Velocity Financial(US:VEL)2023-08-03 21:54PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Velocity Financial, Inc. as of June 30, 2023, and for the three and six-month periods then ended Consolidated Balance Sheets The Consolidated Balance Sheets show an increase in total assets to $3.95 billion as of June 30, 2023, from $3.75 billion at December 31, 2022, driven by a rise in total loans, net, to $3.76 billion, with total liabilities increasing to $3.55 billion and total equity growing to $405.2 million from $380.5 million Consolidated Balance Sheet Highlights ($ in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $33,987 | $45,248 | | Total loans, net | $3,763,270 | $3,548,485 | | Total assets | $3,951,145 | $3,748,975 | | Liabilities | | | | Securitized debt, net | $2,622,547 | $2,736,290 | | Securitized debt, at fair value | $381,799 | $— | | Warehouse and repurchase facilities, net | $235,749 | $330,814 | | Total liabilities | $3,545,903 | $3,368,475 | | Equity | | | | Total equity | $405,242 | $380,500 | Consolidated Statements of Income For the three months ended June 30, 2023, net income attributable to Velocity Financial, Inc. was $12.2 million, or $0.36 per diluted share, compared to $10.6 million, or $0.31 per diluted share, for the same period in 2022, with net income rising to $22.8 million from $13.8 million year-over-year for the six-month period Consolidated Statements of Income Highlights ($ in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $25,307 | $26,309 | $49,660 | $37,662 | | Total other operating income | $14,037 | $3,592 | $26,878 | $9,873 | | Total operating expenses | $22,222 | $14,832 | $44,024 | $27,715 | | Net income attributable to Velocity Financial, Inc. | $12,183 | $10,645 | $22,832 | $13,766 | | Diluted EPS | $0.36 | $0.31 | $0.67 | $0.40 | Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased from $380.5 million at December 31, 2022, to $405.2 million at June 30, 2023, primarily driven by net income of $22.8 million for the six-month period, along with stock-based compensation and common stock issuances, partially offset by treasury stock purchases and distributions to non-controlling interests Changes in Stockholders' Equity (Six Months Ended June 30, 2023, $ in thousands) | Description | Amount | | :--- | :--- | | Balance – December 31, 2022 | $380,500 | | Net income | $10,736 (Q1) + $12,222 (Q2) | | Purchase of treasury stock, at cost | ($836) | | Stock-based compensation & issuances | $1,000 + $875 + $1,025 | | Distributions to non-controlling interest | ($160) + ($120) | | Balance – June 30, 2023 | $405,242 | Consolidated Statements of Cash Flows For the six months ended June 30, 2023, the company experienced a net decrease in cash, cash equivalents, and restricted cash of $11.3 million, with net cash provided by operating activities at $32.4 million, net cash used in investing activities at $212.6 million, and net cash provided by financing activities at $168.9 million Consolidated Cash Flow Summary (Six Months Ended, $ in thousands) | Activity | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,429 | $13,100 | | Net cash used in investing activities | ($212,609) | ($507,879) | | Net cash provided by financing activities | $168,897 | $502,642 | | Net (decrease) increase in cash | ($11,283) | $7,863 | Notes to Consolidated Financial Statements (Unaudited) The notes detail the company's organization, accounting policies, and financial instrument specifics, including the adoption of fair value option (FVO) accounting for securitized debt issued after January 1, 2023, and for all originated mortgage loans since October 1, 2022, with a subsequent event noting a securitization of $85.9 million in August 2023 - The company originates and acquires residential and commercial investor real estate loans and primarily finances them through securitizations, having acquired an 80% interest in Century Health & Housing Capital in December 20212426 - Effective January 1, 2023, the company elected to apply the fair value option (FVO) to securitized debt issued when the underlying collateral is also carried at fair value3135 Loan Portfolio Summary (UPB, $ in thousands) | Status | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Loans Held for Investment, Net | $3,057,940 | $3,272,390 | | Total Loans Held for Investment, at Fair Value | $705,330 | $276,095 | | Total Loans, Net | $3,763,270 | $3,548,485 | - As of June 30, 2023, total nonaccrual loans (amortized cost basis) were $354.8 million, an increase from $295.3 million at year-end 20224344 Securitized Debt Summary ($ in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Securitized debt, net | $2,622,547 | $2,736,290 | | Securitized debt, at fair value | $381,799 | $— | | Total Securitized Debt | $3,004,346 | $2,736,290 | - In August 2023, the company completed a securitization of $85.9 million of investor real estate loans, which will be accounted for as a secured borrowing116 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a total loan portfolio of $3.7 billion UPB as of June 30, 2023, with key factors including the election of Fair Value Option (FVO) accounting, Q2 2023 loan originations of $258.6 million, and an increase in nonperforming loans to 10.0% of the portfolio - The company is a vertically integrated real estate finance company that originates and manages investor loans secured by 1-4 unit residential rental and commercial properties, with a total portfolio of $3.7 billion UPB as of June 30, 2023120122 - The election to apply Fair Value Option (FVO) accounting to new loans (since Oct 2022) and certain securitized debt (since Jan 2023) significantly affects the comparability of financial results, as it changes how income and expenses are recognized127128 Key Portfolio Statistics (UPB) | Metric | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total loans | $3,719,825 thousand | $3,090,258 thousand | | Weighted average coupon | 8.4% | 7.5% | | Nonperforming loans (% of total) | 10.0% | 8.2% | - Loan originations for Q2 2023 were $258.6 million, a decrease from $445.4 million in Q2 2022, which management attributes to increased interest rates and a strategic reduction in originations149 - Total liquidity plus available warehouse capacity was $648.0 million as of June 30, 2023, consisting of cash, available borrowings, and warehouse/revolving credit line capacity236 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - This section was intentionally omitted as it is not applicable258 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report260 - No material changes were made to the company's internal control over financial reporting during the quarter261 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but management does not believe that the final disposition of any currently pending matters will have a material adverse effect on the company's financial condition or results of operations - The company states that it does not expect any pending legal proceedings to have a material adverse effect on its business or financial results263 Risk Factors This section was intentionally omitted pursuant to the reduced disclosure requirements for a smaller reporting company - Risk factors are intentionally omitted due to the company's status as a smaller reporting company264 Unregistered Sales of Equity Securities and Use of Proceeds The company made no purchases of its common stock during the three months ended June 30, 2023 - No common stock purchases were made by the company during the three months ended June 30, 2023265 Defaults Upon Senior Securities This section is not applicable - This section is not applicable266 Mine Safety Disclosures This section is not applicable - This section is not applicable267 Other Information During the three months ended June 30, 2023, none of the company's officers or directors had any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements in effect - No officers or directors had any Rule 10b5-1 trading arrangements in effect during the second quarter of 2023268 Exhibits This section lists the exhibits filed as part of or incorporated by reference into the Quarterly Report on Form 10-Q, including certificates of incorporation, bylaws, various agreements, and officer certifications - A list of exhibits filed with the report is provided, including corporate governance documents, agreements, and required certifications under the Sarbanes-Oxley Act270271273