Velocity Financial, Inc. Reports First Quarter 2023 Results

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--May 4, 2023--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $10.6 million and core net income of $11.4 million for 1Q23, compared to net income of $3.1 million and core net income of $12.4 million in 1Q22. Earnings and core earnings per diluted share were $0.31 and $0.33, respectively, for 1Q23, compared to $0.09 and $0.36, for 1Q22.

“Velocity’s first quarter results demonstrate the resiliency of our business model and our ability to deliver strong results in dynamic market conditions,” said Chris Farrar, President and CEO. “Our first quarter results included strong portfolio income and improved fundamentals, setting the stage for continued solid performance in 2023. Net interest margin increased by 39 basis points on a sequential-quarter basis, and gains from nonperforming loan resolutions returned to more normalized levels, resulting in solid net income growth. We continued to enjoy support from the capital markets with the April issuance of our VCC 2023-1R securitization collateralized by retained tranches of previous VCC securitizations. This transaction provides a new source of non-mark-to-market liquidity for the company at cost-effective levels and enhances our ability to capitalize on opportunities for growth. We expect to increase production from first quarter levels for the remainder of 2023 and are optimistic regarding our ability to deliver strong earnings growth in the future.”

⁽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 $39.4 million and available liquidity in unfinanced loans of $5.9 million.

First Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)	1Q 2023			1Q 2022				$ Variance				% Variance
Pretax income	$	14,757		$	4,021			$	10,736			267.0	%
Net income	$	10,649		$	3,121			$	7,528			241.2	%
Diluted earnings per share	$	0.31		$	0.09			$	0.22			242.7	%
Core net income(a)	$	11,376		$	12,407			$	(1,031	)		(8.3	)%
Core diluted earnings per share(a)	$	0.33		$	0.36			$	(0.03	)		(7.9	)%
Pretax return on equity		15.27	%		4.55	%		n.a.				235.6	%
Core pretax return on equity(a)		16.20	%		19.02	%		n.a.				(14.8	)%
Net interest margin - portfolio		3.23	%		4.25	%		n.a.				(23.9	)%
Net interest margin - total company		2.76	%		1.69	%		n.a.				63.3	%
Average common equity	$	386,935		$	353,635			$	33,300			9.4	%
(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.

Discussion of results:

• Net income in 1Q23 was $10.6 million, compared to $3.1 million for 1Q22
  • Driven by higher net interest income resulting from increased loan yields and portfolio growth
  • Net income in 1Q22 includes $12.8 million of deal cost write-off related to the refinancing of the Company’s corporate debt
  • Other operating income in 1Q23 was $12.5 million, compared to $5.6 million for 1Q22
• Core net income⁽¹⁾ was $11.4 million, compared to $12.4 million for 1Q22
  • 1Q22 core net income reflects after-tax adjustments of $9.3 million from the write-off of costs related to the refinancing of the Company’s corporate debt in 1Q22
• Portfolio NIM in 1Q23 was 3.23%, compared to 4.25% for 1Q22, resulting from increased interest expense, partially offset by increased portfolio yields due to higher loan coupons on recent loan production
• The GAAP pretax return on equity was 15.26% in 1Q23

TOTAL LOAN PORTFOLIO
($ of UPB in millions)	1Q 2023			1Q 2022				$ Variance				% Variance
Held for Investment
Investor 1-4 Rental	$	1,905		$	1,319			$	586			44.4	%
Mixed Use		450			380				70			18.4	%
Multi-Family		304			279				25			9.0	%
Retail		308			278				30			10.8	%
Warehouse		221			201				20			10.1	%
All Other		391			343				48			13.9	%
Total	$	3,579		$	2,800				779			27.8	%
Held for Sale
Multi-Family	$	17		$	77			$	(59	)		(77.4	)%
Total Managed Loan Portfolio UPB	$	3,596		$	2,877			$	719			25.0	%
Key loan portfolio metrics:
Total loan count		9,147			7,365
Weighted average loan to value		68.1	%		67.9	%
Weighted average coupon		8.15	%		7.50	%
Weighted average total portfolio yield		8.00	%		7.76	%
Weighted average portfolio debt cost		5.33	%		4.00	%

Discussion of results:

• Velocity’s total loan portfolio was $3.6 billion in UPB as of March 31, 2023, an increase of 25.0% from $2.9 billion in UPB as of March 31, 2022
  • Primarily driven by growth in loans collateralized by Investor 1-4 Rental and Multifamily Properties
  • Loan prepayments totaled $86.9 million, a 3.1% Q/Q increase, and a 37.3% decrease Y/Y
• The UPB of FVO loans was $436.6 million in UPB, or 12.2% of total HFI loans, as of March 31, 2023, an increase from $1.3 million in UPB, or 0.05% as of March 31, 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 68.1% as of
  March 31, 2023, consistent with the 67.9% as of March 31, 2022, and the five-quarter trailing average of 68.2%
• The weighted average total portfolio yield was 8.00% in 1Q23, an increase of 24 bps from 1Q22, driven by higher loan coupons
• Portfolio-related debt cost in 1Q23 was 5.33%, an increase of 133 bps from 1Q22 driven by higher interest rates

LOAN PRODUCTION VOLUMES
($ in millions)	1Q 2023		1Q 2022			$ Variance				% Variance
Investor 1-4 Rental	$	116	$	293		$	(177	)		(60.4	)%
Traditional Commercial		80		272			(192	)		(70.6	)%
Short-term loans		21		16			5			28.1	%
Total loan production	$	217	$	581		$	(364	)		(62.7	)%
Acquisitions	$	-	$	4

Discussion of results:

• Loan production in 1Q23 totaled $217.0 million in UPB, a 62.7% decrease from
  $581.4 million in UPB in 1Q22
  • Driven by management’s strategic decision to reduce volume
• The weighted average coupon (WAC) on 1Q23 HFI loan production was 11.1%, an increase of 473 bps from 1Q22

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)	1Q 2023			1Q 2022				$ Varience			$ Varience
Nonperforming loans(a)	$	309,937		$	275,487			$	34,450		12.5	%
Average Nonperforming Loans	$	298,703		$	278,349			$	20,354		7.3	%
Nonperforming loans % total HFI Loans		8.7	%		9.8	%		n.a.			(12.0	)%
Total Charge Offs	$	484		$	328			$	156		47.5	%
Charge-offs as a % of Avg. Nonperforming Loans(b)		0.65	%		0.47	%		n.a.			n.m
Loan Loss Reserve	$	5,045		$	4,664			$	381		8.2	%
(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 $309.9 million in UPB as of March 31, 2023, or 8.7% of loans HFI, compared to $278.3 million and 9.8%, respectively, as of March 31, 2022
• Charge-offs in 1Q23 totaled $484.2 thousand, compared to $328.1 thousand in 1Q22
  • The trailing five-quarter charge-off average was $200.8 thousand
• The loan loss reserve totaled $5.0 million as of March 31, 2023, an 8.2% increase from $4.7 million as of March 31, 2022
  • The Q/Q increase resulted from modest growth in the reserve’s macroeconomic component, partially offset by run-off of the amortized cost HFI loan portfolio
  • Loans carried at fair value are not subject to a CECL reserve

NET REVENUES
($ in thousands)	1Q 2023			1Q 2022				$ Variance				% Variance
Interest income	$	70,521		$	52,049			$	18,472			35.5	%
Interest expense - portfolio related		(42,029	)		(23,556	)			(18,473	)		78.4	%
Net Interest Income - portfolio related		28,492			28,493				(1	)		(0.0	)%
Interest expense - corporate debt		(4,139	)		(17,140	)			13,001			(75.9	)%
Net Interest Income	$	24,353		$	11,353			$	13,000			114.5	%
Loan loss provision		(636	)		(730	)			94			(12.9	)%
Gain on disposition of loans		1,913			4,540				(2,627	)		(57.9	)%
Unrealized gain on fair value loans		7,354			11				7,343			n.m
Unrealized loss on fair securitizations		(170	)		-				(170	)		n.m
Other operating income (expense)		3,460			1,097				2,363			215.4	%
Net Revenue	$	36,275		$	16,271			$	20,004			122.9	%
n.m. - non meaningful

Discussion of results:

• Net Revenue in 1Q23 was $36.3 million, compared to $16.3 million for 1Q22
• Total net interest income, including corporate debt interest expense, increased by
  $13.0 million from 1Q22
  • Net Interest income was $28.5 million in 1Q23, essentially unchanged from 1Q22
  • 1Q22 corporate debt interest expense includes $12.8 million of deal cost write-off related to the corporate debt refinancing
• Total other operating income, includes gains on disposition of loans, unrealized gain/(loss) on fair value loans, and other operating income, and totaled $12.6 million in 1Q23 compared to $5.6 million in 1Q22
  • Gain on disposition of loans includes gains from loan sales and transfer of loans. In 1Q23, gains on transfer to REO totaled $1.2 million, and loan sales realized gains of $679.7 thousand on $20.8 million in UPB sold
  • Other operating income in 1Q23 totaled $3.3 million, compared to $1.1 million for 1Q22, driven by a $2.1 million increase in origination fees and $0.95 million increase in bank deposit earnings. Origination fees were deferred prior to our election of fair value accounting treatment for new HFI loan originations, effective October 1, 2022.

