Q4 2025 Velocity Financial Inc Earnings Call

March 11, 2026

Operator 1: Good day, and welcome to the Velocity Financial, Inc. Q4 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer. Please go ahead.

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on your telephone keypad, and to withdraw your question, please press star than two.

Speaker #2: Please note, today's event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer. Please go ahead. Thanks, Rocco.

Chris Oltmann: Thanks, Rocco. Hello, everyone, and thank you for joining us today for the discussion of Velocity's Q4 and full year results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our results, and you can find the press release and accompanying presentation that we will refer to during this call on our investor relations website at www.velfinance.com. I'd like to remind everyone that today's call may include forward-looking statements which are uncertain and outside of the company's control and actual results may differ materially. For a discussion of some of the risks and other factors that could affect results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission.

Speaker #2: Hello, everyone, and thank you for joining us today for the discussion of Velocity's fourth quarter and full-year results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer.

Speaker #2: Earlier this afternoon, we released our results, and you can find the press release and accompanying presentation that we will refer to during this call on our investor relations website at www.delfinance.com.

Speaker #2: I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control, and actual results may differ materially.

Speaker #2: For a discussion of some of the risks and other factors that could affect results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission.

Speaker #2: Please also note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements.

Chris Oltmann: Please also note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements. We may also refer to certain non-GAAP measures on this call. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our investor relations website. Finally, today's call is being recorded and will be available on the company's website later today. With that, I will now turn the call over to Chris Farrar.

Speaker #2: We may also refer to certain non-GAAP measures on this call. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our Investor Relations website.

Speaker #2: And finally, today's call is being recorded and will be available on the company's website later

Speaker #1: Enter today . And with that , I will now turn the call over to Chris for our .

Speaker #2: Thanks , Chris , and I'd like to welcome everyone . Appreciate you joining our 2025 . Year end earnings call Pleased to report another incredible year of performance and very proud of what our team accomplished through hard work and dedication to our vision .

Chris Farrar: Thanks, Chris, and I'd like to welcome everyone. Appreciate you joining our 2025 Year-End Earnings Call. Pleased to report another incredible year of performance and very proud of what our team accomplished. Through hard work and dedication to our vision, we recognize record levels in originations, portfolio growth, new securitizations, book value, pre-tax ROE, and earnings. The credit belongs to my amazing team members who are talented and passionate about our mission. I believe they are our greatest asset. From a macro perspective, we see healthy activity in the fixed income markets as our deals are oversubscribed and spreads are tight. Our pipeline is growing. Our end real estate markets are healthy, and we're optimistic about our prospects going forward.

Speaker #2: We recognized record levels in originations , portfolio growth , new securitizations , book value , pre-tax ROE and earnings . The credit belongs to my amazing team members who are talented and passionate about our mission .

Speaker #2: I believe they are r greatest asset . From a macro perspective , we see healthy activity in the fixed income markets as our deals are oversubscribed and spreads are tight .

Speaker #2: Our pipeline is growing, our end real estate markets are healthy, and we're optimistic about our prospects going forward. In terms of our specific results, core net income increased by 52% to $111 million, which also drove a new record level of pre-tax ROE of 26%.

Chris Farrar: In terms of our specific results, core net income increased by 52% to $111 million, which also drove a new record level of pre-tax ROE of 26%. Importantly, we achieved this growth while maintaining our margins and credit discipline. With respect to originations, we increased volume by 49% to a record $2.7 billion, driven by increases in productivity from our account executives. The increased volume also set a record for our capital markets team with nine new securitizations and $2.6 billion in new issuance. On a net basis, the portfolio grew by 28% versus the prior year, and our asset management team successfully resolved $331 million in NPLs with net recoveries of $30 million.

Speaker #2: Importantly , we achieved this growth while maintaining our margins and credit discipline with respect to originations , we increased volume by 49% to a record $2.7 billion , driven by increases in productivity from our account executives The increased volume also set a record for our capital markets team , with nine new securitizations and $2.6 billion in new issuance on a net basis , the portfolio grew by 28% versus the prior year , and our asset management team successfully resolved $331 million in NPLs with net recoveries of $30 million at year end .

Chris Farrar: At year-end, we entered into a transformative partnership whereby we sold $129 million of NPLs and retained the servicing rights for the entire pool of loans. This transaction drove significant earnings in Q4, but also freed up approximately $50 million in working capital, and will drive future earnings from the servicing fees earned. All in all, a great transaction as this team continues to impress and drive meaningful results to the bottom line. From a liquidity perspective, we've never been stronger as we issued our first rated unsecured debt offering for $500 million in January, which gives us greater flexibility and makes us less reliant on short-term warehouse lines. This new capital will help us execute our long-term plan of growing book value and maximizing shareholder returns. Looking forward, we have great momentum and are well-positioned to continue our growth.

Speaker #2: We entered into a transformative partnership whereby we sold 129 million of NPLs and retained the servicing rights for the entire pool of loans .

Speaker #2: This transaction drove significant earnings in Q4, but also freed up approximately $50 million in working capital and will drive future earnings from the servicing fees earned.

