Production Volume Continues Strong Growth Trend $116.3 $163.1 $154.3 $183.2 $167.1 $79.7 $73.5 $97.5 $130.3 $166.6 $20.9 $22.1 $38.8 $38.6 $45.0 $217.0 $258.6 $290.6 $352.1 $378.7 1Q23 2Q23 3Q23 4Q23 1Q24 Investor 1-4 Rental Traditional Commercial Short-term Loan Products ($ of UPB in millions) Loan Portfolio $265.0 $276.3 $390.8 1Q23 4Q23 1Q24 Investor 1-4 Rental Mixed Use Multifamily – Driven by growth in loans collateralized by Inv. 1-4 Rental and "Other" Commercial properties | --- | --- | --- | --- | | ...

Loan Originations and Portfolio - The company originated 2,955 loans totaling $1.1 billion for investment in 2023, compared to 4,135 loans totaling $1.7 billion in 2022[45]. - The company funded 2,930 loans sourced by 1,046 different mortgage brokers in 2023, representing a small portion of the approximately 885,933 state-licensed mortgage originators in the U.S.[41]. - The primary product, a 30-year fixed-rate amortizing term loan, comprised 90.0% of loan originations in 2023, reflecting strong market demand[42]. - Total loans increased to $4,072.9 million in 2023 from $3,512.5 million in 2022, representing a growth of 16.0%[120]. - Total loan originations for 2023 were $1,117.8 million, a decrease of $644.0 million or 36.6% from $1,761.9 million in 2022[125]. - The company originated 2,965 loans in 2023, a decrease from 4,135 loans in 2022[125]. Loan Portfolio Performance - As of December 31, 2023, the company's portfolio of loans held for investment totaled $4.1 billion in unpaid principal balance, with an average loan balance of approximately $389,000[45]. - The weighted average loan-to-value (LTV) ratio at origination for loans held for investment was 67.7%, with borrower equity providing significant protection against credit losses[47]. - The loan portfolio totaled $4.1 billion with an average loan balance of approximately $389,000 and a weighted average loan-to-value ratio of 67.8%[79]. - Nonperforming loans increased to $394.6 million, accounting for 9.69% of total loans in 2023, up from 8.34% in 2022[120]. - As of December 31, 2023, nonperforming loans totaled $394.6 million, representing 9.7% of the held for investment loan portfolio, an increase from $292.8 million (8.3%) in 2022[134]. - The allowance for loan losses decreased to $4.8 million in 2023 from $4.9 million in 2022[128]. - The allowance for loan losses is maintained at a level deemed adequate by management to provide for expected losses in the portfolio at the balance sheet date[99]. Financial Performance - The company generated pre-tax income of $71.1 million and net income of $52.3 million for the year ended December 31, 2023[81]. - Net income rose to $52,293,000 in 2023, up from $32,519,000 in 2022, marking a growth of 60.9%[162]. - Earnings per common share increased to $1.60 for 2023, up from $0.99 in 2022[182]. - Interest income increased by $70.4 million, or 29.3%, to $310.8 million for the year ended December 31, 2023, compared to $240.3 million for 2022[184]. - Net interest income after provision for loan losses increased by 29.1% over the prior year, driven by higher net interest income[189]. - The company grew its portfolio-related net interest income by $11.7 million or 10.4%, from $112.6 million in 2022 to $124.3 million in 2023, primarily due to new loan originations[112]. Securitization Activities - The company executed 31 securitizations of investor real estate loans, issuing $6.4 billion in principal amount of securities from 2011 to 2023[30]. - In August 2023, the company completed its first securitization collateralized by its short-term loan product, issuing $81.6 million in securities[51]. - In January 2024, the company completed the securitization of $221.1 million of investor real estate loans and issued $75 million principal amount of five-year Senior Secured Notes at an interest rate of 9.875%[88]. Operating Expenses and Management - Total operating expenses increased by 62.9%, or $38.9 million, to $100.6 million during the year ended December 31, 2023, from $61.8 million in 2022[195]. - Compensation and employee benefits increased from $30.5 million in 2022 to $48.3 million in 2023, a rise of 58.7% driven by fair value option accounting on new loan originations[197]. - Origination expenses decreased significantly from $4.0 million in 2022 to $0.5 million in 2023, a reduction of 87.0% due to improved cost management[198]. - Loan servicing expenses rose from $12.3 million in 2022 to $17.6 million in 2023, an increase of 43.4% due to a larger loan portfolio[200]. Market Conditions and Competitive Landscape - The investor real estate loan market is highly competitive, impacting the company's profitability and growth, with competitors potentially offering more favorable