OPERATING EXPENSES
($ in thousands)	1Q 2023			1Q 2022				$ Variance				% Variance
Compensation and employee benefits	$	10,008		$	5,323			$	4,685			88.0	%
Origination (income)/expense		(334	)		310				(644	)		n.m
Securitization issuance expense		2,584			-				2,584			n.m
Rent and occupancy		446			442				4			1.0	%
Loan servicing		3,828			2,450				1,378			56.2	%
Professional fees		955			1,362				(407	)		(29.8	)%
Real estate owned, net		1,829			(175	)			2,004			n.m
Other expenses		2,202			2,227				(25	)		(1.1	)%
Total operating expenses	$	21,518		$	12,250			$	9,268			75.7	%
n.m. - non meaningful

Discussion of results:

• Operating expenses totaled $21.5 million in 1Q23, an increase of 75.7% from 1Q22. The variance to prior year results is mostly attributable to our FVO accounting election
  • Compensation expense totaled $10.0 million, compared to $5.3 million for 1Q22. In 1Q23, 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 in 1Q22.
  • Origination (income)/expenses improved by $644 thousand compared to the prior year resulting from the election of fair value accounting
  • Securitization issuance costs in 1Q23 totaled $2.6 million. Securitization issuance costs are now expensed under fair value accounting and were previously deferred
  • Loan servicing expense growth was driven by the increase in securitizations outstanding to $2.9 billion as of March 31, 2023, from $2.1 billion as of March 31, 2022

SECURITIZATIONS
($ in thousands)	Securities			Balance at					Balance at
Trusts	Issued			3/31/2023		W.A. Rate			3/31/2022		W.A. Rate
2015-1 Trust		285,457			-				$	14,407	7.21	%
2016-1 Trust		319,809			19,896	8.85	%			32,518	8.10	%
2017-2 Trust		245,601			55,981	3.95	%			75,303	3.36	%
2018-1 Trust		176,816			41,239	4.01	%			57,284	4.04	%
2018-2 Trust		307,988			91,189	4.50	%			123,854	4.31	%
2019-1 Trust		235,580			87,832	4.08	%			115,299	3.95	%
2019-2 Trust		207,020			81,096	3.41	%			114,665	3.45	%
2019-3 Trust		154,419			65,757	3.28	%			90,919	3.27	%
2020-1 Trust		248,700			128,280	2.84	%			162,092	2.85	%
2020-2 Trust		96,352			57,239	4.60	%			73,750	4.36	%
2020-MC1 Trust		179,371			-	-				12,842	4.57	%
2021-1 Trust		251,301			186,986	1.75	%			228,015	1.74	%
2021-2 Trust		194,918			161,511	2.01	%			191,183	2.01	%
2021-3 Trust		204,205			172,915	2.45	%			199,381	2.46	%
2021-4 Trust		319,116			266,076	3.19	%			305,530	3.16	%
2022-1 Trust		273,594			250,986	3.93	%			270,642	3.94	%
2022-2 Trust		241,388			231,171	5.09	%
2022-MC1 Trust		84,967			48,298	6.88	%
2022-3 Trust		296,323			277,038	5.67	%
2022-4 Trust		308,357			297,702	6.24	%
2022-5 Trust		188,754			184,213	7.08	%
2023-1 Trust		198,715			195,999	7.01	%
	$	5,018,751		$	2,901,403	4.29	%		$	2,067,684	3.12	%

Discussion of results

• Completed the VCC 2023-1 securitization totaling $198.7 million of securities issued in January, comprised of long-term business-purpose loans
• The weighted average rate on Velocity’s outstanding securitizations was 4.29% as of March 31, 2023, an increase of 117 bps from March 31, 2022, driven by higher rates
• After quarter end, the Company completed the issuance of the VCC 2023-1R totaling $64.8 million of securities issued, collateralized by retained tranches from previous VCC securitizations

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2023						FIRST QUARTER 2022
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	11,274	$	632			$	9,144	$	474
Paid current			18,477		233				7,597		117
REO sold (a)			570		137				2,522		469
Total resolutions		$	30,321	$	1,002			$	19,263	$	1,060
Resolutions as a % of nonperforming UPB					103.3	%					105.5	%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		FIRST QUARTER 2023						FIRST QUARTER 2022
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	5,560	$	348			$	13,820	$	646
Paid current			1,633		9				3,783		39
REO sold			1,209		(21	)			503		35
Total resolutions		$	8,402	$	336			$	18,106	$	720
Resolutions as a % of nonperforming UPB					104.0	%					104.0	%
Grand total resolutions		$	38,723	$	1,338			$	37,369	$	1,780
Grand total resolutions as a % of nonperforming UPB					103.5	%					104.8	%

