Velocity Financial, Inc. · NYSE:VEL
Velocity Financial — Q4 2021 Earnings Presentation
24 slides from Velocity Financial's earnings presentation, Mar 10, 2022
Slide 1: 4Q21 and FY 2021 Earnings Presentation
4Q21 and FY 2021 Earnings Presentation March 10, 2022
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, anticipated events or trends, and simila
Slide 3: 2021 Highlights
2021 Highlights Full Year 2021 Performance Metrics NetIncome Net Income Loan Production ($ in millions) ($ in millions) $29.2 $1,328.0 $17.8 64% $435.0 205% FY2020 FY 2021 FY2020 FY 2021 HFI Portfolio & NIM Charge-offs ($ UPB in billions) $2.5 ($ in millions) $1.60 $1.29 29% 4.54% $1.9 (27)% 3.89% 1
Slide 4: 4Q21 Highlights
4Q21 Highlights ▪ Net Income of $8.4 million and core net income(1) of $10.1 million; diluted EPS of $0.24 and core diluted EPS of $0.29 – Core EPS growth of 25.5% from 3Q21 Earnings ▪ Interest income was $49.4 million, a 5.2% increase from 3Q21 driven by portfolio growth from record loan production
Slide 5: 4Q21 Highlights (cont.)
4Q21 Highlights (cont.) ▪ Converted all 45,000 outstanding shares of the Company’s Series A Convertible Preferred Stock into 11,688,310 shares of Velocity common stock ▪ Acquired a majority stake in Century Health & Housing Capital, LLC (“Century”) for $12.8 million in cash – Licensed “Ginnie Mae” i
Slide 6: Core Income and Book Value Per Share
Core Income and Book Value Per Share Core Income Book Value Per Share GAAP Net Income $8,353 $12.05 $(1.58) $ 0.40 10.84 Deal cost write-off - collapsed $(0.09) $ 0.06 $1,104 securitizations One-time Century Health & $624 Housing Capital deal costs Core Net Income $10,081 Book value Stock Non Core L
Slide 7: Loan Production
Loan Production Production Volume in 4Q21 Establishes a New Quarterly Record ▪ Loan production totaled $497.8 million in UPB for 4Q21, a 46.1% Q/Q increase from $340.7 million in UPB in 3Q21 and 177.6% from 4Q20, mainly driven by continued strong demand and targeted strategies to grow broker relatio
Slide 8: Acquisition of Century Health & Housing Capital
Acquisition of Century Health & Housing Capital Bolsters Our Business-Purposed Finance Strategy with Access To New Markets and Product Diversification Business Overview Transaction Highlights ▪ Founded in 1992, Century provides government- ✓ Century full-year 2021 pretax income totaled $2.3 million
Slide 9: Loan Portfolio
Loan Portfolio Strong Portfolio Growth Driven By Record Production Volumes ▪ Total loan portfolio as of December 31, 2021, was $2.6 billion in UPB, a 13.9% Q/Q increase from $2.3 billion in UPB as of September 30, 2021, and 33.0% from $1.9 billion as of December 31, 2020 – Net portfolio growth drive
Slide 10: Net Interest Margin
Net Interest Margin Portfolio NIM Impacted by Nonrecurring Costs; Lower Rates on New Production ▪ Portfolio NIM(1) decreased 70 bps from 3Q21, primarily driven by one-time costs(2) from the collapse of three higher-cost VCC securitizations and a lower weighted average rate on loans originated in 4Q2
Slide 11: Loan Investment Portfolio Performance
Loan Investment Portfolio Performance Portfolio Performance Improvement Driven by Growth and Resolution Activities ▪ Nonperforming loans totaled $273.1 million in UPB as of December 31, 2021, or 10.9% of total loans held for investment, compared to $288.4 million, and 12.7%,respectively, as of Septe
Slide 12: 4Q21 Asset Resolution Activity
4Q21 Asset Resolution Activity Strong Loan Resolution Gains Continued in 4Q21 Resolution Activity RESOLUTION ACTIVITIES ▪ Resolution activities on $44.1 million of UPB in LONG-TERM LOANS 4Q21 resulted in net gains of $1.8 million or RESOLUTION ACTIVITY FOURTH QUARTER 2021 THIRD QUARTER 2021 104.0% o
Slide 13: CECL Reserve and Charge-Offs
