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    VEL
    Earnings call· Jun 2026(Q2 FY26)

    Velocity Financial Q2 FY26 earnings call VEL

    Aug 5, 2026 Source

    Executive summary

    Velocity Financial Q2 FY26 — Strong Loan Portfolio Growth and NPL Resolution Gains

    Velocity Financial delivered a solid second quarter, marked by robust loan portfolio growth and effective non-performing loan resolution, driving a significant increase in book value per share. While GAAP net income saw a modest decline due to tax rate impacts, underlying business performance remained strong with healthy origination volumes and a diverse funding base. The company anticipates continued growth in origination volumes and earnings for the remainder of the year, supported by a stable credit environment and supportive capital markets.

    Highlights

    8

    • Core net income increased 1.4% to $27.9 million.

    • Diluted book value per share grew to $18.43, up $2.81 year-over-year.

    • Non-performing loans (NPLs) fell to 9.6% of held-for-investment loans, down from 10.3% a year ago.

    • Resolved $90.5 million of NPLs with net gains of 102.7% and total recoveries of 107.7%.

    • Total loan portfolio grew to $7 billion in UPB, up 19% year-over-year.

    • Q2 loan production was $672.6 million, up 5.2% over Q1's $639 million.

    • Portfolio net interest margin (NIM) was 3.66%, above the targeted 3.5%.

    • Ended the period with $240 million of liquidity and $662 million of available warehouse capacity.

    Concerns

    3

    • GAAP net income decreased 3.2% to $25.2 million, primarily due to a higher effective tax rate.

    • Q2 loan production was slightly down from $725 million a year ago, despite unit production being up 3.3%.

    • Net gain on overall REO activities was $2.4 million, down from $5.7 million for Q2 FY25.

    Guidance & targets

    2
    CategoryTargetConfidence
    Portfolio Net Interest Margin (NIM)
    above 3.5%
    high materiality
    High
    Origination Volumes
    increase
    medium materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Century Health & Housing division
    This division produces HUD multi-family loans, which are large and lumpy. Volumes had slowed due to rate volatility but have stabilized, leading to a strong Q2. Management expects this trend to continue.
    Originations: jumped in the quarterPipeline: very robustExpected volumes: similar to Q2 going forward
    		————

    Operational metrics

    32
    Core Net Income
    $27.9 millionup 1.4% YoY
    Q2 FY26
    Pre-tax Income
    $35.2 millionup 3.9% YoY
    Q2 FY26
    Diluted Book Value per Share
    $18.43up $2.81 YoY
    Q2 FY26
    Non-Performing Loan Rate
    9.6down from 10.3% YoY
    Q2 FY26

    Represents a 70 basis point year-over-year decrease.

    Non-Performing Loans Resolved
    $90.5 million
    Q2 FY26
    Charge-offs
    $700,000below 5-quarter trailing average
    Q2 FY26
    Total Loan Production
    $672.6 milliondown from $725 million YoY; up 5.2% QoQ
    Q2 FY26

    Unit production was up 3.3% YoY, dollar decline due to lower average loan size.

    Unit Production Growth
    3.3YoY
    Q2 FY26
    Total Loan Portfolio UPB
    $7 billionup 19% YoY; up 2.2% QoQ
    Q2 FY26
    Total Liquidity
    $240 million
    Q2 FY26
    Available Warehouse Capacity
    $662 million
    Q2 FY26
    Portfolio Net Interest Margin
    3.66up 10 bps QoQ; down from 3.82% YoY
    Q2 FY26

    Prior year NIM was elevated due to cash collections on NPLs.

    Weighted Average Coupon on New HFI Originations
    10
    Q2 FY26
    Weighted Average LTV on New HFI Originations
    61.1
    Q2 FY26
    Weighted Average Coupon on Total Portfolio
    9.7consistent QoQ and YoY
    Q2 FY26
    Portfolio Cost of Funds Change
    15decreased YoY
    Q2 FY26

    Year-over-year decrease mainly due to paying down warehouse lines with proceeds from unsecured corporate debt issuance in Q1.

    CECL Loss Reserve
    $5.1 million
    Q2 FY26

    Applicable only to amortized cost loan portfolio.

    Fair Value Loan Portfolio Valuation Adjustment Loss Allowance
    $24.3 million
    Q2 FY26

    Represents market value for which FVO loans could be sold in a secondary market.

    Combined Total Portfolio Valuation Loss Allowance
    42
    Q2 FY26

    Combines CECL and FVO allowances.

    Gain on Transfers of NPLs to New REOs
    $5.4 millionvs $7.1 million Q2 FY25
    Q2 FY26

    Segregated between amortized cost and fair value loan portfolios.

    Loss on Existing REO Activities
    $3 millionvs $1.4 million Q2 FY25
    Q2 FY26

    Reflects lower of cost or market (LOCOM) accounting.

    Net Gain on Overall REO Activity
    $2.4 millionvs $5.7 million Q2 FY25
    Q2 FY26

    Combines new REO activity and existing REO activity.

    Total Resolution Dollars Recovered (NPLs)
    $6.9 million
    Q2 FY26

    Includes past due net contractual interest on $91 million UPB of NPLs resolved.

