▪

Net Income of $2.1 million and “Core” EPS of $0.17⁽¹⁾

▪

The preferred stock deemed dividend reduced common stockholders’ equity and correspondingly increased preferred stock under mezzanine equity, resulting in a non-cash loss per common share of $(2.33) during the quarter

▪

Eliminated all mark-to-market risk for assets previously financed with legacy warehouse lines

‒

Completed VCC 2020-2 securitization totaling $128 million in June

‒

Completed the VCC 2020-MC1 securitization totaling $276 million in July

▪

Book value per common share as of June 30, 2020 was $10.26 compared to $12.47 as of March 31, 2020

▪

Preparations to restart loan production operations largely complete, targeting early September resumption of new lending activities

▪

Continued strong recovery rate of 102 percent of unpaid principal balance (UPB) on resolved delinquent assets

KEY PERFORMANCE INDICATORS

($ in thousands)

2Q 2020

1Q 2020

$ Variance

% Variance

Pretax income

$

2,625

$

3,727

$

(1,102

)

(30

)%

Net income

$

2,141

$

2,579

$

(438

)

(17

)%

Preferred stock deemed dividend⁽¹⁾

$

(48,955

)

-

-

-

Diluted (loss) earnings per share

$

(2.33

)

$

0.13

$

(2.46

)

(1915

)%

"Core" Earnings⁽²⁾

$

3,408

$

5,804

$

(2,396

)

(41

)%

"Core" EPS⁽²⁾

$

0.17

$

0.29

$

(0.12

)

(41

)%

Pretax return on equity

4.9

%

6.6

%

(2

)%

(25

)%

Return on equity

4.0

%

4.6

%

(1

)%

(12

)%

Net interest margin - portfolio

3.5

%

4.2

%

(1

)%

(15

)%

Avergage common equity

$

212,407

$

225,125

$

74,737

(6

)%

⁽¹⁾

Charged against common equity

⁽²⁾

Core earnings and and Core earnings per share are a non-GAAP measure.

▪

2Q20 “Core” EPS⁽¹⁾ was $0.17 per share and reflects a $2.50 per share adjustments for the following:

‒

$0.06 per share impact driven by the increase in the macroeconomic forecast of the CECL loan loss reserve resulting from a more-adverse outlook related to the impacts of the COVID-19 pandemic

‒

$2.44 per share impact related the non-cash deemed dividend on preferred stock

▪

The preferred stock deemed dividend reduced common stockholders’ equity and correspondingly increased preferred stock under mezzanine equity.  This transaction reflects the redemption value of the preferred stock as of June 30, 2020.

TOTAL LOAN PORTFOLIO

($ in millions)

2Q 2020

1Q 2020

$ Variance

% Variance

Held for Investment

Investor 1-4 Rental

$

841

$

872

$

(30

)

(3

)%

Mixed Use

260

265

(5

)

(2

)%

Multi-Family

193

201

(8

)

(4

)%

Retail

178

181

(4

)

(2

)%

All Other

373

384

(11

)

(3

)%

Total

$

1,845

$

1,903

$

(58

)

(3

)%

Held for Sale

Investor 1-4 Rental

$

214

$

224

$

(10

)

(4

)%

Total Managed Loan Portfolio

$

2,059

$

2,127

$

(68

)

(3

)%

Key loan portfolio metrics:

Total loan count

6,294

6,504

Weighted average loan to value

66

%

66

%

Weighted average total portfolio yield

7.59

%

8.57

%

Weighted average total debt cost

4.83

%

5.88

%

▪

The weighted average total portfolio yield was 7.59 percent in the second quarter, a decrease of 98 basis points from the first quarter of 2020, primarily driven by an increase nonaccrual loans

▪

The 105 basis point decrease in portfolio related debt cost was primarily attributable to the lower corporate debt expense resulting from the paydown of corporate debt upon completion of our IPO

▪

Velocity’s total loan portfolio (comprised of loans held for sale and loans held for investment) was $2.059 billion as of June 30, 2020, a 3 percent quarter-over-quarter decrease from the first quarter of 2020

▪

The weighted average loan-to-value ratio of the total portfolio was 66 percent as of June 30, 2020, essentially unchanged from the prior quarter

LOAN PRODUCTION VOLUMES

($ in millions)

2Q 2020

1Q 2020

$ Variance

% Variance

Investor 1-4 Rental

$

-

$

65

$

(65

)

(100

)%

Traditional Perm.

-

86

(86

)

(100

)%

Short-term loans

-

96

(96

)

(100

)%

Total loan production

$

-

$

248

$

(248

)

(100

)%

▪

In late March, Velocity temporarily suspended loan origination activities, which resulted in origination volume lower than originally forecast in the first quarter of 2020 and no loan production in the second quarter of 2020.

▪

The completion of the VCC 2020-2 and the VCC 2020-MC1 securitizations in June and July, respectively, marks the culmination of our strategy to find permanent financing solutions for our assets previously financed with warehouse facilities. With this objective achieved, the Company can now devote its full attention to restarting loan production operations in early September 2020.

