Fourth Quarter 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 21.2% increase from 3Q23 and 26.8% from 4Q22
- Year-to-date 2024 loan production through February 2024 totaled $254.4 million with an 11.1% weighted average coupon (WAC)

Nonperforming loans as a percentage of Held for Investment (HFI) loans was 9.7%, a decrease from 10.1% as of September 30, 2023, and an increase from 8.3% as of December 31, 2022
Resolutions of nonperforming loans (NPL) and real estate owned (REO) totaled $70.9 million in UPB,
- Realizing gains of $1.5 million or 102.2% of UPB resolved

Portfolio net interest margin (NIM) of 3.52%, up 18 bps Q/Q and an increase of 68 bps from 2.84% for 4Q22
Completed the VCC 2023-4 securitization totaling $202.9 million of securities issued
Liquidity⁽²⁾ of $63.2 million as of December 31, 2023
Non-recourse debt to equity ratio of 1.2 times
Book value per common share of $13.49 as of December 31, 2023, an increase from $13.00 as of September 30, 2023

Full-Year 2023 Highlights:

Total loan portfolio of $4.1 billion in UPB, an increase of 16.0% from December 31, 2022
Loan production volume of $1.1 billion in unpaid principal balance (UPB), a decrease from $1.8 billion for FY 2022
Net income of $52.3 million, compared to $32.2 million for FY 2022. Diluted earnings per share (EPS) of $1.52 in 2023, compared to $0.94 per share for FY 2022
Core Net Income⁽¹⁾totaled $53.4 million in 2023, compared to $42.2 million for FY 2022. Core diluted EPS⁽¹⁾of $1.54, compared to $1.24 per share for FY 2022
Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
Portfolio NIM of 3.34%, compared to 3.64% for FY 2022
Pretax return on equity of 17.5%, an increase from 12.2% for FY 2022

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

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

Fourth Quarter Operating Results

KEY PERFORMANCE INDICATORS
($ in thousands)		4Q 2023			4Q 2022		$ Variance		% Variance
Pretax income	$	22,307		$	11,692		$	10,615	91	%
Net income	$	17,355		$	8,462		$	8,892	105	%
Diluted earnings per share	$	0.50		$	0.25		$	0.25	100	%
Core net income^(a)	$	16,161		$	9,118		$	7,043	77	%
Core diluted earnings per share^(a)	$	0.46		$	0.27		$	0.19	73	%
Pretax return on equity		20.66	%		12.37	%	n.a.		67	%
Core pretax return on equity^(a)		20.84	%		13.61	%	n.a.		53	%
Net interest margin - portfolio		3.52	%		2.84	%	n.a.		24	%
Net interest margin - total company		3.10	%		2.36	%	n.a.		31	%
Average common equity	$	431,891		$	378,007		$	53,884	14	%

^(a) Core income, core diluted earnings per share and core pretax return on equity are non-GAAP measures. Please see the reconciliation to GAAP net income at the end of this release.
n.a.- not applicable

Discussion of results:

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

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

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

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

Discussion of results:

Velocity's total loan portfolio was $4.1 billion in UPB as of December 31, 2023, an increase of 16.0% from $3.5 billion in UPB as of December 31, 2022
- Primarily driven by 20.2% Y/Y growth in loans collateralized by Investor 1-4 Rental properties and a combined 15.2% Y/Y growth in loans collateralized by Retail and Warehouse properties
- Loan prepayments totaled $118.0 million, an increase of 13.0% Q/Q and 35.7% Y/Y

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

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

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

Acquisitions	$	-	$	-

n.m. - non meaningful

Discussion of results:

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

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

HFI PORTFOLIO CREDIT PERFORMANCE INDICATORS
($ in thousands)		4Q 2023			4Q 2022		$ Variance			% Variance
Nonperforming loans^(a)	$	394,562		$	292,789		$	101,773		35	%
Average Nonperforming Loans	$	332,971		$	279,224		$	53,748		19	%
Nonperforming loans % total HFI Loans		9.7	%		8.3	%	n.a.			17	%
Total Charge Offs	$	744		$	-		$	744		n.a.
Charge-offs as a % of Avg. Nonperforming Loans^(b)		0.89	%		0.00	%	n.a.			n.a.
Loan Loss Reserve	$	4,769		$	4,893		$	(124	)	(3	)%

^(a) Nonperforming/Nonaccrual loans include loans 90+ days past due, loans in foreclosure, bankruptcy and on nonaccrual.
^(b) Reflects the annualized quarter-to-date charge-offs to average nonperforming loans for the period.
n.a.- not applicable

Discussion of results:

Nonperforming loans (NPL) totaled $394.6 million in UPB as of December 31, 2023, or 9.7% of loans HFI, compared to $279.2 million and 8.3% as of December 31, 2022
- NPLs as a percentage of HFI loans decreased 32 bps from 10.1% as of September 30, 2023, driven by portfolio growth and a significant slowdown in the pace of loans transitioning to foreclosure
- On a year-over-year basis, NPL growth was driven by the older, legacy amortized cost portfolio, and the Company's collection philosophy that places loans in foreclosure quickly for early delinquencies

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

The loan loss reserve totaled $4.8 million as of December 31, 2023, a 2.5% decrease from $4.9 million as of December 31, 2022
- Resulting from the continued run-off of the amortized cost HFI loan portfolio
- Loans carried at fair value are not subject to a CECL reserve

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

Discussion of results:

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

Total other operating income was $21.7 million for 4Q23 as compared to $10.8 million for 4Q22 driven largely by the FVO gains from 4Q23 originations
- Gain on disposition of loans totaled $1.5 million for 4Q23, primarily resulting from loans transferred to REO
- Net FVO marks on loans and securitized debt were $15.3 million as a result of new 4Q23 loan production and the decrease in Treasury rates during 4Q23
- Origination income totaled $4.0 million, resulting from fee income realized on loans originated in 4Q23

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

Discussion of results:

Operating expenses totaled $29.3 million for 4Q23, an increase of 40.7% from 4Q22, driven by higher compensation expenses from headcount growth and securitization expenses driven by impacts attributable to our fair value accounting election
- Compensation expense totaled $15.1 million, compared to $11.8 million for 4Q22
  - Compensation growth was driven by hires of sales account executives and operational staff, in addition to commissions paid on higher loan production
- Securitization expenses totaled $2.7 million, resulting from the issuance of the VCC 2023-4 securitization during the quarter. Securitization issuance costs are now expensed under fair value accounting and were deferred in 4Q22.
- Loan servicing expense totaled $4.6 million, a 42.9% increase from $3.2 million for 4Q22, driven by the increase in our portfolio balance and nonperforming loans
- REO expense increased totaled $2.1, an increase from $0.6 million for 4Q22, driven by increased valuation-related expenses

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

Discussion of results

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

RESOLUTION ACTIVITIES
LONG-TERM LOANS

RESOLUTION ACTIVITY	FOURTH QUARTER 2023					FOURTH QUARTER 2022
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	22,342	$	826		$	8,188	$	329
Paid current		36,026		206			9,648		21
REO sold (a)		1,588		140			2,404		67
Total resolutions	$	59,956	$	1,172		$	20,240	$	417

Resolutions as a % of nonperforming UPB				102.0	%				102.1	%

SHORT-TERM AND FORBEARANCE LOANS

RESOLUTION ACTIVITY	FOURTH QUARTER 2023					FOURTH QUARTER 2022
($ in thousands)	UPB $		Gain / (Loss) $			UPB $		Gain / (Loss) $
Paid in full	$	2,770	$	37		$	4,092	$	82
Paid current		7,560		13			457		-
REO sold		604		316			529		74
Total resolutions	$	10,934	$	366		$	5,078	$	156

