Good day, and welcome to the Velocity Financial, Inc. second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer and Director of Investor Relations. Please go ahead.
Thank you, Andrew. Hello, everyone, and thank you for joining us today for the discussion of Velocity Financial's second quarter 2022 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our second quarter 2022 release and accompanying presentation, which are available on our Investor Relations website. I'd like to remind everybody that today's call may include forward-looking statements, which are uncertain and outside of the company's control. Actual results may differ materially. For discussion of some of the risk and other factors that could affect results, please see the risk factors and other talks and statements made in our communications with shareholders.
Excuse me, Mr. Oltmann.
Yes.
I'm sorry to interrupt. Your voice is breaking up. Is it possible to pick up a handset by any chance? We're not hearing everything.
Can you hear me better now?
Yes, I believe so. I'm not sure if you'd like to maybe just begin from the start just to make sure everyone hears the safe harbor, et cetera.
Okay. Thank you for joining us today, everyone, for Velocity Financial second quarter 2022 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer, and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our second quarter 2022 press release, accompanying presentation. Those are available on our investor relations website. I'd like to remind everybody that today's call may include forward-looking statements, which are uncertain and outside of the company's control, and actual results may differ materially. For a discussion of some of the risk and other factors that could affect results, please see the risk factors and cautionary statements made in our communications with shareholders, including risk factors disclosed in our filings with the Securities and Exchange Commission.
Please note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements. We may also refer to certain non-GAAP measures on this call. For representations of these non-measures, you should refer to earnings materials on our investor relations website. Today's call is being recorded and will be available on the company's website later today. With that, I will now turn the call over to Chris Farrar.
Thanks, Chris, and welcome everybody to our second quarter earnings call. Before we dive in, I wanna recognize Mark, our CFO, Mark Szczepaniak's recent award from the Los Angeles Times as CFO of the Year. Anyone who's worked with Mark knows he's a true leader and a genuinely great person. His commitment and work ethic permeates our culture, and we're very fortunate to have Mark on our team. Congratulations, Mark, on a well-deserved award. In terms of our results, we reported another outstanding quarter in an obviously uncertain time. Our unique portfolio approach continues to generate stable earnings with limited volatility. Originations moderated this quarter as our recent coupons increased to the mid-8% range. Fortunately, we're continuing to see healthy loan submissions at those levels.
We're currently in the market with our fifth securitization of the year, and we're pleased with the strong support we've seen from our investor base. For seasoned loans, our delinquency continues to normalize, and our special servicing team consistently delivers impressive results. Beginning to see a cool down in the real estate markets, which we think is healthy, and there are still plenty of loan opportunities for us to invest in. Due to the recent market volatility, we're also being shown some interesting opportunities to acquire good assets from distressed operators. We intend to capitalize on those situations as they develop in the second half of this year. From a liquidity perspective, we're in the strongest position we've had in many years.
Due to our stable portfolio earnings, we can be patient in deploying our capital, and we'll manage our liquidity carefully as the market evolves over the next six to 12 months. Despite the recent headwinds, we are very confident in our ability to grow and deliver strong returns for our shareholders. With that, I'll turn over to the presentation materials starting on page three. Looking at the second quarter from an earnings perspective, nice strong earnings, $10.6 million, both on a core and GAAP basis. Healthy increase, year-over-year. Down a touch from the first quarter on a core basis, and that's mainly driven by fewer loan sales. We made more loan sales in the first quarter and in the second quarter decided to securitize more assets.
As we've said, over time, we'll be opportunistic when we make those sales. From a net interest income perspective, up almost 25% year-over-year. Very good strong net interest income growth as the portfolio grew. An exceptional quarter from the NPL recovery rate of 111% over and above accrued interest in outstanding UPB. We saw some really nice pickups there from some older seasoned loans that had been unresolved for a long time and a couple of REO gains. Just great performance there. In terms of production, you can see year-over-year up about 74%, so very nice growth on a quarterly basis.
For the first six months of the year, over $1 billion, which is more than twice the amount that we had done the prior year. Fantastic growth across the platform. Ended the quarter with $3.1 billion in UPB. As we've come out of COVID-19 and started to see borrowers get back on their feet, we've seen the non-performing rate reduce dramatically as borrowers cure and NPLs get resolved. From a financing and capital perspective, we completed three securitizations during the quarter. I think that speaks to our strength out there in the track record and the history that we've had of bringing good deals to market. We're proud to be able to continue to execute in choppy times.
