 

$

627

 

51.2

%

Mixed Use

 

443

 

 

331

 

 

113

 

34.1

%

Multi-Family

 

301

 

 

228

 

 

73

 

32.2

%

Retail

 

305

 

 

234

 

 

71

 

30.2

%

Warehouse

 

223

 

 

173

 

 

51

 

29.3

%

All Other

 

388

 

 

309

 

 

78

 

25.3

%

Total

$

3,512

 

$

2,500

 

 

1,013

 

40.5

%

Held for Sale Multi-Family

$

-

 

$

87

 

$

(87

)

(100.0

)%

Total Managed Loan Portfolio UPB

$

3,512

 

$

2,587

 

$

925

 

35.8

%

Key loan portfolio metrics: Total loan count

 

8,893

 

 

6,964

 

Weighted average loan to value

 

68.2

%

 

67.7

%

Weighted average coupon

 

7.95

%

 

7.76

%

Weighted average total portfolio yield

 

7.51

%

 

8.21

%

Weighted average portfolio debt cost

 

5.23

%

 

4.58

%

Discussion of results:

• Velocity’s total loan portfolio was $3.5 billion in UPB as of December 31, 2022, an increase of 35.8% from $2.6 billion in UPB as of December 31, 2021
  • Driven by strong loan production volume and reduced payoff activity
  • Payoff activity totaled $84.6 million in UPB in 4Q22, a decrease of 39.7% from $140.3 million in 4Q21. As a result, we recognized less delinquent interest, which reduced portfolio yields
  • The UPB of FVO loans was $268.6 million as of December 31, 2022
• The weighted average portfolio loan-to-value ratio was 68.2% as of December 31, 2022, consistent with the 67.7% as of December 31, 2021, and the five-quarter trailing average of 68.1%
• The weighted average total portfolio yield was 7.51% in 4Q22, a decrease of 70 bps from 4Q21, driven primarily by fewer payoffs resulting in less delinquent interest collected
• Portfolio-related debt cost in 4Q22 was 5.23%, an increase of 65 bps from 4Q21 driven by higher interest rates

LOAN PRODUCTION VOLUMES ($ in millions)

4Q 2022

4Q 2021

$ Variance % Variance Investor 1-4 Rental

$

169

$

267

$

(98

)

(36.8

)%

Traditional Commercial

$

83

 

 

203

 

 

(120

)

(59.2

)%

Short-term loans

$

26

 

 

27

 

 

(1

)

(4.8

)%

Total loan production

$

277.8

 

$

498

 

$

(220

)

(44.2

)%

  Acquisitions

$

-

 

$

10

 

Discussion of results:

• Loan production in 4Q22 totaled $277.8 million in UPB, a 44.2% decrease from $497.8 million in UPB in 4Q21
  • Driven by the decision to restrict lending due to securitization market volatility
• The weighted average coupon (WAC) on 4Q22 HFI loan production was 9.7%, an increase of 78 bps from 3Q22 and 339 basis points from 4Q21

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS ($ in thousands)

4Q 2022

4Q 2021

$ Variance % Variance Nonperforming loans(a)

$

292,789

 

$

273,101

 

$

19,688

 

7.2

%

Average Nonperforming Loans

$

279,224

 

$

274,112

 

$

5,112

 

1.9

%

Average Loan HFI

$

3,430,296

 

$

2,363,987

 

$

1,066,309

 

45.1

%

Nonperforming loans % total HFI Loans

 

8.3

%

 

10.9

%

n.a.

(24.0

)%

Total Charge Offs

$

-

 

$

143

 

$

(143

)

n.m Charge-offs as a % of Avg. Nonperforming Loans(b)

 

0.00

%

 

0.21

%

n.a. n.m Loan Loss Reserve

$

4,893

 

$

4,262

 

$

631

 

14.8

%

(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.m. - non meaningful

Discussion of results:

• Nonperforming loans (NPL) totaled $292.8 million in UPB as of December 31, 2022, or 8.3% of loans HFI, compared to $273.1 million and 10.9%, respectively, as of December 31, 2021
• Charge-offs in 4Q22 totaled $0.0 compared to $142.7 thousand in 4Q21
  • The trailing five-quarter charge-off average was $132.6 thousand
• The loan loss reserve totaled $4.9 million as of December 31, 2022, a 14.8% increase from $4.3 million as of December 31, 2021
  • New originations or acquisitions where FVO accounting is elected will not be subject to a CECL reserve
• Since the program's inception in April 2020, capitalized interest recovered on COVID forbearance loans totaled $4.3 million, with a remaining balance of $7.2 million as of December 31, 2022. None of the capitalized interest has been forgiven.