rates and terms[114]. - The company anticipates that future performance will depend on growing origination/acquisition volume, leveraging its existing broker network while expanding with new brokers[112]. Debt and Interest Management - The company entered into a five-year $215.0 million syndicated corporate debt agreement in March 2022, bearing interest at a fixed rate of 7.125%[51]. - Corporate debt interest expense decreased to $16,556,000 in 2023 from $29,472,000 in 2022, indicating improved cost management[167]. - Total debt increased to $3,556,411,000 in 2023 from $2,956,801,000 in 2022, reflecting a growth of 20.3%[159]. - Cost of funds for the portfolio increased to 5.58% in 2023 from 4.64% in 2022, indicating rising borrowing costs[154]. Employee and Organizational Growth - As of December 31, 2023, the company had a total of 253 employees, reflecting a 30% increase from the prior year[58].

Financial Data and Key Metrics Changes - The company reported a core net income increase of 77% year-over-year, marking a record quarter and the best year in its history [32][38] - The total loan portfolio reached $4.1 billion, a 5% increase from Q3 and a 16% increase year-over-year [11][12] - The net interest margin (NIM) increased by 18 basis points from Q3 and 68 basis points year-over-year, reflecting strong growth in originations and improved portfolio yield [13][36] Business Line Data and Key Metrics Changes - Loan production for Q4 was over $352 million, a 21% increase from $290 million in Q3 and a nearly 27% increase year-over-year [9][10] - The weighted average coupon for new originations remained constant at 11% throughout the year, with a weighted average loan-to-value (LTV) ratio of 65% in the last six months of 2023 [10][12] Market Data and Key Metrics Changes - The company noted that banks continue to be constrained in extending credit, which has allowed it to grow its portfolio with compelling risk-adjusted spreads [33][36] - The securitization market showed improvement, benefiting from lower base rates and tighter spreads, leading to a significant decrease in the cost of funds [35][36] Company Strategy and Development Direction - The company aims to grow its portfolio to at least $5 billion by 2025, focusing on delivering value to customers and shareholders [37][23] - The management emphasized the importance of maintaining credit discipline while pursuing growth opportunities [49][50] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the market position, expecting strong demand and favorable asset resolutions in 2024 [22][23] - The company highlighted the ongoing stress in some segments of the larger commercial real estate markets but noted healthy demand in its niche [33][36] Other Important Information - The company completed a securitization deal in Q4 and issued $75 million of senior secured notes to support growth [20][21] - The nonperforming loan (NPL) rate decreased to 9.7% from 10.1% at the end of Q3, reflecting successful collection efforts [14][15] Q&A Session Summary Question: Outlook for production and funding in 2024 - Management indicated that production is expected to grow, with a mix of 1 to 4 family loans dominating, and they plan to securitize every 2 to 3 months [25][45] Question: Thoughts on the Century acquisition and fee income - Management expects significant fee income from the Century acquisition in the second half of the year, with a pipeline nearly 4 times larger than last year [26] Question: Risk management perspective on loan growth - Management emphasized the importance of maintaining credit discipline and not sacrificing margins for volume [48][49] Question: Expectations for quarterly production numbers - Management did not provide exact guidance but expected growth throughout the year, consistent with previous trends [51] Question: Capital growth support from recent fundraising - The recent capital raise provides a long runway for growth ambitions, with retained earnings also fueling expansion [52] Question: Success in asset resolution and delinquency management - Management attributed success to disciplined underwriting and a talented asset management team, with favorable resolution times varying by state [69][70]

Exhibit 99 Investors and Media: Chris Oltmann (818) 532-3708 Velocity Financial, Inc. Reports Fourth Quarter and Full-Year 2023 Results Fourth Quarter Highlights: Full-Year 2023 Highlights: • Net income of $17.4 million, up 105.1% from $8.5 million for 4Q22. Diluted EPS of $0.50, up $0.25 from $0.25 per share for 4Q22 • Core net income (1) of $16.2 million, up 77.2% from $9.1 million for 4Q22. Core diluted EPS(1) of $0.46, up $0.19 from $0.27 per share for 4Q22 • Loan production of $352.1 million in UPB, a ...

