Velocity Financial, Inc. Reports First Quarter 2022 Results

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--May 5, 2022--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company) reported net income of $3.1 million and core net income of $12.4 million for 1Q22, compared to net income of $8.4 million and core net income of $10.1 million in 4Q21. Earnings and core earnings per diluted share were $0.09 and $0.36, respectively, in 1Q22, compared to $0.24 and $0.29, respectively, in 4Q21.

“The first quarter’s performance demonstrated strong momentum in our business with record production volumes and strong financial results across the organization,” said Chris Farrar, President and CEO. “This quarter’s strong financial performance was driven by our investment loan portfolio of nearly $3 billion in UPB, which has grown at a compounded annual growth rate of 20% over the last four years from loan production sourced through our nationwide origination platform.”

Mr. Farrar continued, “While macroeconomic and geopolitical uncertainties have increased, our resilient business model has performed impressively through a variety of market environments. Going forward, we believe that Velocity’s opportunities for growth are robust. Our record production volume this quarter underscores the existence of significant investor demand for investor real estate loans, in addition to growing interest from mortgage brokers to offer commercial investor loan products to their clients. We are well-positioned to execute on these market opportunities as a result of our strong capital position, which was further improved this quarter by the advantageous refinancing of our corporate debt and continued strong investor demand for our securitizations. This capital will help us achieve our growth objectives and continue delivering strong returns for shareholders in the future.

First Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)		1Q 2022			4Q 2021			$ Variance				% Variance
Pretax income	$	3,911		$	11,377			$	(7,466	)		(65.6	)%
Net income	$	3,121		$	8,353			$	(5,232	)		(62.6	)%
Diluted earnings per share	$	0.09		$	0.24			$	(0.15	)		(62.6	)%
Core net income(a)	$	12,407		$	10,081			$	2,326			23.1	%
Core diluted earnings per share(a)	$	0.36		$	0.29			$	0.07			23.3	%
Pretax return on equity(b)		4.42	%		13.75	%			n.a.			(67.8	)%
Core pretax return on equity(a)		18.90	%		16.59	%			n.a.			13.9	%
Net interest margin - portfolio		4.25	%		4.27	%			n.a.			(0.6	)%
Net interest margin - total company		1.69	%		3.53	%			n.a.			(52.1	)%
Average common equity	$	353,635		$	330,968			$	22,667			6.8	%
(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.
(b) 1Q22 pretax ROE reflects deal cost write-off of $7.7 million and prepayment fees of $5.1 million related to refinancing the Company’s corporate debt in March.

Discussion of results:

• Net income in 1Q22 was $3.1 million, down from $8.4 million in 4Q21 resulting from deal cost write-offs and prepayments fees of $12.8 million related to refinancing the Company’s corporate debt in March
• Core net income⁽¹⁾ was $12.4 million in 1Q22, a 23.1% quarter-over-quarter increase from 4Q21. Core net income reflects after-tax adjustments of $9.3 million from the write-off of costs related to the refinancing of our corporate debt
• Portfolio NIM in 1Q22 was 4.25%, consistent with the 4.27% from 4Q21.
• The GAAP pretax return on equity was 4.42% in 1Q22, down from 13.8% in 4Q21. Adjusted for one-time debt issuance costs of $12.8 million, Core pretax return on equity was 18.90%.

TOTAL LOAN PORTFOLIO
($ of UPB in millions)		1Q 2022			4Q 2021			$ Variance				% Variance
Held for Investment
Investor 1-4 Rental	$	1,319		$	1,225			$	94			7.7	%
Mixed Use		380			331				49			14.9	%
Multi-Family		279			228				51			22.5	%
Retail		278			234				44			18.6	%
Warehouse		201			173				28			16.3	%
All Other		343			309				34			10.9	%
Total	$	2,800		$	2,500				300			12.0	%
Held for Sale
Investor 1-4 Rental	$	77		$	87			$	(11	)		(12.1	)%
Total Managed Loan Portfolio UPB	$	2,877		$	2,587			$	290			11.2	%
Key loan portfolio metrics:
Total loan count		7,365			6,964
Weighted average loan to value		67.9	%		67.7	%
Weighted average total portfolio yield		7.76	%		8.21	%
Weighted average portfolio debt cost (a)		4.00	%		4.58	%
(a) 4Q21 weighted average portfolio debt cost includes one-time costs totaling $1.5 million related to the collapse of three VCC securitizations.
Adjusted for these costs, the 4Q21 weighted average cost of funds was 4.29%.

