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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 June 30, 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 |
|
2945 Townsgate Road, Suite 110 Westlake Village, California |
91361 |
(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 July 31, 2024, the registrant had 33,109,360 shares of common stock outstanding.
Table of Contents
|
|
Page |
PART I. |
|
|
Item 1. |
2 |
|
|
2 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
|
9 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
34 |
Item 3. |
55 |
|
Item 4. |
55 |
|
|
|
|
PART II. |
|
|
Item 1. |
56 |
|
Item 1A. |
56 |
|
Item 2. |
56 |
|
Item 3. |
56 |
|
Item 4. |
56 |
|
Item 5. |
56 |
|
Item 6. |
57 |
|
|
|
|
59 |
||
i
PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
VELOCITY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
47,366 |
|
|
$ |
40,566 |
|
Restricted cash |
|
|
32,293 |
|
|
|
21,361 |
|
Loans held for sale, at fair value |
|
|
— |
|
|
|
17,590 |
|
Loans held for investment, net |
|
|
2,619,619 |
|
|
|
2,828,123 |
|
Loans held for investment, at fair value |
|
|
1,971,683 |
|
|
|
1,306,072 |
|
Total loans, net |
|
|
4,591,302 |
|
|
|
4,151,785 |
|
Accrued interest receivables |
|
|
31,124 |
|
|
|
27,028 |
|
Receivables due from servicers |
|
|
82,359 |
|
|
|
85,077 |
|
Other receivables |
|
|
6,566 |
|
|
|
8,763 |
|
Real estate owned, net |
|
|
50,757 |
|
|
|
44,268 |
|
Property and equipment, net |
|
|
1,912 |
|
|
|
2,785 |
|
Deferred tax asset |
|
|
1,144 |
|
|
|
2,339 |
|
Mortgage servicing rights, at fair value |
|
|
12,229 |
|
|
|
8,578 |
|
Goodwill |
|
|
6,775 |
|
|
|
6,775 |
|
Other assets |
|
|
9,566 |
|
|
|
5,248 |
|
Total assets |
|
$ |
4,873,393 |
|
|
$ |
4,404,573 |
|
|
|
|
|
|
|
|
||
LIABILITIES |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
138,033 |
|
|
$ |
121,969 |
|
Secured financing, net |
|
|
283,909 |
|
|
|
211,083 |
|
Securitized debt, net |
|
|
2,228,941 |
|
|
|
2,418,811 |
|
Securitized debt, at fair value |
|
|
1,509,952 |
|
|
|
877,417 |
|
Warehouse and repurchase facilities, net |
|
|
237,437 |
|
|
|
334,755 |
|
Derivative liability |
|
|
374 |
|
|
|
3,665 |
|
Total liabilities |
|
|
4,398,646 |
|
|
|
3,967,700 |
|
Commitments and contingencies |
|
|
|
|
|
|
||
EQUITY |
|
|
|
|
|
|
||
Common stock ($0.01 par value, 100,000,000 shares authorized; 33,314,197 and 32,987,248 shares issued, 33,098,635 and 32,865,836 shares outstanding as of June 30, 2024 and December 31, 2023, respectively) |
|
|
335 |
|
|
|
331 |
|
Additional paid-in capital |
|
|
311,324 |
|
|
|
306,736 |
|
Retained earnings |
|
|
160,935 |
|
|
|
128,906 |
|
Treasury stock, at cost (215,562 and 121,412 common shares as of June 30, 2024 and December 31, 2023, respectively) |
|
|
(2,869 |
) |
|
|
(1,319 |
) |
Accumulated other comprehensive income (loss) |
|
|
1,598 |
|
|
|
(1,210 |
) |
Total Velocity Financial, Inc. stockholders' equity |
|
|
471,323 |
|
|
|
433,444 |
|
Noncontrolling interest in subsidiary |
|
|
3,424 |
|
|
|
3,429 |
|
Total equity |
|
|
474,747 |
|
|
|
436,873 |
|
Total liabilities and equity |
|
$ |
4,873,393 |
|
|
$ |
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:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Restricted cash |
|
$ |
13,103 |
|
|
$ |
11,428 |
|
Loans held for investment, net |
|
|
4,213,294 |
|
|
|
3,720,506 |
|
Accrued interest and other receivables |
|
|
105,508 |
|
|
|
104,663 |
|
Real estate owned, net |
|
|
43,572 |
|
|
|
36,133 |
|
Other assets |
|
|
1 |
|
|
|
9 |
|
Total assets |
|
$ |
4,375,478 |
|
|
$ |
3,872,739 |
|
|
|
|
|
|
|
|
||
LIABILITIES |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
83,582 |
|
|
$ |
74,153 |
|
Securitized debt |
|
|
3,738,893 |
|
|
|
3,296,228 |
|
Total liabilities |
|
$ |
3,822,475 |
|
|
$ |
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Interest income |
|
$ |
97,760 |
|
|
$ |
74,897 |
|
|
$ |
188,289 |
|
|
$ |
145,418 |
|
Interest expense — portfolio related |
|
|
59,188 |
|
|
|
45,451 |
|
|
|
114,863 |
|
|
|
87,480 |
|
Net interest income — portfolio related |
|
|
38,572 |
|
|
|
29,446 |
|
|
|
73,426 |
|
|
|
57,938 |
|
Interest expense — corporate debt |
|
|
6,155 |
|
|
|
4,139 |
|
|
|
11,535 |
|
|
|
8,278 |
|
Net interest income |
|
|
32,417 |
|
|
|
25,307 |
|
|
|
61,891 |
|
|
|
49,660 |
|
Provision for credit losses |
|
|
218 |
|
|
|
298 |
|
|
|
1,219 |
|
|
|
933 |
|
Net interest income after provision for credit losses |
|
|
32,199 |
|
|
|
25,009 |
|
|
|
60,672 |
|
|
|
48,727 |
|
Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on disposition of loans |
|
|
3,168 |
|
|
|
1,237 |
|
|
|
4,865 |
|
|
|
3,149 |
|
Unrealized gain on fair value loans |
|
|
17,123 |
|
|
|
2,413 |
|
|
|
36,049 |
|
|
|
9,767 |
|
Unrealized (loss) gain on fair value securitized debt |
|
|
(4,643 |
) |
|
|
5,560 |
|
|
|
(6,961 |
) |
|
|
5,391 |
|
Origination fee income |
|
|
5,072 |
|
|
|
2,735 |
|
|
|
10,058 |
|
|
|
5,145 |
|
Interest income on cash balance |
|
|
1,731 |
|
|
|
1,189 |
|
|
|
3,362 |
|
|
|
2,136 |
|
Other income |
|
|
110 |
|
|
|
903 |
|
|
|
963 |
|
|
|
1,290 |
|
Total other operating income |
|
|
22,561 |
|
|
|
14,037 |
|
|
|
48,336 |
|
|
|
26,878 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and employee benefits |
|
|
16,562 |
|
|
|
10,670 |
|
|
|
31,919 |
|
|
|
20,678 |
|
Origination expenses |
|
|
749 |
|
|
|
123 |
|
|
|
1,395 |
|
|
|
72 |
|
Securitization expenses |
|
|
6,232 |
|
|
|
2,699 |
|
|
|
9,106 |
|
|
|
5,284 |
|
Loan servicing |
|
|
5,160 |
|
|
|
4,267 |
|
|
|
9,984 |
|
|
|
8,095 |
|
Professional fees |
|
|
1,718 |
|
|
|
1,056 |
|
|
|
3,833 |
|
|
|
2,011 |
|
Rent and occupancy |
|
|
617 |
|
|
|
458 |
|
|
|
1,115 |
|
|
|
905 |
|
Real estate owned, net |
|
|
1,355 |
|
|
|
1,018 |
|
|
|
3,811 |
|
|
|
2,846 |
|
Other operating expenses |
|
|
2,494 |
|
|
|
1,931 |
|
|
|
4,735 |
|
|
|
4,133 |
|
Total operating expenses |
|
|
34,887 |
|
|
|
22,222 |
|
|
|
65,898 |
|
|
|
44,024 |
|
Income before income taxes |
|
|
19,873 |
|
|
|
16,824 |
|
|
|
43,110 |
|
|
|
31,581 |
|
Income tax expense |
|
|
5,162 |
|
|
|
4,602 |
|
|
|
11,066 |
|
|
|
8,623 |
|
Net income |
|
|
14,711 |
|
|
|
12,222 |
|
|
|
32,044 |
|
|
|
22,958 |
|
Net (loss) income attributable to noncontrolling interest |
|
|
(67 |
) |
|
|
39 |
|
|
|
15 |
|
|
|
126 |
|
Net income attributable to Velocity Financial, Inc. |
|
$ |
14,778 |
|
|
$ |
12,183 |
|
|
$ |
32,029 |
|
|
$ |
22,832 |
|
Less undistributed earnings attributable to unvested restricted stock awards |
|
|
182 |
|
|
|
185 |
|
|
|
394 |
|
|
|
347 |
|
Net earnings attributable to common stockholders |
|
$ |
14,596 |
|
|
$ |
11,998 |
|
|
$ |
31,635 |
|
|
$ |
22,485 |
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.45 |
|
|
$ |
0.37 |
|
|
$ |
0.97 |
|
|
$ |
0.70 |
|
Diluted |
|
$ |
0.42 |
|
|
$ |
0.36 |
|
|
$ |
0.90 |
|
|
$ |
0.67 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
32,585 |
|
|
|
32,122 |
|
|
|
32,563 |
|
|
|
32,111 |
|
Diluted |
|
|
35,600 |
|
|
|
34,140 |
|
|
|
35,519 |
|
|
|
34,095 |
|
See accompanying Notes to Consolidated Financial Statements.
4
VELOCITY FINANCIAL, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income attributable to Velocity Financial, Inc. |
|
$ |
14,778 |
|
|
$ |
12,183 |
|
|
$ |
32,029 |
|
|
$ |
22,832 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net unrealized gain on cash flow hedges arising during the period |
|
|
909 |
|
|
|
— |
|
|
|
2,800 |
|
|
|
— |
|
Reclassification adjustments included in net income |
|
|
(105 |
) |
|
|
— |
|
|
|
8 |
|
|
|
— |
|
Total other comprehensive income, net of tax |
|
|
804 |
|
|
|
— |
|
|
|
2,808 |
|
|
|
— |
|
Total comprehensive income attributable to Velocity Financial, Inc. |
|
$ |
15,582 |
|
|
$ |
12,183 |
|
|
$ |
34,837 |
|
|
$ |
22,832 |
|
See accompanying Notes to Consolidated Financial Statements.
5
VELOCITY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except share data)
(Unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
Shares |
|
|
Par Value |
|
|
Additional |
|
|
Retained |
|
|
Shares |
|
|
Amount |
|
|
Accumulated Other Comprehensive Income, net of tax |
|
|
Total |
|
|
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 |
|
Issuance of common stock |
|
|
107,567 |
|
|
|
1 |
|
|
|
874 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
875 |
|
|
|
— |
|
|
|
875 |
|
Restricted stock awarded and stock-based compensation expenses |
|
|
31,629 |
|
|
|
— |
|
|
|
1,025 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,025 |
|
|
|
— |
|
|
|
1,025 |
|
Distribution to non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(120 |
) |
|
|
(120 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,183 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,183 |
|
|
|
39 |
|
|
|
12,222 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance – June 30, 2023 |
|
|
32,860,849 |
|
|
$ |
329 |
|
|
$ |
303,207 |
|
|
$ |
99,465 |
|
|
|
(119,221 |
) |
|
$ |
(1,294 |
) |
|
$ |
— |
|
|
$ |
401,707 |
|
|
$ |
3,535 |
|
|
$ |
405,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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 |
|
Issuance of common stock |
|
|
127,733 |
|
|
|
1 |
|
|
|
1,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,501 |
|
|
|
— |
|
|
|
1,501 |
|
Purchase of treasury stock, at cost |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,892 |
) |
|
|
(266 |
) |
|
|
— |
|
|
|
(266 |
) |
|
|
— |
|
|
|
(266 |
) |
Restricted stock awarded and stock-based compensation expenses |
|
|
— |
|
|
|
— |
|
|
|
1,565 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,565 |
|
|
|
— |
|
|
|
1,565 |
|
Distribution to non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(20 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,778 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,778 |
|
|
|
(67 |
) |
|
|
14,711 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
804 |
|
|
|
804 |
|
|
|
— |
|
|
|
804 |
|
Balance – June 30, 2024 |
|
|
33,314,197 |
|
|
$ |
335 |
|
|
$ |
311,324 |
|
|
$ |
160,935 |
|
|
|
(215,562 |
) |
|
$ |
(2,869 |
) |
|
$ |
1,598 |
|
|
$ |
471,323 |
|
|
$ |
3,424 |
|
|
$ |
474,747 |
|
See accompanying Notes to Consolidated Financial Statements.
6
VELOCITY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
32,044 |
|
|
$ |
22,958 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
367 |
|
|
|
381 |
|
Amortization of right-of-use assets |
|
|
716 |
|
|
|
642 |
|
Provision for credit losses |
|
|
1,219 |
|
|
|
933 |
|
Reversal of loan repurchase reserve |
|
|
— |
|
|
|
(76 |
) |
Origination of loans held for sale |
|
|
— |
|
|
|
(19,088 |
) |
Proceeds from sales of loans held for sale |
|
|
— |
|
|
|
19,816 |
|
Net accretion of discount on purchased loans and amortization of deferred loan origination costs |
|
|
2,310 |
|
|
|
2,446 |
|
Provision for uncollectible borrower advances |
|
|
599 |
|
|
|
505 |
|
Gain on disposition of loans |
|
|
(791 |
) |
|
|
(902 |
) |
Real estate acquired through foreclosure in excess of recorded investment |
|
|
(4,074 |
) |
|
|
(2,248 |
) |
Amortization of debt issuance discount and costs |
|
|
6,339 |
|
|
|
10,614 |
|
Gain on disposal of property and equipment |
|
|
(9 |
) |
|
|
— |
|
Change in valuation of real estate owned |
|
|
2,261 |
|
|
|
1,670 |
|
Change in valuation of fair value loans |
|
|
(36,049 |
) |
|
|
(10,494 |
) |
Change in valuation of mortgage servicing rights |
|
|
(71 |
) |
|
|
(207 |
) |
Change in valuation of fair value securitized debt |
|
|
6,961 |
|
|
|
(5,391 |
) |
(Gain) loss on sale of real estate owned |
|
|
(249 |
) |
|
|
39 |
|
Stock-based compensation |
|
|
2,936 |
|
|
|
2,026 |
|
Hedging activities |
|
|
3,240 |
|
|
|
— |
|
Deferred tax expense |
|
|
648 |
|
|
|
3,154 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
Accrued interest and other receivables |
|
|
(5,559 |
) |
|
|
(3,247 |
) |
Other assets |
|
|
(5,466 |
) |
|
|
5,094 |
|
Accounts payable and accrued expenses |
|
|
14,681 |
|
|
|
3,804 |
|
Net cash provided by operating activities |
|
|
22,053 |
|
|
|
32,429 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of loans held for investment |
|
|
(15,114 |
) |
|
|
(8,546 |
) |
Origination of loans held for investment |
|
|
(800,896 |
) |
|
|
(456,534 |
) |
Proceeds from sales of loans originally classified as held for investment |
|
|
49,226 |
|
|
|
21,489 |
|
Payoffs of loans held for investment and loans at fair value |
|
|
346,440 |
|
|
|
221,423 |
|
Proceeds from sale of real estate owned |
|
|
15,956 |
|
|
|
9,411 |
|
Change in advances |
|
|
(3,143 |
) |
|
|
858 |
|
Change in impounds and deposits |
|
|
1,315 |
|
|
|
(662 |
) |
Purchase of property and equipment |
|
|
(125 |
) |
|
|
(48 |
) |
Proceeds from sale of property and equipment |
|
|
640 |
|
|
|
— |
|
Purchase of mortgage servicing rights |
|
|
(3,580 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
(409,281 |
) |
|
|
(212,609 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Warehouse repurchase facilities advances |
|
|
733,776 |
|
|
|
463,038 |
|
Warehouse repurchase facilities repayments |
|
|
(831,585 |
) |
|
|
(557,753 |
) |
Proceeds from secured financing |
|
|
74,311 |
|
|
|
— |
|
Proceeds of securitized debt, net |
|
|
718,079 |
|
|
|
461,684 |
|
Repayment of securitized debt |
|
|
(286,987 |
) |
|
|
(196,457 |
) |
Debt issuance costs |
|
|
(2,720 |
) |
|
|
(1,373 |
) |
Proceeds from issuance of common stocks, net |
|
|
1,656 |
|
|
|
875 |
|
Purchase of treasury stock |
|
|
(1,550 |
) |
|
|
(837 |
) |
Distribution to non-controlling interest |
|
|
(20 |
) |
|
|
(280 |
) |
Net cash provided by financing activities |
|
|
404,960 |
|
|
|
168,897 |
|
Net increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
17,732 |
|
|
|
(11,283 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
61,927 |
|
|
|
62,056 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
79,659 |
|
|
$ |
50,773 |
|
See accompanying Notes to Consolidated Financial Statements.
7
VELOCITY FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(Unaudited) |
|
|||||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Cash paid during the period for interest |
|
$ |
115,961 |
|
|
$ |
83,445 |
|
Cash paid (received) during the period for income taxes, net |
|
|
15,865 |
|
|
|
(844 |
) |
Noncash transactions from investing and financing activities: |
|
|
|
|
|
|
||
Transfer of loans held for investment to held for sale |
|
|
34,191 |
|
|
|
25,075 |
|
Transfer of loans held for investment to real estate owned |
|
|
20,383 |
|
|
|
15,935 |
|
Transfer of accrued interest to loans held for investment |
|
|
981 |
|
|
|
878 |
|
Transfer of loans held for sale to held for investment |
|
|
2,612 |
|
|
|
4,218 |
|
Recognition of new leases in exchange for lease obligations |
|
|
— |
|
|
|
656 |
|
See accompanying Notes to Consolidated Financial Statements.
8
VELOCITY FINANCIAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1 — Organization and Description of Business
Velocity Financial, LLC (“VF” or “the Company”) was a Delaware limited liability company formed on July 9, 2012 for the purpose of acquiring all membership units in Velocity Commercial Capital, LLC (“VCC”). On January 16, 2020, Velocity Financial, LLC converted from a Delaware limited liability company to a Delaware corporation and changed its name to Velocity Financial, Inc. Upon completion of the conversion, Velocity Financial, LLC’s Class A equity units of 97,513,533 and Class D equity units of 60,193,989 were converted to 11,749,994 shares of Velocity Financial, Inc. common stock. On January 22, 2020, the Company completed its initial public offering of 7,250,000 shares of common stock at a price to the public of $13.00 per share. On January 28, 2020, the Company completed the sale of an additional 1,087,500 shares of its common stock, representing the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The Company’s stock trades on The New York Stock Exchange under the symbol “VEL”.
VCC, a California LLC formed on June 2, 2004, is a mortgage lender that originates and acquires residential and commercial investor real estate loans, providing capital to the investor real estate loan market. The Company is licensed as a California Finance Lender and, as such, is required to maintain a minimum net worth of $250 thousand. The Company does not believe there is any potential risk of not being able to meet this regulatory requirement. The Company uses its equity capital and borrowed funds to originate and invest in investor real estate loans and seeks to generate income based primarily on the difference between the yield on its investor real estate loan portfolio and the cost of its borrowings. The Company may also sell loans from time to time. The Company does not originate or acquire investments outside of the United States of America.
The Company, through its wholly owned subsidiaries, is the sole beneficial owner of the Velocity Commercial Capital Loan Trusts, from the 2017-2 Trust through and including the 2024-3 Trust, all of which are New York common law trusts, with the exception of the VCC 2022-MC1 Trust, VCC 2023-1R Trust, and VCC 2023-RTL1 Trust which are Delaware statutory trusts. The Trusts are bankruptcy remote, variable interest entities (“VIE”) formed for the purpose of providing secured borrowings to the Company and are consolidated with the accounts of the Company.
On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Government National Mortgage Association (“Ginnie Mae”) issuer/servicer that provides government-insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century is a consolidated subsidiary of the Company as of completion of the acquisition. In addition, as a servicer of Ginnie Mae loans, Century is required to maintain a minimum net worth, and Century is in compliance with this requirement as of June 30, 2024.
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited Consolidated Financial Statements as of and for the three and six months ended June 30, 2024 and 2023 have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited Consolidated Financial Statements.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of consolidated income and expenses during the reporting period.
The Company’s significant accounting policies are described in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, of its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”).
9
There have been no significant changes to the Company’s significant accounting policies as described in its 2023 Annual Report.
Certain amounts previously reported have been reclassified to conform to the current presentation.
The principles of consolidation require management to determine and reassess the requirement to consolidate VIEs each reporting period, and therefore, the determination may change based on new facts and circumstances pertaining to each VIE. This could result in a material impact to the Company’s consolidated financial statements in subsequent reporting periods.
The Company consolidates the assets, liabilities, and remainder interests of the Trusts as management determined that VCC is the primary beneficiary of these entities. The Company’s ongoing asset management responsibilities provide the Company with the power to direct the activities that most significantly impact the VIE’s economic performance, and the remainder interests provide the Company with the right to receive benefits and the obligation to absorb losses, limited to its investment in the remainder interest of the Trusts.
The consolidated financial statements as of June 30, 2024 and December 31, 2023 include only those assets, liabilities, and results of operations related to the business of the Company, its subsidiaries, and VIEs.
The Company has elected to apply fair value option (“FVO”) accounting to originated mortgage loans effective October 1, 2022. The fair value option loans are presented on a separate line item in the consolidated balance sheet. Interest income on FVO loans is recorded on an accrual basis in the consolidated statements of income under the heading interest income. The Company will not record a current expected credit loss (“CECL”) loan loss reserve on fair value option loans.
The Company has elected to apply FVO accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. The FVO securitized debt is presented on a separate line item in the consolidated balance sheet. The Company reflects interest expense on the FVO securitized debt as “interest” in the consolidated statements of income and presents the other fair value changes of the FVO securitized debt separately in the consolidated financial statements.
