On August 1, 2024, Velocity Financial Inc (NYSE: VEL) released its 8-K filing for the second quarter of 2024, showcasing robust financial performance. Velocity Financial Inc is a United States-based real estate finance company that originates and manages investor loans secured by residential rental and small commercial properties. The company earns revenue in the form of interest income and operates in New York, California, Florida, New Jersey, and other states.
Performance and Challenges
Velocity Financial Inc reported net income of $14.7 million and core net income of $15.9 million for Q2 2024, compared to $12.2 million and $12.9 million respectively for Q2 2023. The earnings per diluted share were $0.42, surpassing the analyst estimate of $0.39. Revenue for the quarter stood at $51.10 million, meeting the analyst estimate.
Despite the positive results, the company faces challenges such as maintaining high loan production volumes and managing investor demand for asset-backed securities. These challenges are critical as they directly impact the company's ability to sustain its growth trajectory and profitability.
Financial Achievements
Velocity Financial Inc's financial achievements in Q2 2024 are noteworthy. The company expanded its loan production team, resulting in higher production volumes and increased market share, particularly in its traditional commercial product. The issuance of $490.8 million in new asset-backed securities during the quarter also highlights strong investor demand.
Chris Farrar, President and CEO, commented,
Velocity continued to build on its strong momentum in the second quarter, delivering continued production volume and earnings growth."
Key Financial Metrics
Below are some key performance indicators from the earnings report:
| Metric | 2Q 2024 | 2Q 2023 | $ Variance | % Variance |
|---|---|---|---|---|
| Pretax income | $19,873 | $16,824 | $3,049 | 18% |
| Net income | $14,711 | $12,183 | $2,527 | 21% |
| Diluted earnings per share | $0.42 | $0.36 | $0.06 | 16% |
| Core Pretax income | $21,507 | $17,811 | $3,696 | 21% |
| Core net income | $15,918 | $12,928 | $2,990 | 23% |
| Core diluted earnings per share | $0.45 | $0.38 | $0.07 | 18% |
| Pretax return on equity | 16.95% | 16.81% | n.a. | 1% |
| Core pretax return on equity | 18.34% | 17.79% | n.a. | 3% |
| Net interest margin - portfolio | 3.54% | 3.24% | n.a. | 9% |
| Net interest margin - total company | 2.98% | 2.78% | n.a. | 7% |
| Average common equity | $469,071 | $400,441 | $68,630 | 17% |
Loan Portfolio Metrics
The total loan portfolio increased by 20% year-over-year, reaching $4.48 billion in Q2 2024. The weighted average loan-to-value ratio was 67.4%, and the weighted average coupon was 9.25%, up from 8.40% in Q2 2023. These metrics are crucial as they indicate the company's ability to manage risk and generate higher returns on its loan portfolio.
Analysis
Velocity Financial Inc's strong performance in Q2 2024, driven by increased loan production and market share growth, positions the company well for future success. The company's ability to maintain higher loan coupons while increasing production volume has resulted in stable net interest margin growth and solid net fair market value gains. However, the company must continue to navigate challenges such as maintaining high production volumes and managing investor demand for asset-backed securities to sustain its growth trajectory.
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Explore the complete 8-K earnings release (here) from Velocity Financial Inc for further details.
