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)

Financial Data and Key Metrics Changes - The company reported a portfolio yield increase of 49 basis points from Q4 2022, reflecting strong performance in the first quarter [9][25] - The weighted average coupon for new originations was 11.1%, significantly up from 6.3% in Q1 2022, indicating a strong increase in interest rates on loans [21] - The overall portfolio reached approximately $3.6 billion in UPV, representing a 25% year-over-year growth from Q1 2022 [22] Business Line Data and Key Metrics Changes - The company has strategically reduced loan production in early 2023, with Q1 originations at $217 million, but plans to increase volumes moving forward [20][11] - Non-performing loan (NPL) resolutions in Q1 amounted to nearly $39 million, with a 3.5% gain, indicating a return to historical resolution trends [24] Market Data and Key Metrics Changes - The company is experiencing increased lending opportunities due to competitors tightening credit, leading to better borrower quality [8] - The non-performing loan rate was reported at 8.7%, consistent with the previous quarter and down from 9.8% in Q1 2022 [26] Company Strategy and Development Direction - The company is focused on a disciplined growth strategy, capitalizing on the current market conditions to selectively increase loan originations [11][36] - A successful securitization transaction in April 2023 generated approximately $65 million in financing, enhancing the company's capital position [33][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic environment, highlighting a healthy demand for loans despite a slowing real estate market [11][36] - The company anticipates continued earnings and portfolio growth, supported by a disciplined credit process and strong asset resolutions [13][37] Other Important Information - The company has maintained a strong cash reserve of $45 million, with $39 million in cash and cash equivalents, ensuring ample liquidity for future operations [32] - The CECL loan loss reserve remained flat at $5 million, indicating stability in the company's risk management practices [27] Q&A Session Summary Question: Opportunities in the current environment and potential for increasing rates - Management indicated that while spreads could potentially increase, they are currently at a healthy level with ROEs well above 25% [40] Question: Future origination run rate expectations - Management suggested a target of approximately $250 million in monthly originations moving forward [41] Question: Legacy transactions and potential for securitization - Management confirmed that they are transitioning most deals to a sequential pay structure, with some legacy deals still in place that will free up capital in the future [42] Question: Impact of recent banking issues on borrower quality - Management noted an increase in the quality of borrowers as banks have become more cautious in their lending practices [45] Question: Growth opportunities in the next two years - Management expressed optimism about growth opportunities, citing strong demand for financing and a favorable market position [48]

Financial Performance - Net income was $106 million, with diluted earnings per share (EPS) at $031, compared to $31 million and $009 per share in 1Q22[6] - Core net income reached $114 million, and core diluted EPS was $033, a decrease from $124 million and $036 per share in 1Q22[6] - The weighted average portfolio yield increased by 24 bps to 800% in 1Q23, from 776% in 1Q22[6] - Book value per share as of March 31, 2023, was $1218, compared to $1189 as of December 31, 2022[9] Loan Portfolio and Production - Loan production in 1Q23 totaled $2170 million in UPB, a decrease of 627% from $5814 million in UPB for 1Q22[7, 14] - The total loan portfolio was $36 billion in UPB as of March 31, 2023, an increase of 250% from March 31, 2022[7, 17] - Nonperforming loans as a percentage of total HFI loans was 87% as of March 31, 2023, a decrease from 98% as of March 31, 2022[7, 59] Capital and Liquidity - VCC 2023-1 securitization in January totaled $1987 million of securities issued[8] - Liquidity was $453 million as of March 31, 2023, including $394 million in unrestricted cash and cash equivalents and $59 million in available liquidity in unfinanced loans[8] - Total warehouse line capacity was $8318 million as of March 31, 2023[8] Asset Resolution - Total NPL and REO resolution activities in 1Q23 totaled $387 million in UPB and realized net gains of $13 million, or 1035% of UPB resolved[54]