Speaker #2: All in all , a great transaction as this team continues to impress and drive meaningful results to the bottom line from a liquidity perspective , we've never been stronger as we issued our first rated unsecured debt offering for $500 million in January , which gives us greater flexibility and makes us less reliant on short term warehouse lines This new capital will help us execute our long term plan of growing book value and maximizing shareholder returns Looking forward , we have great momentum and are well positioned to continue our growth .

Speaker #2: That concludes my prepared remarks, and we'll turn over to page three in the earnings presentation. Summing up, '25 was really just a fantastic year for us.

Chris Farrar: That concludes my prepared remarks, and we'll turn over to page three in the earnings presentation. Summing up 2025 was really just a fantastic year for us. You can see growth across the board, 26% pre-tax ROE. Grew book value by 21% and maintained a very healthy NIM at 3.6%. Turning to page four, digging into the fourth quarter, you can see core net income of $36.3 million or $0.93 a share, up from $0.60 a share from Q4 2024. Mentioned that the NIM was very healthy and stable at 3.59%. In terms of production, $634 million for the quarter, up 12.5% from the prior year, and mentioned the activity in both the portfolio and NPLs.

Speaker #2: You can see growth across the board 26% pre-tax ROE grew book value by 21% and maintained a very healthy Nim at 3.6% . Turning to page four .

Speaker #2: Digging into the fourth quarter, you can see income of $36.3 million, or $0.93 a share, up from $0.60 a share from Q4 24.

Speaker #2: Mentioned that the Nim was very healthy and stable at 3.59% in terms of production , $634 million for the quarter , up 12.5% from the prior year , and mentioned the activity in both the portfolio and NPLs as a result of that NPL sale , NPLs were down to 8.5% at the end of the year .

Chris Farrar: As a result of that NPL sale, NPLs were down to 8.5% at the end of the year. Again, hitting on the asset management team, they continue to do a great job of realizing net gains, and we've expanded our disclosures in this year's 10-K. In these earnings materials, we're reflecting total revenue that we recognize from the NPLs. Not really just, we've always made those fees and made that income, but it's been difficult to suss out in the financials. We broke that out and showed the activity from regular accrued interest as well. As you can see, for the quarter, that was a total of $7.6 million. That team continues to do a great job for us.

Speaker #2: Again, hitting on the asset management team. They continue to do a great job of realizing net gains, and we've expanded our disclosures in this year's 10-K.

Speaker #2: And in these earnings, materials were reflecting total revenue that we recognized from the NPLs. And that really just— we've always made those fees and made that income.

Speaker #2: But it's been difficult to to suss out in the in the financials . So we broke that out and showed the activity from regular accrued interest as well As you can see , for the quarter , that was a total of $7.6 million .

Speaker #2: So that team continues to do a great job for us in terms of financing and capital. I mentioned that we've done a number of securitizations in the year.

Chris Farrar: In terms of financing and capital, I mentioned that we'd done a number of securitizations in the year. We did do our second private securitization where we had one investor taking down the entire transaction, and we like that execution and think it's a great diversification as we move forward. Mentioned the strong liquidity position, $92 million in unrestricted cash and plenty of warehouse capacity. As I mentioned in my opening remarks, we're really proud of the NPL transaction that we were able to close in Q4, recognizing $13.4 million of net income as a result of that sale and releasing about $50 million of working capital to fund future production. With that, I'll turn it over to Mark for page five.

Speaker #2: We did do our second private securitization , where we had one investor taking down the entire transaction and we like that execution . And thinks it think it's a great diversification as we move forward .

Speaker #2: Mentioned the strong liquidity position , $92 million in unrestricted cash and plenty of warehouse capacity . As I mentioned in my opening remarks , we're really proud of the of the NPL transaction that we were able to close in the fourth quarter , recognizing $13.4 million of net income .

Speaker #2: As a result of that sale, and releasing about $50 million of working capital to fund future production, I'll turn it over to Mark for page five.

Speaker #3: Thanks , Chris . Hi , everyone . Another year is in the books for velocity . And as Chris had mentioned , velocities really ending the year strong .

Mark Szczepaniak: Thanks, Chris. Hi, everyone. Another year is in the books for Velocity. As Chris had mentioned, Velocity is really ending the year strong. If we go to page five and look at our loan production. Total loan production for Q4 was just under $635 million in UPB. As Chris mentioned, that's a 12.6% year-over-year increase from about $563 million in Q4 2024. The strong production growth during 2025 included the weighted average coupon on new Q4 held-for-investment originations continuing to come in strong at just a little over 10%. Originations in Q4 also continued at tight credit levels, resulting in a weighted average loan-to-value for the quarter of just under 63%.

Speaker #3: We go to page five and look at our loan production . Total loan production for the fourth quarter was just under 635 million in UPB .

Speaker #3: As Chris mentioned , that's 12.6% year over year increase from about 563 million in Q4 2020 . For the strong production growth during 2025 included the weighted average coupon on new Q4 held for investment originations , continuing to come in strong at just a little over 10% .

Speaker #3: Originations . And in Q4 . Also continued at tight credit levels , resulting in a weighted average loan to value for the quarter of just under 63% .