NET REVENUES

($ in thousands)

2Q 2020

1Q 2020

$ Variance

% Variance

Interest income

$

39,755

$

44,637

$

(4,882

)

(11

)%

Interest expense - portfolio related

(21,189

)

(22,848

)

$

1,659

(7

)%

Net Interest Income

$

18,566

$

21,789

$

(3,223

)

(15

)%

Interest expense - corporate debt

(1,894

)

(6,342

)

$

4,448

(70

)%

CECL provision

(1,800

)

(1,289

)

$

(511

)

40

%

Gain on loan sales

155

2,617

(2,462

)

(94

)%

Other Operating (loss) income

(1,494

)

(998

)

(496

)

50

%

Total Net Revenues

$

13,533

$

15,777

$

(2,244

)

(14

)%

▪

Net Revenue was lower by $2.2 million driven primarily driven by a decrease in gains from loan sales caused by our decision to hold the short-term loans to maturity

▪

The CECL provision increase was driven primarily by an increase in the macroeconomic model forecast of the reserve, resulting from a more-adverse outlook related to the sustained impacts of the COVID-19 pandemic

OPERATING EXPENSES

($ in thousands)

2Q 2020

1Q 2020

$ Variance

% Variance

Compensation and employee benefits

$

5,863

$

5,041

$

822

16

%

Rent and occupancy

448

455

(7

)

(2

)%

Loan servicing

1,754

2,239

(485

)

(22

)%

Professional fees

588

1,184

(596

)

(50

)%

Real estate owned, net

408

1,134

(726

)

(64

)%

Other expenses

1,847

1,998

(151

)

(8

)%

Total expenses

$

10,908

$

12,051

$

(1,143

)

(9

)%

▪

Operating expenses were $1.1 million lower as a result of lower REO valuation expenses and lower one-time professional fees related to our IPO, offset by slightly higher compensation expenses.

SECURITIZATIONS

Trusts

Securities

Issued

Balance at

6/30/2020

W.A. Rate

2011-1 Trust

$

61,042

$

-

-

2014-1 Trust

161,076

26,659

7.29

%

2015-1 Trust

285,457

44,394

7.12

%

2016-1 Trust

319,809

67,333

7.42

%

2016-2 Trust

166,853

52,341

6.34

%

2017-1 Trust

211,910

88,950

4.79

%

2017-2 Trust

245,601

146,611

3.34

%

2018-1 Trust

176,816

118,605

4.01

%

2018-2 Trust

307,988

219,591

4.49

%

2019-1 Trust

235,580

200,484

4.04

%

2019-2 Trust

207,020

183,578

3.41

%

2019-3 Trust

154,419

137,789

3.27

%

2020-1 Trust

248,700

240,334

2.85

%

2020-2 Trust

96,352

95,963

4.50

%

$

2,878,623

$

1,622,632

▪

The Company issued its second securitization of 2020 (VCC 2020-2) in June, and our fourteenth securitization overall totaling $96 million of securities issued and a weighted average rate of 4.50 percent.

▪

In July, the Company issued its third securitization of the year (VCC 2020-MC1) total $179 million of securities issued at a weighted average rate of 4.50 percent.  The VCC 2020- MC1 securitization was collateralized primarily by short-term loans secured by 1-4 unit investor properties, in addition to 30-year loans secured by residential 1-4 unit investor and small commercial properties originated through Velocity’s operating platform.

RESOLUTION ACTIVITY - SECOND QUARTER 2020

($ in thousands)

UPB $

Gain / (Loss) $

Paid in full

$

6,658

$

336

Paid current

19,635

208

REO sold

1,406

38

$

27,699

$

582

▪

Continued strong recovery rate, realizing 102 percent of nonperforming UPB resolved during the quarter

▪

Nonaccrual loans paid in full during the second quarter of 2020 totaled $6.7 million in UPB with a $0.34 million net gain on resolutions. Gains primarily reflect the collection of default interest, in addition to regular interest and prepayment penalties

▪

Loans paid current during the second quarter of 2020 totaled $19.6 million in UPB with a $0.21 million net gain. Gains primarily reflects collections of default interest, in addition to regular interest, and the loan remains in our portfolio

▪

REO sales totaled $1.4 million for net gains of $0.04 million  

Quarter Ended

6/30/2020

3/31/2020

12/31/2019

09/30/2019

6/30/2019

(In thousands)

