Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August~~November 1, 2023, the registrant had ~~32,764,110~~32,781,966 shares of common stock outstanding.

The following table represents the assets and liabilities of consolidated variable interest entities as follows:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022			2023		2022			2023			2022			2023		2022
Interest income	$	74,897	$	59,243		$	145,418	$	111,292		$	79,088		$	63,419		$	224,506	$	174,711
Interest expense — portfolio related		45,451		28,752			87,480		52,308			47,583			34,561			135,062		86,869
Net interest income — portfolio related		29,446		30,491			57,938		58,984			31,505			28,858			89,444		87,842
Interest expense — corporate debt		4,139		4,182			8,278		21,322			4,138			4,011			12,417		25,333
Net interest income		25,307		26,309			49,660		37,662			27,367			24,847			77,027		62,509
Provision for loan losses		298		279			933		1,009			154			580			1,088		1,589
Net interest income after provision for loan losses		25,009		26,030			48,727		36,653			27,213			24,267			75,939		60,920
Other operating income
Gain on disposition of loans		1,237		1,776			3,149		6,317			3,606			399			6,756		6,716
Unrealized gain on fair value loans		2,413		6			9,767		16
Unrealized (loss) gain on fair value loans												(1,284	)		453			8,483		469
Unrealized gain on fair value securitized debt		5,560		—			5,391		—			9,692			—			15,083		—
Origination income		2,735		554			5,145		1,187			3,323			518			8,469		1,704
Bank interest income		1,189		—			2,136		—			1,342			—			3,478		—
Other income		903		1,256			1,290		2,353			681			1,657			1,970		4,011
Total other operating income		14,037		3,592			26,878		9,873			17,360			3,027			44,239		12,900
Operating expenses
Compensation and employee benefits		10,670		6,553			20,678		11,876			12,523			6,788			33,200		18,664
Origination expenses		123		1,504			72		2,447			273			209			347		2,656
Securitization expenses		2,699		—			5,284		—			4,930			—			10,213		—
Loan servicing		4,267		3,290			8,095		5,741			4,901			3,314			12,996		9,055
Professional fees		1,056		1,062			2,011		2,423			854			664			2,865		3,087
Rent and occupancy		458		426			905		868			472			445			1,377		1,313
Real estate owned, net		1,018		(251	)		2,846		(426	)		1,239			(195	)		4,085		(621	)
Other operating expenses		1,931		2,248			4,133		4,786			2,142			2,020			6,276		6,806
Total operating expenses		22,222		14,832			44,024		27,715			27,334			13,245			71,359		40,960
Income before income taxes		16,824		14,790			31,581		18,811			17,239			14,049			48,819		32,860
Income tax expense		4,602		4,019			8,623		4,809			5,070			3,759			13,693		8,568
Net income		12,222		10,771		$	22,958	$	14,002			12,169			10,290			35,126		24,292
Net income attributable to noncontrolling interest		39		126			126		236			83			307			208		543
Net income attributable to Velocity Financial, Inc.		12,183		10,645		$	22,832	$	13,766		$	12,086		$	9,983		$	34,918	$	23,749
Less undistributed earnings attributable to unvested restricted stock awards		185		164			347		212			183			152			530		362
Net earnings attributable to common stockholders	$	11,998	$	10,481		$	22,485	$	13,554		$	11,903		$	9,831		$	34,388	$	23,387
Earnings per common share
Basic	$	0.37	$	0.33		$	0.70	$	0.42		$	0.37		$	0.31		$	1.07	$	0.73
Diluted	$	0.36	$	0.31		$	0.67	$	0.40		$	0.35		$	0.29		$	1.02	$	0.70
Weighted average common shares outstanding
Basic		32,122		31,917			32,111		31,904			32,275			31,922			32,166		31,910
Diluted		34,140		34,057			34,095		34,130			34,731			34,199			34,313		34,153

Note 6 — Loans Held for Investment and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of ~~June~~September 30, 2023, and December 31, 2022 (in thousands):


	June 30, 2023								September 30, 2023
	Loans held for investment, net			Loans held for investment, at fair value		Total loans held for investment			Loans held for investment, net			Loans held for investment, at fair value		Total loans held for investment
Unpaid principal balance	$	3,031,725		$	688,100	$	3,719,825		$	2,921,146		$	936,633	$	3,857,779
Valuation adjustments on FVO loans		—			17,230		17,230			—			15,357		15,357
Deferred loan origination costs		30,841			—		30,841			29,379			—		29,379
		3,062,566			705,330		3,767,896			2,950,525			951,990		3,902,515
Allowance for loan losses		(4,626	)		—		(4,626	)		(4,685	)		—		(4,685	)
Total loans held for investment and loans held for investment at fair value, net	$	3,057,940		$	705,330	$	3,763,270		$	2,945,840		$	951,990	$	3,897,830


	December 31, 2022
	Loans held for investment, net			Loans held for investment, at fair value		Total loans held for investment
Unpaid principal balance	$	3,243,854		$	268,632	$	3,512,486
Valuation adjustments on FVO loans		—			7,463		7,463
Deferred loan origination costs		33,429			—		33,429
		3,277,283			276,095		3,553,378
Allowance for loan losses		(4,893	)		—		(4,893	)
Total loans held for investment and loans held for investment at fair value, net	$	3,272,390		$	276,095	$	3,548,485

The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and ~~six~~nine months ended ~~June~~September 30, 2023, and the year ended December 31, 2022 ($ in thousands):


	Three Months Ended June 30, 2023								Six Months Ended June 30, 2023								Three Months Ended September 30, 2023								Nine Months Ended September 30, 2023
	UPB			%	Amortized Cost			%	UPB			%	Amortized Cost			%	UPB			%	Amortized Cost			%	UPB			%	Amortized Cost			%
Beginning balance	$	195,114			$	197,350			$	201,005			$	203,346			$	181,939			$	184,007			$	201,005			$	203,346
Foreclosures		—				—				(99	)			(99	)			(333	)			(333	)			(432	)			(433	)
Repayments		(13,175	)			(13,343	)			(18,967	)			(19,240	)			(4,560	)			(4,634	)			(23,527	)			(23,873	)
Ending balance	$	181,939			$	184,007			$	181,939			$	184,007			$	177,046			$	179,040			$	177,046			$	179,040

Performing/Accruing	$	138,419		76.1%	$	139,941		76.1%	$	138,419		76.1%	$	139,941		76.1%	$	135,719		76.7%	$	137,173		76.6%	$	135,719		76.7%	$	137,173		76.6%

Nonperforming/Nonaccrual	$	43,520		23.9%	$	44,066		23.9%	$	43,520		23.9%	$	44,066		23.9%	$	41,327		23.3%	$	41,867		23.4%	$	41,327		23.3%	$	41,867		23.4%


	December 31, 2022
	UPB			%	Amortized Cost			%
Beginning balance	$	292,429			$	295,990
Additions		—				—
Foreclosures		(3,593	)			(3,620	)
Repayments		(87,831	)			(89,024	)
Ending balance	$	201,005			$	203,346

Performing/Accruing	$	161,455		80.3%	$	163,346		80.3%

Nonperforming/Nonaccrual	$	39,550		19.7%	$	40,000		19.7%

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $~~410.5~~410.8 million in UPB of loans, which includes capitalized interest of $~~12.3~~12.6 million. As of ~~June~~September 30, 2023, $~~234.7~~239.5 million in UPB of modified loans has been paid down, which includes $~~4.7~~4.8 million of capitalized interest received. The Company has not forgiven any capitalized interest.

1012

Approximately ~~76.1~~76.7% and 80.3% of the COVID forbearance loans in UPB were performing, and ~~23.9~~23.3% and 19.7% were on nonaccrual status as of ~~June~~September 30, 2023, and December 31, 2022, respectively.

As of ~~June~~September 30, 2023, and December 31, 2022, the gross unpaid principal balances of loans held for investment pledged as collateral for the Company’s warehouse facilities and securitized debt issued were as follows (in thousands):


	June 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
The 2013 repurchase agreement	$	86,225	$	170,185	$	108,834	$	170,185
The 2021 repurchase agreement		69,728		101,024		90,033		101,024
The Bank credit agreement		42,317		39,087		34,687		39,087
The 2021 term repurchase agreement		108,840		104,594		32,300		104,594
The July 2021 term repurchase agreement		14,878		3,859		18,760		3,859
Total pledged loans	$	321,988	$	418,749	$	284,614	$	418,749

2016-1 Trust	$	35,195	$	39,720	$	—	$	39,720
2017-2 Trust		57,059		67,048		53,046		67,048
2018-1 Trust		41,983		48,139		39,417		48,139
2018-2 Trust		94,530		104,791		88,773		104,791
2019-1 Trust		94,839		104,249		91,032		104,249
2019-2 Trust		82,180		91,025		76,091		91,025
2019-3 Trust		70,193		75,618		67,745		75,618
2020-1 Trust		129,485		144,913		122,479		144,913
2020-2 Trust		75,123		81,259		72,678		81,259
2021-1 Trust		195,114		208,875		187,743		208,875
2021-2 Trust		160,867		172,144		153,896		172,144
2021-3 Trust		168,487		178,861		164,120		178,861
2021-4 Trust		264,406		275,741		253,720		275,741
2022-1 Trust		253,457		262,526		249,184		262,526
2022-2 Trust		237,924		245,339		231,470		245,339
2022-MC1 Trust		81,071		97,246		75,338		97,246
2022-3 Trust		287,694		299,638		283,716		299,638
2022-4 Trust		316,472		326,627		312,002		326,627
2022-5 Trust		242,400		251,288		236,366		251,288
2023-1 Trust		232,332		—		223,410		—
2023-2 Trust		222,551		—		218,116		—
2023-3 Trust						260,389		—
2023-RTL1 Trust						77,922		—
Total	$	3,343,362	$	3,075,047	$	3,538,653	$	3,075,047

(a)

Nonaccrual Loans

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment, excluding loans carried at fair value, that were nonperforming and on nonaccrual status as of ~~June~~September 30, 2023 and December 31, 2022. There were no loans accruing interest that were greater than 90 days past due as of ~~June~~September 30, 2023 and December 31, 2022.


	June 30, 2023											September 30, 2023
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual Loans with Allowance			Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual Loans with Allowance
	($ in thousands)											($ in thousands)
Commercial - Purchase	$	21,239	$	20,304	$	935	$	137		1.0	%	$	24,013	$	23,077	$	936	$	137		1.6	%
Commercial - Refinance		93,176		86,467		6,709		552		3.9			93,080		89,247		3,833		415		4.8
Residential 1-4 Unit - Purchase		49,826		49,826		—		—		—			40,235		40,235		—		—		-
Residential 1-4 Unit - Refinance		139,356		134,942		4,414		246		1.7			138,951		137,249		1,702		171		2.0
Short Term 1-4 Unit - Purchase		3,587		3,587		—		—		—			7,804		7,644		160		23		0.3
Short Term 1-4 Unit - Refinance		47,603		45,521		2,082		108		0.8			43,217		41,135		2,082		108		1.2
Total	$	354,787	$	340,647	$	14,140	$	1,043		7.4	%	$	347,300	$	338,587	$	8,713	$	854		9.9	%

1113


	December 31, 2022
	Total Nonaccrual		Nonaccrual with No Allowance for Loan Loss		Nonaccrual with Allowance for Loan Loss		Allowance for Loans Individually Evaluated		% of Allowance to Total Nonaccrual Loans with Allowance
	($ in thousands)
Commercial - Purchase	$	22,571	$	22,437	$	134	$	28		0.2	%
Commercial - Refinance		87,133		82,330		4,803		517		4.1
Residential 1-4 Unit - Purchase		27,984		27,516		468		118		0.9
Residential 1-4 Unit - Refinance		113,909		111,742		2,167		175		1.4
Short Term 1-4 Unit - Purchase		8,140		8,140		—		—		—
Short Term 1-4 Unit - Refinance		35,602		30,612		4,990		258		2.1
Total	$	295,339	$	282,777	$	12,562	$	1,096		8.7	%

Troubled Debt Restructuring included in nonaccrual loans:	$	—	$	—	$	—	$	25		—

The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due.

The Company will continue to evaluate the COVID-19 forbearance-granted loans on an individual basis to determine if a reserve should be established on the collectability of the accrued interest and whether any loans should be placed on nonaccrual status at a future date.

The following tables present the amortized cost basis in the loans held for investment, excluding loans held for investment at fair value, as of ~~June~~September 30, 2023 and 2022, and the amount of accrued interest receivables written off by reversing interest income by portfolio segment for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,								Three Months Ended September 30,
	2023				2022				2023				2022
	Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal
Commercial - Purchase	$	664,482	$	136	$	677,491	$	77	$	647,124	$	174	$	722,868	$	207
Commercial - Refinance		854,048		667		912,774		335		828,037		515		933,486		328
Residential 1-4 Unit - Purchase		553,269		476		529,796		61		532,033		261		630,069		93
Residential 1-4 Unit - Refinance		882,020		881		887,720		269		845,640		642		1,013,626		326
Short Term 1-4 Unit - Purchase		49,242		7		57,973		4		44,616		109		73,005		134
Short Term 1-4 Unit - Refinance		59,505		347		57,950		132		53,075		8		77,839		67
Total	$	3,062,566	$	2,514	$	3,123,704	$	878	$	2,950,525	$	1,709	$	3,450,893	$	1,155


	Six Months Ended June 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
	Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal
Commercial - Purchase	$	664,482	$	268	$	677,491	$	192	$	647,124	$	442	$	722,868	$	400
Commercial - Refinance		854,048		1,183		912,774		587		828,037		1,698		933,486		915
Residential 1-4 Unit - Purchase		553,269		773		529,796		281		532,033		1,035		630,069		374
Residential 1-4 Unit - Refinance		882,020		1,597		887,720		566		845,640		2,277		1,013,626		892
Short Term 1-4 Unit - Purchase		49,242		31		57,973		25		44,616		140		73,005		159
Short Term 1-4 Unit - Refinance		59,505		443		57,950		371		53,075		450		77,839		437
Total	$	3,062,566	$	4,295	$	3,123,704	$	2,022	$	2,950,525	$	6,042	$	3,450,893	$	3,177

The cash basis interest income recognized on nonaccrual loans was $~~8.0~~7.9 million and $~~8.7~~8.0 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively. The cash basis interest income recognized on nonaccrual loans was $22.1 million and $24.0 million for the nine months ended September 30, 2023 and 2022, respectively. No accrued interest income was recognized on nonaccrual loans for the ~~six~~nine months ended ~~June~~September 30, ~~2023.~~2023 and 2022. The average recorded investment of individually evaluated loans, computed using month-end balances, was $~~331.4~~355.3 million and $~~260.8~~252.3 million for the three months ended ~~June~~September 30, 2023 and 2022, and $~~316.9~~329.7 million and $~~271.3~~265.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified in troubled debt restructuring as of ~~June~~September 30, 2023 and 2022.

