Velocity Financial, Inc. Announces Fourth Quarter and Full Year 2020 Results
03/16/2021 - 04:15 PM
Velocity Financial, Inc. (NYSE: VEL) (“Velocity” or the “Company”) reported net income and core income of $9.6 million for the fourth quarter of 2020 and diluted earnings per common share of $0.29 . Book value per common share was $10.93 , an increase from $10.44 as of December 31, 2020.
“The fourth quarter marked a significant turning point in the Company’s emergence from the effects of the pandemic,” said Chris Farrar, President and CEO. “The excellent operating results reflect the strength of our business model, despite unprecedented economic stress in 2020. I am proud of our team’s return to increasing production levels and the ongoing positive resolution of delinquent loans. We have continued to drive momentum in our production activities as we move into 2021, and looking forward, we expect to organically grow originations and opportunistically evaluate other areas to deploy capital profitably.”
Fourth Quarter Operating Results
KEY PERFORMANCE INDICATORS
($ in thousands)
4Q 2020
3Q 2020
$ Variance
% Variance
Pretax income
$ 11,753
$ 5,025
$ 6,728
134%
Net income
$ 9,576
$ 3,481
$ 6,095
175%
Diluted earnings (loss) per share
$ 0.29
$ 0.11
$ 0.18
165%
Core Income(1)
$ 9,576
$ 3,913
$ 5,663
145%
Pretax return on equity
21.82%
9.60%
n.a.
127%
Return on equity
17.78%
6.60%
n.a.
169%
Net interest margin - portfolio
4.07%
3.77%
n.a.
8%
Net interest margin -total company
3.68%
3.39%
n.a.
9%
Operating Margin
52.24%
29.75%
n.a.
76%
Average common equity
$ 215,489
$ 209,468
$ 6,021
3%
(1) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.
Discussion of results:
4Q20 net income totaled $9.6 million , an increase from $3.5 million in 3Q20, and reflects improved portfolio income and gain on the sale of newly originated loans
‒ Gain on loan sales in 4Q20 totaled $4.7 million (105% of UPB). There were no loan sales in 3Q20
Net interest margin increased 30 bps from 3Q20, driven by growth in realization of delinquent/default interest on nonperforming loans and prepayment fees, along with lower portfolio related debt costs
TOTAL LOAN PORTFOLIO
($ of UPB in millions)
4Q 2020
3Q 2020
$ Variance
% Variance
Held for Investment
Investor 1-4 Rental
$ 959
$ 1,008
$ (49)
(5)%
Mixed Use
259
254
5
2%
Multi-Family
182
187
(5)
(3)%
Retail
172
173
(1)
(0)%
All Other
360
364
(4)
(1)%
Total
$ 1,932
$ 1,986
$ (54)
(7)%
Held for Sale
Investor 1-4 Rental
$ 13
$ -
$ 13
n.m.
Total Managed Loan Portfolio UPB
$ 1,945
$ 1,986
$ (42)
(2)%
Key loan portfolio metrics:
Total loan count
5,878
6,029
Weighted average loan to value
66.13%
66.18%
Weighted average total portfolio yield
8.40%
8.21%
Weighted average portfolio debt cost
4.97%
5.07%
n.m. - non meaningful
Discussion of results:
Velocity’s total loan portfolio was $1.9 billion as of December 31, 2020, a 2% quarter-over-quarter decrease from September 30, 2020
‒ Driven by loan sales of $96.3 million in UPB and higher prepayment activity
The weighted average total portfolio yield was 8.40% in 4Q20, an increase of 19 bps from 3Q20, primarily driven by the increased realization of nonperforming/default interest and prepayment fees
The 10 bps decrease in portfolio related debt cost was attributable to the relatively faster paydown of 2020-2-MC1 securitization, which is the Company’s only outstanding securitization collateralized primarily by short-term loans
LOAN PRODUCTION VOLUMES
($ in millions)
4Q 2020
3Q 2020
$ Variance
% Variance
Investor 1-4 Rental
$ 129
$ 6
n.m.
n.m.
Traditional Commercial
50
2
n.m.
n.m.