Velocity Financial, Inc. (NYSE:VEL) Q3 2023 Earnings Conference Call November 2, 2023 5:00 PM ET Company Participants Chris Oltmann - Treasurer Chris Farrar - President and CEO Mark Szczepaniak - Chief Financial Officer Conference Call Participants Stephen Laws - Raymond James Sarah Barcomb - BTIG Steve Delaney - JMP Securities Operator Good day and welcome to the Velocity Financial Q3 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is be ...

Investor 1-4 Mixed-Use Multi-Family Commercial > 3Q23 Results Presentation November 2, 2023 Forward-looking statements Some of the statements contained in this presentation may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, projections, plans and strategies, positioning, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-loo ...

[Part I. Financial Information](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) The company's total assets increased to $4.12 billion as of September 30, 2023, from $3.75 billion at year-end 2022, driven by growth in the loan portfolio. Net income for the nine months ended September 30, 2023, was $35.1 million, a significant increase from $24.3 million in the prior-year period, primarily due to higher net interest income and unrealized gains on fair value instruments. The company adopted fair value option accounting for new loans and certain debt, and began using derivative instruments for cash flow hedging [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights ($ in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $29,393 | $45,248 | | Total loans, net | $3,917,366 | $3,548,485 | | Real estate owned, net | $29,299 | $13,325 | | **Total Assets** | **$4,117,308** | **$3,748,975** | | **Liabilities** | | | | Securitized debt, net | $2,504,334 | $2,736,290 | | Securitized debt, at fair value | $669,139 | $— | | Warehouse and repurchase facilities, net | $215,176 | $330,814 | | **Total Liabilities** | **$3,697,292** | **$3,368,475** | | **Total Equity** | **$420,016** | **$380,500** | - Total loans, net, increased by approximately **10.4%** to **$3.92 billion** as of September 30, 2023, from **$3.55 billion** at the end of 2022[10](index=10&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Statement of Income Summary ($ in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $27,367 | $24,847 | $77,027 | $62,509 | | Total Other Operating Income | $17,360 | $3,027 | $44,239 | $12,900 | | Total Operating Expenses | $27,334 | $13,245 | $71,359 | $40,960 | | Net Income | $12,169 | $10,290 | $35,126 | $24,292 | | Diluted EPS | $0.35 | $0.29 | $1.02 | $0.70 | - Net income for Q3 2023 was **$12.2 million**, an **18.3%** increase from **$10.3 million** in Q3 2022. For the nine months ended September 30, 2023, net income rose **44.6%** to **$35.1 million** from **$24.3 million** in the prior-year period[17](index=17&type=chunk) - The significant increase in other operating income is primarily due to a **$9.7 million** unrealized gain on fair value securitized debt in Q3 2023, which was not present in 2022[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) - For the nine months ended September 30, 2023, the company experienced a net decrease in cash, cash equivalents, and restricted cash of **$15.0 million**[23](index=23&type=chunk) - Key cash flow activities for the first nine months of 2023 include: - **Operating:** Net cash provided was **$22.7 million** - **Investing:** Net cash used was **$360.8 million**, primarily for the origination of loans held for investment (**$728.2 million**), partially offset by payoffs (**$334.2 million**) - **Financing:** Net cash provided was **$323.2 million**, driven by proceeds from securitized debt (**$774.3 million**) and warehouse advances (**$753.3 million**), offset by repayments[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - Significant accounting policy changes include the election of the fair value option (FVO) for securitized debt issued after January 1, 2023, and the adoption of hedge accounting for derivative instruments starting in Q3 2023[35](index=35&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - As of