The Company issues fixed rate debt at regular intervals during the year through the securitization of its fixed rate mortgage assets. The Company is subject to interest rate risk on its forecasted debt issuances as these fixed rate debt issuances are priced at then-current market rates. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate (“SOFR”) between the time the fixed rate mortgages are originated and the fixed rate debt is issued. To accomplish this hedging strategy, the Company may from time to time enter into derivative instruments such as forward starting payer interest rate swaps or interest rate payer swaptions designated as cash flow hedges that are designed to be highly correlated to the underlying terms of the forecasted debt instruments. To qualify for hedge accounting, the Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. The Company also formally assesses effectiveness both at the hedge's inception and on an ongoing basis.
The Company's policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. The fair value of the derivative instruments is recorded as a separate line item on the consolidated balance sheets as an asset or liability with the related gains or losses reported as a component of Accumulated Other Comprehensive Income (“AOCI”). Beginning in the period in which the forecasted debt issuance occurs and the related derivative instruments are terminated, the gains or losses accumulated in AOCI are then reclassified into interest expense over the term of the related debt. If the Company determines it is not probable that the forecasted transaction will occur, gains and losses are reclassified immediately to earnings. The related cash flows are recognized on the cash flows from operating activities section on the consolidated statements of cash flows. The Company uses hedge accounting based on the exposure being hedged as cash flow hedges in operations.
Other comprehensive income (“OCI”) is reported in the consolidated statements of comprehensive income. OCI is comprised of net income and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, net of tax, less amounts reclassified into earnings.
Accumulated other comprehensive income represents the cumulative balance of OCI, net of tax, as of the end of the reporting period and relates to unrealized gains or losses on cash flow hedges, net of tax.
10
Note 3 — Current Accounting Developments
Recently Issued Accounting Standards
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires more detailed disclosures, on an annual and interim basis, related to the Company’s reportable segment. The guidance is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Although the Company has only one reportable segment, the Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 240): Improvements to Income Tax Disclosures,” which requires additional disclosure and disaggregated information in the Income Tax Rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items. The updated guidance also requires disclosure of the amount of income taxes paid (net of refunds received) disaggregated by jurisdictional categories (federal (national), state, and foreign). The accounting update is effective January 1, 2025, for the Company. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
Codification Improvements
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements—Amendments to Remove References to the Concepts Statements,” which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The accounting update is effective January 1, 2025, for the Company. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
Note 4 — Cash, Cash Equivalents, and Restricted Cash
The Company is required to hold cash for potential future advances due to certain borrowers. In accordance with various mortgage servicing and related agreements, Century maintains escrow accounts for mortgage insurance premium, tax and insurance, working capital, sinking fund and other mortgage related escrows. The total escrow balances payable amounted to $85.0 million and $83.5 million as of June 30, 2024 and 2023, respectively. These amounts are not reflected on the consolidated balance sheet of the Company.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets to the total of the same such amounts shown in the consolidated statements of cash flows for the six months ended June 30, 2024 and 2023:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(In thousands) |
|
|||||
Cash and cash equivalents |
|
$ |
47,366 |
|
|
$ |
33,987 |
|
Restricted cash |
|
|
32,293 |
|
|
|
16,786 |
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
|
$ |
79,659 |
|
|
$ |
50,773 |
|
Note 5 — Loans Held for Sale at Fair Value
The following table summarizes loans held for sale at fair value as of June 30, 2024 and December 31, 2023:
Loans Held for Sale, at Fair Value: |
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
Unpaid principal balance |
|
$ |
— |
|
|
$ |
16,954 |
|
Valuation adjustments on FVO loans held for sale |
|
|
— |
|
|
|
636 |
|
Ending balance |
|
$ |
— |
|
|
$ |
17,590 |
|
11
Note 6 — Loans Held for Investment and Loans Held for Investment at Fair Value
The following tables summarize loans held for investment as of June 30, 2024, and December 31, 2023:
|
|
June 30, 2024 |
|
|||||||||
|
|
Loans Held for Investment, Net |
|
|
Loans Held for Investment, at Fair Value |
|
|
Total Loans Held for Investment |
|
|||
|
|
(In thousands) |
|
|||||||||
Unpaid principal balance |
|
$ |
2,599,016 |
|
|
$ |
1,880,885 |
|
|
$ |
4,479,901 |
|
Valuation adjustments on FVO loans |
|
|
— |
|
|
|
90,798 |
|
|
|
90,798 |
|
Deferred loan origination costs |
|
|
25,843 |
|
|
|
— |
|
|
|
25,843 |
|
|
|
|
2,624,859 |
|
|
|
1,971,683 |
|
|
|
4,596,542 |
|
Allowance for credit losses |
|
|
(5,240 |
) |
|
|
— |
|
|
|
(5,240 |
) |
Total loans held for investment and loans held for investment at |
|
$ |
2,619,619 |
|
|
$ |
1,971,683 |
|
|
$ |
4,591,302 |
|
|
|
December 31, 2023 |
|
|||||||||
|
|
Loans Held for Investment, Net |
|
|
Loans Held for Investment, at Fair Value |
|
|
Total Loans Held for Investment |
|
|||
|
|
(In thousands) |
|
|||||||||
Unpaid principal balance |
|
$ |
2,804,541 |
|
|
$ |
1,251,395 |
|
|
$ |
4,055,936 |
|
Valuation adjustments on FVO loans |
|
|
— |
|
|
|
54,677 |
|
|
|
54,677 |
|
Deferred loan origination costs |
|
|
28,351 |
|
|
|
— |
|
|
|
28,351 |
|
|
|
|
2,832,892 |
|
|
|
1,306,072 |
|
|
|
4,138,964 |
|
Allowance for credit losses |
|
|
(4,769 |
) |
|
|
— |
|
|
|
(4,769 |
) |
Total loans held for investment and loans held for investment at |
|
$ |
2,828,123 |
|
|
$ |
1,306,072 |
|
|
$ |
4,134,195 |
|
The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and six months ended June 30, 2024, and the year ended December 31, 2023:
|
|
Three Months Ended June 30, 2024 |
|
Six Months Ended June 30, 2024 |
||||||||||||||||||||
|
|
UPB |
|
|
% |
|
Amortized Cost |
|
|
% |
|
UPB |
|
|
% |
|
Amortized Cost |
|
|
% |
||||
|
|
($ in thousands) |
||||||||||||||||||||||
Beginning balance |
|
$ |
165,141 |
|
|
|
|
$ |
166,983 |
|
|
|
|
$ |
174,571 |
|
|
|
|
$ |
176,515 |
|
|
|
Foreclosures |
|
|
(2,329 |
) |
|
|
|
|
(2,378 |
) |
|
|
|
|
(3,962 |
) |
|
|
|
|
(4,055 |
) |
|
|
Repayments |
|
|
(4,295 |
) |
|
|
|
|
(4,382 |
) |
|
|
|
|
(12,092 |
) |
|
|
|
|
(12,237 |
) |
|
|
Ending balance |
|
$ |
158,517 |
|
|
|
|
$ |
160,223 |
|
|
|
|
$ |
158,517 |
|
|
|
|
$ |
160,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performing/Accruing |
|
$ |
117,802 |
|
|
74.3% |
|
$ |
119,065 |
|
|
74.3% |
|
$ |
117,802 |
|
|
74.3% |
|
$ |
119,065 |
|
|
74.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nonperforming/Nonaccrual |
|
$ |
40,715 |
|
|
25.7% |
|
$ |
41,158 |
|
|
25.7% |
|
$ |
40,715 |
|
|
25.7% |
|
$ |
41,158 |
|
|
25.7% |
|
|
December 31, 2023 |
||||||||||
|
|
UPB |
|
|
% |
|
Amortized Cost |
|
|
% |
||
|
|
($ in thousands) |
||||||||||
Beginning balance |
|
$ |
201,005 |
|
|
|
|
$ |
203,346 |
|
|
|
Foreclosures |
|
|
(833 |
) |
|
|
|
|
(830 |
) |
|
|
Repayments |
|
|
(25,601 |
) |
|
|
|
|
(26,001 |
) |
|
|
Ending balance |
|
$ |
174,571 |
|
|
|
|
$ |
176,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Performing/Accruing |
|
$ |
132,389 |
|
|
75.8% |
|
$ |
133,771 |
|
|
75.8% |
|
|
|
|
|
|
|
|
|
|
|
||
Nonperforming/Nonaccrual |
|
$ |
42,182 |
|
|
24.2% |
|
$ |
42,744 |
|
|
24.2% |
Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $412.5 million in UPB of loans, which includes capitalized interest of $14.4 million. As of June 30, 2024, $254.4 million in UPB of modified loans has been paid down, which includes $6.0 million of capitalized interest received. The Company has not forgiven any capitalized interest.
12
Approximately 74.3% and 75.8% of the COVID forbearance loans in UPB were performing, and 25.7% and 24.2% were on nonaccrual status as of June 30, 2024 and December 31, 2023, respectively.
As of June 30, 2024 and December 31, 2023, the gross unpaid principal balances of loans held for investment pledged as collateral for the Company’s warehouse facilities and securitized debt issued were as follows:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
The 2013 repurchase agreement |
|
$ |
125,007 |
|
|
$ |
132,505 |
|
The Bank credit agreement |
|
|
33,475 |
|
|
|
39,619 |
|
The 2021 repurchase agreement |
|
|
53,279 |
|
|
|
103,787 |
|
The 2021 term repurchase agreement |
|
|
35,396 |
|
|
|
41,628 |
|
The July 2021 term repurchase agreement |
|
|
33,823 |
|
|
|
30,923 |
|
The 2023 repurchase agreement |
|
|
23,259 |
|
|
|
29,501 |
|
Total pledged loans |
|
$ |
304,239 |
|
|
$ |
377,963 |
|
|
|
|
|
|
|
|
||
2017-2 Trust |
|
$ |
44,385 |
|
|
$ |
50,554 |
|
2018-1 Trust |
|
|
32,453 |
|
|
|
37,810 |
|
2018-2 Trust |
|
|
73,594 |
|
|
|
85,122 |
|
2019-1 Trust |
|
|
80,669 |
|
|
|
87,677 |
|
2019-2 Trust |
|
|
60,581 |
|
|
|
73,166 |
|
2019-3 Trust |
|
|
57,825 |
|
|
|
64,403 |
|
2020-1 Trust |
|
|
107,542 |
|
|
|
116,843 |
|
2020-2 Trust |
|
|
65,137 |
|
|
|
69,085 |
|
2021-1 Trust |
|
|
172,053 |
|
|
|
182,184 |
|
2021-2 Trust |
|
|
138,712 |
|
|
|
148,989 |
|
2021-3 Trust |
|
|
149,432 |
|
|
|
159,565 |
|
2021-4 Trust |
|
|
230,849 |
|
|
|
245,945 |
|
2022-1 Trust |
|
|
232,804 |
|
|
|
245,372 |
|
2022-2 Trust |
|
|
212,487 |
|
|
|
222,333 |
|
2022-MC1 Trust |
|
|
62,803 |
|
|
|
73,840 |
|
2022-3 Trust |
|
|
264,744 |
|
|
|
278,268 |
|
2022-4 Trust |
|
|
283,443 |
|
|
|
298,758 |
|
2022-5 Trust |
|
|
209,134 |
|
|
|
223,112 |
|
2023-1 Trust |
|
|
204,048 |
|
|
|
217,220 |
|
2023-2 Trust |
|
|
191,726 |
|
|
|
214,221 |
|
2023-3 Trust |
|
|
244,105 |
|
|
|
255,699 |
|
2023-RTL1 Trust |
|
|
85,123 |
|
|
|
79,465 |
|
2023-4 Trust |
|
|
211,532 |
|
|
|
227,940 |
|
2024-1 Trust |
|
|
207,688 |
|
|
|
— |
|
2024-2 Trust |
|
|
282,928 |
|
|
|
— |
|
2024-3 Trust |
|
|
208,162 |
|
|
|
— |
|
Total |
|
$ |
4,113,959 |
|
|
$ |
3,657,571 |
|
The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment, excluding loans carried at fair value, that were nonperforming and on nonaccrual status as of June 30, 2024 and December 31, 2023. There were no loans accruing interest that were greater than 90 days past due as of June 30, 2024 and December 31, 2023.
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Total |
|
|
Nonaccrual with No Allowance for Credit Losses |
|
|
Nonaccrual with Allowance for Credit Losses |
|
|
Allowance for Loans Individually Evaluated |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Commercial - Purchase |
|
$ |
30,198 |
|
|
$ |
29,162 |
|
|
$ |
1,036 |
|
|
$ |
111 |
|
Commercial - Refinance |
|
|
99,844 |
|
|
|
94,067 |
|
|
|
5,777 |
|
|
|
552 |
|
Residential 1-4 Unit - Purchase |
|
|
33,640 |
|
|
|
32,411 |
|
|
|
1,229 |
|
|
|
189 |
|
Residential 1-4 Unit - Refinance |
|
|
132,448 |
|
|
|
126,721 |
|
|
|
5,727 |
|
|
|
273 |
|
Short Term 1-4 Unit - Purchase |
|
|
6,904 |
|
|
|
6,904 |
|
|
|
— |
|
|
|
— |
|
Short Term 1-4 Unit - Refinance |
|
|
24,256 |
|
|
|
20,138 |
|
|
|
4,118 |
|
|
|
489 |
|
Total |
|
$ |
327,290 |
|
|
$ |
309,403 |
|
|
$ |
17,887 |
|
|
$ |
1,614 |
|
13
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Total |
|
|
Nonaccrual with No Allowance for Credit Losses |
|
|
Nonaccrual with Allowance for Credit Losses |
|
|
Allowance for Loans Individually Evaluated |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Commercial - Purchase |
|
$ |
28,221 |
|
|
$ |
27,037 |
|
|
$ |
1,184 |
|
|
$ |
156 |
|
Commercial - Refinance |
|
|
86,890 |
|
|
|
84,575 |
|
|
|
2,315 |
|
|
|
444 |
|
Residential 1-4 Unit - Purchase |
|
|
36,253 |
|
|
|
36,253 |
|
|
|
— |
|
|
|
— |
|
Residential 1-4 Unit - Refinance |
|
|
137,925 |
|
|
|
134,579 |
|
|
|
3,346 |
|
|
|
245 |
|
Short Term 1-4 Unit - Purchase |
|
|
6,402 |
|
|
|
6,402 |
|
|
|
— |
|
|
|
— |
|
Short Term 1-4 Unit - Refinance |
|
|
29,663 |
|
|
|
27,059 |
|
|
|
2,604 |
|
|
|
129 |
|
Total |
|
$ |
325,354 |
|
|
$ |
315,905 |
|
|
$ |
9,449 |
|
|
$ |
974 |
|
The Company has made the accounting policy election not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due.
The Company will continue to evaluate the COVID-19 forbearance-granted loans on an individual basis to determine if a reserve should be established on the collectability of the accrued interest and whether any loans should be placed on nonaccrual status at a future date.
The following tables present the amortized cost basis in the loans held for investment, excluding loans held for investment at fair value, as of June 30, 2024 and 2023, and the amount of accrued interest receivables written off by reversing interest income by portfolio segment for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Amortized Cost |
|
|
Interest Reversal |
|
|
Amortized Cost |
|
|
Interest Reversal |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Commercial - Purchase |
|
$ |
599,314 |
|
|
$ |
147 |
|
|
$ |
664,482 |
|
|
$ |
136 |
|
Commercial - Refinance |
|
|
758,179 |
|
|
|
762 |
|
|
|
854,048 |
|
|
|
667 |
|
Residential 1-4 Unit - Purchase |
|
|
469,400 |
|
|
|
151 |
|
|
|
553,269 |
|
|
|
476 |
|
Residential 1-4 Unit - Refinance |
|
|
734,003 |
|
|
|
421 |
|
|
|
882,020 |
|
|
|
881 |
|
Short Term 1-4 Unit - Purchase |
|
|
33,113 |
|
|
|
10 |
|
|
|
49,242 |
|
|
|
7 |
|
Short Term 1-4 Unit - Refinance |
|
|
30,850 |
|
|
|
54 |
|
|
|
59,505 |
|
|
|
347 |
|
Total |
|
$ |
2,624,859 |
|
|
$ |
1,545 |
|
|
$ |
3,062,566 |
|
|
$ |
2,514 |
|
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
|
|
Amortized Cost |
|
|
Interest Reversal |
|
|
Amortized Cost |
|
|
Interest Reversal |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Commercial - Purchase |
|
$ |
599,314 |
|
|
$ |
202 |
|
|
$ |
664,482 |
|
|
$ |
268 |
|
Commercial - Refinance |
|
|
758,179 |
|
|
|
1,629 |
|
|
|
854,048 |
|
|
|
1,183 |
|
Residential 1-4 Unit - Purchase |
|
|
469,400 |
|
|
|
286 |
|
|
|
553,269 |
|
|
|
773 |
|
Residential 1-4 Unit - Refinance |
|
|
734,003 |
|
|
|
614 |
|
|
|
882,020 |
|
|
|
1,597 |
|
Short Term 1-4 Unit - Purchase |
|
|
33,113 |
|
|
|
10 |
|
|
|
49,242 |
|
|
|
31 |
|
Short Term 1-4 Unit - Refinance |
|
|
30,850 |
|
|
|
115 |
|
|
|
59,505 |
|
|
|
443 |
|
Total |
|
$ |
2,624,859 |
|
|
$ |
2,856 |
|
|
$ |
3,062,566 |
|
|
$ |
4,295 |
|
The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $8.4 million and $8.0 million for the three months ended June 30, 2024 and 2023, respectively. The cash basis interest income recognized on nonaccrual loans was $15.8 million and $14.2 million for the six months ended June 30, 2024 and 2023, respectively. No accrued interest income was recognized on nonaccrual loans for the six months ended June 30, 2024 and 2023. The average recorded investment of individually evaluated loans, computed using month-end balances, was $322.8 million and $331.4 million for the three months ended June 30, 2024 and 2023, respectively, and $323.9 million and $316.9 million for the six months ended June 30, 2024 and 2023, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified in troubled debt restructuring as of June 30, 2024 and 2023.
