Velocity Financial, Inc. Reports Second Quarter 2024 Results

Second Quarter Highlights:

Net income of $14.7 million, up 21.3% from $12.2 million for 2Q23. Diluted EPS of $0.42, up $0.06 from $0.36 per share for 2Q23
Core net income(1) of $15.9 million, an increase of 23.1% from $12.9 million for 2Q23. Core diluted EPS(1) of $0.45, up from $0.38 per share for 2Q23
Loan production of $422.2 million in UPB, an 11.5% and 63.2% increase from 1Q24 and 2Q23, respectively
Nonperforming loans as a percentage of Held for Investment (HFI) loans was 10.5%, up slightly from 10.1% as of March 31, 2024, and 10.0% as of June 30, 2023, respectively
Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $80.7 million in UPB
- Realized gains of $1.0 million or 101.3% of UPB resolved
Portfolio net interest margin (NIM) of 3.54%, an increase of 19 bps Q/Q and an increase of 30 bps from 3.24% for 2Q23
Completed the VCC 2024-2 and VCC 2024-3 securitizations totaling $286.2 million and 204.6 million, respectively, of securities issued
- Resulted in a $0.06 per share EPS reduction from additional issuance expenses from a second securitization during the quarter
Century Health & Housing Capital, LLC acquired $3.6 million in Mortgage Servicing Rights (MSRs) related to $227.6 million in UPB of commercial GNMA mortgages
Liquidity(2) of $83.8 million and total available warehouse line capacity of $646.5 million as of June 30, 2024
Recourse debt to equity ratio of 1.1x
GAAP Book value per common share of $14.52 as of June 30, 2024, a 15.5% increase from $12.57 as of June 30, 2023

Velocity Financial, Inc. (NYSE: VEL) (Velocity or the Company), a leader in business purpose loans, reported net income of $14.7 million and core net income of $15.9 million for 2Q24, compared to net income of $12.2 million and core net income of $12.9 million for 2Q23. Earnings and core earnings per diluted share were $0.42 and $0.45, respectively, for 2Q24, compared to $0.36 and $0.38 for 2Q23.

(1) Core income and Core EPS are non-GAAP measures that exclude nonrecurring and unusual activities from GAAP net income.

(2) Liquidity includes unrestricted cash reserves of $47.4 million and available liquidity in unfinanced loans of $36.4 million.

“Velocity continued to build on its strong momentum in the second quarter, delivering continued production volume and earnings growth,” said Chris Farrar, President and CEO. “During the quarter, we expanded our loan production team and realized the benefits of earlier investments through higher production volume and market share growth, which has been particularly robust in our traditional commercial product. We also saw continued strong investor demand for Velocity’s asset-backed securities, evidenced by improving economics on the $490.8 million of new issuance during the quarter. Our discipline in maintaining higher loan coupons while increasing production volume has driven our strong earnings results through stable net interest margin growth and solid net fair market value gains. Our team has positioned Velocity for continued success, and we remain on track to achieve our year-end 2024 portfolio target of $5 billion in UPB.”

Second Quarter Operating Results

KEY PERFORMANCE INDICATORS ($ in thousands)

2Q 2024

2Q 2023

$ Variance % Variance Pretax income

19,873

16,824

3,049

Net income

14,711

12,183

2,527

Diluted earnings per share

0.42

0.36

Core Pretax income

21,507

17,811

3,696

Core net income(a)

15,918

12,928

2,990

Core diluted earnings per share(a)

0.45

0.38

0.07

Pretax return on equity

16.95

16.81

n.a.

Core pretax return on equity(a)

18.34

17.79

n.a.

Net interest margin - portfolio

3.54

3.24

n.a.

Net interest margin - total company

2.98

2.78

n.a.

