Velocity Financial, Inc. Reports Second Quarter 2023 Results

Second Quarter Highlights:

  • Net income of $12.2 million and diluted earnings per share (EPS) of $0.36, compared to $10.6 million and $0.31 per share, respectively, for 2Q22

  • Core net income(1) of $12.9 million and core diluted EPS(1) of $0.38, compared to $10.6 million and $0.31 per share, respectively, for 2Q22

  • Loan production volume of $258.6 million in unpaid principal balance (UPB), a decrease of 41.9% from 2Q22

  • Total loan portfolio of $3.7 billion as of June 30, 2023, an increase of 20.4% from June 30, 2022

  • Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.0% as of June 30, 2023, an increase from 8.2% as of June 30, 2022

  • Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $50.1 million in UPB, realizing gains of $1.5 million or 103.0% of UPB resolved

  • Portfolio net interest margin (NIM) of 3.24%, compared to 4.10% for 2Q22

  • Completed two securitizations in 2Q23. The VCC 2023-2 securitization totaling $202.2 million of securities issued, and the VCC 2023-1R (Re-REMIC) totaling $64.8 million of securities issued

  • Liquidity(2) of $72.0 million as of June 30, 2023

  • Book value per common share of $12.57 as of June 30, 2023, an increase from $11.26 as of June 30, 2022

WESTLAKE VILLAGE, Calif., August 03, 2023--(BUSINESS WIRE)--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $12.2 million and core net income of $12.9 million for 2Q23, compared to net income of $10.6 million and core net income of $10.6 million in 2Q22. Earnings and core earnings per diluted share were $0.36 and $0.38, respectively, for 2Q23, compared to $0.31 and $0.31, for 2Q22.

"Velocity once again delivered strong quarterly earnings driven by 20% year-over-year portfolio growth," said Chris Farrar, President and CEO. "Our second quarter results included solid portfolio net interest income and strong growth in other operating income driven by fair value gains and fees from loan production activity. Production volumes rebounded in the second quarter as forecast, increasing 19% quarter-over-quarter, with a weighted average coupon of 11%. We have been successful in mitigating much of the impact of higher rates by increasing loan coupons and volume simultaneously this quarter, which is a testament to the strong demand for investor properties and the skill of our loan origination team."

(1) Core income and Core EPS are a non-GAAP measures that exclude nonrecurring and unusual activities from GAAP net income.
(2) Liquidity includes unrestricted cash reserves of $34.0 million and available liquidity in unfinanced loans of $38.0 million.

Second Quarter Operating Results

KEY PERFORMANCE INDICATORS

($ in thousands)

2Q 2023

2Q 2022

$ Variance

% Variance

Pretax income

$

16,824

$

14,790

$

2,034

14

%

Net income

$

12,183

$

10,645

$

1,538

14

%

Diluted earnings per share

$

0.36

$

0.31

$

0

14

%

Core net income(a)

$

12,928

$

10,645

$

2,283

21

%

Core diluted earnings per share(a)

$

0.38

$

0.31

$

0.07

21

%

Pretax return on equity

16.81

%

16.57

%

n.a.

1

%

Core pretax return on equity(a)

17.79

%

16.57

%

n.a.

7

%

Net interest margin - portfolio

3.24

%

4.10

%

n.a.

(21

)%

Net interest margin - total company

2.78

%

3.54

%

n.a.

(21

)%

Average common equity

$

400,441

$

357,218

$

43,223

12

%

(a) Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the reconciliation to GAAP net income at the end of this release.

n.a.- not applicable

Discussion of results:

  • Net income in 2Q23 was $12.2 million, compared to $10.6 million for 2Q22

    • Driven by continued strong portfolio growth, NPL resolution activity and higher other operating income, partially offset by securitization costs and higher operating expenses

  • Core net income(1) was $12.9 million, compared to $10.6 million for 2Q22

    • Core adjustments included equity incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)

  • Portfolio NIM in 2Q23 was 3.24%, compared to 4.10% for 2Q22, resulting from increased funding costs, partially offset by rising portfolio yields from higher loan coupons on recent loan production

