Velocity Financial (VEL) 8-K Velocity Financial, Inc. Announces First Quarter 2020 Results

Exhibit 99.1

Investors and Media:

Chris Oltmann            

(818)532-3708           

Velocity Financial, Inc. Announces

First Quarter 2020 Results

First Quarter Highlights:

• Net income of $2.6 million and earnings per share (EPS) of $0.13

• “Core” EPS of $0.29⁽¹⁾that includes the impact ofone-time expense from the paydown of corporate debt in addition to provisioning forCOVID-19 impacts

• Book value growth to $250.4 million at March 31, 2020, from $152.8 million at December 31, 2020

• Net loan portfolio interest income of $21.8 million

• Total loan portfolio of $2.1 billion⁽²⁾

• Completed first securitization of 2020 for $249 million

• Loan production of $248 million in UPB

Westlake Village, CA – May 13, 2020 – Velocity Financial, Inc. (NYSE:VEL) (“Velocity” or the “Company”) reported net income of $2.6 million, a decrease from $5.2 million in the fourth quarter of 2019. Core net income for the first quarter of 2020 was $5.8 million, or $0.29 per share. “Core” earnings per share reflect adjustments for unique 1Q20 impacts, includingone-time debt amortization cost in addition toCOVID-19 impacts on the Company’s loan loss reserve. Book value of stockholders’ equity was $250.4 million at March 31, 2020, reflecting growth from new IPO capital and retained earnings as the Company did not engage in distressed loan sales or have significant impairments in its loans portfolio.

President and CEO, Chris Farrar commented, “Our first quarter results reflectone-time costs from our corporate debt paydown with IPO proceeds and an increase to our loan loss reserve due toCOVID-19. While the last two months have presented near-term challenges for Velocity’s business, we remained profitable in the first quarter and have undertaken a number of steps to strengthen business continuity, improve the Company’s liquidity position and prioritize the safety and productivity of our employees. While it is still too early to accurately predict the ultimate impact of this health crisis on the economy and Velocity’s short term operations, we are positioning the business to thrive in the long term.”

Please see footnotes at the end of this release.

First Quarter 2020 Earnings

Velocity’s Response toCOVID-19

As a result of the severe market volatility due to theCOVID-19 pandemic, Velocity temporarily suspended loan origination activities until markets stabilize. Many of the Company’s loan production staff have been placed on60-day temporary furlough, effective May 1, 2020. In addition, our special servicing team implemented a forbearance program to help small investors and business owners manage through these unprecedented times.

The Company also entered into an agreement with our original sponsors, Snow Phipps and TOBI to issue $45 million of convertible preferred stock and warrants and entered into amendments with the lenders on our existing warehouse repurchase agreements. The amended agreements provide the Company with a more flexible and stable financing solution for its recently originated whole loans.

These initiatives have stabilized the company’s liquidity and financing. For additional information, please refer to Velocity’s first quarter 2020 earnings presentation.

First Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)	1Q 2020			4Q 2019			$ Variance			% Variance
Pretax income	$	3,727		$	8,142		$	(4,415	)		(54	)%
Net income	$	2,579		$	5,182		$	(2,603	)		(50	)%
Diluted EPS(1)	$	0.13		$	0.44		$	(0.31	)		(71	)%
“Core” Earnings	$	5,804			NA			—			—
“Core” EPS(2)	$	0.29			NA			—			—
Pretax return on equity		7	%		22	%		NA			(69	)%
Net interest margin - portfolio		4.2	%		4.3	%		NA			(3	)%
Avergage equity	$	225,125		$	150,388		$	74,737			50	%

Discussion of results:

• First quarter 2020 EPS was $0.13 per share

• Core EPS reflects a $0.16 per share adjustment from the following:

• $0.13 per share impact related toone-time debt amortization costs from a $75 million reduction in long-term corporate debt utilizing proceeds from Velocity Financial, Inc.’s initial public offering (IPO) on January 17, 2020

• $0.03 per share impact related to loan loss provisioning for macroeconomic impacts of theCOVID-19 global pandemic

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First Quarter 2020 Earnings

◾ The Company remained profitable and increased book value in the first quarter, despite a challenging environment and significant market volatility, which reflects prudent capital management and the quality of Velocity’s business model