1214

(b)

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30, 2023																					Three Months Ended September 30, 2023
							Residential			Residential			Short Term			Short Term											Residential			Residential			Short Term			Short Term
	Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit						Commercial		Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit
	Purchase			Refinance			Purchase			Refinance			Purchase			Refinance			Total			Purchase		Refinance			Purchase			Refinance			Purchase			Refinance			Total
Allowance for credit losses:
Beginning Balance - April 1, 2023	$	796		$	2,060		$	468		$	1,363		$	24		$	334		$	5,045
Beginning balance - July 1, 2023																						$	732	$	2,026		$	403		$	1,264		$	59		$	142		$	4,626
Provision for loan losses		(64	)		(34	)		(65	)		(99	)		752			(192	)		298			228		(312	)		217			(1	)		(407	)		429			154
Charge-offs		—			—			—			—			(717	)		—			(717	)
Recoveries (charge-offs)																							—		—			(59	)		—			393			(429	)		(95	)
Ending balance	$	732		$	2,026		$	403		$	1,264		$	59		$	142		$	4,626		$	960	$	1,714		$	561		$	1,263		$	45		$	142		$	4,685

Allowance related to:
Loans individually evaluated	$	137		$	552		$	—		$	246		$	—		$	108		$	1,043		$	137	$	415		$	—		$	171		$	23		$	108		$	854
Loans collectively evaluated	$	595		$	1,474		$	403		$	1,018		$	59		$	34		$	3,583		$	823	$	1,299		$	561		$	1,092		$	22		$	34		$	3,831
Amortized cost related to:
Loans individually evaluated	$	21,239		$	93,176		$	49,826		$	139,356		$	3,587		$	47,603		$	354,787		$	24,013	$	93,080		$	40,235		$	138,951		$	7,804		$	43,217		$	347,300
Loans collectively evaluated	$	643,243		$	760,872		$	503,443		$	742,664		$	45,655		$	11,902		$	2,707,779		$	623,111	$	734,957		$	491,798		$	706,689		$	36,812		$	9,858		$	2,603,225


	Three Months Ended June 30, 2022																		Three Months Ended September 30, 2022
						Residential		Residential		Short Term			Short Term										Residential			Residential		Short Term		Short Term
	Commercial		Commercial			1-4 Unit		1-4 Unit		1-4 Unit			1-4 Unit						Commercial		Commercial		1-4 Unit			1-4 Unit		1-4 Unit		1-4 Unit
	Purchase		Refinance			Purchase		Refinance		Purchase			Refinance			Total			Purchase		Refinance		Purchase			Refinance		Purchase		Refinance			Total
Allowance for credit losses:
Beginning Balance - April 1, 2022	$	518	$	2,140		$	389	$	1,029	$	50		$	537		$	4,663
Beginning balance - July 1, 2022																			$	612	$	1,996	$	440		$	1,270	$	34	$	553		$	4,905
Provision for loan losses		94		(125	)		51		241		(16	)		34			279			78		66		182			227		9		18			580
Charge-offs		—		(19	)		—		—		—			(18	)		(37	)		—		—		(7	)		—		—		(148	)		(155	)
Ending balance	$	612	$	1,996		$	440	$	1,270	$	34		$	553		$	4,905		$	690	$	2,062	$	615		$	1,497	$	43	$	423		$	5,330

Allowance related to:
Loans individually evaluated	$	6	$	434		$	52	$	196	$	—		$	476		$	1,164		$	6	$	369	$	118		$	176	$	—	$	205		$	874
Loans collectively evaluated	$	606	$	1,562		$	388	$	1,074	$	34		$	77		$	3,741		$	684	$	1,693	$	497		$	1,321	$	43	$	218		$	4,456
Amortized cost related to:
Loans individually evaluated	$	14,911	$	80,442		$	22,885	$	96,649	$	2,302		$	38,013		$	255,202		$	19,033	$	81,204	$	21,731		$	91,368	$	7,076	$	35,845		$	256,257
Loans collectively evaluated	$	662,580	$	832,332		$	506,911	$	791,071	$	55,671		$	19,937		$	2,868,502		$	703,835	$	852,282	$	608,338		$	922,258	$	65,929	$	41,994		$	3,194,636


	Six Months Ended June 30, 2023																				Nine Months Ended September 30, 2023
						Residential			Residential			Short Term			Short Term											Residential			Residential			Short Term			Short Term
	Commercial		Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit						Commercial		Commercial			1-4 Unit			1-4 Unit			1-4 Unit			1-4 Unit
	Purchase		Refinance			Purchase			Refinance			Purchase			Refinance			Total			Purchase		Refinance			Purchase			Refinance			Purchase			Refinance			Total
Allowance for credit losses:
Beginning Balance - January 1, 2023	$	639	$	2,031		$	542		$	1,272		$	21		$	388		$	4,893
Beginning balance - January 1, 2023																					$	639	$	2,031		$	542		$	1,272		$	21		$	388		$	4,893
Provision for loan losses		93		74			(112	)		3			816			59			933			321		(238	)		104			2			410			489			1,088
Charge-offs		—		(79	)		(27	)		(11	)		(778	)		(305	)		(1,200	)		—		(79	)		(85	)		(11	)		(386	)		(735	)		(1,296	)
Ending balance	$	732	$	2,026		$	403		$	1,264		$	59		$	142		$	4,626		$	960	$	1,714		$	561		$	1,263		$	45		$	142		$	4,685

Allowance related to:
Loans individually evaluated	$	137	$	552		$	—		$	246		$	—		$	108		$	1,043		$	137	$	415		$	—		$	171		$	23		$	108		$	854
Loans collectively evaluated	$	595	$	1,474		$	403		$	1,018		$	59		$	34		$	3,583		$	823	$	1,299		$	561		$	1,092		$	22		$	34		$	3,831
Amortized cost related to:
Loans individually evaluated	$	21,239	$	93,176		$	49,826		$	139,356		$	3,587		$	47,603		$	354,787		$	24,013	$	93,080		$	40,235		$	138,951		$	7,804		$	43,217		$	347,300
Loans collectively evaluated	$	643,243	$	760,872		$	503,443		$	742,664		$	45,655		$	11,902		$	2,707,779		$	623,111	$	734,957		$	491,798		$	706,689		$	36,812		$	9,858		$	2,603,225

1315


	Six Months Ended June 30, 2022																				Nine Months Ended September 30, 2022
							Residential		Residential			Short Term			Short Term												Residential			Residential			Short Term		Short Term
	Commercial			Commercial			1-4 Unit		1-4 Unit			1-4 Unit			1-4 Unit						Commercial			Commercial			1-4 Unit			1-4 Unit			1-4 Unit		1-4 Unit
	Purchase			Refinance			Purchase		Refinance			Purchase			Refinance			Total			Purchase			Refinance			Purchase			Refinance			Purchase		Refinance			Total
Allowance for credit losses:
Beginning Balance - January 1, 2022	$	385		$	2,144		$	400	$	948		$	43		$	342		$	4,262
Beginning balance - January 1, 2022																					$	385		$	2,144		$	400		$	948		$	43	$	342		$	4,262
Provision for loan losses		374			(123	)		40		427			(9	)		300			1,009			452			(57	)		222			654			—		318			1,589
Charge-offs		(147	)		(25	)		—		(105	)		—			(89	)		(366	)		(147	)		(25	)		(7	)		(105	)		—		(237	)		(521	)
Ending balance	$	612		$	1,996		$	440	$	1,270		$	34		$	553		$	4,905		$	690		$	2,062		$	615		$	1,497		$	43	$	423		$	5,330

Allowance related to:
Loans individually evaluated	$	6		$	434		$	52	$	196		$	—		$	476		$	1,164		$	6		$	369		$	118		$	176		$	—	$	205		$	874
Loans collectively evaluated	$	606		$	1,562		$	388	$	1,074		$	34		$	77		$	3,741		$	684		$	1,693		$	497		$	1,321		$	43	$	218		$	4,456
Amortized cost related to:
Loans individually evaluated	$	14,911		$	80,442		$	22,885	$	96,649		$	2,302		$	38,013		$	255,202		$	19,033		$	81,204		$	21,731		$	91,368		$	7,076	$	35,845		$	256,257
Loans collectively evaluated	$	662,580		$	832,332		$	506,911	$	791,071		$	55,671		$	19,937		$	2,868,502		$	703,835		$	852,282		$	608,338		$	922,258		$	65,929	$	41,994		$	3,194,636

(c)

Credit Quality Indicator

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-off rate in relation to its nonperforming loans as a credit quality indicator. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. Past due status is based on the contractual terms of the loan. The annualized charge-off rates were ~~0.77~~0.53% and 0.27% of average nonperforming loans for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Other credit quality indicators include aging status and accrual status. The following table presents the aging status of the amortized cost basis in the loans held for investment portfolio, which include $~~184.0~~179.0 million and $203.3 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of ~~June~~September 30, 2023 and December 31, 2022, respectively (in thousands):


	30–59 days		60–89 days		90+days		Total				Total		30–59 days		60–89 days		90+days		Total				Total
June 30, 2023	past due		past due		past due(1)		past due		Current		loans
September 30, 2023													past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	961	$	2,658	$	17,620	$	21,239	$	—	$	21,239	$	399	$	1,494	$	22,120	$	24,013	$	—	$	24,013
Commercial - Refinance		4,647		7,047		81,482		93,176				93,176		3,059		2,224		87,797		93,080				93,080
Residential 1-4 Unit - Purchase		656		1,869		47,301		49,826		—		49,826		2,615		1,757		35,863		40,235		—		40,235
Residential 1-4 Unit - Refinance		2,077		1,653		135,626		139,356		—		139,356		3,002		1,884		134,065		138,951		—		138,951
Short Term 1-4 Unit - Purchase		176		—		3,411		3,587		—		3,587		—		—		7,804		7,804		—		7,804
Short Term 1-4 Unit - Refinance		—		205		47,398		47,603		—		47,603		—		—		43,217		43,217		—		43,217
Total loans individually evaluated	$	8,517	$	13,432	$	332,838	$	354,787	$	—	$	354,787	$	9,075	$	7,359	$	330,866	$	347,300	$	—	$	347,300
Loans collectively evaluated
Commercial - Purchase	$	28,861	$	7,744	$	—	$	36,605	$	606,638	$	643,243	$	19,144	$	19,751	$	—	$	38,895	$	584,216	$	623,111
Commercial - Refinance		38,895		17,841		—		56,736		704,136		760,872		45,677		19,795		—		65,472		669,485		734,957
Residential 1-4 Unit - Purchase		24,371		7,171		—		31,542		471,901		503,443		20,095		6,733		—		26,828		464,970		491,798
Residential 1-4 Unit - Refinance		40,966		21,836		—		62,802		679,862		742,664		50,670		20,588		—		71,258		635,431		706,689
Short Term 1-4 Unit - Purchase		823		3,336		—		4,159		41,496		45,655		24,077		2,080		—		26,157		10,655		36,812
Short Term 1-4 Unit - Refinance		1,082		745		—		1,827		10,075		11,902		2,004		944		—		2,948		6,910		9,858
Total loans collectively evaluated	$	134,998	$	58,673	$	—	$	193,671	$	2,514,108	$	2,707,779	$	161,667	$	69,891	$	—	$	231,558	$	2,371,667	$	2,603,225
Ending balance	$	143,515	$	72,105	$	332,838	$	548,458	$	2,514,108	$	3,062,566	$	170,742	$	77,250	$	330,866	$	578,858	$	2,371,667	$	2,950,525

1416


	30–59 days		60–89 days		90+days		Total				Total
December 31, 2022	past due		past due		past due(1)		past due		Current		loans
Loans individually evaluated
Commercial - Purchase	$	865	$	—	$	21,706	$	22,571	$	—	$	22,571
Commercial - Refinance		4,415		5,943		76,619		86,977		156		87,133
Residential 1-4 Unit - Purchase		590		592		26,802		27,984		—		27,984
Residential 1-4 Unit - Refinance		1,715		2,728		109,466		113,909		—		113,909
Short Term 1-4 Unit - Purchase		176		—		7,964		8,140		—		8,140
Short Term 1-4 Unit - Refinance		657		—		34,945		35,602		—		35,602
Total loans individually evaluated	$	8,418	$	9,263	$	277,502	$	295,183	$	156	$	295,339
Loans collectively evaluated
Commercial - Purchase	$	24,899	$	5,096	$	—	$	29,995	$	648,842	$	678,837
Commercial - Refinance		41,711		20,561		—		62,272		757,692		819,964
Residential 1-4 Unit - Purchase		22,840		13,948		—		36,788		523,661		560,449
Residential 1-4 Unit - Refinance		64,925		23,224		—		88,149		737,247		825,396
Short Term 1-4 Unit - Purchase		21,273		294		—		21,567		40,177		61,744
Short Term 1-4 Unit - Refinance		5,550		1,191		—		6,741		28,814		35,555
Total loans collectively evaluated	$	181,198	$	64,314	$	—	$	245,512	$	2,736,433	$	2,981,945
Ending balance	$	189,616	$	73,577	$	277,502	$	540,695	$	2,736,589	$	3,277,284

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year as of ~~June~~September 30, 2023 and December 31, 2022 (in thousands).


	Term Loans Amortized Cost Basis by Origination Year												Term Loans Amortized Cost Basis by Origination Year
June 30, 2023:	2022		2021		2020		2019		Pre-2019		Total
September 30, 2023:													2022		2021			2020		2019		Pre-2019		Total
Commercial - Purchase
Payment performance
Performing	$	263,561	$	236,653	$	33,956	$	51,053	$	58,020	$	643,243	$	258,084	$	230,472		$	32,582	$	46,101	$	55,872	$	623,111
Nonperforming		4,536		4,956		533		4,166		7,048		21,239		6,485		6,241			532		4,273		6,482		24,013
Total Commercial - Purchase	$	268,097	$	241,609	$	34,489	$	55,219	$	65,068	$	664,482	$	264,569	$	236,713		$	33,114	$	50,374	$	62,354	$	647,124

Commercial - Refinance
Payment performance
Performing	$	246,580	$	199,498	$	52,015	$	92,882	$	169,897	$	760,872	$	240,627	$	195,968		$	50,490	$	92,007	$	155,865	$	734,957
Nonperforming		22,102		13,323		5,139		21,205		31,407		93,176		22,342		12,363			4,614		18,171		35,590		93,080
Total Commercial - Refinance	$	268,682	$	212,821	$	57,154	$	114,087	$	201,304	$	854,048	$	262,969	$	208,331		$	55,104	$	110,178	$	191,455	$	828,037

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	224,109	$	205,756	$	9,145	$	27,854	$	36,579	$	503,443	$	217,835	$	203,026		$	9,775	$	25,710	$	35,452	$	491,798
Nonperforming		19,331		20,310		1,969		2,147		6,069		49,826		19,703		12,323			1,023		1,423		5,763		40,235
Total Residential 1-4 Unit - Purchase	$	243,440	$	226,066	$	11,114	$	30,001	$	42,648	$	553,269	$	237,538	$	215,349		$	10,798	$	27,133	$	41,215	$	532,033

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	304,498	$	260,317	$	20,897	$	72,047	$	84,905	$	742,664	$	291,195	$	248,864		$	20,577	$	67,145	$	78,908	$	706,689
Nonperforming		40,691		33,740		8,632		28,998		27,295		139,356		45,631		33,741			7,273		28,362		23,944		138,951
Total Residential 1-4 Unit - Purchase	$	345,189	$	294,057	$	29,529	$	101,045	$	112,200	$	882,020
Total Residential 1-4 Unit - Refinance													$	336,826	$	282,605		$	27,850	$	95,507	$	102,852	$	845,640

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	23,733	$	710	$	16,857	$	4,355	$	—	$	45,655	$	14,760	$	180		$	17,466	$	4,406	$	—	$	36,812
Nonperforming		2,412		—		995		180		—		3,587		6,279		530			995		—		—		7,804
Total Short Term 1-4 Unit - Purchase	$	26,145	$	710	$	17,852	$	4,535	$	—	$	49,242	$	21,039	$	710		$	18,461	$	4,406	$	—	$	44,616

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	11,902	$	—	$	—	$	—	$	—	$	11,902	$	9,858	$	—		$	—	$	—	$	—	$	9,858
Nonperforming		17,886		1,023		9,210		14,974		4,510		47,603		16,913		153			8,479		13,521		4,151		43,217
Total Short Term 1-4 Unit - Refinance	$	29,788	$	1,023	$	9,210	$	14,974	$	4,510	$	59,505	$	26,771	$	153		$	8,479	$	13,521	$	4,151	$	53,075

Total Portfolio	$	1,181,341	$	976,286	$	159,348	$	319,861	$	425,730	$	3,062,566	$	1,149,712	$	943,861		$	153,806	$	301,119	$	402,027	$	2,950,525

Gross charge-offs - quarter-ended June 30, 2023	$	—	$	717	$	—	$	—	$	—	$	717
Gross charge-offs - quarter-ended September 30, 2023													$	365	$	(270	)	$	—	$	—	$	—	$	95

Gross charge-offs - year-to-date June 30, 2023	$	11	$	743	$	—	$	446	$	—	$	1,200
Gross charge-offs - year-to-date September 30, 2023													$	376	$	473		$	—	$	447	$	—	$	1,296