September 30, 2023, the company's COVID-19 forbearance program had an ending unpaid principal balance (UPB) of **$177.0 million**, of which **76.7%** were performing/accruing[49](index=49&type=chunk)[51](index=51&type=chunk) - The company began using forward starting interest rate swaps as cash flow hedges in Q3 2023 to manage interest rate risk on future debt issuances. As of September 30, 2023, derivative assets were valued at **$1.26 million**[106](index=106&type=chunk)[107](index=107&type=chunk) - The company is the sole beneficial interest holder of twenty-three securitization trusts, which are consolidated as variable interest entities (VIEs). These transactions are accounted for as secured borrowings[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's loan portfolio grew to $3.9 billion in UPB as of Q3 2023. Loan originations were $290.6 million in Q3 2023, a decrease from the prior year due to rising interest rates and strategic caution. Net interest margin remained relatively stable QoQ but decreased YoY due to higher funding costs. The adoption of fair value option (FVO) accounting for new loans and certain debt significantly impacted reported income, increasing both other operating income and operating expenses. Nonperforming loans increased to 10.1% of the portfolio, but the company continues to resolve these assets with net gains [Business Overview and Recent Developments](index=36&type=section&id=Business%20Overview%20and%20Recent%20Developments) - Velocity Financial is a vertically integrated real estate finance company that originates and manages investor loans secured by 1-4 unit residential rental and commercial properties. As of September 30, 2023, its loan portfolio totaled **$3.9 billion** in unpaid principal balance (UPB)[134](index=134&type=chunk)[136](index=136&type=chunk) - In Q3 2023, the company completed two securitizations totaling **$316.3 million**, including its first securitization of short-term mortgage loans (VCC 2023-RTL1)[143](index=143&type=chunk) - The company began applying fair value option (FVO) accounting to all originated mortgage loans starting October 1, 2022, and to securitized debt on a case-by-case basis from January 1, 2023. This change means a CECL loan loss reserve is not recorded on these FVO loans[141](index=141&type=chunk)[142](index=142&type=chunk) [Portfolio and Asset Quality](index=39&type=section&id=Portfolio%20and%20Asset%20Quality) Key Portfolio Statistics | Metric | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total loans (UPB, $ in thousands) | $3,876,726 | $3,432,540 | | Loan count | 9,953 | 8,476 | | Weighted average LTV | 68.0% | 68.7% | | Weighted average coupon | 8.6% | 7.7% | | Nonperforming loans (% of total) | 10.0% | 7.4% | Loan Originations (Q3 2023 vs Q3 2022) | Period | Loan Balance ($ in thousands) | Weighted Average Coupon | Weighted Average LTV | | :--- | :--- | :--- | :--- | | Q3 2023 | $290,581 | 11.04% | 65.3% | | Q3 2022 | $457,272 | 8.58% | 66.8% | - Nonperforming loans increased to **10.1%** (**$387.7 million**) of the portfolio as of September 30, 2023, up from **7.4%** (**$253.3 million**) a year prior[176](index=176&type=chunk) - The allowance for loan losses decreased to **$4.7 million** as of September 30, 2023, from **$5.3 million** a year earlier, primarily due to loan payoffs and the shift to FVO accounting for new originations, which do not require a CECL reserve[172](index=172&type=chunk)[174](index=174&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Key Performance Metrics (Annualized) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Portfolio yield | 8.38% | 7.88% | | Cost of funds — portfolio related | 5.63% | 4.81% | | Net interest margin — portfolio related | 3.34% | 3.59% | | Pre-tax return on equity | 16.82% | 15.26% | | Return on equity | 11.87% | 11.18% | - Net interest income for Q3 2023 increased to **$27.4 million** from **$24.8 million** in Q3 2022. The growth was driven by a larger average loan balance, which offset the negative impact of a higher cost of funds[221](index=221&type=chunk)[222](index=222&type=chunk)[226](index=226&type=chunk) - Operating