Velocity Financial, Inc. · NYSE:VEL
Velocity Financial — Q4 2022 Earnings Presentation
23 slides from Velocity Financial's earnings presentation, Mar 9, 2023
Slide 1: 4Q22 Results Presentation
4Q22 Results Presentation March 9, 2023
Slide 2: Forward-looking statements
Forward-looking statements Some of the statements contained in this presentation may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, positioning, anticipated events or trend
Slide 3: 2022 Highlights
2022 Highlights Full Year 2022 Performance Metrics Net Income Loan Production ($ in millions) ($ in millions) $32.2 $1,761.9 $29.2 $1,325.9 10% 33% FY 2021 FY 2022 FY 2021 FY 2022 HFI Portfolio & NIM Charge-offs ($ UPB in billions) $3.5 ($ in millions) $2.5 $1.29 4.54% 41% 3.64% (60)% $0.52 (20%) FY
Slide 4: 4Q22 Highlights
4Q22 Highlights ▪ Net income of $8.5 million and diluted earnings per share (EPS) of $0.25, compared to $8.4 million and $0.24 per share, respectively, for 4Q21 ▪ Core net income(1) of $9.1 million and core diluted EPS(1) of $0.27, compared to Earnings $10.1 million and $0.29 per share, respectively
Slide 5: Core Income and Book Value Per Share
Core Income and Book Value Per Share Core Income(1) Book Value Per Share(2) $ 0.19 $11.89 GAAP Net Income $8,462 $11.61 $ 0.11 $ 0.02 Equity award & ESPP costs $656 Core Net Income $9,118 (3) (4) Book value at Non-Core Other Ops. Portfolio Book value at 9/30/22 Expenses Income Earnings 12/31/22 ▪ Co
Slide 6: Economic Value of Equity
Economic Value of Equity Fair Value Election to Capture Embedded Economic Value of Equity Over Time ▪ Elected to apply fair value option (“FVO”) accounting to new originations effective October 1, 2022, to better align our results with economic value – HFI FVO UPB totaled $268.6 million (7.6% of tot
Slide 7: Unlocking Shareholder Value By Capturing Embedded Economic Value
Unlocking Shareholder Value By Capturing Embedded Economic Value Strategic benefit of FVO Fair Value Election Better Alignment ▪ GAAP and economic value converge over time ▪ GAAP to Tax differences reduced as tax uses FV to determine gains ▪ Increased transparency in financial statements Impact of e
Slide 8: Loan Production
Loan Production Strategic Decision to Reduce Production in 4Q22 ▪ Production in 4Q22 strategically reduced due to volatility in the securitization market ▪ Loan production in 4Q22 totaled $277.8 million in UPB, a 39.3% decrease from $457.3 million in UPB in 3Q22 and a 44.2% decrease from $497.8 mill
Slide 9: Loan Portfolio
Loan Portfolio Portfolio Growth Continues as Weighted Average Coupon Increases ▪ The total loan portfolio was $3.5 billion in UPB as of December 31, 2022, a 2.3% increase from $3.4 billion in UPB as of September 30, 2022, and 35.8% from $2.6 billion as of December 31, 2021 – The UPB of FVO loans was
Slide 10: 4Q22 Asset Resolution Activity
4Q22 Asset Resolution Activity NPL Loan Resolutions to Net Gains Continued Resolution Activity RESOLUTION ACTIVITIES ▪ Total NPL and REO resolution activities in LONG-TERM LOANS 4Q22 totaled $25.3 million in UPB and realized RESOLUTION ACTIVITY FOURTH QUARTER 2022 FOURTH QUARTER 2021 net gains of $0
Slide 11: Net Interest Margin
Net Interest Margin Portfolio NIM Expected to Stabilize ▪ Portfolio NIM(1) in 4Q22 was 2.84%, down 75 bps from 3.59% in 3Q22 and 144 bps from 4.27% in 4Q21 ‒ Portfolio Yield: Decreased 37 bps from 3Q22 driven primarily by: • Lower NPL resolutions reduced delinquent/default interest by 61 bps, which