NET REVENUES ($ in thousands)

 

4Q 2022

 

 

4Q 2021

 

$ Variance % Variance Interest income

$

65,632

 

$

49,360

 

$

16,272

 

33.0

%

Interest expense - portfolio related

 

(40,854

)

 

(23,666

)

 

(17,188

)

72.6

%

Net Interest Income - portfolio related

 

24,777

 

 

25,694

 

 

(917

)

(3.6

)%

Interest expense - corporate debt

 

(4,139

)

$

(4,462

)

 

323

 

(7.2

)%

Net Interest Income

$

20,638

 

$

21,232

 

$

(594

)

(2.8

)%

Loan loss provision

 

437

 

 

(377

)

 

814

 

(215.8

)%

Gain on disposition of loans

 

391

 

 

2,357

 

 

(1,966

)

(83.4

)%

Unrealized gain/(loss) on fair value loans

 

7,795

 

 

11

 

 

7,784

 

n.m Unrealized gain/(loss) on mortgage servicing rights

 

(630

)

 

-

 

 

(630

)

n.m Other operating income (expense)

 

3,472

 

 

249

 

 

3,223

 

n.m Net Revenue

$

32,105

 

$

23,472

 

$

8,632

 

36.8

%

n.m. - non meaningful

Discussion of results:

• Net Revenue increased 36.8%, driven by higher other operating income as a result of our FVO election for new originations
• Total net interest income, including corporate debt interest expense, decreased by $0.6 million, or 2.8% from 4Q21
  • Interest income grew by $16.3 million from 4Q21 as a result of the higher portfolio balance, offset by lower yields
  • Portfolio interest expense increased by $17.2 million from 4Q21 as a result of higher warehouse balances and increased interest rates
• The company elected fair value accounting treatment for all HFI loan originations effective October 1, 2022
  • The unrealized fair value gain on loans originated during 4Q22 was $7.8 million
  • Other operating income in 4Q22 included $3.1 million of origination fees
  • Recognized additional compensation and production-related expenses of approximately $4.6 million
• The valuation loss in our mortgage servicing right (MSR) asset was $0.6 million, driven by a decrease in the servicing portfolio due to payoffs and an increase in the assumed CPR

OPERATING EXPENSES ($ in thousands)

 

4Q 2022

 

 

4Q 2021

 

$ Variance % Variance Compensation and employee benefits

$

11,793

$

4,720

$

7,073

 

149.9

%

Rent and occupancy

 

435

 

 

429

 

 

6

 

1.4

%

Loan servicing

 

3,244

 

 

2,480

 

 

764

 

30.8

%

Professional fees

 

1,091

 

 

1,716

 

 

(625

)

(36.4

)%

Real estate owned, net

 

552

 

 

417

 

 

135

 

32.3

%

Other expenses

 

3,297

 

 

2,333

 

 

964

 

41.3

%

Total operating expenses

$

20,413

 

$

12,095

 

$

8,318

 

68.8

%

Discussion of results:

• Operating expenses totaled $20.4 million in 4Q22, an increase of 68.8% from 4Q21
  • The increase in compensation and employee benefit expense resulted from the company’s fair value election. Compensation expense related to loan originations is expensed as incurred under fair value accounting rather than deferred over the life of the loan under amortized cost accounting
  • Servicing expense growth was driven by the increase in securitizations outstanding to $2.8 billion as of December 31, 2022 from $1.9 billion as of December 31, 2021
  • The growth in other expenses compared to 4Q21 relates to miscellaneous FVO production-related expenses that were previously deferred

SECURITIZATIONS ($ in thousands) Securities Balance at Balance at Trusts Issued 12/31/2022 W.A. Rate 12/31/2021 W.A. Rate 2015-1 Trust

 

285,457

 

-

-

$

17,536

7.22%

2016-1 Trust

 

319,809

 

22,369

8.59%

 

36,401

8.22%

2017-2 Trust

 

245,601

 

59,183

3.92%

 

86,497

3.37%

2018-1 Trust

 

176,816

 

43,596

4.05%

 

62,375

4.04%

2018-2 Trust

 

