Velocity Financial, Inc. Reports Fourth Quarter and Full-Year 2023 Results

WESTLAKE VILLAGE, Calif.--(BUSINESS WIRE)--Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $52.3 million and core net income of $53.4 million for full-year 2023, compared to net income of $32.2 million and core net income of $42.2 million for the full-year 2022. Earnings and core earnings per diluted share were $1.52 and $1.54, respectively, for the full-year 2023, compared to $0.94 and $1.24 for the full-year 2022.

"I am pleased to announce that Velocity delivered record earnings for the fourth quarter and full year 2023, driven by strategic portfolio growth and proactive asset management," said Chris Farrar, President and CEO. "While higher interest rates and rising inflation presented significant challenges for the mortgage market last year, our dedicated and experienced team turned these challenges into opportunities and delivered strong financial and operational results. We successfully increased loan production each quarter in 2023, while also increasing mortgage coupons by 86 basis point from the average rate for 4Q22. As a result, our net interest margins increased 68 basis points from 4Q22, and our asset management team continued to enhance shareholder value with positive recovery rates. Recently, we announced a $75 million capital raise we are deploying into accretive investments to fuel additional growth and attain our "5X25" goal of a $5 billion loan portfolio by 2025."

Fourth Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)		4Q 2023			4Q 2022			$ Variance			% Variance
Pretax income	$	22,307		$	11,692			$	10,615		91	%
Net income	$	17,355		$	8,462			$	8,892		105	%
Diluted earnings per share	$	0.50		$	0.25			$	0.25		100	%
Core net income(a)	$	16,161		$	9,118			$	7,043		77	%
Core diluted earnings per share(a)	$	0.46		$	0.27			$	0.19		73	%
Pretax return on equity		20.66	%		12.37	%		n.a.			67	%
Core pretax return on equity(a)		20.84	%		13.61	%		n.a.			53	%
Net interest margin - portfolio		3.52	%		2.84	%		n.a.			24	%
Net interest margin - total company		3.10	%		2.36	%		n.a.			31	%
Average common equity	$	431,891		$	378,007			$	53,884		14	%
(a) Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the reconciliation to GAAP net income at the end of this release.
n.a.- not applicable

Discussion of results:

• Net income in 4Q23 was $17.4 million, compared to $8.5 million for 4Q22
  • Driven by FV gains on new production and a 48.9% increase in net interest income

• Core net income⁽¹⁾ was $16.2 million, compared to $9.1 million for 4Q22
  • 4Q23 Core adjustments include a California apportionment tax liability reduction, incentive compensation expenses and costs related to the Company's employee stock purchase plan (ESPP)

• Portfolio NIM in 4Q23 was 3.52%, compared to 2.84% for 4Q22, a 24.0% Y/Y increase driven by an increased average portfolio yield from higher loan coupons on recent loan production and growth in NPL resolution gains, partially offset by higher funding costs
• The GAAP pretax return on equity was 20.7% for 4Q23, compared to 12.37% for 4Q22

TOTAL LOAN PORTFOLIO
($ of UPB in millions)		4Q 2023			4Q 2022			$ Variance			% Variance
Held for Investment
Investor 1-4 Rental	$	2,225		$	1,852			$	373		20	%
Mixed Use		475			443				32		7	%
Multi-Family		316			301				15		5	%
Retail		344			305				39		13	%
Warehouse		265			223				42		19	%
All Other		431			388				43		11	%
Total	$	4,056		$	3,512			$	543		15	%
Held for Sale
Investor 1-4 Rental	$	17		$	-			$	17		n.m.
Multi-Family		-			-				-		n.m.
Warehouse		-			-				-		n.m.
All Other		-			-				-		n.m.
Total Managed Loan Portfolio UPB	$	4,073		$	3,512			$	560		16	%
Key loan portfolio metrics:
Total loan count		10,477			8,893
Weighted average loan to value		67.8	%		68.2	%
Weighted average coupon		8.88	%		7.95	%
Weighted average total portfolio yield		8.70	%		7.51	%
Weighted average portfolio debt cost		5.75	%		5.23	%
n.m. - non meaningful

