Velocity Financial, Inc. Q4 FY2025 earnings call

• Management highlighted another incredible year with record levels in originations, portfolio growth, new securitizations, book value, pre-tax ROE, and earnings. - Macro perspective: Healthy activity in fixed income markets, oversubscribed deals, tight spreads, growing pipeline, and healthy end real estate markets. - Originations: Volume increased by 49% to a record $2.7 billion, driven by account executives' productivity; capital markets team had nine new securitizations and $2.6 billion in new issuance. - Portfolio: Net growth by 28% vs. prior year; asset management team resolved $331 million in NPLs with net recoveries of $30 million. - Liquidity: Issued first rated unsecured debt offering for $500 million in January, enhancing flexibility and reducing reliance on short-term warehouse lines.

Core net income increased by 52% to $111 million, driving a pre-tax ROE of 26%. Originations: Fourth quarter originations were just under $635 million in UPV, a 12.6% year-over-year increase; full-year 2025 originations were $2.7 billion in UPV, a 47.5% year-over-year increase. Loan portfolio: Total loan portfolio as of end-2025 was $6.5 billion in UPV, a 28.4% increase from 2024; weighted average coupon was 9.7%, weighted average loan-to-value was 65%. Net interest margin: Quarterly portfolio net interest margin was consistent; annual portfolio-related net interest margin was 3.61%, up from 3.56% in 2024. Non-performing loans: Non-performing loan rate at end-2025 was 8.5% vs. 10.7% at end-2024; sale of $129 million in UPB of NPL loans in Q4 and successful resolutions contributed to the decrease. Also, released approximately $50 million in working capital from the NPL sale.

• Markets are very healthy with stable credit and a robust securitization market. - Expect NIMs to remain stable and portfolios to continue growing. - Positive about the future in 2026 with strong momentum and well-positioned for growth.

• Potential impact of financial market volatility. - Uncertainty related to interest rate changes and their effect on the business. - Credit risks associated with loan portfolios.

Q: Good afternoon, everyone, and congratulations on an excellent year. We do appreciate Mark's comments on page nine about the REO, and we may want to follow up with you on that. But obviously an outstanding performance. Chris, I'm curious, looking ahead, you know, one of the things, if you think about the broader financial markets, and let's talk about the rates markets, I don't know how many times you turn on CNBC and they were talking about the Fed and yada, yada. You know, we don't know what the Fed will do, but the futures market, as of a week ago when we updated our internal rate forecast, you know, the futures is showing somewhere between 2 and 3, 25 basis points cuts in 2026. Now, who knows what we get, and more importantly, the 10-year is really being kind of cranky at, you know, $420,000. And that's, you know, what, 50, 60 basis points off the recent 12-month lows. I guess what I'm trying to say is you have performed the way you did in terms of origination volume and your clients are obviously finding deals and they can afford the current rates. Let's just say if we get some short-term rate relief and if the 10-year were to come down 50 basis points or whatever, how impactful – is that to the demand from your borrowing universe for additional loans? I'm just curious what the mindset is. And I'm curious if you have any material floating rate loan concentration in your portfolio where if we did get a break in the five or ten year range, you know, is there the possibility of showing somebody some kind of a mini perm type of a loan structure vis-a-vis just a, you know, a SOFR type floater.

A: [Chris Farrar would likely discuss the potential impact of rate changes on borrowing demand, mentioning how the company is positioned to respond to market rate movements and any considerations regarding floating rate loan concentration and potential loan structure adjustments based on market conditions.]