Total loan production
$ 179
$ 8
n.m.
n.m.
n.m. - non meaningful
Discussion of results:
The fourth quarter was Velocity’s first full quarter of production since the Company suspended originations in mid-March, funding $179.3 million in UPB of 30-year Investor 1-4 and Traditional Commercial loans
Loan production in 1Q21 through February 28, 2021, totaled $125.5 million in UPB
CREDIT PERFORMANCE INDICATORS
($ in thousands)
4Q 2020
3Q 2020
$ Variance
% Variance
Nonperforming loans(1)
$ 332,813
$ 314,727
$ 18,086
6%
Nonperforming loans % total HFI Loans
17.23%
15.84%
n.a.
9%
Total Charge Offs(2)
$ 308
$ 1,046
$ (738)
(71)%
Charge-offs as a % of HFI loans
0.016%
0.053%
n.a.
(70)%
Loan Loss Reserve
$ 5,845
$ 5,748
$ 97
2%
(1) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.
(2) $788 thousand of 3Q 2020 is related to an unusual and nonrecurring event.
Discussion of results:
Nonperforming loans as a percent of total HFI loans as of December 31, 2020, increased to 17.23% from 15.84% as of September 30, 2020, mainly driven by modified COVID forbearance loans that became delinquent
Charge-offs in 4Q20 totaled $308.4 thousand , in-line with our historical average
‒ The prior quarter’s charge-offs included $787.3 thousand resulting from an unusual circumstance on a single loan
The reserve for loan losses as of December 31, 2020, was $5.8 million , a 2% increase from September 30, 2020, reflecting continued low actual credit losses despite higher levels of nonperforming loans
‒ Low LTVs and considerable expertise in loan resolutions through Velocity’s in-house special servicing team helps minimize losses
NET REVENUES
($ in thousands)
4Q 2020
3Q 2020
$ Variance
% Variance
Interest income
$ 41,556
$ 41,374
$ 182
0%
Interest expense - portfolio related
(21,442)
(22,347)
905
(4)%
Interest expense - corporate debt
(1,900)
(1,913)
13
(1)%
Net Interest Income
$ 18,214
$ 17,114
$ 1,100
6%
Loan loss provision
(406)
(1,573)
1,167
(74)%
Gain on loan sales
4,855
(51)
4,906
n.m.
Other Operating (loss) income
(164)
1,400
(1,564)
(112)%
Total Net Revenues
$ 22,499
$ 16,890
$ 5,609
33%
n.m. - non meaningful
Discussion of results:
Net Revenue grew by 33% quarter-over-quarter, driven by sales of newly originated loans and increased net interest income
Lower loan loss provision reflects continued low losses on delinquent loans and stabilization of macroeconomic conditions
OPERATING EXPENSES
($ in thousands)
4Q 2020
3Q 2020
$ Variance
% Variance
Compensation and employee benefits
$ 4,135
$ 5,692
$ (1,557)
(27)%
Rent and occupancy
424
415
9
2%
Loan servicing
1,977
2,168
(191)
(9)%
Professional fees
1,415
1,051
364
35%
Real estate owned, net
217
898
(681)
(76)%
Other expenses
2,578
1,641
937
57%
Total expenses
$ 10,746
$ 11,865
$ (1,119)
(9)%
Discussion of results:
Operating expenses decreased 9% quarter-over-quarter due to deferred direct loan origination costs attributable to new originations, partially offset by legal costs related to the successful defense of a class-action lawsuit
SECURITIZATIONS
Securities
Balance at
Balance at
Trusts
Issued
12/31/2020
W.A. Rate
9/30/2020
W.A. Rate
2011-1 Trust
$ 61,042
$ -
-
$ -
-
2014-1 Trust
161,076
23,391
7.46%
25,599
6.97%
2015-1 Trust
285,457
36,966
7.20%
41,190
7.52%
2016-1 Trust
319,809
57,963
7.78%
62,339
7.54%
2016-2 Trust
166,853
45,195
6.63%
46,984
6.40%
2017-1 Trust
211,910
72,910
5.31%
80,174
5.08%
2017-2 Trust
245,601
129,478
3.42%
138,456
3.34%
2018-1 Trust
176,816
102,063
4.04%
110,262
4.02%
2018-2 Trust
307,988
200,451
4.48%
208,206
4.51%
2019-1 Trust
235,580
181,579
4.01%
192,856
4.05%
2019-2 Trust
207,020
158,199
3.48%
168,819
3.42%
2019-3 Trust
154,419
127,045
3.26%
132,893
3.25%
2020-1 Trust
248,700
220,052
2.83%
233,005
2.84%
2020-2 Trust
96,352
109,832
4.55%
94,113
4.48%
2020-MC1 Trust
179,371
137,794
4.50%
162,173
4.50%
$ 3,057,994
$ 1,602,917
$ 1,697,069
Discussion of results:
Securitization balances outstanding $1.6 billion as of December 31, 2020, down from $1.7 billion at the end of the prior quarter, driven by paydown of the 2020-MC1 securitization collateralized primarily with short-term loans
No new securitizations were issued during 4Q20. The Company’s next securitization is expected to be issued during 2Q21