14
The following tables present the activity in the allowance for credit losses for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, 2024 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Residential |
|
|
Residential |
|
|
Short Term |
|
|
Short Term |
|
|
|
|
|||||||
|
|
Commercial |
|
|
Commercial |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
|
|
|||||||
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance - April 1, 2024 |
|
$ |
861 |
|
|
$ |
1,894 |
|
|
$ |
973 |
|
|
$ |
1,269 |
|
|
$ |
17 |
|
|
$ |
253 |
|
|
$ |
5,267 |
|
Provision for credit losses |
|
|
(51 |
) |
|
|
(142 |
) |
|
|
(39 |
) |
|
|
(61 |
) |
|
|
12 |
|
|
|
499 |
|
|
|
218 |
|
Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(245 |
) |
|
|
(245 |
) |
Ending balance |
|
$ |
810 |
|
|
$ |
1,752 |
|
|
$ |
934 |
|
|
$ |
1,208 |
|
|
$ |
29 |
|
|
$ |
507 |
|
|
$ |
5,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
111 |
|
|
$ |
552 |
|
|
$ |
189 |
|
|
$ |
273 |
|
|
$ |
— |
|
|
$ |
489 |
|
|
$ |
1,614 |
|
Loans collectively evaluated |
|
$ |
698 |
|
|
$ |
1,200 |
|
|
$ |
745 |
|
|
$ |
936 |
|
|
$ |
29 |
|
|
$ |
18 |
|
|
$ |
3,626 |
|
Amortized cost related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
30,198 |
|
|
$ |
99,844 |
|
|
$ |
33,640 |
|
|
$ |
132,448 |
|
|
$ |
6,904 |
|
|
$ |
24,256 |
|
|
$ |
327,290 |
|
Loans collectively evaluated |
|
$ |
569,116 |
|
|
$ |
658,335 |
|
|
$ |
435,760 |
|
|
$ |
601,555 |
|
|
$ |
26,209 |
|
|
$ |
6,594 |
|
|
$ |
2,297,569 |
|
|
|
Three Months Ended June 30, 2023 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Residential |
|
|
Residential |
|
|
Short Term |
|
|
Short Term |
|
|
|
|
|||||||
|
|
Commercial |
|
|
Commercial |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
|
|
|||||||
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance - April 1, 2023 |
|
$ |
796 |
|
|
$ |
2,060 |
|
|
$ |
468 |
|
|
$ |
1,363 |
|
|
$ |
24 |
|
|
$ |
334 |
|
|
$ |
5,045 |
|
Provision for credit losses |
|
|
(64 |
) |
|
|
(34 |
) |
|
|
(65 |
) |
|
|
(99 |
) |
|
|
752 |
|
|
|
(192 |
) |
|
|
298 |
|
Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(717 |
) |
|
|
— |
|
|
|
(717 |
) |
Ending balance |
|
$ |
732 |
|
|
$ |
2,026 |
|
|
$ |
403 |
|
|
$ |
1,264 |
|
|
$ |
59 |
|
|
$ |
142 |
|
|
$ |
4,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
137 |
|
|
$ |
552 |
|
|
$ |
— |
|
|
$ |
246 |
|
|
$ |
— |
|
|
$ |
108 |
|
|
$ |
1,043 |
|
Loans collectively evaluated |
|
$ |
595 |
|
|
$ |
1,474 |
|
|
$ |
403 |
|
|
$ |
1,018 |
|
|
$ |
59 |
|
|
$ |
34 |
|
|
$ |
3,583 |
|
Amortized cost related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
21,239 |
|
|
$ |
93,176 |
|
|
$ |
49,826 |
|
|
$ |
139,356 |
|
|
$ |
3,587 |
|
|
$ |
47,603 |
|
|
$ |
354,787 |
|
Loans collectively evaluated |
|
$ |
643,243 |
|
|
$ |
760,872 |
|
|
$ |
503,443 |
|
|
$ |
742,664 |
|
|
$ |
45,655 |
|
|
$ |
11,902 |
|
|
$ |
2,707,779 |
|
|
|
Six Months Ended June 30, 2024 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Residential |
|
|
Residential |
|
|
Short Term |
|
|
Short Term |
|
|
|
|
|||||||
|
|
Commercial |
|
|
Commercial |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
|
|
|||||||
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance - January 1, 2024 |
|
$ |
935 |
|
|
$ |
1,805 |
|
|
$ |
585 |
|
|
$ |
1,256 |
|
|
$ |
23 |
|
|
$ |
165 |
|
|
$ |
4,769 |
|
Provision for credit losses |
|
|
(125 |
) |
|
|
(51 |
) |
|
|
645 |
|
|
|
59 |
|
|
|
105 |
|
|
|
586 |
|
|
|
1,219 |
|
Charge-offs |
|
|
— |
|
|
|
(2 |
) |
|
|
(296 |
) |
|
|
(107 |
) |
|
|
(99 |
) |
|
|
(244 |
) |
|
|
(748 |
) |
Ending balance |
|
$ |
810 |
|
|
$ |
1,752 |
|
|
$ |
934 |
|
|
$ |
1,208 |
|
|
$ |
29 |
|
|
$ |
507 |
|
|
$ |
5,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
111 |
|
|
$ |
552 |
|
|
$ |
189 |
|
|
$ |
273 |
|
|
$ |
— |
|
|
$ |
489 |
|
|
$ |
1,614 |
|
Loans collectively evaluated |
|
$ |
698 |
|
|
$ |
1,200 |
|
|
$ |
745 |
|
|
$ |
936 |
|
|
$ |
29 |
|
|
$ |
18 |
|
|
$ |
3,626 |
|
Amortized cost related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
30,198 |
|
|
$ |
99,844 |
|
|
$ |
33,640 |
|
|
$ |
132,448 |
|
|
$ |
6,904 |
|
|
$ |
24,256 |
|
|
$ |
327,290 |
|
Loans collectively evaluated |
|
$ |
569,116 |
|
|
$ |
658,335 |
|
|
$ |
435,760 |
|
|
$ |
601,555 |
|
|
$ |
26,209 |
|
|
$ |
6,594 |
|
|
$ |
2,297,569 |
|
15
|
|
Six Months Ended June 30, 2023 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Residential |
|
|
Residential |
|
|
Short Term |
|
|
Short Term |
|
|
|
|
|||||||
|
|
Commercial |
|
|
Commercial |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
1-4 Unit |
|
|
|
|
|||||||
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Purchase |
|
|
Refinance |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance - January 1, 2023 |
|
$ |
639 |
|
|
$ |
2,031 |
|
|
$ |
542 |
|
|
$ |
1,272 |
|
|
$ |
21 |
|
|
$ |
388 |
|
|
$ |
4,893 |
|
Provision for credit losses |
|
|
93 |
|
|
|
74 |
|
|
|
(112 |
) |
|
|
3 |
|
|
|
816 |
|
|
|
59 |
|
|
|
933 |
|
Charge-offs |
|
|
— |
|
|
|
(79 |
) |
|
|
(27 |
) |
|
|
(11 |
) |
|
|
(778 |
) |
|
|
(305 |
) |
|
|
(1,200 |
) |
Ending balance |
|
$ |
732 |
|
|
$ |
2,026 |
|
|
$ |
403 |
|
|
$ |
1,264 |
|
|
$ |
59 |
|
|
$ |
142 |
|
|
$ |
4,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Allowance related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
137 |
|
|
$ |
552 |
|
|
$ |
— |
|
|
$ |
246 |
|
|
$ |
— |
|
|
$ |
108 |
|
|
$ |
1,043 |
|
Loans collectively evaluated |
|
$ |
595 |
|
|
$ |
1,474 |
|
|
$ |
403 |
|
|
$ |
1,018 |
|
|
$ |
59 |
|
|
$ |
34 |
|
|
$ |
3,583 |
|
Amortized cost related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loans individually evaluated |
|
$ |
21,239 |
|
|
$ |
93,176 |
|
|
$ |
49,826 |
|
|
$ |
139,356 |
|
|
$ |
3,587 |
|
|
$ |
47,603 |
|
|
$ |
354,787 |
|
Loans collectively evaluated |
|
$ |
643,243 |
|
|
$ |
760,872 |
|
|
$ |
503,443 |
|
|
$ |
742,664 |
|
|
$ |
45,655 |
|
|
$ |
11,902 |
|
|
$ |
2,707,779 |
|
A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-off rate in relation to its nonperforming loans as a credit quality indicator. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. Past due status is based on the contractual terms of the loan. The annualized charge-off rates were 0.47% and 0.76% of average nonperforming loans for the six months ended June 30, 2024 and 2023, respectively.
Other credit quality indicators include aging status and accrual status. The following table presents the aging status of the amortized cost basis in the loans held for investment portfolio, which include $160.2 million and $176.5 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of June 30, 2024 and December 31, 2023, respectively:
|
|
30–59 Days |
|
|
60–89 Days |
|
|
90+ Days |
|
|
Total |
|
|
|
|
|
Total |
|
||||||
June 30, 2024 |
|
Past Due |
|
|
Past Due |
|
|
Past Due(1) |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Loans individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Purchase |
|
$ |
531 |
|
|
$ |
920 |
|
|
$ |
28,747 |
|
|
$ |
30,198 |
|
|
$ |
— |
|
|
$ |
30,198 |
|
Commercial - Refinance |
|
|
3,931 |
|
|
|
1,290 |
|
|
|
94,623 |
|
|
|
99,844 |
|
|
|
— |
|
|
|
99,844 |
|
Residential 1-4 Unit - Purchase |
|
|
252 |
|
|
|
574 |
|
|
|
32,814 |
|
|
|
33,640 |
|
|
|
— |
|
|
|
33,640 |
|
Residential 1-4 Unit - Refinance |
|
|
3,679 |
|
|
|
1,005 |
|
|
|
127,764 |
|
|
|
132,448 |
|
|
|
— |
|
|
|
132,448 |
|
Short Term 1-4 Unit - Purchase |
|
|
— |
|
|
|
— |
|
|
|
6,904 |
|
|
|
6,904 |
|
|
|
— |
|
|
|
6,904 |
|
Short Term 1-4 Unit - Refinance |
|
|
— |
|
|
|
— |
|
|
|
24,256 |
|
|
|
24,256 |
|
|
|
— |
|
|
|
24,256 |
|
Total loans individually evaluated |
|
$ |
8,393 |
|
|
$ |
3,789 |
|
|
$ |
315,108 |
|
|
$ |
327,290 |
|
|
$ |
— |
|
|
$ |
327,290 |
|
Loans collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Purchase |
|
$ |
24,496 |
|
|
$ |
7,297 |
|
|
$ |
— |
|
|
$ |
31,793 |
|
|
$ |
537,323 |
|
|
$ |
569,116 |
|
Commercial - Refinance |
|
|
36,638 |
|
|
|
14,099 |
|
|
|
— |
|
|
|
50,737 |
|
|
|
607,598 |
|
|
|
658,335 |
|
Residential 1-4 Unit - Purchase |
|
|
28,494 |
|
|
|
5,600 |
|
|
|
— |
|
|
|
34,094 |
|
|
|
401,666 |
|
|
|
435,760 |
|
Residential 1-4 Unit - Refinance |
|
|
50,444 |
|
|
|
22,453 |
|
|
|
— |
|
|
|
72,897 |
|
|
|
528,658 |
|
|
|
601,555 |
|
Short Term 1-4 Unit - Purchase |
|
|
6,152 |
|
|
|
170 |
|
|
|
— |
|
|
|
6,322 |
|
|
|
19,887 |
|
|
|
26,209 |
|
Short Term 1-4 Unit - Refinance |
|
|
448 |
|
|
|
261 |
|
|
|
— |
|
|
|
709 |
|
|
|
5,885 |
|
|
|
6,594 |
|
Total loans collectively evaluated |
|
$ |
146,672 |
|
|
$ |
49,880 |
|
|
$ |
— |
|
|
$ |
196,552 |
|
|
$ |
2,101,017 |
|
|
$ |
2,297,569 |
|
Ending balance |
|
$ |
155,065 |
|
|
$ |
53,669 |
|
|
$ |
315,108 |
|
|
$ |
523,842 |
|
|
$ |
2,101,017 |
|
|
$ |
2,624,859 |
|
16
|
|
30–59 Days |
|
|
60–89 Days |
|
|
90+ Days |
|
|
Total |
|
|
|
|
|
Total |
|
||||||
December 31, 2023 |
|
Past Due |
|
|
Past Due |
|
|
Past Due(1) |
|
|
Past Due |
|
|
Current |
|
|
Loans |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Loans individually evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Purchase |
|
$ |
2,329 |
|
|
$ |
668 |
|
|
$ |
25,224 |
|
|
$ |
28,221 |
|
|
$ |
— |
|
|
$ |
28,221 |
|
Commercial - Refinance |
|
|
4,716 |
|
|
|
2,405 |
|
|
|
79,769 |
|
|
|
86,890 |
|
|
|
— |
|
|
|
86,890 |
|
Residential 1-4 Unit - Purchase |
|
|
544 |
|
|
|
— |
|
|
|
35,709 |
|
|
|
36,253 |
|
|
|
— |
|
|
|
36,253 |
|
Residential 1-4 Unit - Refinance |
|
|
2,988 |
|
|
|
1,923 |
|
|
|
133,014 |
|
|
|
137,925 |
|
|
|
— |
|
|
|
137,925 |
|
Short Term 1-4 Unit - Purchase |
|
|
— |
|
|
|
— |
|
|
|
6,402 |
|
|
|
6,402 |
|
|
|
— |
|
|
|
6,402 |
|
Short Term 1-4 Unit - Refinance |
|
|
55 |
|
|
|
— |
|
|
|
29,608 |
|
|
|
29,663 |
|
|
|
— |
|
|
|
29,663 |
|
Total loans individually evaluated |
|
$ |
10,632 |
|
|
$ |
4,996 |
|
|
$ |
309,726 |
|
|
$ |
325,354 |
|
|
$ |
— |
|
|
$ |
325,354 |
|
Loans collectively evaluated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Purchase |
|
$ |
21,342 |
|
|
$ |
8,352 |
|
|
$ |
— |
|
|
$ |
29,694 |
|
|
$ |
574,010 |
|
|
$ |
603,704 |
|
Commercial - Refinance |
|
|
47,430 |
|
|
|
14,002 |
|
|
|
— |
|
|
|
61,432 |
|
|
|
651,494 |
|
|
|
712,926 |
|
Residential 1-4 Unit - Purchase |
|
|
29,236 |
|
|
|
6,850 |
|
|
|
— |
|
|
|
36,086 |
|
|
|
438,741 |
|
|
|
474,827 |
|
Residential 1-4 Unit - Refinance |
|
|
52,510 |
|
|
|
20,828 |
|
|
|
— |
|
|
|
73,338 |
|
|
|
596,886 |
|
|
|
670,224 |
|
Short Term 1-4 Unit - Purchase |
|
|
1,169 |
|
|
|
658 |
|
|
|
— |
|
|
|
1,827 |
|
|
|
32,882 |
|
|
|
34,709 |
|
Short Term 1-4 Unit - Refinance |
|
|
2,978 |
|
|
|
213 |
|
|
|
— |
|
|
|
3,191 |
|
|
|
7,957 |
|
|
|
11,148 |
|
Total loans collectively evaluated |
|
$ |
154,665 |
|
|
$ |
50,903 |
|
|
$ |
— |
|
|
$ |
205,568 |
|
|
$ |
2,301,970 |
|
|
$ |
2,507,538 |
|
Ending balance |
|
$ |
165,297 |
|
|
$ |
55,899 |
|
|
$ |
309,726 |
|
|
$ |
530,922 |
|
|
$ |
2,301,970 |
|
|
$ |
2,832,892 |
|
17
In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year as of June 30, 2024 and December 31, 2023.
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|||||||||||||||||
June 30, 2024: |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Commercial - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
239,996 |
|
|
$ |
215,901 |
|
|
$ |
26,441 |
|
|
$ |
86,778 |
|
|
$ |
569,116 |
|
Nonperforming |
|
|
11,216 |
|
|
|
6,889 |
|
|
|
3,794 |
|
|
|
8,299 |
|
|
|
30,198 |
|
Total Commercial - Purchase |
|
$ |
251,212 |
|
|
$ |
222,790 |
|
|
$ |
30,235 |
|
|
$ |
95,077 |
|
|
$ |
599,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
218,777 |
|
|
$ |
175,608 |
|
|
$ |
45,075 |
|
|
$ |
218,875 |
|
|
$ |
658,335 |
|
Nonperforming |
|
|
27,166 |
|
|
|
19,296 |
|
|
|
4,350 |
|
|
|
49,032 |
|
|
|
99,844 |
|
Total Commercial - Refinance |
|
$ |
245,943 |
|
|
$ |
194,904 |
|
|
$ |
49,425 |
|
|
$ |
267,907 |
|
|
$ |
758,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential 1-4 Unit - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
193,045 |
|
|
$ |
183,755 |
|
|
$ |
8,514 |
|
|
$ |
50,446 |
|
|
$ |
435,760 |
|
Nonperforming |
|
|
13,084 |
|
|
|
11,921 |
|
|
|
1,615 |
|
|
|
7,020 |
|
|
|
33,640 |
|
Total Residential 1-4 |
|
$ |
206,129 |
|
|
$ |
195,676 |
|
|
$ |
10,129 |
|
|
$ |
57,466 |
|
|
$ |
469,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential 1-4 Unit - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
251,267 |
|
|
$ |
219,308 |
|
|
$ |
15,998 |
|
|
$ |
114,982 |
|
|
$ |
601,555 |
|
Nonperforming |
|
|
48,368 |
|
|
|
32,825 |
|
|
|
8,692 |
|
|
|
42,563 |
|
|
|
132,448 |
|
Total Residential 1-4 |
|
$ |
299,635 |
|
|
$ |
252,133 |
|
|
$ |
24,690 |
|
|
$ |
157,545 |
|
|
$ |
734,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Short Term 1-4 Unit - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
5,225 |
|
|
$ |
180 |
|
|
$ |
15,671 |
|
|
$ |
5,133 |
|
|
$ |
26,209 |
|
Nonperforming |
|
|
6,155 |
|
|
|
166 |
|
|
|
583 |
|
|
|
— |
|
|
|
6,904 |
|
Total Short Term 1-4 |
|
$ |
11,380 |
|
|
$ |
346 |
|
|
$ |
16,254 |
|
|
$ |
5,133 |
|
|
$ |
33,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Short Term 1-4 Unit - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Performing |
|
$ |
6,594 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,594 |
|
Nonperforming |
|
|
3,813 |
|
|
|
153 |
|
|
|
4,201 |
|
|
|
16,089 |
|
|
|
24,256 |
|
Total Short Term 1-4 |
|
$ |
10,407 |
|
|
$ |
153 |
|
|
$ |
4,201 |
|
|
$ |
16,089 |
|
|
$ |
30,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Portfolio |
|
$ |
1,024,706 |
|
|
$ |
866,002 |
|
|
$ |
134,934 |
|
|
$ |
599,217 |
|
|
$ |
2,624,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross charge-offs - quarter-ended June 30, 2024 |
|
$ |
245 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross charge-offs - year-to-date June 30, 2024 |
|
$ |
701 |
|
|
$ |
34 |
|
|
$ |
— |
|
|
$ |
13 |
|
|
$ |
748 |
|
18
|
|
Term Loans Amortized Cost Basis by Origination Year |
|
|||||||||||||||||||||
December 31, 2023 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
Prior |
|
|
Total |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Commercial - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
248,153 |
|
|
$ |
226,467 |
|
|
$ |
31,692 |
|
|
$ |
43,829 |
|
|
$ |
53,563 |
|
|
$ |
603,704 |
|
Nonperforming |
|
|
9,600 |
|
|
|
6,104 |
|
|
|
567 |
|
|
|
4,773 |
|
|
|
7,177 |
|
|
|
28,221 |
|
Total Commercial - Purchase |
|
$ |
257,753 |
|
|
$ |
232,571 |
|
|
$ |
32,259 |
|
|
$ |
48,602 |
|
|
$ |
60,740 |
|
|
$ |
631,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
233,052 |
|
|
$ |
188,723 |
|
|
$ |
47,883 |
|
|
$ |
92,819 |
|
|
$ |
150,449 |
|
|
$ |
712,926 |
|
Nonperforming |
|
|
20,462 |
|
|
|
14,168 |
|
|
|
4,207 |
|
|
|
14,167 |
|
|
|
33,886 |
|
|
|
86,890 |
|
Total Commercial - Refinance |
|
$ |
253,514 |
|
|
$ |
202,891 |
|
|
$ |
52,090 |
|
|
$ |
106,986 |
|
|
$ |
184,335 |
|
|
$ |
799,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential 1-4 Unit - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
208,456 |
|
|
$ |
198,110 |
|
|
$ |
9,581 |
|
|
$ |
24,429 |
|
|
$ |
34,251 |
|
|
$ |
474,827 |
|
Nonperforming |
|
|
17,287 |
|
|
|
10,740 |
|
|
|
701 |
|
|
|
1,421 |
|
|
|
6,104 |
|
|
|
36,253 |
|
Total Residential 1-4 |
|
$ |
225,743 |
|
|
$ |
208,850 |
|
|
$ |
10,282 |
|
|
$ |
25,850 |
|
|
$ |
40,355 |
|
|
$ |
511,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Residential 1-4 Unit - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
277,980 |
|
|
$ |
237,159 |
|
|
$ |
19,752 |
|
|
$ |
61,136 |
|
|
$ |
74,197 |
|
|
$ |
670,224 |
|
Nonperforming |
|
|
43,272 |
|
|
|
36,344 |
|
|
|
7,835 |
|
|
|
28,252 |
|
|
|
22,222 |
|
|
|
137,925 |
|
Total Residential 1-4 |
|
$ |
321,252 |
|
|
$ |
273,503 |
|
|
$ |
27,587 |
|
|
$ |
89,388 |
|
|
$ |
96,419 |
|
|
$ |
808,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short Term 1-4 Unit - Purchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
11,458 |
|
|
$ |
180 |
|
|
$ |
18,510 |
|
|
$ |
4,561 |
|
|
$ |
— |
|
|
$ |
34,709 |
|
Nonperforming |
|
|
5,533 |
|
|
|
165 |
|
|
|
704 |
|
|
|
— |
|
|
|
— |
|
|
|
6,402 |
|
Total Short Term 1-4 |
|
$ |
16,991 |
|
|
$ |
345 |
|
|
$ |
19,214 |
|
|
$ |
4,561 |
|
|
$ |
— |
|
|
$ |
41,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short Term 1-4 Unit - Refinance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Payment performance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Performing |
|
$ |
11,148 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,148 |
|
Nonperforming |
|
|
4,313 |
|
|
|
153 |
|
|
|
7,435 |
|
|
|
13,612 |
|
|
|
4,150 |
|
|
|
29,663 |
|
Total Short Term 1-4 |
|
$ |
15,461 |
|
|
$ |
153 |
|
|
$ |
7,435 |
|
|
$ |
13,612 |
|
|
$ |
4,150 |
|
|
$ |
40,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Portfolio |
|
$ |
1,090,714 |
|
|
$ |
918,313 |
|
|
$ |
148,867 |
|
|
$ |
288,999 |
|
|
$ |
385,999 |
|
|
$ |
2,832,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross charge-offs - quarter-ended December 31, 2023 |
|
$ |
744 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross charge-offs - year-ended December 31, 2023 |
|
$ |
1,120 |
|
|
$ |
473 |
|
|
$ |
— |
|
|
$ |
446 |
|
|
$ |
— |
|
|
$ |
2,039 |
|
19
Nonaccrual Loans - Loans Held for Investment at Fair Value
The following tables present the aggregate fair value of loans held for investment at fair value that are 90 days or more past due and/or in nonaccrual status, and the difference between the aggregate fair value and the aggregate unpaid principal balance as of June 30, 2024 and December 31, 2023 by loan segments:
|
|
Fair Value |
|
|
Unpaid Principal Balance |
|
|
Difference |
|
|||||||||||||||||||
|
|
Current–89 Days |
|
|
90+ Days Past Due |
|
|
|
|
|
Current–89 Days |
|
|
90+ Days Past Due |
|
|
|
|
|
90+ Days Past Due |
|
|||||||
June 30, 2024 |
|
Past Due |
|
|
or Nonaccrual |
|
|
Total |
|
|
Past Due |
|
|
or Nonaccrual |
|
|
Total |
|
|
or Nonaccrual |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Commercial - Purchase |
|
$ |
351,328 |
|
|
$ |
8,026 |
|
|
$ |
359,354 |
|
|
$ |
322,674 |
|
|
$ |
9,685 |
|
|
$ |
332,359 |
|
|
$ |
(1,659 |
) |
Commercial - Refinance |
|
|
401,470 |
|
|
|
11,777 |
|
|
|
413,247 |
|
|
|
365,119 |
|
|
|
14,143 |
|
|
|
379,262 |
|
|
|
(2,366 |
) |
Residential 1-4 Unit - Purchase |
|
|
320,969 |
|
|
|
20,578 |
|
|
|
341,547 |
|
|
|
309,173 |
|
|
|
24,978 |
|
|
|
334,151 |
|
|
|
(4,400 |
) |
Residential 1-4 Unit - Refinance |
|
|
652,918 |
|
|
|
70,317 |
|
|
|
723,235 |
|
|
|
614,884 |
|
|
|
84,276 |
|
|
|
699,160 |
|
|
|
(13,959 |
) |
Short Term 1-4 Unit - Purchase |
|
|
63,336 |
|
|
|
3,945 |
|
|
|
67,281 |
|
|
|
63,285 |
|
|
|
4,709 |
|
|
|
67,994 |
|
|
|
(764 |
) |
Short Term 1-4 Unit - Refinance |
|
|
59,433 |
|
|
|
7,586 |
|
|
|
67,019 |
|
|
|
58,965 |
|
|
|
8,994 |
|
|
|
67,959 |
|
|
|
(1,408 |
) |
Ending balance |
|
$ |
1,849,454 |
|
|
$ |
122,229 |
|
|
$ |
1,971,683 |
|
|
$ |
1,734,100 |
|
|
$ |
146,785 |
|
|
$ |
1,880,885 |
|
|
$ |
(24,556 |
) |
|
|
Fair Value |
|
|
Unpaid Principal Balance |
|
|
Difference |
|
|||||||||||||||||||
|
|
Current–89 Days |
|
|
90+ Days Past Due |
|
|
|
|
|
Current–89 days |
|
|
90+ Days Past Due |
|
|
|
|
|
90+ Days Past Due |
|
|||||||
December 31, 2023 |
|
Past Due |
|
|
or Nonaccrual |
|
|
Total |
|
|
past due |
|
|
or Nonaccrual |
|
|
Total |
|
|
or Nonaccrual |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Commercial - Purchase |
|
$ |
204,282 |
|
|
$ |
4,651 |
|
|
$ |
208,933 |
|
|
$ |
188,924 |
|
|
$ |
5,635 |
|
|
$ |
194,559 |
|
|
$ |
(984 |
) |
Commercial - Refinance |
|
|
230,034 |
|
|
|
7,399 |
|
|
|
237,433 |
|
|
|
210,716 |
|
|
|
8,962 |
|
|
|
219,678 |
|
|
|
(1,563 |
) |
Residential 1-4 Unit - Purchase |
|
|
238,215 |
|
|
|
12,886 |
|
|
|
251,101 |
|
|
|
231,494 |
|
|
|
15,428 |
|
|
|
246,922 |
|
|
|
(2,542 |
) |
Residential 1-4 Unit - Refinance |
|
|
472,615 |
|
|
|
29,335 |
|
|
|
501,950 |
|
|
|
448,780 |
|
|
|
35,119 |
|
|
|
483,899 |
|
|
|
(5,784 |
) |
Short Term 1-4 Unit - Purchase |
|
|
46,312 |
|
|
|
1,769 |
|
|
|
48,081 |
|
|
|
45,695 |
|
|
|
2,143 |
|
|
|
47,838 |
|
|
|
(374 |
) |
Short Term 1-4 Unit - Refinance |
|
|
54,041 |
|
|
|
4,533 |
|
|
|
58,574 |
|
|
|
53,008 |
|
|
|
5,491 |
|
|
|
58,499 |
|
|
|
(958 |
) |
Ending balance |
|
$ |
1,245,499 |
|
|
$ |
60,573 |
|
|
$ |
1,306,072 |
|
|
$ |
1,178,617 |
|
|
$ |
72,778 |
|
|
$ |
1,251,395 |
|
|
$ |
(12,205 |
) |
Note 7 — Receivables Due From Servicers
The following tables summarize receivables due from servicers as of June 30, 2024 and December 31, 2023:
|
|
|
June 30, 2024 |
|
|||||||||
|
|
|
Securitized Debt |
|
|
Warehouse and Repurchase Facilities and Other |
|
|
Total |
|
|||
|
|
|
(In thousands) |
|
|||||||||
Loan principal payments due from servicers |
$ |
36,090 |
|
|
$ |
337 |
|
|
$ |
36,427 |
|
||
Other loan servicing receivables |
|
12,430 |
|
|
|
3,677 |
|
|
|
16,107 |
|
||
Loan servicing receivables |
|
48,520 |
|
|
|
4,014 |
|
|
|
52,534 |
|
||
Corporate and escrow advances receivable |
|
27,455 |
|
|
|
2,370 |
|
|
|
29,825 |
|
||
Total receivables due from servicers |
$ |
75,975 |
|
|
$ |
6,384 |
|
|
$ |
82,359 |
|
||
|
|
|
December 31, 2023 |
|
|||||||||
|
|
|
Securitized Debt |
|
|
Warehouse and Repurchase Facilities and Other |
|
|
Total |
|
|||
|
|
|
(In thousands) |
|
|||||||||
Loan principal payments due from servicers |
$ |
41,289 |
|
|
$ |
136 |
|
|
$ |
41,425 |
|
||
Other loan servicing receivables |
|
13,122 |
|
|
|
3,249 |
|
|
|
16,371 |
|
||
Loan servicing receivables |
|
54,411 |
|
|
|
3,385 |
|
|
|
57,796 |
|
||
Corporate and escrow advances receivable |
|
25,736 |
|
|
|
1,545 |
|
|
|
27,281 |
|
||
Total receivables due from servicers |
$ |
80,147 |
|
|
$ |
4,930 |
|
|
$ |
85,077 |
|
||
Note 8 — Mortgage Servicing Rights
Mortgage loans serviced are related to the Century business and not included in the consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others amounted to $707.7 million and $500.7 million as of June 30, 2024 and 2023, respectively.