307,988

 

93,792

4.46%

 

143,152

4.39%

2019-1 Trust

 

235,580

 

91,167

4.06%

 

132,306

4.02%

2019-2 Trust

 

207,020

 

82,508

3.46%

 

122,205

3.44%

2019-3 Trust

 

154,419

 

67,899

3.25%

 

95,521

3.26%

2020-1 Trust

 

248,700

 

136,643

2.89%

 

174,550

2.82%

2020-2 Trust

 

96,352

 

60,445

4.60%

 

80,676

4.45%

2020-MC1 Trust

 

179,371

 

-

-

 

35,711

4.42%

2021-1 Trust

 

251,301

 

196,969

1.73%

 

236,190

1.73%

2021-2 Trust

 

194,918

 

170,072

2.02%

 

197,744

2.28%

2021-3 Trust

 

204,205

 

178,038

2.44%

 

202,793

2.45%

2021-4 Trust

 

319,116

 

273,489

3.20%

 

315,489

3.11%

2022-1 Trust

 

273,594

 

256,667

3.93%

2022-2 Trust

 

241,388

 

233,045

5.07%

2022-MC1 Trust

 

84,967

 

54,528

6.91%

2022-3 Trust

 

296,323

 

280,066

5.67%

2022-4 Trust

 

308,357

 

301,856

6.23%

2022-5 Trust

 

188,754

 

186,577

7.10%

$

4,820,036

$

2,788,909

4.27%

$

1,939,146

3.20%

 

Discussion of results

• Completed the VCC 2022-5 securitization totaling $188.8 million of securities issued in October, comprised of Investor 1-4 and Traditional Commercial long-term loans
• The weighted average rate on Velocity’s outstanding securitizations increased 107 bps from December 31, 2021, driven by higher rates on securitizations issued in 2022
• After quarter end, the Company completed the VCC 2023-1 securitization totaling $198.7 million of securities issued in January 2023

RESOLUTION ACTIVITIES     LONG-TERM LOANS           RESOLUTION ACTIVITY FOURTH QUARTER 2022 FOURTH QUARTER 2021 ($ in thousands) UPB $   Gain / (Loss) $ UPB $   Gain / (Loss) $ Paid in full

$

8,188

 

$

329

$

11,464

 

$

614

Paid current

 

9,648

 

 

21

 

12,209

 

 

290

REO sold (a)

 

2,404

 

 

67

 

1,770

 

 

121

Total resolutions

$

20,240

 

$

417

$

25,443

 

$

1,025

      Resolutions as a % of nonperforming UPB  

 

102.1%

 

 

104.0%

      SHORT-TERM AND FORBEARANCE LOANS         RESOLUTION ACTIVITY FOURTH QUARTER 2022 FOURTH QUARTER 2021 ($ in thousands) UPB $   Gain / (Loss) $ UPB $   Gain / (Loss) $ Paid in full

$

4,092

 

$

82

$

12,567

 

$

623

Paid current

 

457

 

 

-

 

5,837

 

 

67

REO sold

 

529

 

 

74

 

266

 

 

48

Total resolutions

$

5,078

 

$

156

$

18,670

 

$

738

      Resolutions as a % of nonperforming UPB  

 

103.1%

 

 

104.0%

      Grand total resolutions

$

25,318

 

$

572

$

44,113

 

$

1,763

      Grand total resolutions as a % of nonperforming UPB  

 

102.3%

 

 

104.0%

Discussion of results:

• Total NPL and REO resolution activities in 4Q22 totaled $25.3 million in UPB and realized net gains of $0.6 million, or 102.3% of UPB resolved, compared to $44.1 million in UPB and net gains of $1.8 million, or 104.0% of UPB resolved in 4Q21
  • Long-term loan and REO resolutions in 4Q22 totaled $20.2 million in UPB and realized gains of $0.4 million, compared to $25.4 million in UPB and realized gains of $1.0 million in 4Q21
  • Short-term loan and REO resolutions in 4Q22 totaled $5.1 million in UPB and realized gains of $0.2 million, compared to $18.7 million in UPB and realized gains of $0.74 million in 4Q21
• Loans resolutions in 4Q22 were $15.2 million in UPB below the recent five quarter resolution average of $40.5 million in UPB.
  • Expect resolutions to increase in 2023 to levels consistent with the historical average

Full-Year 2022 Operating Results

FULL-YEAR OPERATING RESULTS ($ in thousands) FY 2022 FY 2021 $ Variance % Variance Investor 1-4 Rental

$

994

 

$

746

 

$

247

 

33.2

%

Traditional Commercial

 

652

 

 

512

 

 

140

 

27.2

%

Short-term loans

 

116

 

 

67

 

 

49

 

73.0

%

Total Loan production

$

1,762

 

$

1,326

 

$

436

 

32.9

%

  Net Interest Margin - Portfolio

 

3.64

%

 

4.54

%

n.a.