  • The GAAP pretax return on equity was 16.8% for 2Q23, compared to 16.6% for 2Q22

TOTAL LOAN PORTFOLIO

($ of UPB in millions)

2Q 2023

2Q 2022

$ Variance

% Variance

Held for Investment

Investor 1-4 Rental

$

2,016

$

1,517

$

499

33

%

Mixed Use

452

410

43

10

%

Multi-Family

304

289

14

5

%

Retail

322

298

24

8

%

Warehouse

235

217

19

9

%

All Other

391

359

32

9

%

Total

$

3,720

$

3,090

630

20

%

Held for Sale

Multi-Family

$

-

$

-

$

-

0

%

Total Managed Loan Portfolio UPB

$

3,720

$

3,090

$

630

20

%

Key loan portfolio metrics:

Total loan count

9,541

7,779

Weighted average loan to value

68.2

%

68.2

%

Weighted average coupon

8.40

%

7.53

%

Weighted average total portfolio yield

8.24

%

7.97

%

Weighted average portfolio debt cost

5.58

%

4.34

%

Discussion of results:

  • Velocity’s total loan portfolio was $3.7 billion in UPB as of June 30, 2023, an increase of 20.4% from $3.1 billion in UPB as of June 30, 2022

    • Primarily driven by 32.9% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and secondarily 10.4% Y/Y growth in Mixed Use properties

    • Approximately 75% of the loans in Velocity’s HFI portfolio are collateralized by properties that have a housing component (Investor 1-4 Rental, Multifamily and Mixed Use)

    • Loan prepayments totaled $105.8 million, a 21.6% Q/Q increase, and a 26.1% Y/Y decrease

  • The UPB of Fair Value (FVO) loans was $688.1 million in UPB, or 18.5% of total HFI loans, as of June 30, 2023, an increase from $1.3 million in UPB, or 0.05% as of June 30, 2022

    • The company elected fair value accounting treatment for new HFI loan originations effective October 1, 2022

  • The weighted average portfolio loan-to-value ratio was 68.2% as of June 30, 2023, unchanged from 68.2% as of June 30, 2022, and consistent with the five-quarter trailing average of 68.3%

  • The weighted average total portfolio yield was 8.24% for 2Q23, an increase of 27 bps from 2Q22, driven by higher loan coupons on YTD 2023 loan production

  • Portfolio-related debt cost for 2Q23 was 5.58%, an increase of 124 bps from 2Q22, driven by higher interest rates on securitization and warehouse financing

LOAN PRODUCTION VOLUMES

($ in millions)

2Q 2023

2Q 2022

$ Variance

% Variance

Investor 1-4 Rental

$

163

$

254

$

(90

)

(36

)%

Traditional Commercial

73

164

(91

)

(55

)%

Short-term loans

22

28

(6

)

(21

)%

Total loan production

$

259

$

445

$

(187

)

(42

)%

Acquisitions

$

-

$

0.5

Discussion of results:

  • Loan production in 2Q23 totaled $258.6 million in UPB, a 41.9% decrease from $445.4 million in UPB in 2Q22

    • Management’s decision to reduce production, along with higher interest rates, decreased volume from year-ago levels. On a Q/Q basis, production volume rose 19.2% from 1Q23.

  • The weighted average coupon (WAC) on 2Q23 HFI loan production was 11.0%, an increase of 325 bps from 2Q22

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS

($ in thousands)

2Q 2023

2Q 2022

$ Variance

% Variance

Nonperforming loans(a)

$ 371,154

$ 252,253

$ 118,901

47%

Average Nonperforming Loans

$ 328,897

$ 257,646

$ 71,251

28%

Nonperforming loans % total HFI Loans

10.0%

8.2%

n.a.

22%

Total Charge Offs

$ 717

$ 38

$ 679

n.m.

Charge-offs as a % of Avg. Nonperforming Loans(b)

0.87%

0.06%

n.a.

n.m.

Loan Loss Reserve

$ 4,626

$ 4,905

$ (279)

(6)%

(a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.