20
The Company has elected to record its mortgage servicing rights using the fair value measurement method. Significant assumptions used in determining the fair value of servicing rights as of June 30, 2024 and December 31, 2023 include: 1) Weighted average discount rate of 8.0%, and 2) Weighted average conditional prepayment rate of 4.7% and 6.5%, respectively.
The following table presents the Company's mortgage servicing rights activity during the quarter and year-to-date ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Balance at the beginning of period |
|
$ |
9,022 |
|
|
$ |
9,143 |
|
|
$ |
8,578 |
|
|
$ |
9,238 |
|
Mortgage servicing rights acquired |
|
|
3,580 |
|
|
|
— |
|
|
|
3,580 |
|
|
|
— |
|
Additions |
|
|
— |
|
|
|
235 |
|
|
|
— |
|
|
|
250 |
|
Fair value adjustments |
|
|
(373 |
) |
|
|
67 |
|
|
|
71 |
|
|
|
(43 |
) |
Balance at the end of period |
|
$ |
12,229 |
|
|
$ |
9,445 |
|
|
$ |
12,229 |
|
|
$ |
9,445 |
|
Note 9 — Goodwill
The following table presents the activity for goodwill as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
Balance at the beginning of period |
|
$ |
6,775 |
|
|
$ |
6,775 |
|
Goodwill acquired |
|
|
— |
|
|
|
— |
|
Balance at the end of period |
|
$ |
6,775 |
|
|
$ |
6,775 |
|
Note 10 — Securitized Debt and Securitized Debt at Fair Value
As of June 30, 2024, the Company is the sole beneficial interest holder of twenty-seven Trusts, which are variable interest entities included in the consolidated financial statements. The securitization transactions are accounted for as secured borrowings under U.S. GAAP. The securities are subject to redemption by the Company when the stated principal balance is less than a certain percentage, ranging from 10% to 30% of the original stated principal balance of loans at issuance. As a result, the actual maturity dates of the securities issued could be earlier than their respective stated maturity dates, ranging from July 2028 through June 2054.
The following tables summarize securitized debt and securitized debt at fair value as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|||||||||
|
|
Securitized Debt, Net |
|
|
Securitized Debt at Fair Value |
|
|
Total Securitized Debt |
|
|||
|
|
(In thousands) |
|
|||||||||
Securitized debt |
|
$ |
2,263,958 |
|
|
$ |
1,507,381 |
|
|
$ |
3,771,339 |
|
Valuation adjustments on FVO securitized debt |
|
|
— |
|
|
|
15,964 |
|
|
|
15,964 |
|
Valuation at issuance on FVO securitized debt |
|
|
— |
|
|
|
(13,393 |
) |
|
|
(13,393 |
) |
Deferred issuance costs and discounts |
|
|
(35,017 |
) |
|
|
— |
|
|
|
(35,017 |
) |
Total securitized debt and securitized debt at fair value |
|
$ |
2,228,941 |
|
|
$ |
1,509,952 |
|
|
$ |
3,738,893 |
|
|
|
December 31, 2023 |
|
|||||||||
|
|
Securitized Debt, Net |
|
|
Securitized Debt at Fair Value |
|
|
Total Securitized Debt |
|
|||
|
|
(In thousands) |
|
|||||||||
Securitized debt |
|
$ |
2,458,439 |
|
|
$ |
876,704 |
|
|
$ |
3,335,143 |
|
Valuation adjustments on FVO securitized debt |
|
|
— |
|
|
|
9,002 |
|
|
|
9,002 |
|
Valuation at issuance on FVO securitized debt |
|
|
— |
|
|
|
(8,289 |
) |
|
|
(8,289 |
) |
Deferred issuance costs and discounts |
|
|
(39,628 |
) |
|
|
— |
|
|
|
(39,628 |
) |
Total securitized debt and securitized debt at fair value |
|
$ |
2,418,811 |
|
|
$ |
877,417 |
|
|
$ |
3,296,228 |
|
21
The following table presents the effective interest rate of securitized debt and securitized debt at fair value for the six months ended June 30, 2024 and 2023:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
($ in thousands) |
|
|||||
Interest expense |
|
$ |
102,355 |
|
|
$ |
76,737 |
|
Average outstanding unpaid principal balance |
|
|
3,602,754 |
|
|
|
2,973,388 |
|
Effective interest rate (1) |
|
|
5.68 |
% |
|
|
5.16 |
% |
Note 11 — Other Debt
Secured financings and warehouse facilities are utilized to finance the origination and purchase of commercial real estate mortgage loans. Warehouse facilities are designated to fund mortgage loans that are purchased and originated within specified underwriting guidelines. Most of these lines of credit fund less than 100% of the principal balance of the mortgage loans originated and purchased, requiring the use of working capital to fund the remaining portion.
On March 15, 2022, the Company entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months. A portion of the net proceeds from the 2022 Term Loan was used to redeem all the amounts owed pursuant to a term loan previously entered into during 2021 (“the 2021 Term Loan”). The remaining portion of the net proceeds from the 2022 Term Loan is used for loan originations and general corporate purposes. As of June 30, 2024 and December 31, 2023, the balance of the 2022 Term Loan was $215.0 million.
On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, the (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months. As of June 30, 2024, the balance of the 2024 Term Loan was $75.0 million.
The total balance of the 2022 Term Loan and the 2024 Term Loan (“Corporate Debt”) in the consolidated balance sheets is net of debt issuance costs and discount of $6.1 million as of June 30, 2024. The Corporate Debt is secured by substantially all assets of the Company not otherwise pledged under a securitized debt or warehouse facility and contains certain reporting and financial covenants. Should the Company fail to adhere to those covenants, the lenders have the right to demand immediate repayment that may require the Company to sell the collaterals at less than the carrying amounts. As of June 30, 2024, the Company was in compliance with all covenants.
On January 4, 2011, Century entered into a Master Participation and Facility Agreement with a bank (“the September 2022 Term Repurchase Agreement”). The Facility Agreement has a current extended maturity date of July 31, 2025, and is a short-term borrowing facility, collateralized by performing loans, with a maximum capacity of $60.0 million, and bears interest at one-month SOFR plus 1.60% with a 0.25% floor. There was no outstanding balance as of June 30, 2024 and December 31, 2023.
On May 17, 2013, the Company entered into a Repurchase Agreement (“the 2013 Repurchase Agreement”) with a warehouse lender. The 2013 Repurchase Agreement is a modified mark-to-market agreement and has a current maturity date of September 26, 2024, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of $300.0 million, and bears interest at SOFR plus 3.25%. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility. The effective interest rates were 9.3% and 9.8% as of June 30, 2024 and December 31, 2023, respectively.
On September 12, 2018, the Company entered into a three-year non-mark-to-market secured revolving loan facility agreement (“the Bank Credit Agreement”) with a bank. The Bank Credit Agreement has a current extended maturity date of November 10, 2025. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus 3.61%, with a floor of 4.25%. The maximum capacity under this facility is $50.0 million. The effective interest rates were 8.8% and 9.2% as of June 30, 2024 and December 31, 2023, respectively.
On January 29, 2021, the Company entered into a non-mark-to-market Repurchase Agreement (“the 2021 Repurchase Agreement”) with a warehouse lender. The 2021 Repurchase Agreement has a current extended maturity date of May 20, 2025, and is a short-term borrowing facility, collateralized by a pool of loans, with a maximum capacity of $200.0 million, and bears interest at SOFR plus a margin of 3.00% during the availability period and 4.00% during the amortization period. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility. The effective interest rates were 9.2% and 10.0% as of June 30, 2024 and December 31, 2023, respectively.
22
On April 16, 2021, the Company entered into a non-mark-to-market Term Repurchase Agreement (“the 2021 Term Repurchase Agreement”) with a warehouse lender. The 2021 Term Repurchase Agreement has a maturity date of April 16, 2026, with a borrowing period through April 14, 2025. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus a margin of 3.10%. The maximum capacity under this facility is $100.0 million. The effective interest rates were 8.7% and 8.3% as of June 30, 2024 and December 31, 2023, respectively.
On July 29, 2021, the Company entered into a non-mark-to-market Term Repurchase Agreement (“the July 2021 Term Repurchase Agreement”) with a warehouse lender. The July 2021 Term Repurchase Agreement has a maturity date of July 29, 2024, with an option to extend the term to July 29, 2025. The Company is currently working with the lender on the option to extend the term. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at one-month American Interbank Offered Rate (“AMERIBOR”) with a 0.5% floor plus 4.50% per annum. The maximum capacity under this facility is $100.0 million. The effective interest rates were 10.7% and 14.2% as of June 30, 2024 and December 31, 2023, respectively.
On October 12, 2023, the Company entered into a $9.5 million short-term repurchase agreement (“the October 2023 Repurchase Agreement”), and bore interest at 7.0%. On December 14, 2023, the Company entered into two $10.0 million short-term repurchase agreements, one agreement bore interest at 7.6%, and the other agreement bore interest at 7.5%. These repurchase agreements were paid off in February 2024.
On December 27, 2023, the Company entered into a loan facility agreement (“the 2023 Repurchase Agreement”) with a bank. The 2023 Repurchase Agreement has a maturity date of December 27, 2026. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus 3.00%. The maximum loan amount under this facility is $75.0 million. The effective interest rates were 9.8% and 8.6% as of June 30, 2024 and December 31, 2023, respectively.
Certain loans are pledged as security under the warehouse repurchase facilities and the revolving loan facility, which contain covenants. Should the Company fail to adhere to those covenants or otherwise default under the facilities, the lenders have the right to terminate the facilities and demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of June 30, 2024 and December 31, 2023, the Company was in compliance with all covenants.
The following table summarizes the maximum borrowing capacity and current gross balances outstanding of the Company’s warehouse facilities and loan agreements as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Period End |
|
|
Maximum |
|
|
Period End |
|
|
Maximum |
|
||||
|
|
(In thousands) |
|
|||||||||||||
The September 2022 term repurchase agreement |
|
$ |
— |
|
|
$ |
60,000 |
|
|
$ |
— |
|
|
$ |
60,000 |
|
The 2013 repurchase agreement |
|
|
101,424 |
|
|
|
300,000 |
|
|
|
111,086 |
|
|
|
300,000 |
|
The bank credit agreement |
|
|
24,496 |
|
|
|
50,000 |
|
|
|
31,950 |
|
|
|
50,000 |
|
The 2021 repurchase agreement |
|
|
42,466 |
|
|
|
200,000 |
|
|
|
88,817 |
|
|
|
200,000 |
|
The 2021 term repurchase agreement |
|
|
24,550 |
|
|
|
100,000 |
|
|
|
30,460 |
|
|
|
100,000 |
|
The July 2021 term repurchase agreement |
|
|
20,105 |
|
|
|
100,000 |
|
|
|
22,516 |
|
|
|
100,000 |
|
The October 2023 repurchase agreement |
|
|
— |
|
|
|
— |
|
|
|
29,522 |
|
|
|
30,530 |
|
The 2023 repurchase agreement |
|
|
25,500 |
|
|
|
75,000 |
|
|
|
22,000 |
|
|
|
50,000 |
|
Total |
|
$ |
238,541 |
|
|
$ |
885,000 |
|
|
$ |
336,351 |
|
|
$ |
890,530 |
|
The following table provides an overview of the activity and effective interest rate for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||
Warehouse and Repurchase Facilities: |
|
($ in thousands) |
|
|
|||||||||||||
Average outstanding balance |
|
$ |
263,029 |
|
|
$ |
238,027 |
|
|
$ |
265,294 |
|
|
$ |
231,762 |
|
|
Highest outstanding balance at any month-end |
|
|
333,850 |
|
|
|
320,544 |
|
|
|
361,677 |
|
|
|
320,544 |
|
|
Effective interest rate (1) |
|
|
9.30 |
% |
|
|
9.93 |
% |
|
|
9.43 |
% |
|
|
9.27 |
% |
|
The following table provides a summary of interest expense that includes interest, amortization of discount, and deal cost amortization for the three and six months ended June 30, 2024 and 2023:
23
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||
|
|
(In thousands) |
|
|
|||||||||||||
Warehouse and repurchase facilities |
|
$ |
6,116 |
|
|
$ |
5,910 |
|
|
$ |
12,508 |
|
|
$ |
10,743 |
|
|
Securitized debt |
|
|
53,072 |
|
|
|
39,541 |
|
|
|
102,355 |
|
|
|
76,737 |
|
|
Interest expense — portfolio related |
|
|
59,188 |
|
|
|
45,451 |
|
|
|
114,863 |
|
|
|
87,480 |
|
|
Interest expense — corporate debt |
|
|
6,155 |
|
|
|
4,139 |
|
|
|
11,535 |
|
|
|
8,278 |
|
|
Total interest expense |
|
$ |
65,343 |
|
|
$ |
49,590 |
|
|
$ |
126,398 |
|
|
$ |
95,758 |
|
|
Note 12 — Commitments and Contingencies
When the Company sells loans, it is required to make normal and customary representations and warranties about the loans to the purchaser. The loan sale agreements generally require the Company to repurchase loans if the Company breaches a representation or warranty given to the loan purchaser. In addition, the Company may be required to repurchase loans as a result of borrower fraud or if a payment default occurs on a loan shortly after its sale.
The Company records a repurchase liability relating to representations and warranties and early payment defaults. The method used to estimate the liability for repurchase is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates and the potential severity of loss in the event of defaults. The Company establishes a liability at the time loans are sold and continually updates the estimated repurchase liability. The level of the repurchase liability for representations and warranties and early payment default requires considerable management judgment. As of June 30, 2024 and December 31, 2023, the balance of repurchase liability was $144 thousand and $66 thousand, respectively, and it is included in accounts payable and accrued expenses in the consolidated balance sheets.
The Company is a party to various legal proceedings in the normal course of business. The Company, after consultation with legal counsel, believes the disposition of all pending litigation will not have a material effect on the Company’s consolidated financial condition or results of operations as of June 30, 2024.
Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria.
The Company applied for ERC for the first three quarters’ wages paid in calendar year 2021. During the second quarter of 2023, the Company received approximately $4.2 million of ERC. Due to the subjectivity of the credit, the Company elected to account for the ERC as a gain analogizing to ASC 450-30, Gain Contingencies. Accordingly, the $4.2 million ERC, net of the third-party specialist fees of $0.6 million, are deferred until the uncertainty surrounding them is resolved. The net amount is included in accounts payable and accrued expenses on the consolidated balance sheets as of June 30, 2024.
Note 13 — Stock-Based Compensation
The Company’s Amended and Restated 2020 Omnibus Incentive Plan, or “the 2020 Plan”, authorizes grants of stock‑based compensation instruments including but not limited to non-qualified stock options, restricted stock awards (“RSAs”) and performance stock units (“PSUs”) to certain employees and non-employee directors of the Company, to purchase or issue up to 2,770,000 shares of the Company's common stock.
The Company recognized a total of $1.6 million and $1.0 million compensation expense related to the outstanding stock options, unvested RSAs, unvested PSU awards, and Employee Stock Purchase Plan (“ESPP”) granted to employees and non-employee directors for the quarter ended June 30, 2024 and 2023, respectively. Stock-based compensation expense related to awards granted to employees is included in “Compensation and employee benefits” on the consolidated statements of income. Stock-based compensation expense related to awards granted to non-employee directors is included in “Other operating expenses” on the consolidated statements of income. The amount of unrecognized compensation expense related to unvested RSAs, unvested PSU awards, and ESPP totaled $8.4 million and $5.7 million as of June 30, 2024 and 2023, respectively.
24
Stock Options
Stock options granted generally vest ratably over three years and are exercisable for a period up to ten years from the date of the grant. The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield is zero as the Company is not expected to pay dividends in the foreseeable future. Expected volatility is based on historical volatility of the Company’s stock.
The table below summarizes stock option activity during the period ended June 30, 2024:
|
|
Six Months Ended June 30, 2024 |
|
|||||||||||
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Life |
|
Aggregate Intrinsic Value (2) |
|
|||
|
|
($ in thousands, except per share amounts) |
|
|||||||||||
Options outstanding at December 31, 2023 |
|
|
752,964 |
|
|
$ |
12.88 |
|
|
|
|
|
|
|
Granted |
|
|
100 |
|
|
|
15.86 |
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
Options outstanding at June 30, 2024 |
|
|
753,064 |
|
|
$ |
12.88 |
|
|
5.6 years |
|
$ |
3,804 |
|
Options exercisable at June 30, 2024 |
|
|
747,500 |
|
|
$ |
12.89 |
|
|
5.6 years |
|
$ |
3,770 |
|
Options expected to vest (1) |
|
|
5,564 |
|
|
$ |
12.89 |
|
|
9.2 years |
|
$ |
34 |
|
RSAs
The fair value of RSAs is determined based on the fair market value of the Company's common shares on the grant date. The estimated fair value of RSA awards is amortized as an expense over the three-year requisite service period. The Company has elected to recognize forfeitures as they occurred rather than estimating service-based forfeitures over the requisite service period.