	Term Loans Amortized Cost Basis by Origination Year														Term Loans Amortized Cost Basis by Origination Year
December 31, 2022	2022		2021		2020		2019		2018		Pre-2018		Total		2022		2021		2020		2019		2018		Pre-2018		Total
Commercial - Purchase
Payment performance
Performing	$	273,950	$	249,100	$	36,064	$	56,322	$	33,193	$	30,208	$	678,837	$	273,950	$	249,100	$	36,064	$	56,322	$	33,193	$	30,208	$	678,837
Nonperforming		1,274		6,959		1,579		5,809		3,205		3,745		22,571		1,274		6,959		1,579		5,809		3,205		3,745		22,571
Total Commercial - Purchase	$	275,224	$	256,059	$	37,643	$	62,131	$	36,398	$	33,953	$	701,408	$	275,224	$	256,059	$	37,643	$	62,131	$	36,398	$	33,953	$	701,408

Commercial - Refinance
Payment performance
Performing	$	263,754	$	210,898	$	55,795	$	103,633	$	93,161	$	92,723	$	819,964	$	263,754	$	210,898	$	55,795	$	103,633	$	93,161	$	92,723	$	819,964
Nonperforming		9,012		11,801		3,855		23,423		20,408		18,634		87,133		9,012		11,801		3,855		23,423		20,408		18,634		87,133
Total Commercial - Refinance	$	272,766	$	222,699	$	59,650	$	127,056	$	113,569	$	111,357	$	907,097	$	272,766	$	222,699	$	59,650	$	127,056	$	113,569	$	111,357	$	907,097

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	249,625	$	227,235	$	10,710	$	31,685	$	18,891	$	22,303	$	560,449	$	249,625	$	227,235	$	10,710	$	31,685	$	18,891	$	22,303	$	560,449
Nonperforming		7,281		10,107		2,165		2,313		1,553		4,565		27,984		7,281		10,107		2,165		2,313		1,553		4,565		27,984
Total Residential 1-4 Unit - Purchase	$	256,906	$	237,342	$	12,875	$	33,998	$	20,444	$	26,868	$	588,433	$	256,906	$	237,342	$	12,875	$	33,998	$	20,444	$	26,868	$	588,433

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	338,959	$	285,195	$	24,703	$	84,208	$	39,870	$	52,461	$	825,396	$	338,959	$	285,195	$	24,703	$	84,208	$	39,870	$	52,461	$	825,396
Nonperforming		21,391		25,023		6,907		27,746		15,834		17,008		113,909		21,391		25,023		6,907		27,746		15,834		17,008		113,909
Total Residential 1-4 Unit - Purchase	$	360,350	$	310,218	$	31,610	$	111,954	$	55,704	$	69,469	$	939,305
Total Residential 1-4 Unit - Refinance															$	360,350	$	310,218	$	31,610	$	111,954	$	55,704	$	69,469	$	939,305

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	40,967	$	944	$	15,659	$	4,174	$	—	$	—	$	61,744	$	40,967	$	944	$	15,659	$	4,174	$	—	$	—	$	61,744
Nonperforming		1,287		5,212		995		542		104		—		8,140		1,287		5,212		995		542		104		—		8,140
Total Short Term 1-4 Unit - Purchase	$	42,254	$	6,156	$	16,654	$	4,716	$	104	$	—	$	69,884	$	42,254	$	6,156	$	16,654	$	4,716	$	104	$	—	$	69,884

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	35,555	$	—	$	—	$	—	$	—	$	—	$	35,555	$	35,555	$	—	$	—	$	—	$	—	$	—	$	35,555
Nonperforming		786		1,221		10,545		18,245		4,805		—		35,602		786		1,221		10,545		18,245		4,805		—		35,602
Total Short Term 1-4 Unit - Refinance	$	36,341	$	1,221	$	10,545	$	18,245	$	4,805	$	—	$	71,157	$	36,341	$	1,221	$	10,545	$	18,245	$	4,805	$	—	$	71,157

Total Portfolio	$	1,243,841	$	1,033,695	$	168,977	$	358,100	$	231,024	$	241,647	$	3,277,284	$	1,243,841	$	1,033,695	$	168,977	$	358,100	$	231,024	$	241,647	$	3,277,284

Note 18 — Fair Value Measurements

Fair Value Determination

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

Level 3 - Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

Given the nature of some of the Company’s assets and liabilities, clearly determinable market-based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.

Below is a description of the valuation methods for the assets and liabilities recorded at fair value on either a recurring or nonrecurring basis and for estimating fair value of financial instruments not recorded at fair value for disclosure purposes. While management believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the measurement date.

Cash and Cash Equivalents and Restricted Cash

Cash and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market, a Level 1 measurement.

Loans Held for Investment, Net, and Loans Held for Investment, at Fair Value

The Company uses a third-party loan valuation model to estimate the fair value of its nonperforming mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s nonperforming mortgage loans are yield, voluntary prepayments, severity, and foreclosure frequency. The Company uses an in-house loan valuation model to estimate the fair value of its performing mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s performing mortgage loans are discount rate, constant prepayment rate, and constant default rate. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement.

Collateral Dependent or Loans Individually Evaluated

Nonaccrual loans held for investment are evaluated individually and are adjusted to the fair value of the collateral when the fair value of the collateral is below the carrying value of the loan. To the extent a loan is collateral dependent, the Company determines the allowance for credit losses based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on appraisals or broker price opinions obtained, less estimated costs to sell, a Level 3 measurement.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value, with fair value adjustments recorded on a nonrecurring basis. The Company uses a discounted cash flow model to estimate the fair value of loans held for sale, a Level 3 measurement.

Loans Held for Sale, at Fair Value

The Company has elected to account for certain loans originated with the intent to sell ~~to Ginnie Mae~~ at fair value (the FVO Loans held for sale) using FASB ASC Topic 825, Financial Instruments (ASC 825). The FVO loans held for sale are measured based a discounted cash flow model, or on the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value, including the value attributable to mortgage servicing and credit risk, and current commitments to purchase loans, a Level 2 measurement. Management identified all of these loans to be accounted for at estimated fair value at the instrument level. Changes in fair value are reflected in income as they occur.

2427

Real Estate Owned, Net (REO)

Real estate owned, net is initially recorded at the property’s estimated fair value, based on appraisals or broker price opinions obtained, less estimated costs to sell, at the acquisition date, a Level 3 measurement. From time to time, nonrecurring fair value adjustments are made to real estate owned, net based on the current updated appraised value of the property, or management’s judgment and estimation of value based on recent market trends or negotiated sales prices with potential buyers.

Mortgage Servicing Rights

The Company determined the fair values based on a third-party valuation model that calculates the present value of estimated future net servicing income, a Level 3 measurement.

Derivative Instruments

Derivative financial instruments are measured at fair value using readily observable market inputs and the overall fair value measurement is classified as Level 2.

Secured Financing, Net (Corporate Debt)

The Company determined the fair values estimate of the secured financing using the estimated cash flows discounted at an appropriate market rate, a Level 3 measurement.

Warehouse Repurchase Facilities, Net

Warehouse repurchase facilities are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities of one-year or less and interest rates that approximate market plus a spread, a Level 2 measurement.

Securitized Debt, Net, and Securitized Debt, at Fair Value

The Company obtains the fair value estimates at instrument level from a third-party broker dealer based on trader input on benchmark securities, bond structure and collateral characteristics and performance and pricing factors such as yield, spread, average life, prepayment speeds, default rate and ~~severities,~~severity, a Level 2 measurement. Significant changes in any of those inputs in isolation could result in a significant change to securitized debt’s fair value measurement.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and accrued interest payable approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

The Company does not have any off-balance sheet financial instruments.

Receivables Due From Servicers

The carrying amounts of receivables due from servicers approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

2528

Fair Value Disclosures

The following tables present information on assets and liabilities measured and recorded at fair value as of ~~June~~September 30, 2023 and December 31, 2022, by level, in the fair value hierarchy (in thousands):


	Fair value measurements using						Total at		Fair value measurements using						Total at
June 30, 2023	Level 1		Level 2		Level 3		fair value
September 30, 2023									Level 1		Level 2		Level 3		fair value
Assets:
Recurring fair value measurements:
Loans held for sale, at fair value									$	—	$	19,536	$	—	$	19,536
Loans held for investment, at fair value	$	—	$	—	$	705,330	$	705,330		—		—		951,990		951,990
Mortgage servicing rights		—		—		9,445		9,445		—		—		9,786		9,786
Derivative assets										—		1,261		—		1,261
Total recurring fair value measurements		—		—		714,775		714,775		—		20,797		961,776		982,573
Nonrecurring fair value measurements:
Real estate owned, net		—		—		20,388		20,388		—		—		29,299		29,299
Individually evaluated loans requiring specific allowance, net		—		—		13,097		13,097		—		—		7,859		7,859
Total nonrecurring fair value measurements		—		—		33,485		33,485		—		—		37,158		37,158
Total assets	$	—	$	—	$	748,260	$	748,260	$	—	$	20,797	$	998,934	$	1,019,731

Liabilities:
Recurring fair value measurements:
Securitized debt, at fair value	$	—	$	381,799	$	—	$	381,799	$	—	$	669,139	$	—	$	669,139
Total recurring fair value measurements		—		381,799		—		381,799		—		669,139		—		669,139
Total liabilities	$	—	$	381,799	$	—	$	381,799	$	—	$	669,139	$	—	$	669,139


	Fair value measurements using						Total at
December 31, 2022	Level 1		Level 2		Level 3		fair value
Assets:
Recurring fair value measurements:
Loans held for investment, at fair value	$	—	$	—	$	276,095	$	276,095
Mortgage servicing rights		—		—		9,238		9,238
Total recurring fair value measurements		—		—		285,333		285,333
Nonrecurring fair value measurements:
Real estate owned, net		—		—		13,325		13,325
Individually evaluated loans requiring specific allowance, net		—		—		11,466		11,466
Total nonrecurring fair value measurements		—		—		24,791		24,791
Total assets	$	—	$	—	$	310,124	$	310,124

The following table presents gains and losses recognized on assets measured on a nonrecurring basis for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended September 30,						Nine Months Ended September 30,
Gain (loss) on assets measured on a nonrecurring basis	2023			2022			2023			2022		2023			2022			2023			2022
Real estate held for sale, net	$	(492	)	$	(143	)	$	(1,670	)	$	93	$	(817	)	$	(369	)	$	(2,486	)	$	(276	)
Individually evaluated loans requiring specific allowance, net		(48	)		434			53			242		189			290			242			532
Total net gain (loss)	$	(540	)	$	291		$	(1,617	)	$	335
Total net (loss) gain												$	(628	)	$	(79	)	$	(2,244	)	$	256

2629

The following table presents the primary valuation techniques and unobservable inputs related to Level 3 assets that are recorded on a recurring and nonrecurring basis as of ~~June~~September 30, 2023 ($ in thousands):


	June 30, 2023						September 30, 2023
Asset category	Fair value		Primary valuation technique	Unobservable input	Range	Weighted average	Fair value		Primary valuation technique	Unobservable input	Range	Weighted average
Recurring:
Loans held for investment, at fair value	$	705,330	Discounted cash flow	Discount rate	9.5% to 11.0%	9.7%	$	951,990	Discounted cash flow	Discount rate	10.1%	10.1%
				Prepayment rate	0.0% to 50.0%	26.7%				Prepayment rate	0.7% to 30.0%	19.0%
				Default rate	0.3% to 94.9%	9.7%				Default rate	0.0% to 1.7%	0.4%
				Loss severity rate	0.0% to 24.8%	2.9%				Loss severity rate	0.0% to 15.0%	3.3%
				Recovery lag (performing loans, in months)	17	17				Recovery lag (performing loans, in months)	17	17
Mortgage servicing rights		9,445	Discounted cash flow	Discount rate	8.0%	8.0%		9,786	Discounted cash flow	Discount rate	8.0%	8.0%
				Prepayment rate	5.6% to 16.9%	6.9%				Prepayment rate	5.8% to 12.5%	6.4%
Nonrecurring:
Individually evaluated loans requiring specific allowance, net	$	13,097	Market comparables	Selling costs	8.0%	8.0%	$	7,859	Market comparables	Selling costs	8.0%	8.0%
Real estate owned, net		20,388	Market comparables	Selling costs	8.0%	8.0%		29,299	Market comparables	Selling costs	8.0%	8.0%

The following table presents the primary valuation techniques and unobservable inputs related to Level 3 assets as of December 31, 2022 ($ in thousands):

December 31, 2022

Asset category

Fair value

Primary
valuation
technique

Unobservable
input

Range

Weighted
average

Individually evaluated
loans requiring specific
allowance, net

11,466

Market comparables

Selling costs

8.0%

Real estate owned, net

13,325

Market comparables

Selling costs

8.0%

Loans held for investment,
at fair value

276,095

Discounted cash flow

Discount rate

8.35% to 9.35%

8.9%

Prepayment rate

1.0% to 30.0%

15.1%

Default rate

0.12% to 6.99%

0.6%

Loss severity rate

0.00% to 18.45%

3.5%

Mortgage servicing rights

9,238

Discounted cash flow

Discount rate

8.0% to 12.0%

8.1%

Prepayment rate

5.6% to 16.8%

6.3%

The following is a roll-forward of loans held for investment that are measured at estimated fair value on a recurring basis for the periods indicated (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022		2023			2022		2023			2022			2023			2022
Beginning balance	$	450,732		$	—	$	276,095		$	—	$	705,330		$	1,351		$	276,095		$	1,359
Originations		258,646			—		456,534			—		271,633			—			728,167			—
Loans liquidated		(13,464	)		—		(21,485	)		—		(22,527	)		(12	)		(44,012	)		(36	)
Principal paydowns		(1,764	)		—		(2,796	)		—		(2,479	)		(416	)		(5,275	)		(416	)
Total unrealized gain included in net income		3,108			—		9,767			—
Total unrealized (loss) gain included in net income												(1,872	)		3			7,895			19
Loans transferred to held for sale		—			—		(20,857	)		—		—			—			(20,857	)		—
REO transfer												(362	)		—			(362	)		—
Loans repurchased		8,072			—		8,072			—		2,267			—			10,339			—
Ending balance	$	705,330		$	—	$	705,330		$	—	$	951,990		$	926		$	951,990		$	926

2730

The following is a roll-forward of loans held for sale that are measured at estimated fair value on a recurring basis for the periods indicated (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2023			2022			2023			2022			2023		2022		2023			2022
Beginning balance	$	18,080		$	77,502		$	—		$	87,908		$	—	$	—	$	—		$	—
Originations		—			—			19,088			—			18,948		16,119		38,036			16,119
Loans liquidated		(17,385	)	$	(77,502	)		(39,945	)	$	(223,788	)		—		—		(39,945	)		—
Total unrealized loss included in net income		(695	)		—			—			—
Loans transferred from (to) held for investment		—			(390	)		20,857			135,490
Loans repurchased		—			390			—			390
Total unrealized gain included in net income														588		450		588			450
Loans transferred from held for investment														—		—		20,857			—
Ending balance	$	—		$	—		$	—		$	—		$	19,536	$	16,569	$	19,536		$	16,569

The following is a roll-forward of ~~securitized debt~~mortgage servicing rights that are measured at estimated fair value on a recurring basis for the periods indicated (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2023			2022		2023			2022		2023		2022		2023		2022
Beginning balance	$	194,941		$	—	$	—		$	—	$	9,445	$	8,438	$	9,238	$	7,152
Securitized debt additions		201,000			—		398,487			—
Securitized debt paydowns		(8,582	)		—		(11,297	)		—
Additions												—		—		250		—
Total unrealized gain included in net income		(5,560	)		—		(5,391	)		—		341		1,430		298		2,716
Ending balance	$	381,799		$	—	$	381,799		$	—	$	9,786	$	9,868	$	9,786	$	9,868

The Company estimates the fair value of certain financial instruments on a quarterly basis. These instruments are recorded at fair value through the use of a valuation allowance only if they are individually evaluated. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. As of ~~June~~September 30, 2023 and December 31, 2022, ~~the only~~ financial assets and liabilities measured at fair value orinclude loans held for investment at fair value, loans held for sale, mortgage servicing rights, derivative instruments, and securitized debt at fair value. Financial assets measured at the lower of cost or fair value ~~were~~include certain individually evaluated loans held for investment ~~loans held for sale, mortgage servicing rights,~~and REO, ~~FVO loans, and securitized debt at fair value,~~ which were measured using unobservable inputs, including appraisals and broker price opinions on the values of the underlying collateral. Individually evaluated loans requiring an allowance were carried at approximately $~~13.1~~7.9 million and $11.5 million as of ~~June~~September 30, 2023 and December 31, 2022, net of specific allowance for credit losses of approximately $~~1.0~~0.9 million and $1.1 million, respectively.