(b) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.

n.a.- not applicable, n.m. - non meaningful

Discussion of results:

  • Nonperforming loans (NPL) totaled $371.2 million in UPB as of June 30, 2023, or 10.0% of loans HFI, compared to $252.3 million and 8.2%, respectively, as of June 30, 2022

    • NPL growth is driven by portfolio seasoning of prior year’s originations and an aggressive collection philosophy that places loans in foreclosure quickly for early delinquencies

  • Charge-offs in 2Q23 totaled $716.6 thousand, compared to $37.8 thousand in 2Q22

    • The trailing five-quarter charge-off average was $279.6 thousand

  • The loan loss reserve totaled $4.6 million as of June 30, 2023, a 5.7% decrease from $4.9 million as of June 30, 2022

    • Resulting from the run-off of the amortized cost HFI loan portfolio and a modestly improved macroeconomic outlook.

    • Loans carried at fair value are not subject to a CECL reserve

NET REVENUES

($ in thousands)

2Q 2023

2Q 2022

$ Variance

% Variance

Interest income

$

74,897

$

59,243

$

15,653

26

%

Interest expense - portfolio related

(45,451

)

(28,752

)

(16,699

)

58

%

Net Interest Income - portfolio related

29,446

30,491

(1,045

)

(3

)%

Interest expense - corporate debt

(4,139

)

(4,182

)

43

(1

)%

Net Interest Income

$

25,307

$

26,310

$

(1,003

)

(4

)%

Loan loss provision

(298

)

(279

)

(18

)

7

%

Gain on disposition of loans

1,237

1,777

(539

)

(30

)%

Unrealized gain on fair value loans

2,413

6

2,407

n.m.

Unrealized gain (loss) on fair value of securitized debt

5,560

-

5,560

n.m.

Origination income

2,735

553

2,182

395

%

Bank interest income

1,188

-

1,188

n.m.

Other operating income (expense)

903

1,257

(354

)

(28

)%

Total Other operating income (expense)

$

14,036

$

3,592

10,444

291

%

Net Revenue

$

39,046

$

29,622

$

9,423

32

%

n.m. - non meaningful

Discussion of results:

  • Net Revenue in 2Q23 was $39.0 million, an increase of 31.8% compared to $29.6 million for 2Q22

  • Total net interest income, including corporate debt interest expense, was $25.3 million for 2Q23, a 3.8% decrease from $26.3 million for 2Q22

    • Portfolio net Interest income was $29.4 million for 2Q23, a decrease of 3.4% from 2Q22 resulting from a $16.7 million increase in interest expense, partially offset by $15.7 million of interest income growth

  • Total other operating income includes gains on the disposition of loans, unrealized gains/(losses) on fair value loans and securitized debt, origination income, bank interest income on deposits and other operating income, and totaled $14.0 million for 2Q23 compared to $3.6 million for 2Q22

    • Gain on disposition of loans totaled $1.2 million for 2Q23, primarily resulting from gains on loans transferred to REO

    • Unrealized gains on the fair value of loans totaled $2.4 million for 2Q23, primarily resulting from gains on 2Q23 new production, partially offset by valuation decreases on the existing FVO portfolio due to higher long-term interest rates

    • Unrealized gains on the fair value of securitized debt totaled $5.6 million for 2Q23, primarily driven by an increase in long-term rates as of June 30, 2023

    • Origination income totaled $2.7 million, driven by fee income realized on loans originated in 2Q23

OPERATING EXPENSES

($ in thousands)

2Q 2023

2Q 2022

$ Variance

% Variance

Compensation and employee benefits

$

10,670

$

6,553

$

4,116

63

%

Origination (income)/expense

122.8

1,504

(1,381

)

(92

)%

Securitization expenses

2,699

-

2,699

n.m

.