Speaker #3: 2025 total year loan production was 2.7 billion in UPB , and that was almost a 47.5% year over year increase over the 1.9 billion in production for 2024 .

Mark Szczepaniak: 2025 total year loan production was $2.7 billion in UPB, and that was almost a 47.5% year-over-year increase over the $1.9 billion in production for 2024. Over 6,600 loans were originated during 2025. The strong 2025 production was a result of continued organic growth of our borrower base and strong demand for our product. As a result of the continued strong growth in production, if you look at page six, it shows the year-over-year growth in our overall loan portfolio. The total loan portfolio as of the end of the year for 2025 was $6.5 billion in UPB, which was a 28.4% increase over the $5.1 billion as of December 31, 2024.

Speaker #3: Over 6,600 loans were originated during 2025. The strong 2025 production was a result of continued organic growth of our borrower base and strong demand for our product. As a result of the continued strong growth in production,

Speaker #3: If you look at page six , it shows the year over year growth in our overall loan portfolio . The total loan portfolio as of the end of the year for 25 was $6.5 billion in UPB , which was a 28.4% increase over the 5.1 billion as of December 31st , 2024 .

Speaker #3: The weighted average coupon on our total portfolio at the end of the year was 9.7% . And as Chris mentioned , a 21 basis point year over year increase , the total portfolio weighted average loan to value remained consistently low at 65% as of December 31st 25 , and the average loan balance remained consistent at about $390,000 .

Mark Szczepaniak: The weighted average coupon on our total portfolio at the end of the year was 9.7%. As Chris mentioned, a 21 basis point year-over-year increase. The total portfolio weighted average loan-to-value remained consistently low at 65% as of 31 December 2025, and the average loan balance remained consistent at about $390,000. On page seven, it shows our recent quarterly portfolio net interest margin. You can see Q4 of 2024, Q3 of 2025, and Q4 of 2025, very, very consistent net interest margins. It's not on the slide, but on an annual basis, our portfolio-related net interest margin was 3.61%, which is about a 1.4% increase over our 2024 net interest margin of 3.56%.

Speaker #3: On page seven , it shows our recent quarterly portfolio , net interest margin , and you can see for Q4 24 , Q3 of 25 and Q4 of 25 , very , very consistent net interest margins .

Speaker #3: It's not on the slide , but on an annual basis . Our portfolio related net interest margin was 3.61% , which is about a 1.4% increase over our 2024 net interest margin of 3.560 for the year .

Mark Szczepaniak: Well, for the year, our portfolio yield increased 39 basis points year-over-year, while our portfolio cost of funds increased year-over-year by only 18 basis points. The portfolio yield increase was mainly driven by strong loan production during the year and higher loan coupons. The increase in the portfolio cost of funds was mainly due to an increase in the securitization market yields. On page 8, our non-performing loan rate at the end of 2025 was 8.5% compared to 10.7% at the end of 2024. The decrease, as Chris mentioned, was a combination of the sale of $129 million in UPB of NPL loans sold during Q4, as well as a combination of continued strong resolutions during the entire year by our special servicing department.

Speaker #3: Our portfolio yield increased 39 basis points year over year, while our portfolio cost of funds increased year over year by only 18 basis points.

Speaker #3: The portfolio yield increase was mainly driven by strong loan production during the year and higher loan coupons, and the increase in portfolio cost of funds was mainly due to an increase in the securitization market.

Speaker #3: Yields On page eight , our non-performing loan rate at the end of 2025 was 8.5% , compared to 10.7% at the end of 24 , and the decrease , as Chris mentioned , was a combination of the sale of $129 million in UPB of NPL loans sold during Q4 , as well as a combination of continued strong resolutions during the entire year by our special servicing department .

Speaker #3: The table to the right of the page shows our loans held for investment portfolio , including both our amortized cost and fair value loans and shows the total year over year net non-performing loan valuation allowance we have for our non-performing loans .

Mark Szczepaniak: The table to the right of the page shows our loans held-for-investment portfolio, including both our amortized cost and fair value loans, and shows the total year-over-year net non-performing loan valuation allowance we have for our non-performing loans. As of December 31, 2025, the amortized cost loan portfolio had a $4.5 million CECL reserve, and the fair value portfolio had a $48.3 million valuation adjustment allowance for a combined valuation allowance on the entire loans held-for-investment portfolio of about 81 basis points. Both of these valuation adjustments are required under U.S. GAAP. The unrealized valuation adjustment on our non-performing fair value loans represents the value for which the loans under U.S. GAAP could be sold out in the secondary market.

Speaker #3: As of December 31st, '25, the amortized cost loan portfolio had a $4.5 million CECL reserve, and the fair value portfolio had a $48.3 million valuation adjustment allowance, for a combined valuation allowance on the entire loans held for investment.

Speaker #3: Portfolio of about 81 basis points . Both of these valuation adjustments are required under US GAAP , the unrealized valuation adjustment on our non-performing fair value loans represents the value for which the loans under US GAAP could be sold out in the secondary market .