Discussion of results:

• Velocity's total loan portfolio was $4.1 billion in UPB as of December 31, 2023, an increase of 16.0% from $3.5 billion in UPB as of December 31, 2022
  • Primarily driven by 20.2% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and a combined 15.2% Y/Y growth in loans collateralized by Retail and Warehouse properties

  • Loan prepayments totaled $118.0 million, an increase of 13.0% Q/Q and 35.7% Y/Y

• The UPB of Fair Value (FVO) loans was $1.27 billion, or 31.1% of total HFI loans, as of December 31, 2023, an increase from $268.6 million in UPB and 7.6%, as of December 31, 2022
  • The company elected fair value accounting treatment for new loan originations effective October 1, 2022

• The weighted average portfolio loan-to-value ratio was 67.8% as of December 31, 2023, down from 68.2% as of December 31, 2022, and consistent with the five-quarter trailing average of 68.8%
• The weighted average total portfolio yield was 8.70% for 4Q23, an increase of 119 bps from 4Q22, driven by a 93 bps increase in average loan coupons from 4Q22
• Portfolio-related debt cost for 4Q23 was 5.75%, an increase of 52 bps from 4Q22, driven by higher interest rates on 2023 securitizations and warehouse financing

LOAN PRODUCTION VOLUMES
($ in millions)		4Q 2023		4Q 2022		$ Variance			% Variance
Investor 1-4 Rental	$	183	$	169		$	14		9	%
Traditional Commercial		130		83			47		57	%
Short-term loans		39		26			13		49	%
Total loan production	$	352	$	278		$	74		27	%
Acquisitions	$	-	$	-
n.m. - non meaningful

Discussion of results:

• Loan production for 4Q23 totaled $352.1 million in UPB, a 26.8% increase from $277.8 million in UPB for 4Q22
  • Driven by continued strong demand for business-purpose loans. On a Q/Q basis, production volume rose 21.2% from 3Q23.

• The weighted average coupon (WAC) on 4Q23 HFI loan production was 11.2%, an increase of 86 bps from the WAC for 4Q22

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)		4Q 2023			4Q 2022			$ Variance				% Variance
Nonperforming loans(a)	$	394,562		$	292,789			$	101,773			35	%
Average Nonperforming Loans	$	332,971		$	279,224			$	53,748			19	%
Nonperforming loans % total HFI Loans		9.7	%		8.3	%		n.a.				17	%
Total Charge Offs	$	744		$	-			$	744			n.a.
Charge-offs as a % of Avg. Nonperforming Loans(b)		0.89	%		0.00	%		n.a.				n.a.
Loan Loss Reserve	$	4,769		$	4,893			$	(124	)		(3	)%
(a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.
(b) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.
n.a.- not applicable

Discussion of results:

• Nonperforming loans (NPL) totaled $394.6 million in UPB as of December 31, 2023, or 9.7% of loans HFI, compared to $279.2 million and 8.3% as of December 31, 2022
  • NPLs as a percentage of HFI loans decreased 32 bps from 10.1% as of September 30, 2023, driven by portfolio growth and a significant slowdown in the pace of loans transitioning to foreclosure

  • On a year-over-year basis, NPL growth was driven by the older, legacy amortized cost portfolio, and the Company's collection philosophy that places loans in foreclosure quickly for early delinquencies

• Charge-offs for 4Q23 totaled $744.0 thousand, compared to no charge-offs for 4Q22
  • The trailing five-quarter charge-off average was $408.0 thousand