One of those transactions was a refinance of a deal that we'd done during the heart of COVID-19, and we had a tremendous amount of capital tied up in that transaction. That freed up a lot of liquidity for us. In my mind, one of the most important highlights of the quarter is we're sitting on $134 million of liquidity at the end of the quarter, which really puts us in a good position to not only take advantage of interesting opportunities, but also just, you know, patiently watch and see how markets develop. Lastly, here, we did increase warehouse capacity, another $100 million during the quarter. As a reminder, all but one of those facilities is non-mark-to-market.
We've eliminated that risk almost entirely across the portfolio with securitization and non-mark-to-market facilities. Turning to page four, you can see book value per share $11.26. I think this slide just highlights our unique portfolio approach of building book value and trying to, you know, maximize shareholder return with limited volatility. A number of our peers are seeing big marks just based on market volatility, and our sort of approach and accounting methods, I think, eliminate a lot of that. I'm proud of how the business has performed. With that, I'll turn it over to Mark to handle the rest.
Thanks, Chris. Good afternoon, good evening, everyone. Thank you, Chris, for the kind words. Of course, I had to pay him enough to say all those things, but that's a different story. On slide five for loan production. As Chris mentioned, we have very strong loan production for the first half of this year. A little over $1 billion compared to about $489 million for the six months of 2021, which is a 110% increase in production. We only had $1.3 billion fundings for all 12 months of last year. So, we're at $1 billion for six months, we're still seeing very strong demand for our product. We have $445 million funded in Q2.
As we'll see in a little bit, you know, we've been raising our WACs on our loans, on our new loan applications to kind of keep up with the interest rates that we're seeing on the finance side to maintain that spread. We'll see that in just a moment. Even after raising our WACs and actually our Q2 production, new originations on Q2, our weighted average coupons were up 145 basis points from the new originations that we had in Q1. We've been aggressively raising the rates and still seeing good, strong production coming in in Q2 and again, the first six months of the year. Very happy to see that.
On slide six, when the production comes in strong, the loan portfolio is growing accordingly because we're putting most of that into our portfolio, in place portfolio with our locked spread. Our total loan portfolio at the end of June was $3.1 billion. That's up 7% from the $2.9 billion as at the end of Q1, and up 49% year-over-year compared to June of last year. Again, just showing the very, very strong demand for our product. And the weighted average coupon was 7.53%, and that's up from 7.50% for the first quarter. Again, we're raising the rates, getting the coupon up to offset the rising interest rates on the financing side and still getting in the volume and able to grow the portfolio significantly. Slide seven, the net interest margin.
What we're seeing is more of a return to normalized levels on our NIM. If you go back to second quarter of last year, you can see on the page it was up at 4.83%. We had said in some previous calls that, you know, that margin was kind of inflated. We were getting higher margins because we were getting a lot of the default interest prepayment penalties as we were bringing that NPL rate consistently down. That yield coming through was not a sustainable yield over the long haul. We normally run like around a 4-point, you know, margin. That you see we're normalizing back to kind of our normal run rate margin. We feel really good about that.
As our non-performing loans are resolved, the default interest and prepayment fees have kind of started to normalize because our NPL rate has come significantly down, and we'll take a look at that. While we're doing that, we're still maintaining that spread. If you look at the right-hand side, the portfolio yield and cost of funds, you can kind of see, go back to Q2 of last year, when interest rates were higher, we were charging more on the loans, and of course, our debt costs were a lot higher at 4.81%. You can see as Q1 came into play, as rates came down the second half of 2021 into the first quarter of 2022, we lowered the WAC on the loans to still maintain that spread.
We've been very aggressive now going into Q2 and through Q2 as interest rates have gone back up on the financing side. Again, as I said, we've increased the WACs, almost immediately to keep that yield on our loans and still maintaining that spread throughout. On page eight, the asset resolution activity. We continue to see strong resolutions on our NPLs. NPL resolutions for Q2, $50 million in UPB for a $5.7 million gain. That's an 11-point gain on our resolution. Historically, we've run around a 3.5, 4-point gain on our resolutions of NPL loans, and we're at 11-point gain for Q2. As Chris mentioned, some of the things in there in Q2, we did sell a couple large REOs that probably brought in about a $1 million gain.
If you look at the resolution activity at the long-term loan side up in the top, you see paid in full for Q2 is about $17 million UPB paid in full for a $3.3 million gain, where Q2 of last year, so that was $21 million, but a smaller gain. The reason that's happening is some of those, as Chris mentioned, some of those loans that were in foreclosure in the judicial states, where it takes about a year and a half to two years to settle those loans, some of those are now finally coming through. Remember, we've got that 4 point default interest tacked on, and that's accruing the whole time it's in that foreclosure process.