A financial instrument is cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of the Company’s financial instruments are described above.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated (in thousands):


	June 30, 2023										September 30, 2023
	Carrying								Estimated		Carrying								Estimated
Asset category	Value		Level 1		Level 2		Level 3		Fair Value		Value		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash	$	33,987	$	33,987	$	—	$	—	$	33,987	$	29,393	$	29,393	$	—	$	—	$	29,393
Restricted cash		16,786		16,786		—		—		16,786		17,703		17,703		—		—		17,703
Loans held for sale, at fair value												19,536		—		19,536		—		19,536
Loans held for investment, net		3,057,940		—		—		2,879,626		2,879,626		2,945,840		—		—		2,720,452		2,720,452
Loans held for investment, at fair value		705,330		—		—		705,330		705,330		951,990		—		—		951,990		951,990
Accrued interest receivables		22,602		22,602		—		—		22,602		24,756		24,756		—		—		24,756
Mortgage servicing rights		9,445		—		—		9,445		9,445		9,786		—		—		9,786		9,786
Derivative assets												1,261		—		1,261		—		1,261

Liabilities:
Secured financing, net	$	210,464	$	—	$	—	$	211,634	$	211,634	$	210,774	$	—	$	—	$	211,655	$	211,655
Warehouse repurchase facilities, net		235,749		—		235,749		—		235,749		215,176		—		215,176		—		215,176
Securitized debt, net		2,622,547		—		2,335,949		—		2,335,949		2,504,334		—		2,167,848		—		2,167,848
Securitized debt, at fair value		381,799		—		381,799		—		381,799		669,139		—		669,139		—		669,139
Accrued interest payable		18,068		18,068		—		—		18,068		14,627		14,627		—		—		14,627

2831


	December 31, 2022
	Carrying								Estimated
Asset category	Value		Level 1		Level 2		Level 3		Fair Value
Assets:
Cash	$	45,248	$	45,248	$	—	$	—	$	45,248
Restricted cash		16,808		16,808		—		—		16,808
Loans held for investment, net		3,272,390		—		—		3,201,850		3,201,850
Loans held for investment, at fair value		276,095		—		—		276,095		276,095
Accrued interest receivable		20,463		20,463		—		—		20,463
Mortgage servicing rights		9,238		—		—		9,238		9,238

Liabilities:
Secured financing, net	$	209,846	$	—	$	—	$	211,854	$	211,854
Warehouse repurchase facilities, net		330,814		—		330,814		—		330,814
Securitized debt net		2,736,290		—		—		2,522,010		2,522,010
Accrued interest payable		16,369		16,369		—		—		16,369

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2022, as well as the unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”).

In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of federal securities laws. In particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond are forward-looking statements. For important information regarding these forward-looking statements, please see the discussion below under the caption "Forward-Looking Statements.”

References to “the Company,” “Velocity,” “we,” “us” and “our” refer to Velocity Financial, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise.

We are a vertically integrated real estate finance company founded in 2004. We primarily originate and manage investor loans secured by 1-4 unit residential rental and commercial properties, which we refer to collectively as investor real estate loans. We originate loans nationwide across our extensive network of independent mortgage brokers which we have built and refined over the 19 years since our inception. Our objective is to be the preferred and one of the most recognized brands in our core market, particularly within our network of mortgage brokers.

We operate in a large and highly fragmented market with substantial demand for financing and limited supply of institutional financing alternatives. We have developed the highly-specialized skill set required to effectively compete in this market, which we believe has afforded us a durable business model capable of generating attractive risk-adjusted returns for our stockholders throughout various business cycles. We offer competitive pricing to our borrowers by pursuing low-cost financing strategies and by driving front-end process efficiencies through customized technology designed to control the cost of originating a loan. Furthermore, by originating loans through our efficient and scalable network of approved mortgage brokers, we are able to maintain a wide geographical presence and nimble operating infrastructure capable of reacting quickly to changing market environments.

Our primary source of revenue is interest income earned on our loan portfolio. Our typical loan is secured by a first lien on the underlying property with a personal guarantee and, based on all loans in our portfolio as of ~~June~~September 30, 2023, has an average balance of approximately $390 thousand. As of ~~June~~September 30, 2023, our loan portfolio totaled ~~$3.7~~$3.9 billion of UPB on properties in 45 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of ~~68.2%~~68.0%, of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented ~~54.2%~~54.7% of the UPB. For the three months ended ~~June~~September 30, 2023, the annualized yield on our total portfolio was ~~8.24%~~8.38%.

We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitized debt, corporate debt, and equity. The securitized debt market is our primary source of long-term financing. We have successfully executed ~~twenty-eight~~thirty securitized debt transactions, resulting in a total of over ~~$5.7~~$6.2 billion in gross debt proceeds from May 2011 through ~~June~~September 2023. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.

One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of our warehouse facilities and securitized debt and excludes our corporate debt. For the three months ended ~~June~~September 30, 2023, our annualized portfolio related net interest margin ~~was 3.24%, relatively flat~~increased to 3.34% compared to the ~~3.23%~~3.24% for the quarter ended ~~March 31,~~June 30, 2023. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for loan losses and operating expenses. For the three and ~~six~~nine months ended ~~June~~September 30, 2023, including net income attributable to noncontrolling interest, we generated pre-tax income of ~~$16.8~~$17.2 million and ~~$31.6~~$48.8 million, and net income of $12.2 million and ~~$23.0~~$35.1 million, respectively.

On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Ginnie Mae issuer/servicer that provides government-insured Federal Housing Administration (FHA) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio.

Due to a number of factors, our historical financial results may not be comparable, either from period to period, or to our financial results in future periods. We have summarized the key factors affecting the comparability of our financial results below.

We have made an election to apply the fair value option ("FVO") accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. The fair value option loans are presented on a separate line item in the consolidated balance sheet. We will not record a CECL loan loss reserve on fair value option loans.

The fair value option ("FVO") accounting to our securitized debt is on a case-by-case basis effective January 1, 2023. The fair value option securitized debt is presented on a separate line item in the consolidated balance sheet.

During the quarter ended ~~June~~September 30, 2023, we completed two securitizations, VCC ~~2023-1R~~2023-RTL1 and VCC ~~2023-2. $64.8~~2023-3. Securities of $81.6 million ~~of securities~~ were issued by VCC ~~2023-1R,~~2023-RTL1, and ~~$202.2~~$234.7 million ~~of securities~~ were issued by VCC ~~2023-2. Securities issued by~~2023-3. VCC ~~2023-1R are collateralized by retained tranches from previous~~2023-RTL1 is the Company’s first securitization of our short-term mortgage loans. The VCC ~~securitizations issued between 2019~~2023-RTL1 includes a Reinvestment Period whereby additional short term mortgage loans may be added to ~~2023. Securities issued by~~the security through January 2025. The VCC ~~2023-2 are~~2023-3 security is collateralized by long term mortgage loans.

During the quarter ended September 30, 2023, the Company began utilizing forward starting interest rate derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility with regard to future issuances of fixed-rate debt. The gains or losses on forward starting interest rate derivative instruments that are designated and qualify as cash flow hedges are reported as a component of accumulated other comprehensive income.

Our operational and financial performance will depend on certain market developments, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine war, the Israel-Gaza Conflict, a global recession, heightened stress in the real estate and corporate debt markets, recent bank failures, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

The preparation of financial statements in accordance with U.S. GAAP requires certain judgments and assumptions, based on information available at the time of preparation of the consolidated financial statements, in determining accounting estimates used in preparation of the consolidated financial statements. The following discussion addresses the accounting policies that we believe apply to us based on the nature of our operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all the decisions and assessments used to prepare our financial statements are based upon reasonable assumptions given the information available at that time.

These polices and estimates relate to the allowance for loan losses and deferred income tax assets and liabilities. Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.

Net income is the primary metric by which we assess our business performance. Accordingly, we closely monitor the primary drivers of net income which consist of the following:

Net interest income is the largest contributor to our net income and is monitored on both an absolute basis and relative to provisions for loan losses and operating expenses. We generate net interest income to the extent that the rate at which we lend in our portfolio exceeds the cost of financing our portfolio, which we primarily achieve through long-term securitized debt. Accordingly, we closely monitor the financing markets and maintain consistent dialogue with investors and financial institutions as we evaluate our financing sources and cost of funds.

To evaluate net interest income, we measure and monitor: (1) the yields on our loans, (2) the costs of our funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread measures the difference between the rates earned on our loans and the rates paid on our funding sources. Net interest margin measures the difference between our annualized interest income and annualized interest expense, or net interest income, as a percentage of average loans outstanding over the specified time period.

Periodic changes in net interest income are primarily driven by: (1) origination volume and changes in average outstanding loan balances and (2) interest rates and changes in interest earned on our portfolio or paid on our debt. Historically, origination volume and portfolio size have been the largest contributors to the growth in our net interest income. We measure net interest income before and after interest expense related to our corporate debt and before and after our provisions for loan losses.

We strive to minimize actual credit losses through our rigorous screening and underwriting process and life of loan portfolio management and special servicing practices. We closely monitor the credit performance of our loan portfolio, including delinquency rates and expected and actual credit losses, as a key factor in assessing our overall business performance.

We incur operating expenses from compensation and benefits related to our employee base, rent and other occupancy costs associated with our leased facilities, our third-party primary loan servicing vendors, professional fees to the extent we utilize third-party legal, consulting and advisory firms, and costs associated with the resolution and disposition of real estate owned, among other items. We monitor and strive to prudently manage operating expenses and to balance current period profitability with investment in the continued development of our platform. Because volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor origination volume along with all key terms of new loan originations, such as interest rates, loan-to-value ratios, estimated credit losses and expected duration.

Our results of operations depend on, among other things, the level of our net interest income, the credit performance of our loan portfolio and the efficiency of our operating platform. These measures are affected by a number of factors, including the demand for investor real estate loans, the competitiveness of the market for originating or acquiring investor real estate loans, the cost of financing our portfolio, operating costs, the availability of funding sources and the underlying performance of the collateral supporting our loans. While we have been successful at managing these elements in the past, there are certain circumstances beyond our control, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine ~~war,~~and Israel/Hamas wars, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

The investor real estate loan market is highly competitive which could affect our profitability and growth. We believe we compete favorably through diversified borrower access driven by our extensive network of mortgage brokers and by emphasizing a high level of real estate and financial expertise, customer service, and flexibility in structuring transactions, as well as by attracting and retaining experienced managerial and marketing personnel. However, some of our competitors may be better positioned to market their services and financing programs because of their ability to offer more favorable rates and terms and other services.

Our primary funding sources have historically included cash from operations, warehouse facilities, term securitized debt, corporate debt, and equity. We believe we have an established brand in the term securitized debt market and that this market will continue to support our portfolio growth with long-term financing. Changes in macroeconomic conditions can adversely impact our ability to issue securitized debt and, thereby, limit our options for long-term financing. In consideration of this potential risk, we have entered into a credit facility for longer-term financing that will provide us with capital resources to fund loan growth in the event we are not able to issue securitized debt.

One of our six warehouse repurchase and revolving loan facilities have interest payment obligations tied to the one-month American Interbank Offered Rate, ("AMERIBOR"). Five of our warehouse repurchase and revolving loan facilities have interest payment obligations tied to the Secured Overnight Offering Rate ("SOFR").

We underwrite and structure our loans to minimize potential losses. We believe our fully amortizing loan structures and avoidance of large balloon payments, coupled with meaningful borrower equity in properties, limit the probability of losses and that our proven in-house asset management capability allows us to minimize potential losses in situations where there is insufficient equity in the property. Our income is highly dependent upon borrowers making their payments and resolving delinquent loans as favorably as possible. Macroeconomic conditions can, however, impact credit trends in our core market and have an adverse impact on financial results.

The investor real estate loan market may be impacted by a wide range of macroeconomic factors such as interest rates, residential and commercial real estate prices, home ownership and unemployment rates, and availability of credit, among others. We believe our prudent underwriting, conservative loan structures and interest rate protections, and proven in-house asset management capability leave us well positioned to manage changing macroeconomic conditions.

(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $41.3 million, $43.5 million, ~~$38.7 million,~~ and ~~$45.9~~$42.4 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of September 30, 2023, June 30, 2023, ~~March 31,2023,~~ and ~~June~~September 30, 2022, respectively.

Total Loans. Total loans reflects the aggregate UPB at the end of the period. It excludes deferred origination costs, acquisition discounts, fair value adjustments and allowance for credit losses.

Loan Count. Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance.

Average Loan Balance. Average loan balance reflects the average UPB at the end of the period (i.e., total loans divided by loan count).

Weighted Average Coupon. Weighted average coupon reflects the weighted average loan rate at the end of the period.

Weighted Average Loan-to-Value. Loan-to-value, or LTV, reflects the ratio of the original loan amount to the appraised value of the underlying property at the time of origination. In instances where the LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at the time of acquisition. Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses.

Nonperforming Loans. Loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest, except for certain loans in our COVID-19 forbearance program, are considered nonperforming loans. The dollar amount of nonperforming loans presented in the table above reflects the UPB of all loans that meet this definition.

The following table presents new loan originations and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated:

During the ~~second~~third quarter of 2023, we originated ~~$258.6~~$290.6 million of loans, which is an increase of ~~$41.7~~$31.9 million from ~~$217.0~~$258.6 million for the three months ended ~~March 31,~~June 30, 2023 and a decrease of ~~$186.8~~$166.7 million from ~~$445.4~~$457.3 million for the quarter ended ~~June~~September 30, 2022. The decrease from ~~June~~September 2022 is primarily as a result of increased interest rates and our decision to strategically ~~reducing originations.~~reduce originations given general economic uncertainties.

Our total portfolio of loans held for investment consists of both loans held for investment at amortized cost, which are presented in the consolidated balance sheet as loans held for investment, net, and loans held for investment at fair value, which are presented in the consolidated balance sheets as loans held for investment at fair value. The following tables show the various components of loans held for investment as of the dates indicated:

The following table illustrates the contractual maturities for our loans held for investment in aggregate UPB and as a percentage of our total held for investment loan portfolio as of the dates indicated:

For the December 31, 2022 CECL estimate, we used a severe stress scenario with an eight-quarter reasonable and supportable forecast period followed by a two-quarter straight-line reversion period. We considered the potential impact of the Omicron variant and the effect of the variant on further supply chain disruptions. We also considered lower than forecasted employment numbers, expiring unemployment benefits, and an upcoming flu season.

For the March 31, 2023 estimate, we considered a severe stress scenario with an eight-quarter reasonable and supportable forecast period followed by a two-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate given the uncertainty around future COVID cases, the war between Russia and Ukraine, spike in inflation, continued disruption in the supply chain, and concerns of a recession.

For the June 30, 2023 estimate, we considered a severe stress scenario with an eight-quarter reasonable and supportable forecast period followed by a two-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate given the continued inflation in the United States,, the war between Russia and Ukraine, continued disruption in the supply chain, and concerns of a recession.

For the September 30, 2023 estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a two-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate given the continued inflation in the United States, the wars between Russia/Ukraine and Israel/Hamas, continued disruption in the supply chain, and concerns of a recession.

