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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission File Number: 001-39183

 

Velocity Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-0659719

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

30699 Russell Ranch Road, Suite 295

Westlake Village, California

91362

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (818) 532-3700

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.01 per share

VEL

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 1, 2024, the registrant had 32,985,794 shares of common stock outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (Unaudited)

2

Consolidated Balance Sheets

2

Consolidated Statements of Income

4

 

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Changes in Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

53

Item 4.

Controls and Procedures

53

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

54

Item 4.

Mine Safety Disclosures

54

Item 5.

Other Information

54

Item 6.

Exhibits

55

 

 

 

SIGNATURES

57

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

VELOCITY FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except par value amounts)

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,829

 

 

$

40,566

 

Restricted cash

 

 

24,216

 

 

 

21,361

 

Loans held for sale, at fair value

 

 

 

 

 

17,590

 

Loans held for investment, net

 

 

2,727,518

 

 

 

2,828,123

 

Loans held for investment, at fair value

 

 

1,649,540

 

 

 

1,306,072

 

Total loans, net

 

 

4,377,058

 

 

 

4,151,785

 

Accrued interest receivables

 

 

29,374

 

 

 

27,028

 

Receivables due from servicers

 

 

87,523

 

 

 

85,077

 

Other receivables

 

 

2,113

 

 

 

8,763

 

Real estate owned, net

 

 

46,280

 

 

 

44,268

 

Property and equipment, net

 

 

2,013

 

 

 

2,785

 

Deferred tax asset

 

 

1,580

 

 

 

2,339

 

Mortgage servicing rights, at fair value

 

 

9,022

 

 

 

8,578

 

Derivative assets

 

 

1,967

 

 

 

 

Goodwill

 

 

6,775

 

 

 

6,775

 

Other assets

 

 

5,468

 

 

 

5,248

 

Total assets

 

$

4,628,218

 

 

$

4,404,573

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

123,988

 

 

$

121,969

 

Secured financing, net

 

 

283,813

 

 

 

211,083

 

Securitized debt, net

 

 

2,329,906

 

 

 

2,418,811

 

Securitized debt, at fair value

 

 

1,073,843

 

 

 

877,417

 

Warehouse and repurchase facilities, net

 

 

360,216

 

 

 

334,755

 

Derivative liability

 

 

 

 

 

3,665

 

Total liabilities

 

 

4,171,766

 

 

 

3,967,700

 

Commitments and contingencies

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Common stock ($0.01 par value, 100,000,000 shares authorized; 33,186,464 and 32,987,248 shares issued, 32,985,794 and 32,865,836 shares outstanding as of March31, 2024 and December 31, 2023, respectively)

 

 

334

 

 

 

331

 

Additional paid-in capital

 

 

308,259

 

 

 

306,736

 

Retained earnings

 

 

146,157

 

 

 

128,906

 

Treasury stock, at cost (200,670 and 121,412 common shares as of March 31, 2024 and December 31, 2023, respectively)

 

 

(2,603

)

 

 

(1,319

)

Accumulated other comprehensive income (loss)

 

 

794

 

 

 

(1,210

)

Total Velocity Financial, Inc. stockholders' equity

 

 

452,941

 

 

 

433,444

 

Noncontrolling interest in subsidiary

 

 

3,511

 

 

 

3,429

 

Total equity

 

 

456,452

 

 

 

436,873

 

Total liabilities and equity

 

$

4,628,218

 

 

$

4,404,573

 

See accompanying Notes to Consolidated Financial Statements.

2


 

VELOCITY FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

($ in thousands)

The following table represents the assets and liabilities of consolidated variable interest entities as follows:

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Restricted cash

 

$

11,037

 

 

$

11,428

 

Loans held for investment, net

 

 

3,825,664

 

 

 

3,720,506

 

Accrued interest and other receivables

 

 

107,949

 

 

 

104,663

 

Real estate owned, net

 

 

38,308

 

 

 

36,133

 

Deferred tax asset

 

 

203

 

 

 

 

Other assets

 

 

4

 

 

 

9

 

Total assets

 

$

3,983,165

 

 

$

3,872,739

 

LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

76,846

 

 

$

74,153

 

Securitized debt

 

 

3,403,749

 

 

 

3,296,228

 

Total liabilities

 

$

3,480,595

 

 

$

3,370,381

 

See accompanying Notes to Consolidated Financial Statements.