• The loan loss reserve totaled $4.8 million as of December 31, 2023, a 2.5% decrease from $4.9 million as of December 31, 2022
  • Resulting from the continued 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)		4Q 2023			4Q 2022			$ Variance				% Variance
Interest income	$	86,269		$	65,632			$	20,638			31	%
Interest expense - portfolio related		(51,405	)		(40,854	)			(10,551	)		26	%
Net Interest Income - portfolio related		34,864			24,777				10,087			41	%
Interest expense - corporate debt		(4,140	)		(4,139	)			(1	)		0	%
Loan loss provision		(828	)		437				(1,264	)		(290	)%
Net interest income after provision for loan losses	$	29,897		$	21,076			$	8,821			42	%
Gain on disposition of loans		1,482			391				1,091			279	%
Unrealized (loss) gain on fair value loans		39,367			7,795				31,572			405	%
Unrealized gain (loss) on fair value of securitized debt		(24,085	)		-				(24,085	)		n.m.
Unrealized gain/(loss) on mortgage servicing rights		(1,208	)		(630	)			(578	)		92	%
Origination income		3,981			3,521				461			13	%
Bank interest income		1,716			-				1,716			n.m.
Other operating income (expense)		418			(288	)			706			(245	)%
Total Other operating income (expense)	$	21,670		$	10,789			$	10,881			101	%
Net Revenue	$	51,567		$	32,302			$	19,265			60	%
n.m. - non meaningful

Discussion of results:

• Net Revenue in 4Q23 was $51.6 million, an increase of 59.6% compared to $32.3 million for 4Q22
• Total net interest income, including corporate debt interest expense and loan loss provision, was $29.9 million for 4Q23, a 41.9% increase from $21.1 million for 4Q22
  • Portfolio net Interest income was $34.9 million for 4Q23, an increase of 40.7% from 4Q22 resulting from the increased size of our portfolio and a 68 bps increase in NIM

• Total other operating income was $21.7 million for 4Q23 as compared to $10.8 million for 4Q22 driven largely by the FVO gains from 4Q23 originations
  • Gain on disposition of loans totaled $1.5 million for 4Q23, primarily resulting from loans transferred to REO

  • Net FVO marks on loans and securitized debt were $15.3 million as a result of new 4Q23 loan production and the decrease in Treasury rates during 4Q23

  • Origination income totaled $4.0 million, resulting from fee income realized on loans originated in 4Q23

OPERATING EXPENSES
($ in thousands)		4Q 2023		4Q 2022		$ Variance				% Variance
Compensation and employee benefits	$	15,143	$	11,793		$	3,350			28	%
Origination (income)/expense		173		1,328			(1,156	)		(87	)%
Securitization expenses		2,709		-			2,709			n.m.
Rent and occupancy		551		435			116			27	%
Loan servicing		4,636		3,244			1,392			43	%
Professional fees		1,733		1,091			642			59	%
Real estate owned, net		2,068		552			1,516			275	%
Other expenses		2,248		2,360			(112	)		(5	)%
Total operating expenses	$	29,260	$	20,804		$	8,456			41	%
n.m. - non meaningful

Discussion of results:

• Operating expenses totaled $29.3 million for 4Q23, an increase of 40.7% from 4Q22, driven by higher compensation expenses from headcount growth and securitization expenses driven by impacts attributable to our fair value accounting election
  • Compensation expense totaled $15.1 million, compared to $11.8 million for 4Q22

    • Compensation growth was driven by hires of sales account executives and operational staff, in addition to commissions paid on higher loan production

  • Securitization expenses totaled $2.7 million, resulting from the issuance of the VCC 2023-4 securitization during the quarter. Securitization issuance costs are now expensed under fair value accounting and were deferred in 4Q22.

  • Loan servicing expense totaled $4.6 million, a 42.9% increase from $3.2 million for 4Q22, driven by the increase in our portfolio balance and nonperforming loans

  • REO expense increased totaled $2.1, an increase from $0.6 million for 4Q22, driven by increased valuation-related expenses