The table below summarizes RSA activity during the period ended June 30, 2024:
|
|
Employee |
|
|
Non-Employee Director |
|
|
Total |
|
|||||||||||||||
June 30, 2024 |
|
Restricted Stock Awards |
|
|
Restricted Stock Awards |
|
|
Restricted Stock Awards |
|
|||||||||||||||
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||||||
Nonvested at December 31, 2023 |
|
|
409,137 |
|
|
$ |
9.39 |
|
|
|
61,276 |
|
|
$ |
9.31 |
|
|
|
470,413 |
|
|
$ |
9.38 |
|
Granted |
|
|
189,679 |
|
|
|
15.86 |
|
|
|
15,939 |
|
|
|
17.88 |
|
|
|
205,618 |
|
|
|
16.02 |
|
Vested |
|
|
(248,796 |
) |
|
|
8.61 |
|
|
|
(29,785 |
) |
|
|
9.57 |
|
|
|
(278,581 |
) |
|
|
8.71 |
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonvested at June 30, 2024 |
|
|
350,020 |
|
|
$ |
13.45 |
|
|
|
47,430 |
|
|
$ |
12.03 |
|
|
|
397,450 |
|
|
$ |
13.28 |
|
PSUs
In February 2022, the Company began granting PSUs to certain employees, including named executive officers under the 2020 Plan. PSUs are linked to the average core net income annual growth over the three-year period from the year of grant. Settlement of vested PSUs will be made on the date that the Compensation Committee certifies the average core net income annual growth for the three-year period. PSUs are subject to forfeiture until predetermined performance conditions have been achieved. The number of shares issued at the end of any performance period could range between 0% and 200% of the original target award amount. Compensation expense related to PSUs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using an estimate of the probability of achieving the performance target. Adjustments to compensation expense are made each year based on changes in estimate of the number of PSUs that are probable of vesting.
The table below summarizes PSU activity during the period ended June 30, 2024:
June 30, 2024 |
|
Shares |
|
|
Weighted Average Grant Date Fair Value (per share) |
|
||
Outstanding at December 31, 2023, nonvested |
|
|
256,387 |
|
(1) |
$ |
11.05 |
|
Granted |
|
|
157,994 |
|
(1) |
|
15.86 |
|
Performance adjustment |
|
|
102,750 |
|
|
|
12.63 |
|
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Outstanding at June 30, 2024, nonvested |
|
|
517,131 |
|
|
$ |
12.83 |
|
25
ESPP
In July 2022, the Company initiated an ESPP which allows permitted eligible employees to purchase shares of the Company's common stock through payroll deductions of up to 15% of their eligible compensation, subject to certain limitations. The purchase price of the shares under the ESPP equals 85% of the lower of the fair market value of the Company's common stock on either the first or last day of each six-month offering period. Compensation expense for the ESPP is calculated as of the beginning of the offering period as the fair value of the employees’ purchase rights utilizing the Black-Scholes option valuation model and is recognized as a compensation expense over the offering period.
Treasury Stock
Treasury share purchases represent shares surrendered to the Company approximately equal in value to the statutory payroll tax withholding obligations and other estimated tax obligations arising from the vesting of employee and/or non-employee directors restricted stock awards. During the quarter ended June 30, 2024, the Company purchased 14,892 treasury shares at an average price of $17.88 per share. No treasury shares were purchased during the quarter ended June 30, 2023.
Note 14 — Earnings Per Share
The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that shared in earnings.
The following table presents the basic and diluted earnings per share calculations for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||
|
|
(In thousands, except per share data) |
|
|
|||||||||||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to common shareholders |
|
$ |
14,778 |
|
|
$ |
12,183 |
|
|
$ |
32,029 |
|
|
$ |
22,832 |
|
|
Less: earnings attributable to participating securities |
|
|
182 |
|
|
|
185 |
|
|
|
394 |
|
|
|
347 |
|
|
Net earnings attributable to common shareholders |
|
$ |
14,596 |
|
|
$ |
11,998 |
|
|
$ |
31,635 |
|
|
$ |
22,485 |
|
|
Weighted average common shares outstanding |
|
|
32,585 |
|
|
|
32,122 |
|
|
|
32,563 |
|
|
|
32,111 |
|
|
Basic earnings per common share |
|
$ |
0.45 |
|
|
$ |
0.37 |
|
|
$ |
0.97 |
|
|
$ |
0.70 |
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to common stockholders |
|
$ |
14,778 |
|
|
$ |
12,183 |
|
|
$ |
32,029 |
|
|
$ |
22,832 |
|
|
Weighted average common shares outstanding |
|
|
32,585 |
|
|
|
32,122 |
|
|
|
32,563 |
|
|
|
32,111 |
|
|
Add dilutive effects for warrants |
|
|
2,395 |
|
|
|
1,883 |
|
|
|
2,369 |
|
|
|
1,877 |
|
|
Add dilutive effects for stock options |
|
|
202 |
|
|
|
4 |
|
|
|
179 |
|
|
|
5 |
|
|
Add dilutive effects of unvested restricted stock awards |
|
|
152 |
|
|
|
95 |
|
|
|
152 |
|
|
|
78 |
|
|
Add dilutive effects of unvested performance-based stock units |
|
|
266 |
|
|
|
36 |
|
|
|
256 |
|
|
|
24 |
|
|
Weighted average diluted common shares outstanding |
|
|
35,600 |
|
|
|
34,140 |
|
|
|
35,519 |
|
|
|
34,095 |
|
|
Diluted earnings per common share |
|
$ |
0.42 |
|
|
$ |
0.36 |
|
|
$ |
0.90 |
|
|
$ |
0.67 |
|
|
The following table sets forth the number of shares excluded from the computation of diluted earnings per share, as their inclusion would have been anti-dilutive:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 (1) |
|
|
2023 |
|
|
||||
Stock options |
|
|
100 |
|
|
|
772,500 |
|
|
|
100 |
|
|
|
772,500 |
|
|
Unvested restricted stock awards |
|
|
15,939 |
|
|
|
83,500 |
|
|
|
102,809 |
|
|
|
83,500 |
|
|
Employee stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
53,770 |
|
|
|
— |
|
|
Share equivalents excluded from EPS |
|
|
16,039 |
|
|
|
856,000 |
|
|
|
156,679 |
|
|
|
856,000 |
|
|
26
Note 15 — Warrants and Related Party Transactions
On April 7, 2020, the Company issued and sold in a private placement warrants (the “Warrants”) to purchase additional shares of the Company’s common stock to funds affiliated with TruArc Partners (“TruArc”), formerly Snow Phipps, and a fund affiliated with Pacific Investment Management Company LLC (“TOBI”). TruArc and TOBI are considered affiliates and, therefore, are related parties to the Company.
The Warrants are exercisable at the warrant holder’s option at any time and from time to time, in whole or in part, until April 7, 2025 at an exercise price of $2.96 per share of common stock, with respect to 2,008,749 of the Warrants, and at an exercise price of $4.94 per share of common stock, with respect to 1,004,375 of the Warrants. The exercise price and the number of shares of common stock issuable upon exercise of the Warrants are subject to customary antidilution adjustments and certain issuances of common stock (or securities convertible into or exercisable for common stock) at a price (or having a conversion or exercise price) that is less than the then current exercise price. The Company is not required to affect an exercise of the Warrants, if after giving effect to the issuance of common stock upon exercise of such Warrants, such warrant holder together with its affiliates would beneficially own 49% or more of the Company’s outstanding common stock.
In the ordinary course of business, the Company sells held for sale loans to various financial institutions through a market bidding process. As a result of this process, the Company may sell held for sale loans to an affiliate. The Company sold $28.7 million in UPB of loans to an affiliate during the quarter ended June 30, 2024. No loans were sold to any affiliate during the year ended December 31, 2023.
Note 16 — Derivative Instruments
In September 2023, the Company began utilizing forward starting interest rate swap derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility related to its forecasted issuances of fixed-rate debt through its securitization process. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark SOFR between the time the fixed rate mortgages are originated and the fixed rate debt is issued. As of June 30, 2024, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed four years.
The gains or losses on the derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the quarter and year-to-date ended June 30, 2024, $105 thousand after-tax net loss and $8 thousand after-tax net income on terminated derivative instruments was reclassified from AOCI to interest expense. There were no derivative instruments for the quarter and year-to-date ended June 30, 2023. As of June 30, 2024, the Company had $2.8 million in after-tax net unrealized gain associated with cash flow hedging instruments recorded in AOCI. As of June 30, 2024, the Company expects to reclassify an estimated $0.6 million of after-tax net unrealized gain on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.
The following table presents the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s consolidated balance sheets as of June 30, 2024 and December 31, 2023:
|
|
|
|
June 30, 2024 |
|
|||||
Derivatives designated as hedging instruments: |
|
Balance Sheet Location |
|
Notional Amount |
|
|
Fair Value (1) |
|
||
Cash flow hedges: |
|
|
|
(In thousands) |
|
|||||
Forward starting payer interest rate swaps |
|
Derivative liability |
|
$ |
162,500 |
|
|
$ |
374 |
|
|
|
|
|
December 31, 2023 |
|
|||||
Derivatives designated as hedging instruments: |
|
Balance Sheet Location |
|
Notional Amount |
|
|
Fair Value (1) |
|
||
Cash flow hedges: |
|
|
|
(In thousands) |
|
|||||
Forward starting payer interest rate swaps |
|
Derivative liability |
|
$ |
166,000 |
|
|
$ |
3,655 |
|
The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.
27
Note 17 — Accumulated Other Comprehensive Income
The following table presents the changes in the component of accumulated other comprehensive income balances for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Beginning balance |
|
$ |
794 |
|
|
$ |
— |
|
|
$ |
(1,210 |
) |
|
$ |
— |
|
Net unrealized gain on cash flow hedges arising during the period, net of tax |
|
|
909 |
|
|
|
— |
|
|
|
2,800 |
|
|
|
— |
|
Reclassification adjustments included in net income |
|
|
(105 |
) |
|
|
— |
|
|
|
8 |
|
|
|
— |
|
Ending balance |
|
$ |
1,598 |
|
|
$ |
— |
|
|
$ |
1,598 |
|
|
$ |
— |
|
The following table presents the component of other comprehensive income and the related tax effect for the three and six months ended June 30, 2024:
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||||||||||||||||||
|
|
Before-Tax |
|
|
Tax Effect |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax Effect |
|
|
Net-of-Tax |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forward starting payer interest rate swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net unrealized gain arising during the period |
|
$ |
1,216 |
|
|
$ |
(307 |
) |
|
$ |
909 |
|
|
$ |
3,843 |
|
|
$ |
(1,043 |
) |
|
$ |
2,800 |
|
Reclassification adjustments included in net income |
|
|
(144 |
) |
|
|
39 |
|
|
|
(105 |
) |
|
|
11 |
|
|
|
(3 |
) |
|
|
8 |
|
Other comprehensive income |
|
$ |
1,072 |
|
|
$ |
(268 |
) |
|
$ |
804 |
|
|
$ |
3,854 |
|
|
$ |
(1,046 |
) |
|
$ |
2,808 |
|
Note 18 — Fair Value Measurements
Fair Value Determination
ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
Given the nature of some of the Company’s assets and liabilities, clearly determinable market-based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.
Below is a description of the valuation methods for the assets and liabilities recorded at fair value on either a recurring or nonrecurring basis and for estimating fair value of financial instruments not recorded at fair value for disclosure purposes. While management believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the measurement date.
Cash and Cash Equivalents and Restricted Cash
Cash and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market, a Level 1 measurement.
28
Loans Held for Investment, Net, and Loans Held for Investment, at Fair Value
The Company uses a third-party loan valuation model to estimate the fair value of its nonperforming mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s nonperforming mortgage loans are interest rates, market yield requirements, the probability of default, loss given default, voluntary prepayment speed and loss timing. The Company uses an in-house loan valuation model to estimate the fair value of its performing mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s performing mortgage loans are discount rate, constant prepayment rate, constant default rate, and loss severity rate. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement.
Collateral Dependent or Loans Individually Evaluated
Nonaccrual loans held for investment are evaluated individually and are adjusted to the fair value of the collateral when the fair value of the collateral is below the carrying value of the loan. To the extent a loan is collateral dependent, the Company determines the allowance for credit losses based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on appraisals or broker price opinions obtained, less estimated costs to sell, a Level 3 measurement.
Loans Held for Sale, at Fair Value
The Company has elected to account for certain loans originated with the intent to sell at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). The FVO loans held for sale are measured based a discounted cash flow model, or on the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value, including the value attributable to mortgage servicing and credit risk, and current commitments to purchase loans, a Level 2 measurement. Management identified all of these loans to be accounted for at estimated fair value at the instrument level. Changes in fair value are reflected in income as they occur.
Real Estate Owned, Net (“REO”)
Real estate owned, net is initially recorded at the property’s estimated fair value, based on appraisals or broker price opinions obtained, less estimated costs to sell, at the acquisition date, a Level 3 measurement. From time to time, nonrecurring fair value adjustments are made to real estate owned, net based on the current updated appraised value of the property, or management’s judgment and estimation of value based on recent market trends or negotiated sales prices with potential buyers.
Mortgage Servicing Rights
The Company determined the fair values based on a third-party valuation model that calculates the present value of estimated future net servicing income, a Level 3 measurement.
Derivative Instruments
Derivative financial instruments are measured at fair value using readily observable market inputs and the overall fair value measurement is classified as Level 2.
Secured Financing, Net (“Corporate Debt”)
The Company determined the fair values estimate of the secured financing using the estimated cash flows discounted at an appropriate market rate, a Level 3 measurement.
Warehouse Repurchase Facilities, Net
Warehouse repurchase facilities are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities of one-year or less and interest rates that approximate market plus a spread, a Level 2 measurement.
Securitized Debt, Net, and Securitized Debt, at Fair Value
The Company obtains the fair value estimates at instrument level from a third-party broker dealer based on trader input on benchmark securities. The fair values take into consideration input factors such as bond structure and collateral characteristics and performance and pricing factors such as yield, spread, average life, prepayment speeds, default rate, and severity. The fair values are considered a Level 2 measurement. Significant changes in any of the input factors in isolation could result in a significant change to securitized debt’s fair value measurement.
29
Accrued Interest Receivable and Accrued Interest Payable
The carrying amounts of accrued interest receivable and accrued interest payable approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.
The Company does not have any off-balance sheet financial instruments.
Receivables Due From Servicers
The carrying amounts of receivables due from servicers approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.
Fair Value Disclosures
The following tables present information on assets and liabilities measured and recorded at fair value as of June 30, 2024 and December 31, 2023, by level, in the fair value hierarchy:
|
|
Fair Value Measurements Using |
|
|
Total at |
|
||||||||||
June 30, 2024 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nonrecurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Individually evaluated loans requiring specific allowance, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
16,273 |
|
|
$ |
16,273 |
|
Real estate owned, net |
|
|
— |
|
|
|
— |
|
|
|
50,757 |
|
|
|
50,757 |
|
Total nonrecurring fair value measurements |
|
|
— |
|
|
|
— |
|
|
|
67,030 |
|
|
|
67,030 |
|
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans held for investment, at fair value |
|
|
— |
|
|
|
— |
|
|
|
1,971,683 |
|
|
|
1,971,683 |
|
Mortgage servicing rights |
|
|
— |
|
|
|
— |
|
|
|
12,229 |
|
|
|
12,229 |
|
Total recurring fair value measurements |
|
|
— |
|
|
|
— |
|
|
|
1,983,912 |
|
|
|
1,983,912 |
|
Total assets |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,050,942 |
|
|
$ |
2,050,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securitized debt, at fair value |
|
$ |
— |
|
|
$ |
1,509,952 |
|
|
$ |
— |
|
|
$ |
1,509,952 |
|
Derivative liability |
|
|
— |
|
|
|
374 |
|
|
|
— |
|
|
|
374 |
|
Total recurring fair value measurements |
|
|
— |
|
|
|
1,510,326 |
|
|
|
— |
|
|
|
1,510,326 |
|
Total liabilities |
|
$ |
— |
|
|
$ |
1,510,326 |
|
|
$ |
— |
|
|
$ |
1,510,326 |
|
|
|
Fair Value Measurements Using |
|
|
Total at |
|
||||||||||
December 31, 2023 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nonrecurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Individually evaluated loans requiring specific allowance, net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,475 |
|
|
$ |
8,475 |
|
Real estate owned, net |
|
|
— |
|
|
|
— |
|
|
|
44,268 |
|
|
|
44,268 |
|
Total nonrecurring fair value measurements |
|
|
— |
|
|
|
— |
|
|
|
52,743 |
|
|
|
52,743 |
|
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loans held for sale, at fair value |
|
|
— |
|
|
|
17,590 |
|
|
|
— |
|
|
|
17,590 |
|
Loans held for investment, at fair value |
|
|
— |
|
|
|
— |
|
|
|
1,306,072 |
|
|
|
1,306,072 |
|
Mortgage servicing rights |
|
|
— |
|
|
|
— |
|
|
|
8,578 |
|
|
|
8,578 |
|
Total recurring fair value measurements |
|
|
— |
|
|
|
17,590 |
|
|
|
1,314,650 |
|
|
|
1,332,240 |
|
Total assets |
|
$ |
— |
|
|
$ |
17,590 |
|
|
$ |
1,367,393 |
|
|
$ |
1,384,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securitized debt, at fair value |
|
$ |
— |
|
|
$ |
877,417 |
|
|
$ |
— |
|
|
$ |
877,417 |
|
Derivative liabilities |
|
|
— |
|
|
|
3,665 |
|
|
|
— |
|
|
|
3,665 |
|
Total recurring fair value measurements |
|
|
— |
|
|
|
881,082 |
|
|
|
— |
|
|
|
881,082 |
|
Total liabilities |
|
$ |
— |
|
|
$ |
881,082 |
|
|
$ |
— |
|
|
$ |
881,082 |
|
30
The following table presents gains and losses recognized on assets measured on a nonrecurring basis for the three and six months ended June 30, 2024 and 2023:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
Gain (Loss) on Assets Measured on a Nonrecurring Basis |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||
|
|
(In thousands) |
|
|
|||||||||||||
Real estate owned, net |
|
$ |
(540 |
) |
|
$ |
(492 |
) |
|
$ |
(2,261 |
) |
|
$ |
(1,670 |
) |
|
Individually evaluated loans requiring specific allowance, net |
|
|
(183 |
) |
|
|
(48 |
) |
|
|
(640 |
) |
|
|
53 |
|
|
Total net loss |
|
$ |
(723 |
) |
|
$ |
(540 |
) |
|
$ |
(2,901 |
) |
|
$ |
(1,617 |
) |
|
The following tables present the primary valuation techniques and unobservable inputs related to Level 3 assets that are recorded on a recurring and nonrecurring basis as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
||||||||||
Asset Category |
|
Fair Value |
|
|
Primary |
|
Unobservable |
|
Range |
|
Weighted |
|
|
|
($ in thousands) |
||||||||||
Nonrecurring: |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
$ |
16,273 |
|
|
Market comparables |
|
Selling costs |
|
8.0% |
|
8.0% |
Real estate owned, net |
|
|
50,757 |
|
|
Market comparables |
|
Selling costs |
|
8.0% |
|
8.0% |
Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, |
|
$ |
1,971,683 |
|
|
Discounted cash flow |
|
Discount rate |
|
9.0% |
|
9.0% |
|
|
|
|
|
|
|
Prepayment rate |
|
0.7% to 50.0% |
|
7.0% |
|
|
|
|
|
|
|
|
Default rate |
|
0.1% to 2.0% |
|
0.8% |
|
|
|
|
|
|
|
|
Loss severity rate |
|
0.0% to 13.0% |
|
2.0% |
|
Mortgage servicing rights |
|
|
12,229 |
|
|
Discounted cash flow |
|
Discount rate |
|
8.0% |
|
8.0% |
|
|
|
|
|
|
|
Prepayment rate |
|
2.2% to 13.3% |
|
4.7% |
|
|
|
December 31, 2023 |
||||||||||
Asset Category |
|
Fair Value |
|
|
Primary |
|
Unobservable |
|
Range |
|
Weighted |
|
|
|
($ in thousands) |
||||||||||
Nonrecurring: |
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated |
|
$ |
8,475 |
|
|
Market comparables |
|
Selling costs |
|
8.0% |
|
8.0% |
Real estate owned, net |
|
|
44,268 |
|
|
Market comparables |
|
Selling costs |
|
8.0% |
|
8.0% |
Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for investment, |
|
$ |
1,306,072 |
|
|
Discounted cash flow |
|
Discount rate |
|
9.3% |
|
9.3% |
|
|
|
|
|
|
|
Prepayment rate |
|
0.7% to 50.0% |
|
5.8% |
|
|
|
|
|
|
|
|
Default rate |
|
0.0% to 1.7% |
|
0.7% |
|
|
|
|
|
|
|
|
Loss severity rate |
|
0.0% to 14.8% |
|
2.1% |
|
Mortgage servicing rights |
|
|
8,578 |
|
|
Discounted cash flow |
|
Discount rate |
|
8.0% |
|
8.0% |
|
|
|
|
|
|
|
Prepayment rate |
|
5.3% to 16.0% |
|
6.5% |
|
31
The following is a roll-forward of loans held for investment that are measured at estimated fair value on a recurring basis for the periods indicated:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Beginning balance |
|
$ |
1,649,540 |
|
|
$ |
450,732 |
|
|
$ |
1,306,072 |
|
|
$ |
276,095 |
|
Originations |
|
|
422,226 |
|
|
|
258,646 |
|
|
|
800,896 |
|
|
|
456,534 |
|
Loans liquidated |
|
|
(77,798 |
) |
|
|
(13,464 |
) |
|
|
(139,550 |
) |
|
|
(21,485 |
) |
Acquisition |
|
|
3,399 |
|
|
|
— |
|
|
|
14,990 |
|
|
|
— |
|
Principal paydowns |
|
|
(7,732 |
) |
|
|
(1,764 |
) |
|
|
(13,801 |
) |
|
|
(2,796 |
) |
Total unrealized gain included in net income |
|
|
17,285 |
|
|
|
3,108 |
|
|
|
36,757 |
|
|
|
9,767 |
|
Loans transferred to held for sale |
|
|
(34,059 |
) |
|
|
— |
|
|
|
(31,578 |
) |
|
|
(20,857 |
) |
REO transfer |
|
|
(1,296 |
) |
|
|
— |
|
|
|
(2,221 |
) |
|
|
— |
|
Loans repurchased |
|
|
118 |
|
|
|
8,072 |
|
|
|
118 |
|
|
|
8,072 |
|
Ending balance |
|
$ |
1,971,683 |
|
|
$ |
705,330 |
|
|
$ |
1,971,683 |
|
|
$ |
705,330 |
|
The following is a roll-forward of loans held for sale that are measured at estimated fair value on a recurring basis for the periods indicated:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Beginning balance |
|
$ |
— |
|
|
$ |
18,080 |
|
|
$ |
17,590 |
|
|
$ |
— |
|
Originations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,088 |
|
Loans liquidated |
|
|
(33,895 |
) |
|
|
(17,385 |
) |
|
|
(48,429 |
) |
|
|
(39,945 |
) |
Principal paydowns |
|
|
(2 |
) |
|
|
— |
|
|
|
(31 |
) |
|
|
— |
|
Total unrealized loss included in net income |
|
|
(162 |
) |
|
|
(695 |
) |
|
|
(708 |
) |
|
|
— |
|
Loans transferred from held for investment |
|
|
34,059 |
|
|
|
— |
|
|
|
31,578 |
|
|
|
20,857 |
|
Ending balance |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The Company estimates the fair value of certain financial instruments on a quarterly basis. These instruments are recorded at fair value through the use of a valuation allowance only if they are individually evaluated. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. As of June 30, 2024 and December 31, 2023, financial assets and liabilities measured at fair value include loans held for investment at fair value, loans held for sale at fair value, mortgage servicing rights, derivative instruments, and securitized debt at fair value. Financial assets measured at the lower of cost or estimated fair value include certain individually evaluated loans held for investment and REO, which are measured using unobservable inputs, including appraisals and broker price opinions on the values of the underlying collateral. Individually evaluated loans requiring an allowance were carried at approximately $16.3 million and $8.5 million as of June 30, 2024 and December 31, 2023, respectively, net of specific allowance for credit losses of approximately $1.6 million and $1.0 million, respectively.