Rent and occupancy

458

426

32

7

%

Loan servicing

4,267

3,290

977

30

%

Professional fees

1,056

1,062

(6

)

(1

)%

Real estate owned, net

1,018

(251

)

1,269

(505

)%

Other expenses

1,931

2,248

(318

)

(14

)%

Total operating expenses

$

22,222

$

14,832

$

7,390

50

%

n.m. - non meaningful

Discussion of results:

  • Operating expenses totaled $22.2 million for 2Q23, an increase of 49.8% from 2Q22. The variance to prior year results is primarily attributable to our fair value accounting election in 4Q22.

    • Compensation expense totaled $10.7 million, compared to $6.6 million for 2Q22. In 2Q23, compensation expense related to loan originations was expensed as incurred under fair value accounting rather than deferred over the life of the loan under amortized cost accounting for 2Q22.

    • Origination (income)/expenses totaled $0.1 million, a $1.4 million improvement from 2Q22, resulting from successful initiatives to increase operational efficiencies

    • Securitization expenses totaled $2.7 million. Securitization issuance costs are now expensed under fair value accounting and were deferred in 2Q22.

    • Loan servicing expense totaled $4.3 million, an increase of $1.0 million from 2Q22, driven primarily by the increase in securitization debt outstanding to $3.1 billion as of June 30, 2023, from $2.5 billion as of June 30, 2022

SECURITIZATIONS

($ in thousands)

Securities

Balance at

Balance at

Trusts

Issued

6/30/2023

W.A. Rate

6/30/2022

W.A. Rate

2016-1 Trust

319,809

$

17,704

9.29

%

$

28,021

8.24

%

2017-2 Trust

245,601

51,930

3.95

%

68,749

3.59

%

2018-1 Trust

176,816

36,882

4.07

%

52,281

3.95

%

2018-2 Trust

307,988

87,984

4.51

%

108,845

4.36

%

2019-1 Trust

235,580

83,435

4.04

%

103,860

3.92

%

2019-2 Trust

207,020

76,284

3.45

%

98,792

3.37

%

2019-3 Trust

154,419

63,278

3.29

%

81,996

3.10

%

2020-1 Trust

248,700

121,074

2.86

%

149,646

2.84

%

2020-2 Trust

96,352

53,309

4.61

%

67,446

4.59

%

2021-1 Trust

251,301

183,089

1.76

%

214,835

1.74

%

2021-2 Trust

194,918

156,681

2.03

%

185,448

2.01

%

2021-3 Trust

204,205

167,652

2.46

%

195,308

2.46

%

2021-4 Trust

319,116

257,369

3.22

%

291,181

3.14

%

2022-1 Trust

273,594

246,883

3.93

%

264,936

3.91

%

2022-2 Trust

241,388

226,763

5.10

%

240,076

5.08

%

2022-MC1 Trust

84,967

39,862

6.90

%

80,931

6.94

%

2022-3 Trust

296,323

268,008

5.69

%

294,768

5.67

%

2022-4 Trust

308,357

289,929

6.25

%

2022-5 Trust

188,754

177,075

7.07

%

2023-1 Trust

198,715

189,763

7.02

%

2023-1R Trust

64,833

63,390

7.73

%

2023-2 Trust

202,210

199,864

7.17

%

$

4,820,966

$

3,058,208

4.72

%

$

2,527,119

3.77

%

Discussion of results

  • Completed the VCC 2023-1R (Re-REMIC) totaling $64.8 million of securities issued in April, collateralized by retained tranches from previous VCC securitizations

  • Completed the VCC 2023-2 securitization totaling $202.2 million of securities issued in May, comprised of long-term business-purpose loans

  • The weighted average rate on Velocity’s outstanding securitizations was 4.72% as of June 30, 2023, an increase of 95 bps from June 30, 2022

RESOLUTION ACTIVITIES

LONG-TERM LOANS

RESOLUTION ACTIVITY

SECOND QUARTER 2023

SECOND QUARTER 2022

($ in thousands)

UPB $

Gain / (Loss) $

UPB $

Gain / (Loss) $

Paid in full

$

13,485

$

965

$

16,934

$

3,303

Paid current

19,771

280

17,407

129

REO sold (a)

4,836

(382

)