Loan Portfolio and Performance - As of March 31, 2023, the company's loan portfolio totaled $3.6 billion, with an average loan balance of approximately $393,000[126] - The annualized yield on the total portfolio for the three months ended March 31, 2023, was 8.00%[126] - The portfolio-related net interest margin for the same period was 3.23%, an increase from 2.84% in the previous quarter[128] - The total loans increased from $3.51 billion as of December 31, 2022, to $3.60 billion as of March 31, 2023[149] - The weighted average loan-to-value ratio at origination was 68.1% as of March 31, 2023[126] - The weighted average coupon for the loan portfolio increased to 8.15% as of March 31, 2023, from 7.95% at the end of December 2022[149] - Total loan originations for Q1 2023 were $217.0 million, a decrease of $364.4 million from $581.4 million in Q1 2022, primarily due to a strategic reduction in originations[154] - The average loan size for total loan originations in Q1 2023 was $368, with a weighted average coupon of 10.58% and a weighted average loan-to-value (LTV) of 65.0%[154] - The total loans held for investment, net, as of March 31, 2023, was $3,620.0 million, compared to $3,548.5 million as of December 31, 2022[155] - The percentage of current performing loans was 85.2% as of March 31, 2023, compared to 84.6% as of December 31, 2022[162] Nonperforming Loans and Allowance for Loan Losses - Nonperforming loans as a percentage of total loans increased to 8.62% as of March 31, 2023, compared to 8.34% at the end of December 2022[149] - Nonperforming loans amounted to $309.9 million, or 8.7% of the held for investment loan portfolio as of March 31, 2023, up from $292.8 million, or 8.3% as of December 31, 2022[163] - The allowance for loan losses as of March 31, 2023, was $5.0 million, compared to $4.9 million as of December 31, 2022, reflecting a less optimistic macroeconomic outlook[159] - The company considers various factors, including economic conditions and borrower equity, in estimating the allowance for loan losses, which is subject to change based on market conditions[160] - The average nonperforming loans held for investment were $298,703,000, with charge-offs of $484,000, resulting in a charge-off rate of 0.65%[168] - The company resolved $36.9 million of nonperforming loans during Q1 2023, compared to $34.3 million in Q1 2022, realizing net gains of $1.3 million in Q1 2023[164] Financial Performance and Income - Net income for the three months ended March 31, 2023, was $10.736 million, up from $3.231 million for the same period in 2022, reflecting a significant increase in profitability[207] - Interest income increased by $18.5 million to $70.5 million for the three months ended March 31, 2023, compared to $52.0 million for the same period in 2022, primarily due to higher portfolio balances and an increase in average loan yield from 7.76% to 8.00%[209] - The total company net interest margin increased to 2.76% for the three months ended March 31, 2023, from 1.69% for the same period in 2022[183] - Net interest income after provision for loan losses was $23.717 million for the three months ended March 31, 2023, compared to $10.623 million for the same period in 2022[207] - Total operating expenses for the three months ended March 31, 2023, were $21.518 million, compared to $12.250 million for the same period in 2022, indicating increased operational costs[207] - The annualized charge-off rate over the average loans held for investment remained low at 0.06% for the three months ended March 31, 2023, compared to 0.00% for the previous quarter and 0.05% for the same quarter in 2022[187] Securitization and Debt - The company completed one securitization totaling $198.7 million in UPB of investor real estate loans during the quarter ended March 31, 2023[133] - The company has executed a total of twenty-six securitizations, resulting in over $5.6 billion in gross debt proceeds since May 2011[127] - The company completed twenty-six securitizations from May 2011 through March 2023, issuing $5.6 billion in principal amount of securities to third parties[245] - The total debt related to the portfolio was $3.366 billion as of March 31, 2023, compared to $2.535 billion for the same period in 2022[207] - A five-year $215,000,000 syndicated corporate debt agreement was established on March 15, 2022, with a fixed interest rate of 7.125%[249] Cash Flow and Liquidity - Total liquidity plus available warehouse capacity was $578.2 million as of March 31, 2023, consisting of $39.4 million in cash and $532.9 million in available warehouse capacity[236] - Cash used in operating activities for the three months ended March 31, 2023, was $(11,928) thousand, compared to $11,836 thousand provided in the same period of 2022[237] - The company had $299.0 million in borrowings under warehouse facilities as of March 31, 2023, with $532.9 million of available capacity[242] - The net cash provided by financing activities for the three months ended March 31, 2023, was $77,483 thousand, compared to $281,684 thousand in the same period of 2022[237] - The net change in cash, cash equivalents, and restricted cash for the three months ended March 31, 2023, was $(6,023) thousand, compared to $(138) thousand in the same period of 2022[237] Future Outlook and Strategic Plans - Forward-looking statements indicate expectations regarding loan originations and strategies for future funding and business development[256] - The company plans to use proceeds from new securities issuance primarily for repaying warehouse borrowings and originating new investor real estate loans[248] - The company does not plan to structure any securitizations as sales or utilize off-balance-sheet vehicles[248]

