Velocity Financial, Inc. Income Taxes Disclosure
Note 19 — Income Taxes
The Company elected to be treated as a corporation, for tax purposes, effective January 1, 2018. The following table details the Company’s income tax expense (benefit):
|
|
December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
37,228 |
|
|
$ |
27,810 |
|
|
$ |
13,631 |
|
State |
|
|
12,163 |
|
|
|
11,546 |
|
|
|
2,509 |
|
Total current tax expense |
|
|
49,391 |
|
|
|
39,356 |
|
|
|
16,140 |
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
(6,372 |
) |
|
|
(8,396 |
) |
|
|
1,654 |
|
State |
|
|
(1,762 |
) |
|
|
(3,035 |
) |
|
|
1,040 |
|
Total deferred tax expense (benefit) |
|
|
(8,134 |
) |
|
|
(11,431 |
) |
|
|
2,694 |
|
Total income tax expense |
|
$ |
41,257 |
|
|
$ |
27,925 |
|
|
$ |
18,834 |
|
The following table contains a reconciliation of the Company’s provision for income taxes at the federal statutory tax rate to the provision for income taxes at the effective tax rate as of December 31, 2025, 2024 and 2023 after the adoption of ASU 2023-09:
|
|
December 31, |
|
|||||||||||||||||||||||||
|
|
2025 |
|
2024 |
|
2023 |
|
|||||||||||||||||||||
|
|
($ in thousands) |
|
|||||||||||||||||||||||||
Federal income tax provision at statutory rate |
|
$ |
30,726 |
|
|
|
21.00 |
|
% |
|
$ |
20,225 |
|
|
|
21.00 |
|
% |
|
$ |
15,699 |
|
|
|
21.00 |
|
% |
|
(1) |
|
|
8,452 |
|
|
|
5.78 |
|
|
|
|
6,714 |
|
|
|
6.97 |
|
|
|
|
4,626 |
|
|
|
6.19 |
|
|
|
Tax credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and Development Credit |
|
|
(288 |
) |
|
|
(0.20 |
) |
|
|
|
(248 |
) |
|
|
(0.26 |
) |
|
|
|
(145 |
) |
|
|
(0.19 |
) |
|
|
Nontaxable or Nondeductible Items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Share based compensation (2) |
|
|
1,852 |
|
|
|
1.27 |
|
|
|
|
1,231 |
|
|
|
1.28 |
|
|
|
|
449 |
|
|
|
0.60 |
|
|
|
Other |
|
|
82 |
|
|
|
0.06 |
|
|
|
|
29 |
|
|
|
0.03 |
|
|
|
|
19 |
|
|
|
0.03 |
|
|
|
Change in unrecognized tax benefit |
|
|
24 |
|
|
|
0.02 |
|
|
|
|
(56 |
) |
|
|
(0.06 |
) |
|
|
|
(1,739 |
) |
|
|
(2.33 |
) |
|
|
Other |
|
|
409 |
|
|
|
0.27 |
|
|
|
|
30 |
|
|
|
0.03 |
|
|
|
|
(75 |
) |
|
|
(0.10 |
) |
|
|
Effective tax rate |
|
$ |
41,257 |
|
|
|
28.20 |
|
% |
|
$ |
27,925 |
|
|
|
28.99 |
|
% |
|
$ |
18,834 |
|
|
|
25.20 |
|
% |
|
Net cash paid (refunds received) for income taxes consisted of the following:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Federal |
|
$ |
37,608 |
|
|
$ |
30,712 |
|
|
$ |
5,360 |
|
State and local jurisdiction |
|
|
13,128 |
|
|
|
10,837 |
|
|
|
2,288 |
|
California |
|
|
5,234 |
|
|
|
5,774 |
|
|
|
850 |
|
Other States |
|
|
7,894 |
|
|
|
5,063 |
|
|
|
1,438 |
|
Net cash paid for income taxes |
|
$ |
50,736 |
|
|
$ |
41,549 |
|
|
$ |
7,648 |
|
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024 are presented below:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
REMIC book-tax basis difference |
|
$ |
19,342 |
|
|
$ |
9,220 |
|
Mark-to-market on loans |
|
|
95 |
|
|
|
— |
|
Lease liability |
|
|
846 |
|
|
|
779 |
|
Stock compensation |
|
|
715 |
|
|
|
834 |
|
Accrued bonus |
|
|
136 |
|
|
|
144 |
|
Accrued vacation |
|
|
544 |
|
|
|
521 |
|
Intangibles |
