Velocity Financial, Inc. Q2 FY2025 earnings call

• Record quarterly results with net income up 76% and new loan production up 72% vs Q2 '24.
• Revenue grew by $31 million, pretax income up $14 million, core pretax return on equity at 24%.
• End markets saw a pickup in transactions, with portfolio increasing by $1.4 billion YOY (commercial: ~$770M, residential: ~$600M).
• Asset management team cured delinquent loans, driving NIM expansion and resolving NPAs with gains.
• Busiest capital markets quarter with 4 securitizations issuing just under $1 billion in securities.
• Strong pipeline for new loans expected to drive continued growth in originations.

In the second quarter of 2025, Velocity Financial achieved record loan production of just over $725 million in UPB, a 13.3% increase from Q1. The total loan portfolio as of June 30 was $5.9 billion in UPB, representing a 7.5% increase from Q1 and a 30.8% year-over-year increase. Net income saw a 76% increase, new loan production was up 72% year-over-year. Revenue grew by $31 million, pretax income increased by $14 million, and core pretax return on equity was 24%. The portfolio expanded by nearly $1.4 billion year-over-year, with commercial properties contributing approximately $770 million and residential properties $600 million. NIM for Q2 was 3.82%, up 47 bps from Q1, driven by recapture of delinquent interest on nonperforming loans.

• Target NIM of 3.5% on a consistent basis, recognizing NIM volatility due to timing of delinquent asset resolution.
• Expect loan growth to occur in step functions, with continued growth expected going forward.
• Plan to invest in technology to improve processes and productivity over 12-18 months.

Forward-looking statements are subject to uncertainties outside the company's control, and actual results may differ materially. Risks and other factors affecting results are detailed in the company's SEC filings.

Q: Do you think you can maintain the NIM level going into Q3 and talk about loan growth expectations for H2?

A: Target NIM is 3.5%, with Q2 being strong but NIM having volatility due to timing of delinquent asset resolution; loan growth is expected to occur in step functions.

Q: Are there opportunities to incorporate loan sales and alternative financing sources, and describe origination platform reach?

A: Getting reverse inquiries from private credit sources, potential for alternative financing; operating in 48 states with a Miami office, diverse portfolio with loans in major MSAs.

Q: Talk about prepayment rate increase and context behind prepayment activity?

A: Prepayment driven by half property sales and half refinancing elsewhere; firm positioned as medium-term lender, borrower uses capital for 1-5 years depending on situation, with prepayment penalty fees collected to maintain yields.