Velocity Financial, Inc. (VEL)·Q1 2025 Earnings Summary

Executive Summary

• Velocity Financial delivered record quarterly loan production ($640.4M UPB), driving net revenue up 27.4% year over year to $69.1M and diluted EPS of $0.51; core diluted EPS was $0.55 .
• Sequentially, portfolio NIM fell to 3.35% from 3.70% due to unusually high cash interest on nonperforming loans in Q4; management characterized Q1 NIM as a return to normalized levels .
• S&P Global consensus framed Q1 2025 as a miss versus estimates on EPS ($0.55 actual vs $0.575 estimate) and revenue ($34.8M actual vs $40.4M estimate), while company-reported diluted EPS was $0.51 and net revenue $69.1M (definitions differ) *.
• Capital markets execution remained strong: one Q1 securitization ($342.8M), two April securitizations ($111.4M RTL and $377.5M long-term), collapse of a re‑REMIC releasing $52.6M of retained securities, and an accretive ATM equity raise ($28.8M net) .

What Went Well and What Went Wrong

• What Went Well

  • Record production volume: $640.4M UPB (+13.7% QoQ, +69.1% YoY) with demand across traditional commercial and investor 1‑4 rental; origination WAC 10.5% while maintaining spreads .
  • Resolution performance: $76.4M UPB resolved at 102.4% of UPB, consistent with strong special servicing execution .
  • Capital markets: completed VCC 2025‑1 at 6.7% and priced April deals amid market disruption with better rates; “we continue to see strong support from our investors” (CEO) .

• What Went Wrong

  • NIM compression: portfolio NIM decreased 35 bps QoQ to 3.35% as Q4 benefitted from elevated cash interest on NPLs; management expects normalized levels going forward .
  • Operating expense growth: total OpEx rose 36% YoY to $42.2M, driven by production‑related compensation, servicing, and securitization costs .
  • Elevated NPL ratio: NPLs at 10.8% of HFI loans, modestly up from 10.1% YoY, with higher charge‑offs due to one large loss; CECL reserve rate ticked up to 0.22% on macro inputs .

Financial Results

Segment/Portfolio Breakdown (UPB)

KPIs

Guidance Changes

No formal numerical revenue/EPS margin guidance ranges were provided in the quarter; commentary focused on sustainable production pace, stable coupons/spreads, and supportive capital markets .

Earnings Call Themes & Trends

Management Commentary

• “We began 2025 with tremendous momentum, delivering a new record for quarterly production volume and solid earnings… Financing demand remained strong… we remain confident in Velocity’s long‑term growth prospects” — Chris Farrar, CEO .
• “Originated $640 million in new loans, an increase of 69% versus the prior year, which drove a 27% increase in net revenue and a 17% increase in core pretax earnings… preserved our spreads and credit standards” — CEO prepared remarks .
• “Our Q1 portfolio NIM was 3.35%, representing more normalized NIM as compared to Q4 2024… Q4 was higher due to cash interest on nonperforming loans” — CFO .
• “We… issued three new securitizations, paid down debt and collapsed one of our re‑REMICs… very encouraged to see healthy investor demand” — CEO .
• “Adjusted book value… if GAAP allowed fair value for held‑for‑cost loans… would be $18.50 per share” — CEO .

Q&A Highlights

• Origination yields/coupons: management expects coupons to hold roughly stable; spreads maintained and coupons reflect lower marginal cost of funds; could decline if Fed cuts later in year .
• Demand tilt: more commercial demand tied to ramp of small commercial division; production pace seen as sustainable absent large rate drop .
• Capital allocation: ATM proceeds used to fund portfolio growth; focus on high ROEs and recycling retained earnings into new assets .
• REO gains accounting: gains reflect amounts over cost basis; prior accrued interest on nonperformers is already reversed when loans become nonaccrual/REO .
• Strategic vision: target ~$10B portfolio over five years; leverage technology to boost productivity with moderate headcount additions; special servicing handled in‑house .

Estimates Context

• Q1 2025 vs S&P Global consensus: Primary EPS actual $0.55 vs $0.575 estimate (MISS −$0.025); Revenue actual $34.808M vs $40.367M estimate (MISS −$5.56M). Note: Company‑reported diluted EPS was $0.51 and net revenue $69.1M; differences reflect S&P’s “Primary EPS” and “Revenue” definitions versus company presentation *.
• Forward (Q2 2025) consensus: Primary EPS $0.533*, Revenue $39.868M*; management expects sustainable production run‑rate and stable coupons/spreads *.

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Production strength and mix: New record $640.4M UPB with robust demand across commercial and investor rental channels; mix skewing toward traditional commercial as new division scales .
• Earnings quality: Core diluted EPS $0.55 and record origination fees ($8.68M) supported by production; however, NIM normalized to 3.35% after Q4’s unusually high cash NPL interest .
• Credit risk contained but elevated: NPLs at 10.8% of HFI with consistent resolution gains (102.4% of UPB); CECL reserve rate modestly higher at 0.22% on macro inputs .
• Capital markets resilience: Successful Q1 securitization and better‑priced April deals despite volatility; collapse of re‑REMIC unlocked $52.6M; continued access supports growth .
• Balance sheet accretion: Book value/share rose to $16.19 (+15.6% YoY); ATM issuance was accretive to book .
• Estimate framework: S&P consensus flagged Q1 misses on Primary EPS and Revenue (definition differences vs company figures); expect analysts to revisit revenue model mapping and maintain attention on NIM trajectory*.
• Tactical lens: Near‑term stock narrative likely driven by sustained production growth, securitization execution, and normalization of NIM; watch mix shift to commercial, resolution gains cadence, and macro rate path .

Additional Data Reference

• Consolidated quarterly income statement and balance sheet details are provided in the 8‑K Exhibit 99, including net revenue composition, operating expense drivers, and book value/share calculations .
• Prior quarter/trend context sourced from Q4 2024 and Q3 2024 press releases, including NIM progression, production trends, and resolution performance .