  Assets

    Cash and cash equivalents

$

9,803

$

7,649

$

21,465

$

8,849

$

14,105

    Restricted cash

6,735

4,483

6,087

3,152

1,542

    Loans held for sale, net

212,344

223,123

214,467

170,440

82,308

    Loans held for investment, at fair value

2,956

2,987

2,960

2,936

2,974

    Loans held for investment

1,836,065

1,895,684

1,837,646

1,751,178

1,660,387

    Net deferred loan costs

25,754

26,801

25,714

24,757

23,346

    Total loans, net

2,077,119

2,148,595

2,080,787

1,949,311

1,769,015

    Accrued interest receivables

17,793

14,470

13,295

12,450

11,326

    Receivables due from servicers

36,028

37,884

49,659

38,349

33,618

    Other receivables

4,609

2,516

4,778

7,585

3,321

    Real estate owned, net

15,648

16,164

13,068

15,806

14,221

    Property and equipment, net

4,718

4,964

4,680

4,903

5,045

    Deferred tax asset

5,556

10,111

8,280

4,127

3,228

    Other assets

9,042

10,519

12,667

17,219

15,383

  Total Assets

$

2,187,051

$

2,257,354

$

2,214,766

$

2,061,751

$

1,870,804

  Liabilities and members' equity

    Accounts payable and accrued expenses

$

55,938

$

58,591

$

56,146

$

41,957

$

30,832

    Secured financing, net

74,571

74,364

145,599

145,285

127,061

    Securitizations, net

1,599,719

1,576,431

1,438,629

1,377,733

1,261,456

    Warehouse & repurchase facilities and other

160,796

297,537

421,548

349,115

279,960

    Total Liabilities

1,891,024

2,006,924

2,061,922

1,914,090

1,699,309

Mezzanine Equity

   Class C preferred units

-

-

-

27,399

   Series A Convertible preferred stock

90,000

-

-

-

-

Stockholders' Equity

   Stockholders' equity

206,027

250,430

152,844

147,661

144,096

  Total Liabilities and members' equity

$

2,187,051

$

2,257,354

$

2,214,766

$

2,061,751

$

1,870,804

Quarter Ended

$ in thousands)

6/30/2020

3/31/2020

12/31/2019

09/30/2019

06/30/2019

  Revenues

  Interest income

$

39,755

$

44,637

$

44,124

$

40,379

$

36,884

  Interest expense - portfolio related

21,189

22,848

22,689

21,827

20,324

  Net interest income - portfolio related

18,566

21,789

21,435

18,552

16,560

  Interest expense - corporate debt

1,894

6,342

4,070

3,842

3,353

  Net interest income

16,672

15,447

17,365

14,710

13,207

  Provision for loan losses

1,800

1,289

242

338

212

  Net interest income after provision

    for loan losses

14,872

14,157

17,123

14,372

12,995

  Other operating income

  Total net revenues

13,533

15,777

17,956

14,160

13,303

  Operating expenses

    Compensation and employee benefits

5,863

5,041

3,992

3,712

3,801

    Rent and occupancy

448

455

426

369

398

    Loan servicing

1,754

2,239

1,939

1,957

1,637

    Professional fees

588

1,184

469

398

534

    Real estate owned, net

408

1,134

1,300

485

561

    Other operating expenses

1,847

1,998

1,688

1,563

1,393

  Total operating expenses

10,908

12,051

9,814

8,484

8,324

  Income before income taxes

2,625

3,727

8,142

5,676

4,979

  Income tax expense

484

1,148

2,960

1,796

1,444

  Net income

$

2,141

$

2,579

$

5,182

$

3,880

$

3,535

Less deemed dividends on

   preferreds stock

$

48,955

Net loss allocated to common

   shareholders

$

(46,814

)

Diluted loss per common share

$

(2.33

)

$

0.13

Diluted weighted avergage common

   shares outstanding

$

20,087

$

20,087

-

-

-

Quarter Ended June 30, 2020

Quarter Ended March 31, 2020

Quarter Ended June 30, 2019

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

$

220,047

$

202,474

$

60,940

Loans held for investment

1,875,260

1,881,308

1,632,626

Total loans

$

2,095,307

$

39,755

7.59

%

$

2,083,783

$

44,637

8.57

%

$

1,693,566

$

36,884

8.71

%

Debt:

Warehouse and repurchase facilities

$

242,676

2,632

347,350

4,301

$

179,193

2,692

Securitizations

1,589,191

18,557

1,542,318

18,547

1,325,571

17,632

Total debt - portfolio related

1,831,867

21,189

4.63

%

1,889,668

22,848

4.84

%

1,504,764

20,324

5.40

%

Corporate debt

78,000

1,895

94,468

6,342

127,594

3,353

Total debt

$

1,909,867

$

23,084

4.83

%

1,984,136

29,190

5.88

%

$

1,632,357

$

23,677

5.80

%

Net interest spread - portfolio related ⁽¹⁾

2.96

%

3.73

%

3.31

%

Net interest margin - portfolio related

3.54

%

4.18

%

3.91

%

Net interest spread - total company ⁽²⁾

2.75

%

2.68

%

2.91

%

Net interest margin - total company

3.18

%

2.97

%

3.12

%

⁽¹⁾

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.

⁽²⁾

Net interest spread - total company is the difference between the yield on our loan portfolio and the interest rates paid on our total debt.

"CORE" EARNINGS PER SHARE

Quarter Ended

($ in thousands)

6/30/2020

3/31/2020

Net income

$

2,141

$

2,579

One-time Debt Amortization & Expenses

-

2,610

COVID-19 Impact

1,267

615

   "Core" Earnings

$

3,408

$

5,804

"Core" EPS

$

0.17

$

0.29

Diluted weighted average common shares outstanding

$

20,087

$

20,087