(19.8

)%

Average Nonperforming Loans

$

266,129

 

$

307,562

 

$

(41,433

)

(13.5

)%

Charge-offs as a % of Avg. Nonperforming Loans(b)

 

0.20

%

 

0.42

%

n.a.

(53.4

)%

Total charge-offs

$

521

 

$

1,291

 

$

(770

)

(59.6

)%

  Total Net Interest Income(a)

 

81,996

 

 

76,265

 

$

5,731

 

7.5

%

Total Other Income

 

22,225

 

 

8,188

 

 

14,037

 

171.4

%

Total Expenses

 

72,011

 

 

55,229

 

 

16,782

 

30.4

%

Net Income

$

32,211

 

$

29,224

 

$

2,987

 

10.2

%

  Diluted EPS

$

0.94

 

$

0.86

 

$

0.08

 

9.7

%

  Core Income(c)

$

42,153

 

$

33,278

 

$

8,874

 

26.7

%

  Core Diluted EPS(c)

$

1.24

 

$

0.98

 

$

0.26

 

26.1

%

(a)

 

After provision for loan losses.

(b)

 

Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.

(c)

 

Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.

Discussion of results:

• Loan production in 2022 totaled $1.8 billion in UPB, a 32.9% increase from $1.3 billion in UPB in 2021
  • Record strong demand for single-family rentals and smaller commercial properties nationwide
• Net interest margin (NIM) was 3.64% in 2022, a 90 bps decrease from 4.54% in 2021
  • The decrease is a result of higher securitization and warehouse financing costs driven by the rapid increase in interest rates and lower realized portfolio yields
• Charge-offs in 2022 totaled $0.5 million, a 59.6% decrease from $1.3 million in 2021
  • As a percentage of average nonperforming loans, charge-offs were 0.20% in 2022, a decrease from 0.42% in 2021. The decrease reflects our continued strong underwriting process and successful loss mitigation by Velocity’s special servicing team.
• Net income totaled 32.2 million in 2022, a 10.2% increase from 29.2 million in 2021
  • Net interest income (after provision for loan losses) totaled $82.0 million, a 7.5% increase from $76.3 million in 2021, driven by HFI portfolio growth, partially offset by lower portfolio yields
  • Other income totaled $22.2 million, a 171.4% increase from $8.2 million in 2021, driven by the Company’s fair value accounting election for loan production originated after October 1, 2022, MSR valuation gains and production fee income
  • Expenses totaled $72.0 million, a 30.4% increase from $55.2 million in 2021, driven by an increase in compensation expense related to the Company’s fair value accounting election and servicing costs resulting from the issuance of six new VCC securitizations in 2022
• Core net income(1) totaled $42.2 million, a 26.7% increase from $32.3 million in 2021
  • 2022 core income adjustment totaled $9.9 million related to the Company’s corporate debt refinancing in March 2022, in addition to equity incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP) in 4Q22
• Core diluted EPS was $1.24 per share, a 26.1% increase from $0.98 per share in 2021

Velocity’s executive management team will host a conference call and webcast to review 4Q22 and Full-Year 2022 financial results on March 9th, 2023, 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 go to 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 31, 2023, 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 #1703714. 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 investor 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 18 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, LLC

Consolidated Statements of Financial Condition

  Quarter Ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Unaudited Unaudited Unaudited Unaudited Unaudited (In thousands) Assets Cash and cash equivalents

$

45,248

$

26,372

$

46,250

$

36,629

$

35,965

Restricted cash

 

16,808

 

14,533

 

9,217

 

10,837

 

11,639

Loans held for sale, net

 

-

 

-

 

-

 

77,503

 

87,908

Loans held for sale, at fair value

 

-

 

16,569

 

-

 

-

 

-

Loans held for investment, at fair value

 

276,095

 

926

 

1,351

 

1,352

 

1,359

Loans held for investment

 