Slide 12: Loan Investment Portfolio Performance
Loan Investment Portfolio Performance Nonperforming Loan Rate Remains Consistent with Expected Levels ▪ Nonperforming loans as a percentage of total HFI loans was 8.3% as of December 31, 2022, an increase from 7.4% as of September 30, 2022, and a decrease from 10.9% as of December 31, 2021 – New non
Slide 13: CECL Reserve and Charge-Offs
CECL Reserve and Charge-Offs Reserve Rate Remains Flat on Eligible HFI Portfolio ▪ The reserve balance was $4.9 million as of December 31, 2022, an 8.2% decrease from $5.3 million as of September 30, 2022, and a 14.8% increase from $4.3 million as of December 31, 2021 – The Q/Q decrease resulted fro
Slide 14: Durable Funding and Liquidity Strategy
Durable Funding and Liquidity Strategy Six Securitizations Issued in 2022(1); Significant Reserves and Warehouse Capacity ▪ Cash reserves and unfinanced collateral of Outstanding Debt Balances(2) $64.3 million as of December 31, 2022 ($ in Millions) $3,276.9 $3,201.5 ▪ Available warehouse line capac
Slide 15: Outlook for Velocity's Key Business Drivers
Outlook for Velocity’s Key Business Drivers Improving Outlook for Capital Markets and Growth MARKET CREDIT CAPITAL EARNINGS ▪ Persistent strong ▪ Macroeconomic and ▪ Targeting next ▪ Increased loan demand for income- geopolitical risk securitization in mid- coupons expected to generating rental cont
Slide 16: Appendix
Appendix
Slide 17: Velocity Financial, Inc. Balance Sheet
Velocity Financial, Inc. Balance Sheet Confidential 17
Slide 18: Velocity Financial, Inc. Income Statement (Quarter)
Velocity Financial, Inc. Income Statement (Quarter) Quarter Ended ($ in thousands) 12/31/2022 9/30/2022 6/30/2022 3/31/2022 12/31/2021 Revenues Interest income $ 65,632 $ 63,419 $ 59,243 $ 52,049 $ 49,360 Interest expense - portfolio related 40,854 34,561 28,752 23,556 23,666 Net interest income - p
Slide 19: Velocity Financial, Inc. Income Statement (Year)
Velocity Financial, Inc. Income Statement (Year) Confidential 19
Slide 20: HFI Portfolio Delinquency Trends
HFI Portfolio Delinquency Trends December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 ($ in thousands) $ % $ % $ % $ % $ % Performing/Accruing: Current $ 2,068,023 82.7% $ 2,388,442 85.3% $ 2,692,799 87.1% $ 2,966,765 86.8% $ 2,969,989 84.6% 30-59 days past due 127,046
Slide 21: Loan Portfolio Rollforward
Loan Portfolio Rollforward Loan Portfolio Rollforward (UPB in millions) $280.1 $3,512 $3,433 $(98.4) $(99.0) $(2.7) (1). Loan Porfolio at Principal Loan Sales Foreclosures Loan Production Loan Porfolio at 9/30/22 Payments 12/31/22 (1) Includes $1.05 million in UPB of repurchased loans. Confidential
Slide 22: HFI Loan Portfolio
HFI Loan Portfolio Portfolio by Property Type Portfolio by State (100% = $3.51 billion UPB)(1) Mixed Use 12.6% New York 19.9% Investor 1-4 Multifamily Other Rental 8.6% 36.5% 52.7% California 22.8% Retail 8.7% Office Florida 5.7% New Jersey 13.3% 7.4% Warehouse Other 6.4% 5.3% Confidential 22 (1) As
Slide 23: Adjusted Financial Metric Reconciliation
Adjusted Financial Metric Reconciliation: Adjusted Financial Metric Reconciliation to GAAP Net Income Quarter: Year: Core Income Year Ended ($ in thousands) 12/31/2022 12/31/2021 Net Income $ 32,211 $ 29,224 Deal cost write-off - collapsed securitizations - 1,104 One-time Century Health & Housing Ca