Discussion of results:

• Velocity’s total loan portfolio was $2.9 billion in UPB as of March 31, 2022, an increase of 11.2% from $2.6 billion in UPB as of December 31, 2021

‒ Portfolio growth was driven by record loan production volume

‒ Payoff activity totaled $139.5 million in UPB, down 6.2% from $148.7 million in 4Q21

• The weighted average loan-to-value of the portfolio was 67.9% as of March 31, 2022, consistent with 67.7% as of December 31, 2021, and the eight-quarter trailing average of 66.7%
• The weighted average total portfolio yield was 7.76% in 1Q22, a 45 basis point (bps) quarter-over-quarter decrease driven by lower interest rates on recent production and payoff activity of older higher-rate loans
• Portfolio related debt cost in 1Q22 was 4.00%, a decrease of 58 bps from 4Q21

LOAN PRODUCTION VOLUMES
($ in millions)		1Q 2022		4Q 2021		$ Variance				% Variance
Investor 1-4 Rental	$	293	$	267		$	26			9.8	%
Traditional Commercial		272		203			68			33.5	%
Short-term loans		16		27			(11	)		(39.8	)%
Total loan production	$	581	$	498		$	84			16.8	%

Discussion of results:

• Loan production in 1Q22 totaled $581.4 million in UPB, a new quarterly production record, and a 16.8% increase from the previous record of $497.8 million in UPB in 4Q21.

‒ Traditional Commercial production was up $68.2 million in UPB from 4Q21, a 33.5% quarter-over-quarter increase from 4Q21, driven by strong demand for multifamily and mixed-use properties

‒ Investor 1-4 Rental production was up $26.2 million in UPB from 4Q21, a 9.8% quarter-over-quarter increase from 4Q21

• Increased the weighted average coupon to 8.10% on April new application volume of $338 million in UPB

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)		1Q 2022			4Q 2021			$ Variance			% Variance
Nonperforming loans(a)	$	275,487		$	273,100			$	2,387		0.9	%
Average Nonperforming Loans	$	278,349		$	274,112						1.5	%
Nonperforming loans % total HFI Loans		9.8	%		10.9	%		n.a.			(9.9	)%
Total Charge Offs	$	328		$	143			$	185		129.9	%
Charge-offs as a % of Avg. Nonperforming loans(b)		0.47	%		0.21	%		n.a.			126.4	%
Loan Loss Reserve	$	4,664		$	4,262			$	402		9.4	%
(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.

Discussion of results:

• Nonperforming loans (NPL) totaled $275.5 million in UPB as of March 31, 2022, or 9.8% of loans HFI, compared to $273.1 million and 10.9%, respectively, as of December 31, 2021

‒ The modest growth in NPLs UPB was driven by a 3.0% increase in the UPB of loans in foreclosure from December 31, 2021

• Charge-offs in 1Q22 totaled $328.1 thousand compared to $142.7 thousand in 4Q21

‒ 1Q22 charge-offs were consistent with the trailing five quarter charge-off average of $323.9 thousand per quarter

• The loan loss reserve totaled $4.7 million as of March 31, 2022, a 9.4% increase from $4.3 million as of December 31, 2021, driven primarily by portfolio growth
• Capitalized interest recovered on COVID forbearance loans granted a deferral totaled $3.3 million since the program's inception in April 2020, with a remaining balance of $7.2 million as of March 31, 2022. None of the capitalized interest has been forgiven.