expenses rose to **$27.3 million** in Q3 2023 from **$13.2 million** in Q3 2022. The increase was mainly due to higher compensation and securitization costs, as expenses for FVO loans and FVO debt are recognized immediately rather than being deferred[237](index=237&type=chunk)[239](index=239&type=chunk) - Other operating income surged to **$17.4 million** in Q3 2023 from **$3.0 million** in Q3 2022, primarily due to unrealized gains on fair value securitized debt (**$9.7 million**) and higher origination income, both resulting from the adoption of FVO accounting[234](index=234&type=chunk)[235](index=235&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2023, total liquidity plus available warehouse capacity was **$654.0 million**, consisting of **$29.4 million** in cash, **$30.9 million** in available borrowings for unencumbered loans, and **$593.6 million** in available warehouse capacity[252](index=252&type=chunk) - The company's primary funding sources are warehouse repurchase facilities, securitized debt, corporate debt, and equity. From May 2011 through September 2023, the company has completed thirty securitizations, issuing **$6.2 billion** in securities[251](index=251&type=chunk)[262](index=262&type=chunk) - The company has a five-year **$215.0 million** syndicated corporate term loan with a fixed rate of **7.125%**, maturing in March 2027[266](index=266&type=chunk)[269](index=269&type=chunk) - The company maintains an at-the-market (ATM) equity offering program. During Q3 2023, **27,529** shares were sold for net proceeds of **$327.2 thousand**[267](index=267&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, which affects both income from assets and expenses on liabilities. To manage this risk, the company utilizes financial instruments, specifically forward starting payer interest rate swaps. As of September 30, 2023, it had swaps with a notional amount of $155.0 million to hedge against changes in the SOFR benchmark for a forecasted debt issuance - The company's main market risk is interest rate volatility, which impacts net interest income and the fair value of its assets and liabilities[275](index=275&type=chunk) - To mitigate interest rate risk, the company uses derivative instruments. As of September 30, 2023, it held forward starting payer interest rate swaps with a total notional value of **$155.0 million** to hedge cash flows on a forecasted debt issuance[275](index=275&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2023. They concluded that these controls were effective at a reasonable assurance level. There were no material changes to the company's internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[277](index=277&type=chunk) - No material changes were made to the company's internal control over financial reporting during the third quarter of 2023[278](index=278&type=chunk) [Part II. Other Information](index=62&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business. Management does not believe that the final outcome of any currently pending matters will have a material adverse effect on the company's financial condition or results of operations - The company is party to various legal proceedings in the normal course of business but does not expect them to have a material adverse effect on its financial condition or operations[280](index=280&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the three months ended September 30, 2023, Velocity Financial, Inc. did not make any purchases of its own common stock - The company made no purchases of its common stock during the three months ended September 30, 2023[282](index=282&type=chunk)

Velocity Financial, Inc. (NYSE:VEL) Q2 2023 Earnings Conference Call August 3, 2023 5:00 PM ET Company Participants Chris Oltmann – Treasurer Chris Farrar – President and Chief Executive Officer Mark Szczepaniak – Chief Financial Officer Conference Call Participants Steve DeLaney – JMP Securities Stephen Laws – Raymond James Operator Good afternoon and welcome to the Velocity Financial Second Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note th ...