    Net Gain on NPL Resolution (Pure Gain)
    $2.5 millionvs $2.8 million Q2 FY25
    Q2 FY26

    Gain over and above recovering all UPB and past due contractual interest.

    Recourse Debt-to-Equity Ratio
    1.2
    Q2 FY26
    Total Debt to Equity Ratio
    9.7
    Q2 FY26

    Includes all non-recourse securitizations.

    Maximum Warehouse Line Capacity
    $975 million
    Q2 FY26
    2026-2 Security Issued
    $398 million
    Q2 FY26

    Refers to the amount of securities issued in the 2026-2 securitization.

    2026-MC2 Security Net Proceeds
    $11 million
    Q2 FY26

    Net proceeds generated from the MC2 securitization.

    Retained Trust Certificate of CMBS Security (MC2)
    $30 million
    Q2 FY26

    Velocity retained this certificate from the MC2 securitization.

    Loans Sold into MC2 Trust
    $136 million
    Q2 FY26

    These loans came off the books as a true sale as part of the MC2 securitization.

    Held-for-Sale Loans from Century Deal Sold to Ginnie
    $80 million
    Q2 FY26

    Part of the $222 million loan sales discussed in Q&A.

    Industry KPIs

    1
    MetricValueDetails
    Funding cost15bps

    Deals & partnerships

    2
    Fixed income marketsIssuance of securities$398 million

    One of two securitizations completed in Q2 FY26, specifically the 2026-2 security.

    Fixed income marketsSecuritization of non-performing loans (NPLs)$136 million

    The 2026-MC2 security was structured as a true sale where loans came off the books. Velocity retained a $30 million trust certificate of the CMBS security.

    Risks & headwinds

    2
    Higher effective tax rateQ2 FY26

    Caused GAAP net income to decrease 3.2% year-over-year.

    Mitigation: Management noted it was the primary driver of GAAP net income dip, implying underlying business strength was unaffected.

    Potential need for additional capital for aggressive growthGoing forward, as growth continues.

    Balance sheet leverage not to exceed 10x.

    Mitigation: Access to both equity and debt markets; forward plan for capital raises.

    What to watch in Q3 FY26

    4

    Origination Volumes

    H2 FY26
    Current$672.6 million (Q2 FY26)
    TargetIncrease over Q2 FY26 volumes, beating last year's volumes.

    Why it matters

    Indicates continued demand for Velocity's products and ability to grow the loan portfolio.

    The pipeline is robust, and we expect origination volumes to increase for the rest of this year.

    Q&A highlights

    4

    Inquired about the product and whether the Q2 jump was an outlier or a new trend for the Century Health & Housing division.

    Chris Farrar explained that this division produces HUD multi-family loans, which are large and lumpy. Volumes had slowed due to rate volatility but are now stabilizing. He expects similar robust levels going forward, indicating it's not an outlier.

    “I don't think it's necessarily an outlier. I think it would be something similar to that on a go-forward basis.”

    asked by Chris Muller · answered by Christopher Farrar

    2 min read5 chapters

    Detailed Narrative

    01

    Credit Performance and NPL Resolution

    Velocity Financial demonstrated strong credit discipline, with non-performing loans (NPLs) decreasing to 9.6% of held-for-investment loans, down 70 basis points year-over-year. The special servicing team successfully resolved $90.5 million in NPLs, achieving net gains of 102.7% and total recoveries of 107.7%, underscoring the company's focus on asset valuation over volume. Charge-offs were notably low at $700,000, remaining below the five-quarter trailing average.

    02

    Loan Origination and Portfolio Growth

    Despite a slight dollar decline in Q2 loan production to $672.6 million compared to the prior year's $725 million, unit production increased by 3.3%, reflecting a lower average loan size rather than softer demand. The total loan portfolio expanded by 19% year-over-year to $7 billion in UPB, with healthy growth across all collateral types. A robust pipeline indicates expectations for continued volume increases in the second half of the year.

    03

    Funding and Liquidity Position

    The company maintained a strong financial position, completing two securitizations in Q2, including the 2026-MC2 security which improved capital efficiency by unlocking capital tied up in NPLs. Velocity ended the quarter with $240 million in liquidity, comprising $76 million in cash and $164 million in available liquidity on unfinanced loan collateral, and $662 million in available warehouse capacity, providing flexibility for future origination opportunities without balance sheet strain.

    04

    Net Interest Margin and Yield Stability

    The portfolio net interest margin (NIM) for Q2 was 366 basis points, exceeding the targeted 3.5% and showing a 10 basis point increase over Q1's 356 basis points. This was supported by a stable weighted average coupon of 10% on new held-for-investment originations and a consistent 9.7% yield on the total portfolio, reflecting healthy yields at tight credit levels. The portfolio cost of funds remained constant quarter-over-quarter and decreased by 15 basis points year-over-year.

    05

    Century Health & Housing Division Performance

    The Century Health & Housing division, which originates HUD multi-family loans, saw a significant jump in originations during the quarter. Management expects this trend to continue, with a robust pipeline for these large, lumpy loans, indicating a stabilization in market rate expectations and improved traction for this product. These loans contributed to the overall loan sales for the quarter.

    AI-generated summary of the company’s earnings call. Not investment advice.