A financial instrument is cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of the Company’s financial instruments are described above.
32
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
|
|
June 30, 2024 |
|
|||||||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|||||
Asset Category |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Assets: |
|
|
|
|||||||||||||||||
Cash |
|
$ |
47,366 |
|
|
$ |
47,366 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
47,366 |
|
Restricted cash |
|
|
32,293 |
|
|
|
32,293 |
|
|
|
— |
|
|
|
— |
|
|
|
32,293 |
|
Loans held for investment, net |
|
|
2,619,619 |
|
|
|
— |
|
|
|
— |
|
|
|
2,483,332 |
|
|
|
2,483,332 |
|
Loans held for investment, at fair value |
|
|
1,971,683 |
|
|
|
— |
|
|
|
— |
|
|
|
1,971,683 |
|
|
|
1,971,683 |
|
Accrued interest receivables |
|
|
31,124 |
|
|
|
31,124 |
|
|
|
— |
|
|
|
— |
|
|
|
31,124 |
|
Mortgage servicing rights |
|
|
12,229 |
|
|
|
— |
|
|
|
— |
|
|
|
12,229 |
|
|
|
12,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Secured financing, net |
|
$ |
283,909 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
287,435 |
|
|
$ |
287,435 |
|
Warehouse repurchase facilities, net |
|
|
237,437 |
|
|
|
— |
|
|
|
237,437 |
|
|
|
— |
|
|
|
237,437 |
|
Securitized debt, net |
|
|
2,228,941 |
|
|
|
— |
|
|
|
2,014,525 |
|
|
|
— |
|
|
|
2,014,525 |
|
Securitized debt, at fair value |
|
|
1,509,952 |
|
|
|
— |
|
|
|
1,509,952 |
|
|
|
— |
|
|
|
1,509,952 |
|
Derivative liability |
|
|
374 |
|
|
|
— |
|
|
|
374 |
|
|
|
— |
|
|
|
374 |
|
Accrued interest payable |
|
|
24,559 |
|
|
|
24,559 |
|
|
|
— |
|
|
|
— |
|
|
|
24,559 |
|
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
Carrying |
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|||||
Asset Category |
|
Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Assets: |
|
|
|
|||||||||||||||||
Cash |
|
$ |
40,566 |
|
|
$ |
40,566 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
40,566 |
|
Restricted cash |
|
|
21,361 |
|
|
|
21,361 |
|
|
|
— |
|
|
|
— |
|
|
|
21,361 |
|
Loans held for sale, at fair value |
|
|
17,590 |
|
|
|
— |
|
|
|
17,590 |
|
|
|
— |
|
|
|
17,590 |
|
Loans held for investment, net |
|
|
2,828,123 |
|
|
|
— |
|
|
|
— |
|
|
|
2,672,705 |
|
|
|
2,672,705 |
|
Loans held for investment, at fair value |
|
|
1,306,072 |
|
|
|
— |
|
|
|
— |
|
|
|
1,306,072 |
|
|
|
1,306,072 |
|
Accrued interest receivable |
|
|
27,028 |
|
|
|
27,028 |
|
|
|
— |
|
|
|
— |
|
|
|
27,028 |
|
Mortgage servicing rights |
|
|
8,578 |
|
|
|
— |
|
|
|
— |
|
|
|
8,578 |
|
|
|
8,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Secured financing, net |
|
$ |
211,083 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
212,625 |
|
|
$ |
212,625 |
|
Warehouse repurchase facilities, net |
|
|
334,755 |
|
|
|
— |
|
|
|
334,755 |
|
|
|
— |
|
|
|
334,755 |
|
Securitized debt, net |
|
|
2,418,811 |
|
|
|
— |
|
|
|
2,155,718 |
|
|
|
— |
|
|
|
2,155,718 |
|
Securitized debt, at fair value |
|
|
877,417 |
|
|
|
|
|
|
877,417 |
|
|
|
— |
|
|
|
877,417 |
|
|
Accrued interest payable |
|
|
20,473 |
|
|
|
20,473 |
|
|
|
— |
|
|
|
— |
|
|
|
20,473 |
|
Derivative liability |
|
|
3,665 |
|
|
|
— |
|
|
|
3,665 |
|
|
|
— |
|
|
|
3,665 |
|
Note 19 — Subsequent Events
The Company has evaluated events that have occurred subsequent to June 30, 2024 through the issuance of the accompanying consolidated financial statements and has concluded there are no other subsequent events that would require recognition or disclosure in the accompanying consolidated financial statements.
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2023, as well as the unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”).
In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of federal securities laws. In particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond are forward-looking statements. For important information regarding these forward-looking statements, please see the discussion below under the caption “Forward-Looking Statements.”
References to “the Company,” “Velocity,” “we,” “us” and “our” refer to Velocity Financial, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise.
Business
We are a vertically integrated real estate finance company founded in 2004. We primarily originate and manage investor loans secured by 1-4 unit residential rental and commercial properties, which we refer to collectively as investor real estate loans. We originate loans nationwide across our extensive network of independent mortgage brokers which we have built and refined over the 19 years since our inception. Our objective is to be the preferred and one of the most recognized brands in our core market, particularly within our network of mortgage brokers.
We operate in a large and highly fragmented market with substantial demand for financing and limited supply of institutional financing alternatives. We have developed the highly-specialized skill set required to effectively compete in this market, which we believe has afforded us a durable business model capable of generating attractive risk-adjusted returns for our stockholders throughout various business cycles. We offer competitive pricing to our borrowers by pursuing low-cost financing strategies and by driving front-end process efficiencies through customized technology designed to control the cost of originating a loan. Furthermore, by originating loans through our efficient and scalable network of approved mortgage brokers, we are able to maintain a wide geographical presence and nimble operating infrastructure capable of reacting quickly to changing market environments.
Our primary source of revenue is interest income earned on our loan portfolio. Our typical loan is secured by a first lien on the underlying property with a personal guarantee and, based on all loans in our portfolio as of June 30, 2024, has an average balance of approximately $387 thousand. As of June 30, 2024, our loan portfolio totaled $4.5 billion of UPB on properties in 45 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 67.4% of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 54.1% of the UPB. For the three months ended June 30, 2024, the annualized yield on our total portfolio was 8.98%.
We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitized debt, corporate debt, and equity. The securitized debt market is our primary source of long-term financing. We have successfully executed thirty-four securitized debt transactions, resulting in a total of over $7.1 billion in gross debt proceeds from May 2011 through June 30, 2024. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.
One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of our warehouse facilities and securitized debt and excludes our corporate debt. For the three months ended June 30, 2024, our annualized portfolio related net interest margin increased to 3.54% compared to the 3.24% for the three months ended June 30, 2023. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for credit losses and operating expenses. For the three and six months ended June 30, 2024, including net income attributable to noncontrolling interest, we generated pre-tax income of $19.9 million and $43.1 million, and net income of $14.7 million and $32.0 million, respectively.
On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Ginnie Mae issuer/servicer that provides government-insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio.
Items Affecting Comparability of Results
Due to a number of factors, our historical financial results may not be comparable, either from period to period, or to our financial results in future periods. We have summarized the key factors affecting the comparability of our financial results below.
In February 2024, the Company issued $75.0 million principal amount of five-year Senior Secured Notes. The Notes bear interest at 9.875% and mature on February 15, 2029.
34
Recent Developments
Securitized Debt
In June 2024, we completed the securitization of $209.9 million of investor real estate loans, as measured by UPB.
Continued Market Uncertainties
Our operational and financial performance will depend on certain market developments, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine war, the Israel-Gaza Conflict, a global recession, heightened stress in the real estate and corporate debt markets, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires certain judgments and assumptions, based on information available at the time of preparation of the consolidated financial statements, in determining accounting estimates used in preparation of the consolidated financial statements. The following discussion addresses the accounting policies that we believe apply to us based on the nature of our operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all the decisions and assessments used to prepare our financial statements are based upon reasonable assumptions given the information available at that time.
These polices and estimates relate to the allowance for credit losses, fair value option accounting, and deferred income tax assets and liabilities. Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC.
How We Assess Our Business Performance
Net income is the primary metric by which we assess our business performance. Accordingly, we closely monitor the primary drivers of net income which consist of the following:
Net Interest Income
Net interest income is the largest contributor to our net income and is monitored on both an absolute basis and relative to provision for credit losses and operating expenses. We generate net interest income to the extent that the rate at which we lend in our portfolio exceeds the cost of financing our portfolio, which we primarily achieve through long-term securitized debt. Accordingly, we closely monitor the financing markets and maintain consistent dialogue with investors and financial institutions as we evaluate our financing sources and cost of funds.
To evaluate net interest income, we measure and monitor: (1) the yields on our loans, (2) the costs of our funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread measures the difference between the rates earned on our loans and the rates paid on our funding sources. Net interest margin measures the difference between our annualized interest income and annualized interest expense, or net interest income, as a percentage of average loans outstanding over the specified time period.
Periodic changes in net interest income are primarily driven by: (1) origination volume and changes in average outstanding loan balances and (2) interest rates and changes in interest earned on our portfolio or paid on our debt. Historically, origination volume and portfolio size have been the largest contributors to the growth in our net interest income. We measure net interest income before and after interest expense related to our corporate debt and before and after our provision for credit losses.
Credit Losses
We strive to minimize actual credit losses through our rigorous screening and underwriting process and life of loan portfolio management and special servicing practices. We closely monitor the credit performance of our loan portfolio, including delinquency rates and expected and actual credit losses, as a key factor in assessing our overall business performance.
35
Operating Expenses
We incur operating expenses from compensation and benefits related to our employee base, rent and other occupancy costs associated with our leased facilities, our third-party primary loan servicing vendors, professional fees to the extent we utilize third-party legal, consulting and advisory firms, and costs associated with the resolution and disposition of real estate owned, among other items. We monitor and strive to prudently manage operating expenses and to balance current period profitability with investment in the continued development of our platform. Because volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor origination volume along with all key terms of new loan originations, such as interest rates, loan-to-value ratios, estimated credit losses and expected duration.
Factors Affecting Our Results of Operations
Our results of operations depend on, among other things, the level of our net interest income, the credit performance of our loan portfolio and the efficiency of our operating platform. These measures are affected by a number of factors, including the demand for investor real estate loans, the competitiveness of the market for originating or acquiring investor real estate loans, the cost of financing our portfolio, operating costs, the availability of funding sources and the underlying performance of the collateral supporting our loans. While we have been successful at managing these elements in the past, there are certain circumstances beyond our control, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine and Israel/Hamas wars, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.
Competition
The investor real estate loan market is highly competitive which could affect our profitability and growth. We believe we compete favorably through diversified borrower access driven by our extensive network of mortgage brokers and by emphasizing a high level of real estate and financial expertise, customer service, and flexibility in structuring transactions, as well as by attracting and retaining experienced managerial and marketing personnel. However, some of our competitors may be better positioned to market their services and financing programs because of their ability to offer more favorable rates and terms and other services.
Availability and Cost of Funding
Our primary funding sources have historically included cash from operations, warehouse facilities, term securitized debt, corporate debt, and equity. We believe we have an established brand in the term securitized debt market and that this market will continue to support our portfolio growth with long-term financing. Changes in macroeconomic conditions can adversely impact our ability to issue securitized debt and, thereby, limit our options for long-term financing. In consideration of this potential risk, we have entered into a credit facility for longer-term financing that will provide us with capital resources to fund loan growth in the event we are not able to issue securitized debt.
One of our seven warehouse repurchase facilities have interest payment obligations tied to the one-month American Interbank Offered Rate, (“AMERIBOR”). Six of our warehouse repurchase and revolving loan facilities have interest payment obligations tied to the Secured Overnight Offering Rate (“SOFR”).
Loan Performance
We underwrite and structure our loans to minimize potential losses. We believe our fully amortizing loan structures and avoidance of large balloon payments, coupled with meaningful borrower equity in properties, limit the probability of losses and that our proven in-house asset management capability allows us to minimize potential losses in situations where there is insufficient equity in the property. Our income is highly dependent upon borrowers making their payments and resolving delinquent loans as favorably as possible. Macroeconomic conditions can, however, impact credit trends in our core market and have an adverse impact on financial results.
Macroeconomic Conditions
The investor real estate loan market may be impacted by a wide range of macroeconomic factors such as interest rates, residential and commercial real estate prices, home ownership and unemployment rates, and availability of credit, among others. We believe our prudent underwriting, conservative loan structures and interest rate protections, and proven in-house asset management capability leave us well positioned to manage changing macroeconomic conditions.
36
Portfolio and Asset Quality
Key Portfolio Statistics
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|
|||
|
|
($ in thousands) |
|
|
|||||||||
Total loans |
|
$ |
4,479,901 |
|
|
$ |
4,281,533 |
|
|
$ |
3,719,825 |
|
|
Loan count |
|
|
11,582 |
|
|
|
11,013 |
|
|
|
9,541 |
|
|
Average loan balance |
|
$ |
387 |
|
|
$ |
389 |
|
|
$ |
390 |
|
|
Weighted average loan-to-value |
|
|
67.4 |
% |
|
|
67.6 |
% |
|
|
68.2 |
% |
|
Weighted average coupon |
|
|
9.3 |
% |
|
|
9.1 |
% |
|
|
8.4 |
% |
|
Nonperforming loans (UPB) (A) |
|
$ |
470,649 |
|
|
$ |
432,560 |
|
|
$ |
371,154 |
|
|
Nonperforming loans (% of total) (A) |
|
|
10.5 |
% |
|
|
10.1 |
% |
|
|
10.0 |
% |
|
(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $40.7 million, $45.1 million, and $43.5 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of June 30, 2024, March 31, 2024, and June 30, 2023, respectively.
Total Loans. Total loans reflects the aggregate UPB at the end of the period. It excludes deferred origination costs, acquisition discounts, fair value adjustments and allowance for credit losses.
Loan Count. Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance.
Average Loan Balance. Average loan balance reflects the average UPB at the end of the period (i.e., total loans divided by loan count).
Weighted Average Coupon. Weighted average coupon reflects the weighted average loan rate at the end of the period.
Weighted Average Loan-to-Value. Loan-to-value, or LTV, reflects the ratio of the original loan amount to the appraised value of the underlying property at the time of origination. In instances where the LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at the time of acquisition. Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses.
Nonperforming Loans. Loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest, except for certain loans in our COVID-19 forbearance program, are considered nonperforming loans. The dollar amount of nonperforming loans presented in the table above reflects the UPB of all loans that meet this definition.
Originations and Acquisitions
The following table presents new loan originations and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated:
|
|
Loan Count |
|
|
Loan Balance |
|
|
Average |
|
|
Weighted |
|
|
Weighted |
|
|||||
|
|
($ in thousands) |
|
|||||||||||||||||
Three Months Ended June 30, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loan originations — held for investment |
|
|
1,109 |
|
|
$ |
422,226 |
|
|
$ |
381 |
|
|
|
11.03 |
% |
|
|
64.7 |
% |
Loan originations — held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
% |
Total loan originations |
|
|
1,109 |
|
|
$ |
422,226 |
|
|
$ |
381 |
|
|
|
11.03 |
% |
|
|
64.7 |
% |
Loan acquisitions — held for investment |
|
|
3 |
|
|
|
3,371 |
|
|
|
1,124 |
|
|
|
8.76 |
% |
|
|
53.5 |
% |
Total loans originated and acquired |
|
|
1,112 |
|
|
$ |
425,597 |
|
|
$ |
383 |
|
|
|
11.02 |
% |
|
|
64.6 |
% |
Three Months Ended March 31, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loan originations — held for investment |
|
|
958 |
|
|
$ |
378,671 |
|
|
$ |
395 |
|
|
|
11.06 |
% |
|
|
63.8 |
% |
Loan originations — held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
% |
Total loan originations |
|
|
958 |
|
|
$ |
378,671 |
|
|
$ |
395 |
|
|
|
11.06 |
% |
|
|
63.8 |
% |
Loan acquisitions — held for investment |
|
|
31 |
|
|
|
12,270 |
|
|
|
396 |
|
|
|
11.48 |
% |
|
|
59.2 |
% |
Total loans originated and acquired |
|
|
989 |
|
|
$ |
390,941 |
|
|
$ |
395 |
|
|
|
11.07 |
% |
|
|
63.7 |
% |
Three Months Ended June 30, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loan originations — held for investment |
|
|
722 |
|
|
$ |
258,646 |
|
|
$ |
358 |
|
|
|
11.00 |
% |
|
|
67.7 |
% |
Loan originations — held for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
% |
Total loan originations |
|
|
722 |
|
|
$ |
258,646 |
|
|
$ |
358 |
|
|
|
11.00 |
% |
|
|
67.7 |
% |
Loan acquisitions — held for investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
— |
% |
Total loans originated and acquired |
|
|
722 |
|
|
$ |
258,646 |
|
|
$ |
358 |
|
|
|
11.00 |
% |
|
|
67.7 |
% |
37
During the second quarter of 2024, loan originations increased $43.6 million and $163.6 million from the quarters ended March 31, 2024 and June 30, 2023, respectively.
Loans Held for Investment and Loans Held for Investment at Fair Value
Our total portfolio of loans held for investment consists of both loans held for investment at amortized cost, which are presented in the consolidated balance sheet as loans held for investment, net, and loans held for investment at fair value, which are presented in the consolidated balance sheets as loans held for investment at fair value. The following tables show the various components of loans held for investment as of the dates indicated:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
Unpaid principal balance |
|
$ |
4,479,901 |
|
|
$ |
4,055,936 |
|
Valuation adjustments on FVO loans |
|
|
90,798 |
|
|
|
54,677 |
|
Deferred loan origination costs |
|
|
25,843 |
|
|
|
28,351 |
|
Total loans held for investment, gross |
|
|
4,596,542 |
|
|
|
4,138,964 |
|
Allowance for credit losses |
|
|
(5,240 |
) |
|
|
(4,769 |
) |
Loans held for investment, net |
|
$ |
4,591,302 |
|
|
$ |
4,134,195 |
|
The following table illustrates the contractual maturities for our loans held for investment in aggregate UPB and as a percentage of our total held for investment loan portfolio as of the dates indicated:
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|||||||||||||||
|
|
UPB |
|
|
% |
|
|
UPB |
|
|
% |
|
|
UPB |
|
|
% |
|
||||||
|
|
($ in thousands) |
|
|||||||||||||||||||||
Loans due in less than one year |
|
$ |
156,411 |
|
|
|
3.5 |
% |
|
$ |
156,441 |
|
|
|
3.7 |
% |
|
$ |
141,299 |
|
|
|
3.8 |
% |
Loans due in one to five years |
|
|
62,349 |
|
|
|
1.4 |
|
|
|
66,298 |
|
|
|
1.5 |
|
|
|
36,051 |
|
|
|
1.0 |
|
Loans due in more than five years |
|
|
4,261,141 |
|
|
|
95.1 |
|
|
|
4,058,794 |
|
|
|
94.8 |
|
|
|
3,542,475 |
|
|
|
95.2 |
|
Total loans held for investment |
|
$ |
4,479,901 |
|
|
|
100.0 |
% |
|
$ |
4,281,533 |
|
|
|
100.0 |
% |
|
$ |
3,719,825 |
|
|
|
100.0 |
% |
Allowance for Credit Losses
For the June 30, 2024 estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate and reflects the uncertainties of a decelerating economy, persistent high inflation, and turmoil in the geopolitical markets with a wider Middle East Conflict growing and the continued war in Ukraine.
For the March 31, 2024 estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate given the continued inflation in the United States, the increase in unemployment, concerns of a recession, and the continued geopolitical instability with a wider Middle East conflict, and the wars between Russia/Ukraine and Israel/Hamas.
For the December 31, 2023 current expected credit loss (“CECL”) estimate, we considered a severe stress scenario with an eight-quarter reasonable and supportable forecast period followed by a two-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate given the continued inflation in the United States, the wars between Russia/Ukraine and Israel/Hamas, continued disruption in the supply chain, and concerns of a recession.