Resolutions as a % of nonperforming UPB				103.3	%				103.1	%

Grand total resolutions	$	70,890	$	1,538		$	25,318	$	572

Grand total resolutions as a % of nonperforming UPB				102.2	%				102.3	%

Discussion of results:

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

Full-Year 2023 Operating Results

FULL-YEAR OPERATING RESULTS
($ in thousands)	FY 2023			FY 2022			$ Variance			% Variance
Investor 1-4 Rental	$	617		$	994		$	(377	)	(38	)%
Traditional Commercial		381			652			(271	)	(42	)%
Short-term loans		120			116			4		4	%

Total Loan production	$	1,118		$	1,762		$	(644	)	(37	)%

Net Interest Margin - Portfolio		3.34	%		3.64	%	n.a.			(8	)%

Average Nonperforming Loans	$	328,105		$	266,129		$	61,976		23	%

Total Net Interest Income^(a)		105,836			81,996		$	23,840		29.1	%
Total Other Income		65,910			24,320			41,590		171.0	%
Total Expenses		119,472			74,106			45,365		61.2	%

Net Income	$	52,273		$	32,211		$	20,062		62	%

Diluted EPS	$	1.52		$	0.94		$	0.57		61	%

Core Income^(b)	$	53,384		$	42,153		$	11,231		26.6	%

Core Diluted EPS^(b)	$	1.54		$	1.24		$	0.30		24.5	%

Pretax Return on Equity		17.5	%		12.2	%	n.a.			42.8	%
^(a) After provision for loan losses.
^(b) Core income is a non-GAAP measure. Please see the reconciliation to GAAP net income at the end of this release.
n.a.- not applicable

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

Discussion of results:

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

Net interest margin (NIM) was 3.34% for FY 2023, a 30 bps decrease from 3.64% for FY 2022
- Driven by higher securitization and warehouse financing costs
- Partially offset by a higher weighted average coupon on 2023 loan production of 11.1% compared to 8.0% for FY 2022

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

Net charge-off and gain/(loss) on REO activity for FY 2023 was a gain of $2.0 million, compared to a gain of $5.5 million for FY 2022
Net income totaled 52.3 million for FY 2023, a 62.3% increase from 32.2 million for FY 2022
- Net interest income (after corporate interest expense and provision for loan losses) totaled $105.8 million, a 29.1% increase from $82.0 million in FY 2022, driven by HFI portfolio growth and higher coupons on FY 2023 loan production
- Other income totaled $65.9 million, a 171.0% increase from $24.3 million in FY 2022, driven by the net impact of the Company's fair value accounting election for loan production originated after October 1, 2022, and unrealized fair value losses on securitized debt
- Expenses totaled $119.5 million, a 61.2% increase from $74.1 million in FY 2022, driven by an increase in compensation expense related to the Company's fair value accounting election and securitization costs resulting from the issuance of six VCC securitizations in 2023. Under fair value accounting, securitization costs are expensed as incurred, whereas previously they were deferred and amortized over the life of the securitization.

Core net income⁽¹⁾ totaled $53.4 million, a 26.6% increase from $42.2 million for FY 2022
- Core income adjustments totaled $1.1 million, compared to $9.9 million for FY 2022
- Core diluted EPS was $1.54 per share, a 24.5% increase from $1.24 per share for FY 2022

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

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

Webcast Information

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

Conference Call Information

To participate by phone, please dial-in 15 minutes before the start time to allow for wait times to access the conference call. The live conference call will be accessible by dialing 1-833-316-0544 in the U.S. and Canada and 1-412-317-5725 for international callers. Callers should ask to join the Velocity Financial, Inc. conference call.

A replay of the call will be available through midnight on March 14, 2024, and can be accessed by dialing 1-877-344-7529 in the U.S. and 855-669-9658 in Canada or 1-412-317-0088 internationally. The passcode for the replay is #7107943. The replay will also be available on the Investor Relations section of the Company's website under "Events and Presentations."

About Velocity Financial, Inc.

