Velocity Financial(US:VEL)2023-11-02 23:49Loan Portfolio and Performance - As of September 30, 2023, the company's loan portfolio totaled $3.9 billion, with an average loan balance of approximately $390 thousand[136]. - The total loans increased to $3.88 billion as of September 30, 2023, from $3.72 billion as of June 30, 2023[159]. - The unpaid principal balance of loans held for investment as of September 30, 2023, was $3.86 billion, an increase from $3.51 billion as of December 31, 2022[165]. - Total loan originations for Q3 2023 amounted to $290.6 million, an increase of $31.9 million from $258.6 million in Q2 2023, but a decrease of $166.7 million from $457.3 million in Q3 2022[164]. - The company originated 765 loans held for investment in Q3 2023, with an average loan size of $355, and an average coupon of 11.08%[164]. - The total performing loans as of September 30, 2023, were $3.47 billion, representing 89.9% of the total loans held for investment[175]. Financial Results - For the three months ended September 30, 2023, the company generated pre-tax income of $17.2 million and net income of $12.2 million[138]. - Net income for the three months ended September 30, 2023, was $12.1 million, compared to $12.2 million for the same period in 2022[249]. - Net income attributable to Velocity Financial, Inc. was $12.1 million for the three months ended September 30, 2023, compared to $10.0 million for the same period in 2022, marking a 11% increase[220]. - The company’s return on equity was 11.87% for Q3 2023, slightly down from 12.21% in Q3 2022[187]. - Total operating income for the nine months ended September 30, 2023, was $44.2 million, an increase of $31.3 million compared to $12.9 million for the same period in 2022, driven by fair value option accounting on new loan originations[234]. Interest Income and Expenses - The annualized yield on the total portfolio for the three months ended September 30, 2023, was 8.38%[136]. - Interest income increased by $15.7 million to $79.1 million for the three months ended September 30, 2023, compared to $63.4 million for the same period in 2022, primarily due to higher portfolio balances and an increase in average loan yield from 7.88% to 8.38%[222]. - Interest expense on portfolio-related debt was $47,583 thousand for the three months ended September 30, 2023, with a rate of 5.63%[197]. - Interest expense - portfolio related increased from $34.6 million for the three months ended September 30, 2022, to $47.6 million for the same period in 2023, primarily due to a higher loan portfolio and increased interest rates[226]. Loan Losses and Nonperforming Loans - Nonperforming loans represented 10.0% of total loans as of September 30, 2023, up from 7.4% a year earlier[159]. - The allowance for loan losses as of September 30, 2023, was $4.7 million, a decrease from $4.9 million as of December 31, 2022, and $5.3 million as of September 30, 2022[172]. - The provision for loan losses for Q3 2023 was $154,000, compared to $580,000 in Q3 2022[174]. - The company resolved $56.9 million of non-performing loans in Q3 2023, up from $43.6 million in Q2 2023 and $38.4 million in Q3 2022[177]. - Average non-performing loans for the nine months ended September 30, 2023, were $326.5 million, with charge-offs of $1.3 million, resulting in a charge-off rate of 0.53%[181]. Securitization and Debt - The company completed two securitizations during the quarter, issuing securities of $81.6 million and $234.7 million[143]. - The company has executed thirty securitized debt transactions, resulting in over $6.2 billion in gross debt proceeds since May 2011[137]. - The total outstanding bond balances for securitized debts as of September 30, 2023, amounted to $3.24 billion, an increase from $2.79 billion as of December 31, 2022[264]. - The company entered into a five-year $215.0 million syndicated corporate debt agreement in March 2022, bearing interest at a fixed rate of 7.125%[266]. Interest Rate Management - The company began utilizing forward starting interest rate derivative instruments to manage exposure to interest rate volatility during the quarter[144]. - The company plans to manage its exposure to interest rate risk by utilizing financial instruments, including forward starting payer interest rate swaps and interest rate swaption structures[275]. - The company acknowledges that fluctuations in interest rates will impact both the level of income and expense recorded on most of its assets and liabilities[275]. - The company is exposed to interest rate risk, which may result in economic losses reflected as a loss of future net interest income and/or a loss of current fair values[275]. Operational Expenses - Total operating expenses for the three months ended September 30, 2023, were $27.3 million, up from $13.2 million in the same period of 2022, reflecting increased operational costs[220]. - Compensation and employee benefits increased by $5.7 million to $12.5 million for the three months ended September 30, 2023, and by $14.5 million to $33.2 million for the nine months ended September 30, 2023, compared to the same periods in 2022[237]. - Loan servicing expenses rose from $3.3 million to $4.9 million for the three months ended September 30, 2023, and from $9.1 million to $13.0 million for the nine months ended September 30, 2023, primarily due to an increase in the total loan portfolio[240]. Liquidity and Cash Flow - Total liquidity, including available warehouse capacity, was $654.0 million as of September 30, 2023, comprising $29.4 million in cash and $593.6 million in available warehouse capacity[252]. - Cash provided by operating activities was $22.7 million for the nine months ended September 30, 2023, compared to $8.7 million for the same period in 2022[253]. - Net cash used in investing activities was $(360.8) million for the nine months ended September 30, 2023, compared to $(819.1) million for the same period in 2022[255]. Forward-Looking Statements - The company will not update any forward-looking statements to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law[274]. - The company’s forward-looking statements may include expectations regarding operations, loan originations, and the resolution of non-performing loans[273]. - Important factors that could cause actual results to differ from anticipated results are discussed in the Quarterly Report and other documents filed by the company[274].