Average common equity

469,071

400,441

68,630

(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 2Q24 was $14.7 million, compared to $12.2 million for 2Q23
- Driven by higher production volume, net interest income growth, and continued strong loan resolution activity
Core net income(1) was $15.9 million, compared to $12.9 million for 2Q23
- 2Q24 core adjustments included incentive compensation expenses and costs related to the Company’s employee stock purchase plan (ESPP)
Portfolio NIM for 2Q24 was 3.54%, compared to 3.24% for 2Q23, a 9.4% Y/Y increase driven by HFI portfolio growth and average loan coupons of more than 11.0% on recent loan production

TOTAL LOAN PORTFOLIO ($ of UPB in millions)

2Q 2024

2Q 2023

$ Variance % Variance Held for Investment Investor 1-4 Rental

2,425

2,016

409

Mixed Use

510

452

Multi-Family

336

304

Retail

385

322

Warehouse

288

235

All Other

535

391

144

Total

4,480

3,720

760

Held for Sale Investor 1-4 Rental

n.m. Multi-Family

(17

)

n.m. Warehouse

n.m. All Other

n.m. Total Managed Loan Portfolio UPB

4,480

3,720

760

Key loan portfolio metrics: Total loan count

11,582

9,541

Weighted average loan to value

67.4

68.2

Weighted average coupon

9.25

8.40

Weighted average total portfolio yield

8.98

8.24

Weighted average portfolio debt cost

6.01

5.58

n.m. - non meaningful

Discussion of results:

Velocity’s total loan portfolio was $4.5 billion in UPB as of June 30, 2024, an increase of 20.4% from $3.7 billion in UPB as of June 30, 2023
- Primarily driven by 20.3% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and 36.9% Y/Y growth in loans collateralized by “Other” commercial properties
- Loan prepayments totaled $165.8 million in UPB, an increase from $142.0 million in UPB for 1Q24, and $105.8 million in UPB for 2Q23
The UPB of Fair Value Option (“FVO”) loans was $1.88 billion, or 42.0% of total HFI loans, as of June 30, 2024, an increase from $688.1 million in UPB or 18.5%, as of June 30, 2023
The weighted average portfolio loan-to-value ratio was 67.4% as of June 30, 2024, down from 68.2% as of June 30, 2023, and consistent with the five-quarter trailing average of 67.8%
The weighted average total portfolio yield was 8.98% as of June 30, 2024, an increase of 74 bps from 2Q23, driven by an 85 bps increase in weighted average loan coupons from June 30, 2023
Portfolio-related debt cost as of June 30, 2024, was 6.01%, an increase of 43 bps from June 30, 2023, driven by higher interest rates on warehouse financing and recent securitizations

LOAN PRODUCTION VOLUMES ($ in millions)

2Q 2024

2Q 2023

$ Variance % Variance Investor 1-4 Rental

184

163

Traditional Commercial

175

101

138

Short-term loans

187

Total loan production

422

259

164

Acquisitions

Discussion of results:

Loan production for 2Q24 totaled $422.2 million in UPB, a 63.2% increase from $258.6 million in UPB for 2Q23
- Driven by continued strong demand for Traditional Commercial financing. On a Y/Y basis, traditional commercial production volume rose 137.6%.
The weighted average coupon (WAC) on 2Q24 HFI loan production was 11.0%, essentially unchanged from 2Q23

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS ($ in thousands)

2Q 2024

2Q 2023

$ Variance % Variance Nonperforming loans(a)

470,649

371,154

99,495

Average Nonperforming Loans (b)

319,342

328,897

(9,555

)

Average Loans HFI

4,345,962

3,634,093.1

711,869

Nonperforming loans % total HFI Loans

10.5

10.0

n.a.

Total Charge Offs

245

717

(472

)

(66

Charge-offs as a % of Avg. Nonperforming Loans(c)

0.31

0.87

n.a.