NET REVENUES
($ in thousands)		1Q 2022			4Q 2021			$ Variance				% Variance
Interest income	$	52,049		$	49,360			$	2,689			5.4	%
Interest expense - portfolio related(a)		(23,556	)	$	(23,666	)			110			(0.5	)%
Interest expense - corporate debt(b)		(17,140	)	$	(4,462	)			(12,678	)		284.1	%
Net Interest Income	$	11,353		$	21,232			$	(9,879	)		(46.5	)%
Loan loss provision		(730	)		(377	)			(353	)		93.6	%
Gain on disposition of loans		4,540			2,357				2,183			92.6	%
Other operating income (expense)		1,108			260				848			326.2	%
Total Net Revenues	$	16,271		$	23,472			$	(7,201	)		(30.7	)%
(a) Net interest expense - portfolio related in 4Q21 includes $1.5 million of one-time costs related to the collapse of our higher-cost securitizations.
(b) Net interest expense - corporate debt includes in 1Q22 includes $12.8 million of nonrecurring costs related to the refinance of Velocity's senior corporate debt.

Discussion of results:

• Total net interest income, including corporate debt interest expense, decreased by $9.9 million, or 46.5% from 4Q21, driven by nonrecurring costs from the refinancing of our corporate debt

‒ Nonrecurring costs included debt issuance cost write-off of $7.7 million and prepayment fees of $5.1 million associated with the payoff of higher-cost floating-rate corporate debt with a principal balance totaling $170.8 million

‒ Excluding these costs, net interest income was $24.2 million

• Portfolio-related net interest income (excluding corporate debt interest expense) totaled $28.5 million, an increase of 10.9% from 4Q21, resulting from portfolio growth and continued strong realization of default interest from NPL resolutions
• Gain on the disposition of loans grew 92.6% quarter-over-quarter, resulting from the sale of loans in 1Q22 totaling $144.1 million in UPB
• Other operating income growth from 4Q21 was primarily driven by a valuation gain in our servicing portfolio resulting from expected slower prepayment speeds in a rising interest-rate environment.

OPERATING EXPENSES
($ in thousands)		1Q 2022			4Q 2021		$ Variance				% Variance
Compensation and employee benefits	$	5,323		$	4,720		$	603			12.8	%
Rent and occupancy		442			429			13			3.0	%
Loan servicing		2,450			2,480			(30	)		(1.2	)%
Professional fees		1,362			1,716			(354	)		(20.6	)%
Real estate owned, net		(175	)		417			(592	)		(142.0	)%
Other expenses		2,848			2,333			515			22.1	%
Total operating expenses	$	12,250		$	12,095		$	155			1.3	%

Discussion of results:

• Operating expenses totaled $12.3 million in 1Q22, an increase of 1.3% from 4Q21, primarily driven by higher production-related compensation

SECURITIZATIONS
	Securities		Balance at				Balance at
Trusts	Issued		3/31/2022		W.A. Rate		12/31/2021		W.A. Rate
2015-1 Trust	$	285,457	$	14,407	7.21	%	$	17,536	7.22	%
2016-1 Trust		319,809		32,518	8.10	%		36,401	8.22	%
2017-2 Trust		245,601		75,303	3.36	%		86,497	3.37	%
2018-1 Trust		176,816		57,284	4.04	%		62,375	4.04	%
2018-2 Trust		307,988		123,854	4.31	%		143,152	4.39	%
2019-1 Trust		235,580		115,299	3.95	%		132,306	4.02	%
2019-2 Trust		207,020		114,665	3.45	%		122,205	3.44	%
2019-3 Trust		154,419		90,919	3.27	%		95,521	3.26	%
2020-1 Trust		248,700		162,092	2.85	%		174,550	2.82	%
2020-2 Trust		96,352		73,750	4.36	%		80,676	4.45	%
2020-MC1 Trust		179,371		12,842	4.57	%		35,711	4.42	%
2021-1 Trust		251,301		228,015	1.74	%		236,190	1.73	%
2021-2 Trust		194,918		191,183	2.01	%		197,744	2.28	%
2021-3 Trust		204,205		199,381	2.46	%		202,793	2.45	%
2021-4 Trust		319,116		305,530	3.16	%		315,489	3.11	%
2022-1 Trust		273,594		270,642	3.94	%
	$	3,700,247	$	2,067,684	3.12	%	$	1,939,146	3.20	%