Our allowance for loan losses as of ~~June~~September 30, 2023 was ~~$4.6~~$4.7 million compared to $4.9 million as of December 31, 2022 and ~~$4.9~~$5.3 million as of ~~June~~September 30, 2022. The decrease in allowance for credit losses from December 31, 2022 and from ~~June~~September 30, 2022 was primarily due to loan payoffs decreasing ~~the non-FVO loan portfolio.~~our portfolio of loans held for investment carried at amortized cost. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices. Additionally, we believe borrower equity of 25% to 40% provides significant protection against credit losses. The various scenarios, the weighting of scenarios, as well as the forecast period and reversion to historical loss, is subject to change as conditions in the market change and the Company’s ability to forecast economic events evolves.

To estimate the allowance for loan losses in our ~~non-FVO~~portfolio of loans held for investment ~~portfolio,~~carried at amortized cost, we follow a detailed internal review process, considering a number of different factors including, but not limited to, our ongoing analyses of loans, historical loss rates, relevant environmental factors, relevant market research, trends in delinquencies, effects and changes in credit concentrations, and ongoing evaluation of fair values.

The following table illustrates the activity in our allowance for loan losses over the periods indicated:

Credit Quality – Loans Held for Investment and Loans Held for Investment at Fair Value

The following table provides delinquency information on our loans held for investment and loans held for investment at fair value by UPB as of the dates indicated:

Other than loans in the COVID-19 forbearance program, loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were ~~$371.2~~$387.7 million, or ~~10.0%~~10.1% of our held for investment loan portfolio as of ~~June~~September 30, 2023, compared to $292.8 million, or 8.3% as of December 31, 2022, and ~~$252.3~~$253.3 million, or ~~8.2%~~7.4% of the held for investment loan portfolio as of ~~June~~September 30, 2022. We believe the significant equity cushion at origination and the active management of loans will continue to minimize credit losses on the resolution of defaulted loans and disposition of REO properties.

Historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that became nonperforming prior to the beginning of the periods indicated or became nonperforming and subsequently resolved during the periods indicated. We resolved ~~$43.6~~$56.9 million of long-term and short-term non-performing loans during the quarter ended ~~June~~September 30, 2023, which was higher compared to ~~$36.9 million during the quarter ended March 31, 2023 and lower compared to $47.1~~$43.6 million during the quarter ended June 30, ~~2022. We also resolved $6.5 million of nonperforming loans transferred to REO during thequarter ended June 30,~~ 2023 ~~which was~~and higher compared to ~~$1.8 million and $3.4~~$38.4 million during the quarter ended ~~March 31, 2023 and June~~September 30, 2022. From these resolution activities, including the REO resolutions, we realized net gains of $1.2 million, $1.5 million, ~~$1.3 million,~~ and ~~$5.7~~$2.7 million during the quarters ended September 30, 2023, June 30, 2023, ~~March 31, 2023,~~ and ~~June~~September 30, 2022, respectively. This is largely the result of collecting default interest and prepayment penalties in excess of the contractual principal and interest due on loans.

The table below includes resolutions for our long-term nonperforming loans and REO's.

The table below includes resolutions for our short-term nonperforming loans and REO's, and also includes loans that were granted a COVID-19 forbearance in 2020. The short-term loans, or loans with a maturity of two-year or less, do not require prepayment fees and usually result in a lower gain when paid in full, as compared to long term loans.

Our charge-offs incurred have been small as a percentage of nonperforming loans held for ~~investment.~~investment and carried at amortized cost. The table below shows our actual loan losses for the periods indicated.

As of ~~June~~September 30, 2023, our held for investment loan portfolio was concentrated in investor 1-4 loans, representing ~~54.2%~~55.0% of the UPB. Mixed used properties represented ~~12.2%~~11.8% of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated ~~21.7%~~21.5% in California, ~~19.2%~~18.7% in New York, ~~14.0%~~13.9% in Florida, and ~~7.4%~~7.5% in New Jersey.

REO includes real estate we acquire through foreclosure or by deed-in-lieu of foreclosure. REO assets are initially recorded at fair value, less estimated costs to sell, on the date of foreclosure. Adjustments that reduce the carrying value of the loan to the fair value of the real estate at the time of foreclosure are recognized as charge-offs in the allowance for credit losses. Positive adjustments at the time of foreclosure are recognized in other operating income. Subsequent to foreclosure, we periodically obtain new valuations and any reductions in fair value are reflected as valuation adjustments.

As of ~~June~~September 30, 2023, our REO included 61 properties with a lower of cost or estimated fair value of $29.3 million compared to 45 properties with a lower of cost or estimated fair value of $20.4 million ~~compared to 39 properties with a lower of cost or estimated fair value of $21.8 million~~ as of ~~March 31,~~June 30, 2023.

Average loans reflects the daily average of total outstanding loans, including both loans held for investment and loans held for sale, as measured by UPB, over the specified time period.

Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees. The fluctuations in our portfolio yield over the periods shown was primarily driven by loans placed on non-accrual status during the periods.

Portfolio-related debt consists of borrowings related directly to financing our loan portfolio, which includes our warehouse facilities and securitized debt. Total company debt consists of portfolio-related debt and corporate debt. The measures presented here reflect the monthly average of all portfolio-related and total company debt, as measured by outstanding principal balance, over the specified time period.

Portfolio related cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt as a percentage of average portfolio-related debt outstanding over the given period. Total company cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt and corporate debt outstanding over the given period. Interest expense includes the amortization of expenses incurred in connection with our portfolio related financing activities and corporate debt. Through the issuance of long-term securitized debt, we have been able to fix a significant portion of our borrowing costs over time. The strong credit performance on our securitized debt has allowed us to issue debt at attractive rates.

Our portfolio related cost of funds increased to 5.63% for the three months ended September 30, 2023 from 5.58% for the three months ended June 30, 2023 and increased from ~~5.33%~~4.81% for the three months ended ~~March 31, 2023 and increased from 4.34% for the three months ended June~~September 30, 2022.

Portfolio related net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt as a percentage of average loans over the specified time period. Total company net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt and corporate debt as a percentage of average loans over the specified time period.

Over the periods shown below, our portfolio related net interest margin ofremained relatively consistent at 3.34% for the three months ended September 30, 2023 compared to the 3.24% for the three months ended June 30, 2023, ~~remained consistent with the 3.23%~~and decreased from 3.59% for the three months ended ~~March 31, 2023, and decreased from 4.10% for the three months ended June~~September 30, 2022. The decrease from ~~June~~September 30, 2022 was primarily due to higher debt cost caused by an overall increase in interest rates.

Our total company net interest margin ~~decreased~~of 2.90% for the three months ended September 30, 2023 remained relatively consistent compared to 2.78% for the three months ended June 30, 2023, and decreased from ~~3.54%~~3.09% for the three months ended ~~June~~September 30, ~~2022 and remained consistent from 2.76% for the three months ended March 31, 2023, respectively.~~2022. The decrease in total company net interest margin during the three months ended ~~June~~September 30, 2023 from the three months ended ~~June~~September 30, 2022 was primarily due to higher interest rates as compared to the same period in 2022.

The following tables show the average outstanding balance of our loan portfolio and portfolio-related debt, together with interest income and the corresponding yield earned on our portfolio, and interest expense and the corresponding rate paid on our portfolio-related debt for the periods indicated:

Our annualized charge-off rate over average loans held for investment carried at amortized cost for the three months ended ~~June~~September 30, 2023 ~~increased~~decreased to ~~0.09%~~0.01% as compared to ~~0.06%~~0.09% for the three months ended ~~March 31,~~June 30, 2023 and ~~decreased as compared to 0.27%~~0.02% for the three months ended ~~June~~September 30, 2022. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment for the respective quarters. We do not record charge-offs on FVO loans which are carried at estimated fair value. We do not record charge-offs on our loans held for sale which are carried either at fair value, or at the lower of cost or estimated fair value.

Pre-tax return on equity and return on equity reflect income before income taxes and net income including income attributable to noncontrolling interest, respectively, as a percentage of the monthly average total stockholders’ equity including noncontrolling interest over the specified period. Pre-tax return on equity and return on equity ~~were higher~~remained the same during the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023, and higher compared to the ~~quarters ended March 31, 2023 and the~~ quarter ended ~~June~~September 30, 2022 due to the increase in income before income taxes and net income.

We accrue interest on the UPB of our loans in accordance with the individual terms and conditions of each loan, discontinuing interest and reversing previously accrued interest once a loan becomes 90 days or more past due (nonaccrual status). When a loan is placed on nonaccrual status, the accrued and unpaid interest is reversed as a reduction to interest income and accrued interest receivable. Interest income is subsequently recognized only to the extent that cash payments are received or when the loan has returned to accrual status. Payments received on nonaccrual loans are first applied to interest due, then principal. Interest accrual resumes once a borrower has made all principal and interest payments due, bringing the loan back to current status.

Interest income on loans held for investment is comprised of interest income on loans and prepayment fees less the amortization of deferred net costs related to the origination of loans. Interest income on loans held for sale is comprised of interest income earned on loans prior to their sale. The net fees and costs associated with loans held for sale carried at the lower of cost or fair value, are deferred as part of the carrying value of the loan and recognized as a gain or loss on the sale of the loan. The fees and costs associated with loans held for sale carried at fair value are recognized and expensed as incurred.

Portfolio related interest expense is incurred on the debt we incur to fund our loan origination and portfolio activities and consists of our warehouse facilities and securitized debt. Portfolio related interest expense also includes the amortization of expenses incurred as a result of issuing the debt, which are amortized using the level yield method. Key drivers of interest expense include the debt amounts outstanding, interest rates, and the mix of our securitized debt and warehouse liabilities.

Portfolio related net interest income represents the difference between interest income and portfolio related interest expense.

Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2021 Term Loan and the 2022 Term Loan, as reflected on our consolidated balance sheets, and the related amortization of deferred debt issuance costs.

Net interest income represents the difference between portfolio related net interest income and interest expense on corporate debt.

Effective January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replacing the incurred loss accounting approach with the current expected credit loss (CECL) approach. Under the CECL methodology, the allowance for credit losses is calculated using a third-party model with our historical loss rates by segment, loans position as of the balance sheet date, and assumptions from us. We do not record provision for loan losses on ~~our FVO loans.~~loans held for sale, or loans carried at fair value.

Gain on Disposition of Loans. When we sell a loan held for sale, we record a gain or loss that reflects the difference between the proceeds received for the sale of the loans and their respective carrying values. The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sales price of the loans. In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell, at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off.

Unrealized Gain/(Loss) on Fair Value Loans. We have elected to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). We regularly estimate the fair value of these loans. Changes in fair value subsequent to initial recognition of fair value loans are reported as unrealized gain/(loss) on fair value loans, a component of other operating income within the consolidated statements of income.

Unrealized Gain/(Loss) on Fair Value Securitized Debt. We have elected to apply the fair value option accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. We regularly estimate the fair value of securitized debt. Changes in fair value subsequent to initial recognition of fair value securitized debt are reported as unrealized gain/(loss) on fair value securitized debt, a component of other operating income within the consolidated statements of income.

Mortgage Servicing Rights. The Company has elected to record its mortgage servicing rights using the fair value measurement method. Changes in fair value are reported as unrealized gains/(losses) on mortgage servicing rights.

Servicing Fee Income. Century earns servicing fees for servicing mortgage loans for others.

Valuation Allowance on Loans Held for Sale. For loans held for sale that are carried at the lower of cost or estimated fair value, the adjustments of the carrying value to estimate fair value are reported as valuation allowance.

Compensation and Employee Benefits. Costs related to employee compensation, commissions and related employee benefits, such as health, retirement, and payroll taxes.

Professional Fees. Costs related to professional services, such as external audits, legal fees, tax, compliance and outside consultants.

Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes.

Real Estate Owned, Net. Costs related to our real estate owned, net, including gains/(losses) on disposition of REO, maintenance of REO properties, and taxes and insurance.

Other Operating Expenses. Other operating expenses consist of general and administrative costs such as, travel and entertainment, marketing, data processing, insurance and office equipment.

The provision for income taxes consists of the current and deferred U.S. federal and state income taxes we expect to pay, currently and in future years, with respect to the net income for the year. The amount of the provision is derived by adjusting our reported net income with various permanent differences. The tax-adjusted net income amount is then multiplied by the applicable federal and state income tax rates to arrive at the provision for income taxes.

The following table summarizes our consolidated results of operations for the periods indicated:

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income ~~remained relatively consistent decreasing~~increased to ~~$29.4~~$31.5 million from ~~$30.5~~$28.9 million for the three months ended ~~June~~September 30, 2023 and 2022. Our portfolio related net interest income ~~decreased~~increased from ~~$59.0~~$87.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~$58.0~~$89.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023.

Interest Income. Interest income increased by $15.7 million to ~~$74.9~~$79.1 million for the three months ended ~~June~~September 30, 2023, compared to ~~$59.2~~$63.4 million for the three months ended ~~June~~September 30, 2022. The increase was primarily attributable to higher portfolio balances and an increase in the average loan yield, which increased from ~~7.97%~~7.88% for the three months ended ~~June~~September 30, 2022 to ~~8.24%~~8.38% for the three months ended ~~June~~September 30, 2023. Interest income increased by ~~$34.1~~$49.8 million to ~~$145.4~~$224.5 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$111.3~~$174.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The increase in ~~six~~interest income for the nine months ended ~~June~~September 30, 2023 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.

The following tables distinguish between the change in interest income attributable to change in volume and the change in interest income attributable to a change in rate for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. The effect of changes in volume is determined by multiplying the change in average loan balance (i.e., ~~$0.7~~$0.6 billion) by the previous period’s average yield (i.e., ~~7.97%~~7.88%). The effect of rate changes is calculated by multiplying the change in average yield (i.e., ~~(0.27%~~0.50%) by the current period’s average loan balance (i.e., ~~$3.6~~$3.8 billion).

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased from ~~$28.8~~$34.6 million for the three months ended ~~June~~September 30, 2022 to ~~$45.5~~$47.6 million for the three months ended ~~June~~September 30, 2023, and increased from ~~$52.3~~$86.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~$87.5~~$135.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023, primarily attributable to a higher loan portfolio being financed and increased interest rates.

The following tables present the information regarding the portfolio related interest expense and distinguishes between the change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively.

Interest Expense — Corporate Debt. Corporate debt interest expense ~~decreased to~~remained consistent at $4.1 million for the three months ended ~~June~~September 30, 2023, compared to ~~$4.2~~$4.0 million for the three months ended ~~June~~September 30, 2022, and decreased to ~~$8.3~~$12.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~$21.3~~$25.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to the $12.8 million prepayment fee and write-off of unamortized debt issuance costs associate with the payoff of our previous corporate debt in March 2022.

Provision for Loan Losses. Our provision for loan losses ~~remained consistent at $0.3~~decreased to $0.2 million for the three months ended ~~June~~September 30, 2023 ~~and~~compared to $0.6 million for the three months ended September 30, 2022, and decreased from ~~$1.0~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~$0.9~~$1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023, primarily due to ~~a decrease in~~paydown on our existing loans held for investment portfolio carried at amortized cost. ~~The loans held for investment portfolio decreased due to paydowns on our existing amortized cost portfolio and the election of~~New loan originations beginning October 1, 2022.are carried at estimated fair value, ~~option accounting on all new~~which are excluded from provision for loan ~~originations effective October 1, 2022.~~losses assessment.

The ~~$10.7~~$14.3 million increase in total other operating income during the three months ended ~~June~~September 30, 2023 and ~~$17.6~~$31.3 million increase for the ~~six~~nine months ended ~~June~~September 30, 2023 was mainly due to the election of fair value option accounting on new loan originations beginning October 1,2022, and the election of fair value option accounting on certain securitized debt effective January 1, 2023.

Operating expenses are presented in the following table. Changes in operating expenses comparing to the same periods prior year are discussed below.

Compensation and Employee Benefits. Compensation and employee benefits increased by ~~$4.1~~$5.7 million to ~~$10.7~~$12.5 million for the three months ended ~~June~~September 30, 2023 compared to ~~$6.6~~$6.8 million for the three months ended ~~June~~September 30, 2022, and increased by ~~$8.8~~$14.5 million to ~~$20.7~~$33.2 million for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to ~~$11.9~~$18.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The increase was mainly driven by the FVO accounting on all new loan originations beginning October 1, 2022, as all origination costs on FVO loans are expensed as incurred as opposed to being deferred and amortized prior to October 1, 2022.