(65

Loan Loss Reserve

5,240

4,626

614

(a) Total HFI nonperforming/nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual. (b) Reflects monthly average nonperforming loans held for investment, excluding FVO loans, during the period. (c) 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 $470.6 million in UPB as of June 30, 2024, or 10.5% of loans HFI, compared to $371.2 million and 10.0% as of June 30, 2023
- Driven by the growth of loans in foreclosure
Charge-offs for 2Q24 totaled $244.6 thousand, compared to $716.6 thousand for 2Q23
- The trailing five-quarter charge-off average was $461.0 thousand
The loan loss reserve totaled $5.2 million as of June 30, 2024, a 13.3% increase from $4.6 million as of June 30, 2023
- Primarily resulting from an increase in the individually assessed component of the CECL reserve
- Loans carried at fair value or held for sale are not subject to a CECL reserve

NET REVENUES ($ in thousands)

2Q 2024

2Q 2023

$ Variance % Variance Interest income

97,760

74,897

22,863

Interest expense - portfolio related

(59,188

)

(45,451

)

(13,737

)

Net Interest Income - portfolio related

38,572

29,446

9,126

Interest expense - corporate debt

(6,155

)

(4,139

)

(2,016

)

Loan loss provision

(218

)

(298

)

(27

Net interest income after provision for loan losses

32,199

25,009

7,190

Gain on disposition of loans

3,168

1,237

1,931

156

Unrealized (loss) gain on fair value loans

17,123

2,413

14,710

610

Unrealized gain (loss) on fair value of securitized debt

(4,643

)

5,560

(10,203

)

(184

Unrealized gain/(loss) on mortgage servicing rights

(373

)

302

(675

)

(223

Origination income(a)

5,072

2,735

2,337

Bank interest income

1,731

1,189

542

Other operating income (expense)

483

601

(118

)

(20

Total Other operating income (expense)

22,561

14,037

8,524

Net Revenue

54,760

38,749

16,011

(a) 2Q23 includes a reclass of production fees to expenses

Discussion of results:

Net Revenue for 2Q24 was $54.8 million, an increase of 41.3% compared to $38.7 million for 2Q23
- Driven by increased production volume and disciplined focus on maintaining spreads with 11.0% rates on loan originations since 2Q23
Total net interest income for 2Q24, including corporate debt interest expense and loan loss provision, was $32.2 million, a 28.7% increase from $25.0 million for 2Q23
- Portfolio net Interest income was $38.6 million for 2Q24, an increase of 31.0% from 2Q23 resulting from portfolio growth and a 30bps increase in NIM
Total other operating income was $22.6 million for 2Q24, an increase from $14.0 million for 2Q23
- Net unrealized FVO gains on loans and securitized debt were $12.4 million, resulting from fair value gains on new 2Q24 loan production, partially offset by fair value losses on securitized debt
- Origination income totaled $5.1 million, resulting from fee income realized from 2Q24 new loan production
- Gain on disposition of loans totaled $3.2 million for 2Q24, driven by loans transferred to Real Estate Owned (REO)

OPERATING EXPENSES ($ in thousands)

2Q 2024

2Q 2023

$ Variance % Variance Compensation and employee benefits

16,562

10,670

5,892

Origination (income)/expense(a)

749

123

626

510

Securitization expenses

6,232

2,699

3,533

131

Rent and occupancy

617

458

159

Loan servicing

5,160

4,267

893

Professional fees

1,718

1,056

662

Real estate owned, net

1,355

1,018

337

Other expenses

2,494

1,931

563

Total operating expenses

34,887

22,222

12,665

(a) 2Q23 includes a reclass of production fees to expenses

Discussion of results:

Operating expenses totaled $34.9 million for 2Q24, an increase of 57.0% from 2Q23, primarily driven by the continued growth of our origination platform and increased securitization expenses from issuing two transactions in the quarter
- Compensation expense totaled $16.6 million, compared to $10.7 million for 2Q23
  - Primarily driven by higher commissions on increased production volume and growth of the production team
- Securitization expenses totaled $6.2 million, resulting from issuance of the VCC 2024-2 and 2024-3 securitizations during the quarter, compared to costs of $2.7 million for one securitization during 2Q23.
- Loan servicing expense totaled $5.2 million, a 20.9% increase from $4.3 million for 2Q23, driven by the growth in our portfolio
- Professional fees totaled $1.7 million, a 62.7% increase from $1.1 million for 2Q23, driven by growth in accounting and legal fees necessary to support the Company’s growth
- REO expenses totaled $1.4 million, a 33.1% increase from $1.0 million for 2Q23, driven by higher asset preservation expenses

