Velocity Financial, Inc. Reports Second Quarter 2022 Results

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--August 4, 2022--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company) reported net income and core net income of $10.6 million for 2Q22, compared to net income of $9.5 million and core net income of $8.5 million for 2Q21. Earnings and core earnings per diluted share were $0.31 for 2Q22, compared to $0.28 and $0.25 per share, respectively, for 2Q21.

“Velocity’s second quarter results reflect our unique portfolio model, solid market position and operational expertise,” said Chris Farrar, President and CEO. “Our investment loan portfolio has grown more than 49% over the past twelve months, driven by robust origination volumes that contributed to solid earnings growth.”

Mr. Farrar continued, “During the second quarter we issued three new securitizations totaling $622.7 million, demonstrating Velocity’s differentiation in today’s market resulting from our extensive securitization track record and reputation for high-quality loan collateral. These securitizations allowed us to further optimize non-recourse leverage and enhance our liquidity position. While financing costs have increased along with market volatility, we have been able to successfully increase rates on new production while maintaining solid volume levels.”

Second Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)	2Q 2022			2Q 2021				$ Variance			% Variance
Pretax income(a)	$	14,664		$	12,885			$	1,779		14	%
Net income	$	10,645		$	9,453			$	1,192		13	%
Diluted earnings per share	$	0.31		$	0.28			$	0.0		11	%
Core net income(b)	$	10,645		$	8,453			$	2,192		25.9	%
Core diluted earnings per share(b)	$	0.31		$	0.25			$	0.1		26	%
Pretax return on equity		16.42	%		22.57	%		n.a.			(27	)%
Core pretax return on equity(b)		16.42	%		20.19	%		n.a.			(19	)%
Net interest margin - portfolio		4.10	%		4.83	%		n.a.			3	%
Net interest margin - total company		3.54	%		3.98	%		n.a.			(35	)%
Average common equity	$	357,218		$	228,314			$	128,903		59	%

(a) Prextax income less net income attributable to noncontrolling interests

(b) 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.

Discussion of results:

• Net income in 2Q22 was $10.6 million, compared to $9.5 million in 2Q21.

‒ 2Q22 net income was driven by an increase in interest income from our loan portfolio, in addition to default interest and fees realized from the resolution of nonperforming loans

• Core net income⁽¹⁾ was $10.6 million, an increase of 25.9% from $8.5 million in 2Q21
• Portfolio NIM in 2Q22 was 4.10%, compared to 4.83% from 2Q21, resulting from a decrease in the weighted average portfolio yield from lower interest rates on loan production in recent prior quarters, partially offset by a decrease in the weighted average cost of funds from lower securitization and warehouse financing rates
• The GAAP pretax return on equity was 16.42% in 2Q22, compared to 22.57% in 2Q21

‒ Driven by higher equity balance in 2Q22

TOTAL LOAN PORTFOLIO
($ of UPB in millions)	2Q 2022			2Q 2021				$ Variance				% Variance
Held for Investment
Investor 1-4 Rental	$	1,517		$	1,019			$	499			49	%
Mixed Use		410			293				117			40	%
Multi-Family		289			184				105			57	%
Retail		298			183				115			63	%
Warehouse		217			131				86			65	%
All Other		359			253				106			42	%
Total	$	3,090		$	2,062			$	1,028			50	%
Held for Sale
Investor 1-4 Rental	$	-		$	8			$	(8	)		n.m.
Total Managed Loan Portfolio UPB	$	3,090		$	2,070			$	1,020			49	%
Key loan portfolio metrics:
Total loan count		7,779			6,125
Weighted average loan to value		68.16	%		66.70	%
Weighted average total portfolio yield		7.97	%		8.90	%
Weighted average portfolio debt cost		4.34	%		4.81	%

Discussion of results:

• Velocity’s total loan portfolio was $3.1 billion in UPB as of June 30, 2022, an increase of 49.3% from $2.1 billion in UPB as of June 30, 2021

‒ Portfolio growth was driven by record loan production volume over the prior twelve months
‒ Payoff activity totaled $142.8 million in UPB in 2Q22, compared to $131.8 million in 2Q21