As these borrowers are now paying off those loans because we're getting to the point where we can foreclose on the properties, they don't want to lose the property, so as they're paying off these loans, they have to pay it off, they have to come up with all that default interest too, and that's why you're seeing a lot of those big gains coming through. One thing to point out, it's not on this slide, but with that growth in production, the growth of the in-place portfolio and maintaining that spread, we're seeing, you know, great core diluted earnings per share. You saw it was $0.31 for Q2. Year to date, which wasn't on one of these slides. Year to date, our core diluted EPS is $0.67 a share versus $0.45 a share for the first six months of 2021.
You know, year-over-year or six-months-over-six-months, you've seen a 50% increase in that core diluted earnings per share. On the next slide, the loan investment portfolio performance. As I mentioned, with all those strong resolutions that we're doing, the NPL rate continues to come down. We ended Q2 at an 8.2% non-performing rate. You know, year-over-year comparison, that compares to 15.3%, where we're at Q2 of 2021. Remember, it was at the end of 2020, we were as high as 17.1%.
We feel very, very good about the way we've been able to get these loans performing again or to resolve the loans by having them pay down or pay current, all at the same time, still making a 4-point or even you saw 11 points in Q2 gain on those resolutions. That's mainly, you know, because of our own in-house special servicing department. It allows us to take charge of those non-performing assets, really work with the borrowers on getting very, very successful resolutions. That kind of in-house strategy really pays off, and you can kind of see the results here. In terms of our loan loss reserve, our CECL reserve, it remains very consistent in terms of basis points of reserve on UPB. That's in kind of the bottom left-hand chart. You can see we were at 19 basis points back in Q2 of 2021.
We kind of had additional reserves on there, not knowing the uncertainties of COVID-19, and now we're kind of evening out right around the 16-17 basis points. In terms of total dollars, we ended the quarter at $4.9 million, which is a 5.2% increase from Q1 and a 24% increase from June of last year. That's really as a result of just the growth of the portfolio. As our in-place portfolio grows and you're maintaining a 16-17 basis point spread, you know, the dollars of the reserve are gonna grow accordingly. The key point is on the right-hand side of the bottom, you see our charge-offs. You know, our charge-offs has been running consistently low, and that's historical too.
Even if you just look at the last four quarters, the average charge-offs, loan charge-offs have been about $168,000 a quarter, with this most recent quarter, it's coming in at under $38,000. Again, strong resolutions, NPL rate coming down, very low charge-offs, very good gain, and kind of maintaining our margin in a very kind of widely moving interest rate environment. We kind of feel very good about our results and where we're headed so far this year. On page 11, the durable funding liquidity strategy. Chris, I think, hit most of the high points there. We did four securitizations already in 2022. Think about we did four all of last year, and we've already done four during six months. Three of those securitizations were in Q2.
We actually did securitizations April, May, and June, which again just goes to show the investor demand for the product that's out there. We're having no problem getting these securitizations done in a pretty kind of wildly moving market. We feel really good about that. We did $896 million worth of securitizations issued this year, of which $623 million almost was in Q2. We achieved a couple things with these securitizations. One, we were able to collapse a couple older deals. One deal was as far back as 2015, which was the old sequential structure. I'm sorry. Yeah, the sequential structure. That sequential structure, as it pays down, gets more expensive. That was a higher yield deal.
We were able to collapse that and re-securitize it in our pro-rata structure at actually a lower cost. The old 2020-MC1, the old mixed collateral deal that we did back in July 2020, kind of in the heat of COVID-19 to get the securitization and liquidity, was only at a 65% advance rate. We had a lot of equity and collateral tied up in that deal. As it paid down, our equity just went up because all the payments as a whole went right to the bondholders, paid them down, and our equity just kind of kept growing. We were able to re-leverage that at almost like a 75% advance rate, and generate quite a bit of liquidity, as Chris mentioned.
We were able to do those deals, ending up the second quarter with about $134 million in available liquidity, $46 million of that being the cash that you see on the balance sheet, and then another $88 million in loans that are unfinanced, that we can put on lines at any time and draw the liquidity off of. We feel really good about our liquidity position ending the quarter. As Chris mentioned, we raised the maximum capacity of our warehouse lending from $650 million - $750 million. Another $100 million capacity as we again see the production growing and the portfolio growing.
With that, I'll turn it back to Chris to go over the economic value of equity.