SECURITIZATIONS ($ in thousands) Securities Balance at Balance at Trusts Issued 6/30/2024 W.A. Rate 6/30/2023 W.A. Rate 2016-1 Trust

319,809

$ 17,704

9.29%

2017-2 Trust

245,601

39,444

4.08%

51,930

3.95%

2018-1 Trust

176,816

29,170

4.09%

36,882

4.07%

2018-2 Trust

307,988

67,437

4.41%

87,984

4.51%

2019-1 Trust

235,580

69,189

4.09%

83,435

4.04%

2019-2 Trust

207,020

54,005

3.40%

76,284

3.45%

2019-3 Trust

154,419

53,431

3.32%

63,278

3.29%

2020-1 Trust

248,700

99,102

2.87%

121,074

2.86%

2020-2 Trust

96,352

40,293

4.67%

53,309

4.61%

2021-1 Trust

251,301

160,668

1.76%

183,089

1.76%

2021-2 Trust

194,918

133,508

2.02%

156,681

2.03%

2021-3 Trust

204,205

146,569

2.47%

167,652

2.46%

2021-4 Trust

319,116

223,950

3.26%

257,369

3.22%

2022-1 Trust

273,594

227,222

3.93%

246,883

3.93%

2022-2 Trust

241,388

200,677

5.06%

226,763

5.10%

2022-MC1 Trust

84,967

20,213

6.87%

39,862

6.90%

2022-3 Trust

296,323

244,398

5.73%

268,008

5.69%

2022-4 Trust

308,357

255,922

6.25%

289,929

6.25%

2022-5 Trust

188,754

147,377

7.05%

177,075

7.07%

2023-1 Trust

198,715

161,344

7.01%

189,763

7.02%

2023-1R Trust

64,833

51,383

7.61%

63,390

7.73%

2023-2 Trust

202,210

162,932

7.25%

199,864

7.17%

2023-RTL1 Trust

81,608

8.24%

2023-3 Trust

234,741

213,787

7.86%

2023-4 Trust

202,890

208,449

8.35%

2024-1 Trust

209,862

195,460

7.64%

2024-2 Trust

286,235

280,139

7.15%

2024-3 Trust

204,599

203,662

7.24%

$ 6,040,901

$ 3,771,339

5.62%

$ 3,058,208

4.72%

Discussion of results

The company completed two securitizations during 2Q24 totaling $490.8 million of securities issued
- The 2024-2 securitization was completed in April and totaled $286.2 million of securities issued with a weighted average rate of 7.15%
- The 2024-3 securitization was completed in June and totaled $204.6 million of securities issued with a weighted average rate of 7.24%
The weighted average rate on Velocity’s outstanding securitizations was 5.62% as of June 30, 2024, an increase of 90 bps from June 30, 2023

RESOLUTION ACTIVITIES LONG-TERM LOANS RESOLUTION ACTIVITY SECOND QUARTER 2024 SECOND QUARTER 2023 ($ in thousands) UPB $ Gain / (Loss) $ UPB $ Gain / (Loss) $ Paid in full

26,119

793

13,485

965

Paid current

35,292

188

19,771

280

REO sold (a)

7,859

(202

)

4,836

(382

)

Total resolutions

69,270

779

38,092

863

Resolutions as a % of nonperforming UPB

101.1

102.3

SHORT-TERM AND FORBEARANCE LOANS RESOLUTION ACTIVITY SECOND QUARTER 2024 SECOND QUARTER 2023 ($ in thousands) UPB $ Gain / (Loss) $ UPB $ Gain / (Loss) $ Paid in full

4,545

7,004

318

Paid current

2,689

3,290

REO sold

4,176

165

1,672

222

Total resolutions

11,410

259

11,966

629

Resolutions as a % of nonperforming UPB

102.3

105.3

Grand total resolutions

80,680

1,037

50,058

1,492

Grand total resolutions as a % of nonperforming UPB

101.3

103.0

Discussion of results:

NPL resolution totaled $80.7 million in UPB, realizing 101.3% of UPB resolved compared to $50.1 million in UPB and realization of 103.0% of UPB resolved for 2Q23
2Q24 NPL resolutions represented 18.7% of nonperforming loan UPB as of March 31, 2024
The UPB of loan resolutions in 2Q24 was in line with the recent five-quarter resolution average of $64.4 million in UPB, and the realization of 102.0% of UPB resolved

Velocity’s executive management team will host a conference call and webcast on August 1st, 2024, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to review 2Q24 financial results.