Based in Westlake Village, California, Velocity is a vertically integrated real estate finance company that primarily originates and manages business purpose loans secured by 1-4-unit residential rental and small commercial properties. Velocity originates loans nationwide across an extensive network of independent mortgage brokers built and refined over 19 years.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with United States generally accepted accounting principles (GAAP), the Company uses non-GAAP core net income and core diluted EPS, which are non-GAAP financial measures.

Non-GAAP core net income and non-GAAP core diluted EPS are non-GAAP financial measures that represent our net income (loss) and net income (loss) per diluted share, adjusted to eliminate the effect of certain costs incurred from activities that are not normal recurring operating expenses, such as COVID-stressed charges and recoveries of loan loss provision, nonrecurring debt amortization, the impact of operational measures taken to address the COVID-19 pandemic and workforce reduction costs, and costs associated with acquisitions. To calculate non-GAAP core diluted EPS, we use the weighted-average number of shares of common stock outstanding that is used to calculate net income per diluted share under GAAP.

We have included non-GAAP core net income and non-GAAP core diluted EPS because they are key measures used by our management to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that non-GAAP core net income and non-GAAP core diluted EPS provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. In addition, they provide useful measures for period-to-period comparisons of our business, as they remove the effect of certain items that we expect to be nonrecurring.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly titled measures presented by other companies.

For more information on Core Income, please refer to the section of this press release below titled "Adjusted Financial Metric Reconciliation to GAAP Net Income" at the end of this press release.

Forward-Looking Statements

Some of the statements contained in this press release may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to anticipated results, expectations, projections, plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "goal," "position," or "potential" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, or intentions.

The forward-looking statements contained in this press release reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions, and changes in circumstances that may cause actual results to differ significantly from those expressed or contemplated in any forward-looking statement. While forward-looking statements reflect our good faith projections, assumptions, and expectations, they are not guarantees of future results. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes, except as required by applicable law. Factors that could cause our results to differ materially include, but are not limited to, (1) the continued course and severity of the COVID-19 pandemic and its direct and indirect impacts, (2) general economic and real estate market conditions, including the risk of recession (3) regulatory and/or legislative changes, (4) our customers' continued interest in loans and doing business with us, (5) market conditions and investor interest in our future securitizations, and (6) the continued conflict in Ukraine and (7) changes in federal government fiscal and monetary policies.

Additional information relating to these and other factors that could cause future results to differ materially from those expressed or contemplated in any forward-looking statements can be found in the section titled ‘‘Risk Factors" in our Form 10-Q filed with the SEC on May 14, 2020, as well as other cautionary statements we make in our current and periodic filings with the SEC. Such filings are available publicly on our Investor Relations web page at www.velfinance.com.

Velocity Financial, Inc. Consolidated Statements of Financial Condition

	Quarter Ended
	12/31/2023		9/30/2023		6/30/2023		3/31/2023		12/31/2022
	Audited		Unaudited		Unaudited		Unaudited		Audited
(In thousands)
Assets
Cash and cash equivalents	$	40,566	$	29,393	$	33,987	$	39,397	$	45,248
Restricted cash		21,361		17,703		16,786		16,636		16,808
Loans held for sale, at fair value		17,590		19,536		-		18,081		-
Loans held for investment, at fair value		1,306,072		951,990		705,330		450,732		276,095
Loans held for investment		2,828,123		2,945,840		3,057,940		3,169,280		3,272,390
Total loans, net		4,151,785		3,917,366		3,763,270		3,638,093		3,548,485
Accrued interest receivables		27,028		24,756		22,602		20,931		20,463
Receivables due from servicers		85,077		70,139		63,896		64,133		65,644
Other receivables		8,763		236		1,306		2,188		1,075
Real estate owned, net		44,268		29,299		20,388		21,778		13,325
Property and equipment, net		2,785		2,861		3,023		3,209		3,356
Deferred tax asset		2,339		705		1,878		2,543		5,033
Mortgage Servicing Rights, at fair value		8,578		9,786		9,445		9,143		9,238
Derivative assets		-		1,261		-		-		-
Goodwill		6,775		6,775		6,775		6,775		6,775
Other assets		5,248		7,028		7,789		12,268		13,525
Total Assets	$	4,404,573	$	4,117,308	$	3,951,145	$	3,837,094	$	3,748,975