Earnings - Net income was $122 million, with diluted earnings per share (EPS) of $036, compared to $106 million and $031 per share for 2Q22[6] - Core net income reached $129 million, with core diluted EPS of $038, compared to $106 million and $031 per share for 2Q22[7] - Net revenue grew by 68% Q/Q, while operating expense growth was essentially flat Q/Q[9] - The W A portfolio yield reached 824% for 2Q23, a 24 bps increase from 797% for 2Q22[10] Production & Loan Portfolio - Loan production in 2Q23 totaled $2586 million in UPB, a decrease of 419% from $4454 million in UPB for 2Q22[11] - The total loan portfolio was $37 billion in UPB as of June 30, 2023, an increase of 204% from June 30, 2022[13] - NPLs were 100% of Held for Investment (HFI) as of June 30, 2023, up from 82% as of June 30, 2022 Realized 30% gains on NPL UPB resolved in 2Q23[14] Financing & Capital - The company completed the VCC 2023-1R (Re-REMIC) securitization totaling $648 million of non –mark to market securities issued, resulting in $480 million in additional liquidity[15] - The company completed the VCC 2023-2 securitization totaling $2022 million of securities issued, comprised of long-term business-purpose loans[17] - Liquidity was $720 million as of June 30, 2023[18] - Total available warehouse line capacity was $5730 million as of June 30, 2023[19]

PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Velocity Financial, Inc. as of June 30, 2023, and for the three and six-month periods then ended [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets show an increase in total assets to $3.95 billion as of June 30, 2023, from $3.75 billion at December 31, 2022, driven by a rise in total loans, net, to $3.76 billion, with total liabilities increasing to $3.55 billion and total equity growing to $405.2 million from $380.5 million Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $33,987 | $45,248 | | Total loans, net | $3,763,270 | $3,548,485 | | Total assets | $3,951,145 | $3,748,975 | | **Liabilities** | | | | Securitized debt, net | $2,622,547 | $2,736,290 | | Securitized debt, at fair value | $381,799 | $— | | Warehouse and repurchase facilities, net | $235,749 | $330,814 | | Total liabilities | $3,545,903 | $3,368,475 | | **Equity** | | | | Total equity | $405,242 | $380,500 | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended June 30, 2023, net income attributable to Velocity Financial, Inc. was $12.2 million, or $0.36 per diluted share, compared to $10.6 million, or $0.31 per diluted share, for the same period in 2022, with net income rising to $22.8 million from $13.8 million year-over-year for the six-month period Consolidated Statements of Income Highlights ($ in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $25,307 | $26,309 | $49,660 | $37,662 | | Total other operating income | $14,037 | $3,592 | $26,878 | $9,873 | | Total operating expenses | $22,222 | $14,832 | $44,024 | $27,715 | | Net income attributable to Velocity Financial, Inc. | $12,183 | $10,645 | $22,832 | $13,766 | | Diluted EPS | $0.36 | $0.31 | $0.67 | $0.40 | [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity increased from $380.5 million at December 31, 2022, to $405.2 million at June 30, 2023, primarily driven by net income of $22.8 million for the six-month period, along with stock-based compensation and common stock issuances, partially offset by treasury stock purchases and distributions to non-controlling interests Changes in Stockholders' Equity (Six Months Ended June 30, 2023, $ in thousands) | Description | Amount | | :--- | :--- | | Balance – December 31, 2022 | $380,500 | | Net income | $10,736 (Q1) + $12,222 (Q2) | | Purchase of treasury stock, at cost | ($836) | | Stock-based compensation & issuances | $1,000 + $875 + $1,025 | | Distributions to non-controlling interest | ($160) + ($120) | | **Balance – June 30, 2023** | **$405,242** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, the company experienced a net decrease in cash, cash equivalents, and restricted cash of $11.3 million, with net cash provided by operating activities at $32.4 million, net cash used in investing activities at $212.6 million, and net cash provided by financing activities at $168.9 million Consolidated Cash Flow Summary (Six Months Ended, $ in thousands) | Activity | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,429 | $13,100 | | Net cash used in investing activities | ($212,609) | ($507,879) | | Net cash provided by financing activities | $168,897 | $502,642 | | **Net (decrease) increase in cash** | **($11,283)** | **$7,863** | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail the company's organization, accounting policies, and financial instrument specifics, including the adoption of fair value option (FVO) accounting for securitized debt issued after January 1, 2023, and for all originated mortgage loans since October 1, 2022, with a subsequent event noting a securitization of $85.9 million in August 2023 - The company originates and acquires residential and commercial investor real estate loans and primarily finances them through securitizations, having acquired an **80% interest** in Century Health & Housing Capital in December 