Our allowance for credit losses as of June 30, 2024 was $5.2 million compared to $4.6 million as of June 30, 2023. The increase in allowance for credit losses from June 30, 2023 was primarily due to an increase in the individually-assessed component of the reserve. Our overall credit loss reserve for the periods was within our expected range of 0.15% to 0.20% of loans held for investment, excluding FVO loans. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices. Additionally, we believe borrower equity of 25% to 40% provides significant protection against credit losses. The various scenarios, the weighting of scenarios, as well as the forecast period and reversion to historical loss, is subject to change as conditions in the market change and the Company’s ability to forecast economic events evolves.
To estimate the allowance for credit losses in our portfolio of loans held for investment carried at amortized cost, we follow a detailed internal review process, considering a number of different factors including, but not limited to, our ongoing analyses of loans, historical loss rates, relevant environmental factors, relevant market research, trends in delinquencies, effects and changes in credit concentrations, and ongoing evaluation of fair values.
38
The following table illustrates the activity in our allowance for credit losses over the periods indicated:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
||||
Allowance for credit losses: |
|
($ in thousands) |
|
|
|||||||||||||
Beginning balance |
|
$ |
5,267 |
|
|
$ |
5,045 |
|
|
$ |
4,769 |
|
|
$ |
4,893 |
|
|
Provision for credit losses |
|
|
218 |
|
|
|
298 |
|
|
|
1,219 |
|
|
|
933 |
|
|
Charge-offs |
|
|
(245 |
) |
|
|
(717 |
) |
|
|
(748 |
) |
|
|
(1,200 |
) |
|
Ending balance |
|
$ |
5,240 |
|
|
$ |
4,626 |
|
|
$ |
5,240 |
|
|
$ |
4,626 |
|
|
Total loans held for investment (UPB), excluding FVO |
|
$ |
2,599,016 |
|
|
$ |
3,031,725 |
|
|
$ |
2,599,016 |
|
|
$ |
3,031,725 |
|
|
Allowance for credit losses / loans held for investment, excluding FVO |
|
|
0.20 |
% |
|
|
0.15 |
% |
|
|
0.20 |
% |
|
|
0.15 |
% |
|
Credit Quality – Loans Held for Investment and Loans Held for Investment at Fair Value
The following table provides delinquency information on our loans held for investment and loans held for investment at fair value by UPB as of the dates indicated:
|
|
June 30, 2024 (A) |
|
|
COVID-19 |
|
|
March 31, 2024 (A) |
|
|
COVID-19 |
|
|
June 30, 2023 (A) |
|
|
COVID-19 |
|
||||||||||||||||||
|
|
($ in thousands) |
|
|||||||||||||||||||||||||||||||||
Performing/Accruing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Current |
|
$ |
3,669,659 |
|
|
|
81.9 |
% |
|
$ |
95,614 |
|
|
$ |
3,517,715 |
|
|
|
82.2 |
% |
|
$ |
94,404 |
|
|
$ |
3,114,091 |
|
|
|
83.7 |
% |
|
$ |
123,443 |
|
30-59 days past due |
|
|
247,100 |
|
|
|
5.5 |
|
|
|
17,598 |
|
|
|
239,493 |
|
|
|
5.6 |
|
|
|
21,886 |
|
|
|
164,586 |
|
|
|
4.4 |
|
|
|
9,995 |
|
60-89 days past due |
|
|
92,494 |
|
|
|
2.1 |
|
|
|
4,590 |
|
|
|
91,765 |
|
|
|
2.1 |
|
|
|
3,787 |
|
|
|
69,994 |
|
|
|
1.9 |
|
|
|
4,981 |
|
90+ days past due |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total Performing Loans |
|
|
4,009,253 |
|
|
|
89.5 |
|
|
|
117,802 |
|
|
|
3,848,973 |
|
|
|
89.9 |
|
|
|
120,077 |
|
|
|
3,348,671 |
|
|
|
90.0 |
|
|
|
138,419 |
|
Nonperforming/Nonaccrual: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
<90 days past due |
|
|
19,347 |
|
|
|
0.5 |
|
|
|
746 |
|
|
|
20,473 |
|
|
|
0.5 |
|
|
|
909 |
|
|
|
23,125 |
|
|
|
0.6 |
|
|
|
5,066 |
|
90+ days past due |
|
|
37,161 |
|
|
|
0.8 |
|
|
|
710 |
|
|
|
27,919 |
|
|
|
0.7 |
|
|
|
1,587 |
|
|
|
39,536 |
|
|
|
1.1 |
|
|
|
2,088 |
|
Bankruptcy |
|
|
47,011 |
|
|
|
1.0 |
|
|
|
7,472 |
|
|
|
45,471 |
|
|
|
1.1 |
|
|
|
4,046 |
|
|
|
20,256 |
|
|
|
0.5 |
|
|
|
1,130 |
|
In foreclosure |
|
|
367,129 |
|
|
|
8.2 |
|
|
|
31,787 |
|
|
|
338,697 |
|
|
|
7.9 |
|
|
|
38,522 |
|
|
|
288,237 |
|
|
|
7.8 |
|
|
|
35,236 |
|
Total nonperforming loans |
|
|
470,648 |
|
|
|
10.5 |
|
|
|
40,715 |
|
|
|
432,560 |
|
|
|
10.1 |
|
|
|
45,064 |
|
|
|
371,154 |
|
|
|
10.0 |
|
|
|
43,520 |
|
Total loans held for investment |
|
$ |
4,479,901 |
|
|
|
100.0 |
% |
|
$ |
158,517 |
|
|
$ |
4,281,533 |
|
|
|
100.0 |
% |
|
$ |
165,141 |
|
|
$ |
3,719,825 |
|
|
|
100.0 |
% |
|
$ |
181,939 |
|
Other than loans in the COVID-19 forbearance program, loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were $470.6 million, or 10.5% of our held for investment loan portfolio as of June 30, 2024, compared to $432.6 million, or 10.1% as of March 31, 2024, and $371.2 million, or 10.0% of the held for investment loan portfolio as of June 30, 2023.The increase in total nonperforming loans as of June 30, 2024 compared to March 31, 2024 and June 30, 2023 is due to an increase in the size of our portfolio and management’s decision to move loans into foreclosure early in the delinquency process.
Historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that became nonperforming prior to the beginning of the periods indicated or became nonperforming and subsequently resolved during the periods indicated. We resolved $68.6 million of long-term and short-term non-performing loans for the quarter ended June 30, 2024, which was higher, compared to $49.5 million and $43.6 million for the quarters ended March 31, 2024 and June 30, 2023, respectively. From these resolution activities, including the REO resolutions, we realized net gains of $1.0 million, $1.3 million, and $1.5 million for the quarters ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively. This is largely the result of collecting default interest and prepayment penalties in excess of the contractual principal and interest due on loans.
The table below includes resolutions for our long-term nonperforming loans and REO's for the periods indicated:
|
|
Three Months Ended |
|
|||||||||||||||||||||
Long-Term Loans |
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|||||||||||||||
|
|
UPB |
|
|
Gain / |
|
|
UPB |
|
|
Gain / |
|
|
UPB |
|
|
Gain / |
|
||||||
|
|
($ in thousands) |
|
|||||||||||||||||||||
Resolved — paid in full |
|
$ |
26,119 |
|
|
$ |
793 |
|
|
$ |
16,563 |
|
|
$ |
798 |
|
|
$ |
13,485 |
|
|
$ |
965 |
|
Resolved — paid current |
|
|
35,292 |
|
|
|
188 |
|
|
|
27,494 |
|
|
|
164 |
|
|
|
19,771 |
|
|
|
280 |
|
Resolved — REO sold |
|
|
7,859 |
|
|
|
(202 |
) |
|
|
3,888 |
|
|
|
224 |
|
|
|
4,836 |
|
|
|
(382 |
) |
Total resolutions |
|
$ |
69,270 |
|
|
$ |
779 |
|
|
$ |
47,945 |
|
|
$ |
1,186 |
|
|
$ |
38,092 |
|
|
$ |
863 |
|
Recovery rate on resolved |
|
|
|
|
|
101.1 |
% |
|
|
|
|
|
102.5 |
% |
|
|
|
|
|
102.3 |
% |
|||
39
The short-term loans, or loans with a maturity of two-year or less, do not require prepayment fees and usually result in a lower gain when paid in full, as compared to long term loans. The table below includes resolutions for our short-term nonperforming loans and REO's, and also includes loans that were granted a COVID-19 forbearance in 2020:
|
|
Three Months Ended |
|
|||||||||||||||||||||
Short-Term and Forbearance Loans |
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|||||||||||||||
|
|
UPB |
|
|
Gain / |
|
|
UPB |
|
|
Gain / |
|
|
UPB |
|
|
Gain / |
|
||||||
|
|
($ in thousands) |
|
|||||||||||||||||||||
Resolved — paid in full |
|
$ |
4,545 |
|
|
$ |
93 |
|
|
$ |
2,496 |
|
|
$ |
— |
|
|
$ |
7,004 |
|
|
$ |
318 |
|
Resolved — paid current |
|
|
2,689 |
|
|
|
1 |
|
|
|
2,927 |
|
|
|
25 |
|
|
|
3,290 |
|
|
|
89 |
|
Resolved — REO sold |
|
|
4,176 |
|
|
|
165 |
|
|
|
1,161 |
|
|
|
62 |
|
|
|
1,672 |
|
|
|
222 |
|
Total resolutions |
|
$ |
11,410 |
|
|
$ |
259 |
|
|
$ |
6,584 |
|
|
$ |
87 |
|
|
$ |
11,966 |
|
|
$ |
629 |
|
Recovery rate on resolved |
|
|
|
|
|
102.3 |
% |
|
|
|
|
|
101.3 |
% |
|
|
|
|
|
105.3 |
% |
|||
Real Estate Owned, net (“REO”)
REO includes real estate we acquire through foreclosure or by deed-in-lieu of foreclosure. REO assets are initially recorded at fair value, less estimated costs to sell, on the date of foreclosure. Adjustments that reduce the carrying value of the loan to the fair value of the real estate at the time of foreclosure are recognized as charge-offs in the allowance for credit losses. Positive adjustments at the time of foreclosure are recognized in other operating income. After foreclosure, we periodically obtain new valuations and any subsequent changes to fair value, less estimated costs to sell, are reflected as valuation adjustments, included in “real estate owned, net” in the consolidated statements of income.
As of June 30, 2024, our REO included 89 properties with a lower of cost or estimated fair value of $50.8 million compared to 76 properties with a lower of cost or estimated fair value of $46.3 million as of March 31, 2024, and 45 properties with a lower of cost or estimated fair value of $20.4 million as of June 30, 2023.
Charge-offs, Gain (Loss) on REO
Our actual charge-offs have been minimal as a percentage of nonperforming loans held for investment. The valuation impact to our earnings from loans becoming REO or in REO is a combination of 1) loan charge-offs, 2) gain on transfer to REO included in “gain on disposition of loans” in the consolidated statements of income, 3) net gain or loss on sale of REO, and 4) net valuation adjustments on REO. The table below shows our actual charge-offs; gain on transfer of nonperforming loans to REO; gain on disposition of REO; and net valuation adjustments on REO; for the periods indicated:
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|||
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|
|||
|
|
($ in thousands) |
|
|
|||||||||
Average nonperforming loans for the period (1) |
|
$ |
320,392 |
|
|
$ |
321,442 |
|
|
$ |
313,800 |
|
|
Charge-offs |
|
|
748 |
|
|
|
504 |
|
|
|
1,200 |
|
|
Charge-offs / Average nonperforming loans for the period (1) |
|
|
0.47 |
% |
(2) |
|
0.63 |
% |
(2) |
|
0.76 |
% |
(2) |
Gain on transfer to REO |
|
|
4,074 |
|
|
|
1,160 |
|
|
|
2,248 |
|
|
Gain (loss) on sale of REO |
|
|
249 |
|
|
|
286 |
|
|
|
(39 |
) |
|
REO valuations, net |
|
|
(2,261 |
) |
|
|
(1,722 |
) |
|
|
(1,670 |
) |
|
Total gain (loss) on REO |
|
|
2,061 |
|
|
|
(276 |
) |
|
|
538 |
|
|
40
Concentrations – Loans Held for Investment
As of June 30, 2024, our held for investment loan portfolio was concentrated in investor 1-4 loans, representing 54.1% of the UPB. Mixed used properties represented 11.4% of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated 21.3% in California, 17.2% in New York, 13.3% in Florida, 7.4% in New Jersey, and 5.1% in Texas.
Property Type |
|
June 30, 2024 |
|
|||||||||
|
|
Loan Count |
|
|
UPB |
|
|
% of Total UPB |
|
|||
|
|
($ in thousands) |
|
|||||||||
Investor 1-4 |
|
|
7,184 |
|
|
$ |
2,424,554 |
|
|
|
54.1 |
% |
Mixed use |
|
|
1,241 |
|
|
|
510,483 |
|
|
|
11.4 |
|
Retail |
|
|
796 |
|
|
|
385,120 |
|
|
|
8.6 |
|
Multifamily |
|
|
608 |
|
|
|
336,447 |
|
|
|
7.5 |
|
Warehouse |
|
|
449 |
|
|
|
288,380 |
|
|
|
6.4 |
|
Office |
|
|
589 |
|
|
|
254,836 |
|
|
|
5.7 |
|
Other (1) |
|
|
715 |
|
|
|
280,081 |
|
|
|
6.3 |
|
Total loans held for investment |
|
|
11,582 |
|
|
$ |
4,479,901 |
|
|
|
100.0 |
% |
Geography (State) |
|
June 30, 2024 |
|
|||||||||
|
|
Loan Count |
|
|
UPB |
|
|
% of Total UPB |
|
|||
|
|
($ in thousands) |
|
|||||||||
California |
|
|
1,458 |
|
|
$ |
954,420 |
|
|
|
21.3 |
% |
New York |
|
|
1,414 |
|
|
|
769,027 |
|
|
|
17.2 |
|
Florida |
|
|
1,490 |
|
|
|
594,684 |
|
|
|
13.3 |
|
New Jersey |
|
|
963 |
|
|
|
329,932 |
|
|
|
7.4 |
|
Texas |
|
|
656 |
|
|
|
228,990 |
|
|
|
5.1 |
|
Other (1) |
|
|
5,601 |
|
|
|
1,602,848 |
|
|
|
35.7 |
|
Total loans held for investment |
|
|
11,582 |
|
|
$ |
4,479,901 |
|
|
|
100.0 |
% |
Key Performance Metrics
|
|
Three Months Ended |
|
|
|||||||||
|
|
June 30, 2024 (1) |
|
|
March 31, 2024 (1) |
|
|
June 30, 2023 (1) |
|
|
|||
|
|
($ in thousands) |
|
|
|||||||||
Average loans |
|
$ |
4,355,941 |
|
|
$ |
4,159,412 |
|
|
$ |
3,637,570 |
|
|
Portfolio yield |
|
|
8.98 |
% |
|
|
8.71 |
% |
|
|
8.24 |
% |
|
Average debt — portfolio related |
|
|
3,941,507 |
|
|
|
3,753,732 |
|
|
|
3,258,651 |
|
|
Average debt — total company |
|
|
4,231,507 |
|
|
|
4,015,283 |
|
|
|
3,473,651 |
|
|
Cost of funds — portfolio related |
|
|
6.01 |
% |
|
|
5.93 |
% |
|
|
5.58 |
% |
|
Cost of funds — total company |
|
|
6.18 |
% |
|
|
6.08 |
% |
|
|
5.71 |
% |
|
Net interest margin — portfolio related |
|
|
3.54 |
% |
|
|
3.35 |
% |
|
|
3.24 |
% |
|
Net interest margin — total company |
|
|
2.98 |
% |
|
|
2.83 |
% |
|
|
2.78 |
% |
|
Charge-offs/Average loans held for investment, excluding FVO loans |
|
|
0.04 |
% |
|
|
0.07 |
% |
|
|
0.09 |
% |
|
Pre-tax return on equity |
|
|
16.95 |
% |
|
|
20.77 |
% |
|
|
16.81 |
% |
|
Return on equity |
|
|
12.54 |
% |
|
|
15.49 |
% |
|
|
12.21 |
% |
|
Average Loans
Average loans reflects the daily average of total outstanding loans, including both loans held for investment and loans held for sale, as measured by UPB, over the specified time period.
41
Portfolio Yield
Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees. The fluctuations in our portfolio yield over the periods shown was primarily driven by loans placed on non-accrual status during the periods.
Average Debt — Portfolio Related and Total Company
Portfolio-related debt consists of borrowings related directly to financing our loan portfolio, which includes our warehouse facilities and securitized debt. Total company debt consists of portfolio-related debt and corporate debt. The measures presented here reflect the monthly average of all portfolio-related and total company debt, as measured by outstanding principal balance, over the specified time period.
Cost of Funds — Portfolio Related and Total Company
Portfolio related cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt as a percentage of average portfolio-related debt outstanding over the given period. Total company cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt and corporate debt outstanding over the given period. Interest expense includes the amortization of expenses incurred in connection with our portfolio related financing activities and corporate debt. Through the issuance of long-term securitized debt, we have been able to fix a significant portion of our borrowing costs over time. The strong credit performance on our securitized debt has allowed us to issue debt at attractive rates.
Our portfolio related cost of funds increased to 6.01% for the three months ended June 30, 2024 from 5.93% for the prior quarter and increased from 5.58% for the three months ended June 30, 2023.
Net Interest Margin — Portfolio Related and Total Company
Portfolio related net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt as a percentage of average loans over the specified time period. Total company net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt and corporate debt as a percentage of average loans over the specified time period.
Over the periods shown below, our portfolio related net interest margin increased to 3.54% for the three months ended June 30, 2024 from 3.35% and 3.24% for the three months ended March 31, 2024 and June 30, 2023, respectively. The increase was primarily due to higher average yield on our loan portfolio.
Our total company net interest margin of 2.98% for the three months ended June 30, 2024 increased from 2.83% for the prior quarter, and increased from 2.78% for the three months ended June 30, 2023. The increase in total company net interest margin during the three months ended June 30, 2024 was primarily due to higher average yield on our loan portfolio.
42
The following tables show the average outstanding balance of our loan portfolio and portfolio-related debt, together with interest income and the corresponding yield earned on our portfolio, and interest expense and the corresponding rate paid on our portfolio-related debt for the periods indicated:
|
|
Three Months Ended |
|
|
|||||||||||||||||||||||||||||||||
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|
|||||||||||||||||||||||||||
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
Interest |
|
|
Average |
|
|
|
|
|
Interest |
|
|
Average |
|
|
|||||||||
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
Average |
|
|
Income / |
|
|
Yield / |
|
|
|||||||||
|
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|
Balance |
|
|
Expense |
|
|
Rate (1) |
|
|
|||||||||
|
|
($ in thousands) |
|
|
|||||||||||||||||||||||||||||||||
Loan portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans held for sale |
|
$ |
9,979 |
|
|
|
|
|
|
|
|
$ |
9,661 |
|
|
|
|
|
|
|
|
$ |
3,477 |
|
|
|
|
|
|
|
|
||||||
Loans held for investment |
|
|
4,345,962 |
|
|
|
|
|
|
|
|
|
4,149,750 |
|
|
|
|
|
|
|
|
|
3,634,093 |
|
|
|
|
|
|
|
|
||||||
Total loans |
|
$ |
4,355,941 |
|
|
$ |
97,760 |
|
|
|
8.98 |
% |
|
$ |
4,159,411 |
|
|
$ |
90,529 |
|
|
|
8.71 |
% |
|
$ |
3,637,570 |
|
|
$ |
74,897 |
|
|
|
8.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Warehouse facilities |
|
$ |
263,029 |
|
|
$ |
6,116 |
|
|
|
9.30 |
% |
|
$ |
267,559 |
|
|
$ |
6,392 |
|
|
|
9.56 |
% |
|
$ |
238,027 |
|
|
$ |
5,910 |
|
|
|
9.93 |
% |
|
Securitized debt |
|
|
3,678,478 |
|
|
|
53,072 |
|
|
|
5.77 |
% |
|
|
3,486,173 |
|
|
|
49,283 |
|
|
|
5.65 |
% |
|
|
3,020,624 |
|
|
|
39,541 |
|
|
|
5.24 |
% |
|
Total debt - portfolio related |
|
|
3,941,507 |
|
|
|
59,188 |
|
|
|
6.01 |
% |
|
|
3,753,732 |
|
|
|
55,675 |
|
|
|
5.93 |
% |
|
|
3,258,651 |
|
|
|
45,451 |
|
|
|
5.58 |
% |
|
Corporate debt |
|
|
290,000 |
|
|
|
6,155 |
|
|
|
8.49 |
% |
|
|
261,552 |
|
|
|
5,380 |
|
|
|
8.23 |
% |
|
|
215,000 |
|
|
|
4,139 |
|
|
|
7.70 |
% |
|
Total debt |
|
$ |
4,231,507 |
|
|
$ |
65,343 |
|
|
|
6.18 |
% |
|
$ |
4,015,284 |
|
|
$ |
61,055 |
|
|
|
6.08 |
% |
|
$ |
3,473,651 |
|
|
$ |
49,590 |
|
|
|
5.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net interest spread - |
|
|
|
|
|
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
2.77 |
% |
|
|
|
|
|
|
|
|
2.66 |
% |
|
||||||
Net interest margin - |
|
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
3.35 |
% |
|
|
|
|
|
|
|
|
3.24 |
% |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net interest spread - |
|
|
|
|
|
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
2.62 |
% |
|
|
|
|
|
|
|
|
2.53 |
% |
|
||||||
Net interest margin - |
|
|
|
|
|
|
|
|
2.98 |
% |
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
|
2.78 |
% |
|
||||||
Charge-Offs
Our annualized charge-off rate over average loans held for investment carried at amortized cost for the three months ended June 30, 2024 decreased to 0.04% as compared to 0.07% and 0.09% for the three months ended March 31, 2024 and June 30, 2023, respectively. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment for the respective quarters. We do not record charge-offs on FVO loans which are carried at estimated fair value. We do not record charge-offs on our loans held for sale which are carried either at fair value, or at the lower of cost or estimated fair value.