|
|
— |
|
|
|
1 |
|
REO |
|
|
894 |
|
|
|
207 |
|
Research and experimental expenditures capitalization |
|
|
— |
|
|
|
2,241 |
|
Derivative - OCI |
|
|
1,233 |
|
|
|
294 |
|
Deferred revenue |
|
|
995 |
|
|
|
1,053 |
|
Deferred state taxes |
|
|
— |
|
|
|
510 |
|
Deferred origination costs |
|
|
88 |
|
|
|
— |
|
Gross deferred tax assets |
|
|
24,888 |
|
|
|
15,804 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Mark-to-market on loans |
|
|
— |
|
|
|
(172 |
) |
Right-of-use assets |
|
|
(770 |
) |
|
|
(721 |
) |
Deferred origination costs |
|
|
— |
|
|
|
(108 |
) |
Property and equipment |
|
|
(71 |
) |
|
|
(157 |
) |
Deferred state taxes |
|
|
(146 |
) |
|
|
— |
|
MSR |
|
|
(156 |
) |
|
|
(246 |
) |
Other |
|
|
(1,036 |
) |
|
|
(788 |
) |
Gross deferred tax liabilities |
|
|
(2,179 |
) |
|
|
(2,192 |
) |
Total net deferred tax asset |
|
$ |
22,709 |
|
|
$ |
13,612 |
|
The Company’s main temporary difference is due to the difference between the U.S. income tax and U.S. GAAP treatment with respect to its REMIC securities. For tax purposes, the issuances are considered taxable sales, whereas, for U.S. GAAP purposes, the REMIC issuances are considered financings.
The Company had no valuation allowance as of December 31, 2025 and 2024. Based on the Company’s estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and local jurisdictions, where applicable. As of December 31, 2025, the Company is no longer subject to U.S. tax examinations for years before 2022 and is no longer subject to state tax examinations for years before 2021.
The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of
current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.
The Company had gross unrecognized tax benefits in the amount of $0.3 million and $0.3 million recorded as of December 31, 2025 and 2024, respectively. If recognized, $0.3 million of the unrecognized tax benefits would affect the 2025 annual effective tax rate. Interest and penalties on unrecognized tax benefits is reported by the Company as a component of tax expense, and the Company recorded interest and penalties in its Consolidated Statements of Income in the amount of $7 thousand, $1 thousand and $500 thousand for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025 and 2024, the accrued interest and penalties related to unrecognized tax benefits is $41 thousand and $34 thousand, respectively.
Detailed below is a reconciliation of the Company’s gross unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023, respectively:
|
|
December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(In thousands) |
|
|||||||||
Beginning balance |
|
$ |
305 |
|
|
$ |
390 |
|
|
$ |
1,940 |
|
Changes related to current year tax positions |
|
|
59 |
|
|
|
61 |
|
|
|
93 |
|
Changes related to prior year tax positions |
|
|
13 |
|
|
|
(33 |
) |
|
|
25 |
|
Decreases due to lapsed statutes of limitations |
|
|
(60 |
) |
|
|
(113 |
) |
|
|
(1,668 |
) |
Ending balance |
|
$ |
317 |
|
|
$ |
305 |
|
|
$ |
390 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 13, 2023 | |
| 2021 | Mar 15, 2022 | |
| 2020 | Mar 17, 2021 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.