2021[24](index=24&type=chunk)[26](index=26&type=chunk) - Effective January 1, 2023, the company elected to apply the fair value option (FVO) to securitized debt issued when the underlying collateral is also carried at fair value[31](index=31&type=chunk)[35](index=35&type=chunk) Loan Portfolio Summary (UPB, $ in thousands) | Status | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Loans Held for Investment, Net | $3,057,940 | $3,272,390 | | Total Loans Held for Investment, at Fair Value | $705,330 | $276,095 | | **Total Loans, Net** | **$3,763,270** | **$3,548,485** | - As of June 30, 2023, total nonaccrual loans (amortized cost basis) were **$354.8 million**, an increase from **$295.3 million** at year-end 2022[43](index=43&type=chunk)[44](index=44&type=chunk) Securitized Debt Summary ($ in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Securitized debt, net | $2,622,547 | $2,736,290 | | Securitized debt, at fair value | $381,799 | $— | | **Total Securitized Debt** | **$3,004,346** | **$2,736,290** | - In August 2023, the company completed a securitization of **$85.9 million** of investor real estate loans, which will be accounted for as a secured borrowing[116](index=116&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting a total loan portfolio of $3.7 billion UPB as of June 30, 2023, with key factors including the election of Fair Value Option (FVO) accounting, Q2 2023 loan originations of $258.6 million, and an increase in nonperforming loans to 10.0% of the portfolio - The company is a vertically integrated real estate finance company that originates and manages investor loans secured by 1-4 unit residential rental and commercial properties, with a total portfolio of **$3.7 billion UPB** as of June 30, 2023[120](index=120&type=chunk)[122](index=122&type=chunk) - The election to apply Fair Value Option (FVO) accounting to new loans (since Oct 2022) and certain securitized debt (since Jan 2023) significantly affects the comparability of financial results, as it changes how income and expenses are recognized[127](index=127&type=chunk)[128](index=128&type=chunk) Key Portfolio Statistics (UPB) | Metric | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total loans | $3,719,825 thousand | $3,090,258 thousand | | Weighted average coupon | 8.4% | 7.5% | | Nonperforming loans (% of total) | 10.0% | 8.2% | - Loan originations for Q2 2023 were **$258.6 million**, a decrease from **$445.4 million** in Q2 2022, which management attributes to increased interest rates and a strategic reduction in originations[149](index=149&type=chunk) - Total liquidity plus available warehouse capacity was **$648.0 million** as of June 30, 2023, consisting of cash, available borrowings, and warehouse/revolving credit line capacity[236](index=236&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable for the current reporting period - This section was intentionally omitted as it is not applicable[258](index=258&type=chunk) [Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[260](index=260&type=chunk) - No material changes were made to the company's internal control over financial reporting during the quarter[261](index=261&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, but management does not believe that the final disposition of any currently pending matters will have a material adverse effect on the company's financial condition or results of operations - The company states that it does not expect any pending legal proceedings to have a material adverse effect on its business or financial results[263](index=263&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) This section was intentionally omitted pursuant to the reduced disclosure requirements for a smaller reporting company - Risk factors are intentionally omitted due to the company's status as a smaller reporting company[264](index=264&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company made no purchases of its common stock during the three months ended June 30, 2023 - No common stock purchases were made by the company during the three months ended June 30, 2023[265](index=265&type=chunk) [Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section is not applicable - This section is not applicable[266](index=266&type=chunk) [Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable - This section is not applicable[267](index=267&type=chunk) [Other Information](index=60&type=section&id=Item%205.%20Other%20Information) During the three months ended June 30, 2023, none of the company's officers or directors had any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements in effect - No officers or directors had any Rule 10b5-1 trading arrangements in effect during the second quarter of 2023[268](index=268&type=chunk) [Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of or incorporated by reference into the Quarterly Report on Form 10-Q, including certificates of incorporation, bylaws, various agreements, and officer certifications - A list of exhibits filed with the report is provided, including corporate governance documents, agreements, and required certifications under the Sarbanes-Oxley Act[270](index=270&type=chunk)[271](index=271&type=chunk)[273](index=273&type=chunk)