TOTAL LOAN PORTFOLIO
($ in millions)	1Q 2020			4Q 2019			$ Variance		% Variance
Held for Investment
Investor1-4 Rental	$	872		$	859		$	12		1	%
Mixed Use		265			251			14		5	%
Multi-Family		201			198			3		1	%
Retail		181			180			2		1	%
All Other		384			355			29		8	%
Total	$	1,903		$	1,843		$	59		3	%
Held for Sale
Short-term loans	$	224		$	216		$	8		4	%
Total Managed Loan Portfolio	$	2,127		$	2,059		$	68		3	%
Key loan portfolio metrics:
Total loan count		6,504			6,373
Weighted average loan to value		66	%		66	%
Weighted average total portfolio yield		8.57	%		8.89	%
Weighted average total debt cost		5.88	%		5.44	%

Discussion of results:

• Velocity’s total loan portfolio was $2.1 billion at March 31, 2020, a 3 percent quarter-over-quarter increase from the fourth quarter of 2019, driven by Velocity’s organic loan production

• The loans held for investment portfolio was $1.9 billion at March 31, 2020, a 3 percent quarter-over-quarter increase from the prior quarter, driven by growth of Mixed Use and Other loan investments

• The loans held for sale portfolio was $224 million in UPB at March 31, 2020, a 4 percent increase from the prior quarter. Loans held for sale are short-term interest-only loans with contractual maturities of two years or less.

• Net loan additions to the portfolio totaled $68 million in UPB in the first quarter of 2020

• The weighted averageloan-to-value ratio of the total portfolio was 66 percent at March 31, 2020, essentially unchanged from the prior quarter

• The weighted average total portfolio yield was 8.57 percent in the first quarter, a decrease of 32 basis points from the fourth quarter of 2019, primarily resulting from growth in nonaccrual loans

• The decrease in portfolio related debt cost was attributable to our more recent, lower cost pro rata securitizations

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First Quarter 2020 Earnings

LOAN PRODUCTION VOLUMES
($ in millions)	1Q 2020		4Q 2019		$ Variance			% Variance
Investor1-4 Rental	$	65	$	95	$	(29	)		(31	)%
Traditional Perm.		86		103	$	(17	)		(17	)%
Short-term loans		96		123	$	(27	)		(22	)%
Total loan production	$	248	$	321	$	(73	)		(23	)%

Discussion of results:

• In late March, Velocity temporarily suspended loan origination activities until the current market volatility subsides. This action resulted in origination volume lower than originally forecast

• Loan origination volume in the first quarter of 2020 totaled $248 million, a 23 percent decrease from $321 million in the fourth quarter of 2019

• Revisingpost-COVID-19 origination strategy to identify best risk/reward opportunities

REVENUES
($ in thousands)	1Q 2020			4Q 2019			$ Variance			% Variance
Interest income	$	44,637		$	44,124		$	512			1	%
Interest expense - portfolio related		(22,848	)		(22,690	)		(158	)		1	%
Interest expense - corporate debt		(6,342	)		(4,069	)		(2,273	)		56	%
Provision for loan losses		(1,289	)		(242	)		(1,047	)		433	%
Net Interest Income	$	14,157		$	17,123			$(2,966)			(17	)%
Gain on loan sales		2,617			1,496			1,121			75	%
Other Operating (loss) income		(998	)		(665	)		(333	)		50	%
Total Revenues	$	15,777		$	17,955		$	(2,177	)		(12	)%

Discussion of results:

• Corporate debt-related interest expense in the first quarter of 2020 includesone-time debt amortization of $3.5 million and a $0.3 million prepayment fee.

• The provision for loan losses increased mainly from the macroeconomic effects of theCOVID-19 pandemic on the real estate markets. The adoption of CECL had an immaterial impact.

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First Quarter 2020 Earnings

EXPENSES
($ in thousands)	1Q 2020		4Q 2019		$ Variance			% Variance
Compensation and employee benefits	$	5,041	$	3,992	$	1,049			26	%
Rent and occupancy		455		426		29			7	%
Loan servicing		2,239		1,939		300			15	%
Professional fees		1,184		468		715			153	%
Real estate owned, net		1,134		1,300		(166	)		(13	)%
Other expenses		1,998		1,689		309			18	%
Total expenses	$	12,051	$	9,814	$	2,236			23	%

Discussion of results:

• Compensation and employee benefits expense increased as a result of new operations and sales staff to support loan origination activities and a reduction in deferred compensation driven by the suspension of loan originations

• Loan servicing expenses increased mainly as a result of loan portfolio growth.