Speaker #3: However , we do not plan on selling NPL loans since our in-house special servicing department has a history of producing net gains and very successful resolutions on these loans Turning to page nine , it just shows our Cecil loan loss reserve through said was at $4.5 million for the end of the year , or 22 basis points over outstanding amortized cost held for investment portfolio and the Cecil Loss Reserve does not include the loans being carried at our fair value just on the previous page for 2025 , our net gain loss from loan charge offs and our related activities at the bottom of that table is a net loss of 3.7 million , mainly as a result of a couple of large legacy loan charge offs .

Mark Szczepaniak: However, we do not plan on selling NPL loans since our in-house special servicing department has a history of producing net gains and very successful resolutions on these loans. Turning to page nine. Yeah, it just shows our CECL loan loss reserve, which we said was at $4.5 million for the end of the year, or 22 basis points of our outstanding amortized cost held for investment portfolio. The CECL loan loss reserve does not include the loans being carried at fair value, which you saw on the previous page. For 2025, our net gain/loss from loan charge-offs and REO-related activities at the bottom of that table is a net loss of $3.7 million, mainly as a result of a couple of large legacy loan charge-offs. They're some older loans. We wanted to clean those up.

Speaker #3: There's some older loans we wanted to clean those up . We don't have those type of loans in our portfolio anymore . So that's losses well above our historical loss experience .

Mark Szczepaniak: We don't have those type of loans in our portfolio anymore. That loss is well above our historical loss experience. We do not foresee these types of losses going forward because of the continued favorable resolutions of our non-performing loans and that significant loss allowance adjustment that you saw on the previous page for the fair value loans. Page ten presents the enhanced disclosure that Chris was mentioning on our non-performing loan resolution activity. The first set of three, four columns there is what we've always shown in the past. We go up to the net gain or loss on NPL loan resolution, which brings in the amount of default interest or prepayment fee income over and above contractual principal and interest. What we hadn't really shown was what's the contractual interest that we go back and pull in.

Speaker #3: We did not foresee these types of losses going forward because of the continued favorable resolutions of our non-performing loans, and that significant loss allowance adjustment that you saw on the previous page for the fair value loans. Page ten presents the enhanced disclosure that Chris was mentioning on our non-performing loan resolution activity.

Speaker #3: So the first set of three four columns there is what we've always shown in the past . We go up to the net gain or loss on NPL loan resolution , which brings in the amount of default interest and prepayment fee income over and above contractual principal and interest .

Speaker #3: But what we hadn't really shown was, what was the contractual interest that we go back and pull in under GAAP? You have to reverse that out.

Mark Szczepaniak: Under GAAP, you have to reverse that out when a loan goes non-performing. Once we resolve the loan, we're collecting all of that contractual interest in cash. We wanted to bring that in to show the total amount of revenue that we bring in when we resolve these loans. In this table, we added columns for net accrued interest and total recovered revenue at the far right. We felt it was important to add the amount of contractual interest net of any advance write-offs that is also collected on resolutions through the efforts of our special servicing team. For 2025 Q4, NPL resolution total dollars recovered, including net contractual interest, was $7.6 million or 9.8% over the UPB, compared to $7.5 million or 10.8% over UPB for Q4 2024.

Speaker #3: When the loan goes non-performing, so once we resolve the loan, we're collecting all of that contractual interest and cash. So we wanted to bring that in to show the total amount of revenue that we bring in.

Speaker #3: When we resolve these loans, so in this table we added columns for net accrued interest and total recovered revenue, the far right.

Speaker #3: We felt it was important to add the amount of contractual interest , net of any advance write offs . That is also collected on resolutions for the efforts of our special servicing team for 2025 Q4 , NPL resolution total dollars recovered , including net contractual interest , was 7.6 million , or 9.8% , over the UPB , compared to 7.5 million , or 10.8% over UPB for the fourth quarter of 24 .

Speaker #3: And if you look at the full year 25 , it's not in this table . If you look at the full year 25 , the total amount recovered on the resolutions of our NPL loans was $30 million , or 9% over UPB , compared to $22.3 million total recovered in 2024 , or 8.8% over UPB Page 11 shows our durable funding and liquidity position at the end of the year .

Mark Szczepaniak: Now if you look at the full year 2025, it's not on this table. If you look at the full year 2025, the total amount recovered on the resolutions or NPL loans was $30 million or 9% over UPB, compared to $22.3 million total recovered in 2024 or 8.8% over UPB. Page 11 shows our durable funding and liquidity position at the end of the year. Total liquidity as of December 31 was just under $117 million, comprised of about $92 million in cash and cash equivalents, and another $25 million in available liquidity on unfinanced collateral. In addition, our available warehouse line capacity at December 31 was just under $600 million, with a maximum line capacity of $935 million.

Speaker #3: Total liquidity as of December 31st was just under $117 million , comprised of about $92 million in cash and cash equivalents , and another $25 million in available liquidity and unfinanced collateral .

Speaker #3: In addition , our available warehouse line capacity at December 31st was just under $600 million , with a maximum line capacity of $935 million .