• The weighted average loan-to-value of the portfolio was 68.2% as of June 30, 2022, largely consistent with the 66.7% as of June 30, 2021, and the five-quarter trailing average of 67.5%
• The weighted average total portfolio yield was 7.97% in 2Q22, a 93 bps year-over-year decrease driven by lower interest rates on new loan production over the period and payoff of older, higher-rate loans
• Portfolio-related debt cost in 2Q22 was 4.34%, a decrease of 47 bps from 2Q21, driven by the collapse of older, higher-cost securitizations and lower rates on the securitizations issued in the second half of 2021

LOAN PRODUCTION VOLUMES
($ in millions)	2Q 2022		2Q 2021			$ Variance			% Variance
Investor 1-4 Rental	$	254	$	147		$	106		72	%
Traditional Commercial		164		95			69		73	%
Short-term loans		28		15			13		90	%
Total loan production	$	445	$	257		$	189		74	%

Discussion of results:

• Loan production in 2Q22 totaled $445.4 million in UPB, compared to $256.5 million in UPB in 2Q21

‒ The year-over-year increase of 73.6% resulted from balanced growth of Investor 1-4 and Traditional Commercial long-term loan production

• Loan production volume for the first half of 2022 was over $1.0 billion in UPB, more than twice the amount originated over the same period in 2021
• The weighted average note rate on 2Q22 loan production was 7.75%, an increase of 43 bps from 2Q21

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)	2Q 2022			2Q 2021				$ Variance				% Variance
Nonperforming loans(a)	$	252,253		$	315,542			$	(63,290	)		(20	)%
Average Nonperforming Loans	$	257,646		$	274,112			$	(16,466	)		(6	)%
Nonperforming loans % total HFI Loans		8.2	%		15.3	%		n.a.				(47	)%
Total Charge Offs	$	37		$	918			$	(881	)		(96	)%
Charge-offs as a % of Avg. Nonperforming loans(b)		0.06	%		1.34	%		n.m.				(96	)%
Loan Loss Reserve	$	4,905		$	3,963			$	942			24	%

(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.m. - non meaningful

Discussion of results:

• Nonperforming loans (NPL) totaled $252.3 million in UPB as of June 30, 2022, or 8.2% of loans HFI, compared to $315.5 million and 15.3%, respectively, as of June 30, 2021

‒ The year-over-year reduction in NPL loans was driven by the post-pandemic economic recovery and successful loss mitigation activities by Velocity’s in-house special servicing team

• Charge-offs in 2Q22 totaled $37.0 thousand compared to $917.6 thousand in 2Q21

‒ 2Q22 charge-offs were significantly lower than the trailing five-quarter average of $350.7 thousand per quarter

• The loan loss reserve totaled $4.9 million as of June 30, 2022, a 23.8% increase from $4.0 million as of June 30, 2021, driven mainly by portfolio growth
• Capitalized interest recovered on COVID forbearance loans granted a deferral totaled $3.8 million since the program's inception in April 2020, with a remaining balance of $7.1 million as of June 30, 2022. None of the capitalized interest has been forgiven.

NET REVENUES
($ in thousands)	2Q 2022			2Q 2021				$ Variance				% Variance
Interest income	$	59,243		$	44,978			$	14,265			32	%
Interest expense - portfolio related		(28,752	)		(20,566	)			(8,186	)		40	%
Net Interest Income - portfolio related		30,491			24,412				6,079			25	%
Interest expense - corporate debt		(4,182	)		(4,309	)			127			(3	)%
Net Interest Income	$	26,310		$	20,103			$	6,207			31	%
Loan loss provision		(279	)		1,000				(1,279	)		(128	)%
Gain on disposition of loans		1,776			2,391				(615	)		(26	)%
Other operating income (expense)		1,263			41				1,222			n.m
Total Net Revenues	$	29,069		$	23,535			$	5,534			24	%

Discussion of results:

• Total net interest income, including corporate debt interest expense, increased by $6.2 million, or 30.9% from 2Q21

‒ Portfolio-related net interest income (excluding corporate debt interest expense) totaled $30.5 million, an increase of 24.9% from 2Q21, driven by higher net interest income resulting from portfolio growth and the continued realization of default interest and fees from NPL resolutions