SECURITIZATIONS
($ in thousands)	Securities			Balance at					Balance at
Trusts	Issued			12/31/2023		W.A. Rate			12/31/2022		W.A. Rate
2016-1 Trust		319,809		$	-	0.00	%		$	22,369	8.59	%
2017-2 Trust		245,601			45,869	3.97	%			59,183	3.92	%
2018-1 Trust		176,816			33,505	4.03	%			43,596	4.05	%
2018-2 Trust		307,988			76,871	4.48	%			93,792	4.46	%
2019-1 Trust		235,580			76,391	4.07	%			91,167	4.06	%
2019-2 Trust		207,020			66,340	3.42	%			82,508	3.46	%
2019-3 Trust		154,419			58,089	3.29	%			67,899	3.25	%
2020-1 Trust		248,700			106,976	2.85	%			136,643	2.89	%
2020-2 Trust		96,352			45,180	4.61	%			60,445	4.60	%
2021-1 Trust		251,301			171,748	1.76	%			196,969	1.73	%
2021-2 Trust		194,918			143,797	2.02	%			170,072	2.02	%
2021-3 Trust		204,205			158,043	2.46	%			178,038	2.44	%
2021-4 Trust		319,116			244,919	3.22	%			273,489	3.20	%
2022-1 Trust		273,594			236,358	3.93	%			256,667	3.93	%
2022-2 Trust		241,388			210,217	5.07	%			233,045	5.07	%
2022-MC1 Trust		84,967			31,508	6.90	%			54,528	6.91	%
2022-3 Trust		296,323			257,047	5.70	%			280,066	5.67	%
2022-4 Trust		308,357			274,419	6.24	%			301,856	6.23	%
2022-5 Trust		188,754			162,925	7.06	%			186,577	7.10	%
2023-1 Trust		198,715			177,250	7.02	%
2023-1R Trust		64,833			58,237	7.68	%
2023-2 Trust		202,210			188,805	7.19	%
2023-RTL1 Trust		81,608			81,608	8.24	%
2023-3 Trust		234,741			227,228	7.82	%
2023-4 Trust		202,890			201,813	8.38	%
	$	5,340,205		$	3,335,143	5.22	%		$	2,788,909	4.27	%

Discussion of results

• The company completed one securitization during 4Q23 totaling $202.9 million of securities issued
• The weighted average rate on Velocity's outstanding securitizations was 5.22% as of December 31, 2023, an increase of 94 bps from December 31, 2022

RESOLUTION ACTIVITIES
LONG-TERM LOANS
RESOLUTION ACTIVITY		FOURTH QUARTER 2023						FOURTH QUARTER 2022
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	22,342	$	826			$	8,188	$	329
Paid current			36,026		206				9,648		21
REO sold (a)			1,588		140				2,404		67
Total resolutions		$	59,956	$	1,172			$	20,240	$	417
Resolutions as a % of nonperforming UPB					102.0	%					102.1	%
SHORT-TERM AND FORBEARANCE LOANS
RESOLUTION ACTIVITY		FOURTH QUARTER 2023						FOURTH QUARTER 2022
($ in thousands)		UPB $		Gain / (Loss) $				UPB $		Gain / (Loss) $
Paid in full		$	2,770	$	37			$	4,092	$	82
Paid current			7,560		13				457		-
REO sold			604		316				529		74
Total resolutions		$	10,934	$	366			$	5,078	$	156
Resolutions as a % of nonperforming UPB					103.3	%					103.1	%
Grand total resolutions		$	70,890	$	1,538			$	25,318	$	572
Grand total resolutions as a % of nonperforming UPB					102.2	%					102.3	%

Discussion of results:

• NPL resolution totaled 70.9 million in UPB, realizing 102.2% of UPB resolved compared to $25.3 million in UPB and realization of 102.3% of UPB resolved for 4Q22
• 4Q23 NPL resolutions represented 18.3% of nonperforming loan UPB as of September 30, 2023
• The UPB of loan resolutions in 4Q23 was 41.4% higher than the recent five-quarter resolution average of $50.1 million in UPB

Full-Year 2023 Operating Results

FULL-YEAR OPERATING RESULTS
($ in thousands)	FY 2023			FY 2022				$ Variance				% Variance
Investor 1-4 Rental	$	617		$	994			$	(377	)		(38	)%
Traditional Commercial		381			652				(271	)		(42	)%
Short-term loans		120			116				4			4	%
Total Loan production	$	1,118		$	1,762			$	(644	)		(37	)%
Net Interest Margin - Portfolio		3.34	%		3.64	%		n.a.				(8	)%
Average Nonperforming Loans	$	328,105		$	266,129			$	61,976			23	%
Total Net Interest Income(a)		105,836			81,996			$	23,840			29.1	%
Total Other Income		65,910			24,320				41,590			171.0	%
Total Expenses		119,472			74,106				45,365			61.2	%
Net Income	$	52,273		$	32,211			$	20,062			62	%
Diluted EPS	$	1.52		$	0.94			$	0.57			61	%
Core Income(b)	$	53,384		$	42,153			$	11,231			26.6	%
Core Diluted EPS(b)	$	1.54		$	1.24			$	0.30			24.5	%
Pretax Return on Equity		17.5	%		12.2	%		n.a.				42.8	%
(a) After provision for loan losses.
(b) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.
n.a.- not applicable