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 after the conference call is completed.

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 August 30, 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 #8011693. 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 20 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 Israel 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 Balance Sheet

Quarter Ended 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Unaudited Unaudited Audited Unaudited Unaudited (In thousands) Assets Cash and cash equivalents

47,366

34,829

40,566

29,393

33,987

Restricted cash

32,293

24,216

21,361

17,703

16,786

Loans held for sale, net

Loans held for sale, at fair value

17,590

19,536

Loans held for investment, at fair value

1,971,683

1,649,540

1,306,072

951,990

705,330

Loans held for investment

2,619,619

2,727,518

2,828,123

2,945,840

3,057,940

Total loans, net

4,591,302

4,377,058

4,151,785

3,917,366

3,763,270

Accrued interest receivables

31,124

29,374

27,028

24,756

22,602

Receivables due from servicers

82,359

87,523

85,077

70,139

63,896

Other receivables

6,566

2,113

8,763

236

1,306

Real estate owned, net

50,757

46,280

44,268

29,299

20,388

Property and equipment, net

1,912

2,013

2,785

2,861

3,023

Deferred tax asset

1,144

1,580

2,339

705

1,878

Mortgage Servicing Rights, at fair value

12,229

9,022

8,578

9,786

9,445

Derivative assets

1,967

1,261

Goodwill

6,775

Other assets

9,566

5,468

5,248

7,028

7,789

Total Assets

4,873,393

4,628,218

4,404,573

4,117,308

3,951,145

Liabilities and members' equity Accounts payable and accrued expenses

138,032

123,988

121,969

97,869

95,344

Secured financing, net

283,909

283,813

211,083

210,774

210,464

Securitized debt, net

2,228,941

2,329,906

2,418,811

2,504,334

2,622,547

Securitized debt, at fair value

1,509,952

1,073,843

877,417

669,139

381,799

Warehouse & repurchase facilities

237,437

360,216

334,755

215,176

235,749

Derivative liability

374

3,665

Total Liabilities

4,398,646

4,171,766

3,967,700

3,697,292

3,545,903

Stockholders' Equity Stockholders' equity

471,323

452,941

433,444

416,398

401,707

Noncontrolling interest in subsidiary

3,424

3,511

3,429

3,618

3,535

Total equity

474,747

456,452

436,873

420,016

405,242

Total Liabilities and members' equity

4,873,393

4,628,218

4,404,573

4,117,308

3,951,145

Book value per share

14.52

14.01

13.49

13.00

12.57

Shares outstanding

32,701(1)

32,574(2)

32,395(3)

32,314(4)

32,239(5)

(1)

Based on 32,701,185 common shares outstanding as of June 30, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 397,450.

(2)

Based on 32,574,498 common shares outstanding as of March 31, 2024, and excludes unvested shares of common stock authorized for incentive compensation totaling 411,296.

(3)

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.

(4)

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.

(5)

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.

Velocity Financial, Inc.

