Velocity Posts Lower Profit as Tax Rate Weighs
Net revenue rose 10.7% to $95.0 million as operating income climbed.
Velocity Financial (VEL), a mortgage lender, reported lower second-quarter earnings as a higher effective tax rate outweighed growth in pretax income. Net income fell 3.2% to $25.2 million, while diluted earnings declined to $0.64 a share from $0.69. Pretax income rose 3.9% to $35.2 million.
The results improved from the first quarter, when net income attributable to Velocity was $22.4 million and diluted earnings were $0.57 a share. Pretax income increased sequentially from $30.9 million.
Net revenue increased 10.7% from a year earlier, supported by a 4.2% rise in net interest income after credit-loss provisions and an 18.1% increase in other operating income. Operating expenses grew 15.1%, limiting the increase in pretax income.
Loan-servicing expense nearly doubled to $15.7 million, mainly because $6.0 million of recoverable protective advances were transferred into the 2026-MC2 Trust. Compensation expense rose to $25.5 million as headcount expanded, while real-estate-owned expense increased to $6.7 million because of higher asset volumes and valuation adjustments.
Profitability also faced pressure from narrower lending spreads. Portfolio net interest margin declined 16 basis points to 3.66%, while total-company net interest margin fell 57 basis points to 2.82%. Loan production decreased to $672.6 million as a lower average loan balance offset a 3.3% increase in units.
Credit indicators were mixed. Nonperforming loans declined to 9.6% of held-for-investment loans from 10.3%, but the recovery rate on resolved loans fell to 107.7% from 109.7%. Recoveries declined to $6.9 million even as resolution volume remained essentially flat.
Core net income rose 1.4% to $27.9 million, though core diluted earnings declined to $0.71 a share as the diluted weighted-average share count increased. Diluted book value climbed to $18.43 a common share from $15.62 a year earlier, providing a counterweight to lower returns on equity and tighter margins.