CHARGE-OFFS, GAIN/(LOSS) ON REO
($ in thousands)	FY 2023			FY 2022				$ Variance			% Variance
Average nonperforming loans for the period (a)	$	328,105		$	266,129			$	61,976		23	%
Charge-offs		(2,039	)		(521	)		$	(1,518	)	291	%
Charge-offs / Average nonperforming loans for the period (1)		-0.62	%		-0.20	%		$	(0	)	217	%
Gain on transfer of REO		7,412			3,408			$	4,004		117	%
Gain on sale of REO		568			2,939			$	(2,371	)	(81	)%
REO valuations, net		(3,903	)		(364	)		$	(3,539	)	972	%
Total gain/(loss) on REO	$	2,038		$	5,462			$	(3,424	)	(63	)%
(a) Reflects the monthly average of nonperforming loans held for investment during the period.

Discussion of results:

• Loan production in FY 2023 totaled $1.1 billion in UPB, a 36.5% decrease from $1.8 billion in UPB for 2022
  • Driven by higher interest rates throughout most of FY 2023

• Net interest margin (NIM) was 3.34% for FY 2023, a 30 bps decrease from 3.64% for FY 2022
  • Driven by higher securitization and warehouse financing costs

  • Partially offset by a higher weighted average coupon on 2023 loan production of 11.1% compared to 8.0% for FY 2022

• Average NPLs were $328.1 million for FY 2023, an increase of 23.3% from the FY 2022 average of $266.1 million
  • Average NPLs as a percentage of average loans HFI were 8.7% for FY 2023, compared to 8.6% for FY 2022

• Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
• Net income totaled 52.3 million for FY 2023, a 62.3% increase from 32.2 million for FY 2022
  • Net interest income (after corporate interest expense and provision for loan losses) totaled $105.8 million, a 29.1% increase from $82.0 million in FY 2022, driven by HFI portfolio growth and higher coupons on FY 2023 loan production

  • Other income totaled $65.9 million, a 171.0% increase from $24.3 million in FY 2022, driven by the net impact of the Company's fair value accounting election for loan production originated after October 1, 2022, and unrealized fair value losses on securitized debt

  • Expenses totaled $119.5 million, a 61.2% increase from $74.1 million in FY 2022, driven by an increase in compensation expense related to the Company's fair value accounting election and securitization costs resulting from the issuance of six VCC securitizations in 2023. Under fair value accounting, securitization costs are expensed as incurred, whereas previously they were deferred and amortized over the life of the securitization.

• Core net income⁽¹⁾ totaled $53.4 million, a 26.6% increase from $42.2 million for FY 2022
  • Core income adjustments totaled $1.1 million, compared to $9.9 million for FY 2022

  • Core diluted EPS was $1.54 per share, a 24.5% increase from $1.24 per share for FY 2022

• Pretax return on equity was 17.5%, a 42.8% increase from 12.2% for FY 2022

Velocity's executive management team will host a conference call and webcast to review 4Q23 and Full-Year 2023 financial results on March 7^th, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.

Webcast Information

The conference call will be webcast live in listen-only mode and can be accessed through the Events and Presentations section of the Velocity Financial Investor Relations website https://www.velfinance.com/events-and-presentations. To listen to the webcast, please visit Velocity's website at least 15 minutes before the call to register, download, and install any needed software. An audio replay of the call will also be available on Velocity's website following the completion of the conference call.