Liabilities and members' equity
Accounts payable and accrued expenses	$	121,969	$	97,869	$	95,344	$	84,976	$	91,525
Secured financing, net		211,083		210,774		210,464		210,155		209,846
Securitized debt, net		2,418,811		2,504,334		2,622,547		2,657,469		2,736,290
Securitized debt, at fair value		877,417		669,139		381,799		194,941		-
Warehouse & repurchase facilities		334,755		215,176		235,749		298,313		330,814
Derivative liability		3,665		-		-		-		-
Total Liabilities		3,967,700		3,697,292		3,545,903		3,445,854		3,368,475

Stockholders' Equity
Stockholders' equity		433,444		416,398		401,707		387,624		376,811
Noncontrolling interest in subsidiary		3,429		3,618		3,535		3,616		3,689
Total equity		436,873		420,016		405,242		391,240		380,500
Total Liabilities and members' equity	$	4,404,573	$	4,117,308	$	3,951,145	$	3,837,094	$	3,748,975
Book value per share	$	13.49	$	13.00	$	12.57	$	12.18	$	11.89
Shares outstanding		32,395⁽¹⁾		32,314⁽²⁾		32,239⁽³⁾		32,112⁽⁴⁾		31,996⁽⁵⁾

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

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

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

⁽⁴⁾Based on 32,111,906 common shares outstanding as of March 31, 2023, and excludes unvested shares of common stock authorized for incentive compensation totaling 490,526.

⁽⁵⁾Based on 31,955,730 common shares outstanding as of December 31, 2022, and excludes unvested shares of common stock authorized for incentive compensation totaling 494,139..

Velocity Financial, Inc. Consolidated Statements of Income (Quarters)

	Quarter Ended
($ in thousands)	12/31/2023			9/30/2023			6/30/2023		3/31/2023			12/31/2022
	Unaudited			Unaudited			Unaudited		Unaudited			Unaudited
Revenues
Interest income	$	86,269		$	79,088		$	74,897	$	70,521		$	65,632
Interest expense - portfolio related		51,405			47,583			45,451		42,029			40,854
Net interest income - portfolio related		34,864			31,505			29,446		28,492			24,778
Interest expense - corporate debt		4,140			4,138			4,139		4,139			4,139
Net interest income		30,724			27,367			25,307		24,353			20,639
Provision for loan losses		828			154			298		636			(437	)
Net interest income after provision for loan losses		29,897			27,213			25,009		23,717			21,076
Other operating income
Gain on disposition of loans		1,482			3,606			1,237		1,913			391
Unrealized gain (loss) on fair value loans		39,367			(1,284	)		2,413		7,354			7,795
Unrealized gain (loss) on fair value securitized debt		(24,085	)		9,692			5,560		(170	)		-
Origination income		3,981			3,323			2,735		2,411			3,521
Bank interest income		1,716			1,342			1,188		948			-
Other income (expense)		418			340			601		482			(288	)
Total other operating income		21,670			17,360			14,036		12,842			11,419
Net revenue		51,567			44,573			39,046		36,560			32,495