Speaker #3: So plenty of capacity and available capacity on the warehouse lines in Q4 , we issued two securitizations 2025 , P two and 2025 five , with a total of $646.3 million in securities issued .

Mark Szczepaniak: Plenty of capacity and available capacity on the warehouse lines. In Q4, we issued two securitizations, 2025-2 and 2025-5, with a total of $646.3 million in securities issued. As Chris mentioned, in January 2026, we completed a public rating process for Velocity Financial, Inc. It's our first time getting a corporate rating. We were rated by both Fitch and Moody's. We issued $500 million in unsecured debt. That's a five-year term debt fixed rate at 9.375% interest due in 2031. The proceeds of this $500 million debt were used to pay off $215 million corporate securitized debt that was set to mature in 2027.

Speaker #3: As Chris mentioned in January of 26 , we completed a public rating process for Velocity Financial, Inc. . It's our first time getting a corporate rating .

Speaker #3: We were rated by both Fitch and Moody's , and we issued our . We issued $500 million in unsecured debt . That's a five year term debt , fixed rate at nine and 3/8 percent interest due in 2031 .

Speaker #3: The proceeds is $500 million debt were used to pay off $215 million . Corporate securitized debt that was set to mature in 2027 .

Speaker #3: So we paid that off . And the balance of it was to pay down . As Chris mentioned , our shorter term warehouse lines .

Mark Szczepaniak: We paid that off, and the balance of it was to pay down, as Chris mentioned, our shorter-term warehouse lines. Then in February of this year, we issued the first 2026 securitization, 2026-1, with $355 million in securities issued. That concludes my 2025 financial recap. Chris, I'd like to now give the presentation back to you for an overview of Velocity's 2026 outlook and key business drivers.

Speaker #3: And then, in February of this year, we issued the first 2026 securitization, 2026-1, with $355 million in securities issued. That concludes my 2025 financial recap.

Speaker #3: Chris , I'd like to now give the presentation back to you for an overview of Velocity's 26 . Outlook and key business drivers .

Speaker #2: Thanks , Mark . On page 12 , you know , our markets are very healthy . We like the backdrop there . Credit is stable .

Chris Farrar: Thanks, Mark. On page 12, you know, our markets are very healthy. We like the backdrop there. Credit is stable. We aren't reaching to hit our targets or our volumes, so we're remaining disciplined there. Capital markets are great. Securitization market in particular is very robust. We've got a deep bench of investors supporting us there. I think from an earnings perspective, we think, you know, NIMs should remain where they are, and we think we can continue growing the portfolios. We're very positive about the future in 2026. With that, we'll conclude our presentation and open it up for questions.

Speaker #2: We we aren't reaching to hit our targets or our volumes . So we're remaining disciplined . There . Capital markets are great securities .

Speaker #2: Securitization market in particular . Is it very robust . And we've got a deep bench of investors supporting us there . And then I think from an earnings perspective , we think , you know , Nims should remain where they are .

Speaker #2: And we think we can continue growing the portfolio. We're very positive about the future in '26. So with that, we'll conclude our presentation and open it up for questions.

Speaker #4: Thank you. And I'll begin the question and answer session. If you'd like to ask a question, please press star, then one, on your telephone keypad.

Operator 1: Thank you. We'll now begin the question and answer session. If you'd like to ask a question, please press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Today's first question comes from Steven Delaney at Citizens Capital Markets. Please go ahead.

Operator: Thank you. We'll now begin the question and answer session. If you'd like to ask a question, please press star then one on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then two. Today's first question comes from Steven Delaney at Citizens Capital Markets. Please go ahead.

Speaker #4: If your question has already been addressed and you'd like to remove yourself from the queue, please press star, then two. Today's first question comes from Steve Delaney at Citizens Capital Markets.

Speaker #4: Please go ahead .

Speaker #5: Good afternoon, everyone, and congratulations on an excellent year. We do appreciate Mark's comments on page nine about the Rio, and we may want to follow up with you on that.

Steven Delaney: Good afternoon, everyone, and congratulations on an excellent year. We do appreciate Mark Szczepaniak's comments on page 9 about the REO, and we may want to follow up with you on that. 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 market, that 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, is showing somewhere between 2 and 325 basis points cuts in 2026.

Speaker #5: 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 market , I don't know how many times you turn on CNBC and they were talking about the fed and yada yada .

Speaker #5: 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 , was showing futures is showing somewhere between 2 and 3 , 25 basis points .

Speaker #5: Cuts in 2026 . Now , who knows what we get . And more importantly , the ten years really being kind of cranky at , you know , for 20 .

Steven Delaney: Now who knows what we get, and more importantly, the 10-year really being kind of cranky at, you know, 4.20, 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? Just curious what the mindset is.

Speaker #5: 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 .

Speaker #5: Let's just say if we get some short term rate relief and if the ten year were to come down 50 basis points or whatever , how impactful is that to the demand from your borrowing universe for additional loans and just , just curious , what the mindset is .

Speaker #5: 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 5 or 10 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 , a sofa type floater ?

Steven Delaney: I'm curious if you have any material floating rate loan concentration in your portfolio where if we did get a break in the 5- or 10-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. Thank you for commenting on that, if you would.

