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Velocity Financial, Inc. (VEL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered strong operational results: Net revenue rose to $71.2M (+38% YoY; +27% QoQ), and diluted EPS was $0.57 (+15% YoY; +30% QoQ), supported by record loan production ($563.5M) and robust NPL resolution gains ($5.6M) .
  • Portfolio NIM expanded to 3.70% (+18 bps YoY; +10 bps QoQ) on higher loan coupons and favorable securitization execution; liquidity stood at $95.9M with warehouse capacity of $435.0M .
  • Management emphasized durable demand from rate-insensitive investor borrowers, tighter securitization spreads post-election, and continued momentum into 2025 (YTD loan production through Feb: $429.4M) .
  • No formal quantitative guidance was issued; management indicated current production run rate is a reasonable forward view with potential upside. Catalysts: continued production growth, securitization spreads, and sustained NPL resolution gains .
  • Wall Street consensus (S&P Global) quarter estimates were unavailable at time of analysis; comparison to estimates could not be performed (we attempted retrieval; API limit reached).

What Went Well and What Went Wrong

What Went Well

  • Loan production reached $563.5M (+60% YoY; +18% QoQ), second-highest quarterly volume in company history, led by Traditional Commercial (+146% YoY) and steady Investor 1-4 Rental growth (+9% YoY) .
  • NPL resolutions totaled $79.4M UPB with realized gains of $5.6M (107% of UPB resolved), materially exceeding the five-quarter average realization of 103.3% .
  • Management tone confident on sustainable demand and capital markets: “our business is far less rate sensitive… we simply continue to deliver much needed capital to underserved borrowers,” and “tighter spreads… increased investor participation” enabling high ROEs .

What Went Wrong

  • Operating expenses rose 33.7% YoY to $39.1M, driven by securitization costs (two deals in quarter) and production-related compensation; loan servicing expense climbed 45.6% YoY on portfolio growth .
  • Unrealized loss on fair value loans (-$15.7M) partially offset strong unrealized gains on securitized debt (+$34.5M), highlighting continued mark-to-market volatility within fair value accounting .
  • NPL ratio increased to 10.7% (from 9.7% YoY), with higher nonperforming loan UPB; CECL reserve rate remained low (0.17%) but the NPL balance trend bears monitoring amid macro uncertainty .

Financial Results

Core P&L and Margins vs prior year and prior quarter

MetricQ4 2023Q3 2024Q4 2024
Net Revenue ($USD Millions)$51.6 $55.9 $71.2
Net Income ($USD Millions)$17.4 $15.8 $20.6
Diluted EPS ($)$0.50 $0.44 $0.57
Portfolio NIM (%)3.52% 3.60% 3.70%
Total Company NIM (%)3.10% 3.06% 3.20%

Segment/Category Production Breakdown (Q4 2024 vs Q4 2023)

CategoryQ4 2023 ($USD Millions)Q4 2024 ($USD Millions)YoY Change
Investor 1-4 Rental$183.2 $199.9 +9.1%
Traditional Commercial$130.3 $320.3 +145.9%
Short-term$38.6 $38.7 +0.1%
Government Insured Multifamily (CHHC)$0.0 $4.6 n.m.
Total Loan Production$352.1 $563.5 +60.0%

KPIs and Portfolio Metrics

KPIQ4 2023Q4 2024
Total Managed Loan Portfolio UPB ($USD Billions)$4.073 $5.056
Weighted Avg Coupon (%)8.88% 9.53%
Weighted Avg Portfolio Yield (%)8.70% 9.34%
Weighted Avg Portfolio Debt Cost (%)5.75% 6.14%
NPLs ($USD Millions)$394.6 $539.4
NPLs % of HFI Loans (%)9.7% 10.7%
Total REO Gain ($USD Millions)$0.44 $3.58
Liquidity ($USD Millions)n/a$95.9
Warehouse Line Capacity ($USD Millions)n/a$435.0
Book Value per Share ($)$13.49 $15.70
Recourse Debt-to-Equity (x)n/a1.2x

Net Revenues Composition (Q4 2024 vs Q4 2023)

Line item ($USD Thousands)Q4 2023Q4 2024
Interest Income$86,269.5 $113,484.1
Interest Exp – portfolio$(51,405.0) $(68,484.4)
Net Interest Income – portfolio$34,864.5 $44,999.7
Interest Exp – corporate debt$(4,139.9) $(6,142.8)
Loan Loss Provision$(826.7) $(22.0)
Net Interest Income after Provision$29,896.8 $38,834.9
Total Other Operating Income$21,670.2 $32,329.7
Net Revenue$51,567.1 $71,164.6

Guidance Changes

Velocity did not issue formal quantitative guidance ranges in Q4 2024. Management commentary indicated:

  • Production run rate: “current run rate feels good… probably with a little bit of upward slope” (qualitative, not quantified) .
  • Capital markets: “significant improvement… tighter spreads… increased investor participation,” supportive of ROEs (qualitative) .
  • Credit/NPL resolutions: Expect favorable resolutions; outcomes are lumpy (qualitative) .
MetricPeriodPrevious GuidanceCurrent GuidanceChange
Production ($/volumes)FY 2025NoneRun rate “feels good” with potential upside (qualitative) Maintained qualitative only
NPL Resolution Gains (%)FY 2025NoneFavorable, but lumpy; historically ~2–3 pts average (qualitative) Maintained qualitative only
Securitization Execution (spreads/ROE)Near-termNoneTighter spreads post-election; strong investor participation (qualitative) Maintained qualitative only