• Professional fees increased as a result of our new public company costs

SECURITIZATIONS
Trusts	Securities Issued		Balance at 3/31/2020		W.A. Rate
2011-1 Trust	$	61,042	$	—		—
2014-1 Trust		161,076		28,116		8.04	%
2015-1 Trust		285,457		47,042		7.85	%
2016-1 Trust		319,809		73,887		7.20	%
2016-2 Trust		166,853		55,119		6.09	%
2017-1 Trust		211,910		97,576		4.77	%
2017-2 Trust		245,601		152,941		3.51	%
2018-1 Trust		176,816		125,421		3.96	%
2018-2 Trust		307,988		227,752		4.42	%
2019-1 Trust		235,580		207,144		4.03	%
2019-2 Trust		207,020		191,343		3.41	%
2019-3 Trust		154,419		143,048		3.24	%
2020-1 Trust		248,700		247,293		2.94	%
	$	2,782,271	$	1,596,682

Discussion of results:

• The Company issued its first securitization of the year (VCC2020-1) in February, and our thirteenth securitization overall, for $248.7 million and a weighted average rate of 2.94 percent.

• The more recent pro rata REMIC structure issuances have decreased our overall debt cost.

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First Quarter 2020 Earnings

RESOLUTION ACTIVITY - FIRST QUARTER 2020

($ in thousands)	UPB $		Gain / (Loss) $
Paid in full	$	12,928	$	850
Paid current		3,504		101
REO sold		1,091		(293	)
	$	17,522	$	658

Discussion of results:

• Nonperforming loans resolutions in the first quarter of 2020, totaled $17.5 million in UPB and realized net gains of $0.66 million

• Payoff of nonperforming loans generally results in the collection of default interest and prepayment fees

• Paid current are loans brought back to performing status generally realize delinquent and default interest

• Real Estate Owned (REO) realize gains or losses when sold, net of transaction and carrying costs

• Velocity’sin-house special servicing operations assumes responsibilities for resolution strategies on nonperforming loans and has a successful track record minimizing loan loss

Conference Call Information

The Company will host a webcast to discuss the quarterly results on May 13, 2020 at 4:30 p.m. Eastern time. Listeners can access the webcast via the link below:

https://services.choruscall.com/links/vel200513xyLJS0Kl.html

The earnings discussion can also be accessed by dialing1-866-807-9684 in the U.S. and Canada. International callers must dial1-412-317-5415. Callers should ask to be joined into the Velocity Financial, Inc. earnings call.

Management’s slide presentation will be available on the Company’s investor relations website at www.velfinance.com beginning at 8:30 a.m. (Eastern Time) on Wednesday, May 13, 2020.

A replay of the call will be available through midnight on May 20, 2020 and can be accessed by dialing1-877-344-7529 in the U.S. and in Canada855-669-9658 or1-412-317-0088 internationally and entering access code #10143890. The replay will also be available on the Investor Relations section of the Company’s website a under “Events and Presentations.”

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First Quarter 2020 Earnings

Management’s slide presentation will be available on the Company’s investor relations website at www.velfinance.com beginning at 8:30 a.m. (Eastern Time) on Wednesday, April 8, 2020.

About Velocity Financial, Inc.

Based in Westlake Village, California, Velocity is a vertically integrated real estate finance company that primarily originates and manages investor loans secured by1-4-unit residential rental and small commercial properties. Velocity originates loans nationwide across an extensive network of independent mortgage brokers it has built and refined over 15 years.

⁽¹⁾  “Core EPS” is anon-GAAP financial measure the Company presents to help investors better understand unique items that impact earnings. For a reconciliation of GAAP EPS to “Core” EPS, please refer to the sections of this press release titled“Non-GAAP Financial Measures” and “Adjusted Financial Metric Reconciliation to GAAP.”