Origination ~~(Income)~~ Expenses. Origination expenses ~~decreased~~remained consistent at an expense of $0.3 million for the three months ended September 30, 2023, compared to an ~~income~~expense of $0.2 million for the three months ended ~~June~~September 30, 2022, and decreased to an expense of $0.3 million for the nine months ended September 30, 2023, compared to an expense of ~~$1.0~~$2.7 million for the ~~three~~nine months ended ~~June 30, 2022, and decreased to an income of $0.6 million for the six months ended June 30, 2023, compared to an expense of $1.3 million for the six months ended June~~September 30, 2022. The ~~increase~~decrease in origination ~~income~~expenses was due to ~~an increase~~a decrease in ~~fee income on~~ loan ~~originations.~~funding activity compared to prior year.

Securitization Expenses. The increase in securitization expenses of ~~$2.7~~$4.9 million and ~~$5.3~~$10.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2023, respectively, was due to the election of fair value option accounting on securitized debt issued in 2023. Securitization expenses on FVO securitized debt are expensed as incurred as opposed to being deferred and amortized for securitized debt carried at amortized cost.

Loan Servicing. Loan servicing expenses increased from $3.3 million for the three months ended ~~June~~September 30, 2022 to ~~$4.3~~$4.9 million for the three months ended ~~June~~September 30, 2023, and increased from ~~$5.7~~$9.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~$8.1~~$13.0 million for the ~~six~~nine months ended ~~June~~September 30, 2023 primarily ~~attributable~~due to the increase in our total loan ~~portfolio.~~portfolio from prior year.

Professional Fees. Professional fees ~~remained consistent at $1.1~~increased to $0.9 million for the three months ended ~~June~~September 30, 2023 ~~and~~compared to $0.7 million for the three months ended September 30, 2022, and decreased by ~~$0.4~~$0.2 million to ~~$2.0~~$2.9 million for the ~~six~~nine months ended ~~June~~September 30, 2023 as compared to ~~$2.4~~$3.1 million for the ~~six~~nine months ended ~~June~~September 30, ~~2022, mainly due to an overall decrease in consulting fees in 2023.~~2022.

Rent and Occupancy. Rent and occupancy expenses remained consistent at ~~$0.4~~$0.5 million and ~~$0.9~~$0.4 million for the three ~~and six~~ months ended ~~June~~September 30, 2023 and three months ended September 30, 2022.

Rent and occupancy remained consistent at $1.4 million for the nine months ended September 30, 2023 and $1.3 million for the nine months ended September 30, 2022.

Net Expenses of Real Estate Owned. Net expenses of real estate owned increased from income of ~~$0.3~~$0.2 million for the three months ended ~~June~~September 30, 2022 to expense of ~~$1.0~~$1.2 million for the three months ended ~~June~~September 30, 2023, and increased from income of ~~$0.4~~$0.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to expense of ~~$2.8~~$4.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023, mainly due to the decrease in realized gain on REO disposition and the increase in valuation adjustments taken on the underlying collateral values.

Other Operating Expenses. Other operating expenses ~~decreased~~increased from ~~$2.2~~$2.0 million for the three months ended ~~June~~September 30, 2022 to ~~$1.9~~$2.1 million for the three months ended ~~June~~September 30, 2023, and decreased from ~~$4.8~~$6.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022 to ~~$4.1~~$6.3 million for the ~~six~~nine months ended ~~June~~September 30, ~~2023, mainly~~2023. The $0.5 million decrease from the nine months ended September 30, 2022 was primarily attributable to the decrease in ~~reserve for repurchase of loans.~~advertising expense and property insurance premiums paid.

Income Tax Expense. Income tax expense was ~~$4.6~~$5.1 million and ~~$4.0~~$3.8 million for the three months ended ~~June~~September 30, 2023 and 2022, respectively, and $13.7 million and $8.6 million ~~and $4.8 million~~ for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively. Our annual consolidated effective tax rates were ~~27.6%~~28.3% and 27.4% for the years 2023 and 2022 respectively.

The following table sets forth certain financial information for each completed fiscal quarter since the quarter ended ~~September 30,~~December 31, 2021. The quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the information presented. This information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.

The following table sets forth our unaudited quarterly results for the periods indicated:

We fund our lending activities primarily through borrowings under our warehouse repurchase facilities, securitized debt, other corporate-level debt, equity and debt securities, and net cash provided by operating activities to manage our business. We use cash to originate and acquire investor real estate loans, repay principal and interest on our borrowings, fund our operations and meet other general business needs.

Our total liquidity plus available warehouse capacity including Century's revolving credit line was ~~$648.0~~$654.0 million as of ~~June~~September 30, 2023, comprised of ~~$34.0~~$29.4 million in cash, ~~$38.0~~$30.9 million of available borrowings for unencumbered loans, ~~$573.0~~and $593.6 million of available warehouse ~~capacity, and $3.0 million revolving credit line.~~capacity.

We had cash of ~~$34.0~~$29.4 million and ~~$46.3~~$26.4 million, excluding restricted cash of ~~$16.8~~$17.7 million and ~~$9.2~~$14.5 million as of ~~June~~September 30, 2023 and 2022, respectively. The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities as of the periods indicated:

Cash flows from operating activities primarily includes net income adjusted for (1) cash used for origination and purchase of held for sale loans and the related cash proceeds from the sales of such loans, (2) non-cash items including depreciation, provision for loan loss, discount accretion, and valuation changes, and (3) changes in the balances of operating assets and liabilities.

For the ~~six~~nine months ended ~~June~~September 30, 2023, our net cash used in operating activities consisted mainly of ~~$23.0~~$35.1 million in net income, $19.8 million in proceeds from sales of loans held for sale, partially offset ~~$19.1~~by $38.0 million in origination of loans held for sale.

For the ~~six~~nine months ended ~~June~~September 30, 2023, our net cash used in investing activities consisted mainly of ~~$456.5~~$728.2 million in cash used to originate held for investment loans, partially offset by ~~$21.5 million proceeds from sales of loans and $221.4~~$334.2 million in cash received in payoffs of loans held for investment.

For the ~~six~~nine months ended ~~June~~September 30, 2023, our net cash provided by financing activities consisted mainly of ~~$463.0~~$753.3 million in borrowings from our warehouse and repurchase facilities and ~~$461.7~~$774.3 million in proceeds of asset-backed securities issued. The cash generated was offset by repayments of ~~$557.8~~$868.7 million on our warehouse and repurchase facilities and repayments of ~~$196.5~~$333.9 million on asset-backed securities issued.

During the ~~six~~nine months ended ~~June~~September 30, 2023, we used approximately ~~$11.3~~$15.0 million of net cash and cash equivalents ~~from operations,~~on operating, investing and financing activities. During the ~~six~~nine months ended ~~June~~September 30, 2022, we ~~generated~~used approximately ~~$7.9~~$6.7 million of net cash and cash equivalents ~~from operations,~~on operating, investing and financing activities.

As of ~~June~~September 30, 2023, we had five non-mark-to-market warehouse facilities and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. One agreement is a two-year warehouse repurchase facility, three agreements are one-year warehouse repurchase facilities and two agreements are three-year warehouse facilities. The borrowings are collateralized by primarily performing loans, one of the warehouse facilities bear interest at one-month AMERIBOR and five warehouse facilities at SOFR, all at margins that range from 1.60% to 4.50%. Borrowing under these facilities was ~~$237.0~~$216.4 million with ~~$573.0~~$593.6 million of available capacity under our warehouse and repurchase facilities as of ~~June~~September 30, 2023.

All warehouse facilities fund less than 100% of the principal balance of the mortgage loans we own requiring us to use working capital to fund the remaining portion. We may need to use additional working capital if loans become delinquent, because the amount permitted to be financed by the facilities may change based on the delinquency performance of the pledged collateral.

All borrower payments on loans financed under the warehouse facilities are segregated into pledged accounts with the loan servicer. All principal amounts in excess of the interest due are applied to reduce the outstanding borrowings under the warehouse facilities. The warehouse facilities also contain customary covenants, including financial covenants that require us to maintain minimum liquidity, a minimum net worth, a maximum debt-to-net worth ratio and a ratio of a minimum earnings before interest, taxes, depreciation and amortization of interest expense. If we fail to meet any of the covenants or otherwise default under the facilities, the lenders have the right to terminate their facility and require immediate repayment, which may require us to sell our loans at less than optimal terms. As of ~~June~~September 30, 2023, we were in compliance with these covenants.

From May 2011 through ~~June~~September 2023, we have completed ~~twenty-eight~~thirty securitized debts, issuing ~~$5.7~~$6.2 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly. We are the sole beneficial interest holder of the applicable trusts, which are variable interest entities included in our consolidated financial statements. The transactions are accounted for as secured borrowings under U.S. GAAP. The following table summarizes the securities issued, securities retained by us at the time of the securitization, and as of ~~June~~September 30, 2023 and December 31, 2022, and the stated maturity for each securitized debt. The securities are callable by us when the stated principal balance is less than a certain percentage, ranging from 10%—30%, of the original stated principal balance of loans at issuance. As a result, the actual maturity date of the securities issued will likely be earlier than their respective stated maturity date.

The following table summarizes outstanding bond balances for each securitized debt as of ~~June~~September 30, 2023 and December 31, 2022:

As of ~~June~~September 30, 2023 and December 31, 2022, the weighted average rates on the securities and certificates for the Trusts are as follows:

Our intent is to use the proceeds from the issuance of new securities primarily to repay our warehouse borrowings and originate new investor real estate loans in accordance with our underwriting guidelines, as well as for general corporate purposes. Our financing sources may include borrowings in the form of additional bank credit facilities (including term loans and revolving credit facilities), agreements, warehouse facilities and other sources of private financing. We also plan to continue using securitized debt as long-term financing for our portfolio, and we do not plan to structure any securitized debt as sales or utilize off-balance-sheet vehicles. We believe any financing of assets and/or securitized debt we may undertake will be sufficient to fund our working capital requirements.

On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. A portion of the net proceeds from the 2022 Term Loan was used to redeem all the amounts owed pursuant to a term loan previously entered into during 2021. The remaining portion of the net proceeds from the 2022 Term Loan is used for loan originations and general corporate purposes.

On September 3, 2021, we entered into separate Equity Distribution Agreements with counterparties to establish an at-the-market equity offering program (“ATM Program”) where we may issue and sell, from time to time, shares of our common stock. Our ATM Program allows for aggregate gross sales of our common stock of up to $50,000,000 provided that the number of shares sold under the ATM Program does not exceed 5,000,000. For the three months ended ~~June~~September 30, 2023, ~~1,814~~27,529 shares of common stock were sold under our ATM Program for net proceeds of ~~$21.4~~$327.2 thousand.

As of ~~June~~September 30, 2023, we maintained warehouse facilities to finance our investor real estate loans and had approximately ~~$237.0~~$216.4 million in outstanding borrowings with ~~$573.0~~$593.6 million of available capacity under our warehouse and repurchase facilities.

At no time have we maintained any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance, or special-purpose or variable interest entities, established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. Further, we have never guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. All statements (other than statements of historical facts) in this Quarterly Report regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “plan,” “believe,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Forward-looking statements may contain expectations regarding our operations, including our loan originations, our ability to resolve non-performing loans and avoid losses on non-performing loans and the disposition of REOs and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future funding and development of our business and products, including the future results of our at-the-market equity offering program. Although we believe that the expectations reflected in these forward-looking statements have a reasonable basis, we cannot provide any assurance that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in this Quarterly Report and other documents we file. You should read and interpret any forward-looking statement together with these documents, including the following:

Any forward-looking statement speaks only as of the date on which that statement is made. We will not update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.

Our primary market risk is interest rate volatility. Because we fund a portion of our investments with borrowings, fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. To manage our exposure to interest rate risk, we may utilize financial instruments, including forward starting payer interest rate swaps, and interest rate swaption structure. The use of these types of instruments to hedge a portion of our exposure to changes in interest rates may carry additional risks, such as counterparty credit risk and the legal enforceability of hedge agreements. As of September 30, 2023, we have forward starting payer interest rate swaps with a total notional amount of $155.0 million, hedging the variability in interest payment cash flows attributable to changes in the benchmark overnight SOFR, on a debt forecasted to issue during the fourth quarter of 2023.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the our management, including the our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In accordance with Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report and has concluded that our disclosure controls and procedures, as of such date, were effective to accomplish their objectives at a reasonable assurance level. Management concluded that the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

From time to time, in the ordinary course of business, we are involved in various judicial, regulatory or administrative claims, proceedings and investigations. These proceedings and actions may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. Although occasional adverse decisions or settlements may occur, our management does not believe that the final disposition of any currently pending or threatened matter will have a material adverse effect on our business, financial position, results of operations or cash flows.

Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements.

No common stock purchases were made by us during the three months ended ~~June~~September 30, 2023.

None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c ) or any “non-Rule 10b5-1 trading arrangement” in effect at any time during the three months ended ~~June~~September 30, 2023.

The exhibits below are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

+ This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Delaware	46-0659719
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
30699 Russell Ranch Road, Suite 295 Westlake Village, California	91362
(Address of principal executive offices)	(Zip Code)


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders’ Equity	56
	Consolidated Statements of Cash Flows	67
	Notes to Consolidated Financial Statements (Unaudited)	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5055
Item 4.	Controls and Procedures	5055

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	5156
Item 1A.	Risk Factors	5156
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5156
Item 3.	Defaults Upon Senior Securities	5156
Item 4.	Mine Safety Disclosures	5156
Item 5.	Other Information	5156
Item 6.	Exhibits	5257

SIGNATURES		5459


	June 30, 2023			December 31, 2022			September 30, 2023			December 31, 2022
	(Unaudited)						(Unaudited)
ASSETS
Cash and cash equivalents	$	33,987		$	45,248		$	29,393		$	45,248
Restricted cash		16,786			16,808			17,703			16,808
Loans held for sale, at fair value								19,536			—
Loans held for investment, net		3,057,940			3,272,390			2,945,840			3,272,390
Loans held for investment, at fair value		705,330			276,095			951,990			276,095
Total loans, net		3,763,270			3,548,485			3,917,366			3,548,485
Accrued interest receivables		22,602			20,463			24,756			20,463
Receivables due from servicers		63,896			65,644			70,139			65,644
Other receivables		1,306			1,075			236			1,075
Real estate owned, net		20,388			13,325			29,299			13,325
Property and equipment, net		3,023			3,356			2,861			3,356
Deferred tax asset		1,878			5,033			705			5,033
Mortgage servicing rights, at fair value		9,445			9,238			9,786			9,238
Derivative assets								1,261			—
Goodwill		6,775			6,775			6,775			6,775
Other assets		7,789			13,525			7,028			13,525
Total assets	$	3,951,145		$	3,748,975		$	4,117,308		$	3,748,975
LIABILITIES
Accounts payable and accrued expenses	$	95,344		$	91,525		$	97,869		$	91,525
Secured financing, net		210,464			209,846			210,774			209,846
Securitized debt, net		2,622,547			2,736,290			2,504,334			2,736,290
Securitized debt, at fair value		381,799			—			669,139			—
Warehouse and repurchase facilities, net		235,749			330,814			215,176			330,814
Total liabilities		3,545,903			3,368,475			3,697,292			3,368,475
Commitments and contingencies