Discussion of results:

• Total NPL and REO resolution activities in 1Q23 totaled $38.7 million in UPB and realized net gains of $1.3 million, or 103.5% of UPB resolved, compared to $37.4 million in UPB and net gains of $1.8 million, or 104.8% of UPB resolved in 1Q22
  • Long-term loan and REO resolutions in 1Q23 totaled $30.3 million in UPB and realized gains of $1.0 million, compared to $19.3 million in UPB and realized gains of $1.1 million in 1Q22
  • Short-term loan and REO resolutions in 1Q23 totaled $8.4 million in UPB and realized gains of $0.3 million, compared to $18.1 million in UPB and realized gains of $0.7 million in 1Q22
• The UPB of loan resolutions in 1Q23 were in line with the recent five-quarter resolution average of $39.4 million in UPB

Velocity’s executive management team will host a conference call and webcast to review 1Q23 financial results on May 4^th, 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 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. conference call.

A replay of the call will be available through midnight on May 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 #4004772. 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, Inc. Consolidated Statements of Financial Condition
	Quarter Ended
	3/31/2023				12/31/2022				9/30/2022				6/30/2022				3/31/2022
	Unaudited				Audited				Unaudited				Unaudited				Unaudited
(In thousands)
Assets
Cash and cash equivalents	$	39,397			$	45,248			$	26,372			$	46,250			$	36,629
Restricted cash		16,636				16,808				14,533				9,217				10,837
Loans held for sale, net		-				-				-				-				77,503
Loans held for sale, at fair value		18,081				-				16,569				-				-
Loans held for investment, at fair value		450,732				276,095				926				1,351				1,352
Loans held for investment		3,169,280				3,272,390				3,445,563				3,118,799				2,828,302
Total loans, net		3,638,093				3,548,485				3,463,058				3,120,150				2,907,157
Accrued interest receivables		20,931				20,463				18,333				15,820				14,169
Receivables due from servicers		64,133				65,644				66,992				75,688				78,278
Other receivables		2,188				1,075				1,962				1,320				4,527
Real estate owned, net		21,778				13,325				13,188				19,218				16,177
Property and equipment, net		3,209				3,356				3,495				3,632				3,690
Deferred tax asset		2,543				5,033				4,337				15,195				16,477
Mortgage Servicing Rights, at fair value		9,143				9,238				9,868				8,438				7,661
Goodwill		6,775				6,775				6,775				6,775				6,775
Other assets		12,268				13,525				18,453				11,036				7,345
Total Assets	$	3,837,094			$	3,748,975			$	3,647,366			$	3,332,739			$	3,109,722
Liabilities and members' equity
Accounts payable and accrued expenses	$	84,976			$	91,525			$	75,150			$	78,384			$	92,768
Secured financing, net		210,155				209,846				209,537				209,227				208,956
Securitizations, net		2,657,469				2,736,290				2,651,895				2,477,226				2,035,374
Securitizations at Fair Value		194,941				-				-				-				-
Warehouse & repurchase facilities		298,313				330,814				340,050				208,390				424,692
Total Liabilities		3,445,854				3,368,475				3,276,632				2,973,227				2,761,790
Stockholders' Equity
Stockholders' equity		387,624				376,811				366,810				355,895				344,441
Noncontrolling interest in subsidiary		3,616				3,689				3,924				3,617				3,491
Total equity		391,240				380,500				370,734				359,512				347,932
Total Liabilities and members' equity	$	3,837,094			$	3,748,975			$	3,647,366			$	3,332,739			$	3,109,722
Book value per share	$	12.18			$	11.89			$	11.61			$	11.26			$	10.90
Shares outstanding		32,112(1)				31,996(2)				31,922(3)			$	31,922(4)			$	31,913(5)

(1)		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.
(2)		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.
(3)		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.
(4)		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.
(5)		Based on 31,912,884 common shares outstanding as of March 31, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 505,408.