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Production Growth & MixLoan production $422M; Traditional Commercial strength; WAC ~11% Loan production $477M; mix shifted toward commercial; WAC ~10.8% Loan production $563.5M; strong Traditional Commercial; WAC 10.8% Accelerating volumes; commercial mix rising
NIM & Cost of FundsNIM 3.54%; portfolio yield 8.98%; debt cost 6.01% NIM 3.60%; yield 9.18%; debt cost 6.15% NIM 3.70%; yield 9.34%; debt cost 6.14% Gradual margin expansion
NPL Resolution GainsRealization ~101% on $81M UPB; net REO/charge-off gain $1.0M Gains $2.3M; realization 103% on $68.6M UPB Gains $5.6M; realization 107% on $79.4M UPB Gains trending higher; still lumpy
Securitization MarketTwo deals (2024-2, -3); WA rates ~7.15–7.24% One deal (2024-4); WA rate 6.9%; VCC 2024-5 in Oct post-Q Two deals (2024-5, -6) totaling $586.8M; outstanding WA rate 5.75%; VCC 2025-1 in Feb’25 Improving spreads; active issuance
Borrower Rate SensitivityVelocity niche less sensitive; WAC stable; hedging dampens volatility Rate-insensitive investor borrowers; certainty of execution valued Business “far less rate sensitive”; 30-year fixed product valued Persistent differentiation
Liquidity & CapitalLiquidity $83.8M; WH capacity $646.5M Liquidity $92.8M; WH capacity $349.3M Liquidity $95.9M; WH capacity $435.0M; $7.3M ATM equity raised Solid liquidity; balanced funding
CECL & Fair ValueCECL reserve $5.24M; rate 0.19% CECL reserve $4.85M; rate 0.19% CECL reserve $4.17M; rate 0.17%; expectation CECL shrinks as FV share grows Stable-low CECL; FV migration ongoing

Management Commentary

  • “Our business is far less rate sensitive than other mortgage segments… we simply continue to deliver much needed capital to underserved borrowers” .
  • “Post the presidential election… tighter spreads for our securitizations and increased investor participation, which enable us to achieve high ROEs on our invested capital” .
  • “$563 million in UPB… the portfolio is just over $5 billion now… just over $5.5 million of gains from resolved delinquent assets… almost $96 million of liquidity” .
  • CFO: “WAC on HFI originations continued strong at 10.8%… weighted average LTV at 62.9%… portfolio NIM was 3.70%, +10 bps QoQ and +18 bps YoY… year-to-date 2025 loan production through February was $429.4 million” .
  • On adjusted book value: “If GAAP allowed us to mark those assets to fair value… adjusted book value would be about $18.73 a share” .

Q&A Highlights

  • Production outlook: Current run rate is a reasonable forward forecast with potential upward slope; robust demand seen early in 2025 .
  • Average loan balance: Increase driven by higher commercial component; banks remain tight, bringing larger-balance opportunities .
  • Capital sufficiency: Retained earnings and ATM program are sufficient at current growth; may tap additional capital if acceleration continues; optionality to sell retained bonds (~$75M) .
  • Borrower dynamics: Investor borrowers prioritize certainty and duration (30-year fixed) over rate; Velocity’s execution speed and certainty are differentiators .
  • NPL resolution mechanics: ~90% of resolutions from borrowers paying current or paying off (default interest/prepayment fees); REO sales and foreclosure steps drive remaining gains .
  • Market comparison: VEL’s securitizations comp closer to non-QM RMBS; not seeing CMBS-related volatility in execution .
  • CECL/fair value: As fair value share rises, CECL reserve expected to shrink; REO skewed to 1–4 unit assets with deep liquidity .

Estimates Context

  • We attempted to retrieve S&P Global consensus for Q4 2024 EPS and revenue, but the data was unavailable due to request limits. As a result, comparison to Wall Street estimates cannot be provided at this time.
  • Implication: Absent consensus, focus should remain on YoY and sequential trajectory and sustainability of NIM expansion, production mix, and resolution gains.

Key Takeaways for Investors

  • Strong earnings trajectory with expanding NIM and record production suggests durable earnings power into 2025; monitor commercial mix and underwriting discipline (WAC ~10.8%, LTV ~62.9%) .
  • Securitization execution improving (lower WA rates, tighter spreads), supporting portfolio ROEs and mitigating fund-cost pressures; active issuance pipeline into 1H25 .
  • NPL resolution gains continue to be a meaningful contributor, but are lumpy; management expects long-term average gains of ~2–3 points over UPB resolved .
  • Operating expense growth is tied to scaled production and securitization issuance; watch opex leverage vs net revenue growth over 2025 .
  • Liquidity and warehouse capacity remain solid ($95.9M; $435.0M), with capital flexibility via retained bonds and ATM program to fund upside scenarios .
  • Migration to fair value reduces CECL relevance over time; still, NPL ratio (10.7%) warrants continued monitoring amid macro shifts .
  • Near-term trading: Positive bias on continued production/NIM momentum and securitization spread tailwinds; medium-term thesis: scaled origination platform in fragmented niche with rate-insensitive borrower base and recurring capital markets access .
All figures are sourced from Velocity’s Q4 2024 8-K press release and earnings materials and the Q4 2024 earnings call transcript: [4:*], [7:*], [5:*], [9:*], [12:*]. No S&P Global consensus estimates were available at time of analysis due to retrieval limits.