2,107

816

Total resolutions

$

38,092

$

863

$

36,448

$

4,248

Resolutions as a % of nonperforming UPB

102.3

%

111.7

%

SHORT-TERM AND FORBEARANCE LOANS

RESOLUTION ACTIVITY

SECOND QUARTER 2023

SECOND QUARTER 2022

($ in thousands)

UPB $

Gain / (Loss) $

UPB $

Gain / (Loss) $

Paid in full

$

7,004

$

318

$

9,913

$

976

Paid current

3,290

89

2,877

22

REO sold

1,672

222

1,262

500

Total resolutions

$

11,966

$

629

$

14,052

$

1,498

Resolutions as a % of nonperforming UPB

105.3

%

110.7

%

Grand total resolutions

$

50,058

$

1,492

$

50,500

$

5,746

Grand total resolutions as a % of nonperforming UPB

103.0

%

111.4

%

Discussion of results:

  • 2Q23 NPL resolutions represented 13.5% of nonperforming loan UPB as of March 31, 2023

  • The UPB of loan resolutions in 2Q23 was in line with the recent five-quarter resolution average of $42.0 million in UPB

Velocity’s executive management team will host a conference call and webcast to review 2Q23 financial results on August 3rd, 2023, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.

Webcast Information

The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of the Velocity Financial Investor Relations website https://www.velfinance.com/events-and-presentations. To listen to the webcast, please visit Velocity’s website at least 15 minutes before the call to register, download, and install any needed software. An audio replay of the call will also be available on Velocity’s website following the completion of the conference call.

Conference Call Information

To participate by phone, please dial-in 15 minutes before the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing F1-833-316-0544 in the U.S. and Canada and 1-412-317-5725 for international callers. Callers should ask to join the Velocity Financial, Inc. conference call.

A replay of the call will be available through midnight on August 31, 2023, and can be accessed by dialing 1-877-344-7529 in the U.S. and 855-669-9658 in Canada or 1-412-317-0088 internationally. The passcode for the replay is #7682506. The replay will also be available on the Investor Relations section of the Company's website under "Events and Presentations."

About Velocity Financial, Inc.

Based in Westlake Village, California, Velocity is a vertically integrated real estate finance company that primarily originates and manages business purpose loans secured by 1-4-unit residential rental and small commercial properties. Velocity originates loans nationwide across an extensive network of independent mortgage brokers built and refined over 19 years.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses non-GAAP core net income and core diluted EPS, which are non-GAAP financial measures.

Non-GAAP core net income and non-GAAP core diluted EPS are non-GAAP financial measures that represent our net income (loss) and net income (loss) per diluted share, adjusted to eliminate the effect of certain costs incurred from activities that are not normal recurring operating expenses, such as COVID-stressed charges and recoveries of loan loss provision, nonrecurring debt amortization, the impact of operational measures taken to address the COVID-19 pandemic and workforce reduction costs, and costs associated with acquisitions. To calculate non-GAAP core diluted EPS, we use the weighted-average number of shares of common stock outstanding that is used to calculate net income per diluted share under GAAP.

We have included non-GAAP core net income and non-GAAP core diluted EPS because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that non-GAAP core net income and non-GAAP core diluted EPS provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain items that we expect to be nonrecurring.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.

For more information on Core Income, please refer to the section of this press release below titled "Adjusted Financial Metric Reconciliation to GAAP Net Income" at the end of this press release.

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 anticipated results, 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," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "goal," "position," 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 continued course and severity of the COVID-19 pandemic and its direct and indirect impacts, (2) general economic and real estate market conditions, including the risk of recession (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our future securitizations, and (6) the continued conflict in Ukraine and (7) changes in federal government fiscal and monetary policies.

Additional information relating to these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements can be found in the section titled ‘‘Risk Factors" in our Form 10-Q filed with the SEC on May 14, 2020, as well as other cautionary statements we make in our current and periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.