• Gain on the disposition of loans totaled $1.8 million in 2Q22, compared to $2.4 million in 2Q21
• Other operating income growth in 2Q22 was driven by valuation gains in our mortgage servicing right (MSR) asset, driven by the rise in interest rates during the quarter

OPERATING EXPENSES
($ in thousands)	2Q 2022			2Q 2021			$ Variance				% Variance
Compensation and employee benefits	$	6,553		$	4,546		$	2,007			44	%
Rent and occupancy		426			430			(4	)		(1	)%
Loan servicing		3,290			1,922			1,368			71	%
Professional fees		1,062			795			267			34	%
Real estate owned, net		(251	)		1,039			(1,290	)		(124	)%
Other expenses		3,199			1,918			1,281			67	%
Total operating expenses	$	14,279		$	10,650		$	3,629			34	%

Discussion of results:

• Operating expenses totaled $14.3 million in 2Q22, an increase of 34.1% from 2Q21

‒ Higher compensation expense resulting from salesforce and production operations growth
‒ Servicing expense growth was driven by the increase in securitizations outstanding to 17 as of June 30, 2022, from 13 as of June 30, 2021

SECURITIZATIONS
($ in thousands)	Securities			Balance at					Balance at
Trusts	Issued			6/30/2022		W.A. Rate			6/30/2021		W.A. Rate
2014-1 Trust	$	161,076			-	-			$	19,973	7.86	%
2015-1 Trust		285,457		$	-	-				24,852	7.63	%
2016-1 Trust		319,809			28,021	8.24	%			43,925	8.12	%
2017-2 Trust		245,601			68,749	3.59	%			101,179	3.33	%
2018-1 Trust		176,816			52,281	3.95	%			79,377	4.02	%
2018-2 Trust		307,988			108,845	4.36	%			175,943	4.48	%
2019-1 Trust		235,580			103,860	3.92	%			159,345	4.06	%
2019-2 Trust		207,020			98,792	3.37	%			141,446	3.51	%
2019-3 Trust		154,419			81,996	3.10	%			112,848	3.28	%
2020-1 Trust		248,700			149,646	2.84	%			199,267	2.86	%
2020-2 Trust		96,352			67,446	4.59	%			97,601	4.44	%
2020-MC1 Trust		179,371			-	-				84,454	4.43	%
2021-1 Trust		251,301			214,835	1.74	%			250,109	1.73	%
2021-2 Trust		194,918			185,448	2.01	%
2021-3 Trust		204,205			195,308	2.46	%
2021-4 Trust		319,116			291,181	3.14	%
2022-1 Trust		273,594			264,936	3.91	%
2022-2 Trust		241,388			240,076	5.08	%
2022-MC1 Trust		84,967			80,931	6.94	%
2022-3 Trust		296,323			294,768	5.67	%
	$	4,322,925		$	2,527,119	3.77	%		$	1,580,407	3.83	%

Discussion of results:

• The outstanding balance of Velocity’s securitizations as of June 30, 2022, totaled $2.5 billion, up from $1.6 billion as of June 30, 2022
• Completed three VCC securitizations in 2Q22, totaling $622.7 million

‒ The VCC 2022-2 securitization totaling $241.4 million in April
‒ The VCC 2022-MC1 securitization totaling $85.0 million in May
‒ The VCC 2022-3 securitization totaling $296.3 million in June

• The weighted average rate on Velocity’s outstanding securitizations decreased 5bps from June 30, 2021, primarily driven by the collapse of older, higher-cost securitizations and the lower rates on securitizations issued in 2021, partially offset by the increased cost of securitizations issued in 2Q22

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		SECOND QUARTER 2022						SECOND QUARTER 2021
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	16,934	$	3,303			$	21,925	$	1,446
Paid current			17,407		129				14,949		219
REO sold			2,107		816				947		(2	)
Total resolutions		$	36,448	$	4,248			$	37,821	$	1,663
Resolutions as a % of nonperforming UPB					111.7	%					104.4	%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		SECOND QUARTER 2022						SECOND QUARTER 2021
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	9,913	$	976			$	13,517	$	682
Paid current			2,877		22				7,794		59
REO sold			1,262		500				164		(73	)
Total resolutions		$	14,052	$	1,498			$	21,475	$	668
Resolutions as a % of nonperforming UPB					110.7	%					103.1	%
Grand total resolutions		$	50,500	$	5,746			$	59,296	$	2,331
Grand total resolutions as a % of nonperforming UPB					111.4	%					103.9	%