Conference Call Information

To participate by phone, please dial-in 15 minutes before the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing 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 March 14, 2024, 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 #7107943. 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
	12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
	Audited				Unaudited				Unaudited				Unaudited				Audited
(In thousands)
Assets
Cash and cash equivalents	$	40,566			$	29,393			$	33,987			$	39,397			$	45,248
Restricted cash		21,361				17,703				16,786				16,636				16,808
Loans held for sale, at fair value		17,590				19,536				-				18,081				-
Loans held for investment, at fair value		1,306,072				951,990				705,330				450,732				276,095
Loans held for investment		2,828,123				2,945,840				3,057,940				3,169,280				3,272,390
Total loans, net		4,151,785				3,917,366				3,763,270				3,638,093				3,548,485
Accrued interest receivables		27,028				24,756				22,602				20,931				20,463
Receivables due from servicers		85,077				70,139				63,896				64,133				65,644
Other receivables		8,763				236				1,306				2,188				1,075
Real estate owned, net		44,268				29,299				20,388				21,778				13,325
Property and equipment, net		2,785				2,861				3,023				3,209				3,356
Deferred tax asset		2,339				705				1,878				2,543				5,033
Mortgage Servicing Rights, at fair value		8,578				9,786				9,445				9,143				9,238
Derivative assets		-				1,261				-				-				-
Goodwill		6,775				6,775				6,775				6,775				6,775
Other assets		5,248				7,028				7,789				12,268				13,525
Total Assets	$	4,404,573			$	4,117,308			$	3,951,145			$	3,837,094			$	3,748,975
Liabilities and members' equity
Accounts payable and accrued expenses	$	121,969			$	97,869			$	95,344			$	84,976			$	91,525
Secured financing, net		211,083				210,774				210,464				210,155				209,846
Securitized debt, net		2,418,811				2,504,334				2,622,547				2,657,469				2,736,290
Securitized debt, at fair value		877,417				669,139				381,799				194,941				-
Warehouse & repurchase facilities		334,755				215,176				235,749				298,313				330,814
Derivative liability		3,665				-				-				-				-
Total Liabilities		3,967,700				3,697,292				3,545,903				3,445,854				3,368,475
Stockholders' Equity
Stockholders' equity		433,444				416,398				401,707				387,624				376,811
Noncontrolling interest in subsidiary		3,429				3,618				3,535				3,616				3,689
Total equity		436,873				420,016				405,242				391,240				380,500
Total Liabilities and members' equity	$	4,404,573			$	4,117,308			$	3,951,145			$	3,837,094			$	3,748,975
Book value per share	$	13.49			$	13.00			$	12.57			$	12.18			$	11.89
Shares outstanding		32,395(1)				32,314(2)				32,239(3)				32,112(4)				31,996(5)

⁽¹⁾ Based on 32,395,423 common shares outstanding as of December 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 470,413.

⁽²⁾ Based on 32,313,744 common shares outstanding as of September 30, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 589,634.

⁽³⁾ Based on 32,238,715 common shares outstanding as of June 30, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 502,913.

⁽⁴⁾ 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.

⁽⁵⁾ 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..