Discussion of results:

• The weighted average rate on Velocity’s outstanding securitizations decreased 8bps from 4Q21, driven mainly by the collapse of higher-cost securitization in 4Q21 and issuance of $970 million of securitizations in 2021 at a weighted average rate of 2.42%

‒ Issued the VCC 2022-1 securitization in February 2022 with a balance of $273.6 million and a weighted average rate of 3.94% as of March 31, 2022. The higher rate reflects the rising interest-rate environment.

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2022						FOURTH QUARTER 2021
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	9,144	$	474			$	11,464	$	614
Paid current			7,597		117				12,209		290
REO sold(a)			2,522		469				1,770		121
Total resolutions		$	19,263	$	1,060			$	25,443	$	1,025
Resolutions as a % of nonperforming UPB					105.5	%					104.0	%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2022						FOURTH QUARTER 2021
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	13,820	$	646			$	12,567	$	623
Paid current			3,783		39				5,837		67
REO sold			503		35				266		48
Total resolutions		$	18,106	$	720			$	18,670	$	738
Resolutions as a % of nonperforming UPB					104.0	%					104.0	%
Grand total resolutions		$	37,369	$	1,780			$	44,113	$	1,763
Grand total resolutions as a % of nonperforming UPB					104.8	%					104.0	%

Discussion of results:

• Total NPL resolution activities in 1Q22 totaled $37.4 million in UPB and realized net gains of $1.8 million, or 104.8% of UPB resolved, compared to $44.1 and $1.8 million, or 104.0% of UPB resolved, respectively in 4Q21

‒ Long-term loan resolutions in 1Q22 totaled $19.3 million in UPB and realized gains of $1.1 million compared to $25.4 million in UPB and realized gains of $1.0 million in 4Q21

‒ Short-term loan resolutions in 1Q22 totaled $18.1 million in UPB and realized gains of $0.72 million compared to $18.7 million in UPB and realized gains of $0.74 million, respectively, in 4Q21

^{_______________}

⁽¹⁾ “Core” income is a non-GAAP measure that excludes nonrecurring and unusual activities from GAAP net income.

Webcast Information

The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of Velocity Financial’s Investor Relations website https://www.velfinance.com/events-and-presentations. To listen to the webcast, please go to 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 1-833-316-0544 in the U.S. and Canada and 1-412-317-5725 for international callers. Callers should ask to join the Velocity Financial, Inc. earnings call.