Speaker #5: Thank you . For commenting on that . If you would .

Speaker #2: Yeah , sure . Yeah . Thanks , Steve . I think , you know , in terms of the rate drop Would probably marginally helpful to us in that it's it is going to lower our cost of funds and probably make our , our offering .

Chris Farrar: Yeah, sure. Yeah. Thanks, Steve. I think, you know, in terms of the rate drop, probably marginally helpful to us in that it is going to lower our cost of funds and probably make our offering, you know, more attractive than it otherwise would be. I don't see it as a huge driver of our growth. Most of the folks that come to us have, you know, some type of a need, and they're less rate sensitive and more transaction sensitive. Not something we spend a lot of time on. For example, I think our rate sheet moved one time in all of 2025.

Speaker #2: You know , more attractive than it otherwise would be . But I don't see it as a , a huge driver of our growth .

Speaker #2: Most of the folks that come to us have , you know , some type of a , a need and they're less rate sensitive and more transaction sensitive .

Speaker #2: So, no, it's not something we spend a lot of time on. For example, I think our rate sheet moved one time in all of '25.

Speaker #2: So , you know , as you know , conforming lenders are or consumer lenders are changing daily . And we changed once through the whole year .

Steven Delaney: Yeah.

Chris Farrar: You know, as you know, conforming lenders or consumer lenders are changing daily, and we changed once through the whole year. Probably not that.

Speaker #2: So probably not that impactful to us , but , but helpful . And then in terms of the second one , we do have a small portion of our , our portfolio .

Steven Delaney: Yeah.

Chris Farrar: impactful to us, but helpful. In terms of the second one, we do have a small portion of our portfolio, the older legacy stuff that was floating rate, but it was all floored at the start rate. Rates can really only go up, not down. I don't think there's much of an opportunity there and/or impact to us. Probably nothing material there.

Speaker #2: The larger , older legacy stuff that , that was floating rate , but it was all floored at the start rate . So rates can really only go up , not down .

Speaker #2: So I don't think there's much of an opportunity there . And , and or impact to us . So probably nothing , nothing material there .

Speaker #6: Got it .

Steven Delaney: Got it. Okay. Well, obviously, appreciate the comments and all the best for 2026, Chris.

Speaker #5: Okay. Well, obviously I appreciate the comments, and all the best for 2026. Chris.

Speaker #2: Thanks, Steve. We appreciate your support.

Chris Farrar: Thanks, Steve. We appreciate your support.

Speaker #3: Did we lose our moderator?

Steven Delaney: Did we lose our moderator?

Speaker #2: I think we may have lost our moderator

Chris Farrar: I think we may have lost our moderator.

Speaker #3: He's the only one that knows if there were any other questions.

Steven Delaney: He's the only one that knows if there are any other questions.

Chris Farrar: We'll give him another minute to see if he pops back on. Otherwise, we'll conclude.

Speaker #2: Give me another minute to see if he pops back on. Otherwise, we'll conclude.

Speaker #6: Yep

Steven Delaney: Yep. For those still on the line, if you have questions in the queue, just, you know, we can't see those questions. They have to be. You have to be put on by the moderator.

Speaker #3: Those still on the line . If you have questions in the queue , just , you know , we can't see those questions .

Speaker #3: They have to be Put on by the moderator

Chris Farrar: Yeah.

Speaker #7: We can go ahead and take our next question . Our next question is going to come from Bose George of KBW . Please go ahead

Operator 2: We can go ahead and take our next question. Our next question is going to come from Bose George of KBW. Please go ahead.

Operator: We can go ahead and take our next question. Our next question is going to come from Bose George of KBW. Please go ahead.

Chris Farrar: Not hearing anything from, so maybe we'll go to the next question.

Speaker #2: Not hearing anything . So maybe we'll go to next question .

Speaker #7: Yeah , lady . Yeah . Ladies and gentlemen , please stand by . One moment .

Operator 2: Yeah, ladies and gentlemen, please stand by one moment.

Operator: Yeah, ladies and gentlemen, please stand by one moment.

Speaker #2: Okay . Thanks .

Chris Farrar: Okay. Thanks.

Speaker #7: Ladies and gentlemen , please stand by . One moment And are you able to take the question from Bose George of KBW ?

Operator 2: Ladies and gentlemen, please stand by one moment. Are you able to take the question from Bose George of KBW?

Operator: Ladies and gentlemen, please stand by one moment. Are you able to take the question from Bose George of KBW?

Speaker #2: Absolutely .

Chris Farrar: Absolutely.

Speaker #7: Okay. Thank you. Sorry for the downtime there. Bose, please proceed with your question about the shoreline. You might be muted by chance, and you are able to hear me.

Operator 2: Okay, thank you. Sorry for the downtime there. Bose, please proceed with your question. Bose, is your line muted by chance? You are able to hear me?

Operator: Okay, thank you. Sorry for the downtime there. Bose, please proceed with your question. Bose, is your line muted by chance? You are able to hear me?

Speaker #2: Yes .

Chris Farrar: Yes.