3,272,390

 

3,445,563

 

3,118,799

 

2,828,302

 

2,527,564

Total loans, net

 

3,548,485

 

3,463,058

 

3,120,150

 

2,907,156

 

2,616,831

Accrued interest receivables

 

20,463

 

18,333

 

15,820

 

14,169

 

13,159

Receivables due from servicers

 

65,644

 

66,992

 

75,688

 

78,278

 

74,330

Other receivables

 

1,075

 

1,962

 

1,320

 

4,527

 

1,812

Real estate owned, net

 

13,325

 

13,188

 

19,218

 

16,177

 

17,557

Property and equipment, net

 

3,356

 

3,495

 

3,632

 

3,690

 

3,830

Deferred tax asset

 

5,033

 

4,337

 

15,195

 

16,477

 

16,604

Mortgage Servicing Rights, at fair value

 

9,238

 

9,868

 

8,438

 

7,661

 

7,152

Goodwill

 

6,775

 

6,775

 

6,775

 

6,775

 

6,775

Other assets

 

13,525

 

18,453

 

11,036

 

7,345

 

6,824

Total Assets

$

3,748,975

$

3,647,366

$

3,332,739

$

3,109,721

$

2,812,478

  Liabilities and members' equity Accounts payable and accrued expenses

$

91,525

$

75,150

$

78,384

$

92,768

$

92,195

Secured financing, net

 

209,846

 

209,537

 

209,227

 

208,956

 

162,845

Securitizations, net

 

2,736,290

 

2,651,895

 

2,477,226

 

2,035,374

 

1,911,879

Warehouse & repurchase facilities

 

330,814

 

340,050

 

208,390

 

424,692

 

301,069

Total Liabilities

 

3,368,475

 

3,276,632

 

2,973,227

 

2,761,790

 

2,467,988

  Mezzanine Equity Series A Convertible preferred stock

 

-

 

-

 

-

 

-

 

-

Stockholders' Equity Stockholders' equity

 

376,811

 

366,810

 

355,895

 

344,441

 

341,109

Noncontrolling interest in subsidiary

 

3,689

 

3,924

 

3,617

 

3,491

 

3,381

Total equity

 

380,500

 

370,734

 

359,512

 

347,932

 

344,490

Total Liabilities and members' equity

$

3,748,975

$

3,647,366

$

3,332,739

$

3,109,722

$

2,812,478

    Book value per share

$

11.89

$

11.61

$

11.26

$

10.90

$

10.84

  Shares outstanding

 

31,996

 

31,922

 

31,922

 

31,913

 

31,787

Velocity Financial, Inc.

Consolidated Statements of Income (Quarters)

  Quarter Ended ($ in thousands) 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Revenues Interest income

$

65,632

 

$

63,419

 

$

59,243

 

$

52,049

 

$

49,360

Interest expense - portfolio related

 

40,854

 

 

34,561

 

 

28,752

 

 

23,556

 

 

23,666

Net interest income - portfolio related

 

24,778

 

 

28,858

 

 

30,491

 

 

28,493

 

 

25,694

Interest expense - corporate debt

 

4,139

 

 

4,011

 

 

4,182

 

 

17,140

 

 

4,462

Net interest income

 

20,639

 

 

24,847

 

 

26,309

 

 

11,353

 

 

21,232

Provision for loan losses

 

(437

)

 

580

 

 

279

 

 

730

 

 

377

Net interest income after provision for loan losses

 

21,076

 

 

24,267

 

 

26,030

 

 

10,623

 

 

20,855

Other operating income Gain on disposition of loans

 

391

 

 

399

 

 

1,776

 

 

4,540

 

 

2,357

Unrealized gain/(loss) on fair value loans

 

7,795

 

 

453

 

 

6

 

 

11

 

 

11

Unrealized gain/(loss) on mortgage servicing rights

 

(630

)

 

1,430

 

 

776

 

 

510

 

 

-

Other income (expense)

 

3,472

 

 

227

 

 

481

 

 

587

 

 

249

Other operating income (expense)

 

11,029

 

 

2,509

 

 

3,039

 

 

5,648

 

 

2,617

Net revenue

 

32,105

 

 

26,776

 

 

29,070

 

 

16,271

 

 

23,472

  Operating expenses Compensation and employee benefits

 

11,793

 

 

6,788

 

 

6,553

 

 

5,323

 

 