A replay of the call will be available through midnight on May 31, 2022 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 #3636606. 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 investor 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 18 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,” 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, (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 contemplated securitization and (6) 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-K filed with the SEC on May 10, 2021, 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
	3/31/2022			12/31/2021			9/30/2021			6/30/2021			3/31/2021
	Unaudited			Audited			Unaudited			Unaudited			Unaudited
(In thousands)
Assets
Cash and cash equivalents	$	36,629		$	35,965		$	35,497		$	27,741		$	20,434
Restricted cash		10,837			11,639			9,586			7,921			6,808
Loans held for sale, net		77,503			87,908			0			7,916			0
Loans held for investment, at fair value		1,352			1,359			1,360			1,370			1,364
Loans held for investment		2,793,968			2,494,204			2,265,922			2,057,046			1,983,435
Net deferred loan costs		34,334			33,360			29,775			26,707			25,070
Total loans, net		2,907,157			2,616,831			2,297,057			2,093,039			2,009,869
Accrued interest receivables		14,169			13,159			11,974			11,094			11,169
Receivables due from servicers		78,278			74,330			57,058			73,517			77,731
Other receivables		4,527			1,812			870			10,169			3,879
Real estate owned, net		16,177			17,557			17,905			20,046			14,487
Property and equipment, net		3,690			3,830			3,348			3,625			3,891
Deferred tax asset		16,477			16,604			17,026			13,196			9,246
Mortgage Servicing Rights, at fair value		7,661			7,152			-			-			-
Goodwill		6,775			6,775			-			-			-
Other assets		7,345			6,824			6,843			7,257			7,325
Total Assets	$	3,109,722		$	2,812,478		$	2,457,164		$	2,267,605		$	2,164,839
Liabilities and members' equity
Accounts payable and accrued expenses	$	92,768		$	92,195		$	79,360		$	70,049		$	65,003
Secured financing, net		208,956			162,845			163,449			164,053			129,666
Securitizations, net		2,035,374			1,911,879			1,623,674			1,558,163			1,453,386
Warehouse & repurchase facilities		424,692			301,069			258,491			151,872			203,314
Total Liabilities		2,761,790			2,467,988			2,124,974			1,944,137			1,851,369
Mezzanine Equity
Series A Convertible preferred stock		-			-			90,000			90,000			90,000
Stockholders' Equity
Stockholders' equity		344,441			341,109			242,190			233,468			223,470
Noncontrolling interest in subsidiary		3,491			3,381			-			-			-
Total equity		347,932			344,490			242,190			233,468			223,470
Total Liabilities and members' equity	$	3,109,722		$	2,812,478		$	2,457,164		$	2,267,605		$	2,164,839
Book value per share	$	10.90		$	10.84		$	12.05		$	11.62		$	11.12
Shares outstanding		31,913			31,787			20,098			20,087			20,087

Velocity Financial, LLC
Consolidated Statements of Income
	Quarter Ended
($ in thousands)	3/31/2022				12/31/2021			9/30/2021			6/30/2021				3/31/2021
	Unaudited				Audited			Unaudited			Unaudited				Unaudited
Revenues
Interest income	$	52,049			$	49,360		$	46,923		$	44,978			$	40,707
Interest expense - portfolio related		23,556				23,666			20,321			20,566				20,832
Net interest income - portfolio related		28,493				25,694			26,602			24,412				19,875
Interest expense - corporate debt		17,140				4,462			4,488			4,309				7,350
Net interest income		11,353				21,232			22,114			20,103				12,525
Provision for loan losses		730				377			228			(1,000	)			105
Net interest income after provision for loan losses		10,623				20,855			21,886			21,103				12,420
Other operating income
Gain on disposition of loans		4,540				2,357			306			2,391				2,839
Unrealized gain/(loss) on fair value loans		11				11			0			20				(2	)
Other income (expense)		1,097				249			33			21				(36	)
Other operating income (expense)		5,648				2,617			339			2,432				2,801
Total net revenues		16,271				23,472			22,225			23,535				15,221
Operating expenses
Compensation and employee benefits		5,323				4,720			4,738			4,546				5,186
Rent and occupancy		442				429			447			430				463
Loan servicing		2,450				2,480			2,014			1,922				1,867
Professional fees		1,362				1,716			736			795				533
Real estate owned, net		(175	)			417			1,186			1,039				509
Other operating expenses		2,848				2,333			2,177			1,918				2,059
Total operating expenses		12,250				12,095			11,298			10,650				10,617
Income before income taxes		4,021				11,377			10,927			12,885				4,604
Income tax expense		790				3,024			2,905			3,432				1,208
Net income		3,231				8,353			8,022			9,453				3,396
Net income attributable to noncontrolling interest		110				-			-			-				-
Net income attributable to Velocity Financial, Inc.		3,121				8,353			8,022			9,453				3,396
Less undistributed earnings attributable to participating securities		48				362			3,030			3,571				1,281
Net earnings attributable to common stockholders	$	3,073			$	7,991		$	4,992		$	5,882			$	2,115
Basic earnings (loss) per share	$	0.10			$	0.26		$	0.25		$	0.29			$	0.11
Diluted earnings (loss) per common share	$	0.09			$	0.24		$	0.23		$	0.28			$	0.10
Basic weighted average common shares outstanding		31,892				30,897			20,090			20,087				20,087
Diluted weighted average common shares outstanding		34,204				34,257			34,212			33,960				33,407