3


 

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Interest income

 

$

90,529

 

 

$

70,521

 

Interest expense — portfolio related

 

 

55,675

 

 

 

42,029

 

Net interest income — portfolio related

 

 

34,854

 

 

 

28,492

 

Interest expense — corporate debt

 

 

5,380

 

 

 

4,139

 

Net interest income

 

 

29,474

 

 

 

24,353

 

Provision for loan losses

 

 

1,002

 

 

 

636

 

Net interest income after provision for loan losses

 

 

28,472

 

 

 

23,717

 

Other operating income

 

 

 

 

 

Gain on disposition of loans

 

 

1,699

 

 

 

1,913

 

Unrealized gain on fair value loans

 

 

18,925

 

 

 

7,354

 

Unrealized gain (loss) on mortgage servicing rights

 

 

444

 

 

 

(95

)

Unrealized loss on fair value securitized debt

 

 

(2,318

)

 

 

(170

)

Origination fee income

 

 

4,986

 

 

 

2,411

 

Interest income on cash balance

 

 

1,631

 

 

 

948

 

Other income

 

 

408

 

 

 

481

 

Total other operating income

 

 

25,775

 

 

 

12,842

 

Operating expenses

 

 

 

 

 

 

Compensation and employee benefits

 

 

15,357

 

 

 

10,008

 

Origination expenses (income)

 

 

646

 

 

 

(50

)

Securitization expenses

 

 

2,874

 

 

 

2,584

 

Loan servicing

 

 

4,824

 

 

 

3,828

 

Professional fees

 

 

2,115

 

 

 

955

 

Rent and occupancy

 

 

498

 

 

 

446

 

Real estate owned, net

 

 

2,455

 

 

 

1,829

 

Other operating expenses

 

 

2,242

 

 

 

2,202

 

Total operating expenses

 

 

31,011

 

 

 

21,802

 

Income before income taxes

 

 

23,236

 

 

 

14,757

 

Income tax expense

 

 

5,903

 

 

 

4,021

 

Net income

 

 

17,333

 

 

 

10,736

 

Net income attributable to noncontrolling interest

 

 

82

 

 

 

87

 

Net income attributable to Velocity Financial, Inc.

 

$

17,251

 

 

$

10,649

 

Less undistributed earnings attributable to unvested restricted stock awards

 

 

217

 

 

 

160

 

Net earnings attributable to common stockholders

 

$

17,034

 

 

$

10,489

 

Earnings per common share

 

 

 

 

 

 

Basic

 

$

0.52

 

 

$

0.33

 

Diluted

 

$

0.49

 

 

$

0.31

 

Weighted average common shares outstanding

 

 

 

 

 

 

Basic

 

 

32,541

 

 

 

32,098

 

Diluted

 

 

35,439

 

 

 

34,052

 

See accompanying Notes to Consolidated Financial Statements.

4


 

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net income attributable to Velocity Financial, Inc.

 

$

17,251

 

 

$

10,649

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

Net unrealized gain on cash flow hedges arising during the period

 

 

1,891

 

 

 

 

Reclassification adjustments included in net income

 

 

113

 

 

 

 

Total other comprehensive income, net of tax

 

 

2,004

 

 

 

 

Total comprehensive income attributable to Velocity Financial, Inc.

 

$

19,255

 

 

$

10,649

 

See accompanying Notes to Consolidated Financial Statements.

5


 

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in thousands)

(Unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Shares

 

 

Amount

 

 

Accumulated Other Comprehensive Income, net of tax

 

 

Total
Stockholders'
Equity

 

 

Noncontrolling Interest

 

 

Total Equity

 

Balance – December 31, 2022

 

 

32,523,516

 

 

$

326

 

 

$

300,310

 

 

$

76,633

 

 

 

(33,647

)

 

$

(458

)

 

$

 

 

$

376,811

 

 

$

3,689

 

 

$

380,500

 

Purchase of treasury stock, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(85,574

)

 

 

(836

)

 

 

 

 

 

(836

)

 

 

 

 

 

(836

)

Restricted stock awarded and stock-based compensation expenses

 

 

198,137

 

 

 

2

 

 

 

998

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160

)

 

 

(160

)

Net income

 

 

 

 

 

 

 

 

 