Operating expenses
Compensation and employee benefits		15,143			12,523			10,670		10,008			11,793
Origination expenses		173			273			123		(50	)		1,328
Securitizations expenses		2,709			4,930			2,699		2,584			-
Rent and occupancy		551			472			458		446			435
Loan servicing		4,636			4,901			4,267		3,828			3,244
Professional fees		1,733			854			1,056		955			1,091
Real estate owned, net		2,068			1,239			1,018		1,829			552
Other operating expenses		2,248			2,142			1,931		2,202			2,360
Total operating expenses		29,260			27,334			22,222		21,802			20,804
Income before income taxes		22,307			17,239			16,824		14,757			11,692
Income tax expense		5,141			5,070			4,602		4,021			3,465
Net income		17,166			12,169			12,222		10,736			8,227
Net income attributable to noncontrolling interest		(189	)		83			39		87			(235	)
Net income attributable to Velocity Financial, Inc.		17,355			12,086			12,183		10,649			8,462
Less undistributed earnings attributable to participating securities		225			183			185		160			127
Net earnings attributable to common shareholders	$	17,130		$	11,903		$	11,998	$	10,489		$	8,335

Basic earnings (loss) per share	$	0.53		$	0.37		$	0.37	$	0.33		$	0.26

Diluted earnings (loss) per common share	$	0.50		$	0.35		$	0.36	$	0.31		$	0.25

Basic weighted average common shares outstanding		32,326			32,275			32,122		32,098			31,923

Diluted weighted average common shares outstanding		34,991			34,731			34,140		34,052			34,063

Velocity Financial, Inc. Consolidated Statements of Income (Years)

	Year Ended
($ in thousands)	12/31/2023			12/31/2022
	Audited			Audited
Revenues
Interest income	$	310,776		$	240,343
Interest expense - portfolio related		186,468			127,723
Net interest income - portfolio related		124,308			112,620
Interest expense - corporate debt		16,556			29,472
Net interest income		107,750			83,148
Provision for loan losses		1,915			1,152
Net interest income after provision for loan losses		105,836			81,996
Other operating income
Gain on disposition of loans		8,238			7,107
Unrealized gain (loss) on fair value loans		47,850			8,265
Unrealized gain (loss) on fair value securitized debt		(9,002	)		-
Origination income		12,450			5,225
Bank interest income		5,194			-
Other income (expense)		1,840			1,637
Total other operating income		65,910			24,320
Net revenue		171,745			106,316

Operating expenses
Compensation and employee benefits		48,344			30,458
Origination expenses		518			3,985
Securitizations expenses		12,923			-
Rent and occupancy		1,927			1,748
Loan servicing		17,631			12,298
Professional fees		4,599			4,179
Real estate owned, net		6,153			(70	)
Other operating expenses		8,524			9,166
Total operating expenses		100,618			61,764
Income before income taxes		71,127			44,553
Income tax expense		18,834			12,033
Net income		52,293			32,519
Net income attributable to noncontrolling interest		19			308
Net income attributable to Velocity Financial, Inc.		52,273			32,211
Less undistributed earnings attributable to participating securities		753			491
Net earnings attributable to common shareholders	$	51,520		$	31,720

Basic earnings (loss) per share	$	1.60		$	0.99

Diluted earnings (loss) per common share	$	1.52		$	0.94

Basic weighted average common shares outstanding		32,206			31,913

Diluted weighted average common shares outstanding		34,484			34,131

Velocity Financial, Inc.

Net Interest Margin ‒ Portfolio Related and Total Company

(Unaudited)

Quarters:

	Quarter Ended December 31, 2023						Quarter Ended September 30, 2023						Quarter Ended December 31, 2022
			Interest		Average				Interest		Average				Interest		Average
	Average		Income /		Yield /		Average		Income /		Yield /		Average		Income /		Yield /
($ in thousands)	Balance		Expense		Rate⁽¹⁾		Balance		Expense		Rate⁽¹⁾		Balance		Expense		Rate⁽¹⁾
Loan portfolio:
Loans held for sale	$	14,918					$	3,170					$	64,699
Loans held for investment		3,949,642						3,770,460						3,430,296
Total loans	$	3,964,560	$	86,268	8.70	%	$	3,773,631	$	79,088	8.38	%	$	3,494,995	$	65,632	7.51	%

