Velocity Financial, Inc. recently disclosed its financial outcomes for the second quarter of 2026, revealing a mixed yet largely positive performance. The company successfully expanded its total loan portfolio to an impressive $7 billion, concurrently maintaining a stringent credit policy evidenced by a non-performing loan (NPL) rate of 9.6%. Although the aggregate dollar volume of loan production saw a minor reduction, the number of loans originated actually increased, indicating a strategic shift towards loans of smaller average sizes. The firm proactively utilized securitization to enhance capital efficiency and adeptly managed its non-performing assets, achieving commendable recovery rates. Despite a slight dip in GAAP net income, primarily attributed to a higher effective tax rate, the diluted book value per share witnessed a healthy appreciation to $18.43. Leadership commentary suggests an optimistic outlook, foreseeing heightened demand and a robust pipeline for the latter half of the year.
During the second quarter of 2026, Velocity Financial demonstrated its continued strength and adaptability in a dynamic market environment. The core net income reached $27.9 million, marking a 1.4% year-over-year increase, driven by sustained portfolio expansion. However, the GAAP net income decreased by 3.2% to $25.2 million, largely impacted by an elevated effective tax rate, rather than operational setbacks. Pre-tax income showed a solid 3.9% growth, totaling $35.2 million. Significantly, the diluted book value per share climbed to $18.43, an increase of $2.81 from the previous year, underscoring the company's compounding growth strategy.
The company's commitment to credit discipline was evident as non-performing loans constituted 9.6% of held-for-investment loans, a reduction from 10.3% in the prior year. Velocity's specialized servicing team successfully resolved $90.5 million in NPLs, yielding net gains of 102.7%, or $2.5 million, and overall recoveries reaching 107.7%. Charge-offs remained low at $700,000, falling below the five-quarter average, which speaks to effective risk management. Loan production amounted to $672.6 million, a slight decrease from $725.4 million year-over-year, yet unit production saw a 3.3% increase, with 1,600 loans funded. The average loan size was $399,000, compared to $445,000 in the second quarter of 2025.
In terms of funding and liquidity, Velocity Financial remained proactive, completing two securitization transactions. Notably, the VCC 2026-MC2 security generated $11.2 million in net proceeds and contributed to unlocking capital previously tied up in non-performing loans, thereby enhancing capital efficiency. The company ended the quarter with $240 million in liquidity, including $76.1 million in cash and $163.9 million in available borrowings. Warehouse capacity stood at $661.8 million, with a maximum capacity of $975 million, providing ample flexibility for future origination opportunities. The recourse debt-to-equity ratio was maintained at a healthy 1.2x, and the total debt-to-equity ratio, including non-recourse securitizations, was 9.7x.
Looking ahead, Velocity Financial expressed confidence in its market position, driven by stable credit performance, diversified funding sources, and strong product demand. Management anticipates an increase in origination volumes for the remainder of 2026, with July already showing promising submission levels. The Century Health & Housing division is expected to sustain its normalized volume levels. The supportive capital markets environment, characterized by tight spreads on securitizations, further reinforces the company's growth prospects and its ability to continue compounding book value and earnings.