CECL Reserve and Charge-Offs Loan Loss Reserve Increases With Portfolio Growth, Charge-offs Remain Low ▪ Velocity’s CECL reserve was $4.3 million as of December 31, 2021, a 5.8% increase from $4.0 million as of September 30, 2021, and a 27.1% decrease from $5.8 million as of December 31, 2020 – The
Slide 14: Durable Funding and Liquidity Strategy
Durable Funding and Liquidity Strategy $2.4 Billion of Financing Outstanding; Substantial Available Warehouse Capacity Outstanding Debt Balances (1) Available Financing Capacity ($ in Millions) ($ in Millions) $2,375.8 $162.8 As of 12/31/21, $2,045.6 $348.9 $1,874.1 $301.1 four of five $163.4 $1,729
Slide 15: Outlook for Velocity's Key Business Drivers
Outlook for Velocity’s Key Business Drivers Strong Momentum Headed Into 2022 FINANCING CREDIT CAPITAL EARNINGS DEMAND ▪ Modestly higher ▪ Macroeconomic ▪ Targeting 5 to 6 ▪ Continued strong interest rates environment is securitizations in production volume to expected compared to generally positive
Slide 16: Economic Value of Equity
Economic Value of Equity Economic Value of Equity is significantly higher than GAAP Book Value of Equity ▪ We elect to carry our retained interests in securitizations at amortized cost to minimize volatility – The graph below reflects our estimate of economic value of equity (a non-GAAP financial me
Slide 17: Appendix
Appendix
Slide 18: Velocity Financial, Inc. Balance Sheet
Velocity Financial, Inc. Balance Sheet Quarter Ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Unaudited Unaudited Unaudited Unaudited Audited (In thousands) Assets Cash and cash equivalents $ 35,965 $ 35,497 $ 27,741 $ 20,434 $ 13,273 Restricted cash 11,639 9,586 7,921 6,808 7,020 Loans h
Slide 19: Velocity Financial, Inc. Income Statement (Quarter)
Velocity Financial, Inc. Income Statement (Quarter) Quarter Ended ($ in thousands) 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Unaudited Unaudited Unaudited Unaudited Unaudited Revenues Interest income $ 49,360 $ 46,923 $ 44,978 $ 40,707 $ 41,556 Interest expense - portfolio related 23,666 2
Slide 20: Velocity Financial, Inc. Income Statement (Year)
Velocity Financial, Inc. Income Statement (Year) Year Ended ($ in thousands) 12/31/2021 12/31/2020 Audited Audited Revenues Interest income $ 181,968 $ 167,322 Interest expense - portfolio related 85,386 87,826 Net interest income - portfolio related 96,582 79,496 Interest expense - corporate debt 2
Slide 21: HFI Loan Portfolio
HFI Loan Portfolio Portfolio by Property Type Portfolio by State (100% = $2.50 billion UPB)(1) Mixed Use 13% New York 22% Multifamily Other 9% 34% Investor 1-4 Rental 49% Retail 9% California 23% Office Florida 6% New Jersey 13% 8% Warehouse Other 7% 6% Confidential 21 (1) As of December 31, 2021
Slide 22: HFI Portfolio Delinquency Trends
HFI Portfolio Delinquency Trends December 31, 2020 March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 ($ in thousands) $ % $ % $ % $ % $ % Performing/Accruing: Current $ 1,445,131 74.8% $ 1,528,684 76.8% $ 1,645,019 79.8% $ 1,878,555 82.7% $ 2,068,024 82.7% 30-59 days past due 89,284
Slide 23: Loan Portfolio Rollforward
Loan Portfolio Rollforward Loan Portfolio Rollforward (UPB in millions) $508.6 $2,587.2 $2,271.3 $(157.0) $(34.2) $(1.2) (1) Loan Porfolio at Principal Payments Loan Sales Foreclosures Loan Production Loan Porfolio at 9/30/21 12/31/21 Confidential 23 (1) Includes $0.96 million in UPB of repurchased
Slide 24: Adjusted Financial Metric Reconciliation
Adjusted Financial Metric Reconciliation: Adjusted Financial Metric Reconciliation to GAAP Net Income Quarterly: Core Income Quarter Ended ($ in thousands) 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Net Income $ 8,353 $ 8,022 $ 9,453 $ 3,396 $ 9,576 Deal cost write-off - collapsed securitiz