Velocity Financial, Inc. Consolidated Statements of Income (Quarters)
	Quarter Ended
($ in thousands)	3/31/2023				12/31/2022				9/30/2022				6/30/2022				3/31/2022
Revenues
Interest income	$	70,521			$	65,632			$	63,419			$	59,243			$	52,049
Interest expense - portfolio related		42,029				40,854				34,561				28,752				23,556
Net interest income - portfolio related		28,492				24,778				28,858				30,491				28,493
Interest expense - corporate debt		4,139				4,139				4,011				4,182				17,140
Net interest income		24,353				20,639				24,847				26,309				11,353
Provision for loan losses		636				(437	)			580				279				730
Net interest income after provision for loan losses		23,717				21,076				24,267				26,030				10,623
Other operating income
Gain on disposition of loans		1,913				391				399				1,776				4,540
Unrealized gain on fair value loans		7,354				7,795				453				6				11
Unrealized loss on fair securitizations		(170	)			-				-				-				-
Other income (expense)		3,461				2,842				1,657				1,257				1,097
Total other operating income		12,558				11,029				2,509				3,039				5,648
Net revenue		36,275				32,105				26,776				29,070				16,271
Operating expenses
Compensation and employee benefits		10,008				11,793				6,788				6,553				5,323
Origination (income)/expense		(334	)			937				(309	)			951				310
Securitization issuance expense		2,584				-				-				-				-
Rent and occupancy		446				435				445				426				442
Loan servicing		3,828				3,244				3,314				3,290				2,450
Professional fees		955				1,091				664				1,062				1,362
Real estate owned, net		1,829				552				(195	)			(251	)			(175	)
Other operating expenses		2,202				2,360				2,020				2,248				2,538
Total operating expenses		21,518				20,413				12,727				14,279				12,250
Income before income taxes		14,757				11,692				14,049				14,790				4,021
Income tax expense		4,021				3,465				3,759				4,019				790
Net income		10,736				8,227				10,290				10,771				3,231
Net income attributable to noncontrolling interest		87				(235	)			307				126				110
Net income attributable to Velocity Financial, Inc.		10,649				8,462				9,983				10,645				3,121
Less undistributed earnings attributable to participating securities		160				127				152				164				48
Net earnings attributable to common shareholders	$	10,489			$	8,335			$	9,831			$	10,481			$	3,073
Basic earnings (loss) per share	$	0.33			$	0.26			$	0.31			$	0.33			$	0.10
Diluted earnings (loss) per common share	$	0.31			$	0.25			$	0.29			$	0.31			$	0.09
Basic weighted average common shares outstanding		32,098				31,923				31,922				31,917				31,892
Diluted weighted average common shares outstanding		34,052				34,063				34,199				34,057				34,204

Velocity Financial, Inc. Net Interest Margin ‒ Portfolio Related and Total Company (Unaudited)
Quarters:
	Quarter Ended March 31, 2023									Quarter Ended December 31, 2022									Quarter Ended March 31, 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	$	12,896								$	64,699								$	69,092
Loans held for investment		3,512,133									3,430,296									2,613,759
Total loans	$	3,525,029		$	70,521		8.00	%		$	3,494,995		$	65,632		7.51	%		$	2,682,851		$	52,049		7.76	%
Debt:
Warehouse and repurchase facilities	$	225,497			4,833		8.57	%		$	286,094			5,776		8.08	%		$	338,247			3,764		4.45	%
Securitizations		2,926,153			37,196		5.08	%			2,838,315			35,078		4.94	%			2,018,186			19,791		3.92	%
Total debt - portfolio related		3,151,650			42,029		5.33	%			3,124,409			40,854		5.23	%			2,356,433			23,555		4.00	%
Corporate debt		215,000			4,139		7.70	%			215,000			4,139		7.70	%			178,915			17,141		38.32	%
Total debt	$	3,366,650		$	46,168		5.49	%		$	3,339,409		$	44,993		5.39	%		$	2,535,348		$	40,696		6.42	%
Net interest spread - portfolio related (2)							2.67	%								2.28	%								3.76	%
Net interest margin - portfolio related							3.23	%								2.84	%								4.25	%
Net interest spread - total company (3)							2.52	%								2.11	%								1.34	%
Net interest margin - total company							2.76	%								2.36	%								1.69	%

(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
	3/31/2023			12/31/2022			9/30/2022			6/30/2022			3/31/2022
Net Income	$	10,649		$	8,462		$	9,983		$	10,645		$	3,121
Corporate debt refinancing costs		-			-			-			-		$	9,286
Equity award & ESPP costs	$	728		$	656			-			-		$	-
Core Net Income	$	11,376		$	9,118		$	9,983		$	10,645		$	12,407
Diluted weighted average common shares outstanding		34,052			34,063			34,199			34,057			34,204
Core diluted earnings per share	$	0.33		$	0.27		$	0.29		$	0.31		$	0.36