• Net Revenue Increase: 37% increase in net revenue.
• Pre-Tax ROE: 26.8% in Q4.
• Core Earnings: $0.60 in Q4 and $2.03 for the full year 2024.
• Loan Originations: $563.5 million in Q4, an 18.2% increase over Q3.
• Total Loan Portfolio: $5.1 billion as of December 31, 2024.
• Weighted Average Coupon: 9.53% on the total portfolio at year-end.
• Net Interest Margin: 3.70% in Q4, a 10 basis points increase from Q3.
• Non-Performing Loan Rate: 10.7% at the end of Q4.
• NPL Resolution Gains: $5.6 million in Q4.
• Liquidity: Just under $96 million at the end of Q4.
• Securitizations: Over $586 million in securities issued in Q4.

• Warning! GuruFocus has detected 3 Warning Sign with VEL.

Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Velocity Financial Inc (NYSE:VEL) reported a record quarter and year-end results for 2024, with strong tailwinds supporting their business.
• The company experienced a 64% increase in originations, indicating strong demand from borrowers.
• Net revenue increased by 37%, and Q4 pre-tax ROE was an impressive 26.8%.
• The securitization market showed significant improvement, enabling high ROEs on invested capital.
• The company maintains a strong liquidity position with nearly $96 million available, supporting future growth.

Negative Points

• The company operates in a niche market that may be affected by broader economic conditions and regulatory changes.
• Non-performing loan (NPL) rate remains relatively high at 10.7%, consistent with previous quarters.
• The company's growth strategy may require additional capital, potentially leading to future equity or debt issuance.
• The business model is less sensitive to interest rates, which could be a disadvantage if rates decrease significantly.
• NPL resolutions are unpredictable and can be lumpy, impacting financial performance variability.

Q & A Highlights

Q: Can you discuss your production expectations for 2025, given the strong start with $430 million in production through January and February? A: Christopher Farrar, CEO: The current run rate feels good as a forecast for the rest of the year. We are seeing increasing demand, so while we don't formally forecast, the current run rate is a good forward forecast with a potential upward slope due to strong demand.

Q: The average loan balance has increased. Is this due to entering new markets or a shift in mix towards larger commercial loans? A: Christopher Farrar, CEO: The increase is due to a shift towards more commercial assets, which have larger balances. Banks remain tight, providing us opportunities with larger balances, driving the average loan size up.

Q: With retained earnings and ATM issuance, is there enough capital to support growth, or will you need additional equity? A: Christopher Farrar, CEO: Based on current run rates, we are in good shape. If growth accelerates, we might need additional growth capital. We have over $75 million in retained bonds to sell if needed, and we would balance equity and debt to maintain our debt-to-equity ratio.

Q: How do your borrowers view interest rates compared to traditional home buyers? A: Christopher Farrar, CEO: Our borrowers focus on acquiring and managing properties rather than interest rates. They need access to capital and value certainty of execution over rate concerns. We offer 30-year fixed-rate mortgages, providing them with duration and optionality.

Q: Can you explain the process and outcomes of your non-performing loan (NPL) resolutions? A: Christopher Farrar, CEO: NPL resolutions are either through taking back properties and selling them for a gain or resolving delinquent loans at foreclosure steps. Most resolutions involve borrowers paying current or refinancing, with over 90% resolved by the original borrower. Gains are typically from default interest and prepayment fees.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.