Thanks, Mark. Appreciate it. On slide 12, we've shown this slide a few quarters in a row now, so won't spend a tremendous amount of time on it, but wanna make the point that most of our peers, you know, mark their balance sheet to fair value. If we were to do something like that, we'd see a much higher mark than you see just looking at the face of the financial statements. That's largely driven by the locked in spread and embedded gain in the portfolio. We think from a value perspective, we're undervalued, you know, based on where our stock's trading today and wanna try to highlight that we think there's a lot of future value that's yet to be realized.
On 13, just kind of talking about the outlook, we mentioned that, you know, we're seeing good demand from a credit perspective. We feel very, very safe there. You know, there's a lot in the press about what's gonna happen and what may happen, but so far, we think things are good and expect it to continue that way. We do plan to do two more securitizations this year. I think from an earnings perspective, we just wanna continue to focus on managing the portfolio, providing that stable spread, and looking for any opportunities to grow both organically and strategically. With that, we'll turn it back over to Andrew, and we can see if there are any questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Arren Cyganovich with Citi. Please go ahead.
Thank you. On the production side, obviously a solid quarter, a little bit lower and it sounds like you were able to pass through some of the increase in price which you know slowed down the production. What level of production are you expecting in the second half of the year, you know, relative to-- I guess maybe you could talk about how the cadence happened throughout the quarter?
Yeah. Hi, Arren. Good question. I mean, I think the right guidance is kind of at the second quarter level. We feel good that we're gonna be able to deliver that for the next few quarters. So, I think that's a good run rate.
Okay, that's good. On the securitizations that you did recently, how have those been pricing relative to some of your earlier securitizations?
Yeah, they're definitely pricing a lot wider than certainly 2021. 2021 was a banner year for us, and we were getting some incredible pricing there. I would say they're pricing a little wider than even before 2021. Margins aren't as strong on the most recent deals as probably they have been historically. But I think on a go-forward basis, we feel like we've caught the pipeline up now and think we'll be there. Obviously depends a lot on where the market goes from here, but we're feeling like we're back in line from a spread perspective now.
That would be kind of around that 4% type of NIM. That's the expectation?
Yes, that's right.
Okay. All right. Thanks a lot.
You're welcome.
Again, if you have a question, please press star then one. The next question comes from Steve Delaney with J MP Securities. Please go ahead.
Thanks. Hey, guys. Congrats on a really strong quarter in an obviously very challenging market. Mark, congrats to you from another former public company CFO. It's tough work, man. Great job.
Thank you.
Chris, you talked about distress situations, seeing some things out there. Boy, we have seen some shops shut down. Just this morning, I saw a mortgage REIT write- off over $20 million of a preferred equity investment in an originator who had ceased operations. We know those kinds of things are out there. I'm just curious, as you look at those opportunities, is it a matter of just looking at loan collateral that may be sitting on a warehouse somewhere? Or is there any interest in infrastructure and in any product expansion opportunities? Thanks.
Sure. Thanks, Steve. Appreciate it. Yeah, we've seen both asset opportunities and strategic opportunities. Nothing huge yet, but I feel like it's the beginning of probably a larger opportunity set. On the asset side, yeah, I think you're largely seeing assets that are probably hung either on a warehouse line or maybe have some scratch and dent characteristic or something like that, where we would obviously look to pick those up at a discount.
Mm-hmm.
I think strategically, we've seen a couple of platforms that we've looked at. Nothing compelling yet. We haven't seen anything in terms of new products, but we're open to that. My gut tells me over the next six months, we may see something like that.
Okay. Yeah. Okay. Well, that's the last year or so, it's been just a matter of, you know, your own keeping things straight in your own kitchen, right?
Right.
I mean, you guys have really gotten yourselves squared away and.
Thank you.
You got a strong position to take advantage. Just curious where you're pricing today. I mean, I assume we're probably up to something near an 8 handle, and how the demand is looking at that type of a coupon.
Yeah. The more recent production is kind of 8.5%-9%-ish coupon.
Okay.
Yeah. In the last few weeks, submissions have been very strong. I think there's what I call the kind of the sensitivity period where you know, customers and clients, borrowers are kind of adjusting to things and then there's a, like a hold back or a lull, if you will, and then people start to realize this is the new reality and they transact.
Mm-hmm.
There was a little bit of an adjustment period there for sure, but very pleased to see how strong submissions have been.
That's great. Thank you both for the comments. Appreciate it.
Thank you, Steve.
This concludes our question-and-answer session. I would like to turn the conference back over to Chris Farrar for any closing remarks.
I just wanna say thanks again for everybody for participating and all of your support, and we're grateful for the support that we've seen from everyone. That'll conclude our call and thank you.
Thank you, everybody.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.