Velocity Financial, LLC

Consolidated Statements of Financial Condition

Quarter Ended

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Unaudited

Unaudited

Audited

Unaudited

Unaudited

(In thousands)

Assets

Cash and cash equivalents

$

33,987

$

39,397

$

45,248

$

26,372

$

46,250

Restricted cash

16,786

16,636

16,808

14,533

9,217

Loans held for sale, at fair value

-

18,081

-

16,569

-

Loans held for investment, at fair value

705,330

450,732

276,095

926

1,351

Loans held for investment

3,057,940

3,169,280

3,272,390

3,445,563

3,118,799

Total loans, net

3,763,270

3,638,093

3,548,485

3,463,058

3,120,150

Accrued interest receivables

22,602

20,931

20,463

18,333

15,820

Receivables due from servicers

63,896

64,133

65,644

66,992

75,688

Other receivables

1,306

2,188

1,075

1,962

1,320

Real estate owned, net

20,388

21,778

13,325

13,188

19,218

Property and equipment, net

3,023

3,209

3,356

3,495

3,632

Deferred tax asset

1,878

2,543

5,033

4,337

15,195

Mortgage Servicing Rights, at fair value

9,445

9,143

9,238

9,868

8,438

Goodwill

6,775

6,775

6,775

6,775

6,775

Other assets

7,789

12,268

13,525

18,453

11,036

Total Assets

$

3,951,145

$

3,837,094

$

3,748,975

$

3,647,366

$

3,332,739

Liabilities and members' equity

Accounts payable and accrued expenses

$

95,344

$

84,976

$

91,525

$

75,150

$

78,384

Secured financing, net

210,464

210,155

209,846

209,537

209,227

Securitized debt, net

2,622,547

2,657,469

2,736,290

2,651,895

2,477,226

Securitized debt, at fair value

381,799

194,941

-

-

-

Warehouse & repurchase facilities

235,749

298,313

330,814

340,050

208,390

Total Liabilities

3,545,903

3,445,854

3,368,475

3,276,632

2,973,227

Stockholders' Equity

Stockholders' equity

401,707

387,624

376,811

366,810

355,895

Noncontrolling interest in subsidiary

3,535

3,616

3,689

3,924

3,617

Total equity

405,242

391,240

380,500

370,734

359,512

Total Liabilities and members' equity

$

3,951,145

$

3,837,094

$

3,748,975

$

3,647,366

$

3,332,739

Book value per share

$

12.57

$

12.18

$

11.89

$

11.61

$

11.26

Shares outstanding

32,239(1

)

32,112(2

)

31,996(3

)

31,922(4

)

31,922(5

)

(1)

Based on 32,238,715 common shares outstanding as of June 30, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 502,913.

(2)

Based on 32,111,906 common shares outstanding as of March 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 490,526.

(3)

Based on 31,955,730 common shares outstanding as of December 31, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139.

(4)

Based on 31,921,721 common shares outstanding as of September 30, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139.

(5)

Based on 31,921,721 common shares outstanding as of June 30, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139.

Velocity Financial, LLC

Consolidated Statements of Income (Quarters)

Quarter Ended

($ in thousands)

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Unaudited

Unaudited

Audited

Unaudited

Unaudited

Revenues

Interest income

$

74,897

$

70,521

$

65,632

$

63,419

$

59,243

Interest expense - portfolio related

45,451

42,029

40,854

34,561

28,752

Net interest income - portfolio related

29,446

28,492

24,778

28,858

30,491

Interest expense - corporate debt

4,139

4,139

4,139

4,011

4,182

Net interest income

25,307

24,353

20,639

24,847

26,309

Provision for loan losses

298

636

(437

)

580

279

Net interest income after provision for loan losses

25,009

23,717

21,076

24,267

26,030

Other operating income

Gain on disposition of loans

1,237

1,913

391

399

1,777

Unrealized gain on fair value loans

2,413

7,354

7,795

453

6

Unrealized gain (loss) on fair value securitizations

5,560

(170

)

-

-

-

Origination income

2,735

2,411

3,521

518

553

Bank interest income

1,188

948

-

0

0

Other income (expense)

903

386

(288

)