Consolidated Statements of Income (Quarters)

Quarter Ended ($ in thousands) 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Unaudited Unaudited Unaudited Unaudited Unaudited Revenues Interest income

97,760

90,529

86,269

79,088

74,897

Interest expense - portfolio related

59,188

55,675

51,405

47,583

45,451

Net interest income - portfolio related

38,572

34,854

34,864

31,505

29,446

Interest expense - corporate debt

6,155

5,380

4,140

4,138

4,139

Net interest income

32,417

29,474

30,724

27,367

25,307

Provision for loan losses

218

1,002

827

154

298

Net interest income after provision for loan losses

32,199

28,472

29,897

27,213

25,009

Other operating income Gain on disposition of loans

3,168

1,699

1,482

3,606

1,237

Unrealized gain (loss) on fair value loans

17,123

18,925

39,367

(1,284

)

2,413

Unrealized gain (loss) on fair value securitized debt

(4,643

)

(2,318

)

(24,085

)

9,692

5,560

Unrealized gain/(loss) on mortgage servicing rights

(373

)

444

(1,208

)

341

302

Origination income

5,072

4,986

3,981

3,323

2,735

Bank interest income

1,731

1,631

1,716

1,342

1,189

Other income (expense)

483

408

418

340

601

Total other operating income

22,561

25,775

21,670

17,360

14,037

Net revenue

54,760

54,247

51,567

44,573

39,047

Operating expenses Compensation and employee benefits

16,562

15,357

15,143

12,523

10,670

Origination expenses

749

646

173

273

123

Securitizations expenses

6,232

2,874

2,709

4,930

2,699

Rent and occupancy

617

498

551

472

458

Loan servicing

5,160

4,824

4,636

4,901

4,267

Professional fees

1,718

2,115

1,733

854

1,056

Real estate owned, net

1,355

2,455

2,068

1,239

1,018

Other operating expenses

2,494

2,242

2,248

2,142

1,931

Total operating expenses

34,887

31,011

29,260

27,334

22,222

Income before income taxes

19,873

23,236

22,307

17,239

16,824

Income tax expense

5,162

5,903

5,141

5,070

4,602

Net income

14,711

17,333

17,166

12,169

12,222

Net income attributable to noncontrolling interest

(67

)

(189

)

Net income attributable to Velocity Financial, Inc.

14,778

17,251

17,355

12,086

12,183

Less undistributed earnings attributable to participating securities

182

217

225

183

185

Net earnings attributable to common shareholders

14,596

17,034

17,130

11,903

11,998

Basic earnings (loss) per share

0.45

0.52

0.53

0.37

Diluted earnings (loss) per common share

0.42

0.49

0.50

0.35

0.36

Basic weighted average common shares outstanding

32,585

32,541

32,326

32,275

32,122

Diluted weighted average common shares outstanding

35,600

35,439

34,991

34,731

34,140

Velocity Financial, Inc.

Net Interest Margin ‒ Portfolio Related and Total Company

(Unaudited)

Quarters:

Quarter Ended June 30, 2024 Quarter Ended June 30, 2023 Interest Average Interest Average Average Income / Yield / Average Income / Yield / ($ in thousands) Balance Expense Rate(1) Balance Expense Rate(1) Loan portfolio: Loans held for sale

9,979

3,477

Loans held for investment

4,345,962

3,634,093

Total loans

4,355,942

97,760

8.98

3,637,570

74,897

8.24

Debt: Warehouse and repurchase facilities

263,029

6,116

9.30

238,027

5,910

9.93

Securitizations

3,678,478

53,072

5.77

3,020,624

39,541

5.24

Total debt - portfolio related

3,941,506

59,188

6.01

3,258,651

45,451

5.58

Corporate debt

290,000

6,155

8.49

215,000

4,139

7.70

Total debt

4,231,506

65,343

6.18

3,473,651

49,590

5.71

Net interest spread - portfolio related (2)

2.97

2.66

Net interest margin - portfolio related

3.54

3.24

Net interest spread - total company (3)

2.80

2.53

Net interest margin - total company

2.98

2.78

(1) Annualized. (2) Net interest spread — portfolio related is the difference between the rate earned on our loan portfolio and the interest rates paid on our portfolio-related debt. (3) Net interest spread — total company is the difference between the rate earned on our loan portfolio and the interest rates paid on our total debt.

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

Quarters:

Core Net Income Quarter Ended ($ in thousands) 6/30/2024 3/31/2024 12/31/2023 9/30/2023 6/30/2023 Net Income

14,778

17,251

17,355

12,086

12,183

Tax liability reduction

(1,866