EQUITY
Common stock ($0.01 par value, 100,000,000 shares authorized; 32,860,849 and 32,523,516 shares issued, 32,741,628 and 32,489,869 shares outstanding at June 30, 2023 and December 31, 2022, respectively)		329			326
Treasury stock, at cost (119,221 and 33,647 common shares at June 30, 2023 and December 31, 2022, respectively)		(1,294	)		(458	)
Common stock ($0.01 par value, 100,000,000 shares authorized; 32,903,378 and 32,523,516 shares issued, 32,784,157 and 32,489,869 shares outstanding as of September 30, 2023 and December 31, 2022, respectively)								330			326
Treasury stock, at cost (119,221 and 33,647 common shares as of September 30, 2023 and December 31, 2022, respectively)								(1,294	)		(458	)
Additional paid-in capital		303,207			300,310			304,906			300,310
Retained earnings		99,465			76,633			111,551			76,633
Accumulated other comprehensive income, net of tax								905			—
Total Velocity Financial, Inc. stockholders' equity		401,707			376,811			416,398			376,811
Noncontrolling interest in subsidiary		3,535			3,689			3,618			3,689
Total equity		405,242			380,500			420,016			380,500
Total liabilities and equity	$	3,951,145		$	3,748,975		$	4,117,308		$	3,748,975


	June 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
	(Unaudited)				(Unaudited)
ASSETS
Restricted cash	$	2,980	$	2,968	$	11,737	$	2,968
Loans held for investment, net		3,384,981		3,108,316		3,577,093		3,108,316
Accrued interest and other receivables		81,272		77,191		87,308		77,191
Real estate owned, net		17,443		10,380		28,456		10,380
Other assets		13		15		15		15
Total assets	$	3,486,689	$	3,198,870	$	3,704,609	$	3,198,870
LIABILITIES
Accounts payable and accrued expenses	$	55,507	$	50,169	$	65,827	$	50,169
Securitized debt		3,004,346		2,736,290		3,173,473		2,736,290
Total liabilities	$	3,059,853	$	2,786,459	$	3,239,300	$	2,786,459


	Six Months Ended June 30,
	2023			2022
	(Unaudited)
Cash flows from operating activities:
Net income	$	22,958		$	14,002
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		381			401
Amortization of right-of-use assets		642			664
Provision for loan losses		933			1,009
(Reversal of) provision for repurchase of loans		(76	)		235
Origination of loans held for sale		(19,088	)		—
Proceeds from sales of loans held for sale		19,816			—
Net accretion of discount on purchased loans and amortization of deferred loan origination costs		2,446			3,981
Provision for (reversal of) uncollectible borrower advances		505			(14	)
Gain on disposition of loans		(902	)		(4,809	)
Real estate acquired through foreclosure in excess of recorded investment		(2,248	)		(1,508	)
Amortization of debt issuance discount and costs		10,614			16,956
Loss on disposal of property and equipment		—			14
Change in valuation of real estate owned		1,670			(93	)
Change in valuation of fair value loans		(10,494	)		(16	)
Change in valuation of mortgage servicing rights		(207	)		(1,286	)
Change in valuation of fair value securitized debt		(5,391	)		—
Loss (gain) on sale of real estate owned		39			(1,620	)
Stock-based compensation		2,026			1,479
Deferred tax expense		3,154			1,408
Change in operating assets and liabilities:
Accrued interest and other receivables		(3,247	)		(1,680	)
Other assets		5,094			(4,882	)
Accounts payable and accrued expenses		3,804			(11,141	)
Net cash provided by operating activities		32,429			13,100
Cash flows from investing activities:
Purchase of loans held for investment		(8,546	)		(5,021	)
Origination of loans held for investment		(456,534	)		(1,033,277	)
Proceeds from sales of loans originally classified as held for investment		21,489			224,060
Payoffs of loans held for investment and loans at fair value		221,423			302,098
Purchase of real estate owned		—			(2,250	)
Proceeds from sale of real estate owned		9,411			9,294
Change in advances		858			1,338
Change in impounds and deposits		(662	)		(3,904	)
Purchase of property and equipment		(48	)		(217	)
Net cash used in investing activities		(212,609	)		(507,879	)
Cash flows from financing activities:
Warehouse repurchase facilities advances		463,038			951,071
Warehouse repurchase facilities repayments		(557,753	)		(1,043,666	)
Proceeds from secured financing		—			215,000
Repayment of secured financing		—			(170,844	)
Proceeds of securitized debt, net		461,684			879,136
Repayment of securitized debt		(196,457	)		(308,298	)
Debt issuance costs		(1,373	)		(19,299	)
Proceeds from issuance of common stocks, net		875			—
Purchase of treasury stock		(837	)		(458	)
Distribution to non-controlling interest		(280	)		—
Net cash provided by financing activities		168,897			502,642
Net (decrease) increase in cash, cash equivalents, and restricted cash		(11,283	)		7,863
Cash, cash equivalents, and restricted cash at beginning of period		62,056			47,604
Cash, cash equivalents, and restricted cash at end of period	$	50,773		$	55,467


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common Stock								Treasury Stock
	Shares		Par Value		Additional Paid-in Capital		Retained Earnings		Shares			Amount			Total Stockholders' Equity			Noncontrolling Interest			Total Equity
Balance – December 31, 2021		32,293,042	$	323	$	296,364	$	44,422		—		$	—		$	341,109		$	3,381		$	344,490
Purchase of treasury stock, at cost		—		—		—		—		(33,647	)		(458	)		(458	)		—			(458	)
Restricted stock awarded and earned stock compensation		125,250		2		416		—		—			—			418			—			418
Stock-based compensation - Options		—		—		251		—		—			—			251			—			251
Net income		—		—		—		3,121		—			—			3,121			110			3,231
Balance – March 31, 2022		32,418,292	$	325	$	297,031	$	47,543		(33,647	)	$	(458	)	$	344,441		$	3,491		$	347,932
Restricted stock awarded and earned stock compensation		31,215		—		555		—		—			—			555			—			555
Stock-based compensation - Options		—		—		254		—		—			—			254			—			254
Net income		—		—		—		10,645		—			—			10,645			126			10,771
Balance – June 30, 2022		32,449,507	$	325	$	297,840	$	58,188		(33,647	)	$	(458	)	$	355,895		$	3,617		$	359,512

Balance – December 31, 2022		32,523,516	$	326	$	300,310	$	76,633		(33,647	)	$	(458	)	$	376,811		$	3,689		$	380,500
Purchase of treasury stock, at cost		—		—		—		—		(85,574	)		(836	)		(836	)		—			(836	)
Restricted stock awarded and stock-based compensation expenses		198,137		2		998		—		—			—			1,000			—			1,000
Distribution to non-controlling interest		—		—		—		—		—			—			—			(160	)		(160	)
Net income		—		—		—		10,649		—			—			10,649			87			10,736
Balance – March 31, 2023		32,721,653	$	328	$	301,308	$	87,282		(119,221	)	$	(1,294	)	$	387,624		$	3,616		$	391,240
Issuance of common stocks		107,567		1		874		—		—			—			875			—			875
Restricted stock awarded and stock-based compensation expenses		31,629		—		1,025		—		—			—			1,025			—			1,025
Distribution to non-controlling interest		—		—		—		—		—			—			—			(120	)		(120	)
Net income		—		—		—		12,183		—			—			12,183			39			12,222
Balance – June 30, 2023		32,860,849	$	329	$	303,207	$	99,465		(119,221	)	$	(1,294	)	$	401,707		$	3,535		$	405,242


Loans held for sale, at fair value:	September 30, 2023		December 31, 2022
Unpaid principal balance	$	18,948	$	—
Valuation adjustments on FVO loans held for sale		588		—
Ending balance	$	19,536	$	—


	Fair Value						Unpaid Principal Balance						Difference			Fair Value						Unpaid Principal Balance						Difference
	Current–89 days		90+days past due				Current–89 days		90+days past due				90+days past due			Current–89 days		90+days past due				Current–89 days		90+days past due				90+days past due
June 30, 2023	past due		or nonaccrual		Total		past due		or nonaccrual		Total		or nonaccrual
September 30, 2023																past due		or nonaccrual		Total		past due		or nonaccrual		Total		or nonaccrual
Commercial - Purchase	$	100,143	$	462	$	100,605	$	94,622	$	592	$	95,214	$	(130	)	$	129,854	$	3,233	$	133,087	$	123,247	$	3,894	$	127,141	$	(661	)
Commercial - Refinance		111,599		1,276		112,875		104,676		1,429		106,105		(153	)		156,931		2,624		159,555		147,492		3,161		150,653		(537	)
Residential 1-4 Unit - Purchase		156,032		3,224		159,256		154,132		4,133		158,265		(909	)		189,247		8,153		197,400		190,128		9,761		199,889		(1,608	)
Residential 1-4 Unit - Refinance		265,388		9,300		274,688		257,677		11,631		269,308		(2,331	)		356,278		19,110		375,388		349,909		22,680		372,589		(3,570	)
Short Term 1-4 Unit - Purchase		26,701		1,012		27,713		27,072		1,298		28,370		(286	)		37,224		1,077		38,301		36,915		1,298		38,213		(221	)
Short Term 1-4 Unit - Refinance		29,530		663		30,193		29,988		850		30,838		(187	)		45,773		2,486		48,259		45,152		2,996		48,148		(510	)
Ending balance	$	689,393	$	15,937	$	705,330	$	668,167	$	19,933	$	688,100	$	(3,996	)	$	915,307	$	36,683	$	951,990	$	892,843	$	43,790	$	936,633	$	(7,107	)


	December 31, 2022
	Securitized debt		Warehouse and repurchase facilities and other		Total
Loan principal payments due from servicers	$	24,400	$	664	$	25,064
Other loan servicing receivables		13,095		2,521		15,616
Loan servicing receivables		37,495		3,185		40,680
Corporate and escrow advances receivable		21,995		2,969		24,964
Total receivables due from servicers	$	59,490	$	6,154	$	65,644


	June 30, 2023									September 30, 2023
(in thousands)	Securitized debt, net			Securitized debt at fair value			Total securitized debt			Securitized debt, net			Securitized debt at fair value			Total securitized debt
Securitized debt	$	2,668,582		$	389,628		$	3,058,210		$	2,546,709		$	690,371		$	3,237,080
Valuation adjustments on FVO securitized debt		—			(7,829	)		(7,829	)		—			(21,232	)		(21,232	)
Deferred issuance costs and discounts		(46,035	)		—			(46,035	)		(42,375	)		—			(42,375	)
Total securitized debt and securitized debt at fair value	$	2,622,547		$	381,799		$	3,004,346		$	2,504,334		$	669,139		$	3,173,473


	Six Months Ended June 30,						Nine Months Ended September 30,
Securitized debt:	2023			2022			2023			2022
Interest expense	$	76,737		$	44,428		$	119,377		$	75,191
Average outstanding unpaid principal balance		2,973,388			2,175,263			3,044,511			2,331,672
Effective interest rate (1)		5.16	%		4.08	%		5.23	%		4.30	%


	September 30, 2023
(in thousands)	Before-Tax		Tax Effect		Net-of-Tax
Cash flow hedges:
Forward starting payer interest rate swaps:
Net unrealized gain arising during the period	$	1,261	$	356	$	905
Other comprehensive income	$	1,261	$	356	$	905


	June 30, 2023			March 31, 2023			June 30, 2022			September 30, 2023			June 30, 2023			September 30, 2022
	($ in thousands)									($ in thousands)
Total loans	$	3,719,825		$	3,596,176		$	3,090,258		$	3,876,726		$	3,719,825		$	3,432,540
Loan count		9,541			9,147			7,779			9,953			9,541			8,476
Average loan balance	$	390		$	393		$	397		$	390		$	390		$	405
Weighted average loan-to-value		68.2	%		68.1	%		68.2	%		68.0	%		68.2	%		68.7	%
Weighted average coupon		8.4	%		8.2	%		7.5	%		8.6	%		8.4	%		7.7	%
Nonperforming loans (UPB) (A)	$	371,154		$	309,937		$	252,253		$	387,725		$	371,154		$	253,341
Nonperforming loans (% of total) (A)		10.0	%		8.6	%		8.2	%		10.0	%		10.0	%		7.4	%


($ in thousands)	Loan Count		Loan Balance		Average Loan Size		Weighted Average Coupon			Weighted Average LTV			Loan Count		Loan Balance		Average Loan Size		Weighted Average Coupon			Weighted Average LTV
Three Months Ended September 30, 2023:
Loan originations — held for investment														765	$	271,633	$	355		11.08	%		66.5	%
Loan originations — held for sale														8		18,948		2,369		10.46	%		48.9	%
Total loan originations														773	$	290,581	$	376		11.04	%		65.3	%
Loan acquisitions — held for investment														—		—		—		(—	)%		(—	)%
Total loans originated														773	$	290,581	$	376		11.04	%		65.3	%
Three Months Ended June 30, 2023:
Loan originations — held for investment		722	$	258,646	$	358		11.00	%		67.7	%		722	$	258,646	$	358		11.00	%		67.7	%
Loan originations — held for sale		—		—		—		(—	)%		(—	)%		—		—		—		(—	)%		(—	)%
Total loan originations		722	$	258,646	$	358		11.00	%		67.7	%		722	$	258,646	$	358		11.00	%		67.7	%
Loan acquisitions — held for investment		—		—		—		(—	)%		(—	)%		—		—		—		(—	)%		(—	)%
Total loans originated		722	$	258,646	$	358		11.00	%		67.7	%		722	$	258,646	$	358		11.00	%		67.7	%
Three Months Ended March 31, 2023:
Loan originations — held for investment		587	$	197,888	$	337		11.08	%		66.6	%
Loan originations — held for sale		2		19,088		9,544		5.34	%		47.5	%
Total loan originations		589	$	216,976	$	368		10.58	%		65.0	%
Loan acquisitions — held for investment		—		—		—		(—	)%		(—	)%
Total loans originated		589	$	216,976	$	368		10.58	%		65.0	%
Three Months Ended June 30, 2022:
Three Months Ended September 30, 2022:
Loan originations — held for investment		1,072	$	445,424	$	416		7.75	%		69.7	%		1,063	$	441,080	$	415		8.89	%		69.2	%
Loan originations — held for sale		—		—		—		(—	)%		(—	)%		1		16,192		16,192		4.15	%		68.6	%
Total loan originations		1,072	$	445,424	$	416		7.75	%		69.7	%		1,064	$	457,272	$	430		8.58	%		66.8	%
Loan acquisitions — held for investment		1		492		492		7.74	%		60.0	%		11		10,009		910		9.85	%		64.4	%
Total loans originated and acquired		1,073	$	445,916	$	416		7.75	%		69.7	%		1,075	$	467,281	$	435		8.75	%		66.7	%


($ in thousands)	June 30, 2023 (A)				COVID-19 Forbearance		December 31, 2022 (A)				COVID-19 Forbearance		June 30, 2022 (A)				COVID-19 Forbearance		September 30, 2023 (A)				COVID-19 Forbearance		December 31, 2022 (A)				COVID-19 Forbearance		September 30, 2022 (A)				COVID-19 Forbearance
Performing/Accruing:
Current	$	3,114,091	83.7	%	$	123,443	$	2,969,989	84.6	%	$	120,884	$	2,692,799	87.1	%	$	168,774	$	3,188,015	82.6	%	$	99,680	$	2,969,989	84.6	%	$	120,884	$	2,966,765	86.8	%	$	140,160
30-59 days past due		164,586	4.4			9,995		186,051	5.3			33,668		105,808	3.4			15,741		197,242	5.1			32,652		186,051	5.3			33,668		121,528	3.6			11,471
60-89 days past due		69,994	1.9			4,981		63,657	1.8			6,902		39,398	1.3			3,357		84,797	2.2			3,387		63,657	1.8			6,902		74,714	2.2			23,529
90+ days past due		—	—			—		—	—			—		—	—			—		—	—			—		—	—			—		—	—			—
Total Performing Loans		3,348,671	90.0			138,419		3,219,697	91.7			161,454		2,838,005	91.8			187,872		3,470,054	89.9			135,719		3,219,697	91.7			161,454		3,163,007	92.6			175,160
Nonperforming/Nonaccrual:
<90 days past due		23,125	0.6			5,066		17,852	0.5			1,116		16,878	0.6			2,545		17,969	0.5			284		17,852	0.5			1,116		18,291	0.5			3,186
90+ days past due		39,536	1.1			2,088		32,566	0.9			1,681		20,341	0.7			5,853		36,426	0.9			2,917		32,566	0.9			1,681		26,705	0.8			2,114
Bankruptcy		20,256	0.5			1,130		22,435	0.6			7,272		19,560	0.6			3,551		19,323	0.5			3,278		22,435	0.6			7,272		15,899	0.5			3,451
In foreclosure		288,237	7.8			35,236		219,936	6.3			29,482		195,474	6.3			36,493		314,007	8.2			34,848		219,936	6.3			29,482		192,446	5.6			33,607
Total nonperforming loans		371,154	10.0			43,520		292,789	8.3			39,551		252,253	8.2			48,442		387,725	10.1			41,327		292,789	8.3			39,551		253,341	7.4			42,358
Total loans held for investment	$	3,719,825	100.0	%	$	181,939	$	3,512,486	100.0	%	$	201,005	$	3,090,258	100.0	%	$	236,314	$	3,857,779	100.0	%	$	177,046	$	3,512,486	100.0	%	$	201,005	$	3,416,348	100.0	%	$	217,518


