WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--August 3, 2023--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 3^rd, 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		$	10,645
Equity award & ESPP costs			745			728			656			-			-
Core Net Income		$	12,928		$	11,376		$	9,118		$	9,983		$	10,645
Diluted weighted average common shares outstanding			34,140			34,052			34,063			34,199			34,057
Core diluted earnings per share		$	0.38		$	0.33		$	0.27		$	0.29		$	0.31