Discussion of results:

• Total NPL resolution activities in 2Q22 totaled $50.5 million in UPB and realized net gains of $5.7 million, or 111.4% of UPB resolved, compared to $59.3 million in UPB and net gains of $2.3 million, or 103.9% of UPB resolved in 2Q21

‒ Long-term loan resolutions in 2Q22 totaled $36.4 million in UPB and realized gains of $4.2 million, compared to $37.8 million in UPB and realized gains of $1.7 million in 2Q21
‒ Short-term loan resolutions in 2Q22 totaled $14.1 million in UPB and realized gains of $1.5 million, compared to $21.5 million in UPB and realized gains of $0.67 million in 2Q21

_____________________________________________
(1)		Core income and Core EPS are a non-GAAP measures that exclude nonrecurring and unusual activities from GAAP net income.
(2)		Available liquidity includes unrestricted cash reserves of $46.2 million and available liquidity in unfinanced loans of $87.8 million as of June 30, 2022.

Velocity’s executive management team will host a conference call and webcast to review 2Q22 financial results on August 4^th, 2022, at 3:00 p.m. Pacific Time / 6:00 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 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 August 29, 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 #9239674. 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, Inc. Consolidated Statements of Financial Condition
	Quarter Ended
	6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021
	Unaudited			Unaudited			Unaudited			Unaudited			Unaudited
(In thousands)
Assets
Cash and cash equivalents	$	46,250		$	36,629		$	35,965		$	35,497		$	27,741
Restricted cash		9,217			10,837			11,639			9,586			7,921
Loans held for sale, net		0			77,503			87,908			0			7,916
Loans held for investment, at fair value		1,351			1,352			1,359			1,360			1,370
Loans held for investment		3,084,045			2,793,968			2,494,204			2,265,922			2,057,046
Net deferred loan costs		34,755			34,334			33,360			29,775			26,707
Total loans, net		3,120,150			2,907,157			2,616,831			2,297,057			2,093,039
Accrued interest receivables		15,820			14,169			13,159			11,974			11,094
Receivables due from servicers		75,688			78,278			74,330			57,058			73,517
Other receivables		1,320			4,527			1,812			870			10,169
Real estate owned, net		19,218			16,177			17,557			17,905			20,046
Property and equipment, net		3,632			3,690			3,830			3,348			3,625
Deferred tax asset		15,195			16,477			16,604			17,026			13,196
Mortgage Servicing Rights, at fair value		8,438			7,661			7,152			-			-
Goodwill		6,775			6,775			6,775			-			-
Other assets		11,036			7,345			6,824			6,843			7,257
Total Assets	$	3,332,739		$	3,109,722		$	2,812,478		$	2,457,164		$	2,267,605
Liabilities and members' equity
Accounts payable and accrued expenses	$	78,384		$	92,768		$	92,195		$	79,360		$	70,049
Secured financing, net		209,227			208,956			162,845			163,449			164,053
Securitizations, net		2,477,226			2,035,374			1,911,879			1,623,674			1,558,163
Warehouse & repurchase facilities		208,390			424,692			301,069			258,491			151,872
Total Liabilities		2,973,227			2,761,790			2,467,988			2,124,974			1,944,137
Mezzanine Equity
Series A Convertible preferred stock		-			-			-			90,000			90,000
Stockholders' Equity
Stockholders' equity		355,895			344,441			341,109			242,190			233,468
Noncontrolling interest in subsidiary		3,617			3,491			3,381			-			-
Total equity		359,512			347,932			344,490			242,190			233,468
Total Liabilities and members' equity	$	3,332,739		$	3,109,722		$	2,812,478		$	2,457,164		$	2,267,605
Book value per share	$	11.26		$	10.90		$	10.84		$	12.05		$	11.62
Shares outstanding		31,922			31,913			31,787			20,098			20,087