4,720

Rent and occupancy

 

435

 

 

445

 

 

426

 

 

442

 

 

429

Loan servicing

 

3,244

 

 

3,314

 

 

3,290

 

 

2,450

 

 

2,480

Professional fees

 

1,091

 

 

664

 

 

1,062

 

 

1,362

 

 

1,716

Real estate owned, net

 

552

 

 

(195

)

 

(251

)

 

(175

)

 

417

Other operating expenses

 

3,297

 

 

1,711

 

 

3,199

 

 

2,848

 

 

2,333

Total operating expenses

 

20,413

 

 

12,727

 

 

14,279

 

 

12,250

 

 

12,095

Income before income taxes

 

11,692

 

 

14,049

 

 

14,790

 

 

4,021

 

 

11,377

Income tax expense

 

3,465

 

 

3,759

 

 

4,019

 

 

790

 

 

3,024

Net income

 

8,227

 

 

10,290

 

 

10,771

 

 

3,231

 

 

8,353

Net income attributable to noncontrolling interest

 

(235

)

 

307

 

 

126

 

 

110

 

 

-

Net income attributable to Velocity Financial, Inc.

 

8,462

 

 

9,983

 

 

10,645

 

 

3,121

 

 

8,353

Less undistributed earnings attributable to participating securities

 

127

 

 

152

 

 

164

 

 

48

 

 

362

Net earnings attributable to common shareholders

$

8,335

 

$

9,831

 

$

10,481

 

$

3,073

 

$

7,991

  Basic earnings (loss) per share

$

0.26

 

$

0.31

 

$

0.33

 

$

0.10

 

$

0.26

  Diluted earnings (loss) per common share

$

0.25

 

$

0.29

 

$

0.31

 

$

0.09

 

$

0.24

  Basic weighted average common shares outstanding

 

31,923

 

 

31,922

 

 

31,917

 

 

31,892

 

 

30,897

  Diluted weighted average common shares outstanding

 

34,063

 

 

34,199

 

 

34,057

 

 

34,204

 

 

34,257

Velocity Financial, Inc.

Consolidated Statements of Income (Annual)

  Year Ended ($ in thousands) 12/31/2022 12/31/2021 Revenues Interest income

$

240,343

 

$

181,968

 

Interest expense - portfolio related

 

127,723

 

 

85,386

 

Net interest income - portfolio related

 

112,620

 

 

96,582

 

Interest expense - corporate debt

 

29,472

 

 

20,609

 

Net interest income

 

83,148

 

 

75,973

 

Provision for loan losses

 

1,152

 

 

(292

)

Net interest income after provision for loan losses

 

81,996

 

 

76,265

 

Other operating income Gain on disposition of loans

 

7,107

 

 

7,892

 

Unrealized gain/(loss) on fair value loans

 

8,265

 

 

29

 

Unrealized gain/(loss) on mortgage servicing rights

 

2,086

 

 

-

 

Other income (expense)

 

4,767

 

 

267

 

Other operating income (expense)

 

22,225

 

 

8,188

 

Net revenue

 

104,220

 

 

84,453

 

  Operating expenses Compensation and employee benefits

 

30,458

 

 

19,190

 

Rent and occupancy

 

1,748

 

 

1,769

 

Loan servicing

 

12,298

 

 

8,282

 

Professional fees

 

4,179

 

 

3,781

 

Real estate owned, net

 

(70

)

 

3,150

 

Other operating expenses

 

11,056

 

 

8,488

 

Total operating expenses

 

59,669

 

 

44,660

 

Income before income taxes

 

44,552

 

 

39,793

 

Income tax expense

 

12,033

 

 

10,569

 

Net income

 

32,519

 

 

29,224

 

Net income attributable to noncontrolling interest

 

308

 

 

-

 

Net income attributable to Velocity Financial, Inc.

 

32,211

 

 

29,224

 

Less undistributed earnings attributable to participating securities

 

491

 

 

8,589

 

Net earnings attributable to common shareholders

$

31,720

 

$

20,635

 

  Basic earnings (loss) per share

$

0.99

 

$

0.90

 

  Diluted earnings (loss) per common share

$

0.94

 

$

0.86

 

  Basic weighted average common shares outstanding

 

31,913

 

 

22,813

 

  Diluted weighted average common shares outstanding

 

34,131

 

 

33,982

 

Velocity Financial, Inc.