RESOLUTION ACTIVITY
FOURTH QUARTER 2020
THIRD QUARTER 2020
($ in thousands)
UPB $
Gain / (Loss) $
UPB $
Gain / (Loss) $
Paid in full
$ 16,370
$ 115
$ 9,705
$ 728
Paid current
13,414
880
1,152
24
REO sold
237
69
1,628
(312)
$ 30,022
$ 1,063
$ 12,485
$ 439.9
Resolutions as a % of nonperforming UPB
103.5%
103.5%
Discussion of results:
Strong asset resolution trends continued in 4Q20, realizing gains of $1.1 million , or 103.5% of nonperforming UPB resolved, compared to $439.9 thousand in the prior quarter.
Full Year 2020 Results
Net income totaled $17.8 million , a 3% year-over-year increase from $17.3 million in the prior year
Loss per common share of $(1.55) , resulting from a non-cash deemed dividend on preferred stock issued in 2Q20
‒ The preferred stock deemed dividend reduced common stockholders’ equity and correspondingly increased preferred stock under mezzanine equity, resulting in a non-cash loss per common share for the 12-months ended December 31, 2020
Pretax income of $23.1 million , a 9% decrease from $25.4 million in the prior year primarily driven by a $10.5 million increase in operating expenses resulting primarily from higher compensation and employee benefits related to the suspension of loan production activities. The increase in expenses was partially offset by an $8.4 million increase in net interest income.
Total net interest income was $67.4 million , a 14% increase from $59.0 million in the prior year, driven by a 15% increase in average loans outstanding that was partially offset by a 24 bps decrease in net interest margin.
Total loan production of $435.0 million in UPB, down from $1.0 billion in UPB in the prior year
‒ Loan production activities in 2020 were adversely impacted by the COVID-19 pandemic, resulting in the suspension of loan production operations from March 2020 to September 2020
‒ Loan production since the resumption of operations is comprised of long-term Investor 1-4 Rental and Traditional Commercial loans
Charge-offs for the year totaled $1.6 million , a 176% increase from $579.1 thousand in 2019
‒ Charge-offs in 2020 included a single loan charge-off of $788.3 thousand , resulting from an unusual and nonrecurring event. Adjusted charge-offs for the year ended December 31, 2020, totaled $812.7 thousand .
Total operating expenses were $45.6 million , a 30% increase from $35.1 million in the prior year. The increase was primarily driven by higher compensation and employee benefits related to the suspension of loan production activities.
Pretax return on equity was 11% , and decreased from 17% in the prior year, and reflects the resilience of Velocity’s business model in the face of extreme and unprecedented impacts from the pandemic
Webcast Information
Velocity’s executive management team will host a conference call and webcast to review its financial results on Tuesday, March 16, 2021, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.
The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of Velocity Financial’s Investor Relations website at 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 and to download and install any needed software.
Management’s slide presentation will be available through the Events and Presentations section of the Company’s Investor Relations website after the market close on Tuesday, March 16, 2021.
Conference Call Information
To participate by phone, please dial-in 15 minutes prior to the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing 1-866-807-9684 in the U.S. and Canada and 1-412-317-5415 for international callers. Callers should ask to be joined into the Velocity Financial, Inc. earnings call.
A replay of the call will be available through midnight on March 23, 2021, 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 #10152720. 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 15 years.
(1) Core Income is a non-GAAP financial measure the Company presents to help investors better understand unique items that impact earnings. For a reconciliation of GAAP Net Income to Core Income, please refer to the sections of this press release titled “Non-GAAP Financial Measures” and “Adjusted Financial Metric Reconciliation to GAAP Net Income.”