1,656

1,257

Total other operating income

14,036

12,842

11,419

3,027

3,592

Net revenue

39,046

36,560

32,495

27,294

29,622

Operating expenses

Compensation and employee benefits

10,670

10,008

11,793

6,788

6,553

Origination expenses

123

(50

)

1,328

209

1,504

Securitizations expenses

2,699

2,584

-

-

-

Rent and occupancy

458

446

435

445

426

Loan servicing

4,267

3,828

3,244

3,314

3,290

Professional fees

1,056

955

1,091

664

1,062

Real estate owned, net

1,018

1,829

552

(195

)

(251

)

Other operating expenses

1,931

2,202

2,360

2,020

2,248

Total operating expenses

22,222

21,802

20,804

13,245

14,832

Income before income taxes

16,824

14,757

11,692

14,049

14,790

Income tax expense

4,602

4,021

3,465

3,759

4,019

Net income

12,222

10,736

8,227

10,290

10,771

Net income attributable to noncontrolling interest

39

87

(235

)

307

126

Net income attributable to Velocity Financial, Inc.

12,183

10,649

8,462

9,983

10,645

Less undistributed earnings attributable to participating securities

185

160

127

152

164

Net earnings attributable to common shareholders

$

11,998

$

10,489

$

8,335

$

9,831

$

10,481

Basic earnings (loss) per share

$

0.37

$

0.33

$

0.26

$

0.31

$

0.33

Diluted earnings (loss) per common share

$

0.36

$

0.31

$

0.25

$

0.29

$

0.31

Basic weighted average common shares outstanding

32,122

32,098

31,923

31,922

31,917

Diluted weighted average common shares outstanding

34,140

34,052

34,063

34,199

34,057

Velocity Financial, Inc.

Net Interest Margin — Portfolio Related and Total Company

(Unaudited)

Quarter Ended June 30, 2023

Quarter Ended March 31, 2023

Quarter Ended June 30, 2022

Interest

Average

Interest

Average

Interest

Average

Average

Income /

Yield /

Average

Income /

Yield /

Average

Income /

Yield /

($ in thousands)

Balance

Expense

Rate(1)

Balance

Expense

Rate(1)

Balance

Expense

Rate(1)

Loan portfolio:

Loans held for sale

$

3,477

$

12,896

$

62,987

Loans held for investment

3,634,093

3,512,133

2,910,693

Total loans

$

3,637,570

$

74,897

8.24

%

$

3,525,029

$

70,521

8.00

%

$

2,973,680

$

59,243

7.97

%

Debt:

Warehouse and repurchase facilities

$

238,027

5,910

9.93

%

$

225,497

4,833

8.57

%

$

318,960

4,115

5.16

%

Securitizations

3,020,624

39,541

5.24

%

2,926,153

37,196

5.08

%

2,332,340

24,637

4.23

%

Total debt - portfolio related

3,258,651

45,451

5.58

%

3,151,650

42,029

5.33

%

2,651,300

28,752

4.34

%

Corporate debt

215,000

4,139

7.70

%

215,000

4,139

7.70

%

215,000

4,182

7.78

%

Total debt

$

3,473,651

$

49,590

5.71

%

$

3,366,650

$

46,168

5.49

%

$

2,866,300

$

32,934

4.60

%

Net interest spread - portfolio related (2)

2.66

%

2.67

%

3.63

%

Net interest margin - portfolio related

3.24

%

3.23

%

4.10

%

Net interest spread - total company (3)

2.53

%

2.52

%

3.37

%

Net interest margin - total company

2.78

%

2.76

%

3.54

%

(1) Annualized.

(2) Net interest spread — portfolio related is the difference between the rate earned on our loan portfolio and the interest rates paid on our portfolio-related debt.

(3) Net interest spread — total company is the difference between the rate earned on our loan portfolio and the interest rates paid on our total debt.

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

Quarters:

Core Net Income

Quarter Ended

($ in thousands)

6/30/2023

3/31/2023

12/31/2022

9/30/2022

6/30/2022

Net Income

$

12,183

$

10,649

$

8,462

$

9,983