Debt:
Warehouse and repurchase facilities	$	255,266		6,040	9.46	%	$	192,855		4,943	10.25	%	$	286,094		5,776	8.08	%
Securitizations		3,320,467		45,365	5.46	%		3,186,756		42,640	5.35	%		2,838,315		35,078	4.94	%
Total debt - portfolio related		3,575,733		51,405	5.75	%		3,379,610		47,583	5.63	%		3,124,409		40,854	5.23	%
Corporate debt		215,000		4,138	7.70	%		215,000		4,138	7.70	%		215,000		4,139	7.70	%
Total debt	$	3,790,733	$	55,543	5.86	%	$	3,594,610	$	51,721	5.76	%	$	3,339,409	$	44,993	5.39	%

Net interest spread - portfolio related⁽²⁾					2.95	%					2.75	%					2.28	%
Net interest margin - portfolio related					3.52	%					3.34	%					2.84	%

Net interest spread - total company⁽³⁾					2.84	%					2.63	%					2.11	%
Net interest margin - total company					3.10	%					2.90	%					2.36	%

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

Years:

	Year Ended December 31, 2023						Year Ended December 31, 2022						Year Ended December 31, 2021
			Interest		Average				Interest		Average				Interest		Average
	Average		Income /		Yield /		Average		Income /		Yield /		Average		Income /		Yield /
($ in thousands)	Balance		Expense		Rate		Balance		Expense		Rate		Balance		Expense		Rate
Loan portfolio:
Loans held for sale	$	8,615					$	49,194					$	15,794
Loans held for investment		3,716,582						3,043,003						2,110,053
Total loans	$	3,725,197	$	310,775	8.34	%	$	3,092,198	$	240,343	7.77	%	$	2,125,847	$	181,968	8.56	%

Debt:
Warehouse and repurchase facilities	$	227,911		21,726	9.53	%	$	292,490		17,454	5.97	%	$	183,663		9,706	5.28	%
Securitizations		3,113,500		164,742	5.29	%		2,458,332		110,269	4.49	%		1,630,385		75,680	4.64	%
Total debt - portfolio related		3,341,411		186,468	5.58	%		2,750,822		127,723	4.64	%		1,814,048		85,386	4.71	%
Corporate debt		215,000		16,556	7.70	%		205,979		29,472	14.31	%		154,890		20,609	13.31	%
Total debt	$	3,556,411	$	203,024	5.71	%	$	2,956,801	$	157,195	5.32	%	$	1,968,938	$	105,995	5.38	%

Net interest spread - portfolio related⁽¹⁾					2.76	%					3.13	%					3.85	%
Net interest margin - portfolio related					3.34	%					3.64	%					4.54	%

Net interest spread - total company⁽²⁾					2.63	%					2.46	%					3.18	%
Net interest margin - total company					2.89	%					2.69	%					3.57	%

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

Velocity Financial, Inc.

Adjusted Financial Metric Reconciliation to GAAP Net Income

(Unaudited)

Quarters:

Core Net Income
	Quarter Ended
	12/31/2023			9/30/2023		6/30/2023		3/31/2023		12/31/2022

Net Income	$	17,355		$	12,086	$	12,183	$	10,649	$	8,462
Tax liability reduction		(1,866	)		-		-		-		-
Equity award & ESPP costs		673			832		745		728		656
Core Net Income	$	16,161		$	12,918	$	12,928	$	11,376	$	9,118

Diluted weighted average common shares outstanding		34,991			34,731		34,140		34,052		34,063
Core diluted earnings per share	$	0.46		$	0.37	$	0.38	$	0.33	$	0.27

Years:

Core Net Income
	Year Ended
	12/31/2023			12/31/2022

Net Income	$	52,273		$	32,211
Corporate debt refinancing costs		-		$	9,286
Tax liability reduction		(1,866	)		-
Equity award & ESPP costs		2,977			656
Core Net Income	$	53,384		$	42,153

Diluted weighted average common shares outstanding	$	34,484		$	34,131
Core diluted earnings per share	$	1.54		$	1.24

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