8-K: Velocity Financial Reports Record Full-Year 2024 Results Driven by Strong Loan Production

Velocity Financial announces strong fourth quarter and full-year 2024 results, driven by record loan production and effective non-performing loan resolutions.

Summary

• Velocity Financial, Inc. reported net income of $20.6 million for the fourth quarter of 2024, an 18.6% increase compared to $17.4 million in 4Q23.
• Core net income for 4Q24 was $21.8 million, up 34.6% from $16.2 million in 4Q23.
• Loan production reached $563.5 million in UPB, marking an 18.2% increase from 3Q24 and a 60.0% increase from 4Q23.
• Year-to-date 2025 loan production through February reached $429.4 million.
• Nonperforming loans (NPL) as a percentage of Held for Investment (HFI) loans was 10.7%, slightly up from 10.6% as of September 30, 2024, and 9.7% as of December 31, 2023.
• Resolutions of NPL and real estate owned (REO) totaled $79.4 million in UPB with realized gains of $5.6 million, or 107.0% of UPB resolved.
• The portfolio net interest margin (NIM) was 3.70%, an increase of 10 bps from 3.60% for 3Q24 and 18 bps from 3.52% for 4Q23.
• The company completed VCC 2024-5 and VCC 2024-6 securitizations totaling $292.9 million and $293.9 million, respectively.
• Liquidity stood at $95.9 million with total available warehouse line capacity of $435.0 million as of December 31, 2024.
• The recourse debt to equity ratio was 1.2x.
• GAAP book value per common share was $15.70 as of December 31, 2024, a 16.4% increase from $13.49 as of December 31, 2023.
• The company issued $7.3 million in new common equity through the Velocity At The Market (ATM) program.
• For the full year 2024, Velocity reported net income of $68.4 million and core net income of $72.9 million, compared to $52.3 million and $53.4 million, respectively, for 2023.
• Earnings and core earnings per diluted share were $1.91 and $2.03, respectively, for the full year 2024, compared to $1.52 and $1.54 for the full year 2023.

Sentiment

Score: 9

Explanation: The document presents a highly positive outlook with record earnings, strong loan production growth, and successful NPL resolutions. The management's comments further reinforce this positive sentiment.

Positives

• Record full-year earnings driven by strong production and high underwriting standards.
• Significant growth in loan production, particularly in traditional commercial financing.
• Increase in portfolio net interest margin (NIM) indicates improved profitability.
• Successful resolution of non-performing loans (NPL) with realized gains exceeding UPB resolved.
• Strong increase in GAAP book value per common share.
• Strategic growth of the origination platform and focus on underserved market segments.
• Net REO gains were $6.9 million, up from a net gain of $4.1 million for FY 2023.
• Core diluted EPS(1) was $2.03 per share, a 31.8% increase from $1.54 per share for FY 2023.

Negatives

• Nonperforming loans (NPL) as a percentage of Held for Investment (HFI) loans increased slightly to 10.7%.

Risks

• General economic and real estate market conditions, including the risk of recession, could impact future performance.
• Regulatory and/or legislative changes could affect the company's operations.
• Market conditions and investor interest in future securitizations could impact funding costs.
• Continued conflict in Ukraine and Israel and changes in federal government fiscal and monetary policies could create uncertainty.

Future Outlook

Velocity is poised to build on our momentum to drive sustained earnings growth and enhanced long-term shareholder value.

Management Comments

• Velocity delivered impressive earnings in the fourth quarter and full year 2024, said Chris Farrar, President and CEO.
• The Company's record full-year 2024 earnings were driven by continued strong production, which also reached record levels in 2024, on both a UPB and loans produced basis and by maintaining high underwriting standards.
• Our success resulted from ongoing initiatives to grow and streamline our loan production platform to capture a greater share of the large but fragmented business purpose loan market.
• I'm especially proud of our team's ability to achieve outstanding production volume growth while remaining focused on maintaining strong returns with average loan coupons of 11 percent.
• This discipline is a key driver of our strong earnings and the reason we exceeded our 5x25 goal of $5 billion in UPB loan portfolio by 2025.

Industry Context

Velocity Financial operates in the business purpose loan market, which is characterized as large but fragmented. The company's focus on streamlining its loan production platform and maintaining high underwriting standards positions it to capture a greater share of this market.

Comparison to Industry Standards

• It is difficult to compare Velocity Financial directly to industry standards without specific competitor data.
• However, the company's focus on business purpose loans and its vertically integrated model are relatively unique.
• Some comparable companies might include those specializing in non-QM lending or commercial real estate finance, but their business models and target markets may differ significantly.
• For example, companies like Arbor Realty Trust or Starwood Property Trust operate in the broader commercial real estate finance space, but their focus is typically on larger loans and different property types.
• In the non-QM space, companies like Angel Oak Companies are closer comparables, but their specific financial metrics and business strategies would need to be analyzed for a more detailed comparison.

Stakeholder Impact

• Shareholders will likely view the results positively due to the increased earnings and book value per share.
• Employees may benefit from increased compensation and opportunities due to the company's growth.
• Customers may experience improved service and product offerings as the company streamlines its operations.
• Suppliers and creditors may benefit from the company's financial stability and growth prospects.

Next Steps

• The executive management team will host a conference call and webcast on March 6th, 2025, to review the financial results.
• The company aims to build on its momentum to drive sustained earnings growth and enhance long-term shareholder value.

Key Dates