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), the Company uses Core Income, which is a non-GAAP financial measure. 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,” 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, (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 contemplated securitization and (6) 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
12/31/2020
9/30/2020
6/30/2020
3/31/2020
12/31/2019
Audited
Unaudited
Unaudited
Unaudited
Audited
(In thousands)
Assets
Cash and cash equivalents
$ 13,273
$ 19,210
$ 9,803
$ 7,649
$ 21,465
Restricted cash
7,020
7,821
6,735
4,483
6,087
Loans held for sale, net
13,106
0
212,344
223,123
214,467
Loans held for investment, at fair value
1,539
3,327
2,956
2,987
2,960
Loans held for investment
1,948,089
2,001,086
1,861,819
1,922,485
1,863,360
Total loans, net
1,962,734
2,004,413
2,077,119
2,148,595
2,080,787
Accrued interest receivables
11,373
13,134
17,793
14,470
13,295
Receivables due from servicers
71,044
44,466
36,028
37,884
49,659
Other receivables
4,085
402
4,609
2,516
4,778
Real estate owned, net
15,767
14,653
15,648
16,164
13,068
Property and equipment, net
4,145
4,446
4,718
4,964
4,680
Deferred tax asset
6,654
1,832
5,556
10,111
8,280
Other assets
6,779
16,489
9,042
10,519
12,667
Total Assets
$ 2,102,874
$ 2,126,866
$ 2,187,051
$ 2,257,354
$ 2,214,766
Liabilities and members' equity
Accounts payable and accrued expenses
$ 63,361
$ 61,859
$ 55,938
$ 58,591
$ 56,146
Secured financing, net
74,982
74,776
74,571
74,364
145,599
Securitizations, net
1,579,019
1,670,930
1,599,719
1,576,431
1,438,629
Warehouse & repurchase facilities
75,923
19,541
160,796
297,537
421,548
Total Liabilities
1,793,285
1,827,106
1,891,024
2,006,924
2,061,922
Mezzanine Equity
Series A Convertible preferred stock
90,000
90,000
90,000
-
-
Stockholders' Equity
Stockholders' equity
219,589
209,760
206,027
250,430
152,844
Total Liabilities and members' equity
$ 2,102,874
$ 2,126,866
$ 2,187,051
$ 2,257,354
$ 2,214,766
Book value per share
$ 10.93
$ 10.44
$ 10.26
$ 12.47
n.a.
Shares outstanding
20,087
20,087
20,087
20,087
n.a.
Velocity Financial, LLC
Consolidated Statements of Income (Quarterly)
Quarter Ended
Quarter Ended
($ in thousands)
12/31/2020
9/30/2020
6/30/2020
3/31/2020
12/31/2019
Audited
Unaudited
Unaudited
Unaudited
Audited
Revenues
Interest income
$ 41,556
$ 41,374
$ 39,755
$ 44,637
$ 44,124
Interest expense - portfolio related
21,442
22,347
21,189
22,848
22,689
Net interest income - portfolio related
20,114
19,027
18,566
21,789
21,435
Interest expense - corporate debt
1,900
1,913
1,894
6,342
4,070
Net interest income
18,214
17,114
16,672
15,447
17,365
Provision for loan losses
406
1,573
1,800
1,289
242
Net interest income after provision for loan losses
17,808
15,541
14,872
14,157
17,123
Other operating income (expense)
4,691
1,349
(1,339)
1,620
833
Total net revenues
22,499
16,890
13,533
15,777
17,956
Operating expenses
Compensation and employee benefits
4,135
5,692
5,863
5,041
3,992
Rent and occupancy
424
415
448
455
426
Loan servicing
1,977
2,168
1,754
2,239
1,939
Professional fees
1,415
1,051
588
1,184
469
Real estate owned, net
217
898
408
1,134
1,300
Other operating expenses
2,578
1,641
1,847
1,998
1,688
Total operating expenses
10,746
11,865
10,908
12,050
9,814
Income before income taxes
11,753
5,025
2,625
3,727
8,142
Income tax expense
2,177
1,544
484
1,148
2,960
Net income
$ 9,576
$ 3,481
$ 2,141
$ 2,579
$ 5,182
Less deemed dividends on preferreds stock
$ 48,955
Net loss allocated to common shareholders
$ (46,814)
Basic earnings (loss) per share
$ 0.48
$ 0.17
$ (2.33)
$ 0.13
n.a.