Speaker #7: Okay . Let's go to the next question , please . Our next question will come from Don Fandetti of Wells Fargo . Please go ahead .

Operator 2: Okay, let's go to the next question, please. Our next question will come from Don Fandetti of Wells Fargo. Please go ahead.

Operator: Okay, let's go to the next question, please. Our next question will come from Don Fandetti of Wells Fargo. Please go ahead.

Speaker #8: Hi, guys. I was wondering if you could just give an update on the competitive dynamic of your lending markets. I know it's been very fragmented.

Don Fandetti: Hi, guys. I was wondering if you could just give an update on the competitive dynamic of your lending markets. I know it's been very fragmented. Just want to check in and see if there have been any changes on that front. Then secondarily, obviously, private credit markets have been under pressure. Do you think there's any sort of indirect impact to your business through securitization markets or whatever? I know you've had pretty successful debt capital raising recently. Just wondered, just check that box.

Speaker #8: I just want to check in and see if there have been any changes on that front. And then secondarily, obviously, private credit markets have been under pressure.

Speaker #8: Do you think there's any sort of indirect impact to your business through securitization markets or whatever? I know you've had pretty successful, like, debt capital raising recently, but just wanted to check that box.

Speaker #2: Yeah . Hi , Don . Thanks . Thanks for the questions . In terms of a competition , I would say we're we're kind of business as usual , not seeing anything really different or new there .

Chris Farrar: Yeah. Hi, Don. Thanks for the questions.

Don Fandetti: Sure.

Chris Farrar: In terms of competition, I would say we're kind of business as usual, not seeing anything really different or new there. No real pressure there and no need to react to that. On the second question, I think probably is maybe slightly a net positive for us, the disruption in private credit. I think we've had a number of reverse inquiries of folks that are calling us saying, you know, "Could we buy your product? Could we structure something? Could we buy whole loans? Could we do something unique?" And I think that's because there's demand for, like, that secured real estate-type backed lending as opposed to some of the other private credit alternatives.

Speaker #2: So no real pressure there . And no need to react to that . And then on the , on the second question , I think Probably is maybe slightly a net positive for us .

Speaker #2: The disruption in private credit , I think we've had a number of reverse inquiries of folks that are calling us saying , you know , could we buy your product ?

Speaker #2: Could we structure something ? Could we buy whole loans ? Could we do something unique ? So , and I think that's because there's , there's demand for like that secured real estate typed bank lending , as opposed to some of the other private credit alternatives .

Speaker #2: So I would say maybe slight positive for us , but I , I haven't seen any any degradation or , or impact to us in a negative way

Chris Farrar: I would say maybe slight positive for us, but I haven't seen any degradation or impact to us in a negative way.

Speaker #8: Got it. Thank you.

Don Fandetti: Got it. Thank you.

Speaker #2: You're welcome

Chris Farrar: You're welcome.

Speaker #7: Our next question is from Bose George of KBW. Please go ahead. But your line may be muted. I'm not able to hear you.

Operator 2: Our next question is from Bose George of KBW. Please go ahead. Bose, your line may be muted. I'm not able to hear you. One moment. Bose, you are live on our end. We're not able to hear you. We're not receiving audio from your line. I'll just take a moment. If anyone else would like to ask a question, please press star then one. Standing by. If the speakers want to wait, I could try to reconnect Bose, if you would like.

Operator: Our next question is from Bose George of KBW. Please go ahead. Bose, your line may be muted. I'm not able to hear you. One moment. Bose, you are live on our end. We're not able to hear you. We're not receiving audio from your line. I'll just take a moment. If anyone else would like to ask a question, please press star then one. Standing by. If the speakers want to wait, I could try to reconnect Bose, if you would like.

Speaker #7: One moment, Bose. You are live on our end, and we're not able to hear you. We're not receiving audio from your line.

Speaker #7: Just take a moment . If anyone else would like to ask a question , please press star . Then one standing by If the speakers want to wait , I could try to reconnect .

Speaker #7: Bose, if you would like.

Speaker #2: Sure .

Chris Farrar: Sure.

Speaker #7: Okay , one moment One moment . Please stand by Okay . And we have . We do have a question with Eric Hargan from Btig .

Operator 2: Okay, one moment. Please stand by. Okay. We have a question with Eric Hagen from BTIG. Please go ahead.

Operator: Okay, one moment. Please stand by. Okay. We have a question with Eric Hagen from BTIG. Please go ahead.

Speaker #7: Please go ahead .

Speaker #9: Thank you so much. Am I coming through? Can you hear me?

Eric Hagen: Thank you so much. Am I coming through? Can you hear me?

Speaker #10: Yes .

Chris Farrar: Yes.

Speaker #9: Okay , great . Thank you guys very much . A couple questions here . I mean , have you have you fully deployed the 500 million of proceeds from the debt raise ?

Eric Hagen: Okay, great. Thank you guys very much. Couple questions here. I mean, have you fully deployed the $500 million of proceeds from the debt raise? As it relates to that, I mean, how do you guys decide on the amount of cash and liquidity that you have available at any given time? Like, is there a rule of thumb for, like, the minimum amount of liquidity or cash that you would hold at a given time?