Velocity Financial, Inc. Net Interest Margin ‒ Portfolio Related and Total Company (Unaudited)
	Quarter Ended March 31, 2022									Quarter Ended December 31, 2021									Quarter Ended March 31, 2021
				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	$	69,092								$	40,464								$	8,904
Loans held for investment		2,613,759									2,363,987									1,927,760
Total loans	$	2,682,851		$	52,049		7.76	%		$	2,404,451		$	49,360		8.21	%		$	1,936,664		$	40,707		8.41	%
Debt:
Warehouse and repurchase facilities	$	338,247			3,764		4.45	%		$	271,761			3,273		4.82	%		$	113,528			1,705		6.01	%
Securitizations		2,018,186			19,791		3.92	%			1,796,543			20,392		4.54	%			1,548,642			19,127		4.94	%
Total debt - portfolio related		2,356,433			23,555		4.00	%			2,068,304			23,665		4.58	%			1,662,170			20,832		5.01	%
Corporate debt		178,915			17,141		38.32	%	(4)		171,926			4,463		10.38	%			108,365			7,350		27.13	%
Total debt	$	2,535,348		$	40,696		6.42	%		$	2,240,230		$	28,128		5.02	%		$	1,770,535		$	28,182		6.37	%
Net interest spread - portfolio related (2)							3.76	%								3.63	%								3.39	%
Net interest margin - portfolio related							4.25	%								4.27	%								4.10	%
Net interest spread - total company (3)							1.34	%								3.19	%								2.04	%
Net interest margin - total company							1.69	%								3.53	%								2.59	%

(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.
(4)		Excluding the one-time debt issuance cost write-off of $7.7 million and prepayment penalties of $5.1 million associated with the $170.8 million payoff of our corporate debt in March 2022, the corporate debt average rate would have been 9.70%; net interest spread — total company would have been 3.36%; and net interest margin — total company would have been 3.60% for the three months ended March 31, 2022.
(5)		The debt issuance cost amortization was higher for the three months ended March 31, 2021, as a result of a lower average outstanding borrowing balance from a new financing facility.
(6)		Excluding the one-time debt issuance cost write-off of $2.9 million and prepayment penalties of $1.6 million associated with the $78.0 million payoff of our corporate debt in February 2021, the corporate debt average rate would have been 10.49%; net interest spread — total company would have been 3.06%; and net interest margin — total company would have been 3.52% for the three months ended March 31, 2021.

Velocity Financial, Inc. Adjusted Financial Metric Reconciliation to GAAP Net Income (Unaudited)
Core Income
	Quarter Ended
($ in thousands)	3/31/2022			12/31/2021			9/30/2021			6/30/2021				3/31/2021
Net Income	$	3,121		$	8,353		$	8,022		$	9,453			$	3,396
Deal cost write-off - collapsed securitizations				$	1,104			-			-				-
One-time Century Health & Housing Capital deal costs				$	624			-			-				-
Recovery of Loan Loss Provision					-			-		$	(1,000	)			-
Corporate debt refinancing costs	$	9,286			-			-			-				3,326
Core Income	$	12,407		$	10,081		$	8,022		$	8,453			$	6,722
Diluted weighted average common shares outstanding	$	34,204		$	34,257		$	34,212		$	33,960			$	33,407
Core diluted earnings per share	$	0.36		$	0.29		$	0.23		$	0.25			$	0.20