Net Interest Margin ‒ Portfolio Related and Total Company

(Unaudited)

 

Quarters:

  Quarter Ended December 31, 2022 Quarter Ended December 31, 2021 Interest Average Interest Average Average Income / Yield / Average Income / Yield / ($ in thousands) Balance Expense Rate(1) Balance Expense Rate(1) Loan portfolio: Loans held for sale

$

64,699

$

40,464

Loans held for investment

 

3,430,296

 

2,363,987

Total loans

$

3,494,995

$

65,632

7.51%

$

2,404,451

$

49,360

8.21%

  Debt: Warehouse and repurchase facilities

$

284,178

 

5,776

8.13%

$

271,761

 

3,273

4.82%

Securitizations

 

2,840,230

 

35,077

4.94%

 

1,796,543

 

20,392

4.54%

Total debt - portfolio related

 

3,124,409

 

40,853

5.23%

 

2,068,304

 

23,665

4.58%

Corporate debt

 

215,000

 

4,139

7.70%

 

171,926

 

4,463

10.38%

Total debt

$

3,339,409

$

44,992

5.39%

$

2,240,230

$

28,128

5.02%

  Net interest spread - portfolio related (2)

2.28%

3.63%

Net interest margin - portfolio related

2.84%

4.27%

  Net interest spread - total company (3)

2.11%

3.19%

Net interest margin - total company

2.36%

3.53%

(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.

Annual:

  Year Ended December 31, 2022 Year Ended December 31, 2021 Interest Average Interest Average Average Income / Yield / Average Income / Yield / ($ in thousands) Balance Expense Rate(1) Balance Expense Rate(1) Loan portfolio: Loans held for sale

$

49,194

$

15,794

Loans held for investment

 

3,043,003

 

2,110,053

Total loans

$

3,092,198

$

240,343

7.77%

$

2,125,847

$

181,968

8.56%

  Debt: Warehouse and repurchase facilities

$

292,490

 

17,454

5.97%

$

183,663

 

9,706

5.28%

Securitizations

 

2,458,332

 

110,269

4.49%

 

1,630,385

 

75,680

4.64%

Total debt - portfolio related

 

2,750,822

 

127,723

4.64%

 

1,814,048

 

85,386

4.71%

Corporate debt

 

205,979

 

29,472

14.31%

 

154,890

 

20,609

13.31%

Total debt

$

2,956,801

$

157,195

5.32%

$

1,968,938

$

105,995

5.38%

  Net interest spread - portfolio related (2)

3.13%

3.85%

Net interest margin - portfolio related

3.64%

4.54%

  Net interest spread - total company (3)

2.46%

3.18%

Net interest margin - total company

2.69%

3.57%

(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.

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

 

Quarters:

  Core Income Quarter Ended 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021   Net Income

$

8,462

$

9,983

$

10,645

$

3,121

$

8,353

Deal cost write-off - collapsed securitizations

 

-

 

-

 

 

-

 

-

$

1,104

One-time Century Health & Housing Capital deal costs

 

-

 

-

 

 

-

 

-

$

624

Recovery of Loan Loss Provision

 

-

 

-

 

 

-

 

-

 

-

Corporate debt refinancing costs

 

-

 

-

 

 

-

$

9,286

 

-

Equity award & ESPP costs

$

656

 

-

 

 

-

$

-

 

-

Core Income

$

9,118

$

9,983

 

$

10,645

$

12,407

$

10,081

  Diluted weighted average common shares outstanding

 

34,063

 

34,199

 

 

34,057

 

34,204

 

34,257

Core diluted earnings per share

$

0.27

$

0.29

 

$

0.31

$

0.36

$

0.29

Annual:

  Core Income Year Ended 12/31/2022 12/31/2021   Net Income

$

32,211

$

29,224

 

Deal cost write-off - collapsed securitizations

 

-

 

1,104

 

One-time Century Health & Housing Capital deal costs

 

-

 

624

 

Recovery of Loan Loss Provision

 

-

 

(1,000

)

Corporate debt refinancing costs

 

9,286

 

3,326

 

Equity award & ESPP costs

 

656

 

-

 

Core Income

$

42,153

$

33,278

 

  Diluted weighted average common shares outstanding

$

34,131

$

33,982

 

Core diluted earnings per share

$

1.24

$

0.98

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230309005684/en/

Investors and Media: Chris Oltmann (818) 532-3708