⁽²⁾  The total loan portfolio at March 31, 2020 was comprised of $1.903 billion in UPB of held for investment loans and $0.224 billion of held for sale loans.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles (“GAAP”), the Company uses operating income and operating margin, which arenon-GAAP financial measures. The presentation of operating income and operating margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. When analyzing our operating performance, readers should use operating income and operating margin in addition to, and not as an alternative for, net income. Operating income represents net income before income taxes, interest expense on our corporate debt, and the amortization of deal costs related to corporate debt issuance. Additionally, operating margin is the ratio of operating income total revenues. Because not all companies use identical calculations, our presentation of net operating income and net operating margin may not be comparable to similarly titled measures of other companies. Furthermore, net operating income is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not reflect certain cash requirements such as tax and portfolio-related debt service payments. The amounts shown for Operating income may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash andnon-cash charges that are used to determine compliance with financial covenants.

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First Quarter 2020 Earnings

We use operating income to evaluate the operating performance of our business, for comparison with forecasts and strategic plans and for benchmarking performance externally against competitors. We believe that thisnon-GAAP measure, when read in conjunction with the Company’s GAAP financials, provides useful information to investors by offering:

• The ability to make more meaningfulperiod-to-period comparisons of the Company’son-going operating results.

• The ability to better identify trends in the Company’s underlying business and perform related trend analyses; and

• A better understanding of how management plans and measures the Company’s underlying business.

We believe that operating income has limitations in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and that operating income should only be used to evaluate the Company’s results of operations in conjunction with net income. For more information on operating income, refer to the section of this press release below titled “Adjusted Financial Metric Reconciliation to GAAP.”

Forward-Looking Statements

Some of the statements contained in this press release 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 similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to (1) the course and severity of theCOVID-19 pandemic, and its direct and indirect impacts (2) general economic conditions and real estate market conditions, (3) regulatory and/or legislative changes, (4) our ability to retain and attract loan originators and other professionals, and (5) changes in federal government fiscal and monetary policies.

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First Quarter 2020 Earnings

For a further discussion of these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements, see the section titled ‘‘Risk Factors” in the Company’s Form10-K filed with the SEC on April 7, 2020, as such risk factors may be updated from time to time in the Company’s periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.

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First Quarter 2020 Earnings

Velocity Financial, Inc.

Consolidated Statements of Financial Condition

(Unaudited)

	Quarter Ended
	3/31/2020			12/31/2019			09/30/2019			06/30/2019			03/31/2019
(In thousands)
Assets
Cash and cash equivalents	$	7,649		$	21,465		$	8,849		$	14,105		$	16,948
Restricted cash		4,483			6,087			3,152			1,542			1,986
Loans held for sale, net		223,123			214,467			170,440			82,308			58,123
Loans held for investment, at fair value		2,987			2,960			2,936			2,974			2,971
Loans held for investment		1,895,684			1,837,646			1,751,178			1,660,387			1,592,708
Net deferred loan costs		26,801			25,714			24,757			23,346			21,874
Total loans, net		2,148,595			2,080,787			1,949,311			1,769,015			1,675,676
Accrued interest receivables		14,470			13,295			12,450			11,326			10,788
Receivables due from servicers		37,884			49,659			38,349			33,618			35,395
Other receivables		2,516			4,778			7,585			3,321			1,190
Real estate owned, net		16,164			13,068			15,806			14,221			12,996
Property and equipment, net		4,964			4,680			4,903			5,045			5,254
Deferred tax asset		10,111			8,280			4,127			3,228			1,778
Other assets		10,519			12,667			17,219			15,383			7,365
Total Assets	$	2,257,354		$	2,214,766		$	2,061,751		$	1,870,804		$	1,769,376
Liabilities and members’ equity
Accounts payable and accrued expenses	$	58,591		$	56,146		$	41,957		$	30,832		$	39,731
Secured financing, net		74,364			145,599			145,285			127,061			127,179
Securitizations, net		1,576,431			1,438,629			1,377,733			1,261,456			1,338,032
Warehouse and repurchase facilities		298,372			422,688			349,859			280,710			97,059
Debt issuance costs		(835	)		(1,140	)		(744	)		(750	)		(586	)
Total Liabilities		2,006,924			2,061,922			1,914,090			1,699,309			1,601,415
Class C preferred units		—			—			—			27,399			26,929
Stockholders’ equity		250,430			152,844			147,661			144,096			141,032
Total Liabilities and members’ equity	$	2,257,354		$	2,214,766		$	2,061,751		$	1,870,804		$	1,769,376

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First Quarter 2020 Earnings

Velocity Financial, Inc.