Speaker #9: And as it relates to that, I mean, how do you guys decide on the amount of cash and liquidity that you have available at any given time?

Speaker #9: Like, is there a rule of thumb for the minimum amount of liquidity or cash that you would hold at a given time?

Speaker #2: Yeah , thanks , Eric . So yeah , we've , we've fully deployed all the capital we were able to basically pay down our entire warehouse balance immediately at the close .

Chris Farrar: Yeah. Thanks, Eric. We fully deployed all the capital. We were able to basically pay down our entire warehouse balance immediately at the close. Might be, you know, a very small drag on Q1 just because of all the friction with the transaction. Other than that, we were able to zero out our warehouse lines, which was great. You know, minimum cash, we like to make sure we have at least, you know, $30 to 50 million of cash available at all times just for, you know, safety or whatever. Right now, you know, right after the transaction closed, we had $320 million of unpledged loans that we owned for cash. It really gives us a lot of flexibility and access to capital whenever we need it.

Speaker #2: So it might be , you know , a very drag on , on Q1 , just because of all the friction with the transaction .

Speaker #2: But Other than that , we were able to zero out our warehouse lines , which was great . And then , you know , minimum cash , we like to make sure we have at least , you know , 30 to $50 million of cash available at all times just for , you know , safety or whatever .

Speaker #2: But right now , we , you know , right after the transaction closed , we had $320 million of unpledged loans that we owned for cash .

Speaker #2: So it really gives us a lot of flexibility and access to capital whenever we need it.

Eric Hagen: That's great. That's really helpful. I think I wanna follow up on one of the last questions around competition. I mean, there's lots of speculation that capital rules are gonna get adjusted for banks and that it could result in more activity, you know, from banks and mortgage lending. I mean, do you not see that as being a potential catalyst for more competition?

Speaker #9: That's great . That's really helpful . I think I want to follow up on one of the last questions around competition . I mean , there's lots of speculation that capital rules are going to get adjusted for banks and that it could result in more activity from banks and mortgage lending .

Speaker #9: I mean , do you not see that as being a potential catalyst for more competition ?

Speaker #2: Yeah, generally I'd say our borrowers are coming to us because they don't want to deal with a bank or can't deal with a bank.

Chris Farrar: Yeah. Generally, I'd say our borrowers are coming to us because they don't wanna deal with a bank or can't deal with the bank. I don't think. I mean, competition's always competition, so at the margin, could it take a little bit? Maybe, but it's not something that we're worried about or concerned about in any way.

Speaker #2: So I don't think that I mean , competition is always competition . So at the margin , could it take a little bit , maybe .

Speaker #2: But I wouldn't. It's not something that we're worried about or concerned about in any way.

Speaker #9: Got it. One more from me, if you don't mind. I mean, can you compare the spreads in the returns that you expect in the single-family versus a small balance commercial segment going forward?

Eric Hagen: Got it. One more from me, if you don't mind. I mean, can you-

Chris Farrar: Yeah, please.

Eric Hagen: Compare the spreads and the returns that you expect in the single-family versus small balance commercial segment going forward?

Speaker #2: Yeah , yeah . So we do get a wider spread on the commercial assets than we do from the single family . And we think that's the appropriate , you know , risk adjustment .

Chris Farrar: Yeah. We do get a wider spread on the commercial assets than we do from the single family, and we think that's the appropriate, you know, risk adjustment. We are probably 125 basis points wider on the commercial versus the single family, and we think that sort of puts us in an agnostic position whether, you know, we lend single family or commercial. I think that's the appropriate, you know, risk adjustment.

Speaker #2: We probably you're probably 125 basis points wider on the commercial versus the the single family . And we think that sort of puts us in an agnostic position , whether , you know , we lend single family or commercial , I think that's the appropriate , you know , risk adjustment

Speaker #9: Got it. Really helpful. Thank you guys so much.

Eric Hagen: Got it. Really helpful. Thank you guys so much.

Speaker #2: Thank you, Eric. Appreciate it.

Chris Farrar: Thank you, Eric. Appreciate it.

Speaker #7: And at this time, I am not showing any further questions. And with that, I'd like to turn the conference back over to management for any closing remarks.

Operator 2: At this time, I am not showing any further questions in the question queue. I'd like to turn the conference back over to management for any closing remarks.

Operator: At this time, I am not showing any further questions in the question queue. I'd like to turn the conference back over to management for any closing remarks.

Speaker #2: Yeah , I just want to say thanks to everyone for joining the call . We appreciate your support , and we'll be speaking soon .

Chris Farrar: Yeah, just wanna say thanks to everyone for joining the call. We appreciate your support, and we'll be speaking soon as Q1 comes up here fairly shortly. Thanks so much.

Speaker #2: As Q1 comes up here fairly shortly Thanks so much .

Speaker #3: Thanks, everybody, for your participation.

Chris Oltmann: Thanks everybody for your participation.

Speaker #7: And thank you all. The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Operator 2: Thank you all. The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Operator: Thank you all. The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Q4 2025 Velocity Financial Inc Earnings Call

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