Velocity Financial(VEL) - 2020 Q2 - Quarterly Report

Loan Portfolio and Performance - As of June 30, 2020, the company's loan portfolio totaled $2.1 billion of UPB across 45 states, with an average loan balance of approximately $327,000[126] - The annualized yield on the total portfolio for the three months ended June 30, 2020, was 7.59%[126] - The portfolio-related net interest margin for the same period was 3.54%, with pre-tax income of $2.6 million and net income of $2.1 million[128] - Total loans as of June 30, 2020 amounted to $2,058,990,000, with a loan count of 6,294 and an average loan balance of $327,000[165] - The weighted average loan-to-value ratio at origination for the portfolio was 65.8%, with 51.3% of the UPB concentrated in investor 1-4 unit residential rental loans[126] - The weighted average loan-to-value ratio remained stable at 65.8% as of June 30, 2020, consistent with the previous period[165] - The weighted average coupon for loans held for investment was 8.60% as of June 30, 2020[165] - The loan portfolio was concentrated in investor 1-4 loans, which accounted for 45.6% of the total unpaid principal balance (UPB) of $1.84 billion as of June 30, 2020[181] - The weighted average interest rates on securities for the 2014-1 Trust decreased from 8.33% in December 2019 to 7.29% in June 2020[269] Financial Operations and Results - The company completed its IPO in January 2020, receiving net proceeds of $100.7 million, of which $75.0 million was used to repay corporate debt[129] - In April 2020, the company raised $45.0 million through the issuance of Preferred Stock and Warrants, which were used to pay down existing warehouse repurchase facilities[130] - The company achieved a net interest spread of 2.75% for the total company for the three months ended June 30, 2020[200] - Interest income increased by $2.9 million to $39.8 million for the three months ended June 30, 2020, compared to $36.9 million for the same period in 2019, primarily due to an increase in average loans from $1.7 billion to $2.1 billion[227] - Net interest income related to the portfolio grew by $2.0 million from $16.6 million for the three months ended June 30, 2019 to $18.6 million for the same period in 2020, and from $33.6 million to $40.4 million for the six months ended June 30, 2020[226] - Total operating expenses rose to $10.9 million for the three months ended June 30, 2020, up from $8.3 million in the same period of 2019[226] - Net income for the three months ended June 30, 2020, was $2.1 million, a decrease from $3.5 million for the same period in 2019[226] - The company recorded a net interest income after provision for loan losses of $14.9 million for the three months ended June 30, 2020, compared to $13.0 million for the same period in 2019[226] COVID-19 Impact - Due to COVID-19, the company temporarily suspended loan originations and purchases, resulting in no loans originated or purchased during the quarter ended June 30, 2020[138] - The company has implemented a COVID-19 forbearance program to help small investors retain properties and minimize portfolio losses[138] - Loan originations were suspended as of June 30, 2020, due to the COVID-19 pandemic, impacting future performance[160] - The provision for loan losses for the three months ended June 30, 2020, was $1.8 million, significantly higher than $212,000 in the same period of 2019[174] - Total nonperforming loans reached $268.8 million, or 14.6% of the held for investment loan portfolio, up from $151.1 million, or 7.9%, as of March 31, 2020, primarily due to the COVID-19 pandemic[176] - The average yield on loans decreased from 8.71% to 7.59% due to an increase in nonperforming loans attributed to COVID-19[227] Securitizations and Financing - The company has executed fourteen securitizations since May 2011, resulting in over $2.9 billion in gross debt proceeds[127] - On July 10, 2020, the company securitized $276.0 million of loans, issuing $179.4 million in notes and certificates, which were used to pay off existing warehouse lines[138] - The company executed two securitizations in June and July 2020, resulting in approximately $273.0 million in proceeds used to pay off existing warehouse lines[257] - The company completed fourteen securitizations from May 2011 through June 2020, totaling $3.1 billion in investor real estate loans, with $2.9 billion in securities issued[267] Credit Quality and Losses - Nonperforming loans increased to $329,132,000, representing 15.99% of total loans as of June 30, 2020, compared to 6.88% as of December 31, 2019[165] - The allowance for credit losses rose to $5.2 million as of June 30, 2020, an increase of $3.1 million from $2.1 million as of June 30, 2019[172] - As of June 30, 2020, the allowance for credit losses increased to $5.22 million, representing 0.28% of total loans held for investment of $1.84 billion, compared to 0.13% in the same period of 2019[174] - The charge-off rate remained low at 10 basis points for the three months ended June 30, 2020[172] - The company emphasizes rigorous screening and underwriting processes to minimize credit losses and maintain portfolio quality[172] Cash and Liquidity - Cash provided by operating activities was $23.7 million for the six months ended June 30, 2020, compared to $9.2 million for the same period in 2019[256] - The company had cash of $9.8 million as of June 30, 2020, down from $14.1 million as of June 30, 2019[256] - Borrowings under warehouse facilities decreased to $158.6 million as of June 30, 2020, from $417.2 million as of December 31, 2019[261] - As of June 30, 2020, the company maintained approximately $158.6 million in outstanding borrowings under warehouse facilities[274] Regulatory and Reporting - The company filed its Annual Report on Form 10-K for the year ended December 31, 2019, with the SEC on April 7, 2020[281] - The company filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, with the SEC on May 14, 2020[281] - The company discussed its financial condition and results of operations in the Quarterly Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations"[281] - The company included risk factors in its public documents, reports, and announcements[281] - There are no applicable quantitative and qualitative disclosures about market risk[282]