	Three Months Ended															Three Months Ended
Long-Term Loans	June 30, 2023					March 31, 2023					June 30, 2022					September 30, 2023					June 30, 2023					September 30, 2022
($ in thousands)	UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)
Resolved — paid in full	$	13,485	$	965		$	11,274	$	632		$	16,934	$	3,303		$	20,668	$	758		$	13,485	$	965		$	16,175	$	967
Resolved — paid current		19,771		280			18,477		233			17,407		129			26,950		206			19,771		280			11,410		182
Resolved — REO sold		4,836		(382	)		570		137			2,107		816			6,341		162			4,836		(382	)		3,171		250
Total resolutions	$	38,092	$	863		$	30,321	$	1,002		$	36,448	$	4,248		$	53,959	$	1,126		$	38,092	$	863		$	30,756	$	1,399
Recovery rate on resolved nonperforming UPB				102.3	%				103.3	%				111.7	%				102.1	%				102.3	%				104.5	%


	Three Months Ended															Three Months Ended
Short-Term and Forbearance Loans	June 30, 2023					March 31, 2023					June 30, 2022					September 30, 2023					June 30, 2023					September 30, 2022
($ in thousands)	UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)
Resolved — paid in full	$	7,004	$	318		$	5,560	$	348		$	9,913	$	976		$	2,967	$	38		$	7,004	$	318		$	8,691	$	396
Resolved — paid current		3,290		89			1,633		9			2,877		22			6,292		—			3,290		89			2,075		—
Resolved — REO sold		1,672		222			1,209		(21	)		1,262		500			2,434		(11	)		1,672		222			3,672		865
Total resolutions	$	11,966	$	629		$	8,402	$	336		$	14,052	$	1,498		$	11,693	$	27		$	11,966	$	629		$	14,438	$	1,261
Recovery rate on resolved nonperforming UPB				105.3	%				104.0	%				110.7	%				100.2	%				105.3	%				108.7	%


	Six Months Ended				Three Months Ended				Six Months Ended				Nine Months Ended				Six Months Ended				Nine Months Ended
($ in thousands)	June 30, 2023				March 31, 2023				June 30, 2022				September 30, 2023				June 30, 2023				September 30, 2022
Average nonperforming loans for the period (1)	$	313,800			$	298,703			$	267,998			$	326,483			$	313,800			$	261,764
Charge-offs		1,200				484				366				1,296				1,200				521
Charge-offs / Average nonperforming loans for the period (1)		0.76	%	(2)		0.65	%	(2)		0.27	%	(2)		0.53	%	(2)		0.76	%	(2)		0.27	%	(2)


Property Type	June 30, 2023							September 30, 2023
($ in thousands)	Loan Count		UPB		% of Total UPB			Loan Count		UPB		% of Total UPB
Investor 1-4		5,837	$	2,016,017		54.2	%		6,151	$	2,120,179		55.0	%
Mixed use		1,093		452,418		12.2			1,103		457,130		11.8
Retail		668		321,828		8.7			685		327,771		8.5
Multifamily		552		303,682		8.2			562		305,013		7.9
Warehouse		364		235,264		6.3			380		246,614		6.4
Office		463		194,654		5.2			484		199,847		5.2
Other(1)		564		195,962		5.2			580		201,225		5.2
Total loans held for investment		9,541	$	3,719,825		100.0	%		9,945	$	3,857,779		100.0	%


Geography (State)	June 30, 2023							September 30, 2023
($ in thousands)	Loan Count		UPB		% of Total UPB			Loan Count		UPB		% of Total UPB
California		1,264	$	806,195		21.7	%		1,281	$	829,110		21.5	%
New York		1,300		713,750		19.2			1,313		723,574		18.7
Florida		1,312		520,627		14.0			1,357		536,061		13.9
New Jersey		865		273,423		7.4			894		288,389		7.5
Other(1)		4,800		1,405,830		37.7			5,100		1,480,645		38.4
Total loans held for investment		9,541	$	3,719,825		100.0	%		9,945	$	3,857,779		100.0	%


	Three Months Ended June 30, 2023 and 2022							Three Months Ended September 30, 2023 and 2022
($ in thousands)	Average Loans		Interest Income		Average Yield (1)			Average Loans		Interest Income		Average Yield (1)
Three months ended June 30, 2023	$	3,637,570	$	74,897		8.24	%
Three months ended June 30, 2022		2,973,680		59,243		7.97	%
Three months ended September 30, 2023								$	3,773,631	$	79,088		8.38	%
Three months ended September 30, 2022									3,217,264		63,419		7.88	%
Volume variance		663,890		13,228					556,367		10,960
Rate variance				2,426		0.27	%				4,709		0.50	%
Total interest income variance			$	15,654						$	15,669
(1) Annualized.


	Six Months Ended June 30, 2023 and 2022							Nine Months Ended September 30, 2023 and 2022
($ in thousands)	Average Loans		Interest Income		Average Yield (1)			Average Loans		Interest Income		Average Yield (1)
Six Months Ended June 30, 2023	$	3,581,299	$	145,418		8.12	%
Six Months Ended June 30, 2022		2,828,266		111,292		7.87	%
Nine Months Ended September 30, 2023								$	3,645,410	$	224,506		8.21	%
Nine Months Ended September 30, 2022									2,957,932		174,711		7.88	%
Volume variance		753,033		29,632					687,478		40,630
Rate variance				4,494		0.25	%				9,165		0.33	%
Total interest income variance			$	34,126						$	49,795
(1) Annualized.


	Three Months Ended																									Three Months Ended
	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022				December 31, 2021			September 30, 2021			September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022				December 31, 2021
($ in thousands)	(unaudited)																									(unaudited)
Interest income	$	74,897		$	70,521		$	65,632		$	63,419		$	59,243		$	52,049			$	49,360		$	46,923		$	79,088		$	74,897		$	70,521		$	65,632		$	63,419		$	59,243		$	52,049			$	49,360
Interest expense - portfolio related		45,451			42,029			40,854			34,561			28,752			23,556				23,666			20,321			47,583			45,451			42,029			40,854			34,561			28,752			23,556				23,666
Net interest income - portfolio related		29,446			28,492			24,778			28,858			30,491			28,493				25,694			26,602			31,505			29,446			28,492			24,778			28,858			30,491			28,493				25,694
Net interest margin - portfolio related		3.24	%		3.23	%		2.84	%		3.59	%		4.10	%		4.25	%			4.27	%		4.97	%		3.34	%		3.24	%		3.23	%		2.84	%		3.59	%		4.10	%		4.25	%			4.27	%
Interest expense - corporate debt		4,139			4,139			4,139			4,011			4,182			17,140				4,462			4,488			4,138			4,139			4,139			4,139			4,011			4,182			17,140				4,462
Net interest income		25,307			24,353			20,639			24,847			26,309			11,353				21,232			22,114			27,367			25,307			24,353			20,639			24,847			26,309			11,353				21,232
Net interest margin - total company		2.78	%		2.76	%		2.36	%		3.09	%		3.54	%		1.69	%			3.53	%		4.13	%		2.90	%		2.78	%		2.76	%		2.36	%		3.09	%		3.54	%		1.69	%			3.53	%
Provision for (reversal of) loan losses		298			636			(437	)		580			279			730				377			228			154			298			636			(437	)		580			279			730				377
Net interest income after provision for loan losses		25,009			23,717			21,076			24,267			26,030			10,623				20,855			21,886			27,213			25,009			23,717			21,076			24,267			26,030			10,623				20,855
Other operating income		14,037			12,843			11,420			3,027			3,592			6,281				3,190			719			17,360			14,037			12,843			11,420			3,027			3,592			6,281				3,190
Operating expenses		22,222			21,803			20,804			13,245			14,832			12,883				12,668			11,678			27,334			22,222			21,803			20,804			13,245			14,832			12,883				12,668
Income before income taxes		16,824			14,757			11,692			14,049			14,790			4,021				11,377			10,927			17,239			16,824			14,757			11,692			14,049			14,790			4,021				11,377
Less income attributable to noncontrolling interest		39			87			(235	)		307			126			110				—			—			83			39			87			(235	)		307			126			110				—
Income tax expense		4,602			4,021			3,465			3,759			4,019			790				3,024			2,905			5,070			4,602			4,021			3,465			3,759			4,019			790				3,024
Net income	$	12,183		$	10,649		$	8,462		$	9,983		$	10,645		$	3,121		(1)	$	8,353		$	8,022		$	12,086		$	12,183		$	10,649		$	8,462		$	9,983		$	10,645		$	3,121		(1)	$	8,353


($ in thousands)			Securities Retained as of									Securities Retained as of
Trusts	Securities Issued		Issuance Date		June 30, 2023		December 31, 2022		Stated Maturity Date	Securities Issued		Issuance Date		September 30, 2023		December 31, 2022		Stated Maturity Date
2016-1 Trust	$	319,809	$	38,792	$	17,624	$	17,541	April 2046	$	319,809	$	38,792	$	—	$	17,541	April 2046
2017-2 Trust		245,601		12,927		2,468		2,697	October 2047		245,601		12,927		2,416		2,697	October 2047
2018-1 Trust		176,816		9,308		1,801		2,065	April 2048		176,816		9,308		1,626		2,065	April 2048
2018-2 Trust		307,988		16,210		4,047		4,352	October 2048		307,988		16,210		3,781		4,352	October 2048
2019-1 Trust		235,580		12,399		—		4,178	March 2049		235,580		12,399		—		4,178	March 2049
2019-2 Trust		207,020		10,901		—		4,007	July 2049		207,020		10,901		—		4,007	July 2049
2019-3 Trust		154,419		8,127		—		3,281	October 2049		154,419		8,127		—		3,281	October 2049
2020-1 Trust		248,700		13,159		—		6,746	February 2050		248,700		13,159		—		6,746	February 2050
2020-2 Trust		96,352		32,118		12,847		12,847	June 2050		96,352		32,118		12,847		12,847	June 2050
2021-1 Trust		251,301		13,227		—		10,120	May 2051		251,301		13,227		—		10,120	May 2051
2021-2 Trust		194,918		10,260		—		—	August 2051		194,918		10,260		—		—	August 2051
2021-3 Trust		204,205		—		—		—	October 2051		204,205		—		—		—	October 2051
2021-4 Trust		319,116		—		—		—	December 2051		319,116		—		—		—	December 2051
2022-1 Trust		273,594		5,015		4,451		4,718	February 2052		273,594		5,015		4,451		4,718	February 2052
2022-2 Trust		241,388		11,202		11,170		11,170	March 2052		241,388		11,202		11,170		11,170	March 2052
2022-MC1 Trust		84,967		40,911		45,044		44,038	May 2047		84,967		40,911		44,926		44,038	May 2047
2022-3 Trust		296,323		18,914		15,489		18,587	May 2052		296,323		18,914		15,489		18,587	May 2052
2022-4 Trust		308,357		25,190		13,414		25,027	July 2052		308,357		25,190		13,414		25,027	July 2052
2022-5 Trust		188,754		65,459		12,649		65,141	October 2052		188,754		65,459		12,649		65,141	October 2052
2023-1 Trust		198,715		41,593		4,043		—	December 2052		198,715		41,593		4,042		—	December 2052
2023-1R Trust		64,833		66,228		66,228		—	October 2025		64,833		66,228		66,228		—	October 2025
2023-2 Trust		202,210		24,229		23,948		—	April 2053		202,210		24,229		23,948		—	April 2053
2023-RTL1 Trust											81,608		4,296		4,296		—	July 2028
2023-3 Trust											234,741		28,718		28,481		—	July 2053
Total	$	4,820,966	$	476,169	$	235,223	$	236,515		$	5,137,315	$	509,183	$	249,764	$	236,515


		Incorporated by Reference
Exhibit Number	Exhibit Title	Form	File No.	Exhibit	Filing Date

3.1	Certificate of Conversion	8-K	001-39183	3.1	1/22/2020

3.2	Restated Certificate of Incorporation of Velocity Financial, Inc.	8-K	001-39183	3	5/23/2022

3.3	Amended and Restated Bylaws of Velocity Financial, Inc.	8-K	001-39183	3.2	3/25/2022

4.1	Form of Stock Certificate for Common Stock	S-1	333-234250	4.1	10/18/2019

4.2	Form of Warrant to Purchase Common Stock	8-K	001-39183	4.1	4/7/2020

4.3	Description of the Registrant’s Securities	10K	001-39183	4.3	4/7/2020

10.1	Stockholders Agreement, dated as of January 16, 2020	10-K	001-39183	10.1	4/7/2020

10.2	Registration Rights Agreement, dated as of January 16, 2020	10-K	001-39183	10.2	4/7/2020

10.3	Registration Rights Agreement, dated as of April 7, 2020	8-K	333-234250	10.1	4/7/2020

10.4	Securities Purchase Agreement among Velocity Financial, Inc. and the Purchasers Party thereto dated April 5, 2020	8-K	001-39183	10.1	4/6/2020

10.5	Velocity Financial, Inc. Employee Stock Purchase Plan*	DEF 14A	001-39183	AII	4/8/2022

10.6	Amended and Restated Velocity Financial, Inc. 2020 Omnibus Incentive Plan*	DEF 14A	001-39183	AI	4/8/2022

10.7	Form of Nonqualified Stock Option Award Notice and Agreement under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.6	1/6/2020

10.8	Form of Nonqualified Stock Option Award Notice and Agreement (Director Grant-IPO) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.7	1/6/2020

10.9	Form of Nonqualified Stock Option Award Notice and Agreement (Executive Officer Grant-IPO) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.8	1/6/2020

10.10	Form of Restricted Stock Unit Grant and Agreement (Director Grant) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.9	1/6/2020

10.11	Form of Restricted Stock Unit Grant and Agreement (Standard Grant) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.10	1/6/2020

10.12	Form of Restricted Stock Grant and Agreement under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.11	1/6/2020

10.13	Velocity Financial 2023 Annual Cash Incentive and Performance Stock Units Programs for Messrs. Farrar, Szczepaniak and Taylor*	8-K	001-39183	-	1/17/2023

10.14	Form of Equity Distribution Agreement, dated September 3, 2021	8-K	001-39183	1.1	9/7/2021

10.15	Form of Officer and Director Indemnity Agreement*	S-1/A	333-234250	10.37	11/6/2019

10.16	Form of Performance Stock Unit Grant and Agreement*	-	-	-	-

10.17	Note Purchase Agreement Dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association, as collateral agent, and the respective purchasers of the Notes.	8-K	001-39183	10.1	3/16/2022

10.18	Security Agreement, dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC and U.S. Bank Trust Company, National Association, as collateral agent.	8-K	001-39183	10.2	3/16/2022

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

32.2		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of ~~June~~September 30, 2023 and December 31, 2022 (ii) the Consolidated Statements of Income for the quarter ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the quarter ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022, (iv) the Consolidated Statements of Cash Flows for the quarter ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022 and (v) the Notes to unaudited Consolidated Financial Statements.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).


	VELOCITY FINANCIAL, INC.

Date: ~~August 3,~~November 2, 2023	By:	/s/ Christopher D. Farrar
		Christopher D. Farrar
		Chief Executive Officer

Date: ~~August 3~~November 2, 2023	By:	/s/ Mark R. Szczepaniak
		Mark R. Szczepaniak
		Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company