Velocity Financial, Inc. Consolidated Statements of Income (Quarters)
	Quarter Ended
($ in thousands)	12/31/2023				9/30/2023				6/30/2023			3/31/2023				12/31/2022
	Unaudited				Unaudited				Unaudited			Unaudited				Unaudited
Revenues
Interest income	$	86,269			$	79,088			$	74,897		$	70,521			$	65,632
Interest expense - portfolio related		51,405				47,583				45,451			42,029				40,854
Net interest income - portfolio related		34,864				31,505				29,446			28,492				24,778
Interest expense - corporate debt		4,140				4,138				4,139			4,139				4,139
Net interest income		30,724				27,367				25,307			24,353				20,639
Provision for loan losses		828				154				298			636				(437	)
Net interest income after provision for loan losses		29,897				27,213				25,009			23,717				21,076
Other operating income
Gain on disposition of loans		1,482				3,606				1,237			1,913				391
Unrealized gain (loss) on fair value loans		39,367				(1,284	)			2,413			7,354				7,795
Unrealized gain (loss) on fair value securitized debt		(24,085	)			9,692				5,560			(170	)			-
Origination income		3,981				3,323				2,735			2,411				3,521
Bank interest income		1,716				1,342				1,188			948				-
Other income (expense)		418				340				601			482				(288	)
Total other operating income		21,670				17,360				14,036			12,842				11,419
Net revenue		51,567				44,573				39,046			36,560				32,495
Operating expenses
Compensation and employee benefits		15,143				12,523				10,670			10,008				11,793
Origination expenses		173				273				123			(50	)			1,328
Securitizations expenses		2,709				4,930				2,699			2,584				-
Rent and occupancy		551				472				458			446				435
Loan servicing		4,636				4,901				4,267			3,828				3,244
Professional fees		1,733				854				1,056			955				1,091
Real estate owned, net		2,068				1,239				1,018			1,829				552
Other operating expenses		2,248				2,142				1,931			2,202				2,360
Total operating expenses		29,260				27,334				22,222			21,802				20,804
Income before income taxes		22,307				17,239				16,824			14,757				11,692
Income tax expense		5,141				5,070				4,602			4,021				3,465
Net income		17,166				12,169				12,222			10,736				8,227
Net income attributable to noncontrolling interest		(189	)			83				39			87				(235	)
Net income attributable to Velocity Financial, Inc.		17,355				12,086				12,183			10,649				8,462
Less undistributed earnings attributable to participating securities		225				183				185			160				127
Net earnings attributable to common shareholders	$	17,130			$	11,903			$	11,998		$	10,489			$	8,335
Basic earnings (loss) per share	$	0.53			$	0.37			$	0.37		$	0.33			$	0.26
Diluted earnings (loss) per common share	$	0.50			$	0.35			$	0.36		$	0.31			$	0.25
Basic weighted average common shares outstanding		32,326				32,275				32,122			32,098				31,923
Diluted weighted average common shares outstanding		34,991				34,731				34,140			34,052				34,063

Velocity Financial, Inc. Consolidated Statements of Income (Years)
	Year Ended
($ in thousands)	12/31/2023				12/31/2022
	Audited				Audited
Revenues
Interest income	$	310,776			$	240,343
Interest expense - portfolio related		186,468				127,723
Net interest income - portfolio related		124,308				112,620
Interest expense - corporate debt		16,556				29,472
Net interest income		107,750				83,148
Provision for loan losses		1,915				1,152
Net interest income after provision for loan losses		105,836				81,996
Other operating income
Gain on disposition of loans		8,238				7,107
Unrealized gain (loss) on fair value loans		47,850				8,265
Unrealized gain (loss) on fair value securitized debt		(9,002	)			-
Origination income		12,450				5,225
Bank interest income		5,194				-
Other income (expense)		1,840				1,637
Total other operating income		65,910				24,320
Net revenue		171,745				106,316
Operating expenses
Compensation and employee benefits		48,344				30,458
Origination expenses		518				3,985
Securitizations expenses		12,923				-
Rent and occupancy		1,927				1,748
Loan servicing		17,631				12,298
Professional fees		4,599				4,179
Real estate owned, net		6,153				(70	)
Other operating expenses		8,524				9,166
Total operating expenses		100,618				61,764
Income before income taxes		71,127				44,553
Income tax expense		18,834				12,033
Net income		52,293				32,519
Net income attributable to noncontrolling interest		19				308
Net income attributable to Velocity Financial, Inc.		52,273				32,211
Less undistributed earnings attributable to participating securities		753				491
Net earnings attributable to common shareholders	$	51,520			$	31,720
Basic earnings (loss) per share	$	1.60			$	0.99
Diluted earnings (loss) per common share	$	1.52			$	0.94
Basic weighted average common shares outstanding		32,206				31,913
Diluted weighted average common shares outstanding		34,484				34,131

Velocity Financial, Inc.