 

 

10,649

 

 

 

 

 

 

 

 

 

 

 

 

10,649

 

 

 

87

 

 

 

10,736

 

Balance – March 31, 2023

 

 

32,721,653

 

 

$

328

 

 

$

301,308

 

 

$

87,282

 

 

 

(119,221

)

 

$

(1,294

)

 

$

 

 

$

387,624

 

 

$

3,616

 

 

$

391,240

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2023

 

 

32,987,248

 

 

$

331

 

 

$

306,736

 

 

$

128,906

 

 

 

(121,412

)

 

$

(1,319

)

 

$

(1,210

)

 

$

433,444

 

 

$

3,429

 

 

$

436,873

 

Issuance of common stock

 

 

9,537

 

 

 

3

 

 

 

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

155

 

Purchase of treasury stock, at cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79,258

)

 

 

(1,284

)

 

 

 

 

 

(1,284

)

 

 

 

 

 

(1,284

)

Restricted stock awarded and stock-based compensation expenses

 

 

189,679

 

 

 

 

 

 

1,371

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,371

 

 

 

 

 

 

1,371

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,251

 

 

 

 

 

 

 

 

 

 

 

 

17,251

 

 

 

82

 

 

 

17,333

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,004

 

 

 

2,004

 

 

 

 

 

 

2,004

 

Balance – March 31, 2024

 

 

33,186,464

 

 

$

334

 

 

$

308,259

 

 

$

146,157

 

 

 

(200,670

)

 

$

(2,603

)

 

$

794

 

 

$

452,941

 

 

$

3,511

 

 

$

456,452

 

See accompanying Notes to Consolidated Financial Statements.

6


 

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

17,333

 

 

$

10,736

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

182

 

 

 

195

 

Amortization of right-of-use assets

 

 

344

 

 

 

310

 

Provision for loan losses

 

 

1,002

 

 

 

636

 

Reversal of loan repurchase reserve

 

 

 

 

 

39

 

Origination of loans held for sale

 

 

 

 

 

(19,088

)

Proceeds from sales of loans held for sale

 

 

 

 

 

1,735

 

Net accretion of discount on purchased loans and amortization of deferred loan origination costs

 

 

1,082

 

 

 

1,172

 

Reversal of uncollectible borrower advances

 

 

(4

)

 

 

(15

)

Gain on disposition of loans

 

 

(539

)

 

 

(680

)

Real estate acquired through foreclosure in excess of recorded investment

 

 

(1,160

)

 

 

(1,233

)

Amortization of debt issuance discount and costs

 

 

3,284

 

 

 

5,279

 

Gain on disposal of property and equipment

 

 

(9

)

 

 

 

Change in valuation of real estate owned

 

 

1,722

 

 

 

1,178

 

Change in valuation of fair value loans

 

 

(18,925

)

 

 

(7,354

)

Change in valuation of mortgage servicing rights

 

 

(444

)

 

 

95

 

Change in valuation of fair value securitized debt

 

 

2,318

 

 

 

170

 

Gain on sale of real estate owned

 

 

(286

)

 

 

(121

)

Stock-based compensation

 

 

1,371

 

 

 

1,000

 

Deferred tax expense

 

 

480

 

 

 

2,490

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accrued interest and other receivables

 

 

456

 

 

 

(2,458

)

Other assets

 

 

(286

)

 

 

946

 

Accounts payable and accrued expenses

 

 

2,660

 

 

 

(6,960

)

Net cash provided by operating activities

 

 

10,581

 

 

 

(11,928

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of loans held for investment

 

 

(11,591

)

 

 

 

Origination of loans held for investment

 

 

(378,671

)

 

 

(197,888

)

Proceeds from sales of loans originally classified as held for investment

 

 

15,072

 

 

 

21,489

 

Payoffs of loans held for investment

 

 

158,549

 

 

 

99,780

 

Proceeds from sale of real estate owned

 

 

5,741

 

 

 

2,121

 

Change in advances

 

 

(1,503

)

 

 

2,596

 

Change in impounds and deposits

 

 

(640

)

 

 

372

 

Purchase of property and equipment

 

 

(41

)

 

 

(48

)

Proceeds from sale of property and equipment

 

 

640

 

 

 

 

Net cash used in investing activities

 

 

(212,444

)

 

 

(71,578

)