Financial Performance - Interest income for the year ended December 31, 2022, was $240.3 million, an increase of 32% from $182.0 million in 2021[81] - Net interest income after provision for loan losses was $82.0 million in 2022, compared to $76.3 million in 2021, reflecting a growth of 7%[81] - Net income attributable to Velocity Financial, Inc. for 2022 was $32.2 million, up from $29.2 million in 2021, reflecting an increase of 10%[81] - The company generated income before income taxes of $44.6 million and net income of $32.5 million for the year ended December 31, 2022[87] - Portfolio related net interest income increased by $16.0 million or 16.7%, from $96.6 million in 2021 to $112.6 million in 2022[119] - Net income for 2022 was $32,519 thousand, an increase from $29,224 thousand in 2021, representing an 7.8% growth[169] - Earnings per common share increased to $0.99 in 2022 from $0.90 in 2021[186] Loan Portfolio - The total loan portfolio as of December 31, 2022, amounted to $3.5 billion, with an average loan balance of approximately $395,000[85] - Total loans (UPB) rose to $3.51 billion in 2022, up from $2.59 billion in 2021, representing a growth of 35.7%[127] - Total loan originations for 2022 reached $1.76 billion, an increase of $435.6 million or 32.8% from $1.33 billion in 2021[132] - Nonperforming loans (UPB) decreased to $292.8 million, accounting for 8.34% of total loans, down from 10.56% in 2021[127] - Total loans held for investment (UPB) rose to $3,243,854,000 in 2022, up from $2,498,466,000 in 2021, indicating a growth of approximately 29.8%[139] - The weighted average loan-to-value (LTV) ratio at origination for the loan portfolio was 68.2%, with investor 1-4 loans representing 52.7% of the total unpaid principal balance (UPB)[85] - The weighted average loan-to-value ratio improved to 68.2% in 2022 from 67.7% in 2021, indicating better borrower equity[127] Expenses and Costs - Total operating expenses increased by 33.6%, or $15.0 million, to $59.7 million in 2022 from $44.7 million in 2021[198] - Compensation and employee benefits rose by 58.7% to $30.5 million in 2022, attributed to higher commission expenses from increased loan originations[199] - Interest expense related to the portfolio increased by $42.3 million, or 49.4%, to $127.7 million in 2022, primarily due to an increase in the loan portfolio[187] - Income tax expense increased to $12.0 million in 2022 from $10.6 million in 2021, with an effective tax rate of 27.2% compared to 26.6% in the previous year[204] Securitization and Debt - The company has executed 25 securitizations, issuing $5.4 billion in principal amount of securities from May 2011 through December 2022[86] - The company entered into a five-year $215.0 million syndicated corporate debt agreement on March 15, 2022, with a fixed interest rate of 7.125%[254] - Total debt for the company reached $2,956,801 thousand in 2022, up from $1,968,938 thousand in 2021, marking a 50.2% increase[161] - As of December 31, 2022, borrowings under warehouse facilities amounted to $331.7 million, with $500.1 million of available capacity remaining[232] Credit Quality - The allowance for loan losses increased to $4.9 million as of December 31, 2022, from $4.3 million in 2021, reflecting the growth in loans held for investment[134] - The allowance for credit losses increased to $4,893,000 as of December 31, 2022, from $4,262,000 in 2021, reflecting a provision for loan losses of $1,152,000[139] - The company resolved $142.2 million of nonperforming loans in 2022, with a recovery rate on resolved nonperforming UPB of 106.7%[143] - Charge-offs ratio improved to 0.02% in 2022 from 0.08% in 2021, indicating better credit quality[166] Market Conditions and Strategy - The operational and financial performance of the company is influenced by market developments, including the impact of the COVID-19 pandemic and macroeconomic conditions[96] - The investor real estate loan market remains highly competitive, impacting profitability and growth potential[121] - The company plans to expand its broker network and enhance brand awareness to drive future loan originations[119] - The transition from LIBOR to SOFR is expected to occur before June 30, 2023, with no material adverse effect anticipated on funding costs[123] Liquidity and Cash Flow - Total liquidity as of December 31, 2022, was $559.3 million, consisting of $45.2 million in cash and $500.1 million in available warehouse capacity[228] - The company generated approximately $14.5 million of net cash from operations for the year ended December 31, 2022, compared to a net cash usage of $27.3 million in the previous year[230] - Cash used in investing activities for the year ended December 31, 2022, was $908.2 million, primarily for originating held for investment loans[243] - Net cash provided by financing activities for the year ended December 31, 2022, was $874.0 million, mainly from $1.7 billion in borrowings from warehouse and repurchase facilities[246]