Net Interest Margin ? Portfolio Related and Total Company

(Unaudited)

Quarters:

	Quarter Ended December 31, 2023									Quarter Ended September 30, 2023									Quarter Ended December 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	$	14,918								$	3,170								$	64,699
Loans held for investment		3,949,642									3,770,460									3,430,296
Total loans	$	3,964,560		$	86,268		8.70	%		$	3,773,631		$	79,088		8.38	%		$	3,494,995		$	65,632		7.51	%
Debt:
Warehouse and repurchase facilities	$	255,266			6,040		9.46	%		$	192,855			4,943		10.25	%		$	286,094			5,776		8.08	%
Securitizations		3,320,467			45,365		5.46	%			3,186,756			42,640		5.35	%			2,838,315			35,078		4.94	%
Total debt - portfolio related		3,575,733			51,405		5.75	%			3,379,610			47,583		5.63	%			3,124,409			40,854		5.23	%
Corporate debt		215,000			4,138		7.70	%			215,000			4,138		7.70	%			215,000			4,139		7.70	%
Total debt	$	3,790,733		$	55,543		5.86	%		$	3,594,610		$	51,721		5.76	%		$	3,339,409		$	44,993		5.39	%
Net interest spread - portfolio related (2)							2.95	%								2.75	%								2.28	%
Net interest margin - portfolio related							3.52	%								3.34	%								2.84	%
Net interest spread - total company (3)							2.84	%								2.63	%								2.11	%
Net interest margin - total company							3.10	%								2.90	%								2.36	%
(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.

Years:

	Year Ended December 31, 2023									Year Ended December 31, 2022									Year Ended December 31, 2021
				Interest			Average						Interest			Average						Interest			Average
	Average			Income /			Yield /			Average			Income /			Yield /			Average			Income /			Yield /
($ in thousands)	Balance			Expense			Rate			Balance			Expense			Rate			Balance			Expense			Rate
Loan portfolio:
Loans held for sale	$	8,615								$	49,194								$	15,794
Loans held for investment		3,716,582									3,043,003									2,110,053
Total loans	$	3,725,197		$	310,775		8.34	%		$	3,092,198		$	240,343		7.77	%		$	2,125,847		$	181,968		8.56	%
Debt:
Warehouse and repurchase facilities	$	227,911			21,726		9.53	%		$	292,490			17,454		5.97	%		$	183,663			9,706		5.28	%
Securitizations		3,113,500			164,742		5.29	%			2,458,332			110,269		4.49	%			1,630,385			75,680		4.64	%
Total debt - portfolio related		3,341,411			186,468		5.58	%			2,750,822			127,723		4.64	%			1,814,048			85,386		4.71	%
Corporate debt		215,000			16,556		7.70	%			205,979			29,472		14.31	%			154,890			20,609		13.31	%
Total debt	$	3,556,411		$	203,024		5.71	%		$	2,956,801		$	157,195		5.32	%		$	1,968,938		$	105,995		5.38	%
Net interest spread - portfolio related (1)							2.76	%								3.13	%								3.85	%
Net interest margin - portfolio related							3.34	%								3.64	%								4.54	%
Net interest spread - total company (2)							2.63	%								2.46	%								3.18	%
Net interest margin - total company							2.89	%								2.69	%								3.57	%
(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 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
	12/31/2023				9/30/2023			6/30/2023			3/31/2023			12/31/2022
Net Income	$	17,355			$	12,086		$	12,183		$	10,649		$	8,462
Tax liability reduction		(1,866	)			-			-			-			-
Equity award & ESPP costs		673				832			745			728			656
Core Net Income	$	16,161			$	12,918		$	12,928		$	11,376		$	9,118
Diluted weighted average common shares outstanding		34,991				34,731			34,140			34,052			34,063
Core diluted earnings per share	$	0.46			$	0.37		$	0.38		$	0.33		$	0.27

Years:

Core Net Income
	Year Ended
	12/31/2023				12/31/2022
Net Income	$	52,273			$	32,211
Corporate debt refinancing costs		-			$	9,286
Tax liability reduction		(1,866	)			-
Equity award & ESPP costs		2,977				656
Core Net Income	$	53,384			$	42,153
Diluted weighted average common shares outstanding	$	34,484			$	34,131
Core diluted earnings per share	$	1.54			$	1.24

Contacts

Investors and Media:
Chris Oltmann
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