Velocity Financial(US:VEL)2021-08-05 22:33PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Presents the company's unaudited consolidated balance sheets, income statements, and cash flow statements for the period Consolidated Balance Sheets Total assets grew to $2.27 billion driven by loan growth, with a corresponding increase in liabilities Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $27,741 | $13,273 | | Total loans, net | $2,093,039 | $1,962,734 | | Total assets | $2,267,605 | $2,102,874 | | Liabilities & Equity | | | | Secured financing, net | $164,053 | $74,982 | | Securitizations, net | $1,558,163 | $1,579,019 | | Warehouse and repurchase facilities, net | $151,872 | $75,923 | | Total liabilities | $1,944,137 | $1,793,285 | | Total stockholders' equity | $233,468 | $219,589 | | Total liabilities, mezzanine equity and stockholders' equity | $2,267,605 | $2,102,874 | Consolidated Statements of Income Q2 2021 net income rose to $9.5 million due to higher net interest income and a loan loss provision reversal Consolidated Statements of Income Highlights ($ in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $20,103 | $16,672 | $32,628 | $32,118 | | (Reversal of) provision for loan losses | ($1,000) | $1,800 | ($895) | $3,088 | | Income before income taxes | $12,885 | $2,625 | $17,489 | $6,351 | | Net income | $9,453 | $2,141 | $12,849 | $4,720 | | Net earnings attributable to common stockholders | $5,882 | ($46,814) | $7,995 | ($44,235) | | Basic EPS | $0.29 | ($2.33) | $0.40 | ($2.20) | | Diluted EPS | $0.28 | ($2.33) | $0.38 | ($2.20) | Consolidated Statements of Cash Flows Net cash increased by $15.4 million in H1 2021, funded by financing activities offsetting investing outflows Cash Flow Summary for Six Months Ended June 30 ($ in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,896 | $23,740 | | Net cash (used in) provided by investing activities | ($139,644) | $2,704 | | Net cash provided by (used in) financing activities | $134,117 | ($37,458) | | Net increase (decrease) in cash | $15,369 | ($11,014) | Notes to Unaudited Consolidated Financial Statements Details accounting policies, loan portfolio composition, credit loss allowances, and debt facility terms - The company originates and acquires small balance investor real estate loans, funded by equity and borrowed funds24 - As of June 30, 2021, loans in the COVID-19 forbearance program had an unpaid principal balance (UPB) of $342.4 million, down from $392.1 million at year-end 20204142 - The allowance for credit losses decreased to $4.0 million as of June 30, 2021, from $5.8 million at year-end 2020, due to an improved economic outlook5253 - In February 2021, the company entered into a new five-year $175.0 million syndicated corporate debt agreement (2021 Term Loan)63 - In July 2021, the company entered into a new $100.0 million non-mark-to-market Term Repurchase Agreement maturing in July 2024116 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial results, highlighting strong Q2 2021 performance driven by loan origination recovery Business and Recent Developments Details the company's investor loan business model and recovery from the COVID-19 pandemic impact - The company primarily originates and manages investor loans with a total portfolio UPB of $2.1 billion as of June 30, 2021121123 - The company resumed loan originations in September 2020 after a temporary suspension due to COVID-19129 - To strengthen liquidity, the company secured a new $175.0 million corporate credit facility on February 5, 2021133 Portfolio and Asset Quality Loan portfolio grew to $2.07 billion UPB with improved asset quality and increased originations Key Portfolio Statistics ($ in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total loans (UPB) | $2,070,186 | $1,944,804 | | Average loan balance | $338 | $331 | | Weighted average LTV | 66.7% | 66.1% | | Nonperforming loans (% of total) | 15.24% | 17.11% | - Loan originations for held-for-investment loans were $256.5 million in Q2 2021, an increase of 10.1% from Q1 2021149 - Nonperforming loans decreased to $315.5 million (15.3% of portfolio) as of June 30, 2021, due to improved loan resolutions158 - The company resolved $37.8 million of nonperforming long-term loans in Q2 2021, achieving a recovery rate of 104.4% on the UPB161 Consolidated Results of Operations Analysis Q2 2021 net interest income rose to $21.1 million, driven by higher interest income and lower loan loss provisions - Portfolio-related net interest income increased by $5.8 million to $24.4 million in Q2 2021 from Q2 2020206 - The company recorded a reversal of provision for loan losses of $1.0 million in Q2 2021, compared to a provision of $1.8 million in Q2 2020220 - Other operating income was $2.4 million in Q2 2021, a $3.7 million positive swing from a loss in Q2 2020221222 - Total operating expenses decreased by $0.3 million year-over-year in Q2 2021, mainly due to lower compensation costs223224 Liquidity and Capital Resources Primary liquidity is sourced from warehouse facilities, securitizations, and corporate debt - As of June 30, 2021, the company had four non-mark-to-market warehouse facilities with $299.8 million of available capacity240251 - The company has completed sixteen securitizations since May 2011, issuing $3.3 billion of securities, which is its primary source of long-term financing124244 - On February 5, 2021, the company entered into a new five-year $175.0 million syndicated corporate debt agreement247249 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - Not applicable258 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period260 - No material changes in the company's internal control over financial reporting occurred during the quarter261 PART II. OTHER INFORMATION Item 1. Legal Proceedings Ongoing legal proceedings are not expected to have a material adverse effect on the company - The company is party to various legal proceedings which management believes will not have a material effect on its financial condition264 - On January 25, 2021, the IPO-related class action lawsuit against the company was dismissed265 Item 1A. Risk Factors This section was omitted per smaller reporting company disclosure requirements - Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements266 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable for the current reporting period - Not applicable267 Item 5. Other Information No other information was reported for this period - None270 Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including required officer certifications - This section lists all exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer272273