Velocity Financial, Inc. Consolidated Statements of Income (Quarterly)
	Quarter Ended
($ in thousands)	6/30/2022				3/31/2022				12/31/2021			9/30/2021			6/30/2021
	Unaudited				Unaudited				Unaudited			Unaudited			Unaudited
Revenues
Interest income	$	59,243			$	52,049			$	49,360		$	46,923		$	44,978
Interest expense - portfolio related		28,752				23,556				23,666			20,321			20,566
Net interest income - portfolio related		30,491				28,493				25,694			26,602			24,412
Interest expense - corporate debt		4,182				17,140				4,462			4,488			4,309
Net interest income		26,309				11,353				21,232			22,114			20,103
Provision for loan losses		279				730				377			228			(1,000	)
Net interest income after provision for loan losses		26,030				10,623				20,855			21,886			21,103
Other operating income
Gain on disposition of loans		1,776				4,540				2,357			306			2,391
Unrealized gain/(loss) on fair value loans		6				11				11			0			20
Other income (expense)		1,257				1,097				249			33			21
Other operating income (expense)		3,039				5,648				2,617			339			2,432
Total net revenues		29,070				16,271				23,472			22,225			23,535
Operating expenses
Compensation and employee benefits		6,553				5,323				4,720			4,738			4,546
Rent and occupancy		426				442				429			447			430
Loan servicing		3,290				2,450				2,480			2,014			1,922
Professional fees		1,062				1,362				1,716			736			795
Real estate owned, net		(251	)			(175	)			417			1,186			1,039
Other operating expenses		3,199				2,848				2,333			2,177			1,918
Total operating expenses		14,279				12,250				12,095			11,298			10,650
Income before income taxes		14,790				4,021				11,377			10,927			12,885
Income tax expense		4,019				790				3,024			2,905			3,432
Net income		10,771				3,231				8,353			8,022			9,453
Net income attributable to noncontrolling interest		126				110				-			-			-
Net income attributable to Velocity Financial, Inc.		10,645				3,121				8,353			8,022			9,453
Less undistributed earnings attributable to participating securities		164				48				362			3,030			3,571
Net earnings attributable to common stockholders	$	10,481			$	3,073			$	7,991		$	4,992		$	5,882
Basic earnings (loss) per share	$	0.33			$	0.10			$	0.26		$	0.25		$	0.29
Diluted earnings (loss) per common share	$	0.31			$	0.09			$	0.24		$	0.23		$	0.28
Basic weighted average common shares outstanding		31,917				31,892				30,897			20,090			20,087
Diluted weighted average common shares outstanding		34,057				34,204				34,257			34,212			33,960

Velocity Financial, Inc. Net Interest Margin ‒ Portfolio Related and Total Company (Unaudited)
		Quarter Ended June 30, 2022									Quarter Ended June 30, 2021
					Interest			Average						Interest			Average
		Average			Income /			Yield /			Average			Income /			Yield /
($ in thousands)		Balance			Expense			Rate(1)			Balance			Expense			Rate(1)
Loan portfolio:
Loans held for sale		$	62,987								$	11,524
Loans held for investment			2,910,693									2,010,962
Total loans		$	2,973,680		$	59,243		7.97	%		$	2,022,486		$	44,978		8.90	%
Debt:
Warehouse and repurchase facilities		$	318,960			4,115		5.16	%		$	166,981			2,361		5.66	%
Securitizations			2,332,340			24,637		4.23	%			1,543,295			18,205		4.72	%
Total debt - portfolio related			2,651,300			28,752		4.34	%			1,710,276			20,566		4.81	%
Corporate debt			215,000			4,182		7.78	%			166,335			4,309		10.36	%
Total debt		$	2,866,300		$	32,934		4.60	%		$	1,876,611		$	24,875		5.30	%
Net interest spread - portfolio related (2)								3.63	%								4.08	%
Net interest margin - portfolio related								4.10	%								4.83	%
Net interest spread - total company (3)								3.37	%								3.59	%
Net interest margin - total company								3.54	%								3.98	%

(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)
Core Income
	Quarter Ended
($ in thousands)	6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021
Net Income	$	10,645		$	3,121		$	8,353		$	8,022		$	9,453
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			-			-			-
Core Income	$	10,645		$	12,407		$	10,081		$	8,022		$	8,453
Diluted weighted average common shares outstanding		34,057			34,204			34,257			34,212			33,960
Core diluted earnings per share	$	0.31		$	0.36		$	0.29		$	0.23		$	0.25