Diluted earnings (loss) per common share
$ 0.29
$ 0.11
$ (2.33)
$ 0.13
n.a.
Basic weighted average common shares outstanding
20,087
20,087
20,087
20,087
n.a.
Diluted weighted average common shares outstanding
32,793
32,435
20,087
20,087
n.a.
Velocity Financial, LLC
Consolidated Statements of Income(Annual)
Year Ended
($ in thousands)
12/31/2020
12/31/2019
12/31/2018
Audited
Audited
Audited
Revenues
Interest income
$ 167,322
$ 157,531
$ 124,722
Interest expense - portfolio related
87,826
83,903
62,597
Net interest income - portfolio related
79,496
73,628
62,125
Interest expense - corporate debt
12,049
14,618
13,322
Net interest income
67,447
59,010
48,803
Provision for loan losses
5,068
1,139
201
Net interest income after provision for loan losses
62,379
57,871
48,602
Other operating income (expense)
6,320
2,649
2,807
Total net revenues
68,699
60,520
51,409
Operating expenses
Compensation and employee benefits
20,731
15,511
15,105
Rent and occupancy
1,743
1,531
1,320
Loan servicing
7,802
7,396
6,009
Professional fees
4,238
2,056
3,040
Real estate owned, net
2,656
2,647
1,373
Other operating expenses
8,400
5,981
5,313
Total operating expenses
45,570
35,122
32,160
Income before income taxes
23,129
25,398
19,249
Income tax expense
5,352
8,106
11,618
Net income
$ 17,777
$ 17,292
$ 7,631
Less deemed dividends on preferreds stock
$ 48,955
Net loss allocated to common shareholders
$ (31,178)
Basic earnings (loss) per share
$ (1.55)
n.a.
n.a.
Diluted earnings (loss) per common share
$ (1.55)
n.a.
n.a.
Basic weighted average common shares outstanding
20,087
n.a.
n.a.
Diluted weighted average common shares outstanding
20,087
Velocity Financial, Inc.
Net Interest Margin — Portfolio Related and Total Company
(Unaudited)
Quarter Ended December 31, 2020
Quarter Ended September 30, 2020
Quarter Ended December 31, 2019
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
$
20,719
$
-
$
184,021
Loans held for investment
1,958,436
2,016,414
1,800,507
Total loans
$
1,979,155
$
41,557
8.40
%
$
2,016,414
$
41,374
8.21
%
1,984,528
$
$
44,124
8.89
%
Debt:
Warehouse and repurchase facilities
$
60,065
717
4.78
%
$
22,306
703
12.61
%
320,456
$
4,223
Securitizations
1,666,180
20,726
4.98
%
1,742,669
21,645
4.97
%
1,495,456
18,467
Total debt - portfolio related
1,726,245
21,443
4.98
%
1,764,975
22,348
5.07
%
1,815,912
22,690
5.00
%
Corporate debt
78,000
1,900
9.74
%
78,000
1,913
9.81
%
153,000
4,069
Total debt
$
1,804,245
$
23,343
5.18
%
$
1,842,975
$
24,261
5.27
%
1,968,912
$
26,759
5.44
%
Net interest spread - portfolio related (1)
3.42
%
3.14
%
3.90
%
Net interest margin - portfolio related
4.07
%
3.77
%
4.32
%
Net interest spread - total company (2)
3.22
%
2.94
%
3.46
%
Net interest margin - total company
3.68
%
3.39
%
3.50
%
(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 yield 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)
"Core" Income
Quarter Ended
($ in thousands)
12/31/2020
9/30/2020
6/30/2020
3/31/2020
Net Income
$ 9,576
$ 3,481
$ 2,141
$ 2,579
One-time Debt Amortization & Expenses
-
-
-
2,610
COVID-19 Impact
-
-
1,267
615
Workforce reduction costs
-
432
-
-
"Core" Income
$ 9,576
$ 3,913
$ 3,408
$ 5,804
View source version on businesswire.com: https://www.businesswire.com/news/home/20210316006034/en/