Consolidated Statements of Income

(Unaudited)

	Quarter Ended
	3/31/2020			12/31/2019		09/30/2019			06/30/2019		03/31/2019
($ in thousands)
Revenues
Interest income	$	44,637		$	44,124	$	40,379		$	36,884	$	36,143
Interest expense - portfolio related		22,848			22,689		21,827			20,324		19,062
Net interest income - portfolio related		21,789			21,435		18,552			16,560		17,081
Interest expense - corporate debt		6,342			4,070		3,842			3,353		3,353
Net interest income		15,447			17,365		14,710			13,207		13,728
Provision for loan losses		1,289			242		338			212		348
Net interest income after provision for loan losses		14,157			17,123		14,372			12,995		13,380
Other operating income (expense)		1,620			833		(212	)		308		1,721
Total revenues		15,777			17,956		14,160			13,303		15,101
Operating expenses
Compensation and employee benefits		5,041			3,992		3,712			3,801		4,006
Rent and occupancy		455			426		369			398		338
Loan servicing		2,239			1,939		1,957			1,637		1,863
Professional fees		1,184			469		398			534		656
Real estate owned, net		1,134			1,300		485			561		301
Provision for held for sale loan losses		—			7		—			—		—
Other operating expenses		1,998			1,681		1,563			1,393		1,336
Total operating expenses		12,051			9,814		8,484			8,324		8,500
Income before income taxes		3,727			8,142		5,676			4,979		6,601
Income tax expense		1,148			2,960		1,796			1,444		1,906
			��
Net income	$	2,579		$	5,182	$	3,880		$	3,535	$	4,695
Earnings per share	$	0.13			NA		NA			NA		NA
Earnings per share (diluted)	$	0.13

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First Quarter 2020 Earnings

Velocity Financial, Inc.

Net Interest Margin – Portfolio Related and Total Company

(Unaudited)

	Quarter Ended March 31, 2020							Quarter Ended March 31, 2019
	Average Balance		Interest Income / Expense		Average Yield / Rate(1)			Average Balance		Interest Income / Expense		Average Yield / Rate(1)
($ in thousands)
Loan portfolio:
Loans held for sale		202,474							59,684
Loans held for investment		1,881,308							1,566,314
Total loans		2,083,783		44,637		8.57	%		1,625,998		36,143		8.89	%
Debt:
Warehouse and repurchase facilities		344,387		4,301		5.00	%		216,250		3,141		5.81	%
Securitizations		1,545,281		18,547		4.80	%		1,228,446		15,921		5.18	%
Total debt - portfolio related		1,889,668		22,848					1,444,696		19,062		5.28	%
Corporate debt		94,468		6,342					127,594		3,353		10.51	%
Total debt		1,984,136		29,190					1,572,290		22,415		5.70	%
Net interest spread - portfolio related(1)						3.73	%						3.61	%
Net interest margin - portfolio related						4.18	%						4.20	%
Net interest spread - total company(2)						2.68	%						3.19	%
Net interest margin - total company						2.97	%						3.38	%

⁽¹⁾  Net interest spread - portfolio related is the difference between the rate earned on our loan portfolio and the yield on our portfolio related debt.

⁽²⁾  Net interest spread - total company is the difference between the yield on our loan portfolio and the interest rates paid on our total debt.

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First Quarter 2020 Earnings

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP

(Unaudited)

	Quarter Ended
	3/31/2020		12/31/2019		09/30/2019		06/30/2019		03/31/2019
GAAP Net Income	$	2,579	$	5,182	$	3,880	$	3,535	$	4,695
Income tax expense		1,148		2,960		1,796		1,444		1,906
Interest expense - corporate debt		2,576		3,657		3,400		3,190		3,190
Amortization expense - corporate debt deal costs		3,766		412		442		163		163
Net Operating Income	$	10,069	$	7,029	$	5,638	$	4,797	$	5,259

“CORE” EARNINGS PER SHARE

	Quarter Ended
($ in thousands)	3/31/2020		Per Share
GAAP Net Income	$	2,579	$	0.13
One-time Debt Amortization & Expenses		2,610		0.13
COVID-19 Impact		615		0.03
“Core” Earnings	$	5,804	$	0.29

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