Velocity Financial, Inc. (NYSE:VEL) Q4 2022 Earnings Conference Call March 9, 2023 5:00 PM ET Company Participants Chris Oltmann - Treasurer and Head IR Chris Farrar - President and Chief Executive Officer Mark Szczepaniak - Chief Financial Officer Conference Call Participants Stephen Laws - Raymond James Steve Delaney - JMP Securities Arren Cyganovich - Citigroup Operator Good afternoon, everyone, and welcome to the Velocity Financial, Incorporated Q4 2022 Conference Call. [Operator Instructions] For your ...

Velocity Financial, Inc. (NYSE:VEL) Q3 2022 Earnings Conference Call November 3, 2022 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 Operator Good afternoon, and welcome to the Velocity Financial, Inc. Third Quarter 2022 Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operato ...

Investor 1-4 Mixed-Use Multi-Family Commercial > 3Q22 Results Presentation November 3, 2022 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 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _____ Commission File Number: 001-39183 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 ...

Financial Data and Key Metrics Changes - The company reported strong earnings of $10.6 million for Q2 2022, showing a healthy year-over-year increase, although slightly down from Q1 due to fewer loan sales [12][11] - Net interest income increased by almost 25% year-over-year, driven by portfolio growth and a notable NPL recovery rate of 111% [13][14] - Core diluted earnings per share for Q2 was $0.31, reflecting a 50% increase compared to $0.45 for the first six months of 2021 [32] Business Line Data and Key Metrics Changes - Loan production for the first half of 2022 exceeded $1 billion, a 110% increase compared to the same period in 2021, with Q2 production at $445 million [20][23] - The total loan portfolio grew to $3.1 billion, up 7% from Q1 and 49% year-over-year [23] - The weighted average coupon for new originations increased to 7.53%, up from 7.50% in Q1 [23] Market Data and Key Metrics Changes - The non-performing loan (NPL) rate decreased to 8.2% in Q2 2022, down from 15.3% in Q2 2021, indicating effective asset resolution strategies [33] - The company completed three securitizations in Q2, totaling $896 million for the year, with strong investor demand [37][40] Company Strategy and Development Direction - The company plans to capitalize on opportunities arising from market volatility, particularly in acquiring assets from distressed operators [10][11] - There is a focus on maintaining liquidity and managing capital deployment carefully as market conditions evolve [11][40] - The company aims to continue its unique portfolio approach to maximize shareholder returns with limited volatility [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to grow and deliver strong returns despite recent market headwinds [11] - The outlook remains positive with expectations of continued strong demand for products and plans for two more securitizations in 2022 [46][45] Other Important Information - The company increased its warehouse capacity by $100 million during the quarter, enhancing its liquidity position [41] - The charge-offs remained low, with the most recent quarter showing charge-offs under $38,000, reflecting strong asset resolutions [36] Q&A Session Summary Question: What level of production is expected in the second half of the year? - Management indicated that production levels are expected to remain consistent with Q2 levels for the next few quarters [49] Question: How have recent securitizations been pricing compared to earlier ones? - Recent securitizations are pricing wider than in 2021, with margins not as strong as before, but management feels confident about the pipeline [50] Question: What opportunities are being considered in the current market? - Management noted both asset and strategic opportunities are being explored, with potential for future product expansion [58]