Pre-Tax Return on Equity and Return on Equity
Pre-tax return on equity and return on equity reflect income before income taxes and net income including income attributable to noncontrolling interest, respectively, as a percentage of the monthly average total stockholders’ equity including noncontrolling interest over the specified period. Pre-tax return on equity and return on equity decreased during the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024 due to the decrease in income before income taxes and net income. Pre-tax return on equity and return on equity remained consistent compared to the quarter ended June 30, 2023.
|
|
Three Months Ended |
|
|
|||||||||
|
|
June 30, 2024 |
|
|
March 31, 2024 |
|
|
June 30, 2023 |
|
|
|||
|
|
($ in thousands) |
|
|
|||||||||
Income before income taxes (A) |
|
$ |
19,873 |
|
|
$ |
23,236 |
|
|
$ |
16,824 |
|
|
Net income (B) |
|
|
14,711 |
|
|
|
17,333 |
|
|
|
12,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Monthly average balance: |
|
|
|
|
|
|
|
|
|
|
|||
Stockholders' equity (C) |
|
|
469,071 |
|
|
|
447,613 |
|
|
|
400,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Pre-tax return on equity (A)/(C) (1) |
|
|
16.9 |
% |
|
|
20.8 |
% |
|
|
16.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Return on equity (B)/(C) (1) |
|
|
12.5 |
% |
|
|
15.5 |
% |
|
|
12.2 |
% |
|
43
Components of Results of Operations
Interest Income
We accrue interest on the UPB of our loans in accordance with the individual terms and conditions of each loan, discontinuing interest and reversing previously accrued interest once a loan becomes 90 days or more past due (nonaccrual status). When a loan is placed on nonaccrual status, the accrued and unpaid interest is reversed as a reduction to interest income and accrued interest receivable. Interest income is subsequently recognized only to the extent that cash payments are received or when the loan has returned to accrual status. Payments received on nonaccrual loans are first applied to interest due, then principal. Interest accrual resumes once a borrower has made all principal and interest payments due, bringing the loan back to current status.
Interest income on loans held for investment is comprised of interest income on loans and prepayment fees less the amortization of deferred net costs related to the origination of loans. Interest income on loans held for sale is comprised of interest income earned on loans prior to their sale. The net fees and costs associated with loans held for sale carried at the lower of cost or fair value, are deferred as part of the carrying value of the loan and recognized as a gain or loss on the sale of the loan. The fees and costs associated with loans carried at fair value are recognized and expensed as incurred.
Interest Expense — Portfolio Related
Portfolio related interest expense is incurred on the debt obtained to fund our loan origination and portfolio activities and consists of our warehouse facilities and securitized debt. Portfolio related interest expense also includes the amortization of expenses incurred as a result of issuing the debt when the debt is carried at amortized cost, which are amortized using the level yield method. Key drivers of interest expense include the debt amounts outstanding, interest rates, and the mix of our securitized debt and warehouse liabilities.
Net Interest Income — Portfolio Related
Portfolio related net interest income represents the difference between interest income and portfolio related interest expense.
Interest Expense — Corporate Debt
Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2022 Term Loan and the 2024 Term Loan, as reflected on our consolidated balance sheets, and the related amortization of deferred debt issuance costs.
Net Interest Income
Net interest income represents the difference between portfolio related net interest income and interest expense on corporate debt.
Provision for Credit Losses
Effective January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments replacing the incurred loss accounting approach with the CECL approach. Under the CECL methodology, the allowance for credit losses is calculated using a third-party model with our historical loss rates by segment, loans position as of the balance sheet date, and assumptions from us. We do not record provision for credit losses on loans held for sale, or loans carried at fair value.
Other Operating Income
Gain on Disposition of Loans. When we sell a loan held for sale, we record a gain or loss that reflects the difference between the proceeds received for the sale of the loans and their respective carrying values. The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sales price of the loans. In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell, at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off.
Unrealized Gain (Loss) on Fair Value Loans. We have elected to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). We regularly estimate the fair value of these loans. Changes in fair value subsequent to initial recognition of fair value loans are reported as unrealized gain (loss) on fair value loans, a component of other operating income within the consolidated statements of income.
Unrealized Gain (Loss) on Mortgage Servicing Rights. The Company has elected to record its mortgage servicing rights using the fair value measurement method. Changes in fair value are reported as unrealized gains (losses) on mortgage servicing rights.
44
Unrealized Gain (Loss) on Fair Value Securitized Debt. We have elected to apply the fair value option accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. We regularly estimate the fair value of securitized debt. Changes in fair value subsequent to initial recognition of fair value securitized debt are reported as unrealized gain (loss) on fair value securitized debt, a component of other operating income within the consolidated statements of income.
Origination Income. Fee income related to our loan origination activities.
Interest Income on Cash Balance. Interest income on bank balances.
Other Income. Other income primarily consists of servicing fee income and other miscellaneous income. Century earns servicing fees for servicing mortgage loans for others.
Operating Expenses
Compensation and Employee Benefits. Costs related to employee compensation, commissions and related employee benefits, such as health, retirement, and payroll taxes.
Origination Expenses. Costs related to our loan origination activities.
Securitization Expenses. Costs related to issuance of our securitized debt.
Loan Servicing. Costs related to our third-party servicers.
Professional Fees. Costs related to professional services, such as external audits, legal fees, tax, compliance and outside consultants.
Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes.
Real Estate Owned, Net. Costs related to our real estate owned, net, including gains (losses) on disposition of REO, maintenance of REO properties, and taxes and insurance.
Other Operating Expenses. Other operating expenses consist of general and administrative costs such as, travel and entertainment, marketing, data processing, insurance and office equipment.
Provision for Income Taxes
The provision for income taxes consists of the current and deferred U.S. federal and state income taxes we expect to pay, currently and in future years, with respect to the net income for the year. The amount of the provision is derived by adjusting our reported net income with various permanent differences. The tax-adjusted net income amount is then multiplied by the applicable federal and state income tax rates to arrive at the provision for income taxes.
Consolidated Results of Operations
The following table summarizes our consolidated results of operations for the periods indicated:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Interest income |
|
$ |
97,760 |
|
|
$ |
74,897 |
|
|
$ |
188,289 |
|
|
$ |
145,418 |
|
Interest expense - portfolio related |
|
|
59,188 |
|
|
|
45,451 |
|
|
|
114,863 |
|
|
|
87,480 |
|
Net interest income - portfolio related |
|
|
38,572 |
|
|
|
29,446 |
|
|
|
73,426 |
|
|
|
57,938 |
|
Interest expense - corporate debt |
|
|
6,155 |
|
|
|
4,139 |
|
|
|
11,535 |
|
|
|
8,278 |
|
Net interest income |
|
|
32,417 |
|
|
|
25,307 |
|
|
|
61,891 |
|
|
|
49,660 |
|
Provision for credit losses |
|
|
218 |
|
|
|
298 |
|
|
|
1,219 |
|
|
|
933 |
|
Net interest income after provision for credit losses |
|
|
32,199 |
|
|
|
25,009 |
|
|
|
60,672 |
|
|
|
48,727 |
|
Other operating income |
|
|
22,561 |
|
|
|
14,037 |
|
|
|
48,336 |
|
|
|
26,878 |
|
Total operating expenses |
|
|
34,887 |
|
|
|
22,222 |
|
|
|
65,898 |
|
|
|
44,024 |
|
Income before income taxes |
|
|
19,873 |
|
|
|
16,824 |
|
|
|
43,110 |
|
|
|
31,581 |
|
Income tax expense |
|
|
5,162 |
|
|
|
4,602 |
|
|
|
11,066 |
|
|
|
8,623 |
|
Net income |
|
|
14,711 |
|
|
|
12,222 |
|
|
|
32,044 |
|
|
|
22,958 |
|
Net (loss) income attributable to noncontrolling interest |
|
|
(67 |
) |
|
|
39 |
|
|
|
15 |
|
|
|
126 |
|
Net income attributable to Velocity Financial, Inc. |
|
$ |
14,778 |
|
|
$ |
12,183 |
|
|
$ |
32,029 |
|
|
$ |
22,832 |
|
45
Net Interest Income — Portfolio Related
|
|
Three Months Ended June 30, |
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
||||||
|
|
(In thousands) |
|
|
|||||||||||||||||||||
Interest income |
|
$ |
97,760 |
|
|
$ |
74,897 |
|
|
$ |
22,863 |
|
|
$ |
188,289 |
|
|
$ |
145,418 |
|
|
$ |
42,871 |
|
|
Interest expense - portfolio related |
|
|
59,188 |
|
|
|
45,451 |
|
|
|
13,737 |
|
|
|
114,863 |
|
|
|
87,480 |
|
|
|
27,383 |
|
|
Net interest income - portfolio related |
|
$ |
38,572 |
|
|
$ |
29,446 |
|
|
$ |
9,126 |
|
|
$ |
73,426 |
|
|
$ |
57,938 |
|
|
$ |
15,488 |
|
|
Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased to $38.6 million from $29.4 million for the three months ended June 30, 2024 and 2023, respectively. Our portfolio related net interest income increased to $73.4 million for the six months ended June 30, 2024 from $57.9 million for the six months ended June 30, 2023.
Interest Income. Interest income increased by $22.9 million to $97.8 million for the three months ended June 30, 2024, compared to $74.9 million for the three months ended June 30, 2023, primarily attributable to higher portfolio balances and higher average loan yield. For the three months ended June 30, 2024, the average loan yield was 8.98% compared to 8.24% for the three months ended June 30, 2023. Interest income increased by $42.9 million to $188.3 million for the six months ended June 30, 2024, compared to $145.4 million for the six months ended June 30, 2023. The increase in interest income for the six months ended June 30, 2024 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.
The following tables distinguish between the change in interest income attributable to change in volume and the change in interest income attributable to a change in rate for the three and six months ended June 30, 2024 and 2023, respectively. The effect of changes in volume is determined by multiplying the change in average loan balance of $0.7 billion by the previous period’s average yield of 8.24%. The effect of rate changes is calculated by multiplying the change in average yield of 0.74% by the current period’s average loan balance of $4.4 billion.
|
|
Three Months Ended June 30, 2024 and 2023 |
|
|||||||||
|
|
Average |
|
|
Interest |
|
|
Average |
|
|||
|
|
($ in thousands) |
|
|||||||||
Three months ended June 30, 2024 |
|
$ |
4,355,941 |
|
|
$ |
97,760 |
|
|
|
8.98 |
% |
Three months ended June 30, 2023 |
|
|
3,637,570 |
|
|
|
74,897 |
|
|
|
8.24 |
% |
Volume variance |
|
|
718,371 |
|
|
|
14,798 |
|
|
|
|
|
Rate variance |
|
|
|
|
|
8,065 |
|
|
|
0.74 |
% |
|
Total interest income variance |
|
|
|
|
$ |
22,863 |
|
|
|
|
||
|
|
Six Months Ended June 30, 2024 and 2023 |
|
|||||||||
|
|
Average |
|
|
Interest |
|
|
Average |
|
|||
|
|
($ in thousands) |
|
|||||||||
Six Months Ended June 30, 2024 |
|
$ |
4,257,677 |
|
|
$ |
188,289 |
|
|
|
8.84 |
% |
Six Months Ended June 30, 2023 |
|
|
3,581,299 |
|
|
|
145,418 |
|
|
|
8.12 |
% |
Volume variance |
|
|
676,378 |
|
|
|
27,461 |
|
|
|
|
|
Rate variance |
|
|
|
|
|
15,410 |
|
|
|
0.72 |
% |
|
Total interest income variance |
|
|
|
|
$ |
42,871 |
|
|
|
|
||
Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $59.2 million for the three months ended June 30, 2024 from $45.5 million for the three months ended June 30, 2023, and increased to $114.9 million for the six months ended June 30, 2024 from $87.5 million for the six months ended June 30, 2023, primarily attributable to a higher loan portfolio being financed and increased interest rates.
46
The following tables present the information regarding the portfolio related interest expense and distinguishes between the change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the three and six months ended June 30, 2024 and 2023, respectively.
|
|
Three Months Ended June 30, 2024 and 2023 |
|
|||||||||
|
|
Average |
|
|
Interest |
|
|
Cost of |
|
|||
|
|
($ in thousands) |
|
|||||||||
Three months ended June 30, 2024 |
|
$ |
3,941,507 |
|
|
$ |
59,188 |
|
|
|
6.01 |
% |
Three months ended June 30, 2023 |
|
|
3,258,651 |
|
|
|
45,451 |
|
|
|
5.58 |
% |
Volume variance |
|
|
682,856 |
|
|
|
9,526 |
|
|
|
|
|
Rate variance |
|
|
|
|
|
4,211 |
|
|
|
0.43 |
% |
|
Total interest expense variance |
|
|
|
|
$ |
13,737 |
|
|
|
|
||
|
|
Six Months Ended June 30, 2024 and 2023 |
|
|||||||||
|
|
Average |
|
|
Interest |
|
|
Cost of |
|
|||
|
|
($ in thousands) |
|
|||||||||
Six Months Ended June 30, 2024 |
|
$ |
3,847,619 |
|
|
$ |
114,863 |
|
|
|
5.97 |
% |
Six Months Ended June 30, 2023 |
|
|
3,205,150 |
|
|
|
87,480 |
|
|
|
5.46 |
% |
Volume variance |
|
|
642,469 |
|
|
|
17,539 |
|
|
|
|
|
Rate variance |
|
|
|
|
|
9,844 |
|
|
|
0.51 |
% |
|
Total interest expense variance |
|
|
|
|
$ |
27,383 |
|
|
|
|
||
Net Interest Income After Provision for Credit Losses
|
|
Three Months Ended June 30, |
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
||||||
|
|
(In thousands) |
|
|
|||||||||||||||||||||
Net interest income - portfolio related |
|
$ |
38,572 |
|
|
$ |
29,446 |
|
|
$ |
9,126 |
|
|
$ |
73,426 |
|
|
$ |
57,938 |
|
|
$ |
15,488 |
|
|
Interest expense - corporate debt |
|
|
6,155 |
|
|
|
4,139 |
|
|
|
2,016 |
|
|
|
11,535 |
|
|
|
8,278 |
|
|
|
3,257 |
|
|
Net interest income |
|
|
32,417 |
|
|
|
25,307 |
|
|
|
7,110 |
|
|
|
61,891 |
|
|
|
49,660 |
|
|
|
12,231 |
|
|
Provision for credit losses |
|
|
218 |
|
|
|
298 |
|
|
|
(80 |
) |
|
|
1,219 |
|
|
|
933 |
|
|
|
286 |
|
|
Net interest income after provision for credit losses |
|
$ |
32,199 |
|
|
$ |
25,009 |
|
|
$ |
7,190 |
|
|
$ |
60,672 |
|
|
$ |
48,727 |
|
|
$ |
11,945 |
|
|
Interest Expense — Corporate Debt. Corporate debt interest expense increased to $6.2 million for the three months ended June 30, 2024, compared to $4.1 million for the three months ended June 30, 2023, and increased to $11.5 million for the six months ended June 30, 2024, compared to $8.3 million for the six months ended June 30, 2023, primarily due to the issuance of $75.0 million of additional secured debt in February 2024.
Provision for Credit Losses. Our provision for credit losses remained relatively consistent at $0.2 million for the three months ended June 30, 2024 compared to $0.3 million for the three months ended June 30, 2023, and increased to $1.2 million for the six months ended June 30, 2024 from $0.9 million for the six months ended June 30, 2023. The increase is primarily due to the decrease in the valuation of underlying collateral for nonperforming loans.
47
Other Operating Income
The $8.5 million and $21.5 million increases in total other operating income for the three and six months ended June 30, 2024, respectively, were mainly due to the unrealized gains from new originations.
|
|
Three Months Ended June 30, |
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
||||||
|
|
(In thousands) |
|
|
|||||||||||||||||||||
Gain on disposition of loans |
|
$ |
3,168 |
|
|
$ |
1,237 |
|
|
$ |
1,931 |
|
|
$ |
4,865 |
|
|
$ |
3,149 |
|
|
$ |
1,716 |
|
|
Unrealized gain on fair value loans |
|
|
17,123 |
|
|
|
2,413 |
|
|
|
14,710 |
|
|
|
36,049 |
|
|
|
9,767 |
|
|
|
26,282 |
|
|
Unrealized (loss) gain on fair value securitized debt |
|
|
(4,643 |
) |
|
|
5,560 |
|
|
|
(10,203 |
) |
|
|
(6,961 |
) |
|
|
5,391 |
|
|
|
(12,352 |
) |
|
Origination fee income |
|
|
5,072 |
|
|
|
2,735 |
|
|
|
2,337 |
|
|
|
10,058 |
|
|
|
5,145 |
|
|
|
4,913 |
|
|
Interest income on cash balance |
|
|
1,731 |
|
|
|
1,189 |
|
|
|
542 |
|
|
|
3,362 |
|
|
|
2,136 |
|
|
|
1,226 |
|
|
Other income |
|
|
110 |
|
|
|
903 |
|
|
|
(793 |
) |
|
|
963 |
|
|
|
1,290 |
|
|
|
(327 |
) |
|
Total other operating income |
|
$ |
22,561 |
|
|
$ |
14,037 |
|
|
$ |
8,524 |
|
|
$ |
48,336 |
|
|
$ |
26,878 |
|
|
$ |
21,458 |
|
|
Operating Expenses
Operating expenses are presented in the following table. Changes in operating expenses comparing to the same periods prior year are discussed below.
|
|
Three Months Ended June 30, |
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
||||||||||||
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
||||||
|
|
(In thousands) |
|
|
|||||||||||||||||||||
Compensation and employee benefits |
|
$ |
16,562 |
|
|
$ |
10,670 |
|
|
$ |
5,892 |
|
|
$ |
31,919 |
|
|
$ |
20,678 |
|
|
$ |
11,241 |
|
|
Origination expenses |
|
|
749 |
|
|
|
123 |
|
|
|
626 |
|
|
|
1,395 |
|
|
|
72 |
|
|
|
1,323 |
|
|
Securitization expenses |
|
|
6,232 |
|
|
|
2,699 |
|
|
|
3,533 |
|
|
|
9,106 |
|
|
|
5,284 |
|
|
|
3,822 |
|
|
Loan servicing |
|
|
5,160 |
|
|
|
4,267 |
|
|
|
893 |
|
|
|
9,984 |
|
|
|
8,095 |
|
|
|
1,889 |
|
|
Professional fees |
|
|
1,718 |
|
|
|
1,056 |
|
|
|
662 |
|
|
|
3,833 |
|
|
|
2,011 |
|
|
|
1,822 |
|
|
Rent and occupancy |
|
|
617 |
|
|
|
458 |
|
|
|
159 |
|
|
|
1,115 |
|
|
|
905 |
|
|
|
210 |
|
|
Real estate owned, net |
|
|
1,355 |
|
|
|
1,018 |
|
|
|
337 |
|
|
|
3,811 |
|
|
|
2,846 |
|
|
|
965 |
|
|
Other operating expenses |
|
|
2,494 |
|
|
|
1,931 |
|
|
|
563 |
|
|
|
4,735 |
|
|
|
4,133 |
|
|
|
602 |
|
|
Total operating expenses |
|
$ |
34,887 |
|
|
$ |
22,222 |
|
|
$ |
12,665 |
|
|
$ |
65,898 |
|
|
$ |
44,024 |
|
|
$ |
21,874 |
|
|
Compensation and Employee Benefits. Compensation and employee benefits increased by $5.9 million to $16.6 million for the three months ended June 30, 2024 compared to $10.7 million for the three months ended June 30, 2023, and increased by $11.2 million to $31.9 million for the six months ended June 30, 2024 compared to $20.7 million for the six months ended June 30, 2023. The increase was mainly driven by the increase in headcount and higher commissions expense over the last twelve months.
Origination Expenses. Origination expenses increased by $0.6 million to $0.7 million for the three months ended June 30, 2024, compared $0.1 million for the three months ended June 30, 2023, and increased by $1.3 million to $1.4 million for the six months ended June 30, 2024, compared to $0.1 million for the six months ended June 30, 2023. The increase in origination expenses was due to an increase in loan originations as compared to prior year.
Securitization Expenses. Securitization expenses were $6.2 million for the three months ended June 30, 2024 compared to $2.7 million for the three months ended June 30, 2023, and $9.1 million for the six months ended June 30, 2024 compared to $5.3 million for the six months ended June 30, 2023. The increase was a result of issuing two securitizations in the second quarter of 2024 as compared to issuing one securitization in the same period prior year.
Loan Servicing. Loan servicing expenses increased to $5.2 million for the three months ended June 30, 2024 from $4.3 million for the three months ended June 30, 2023, and increased to $10.0 million for the six months ended June 30, 2024 from $8.1 million for the six months ended June 30, 2023 primarily due to the increase in our total loan portfolio from prior year.
Professional Fees. Professional fees increased to $1.7 million for the three months ended June 30, 2024 compared to $1.1 million for the three months ended June 30, 2023, and increased by $1.8 million to $3.8 million for the six months ended June 30, 2024 as compared to $2.0 million for the six months ended June 30, 2023. The increase was primarily due to an increase in legal expenses.
Rent and Occupancy. Rent and occupancy expenses remained consistent at $0.6 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively, and were $1.1 million and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.
48
Net Expenses of Real Estate Owned. Net expenses of real estate owned increased to $1.4 million for the three months ended June 30, 2024 from $1.0 million for the three months ended June 30, 2023, and increased to $3.8 million for the six months ended June 30, 2024 from $2.8 million for the six months ended June 30, 2023, mainly due to an increase in valuation adjustments taken on underlying collateral values.
Other Operating Expenses. Other operating expenses increased to $2.5 million for the three months ended June 30, 2024 from $1.9 million for the three months ended June 30, 2023, and increased to $4.7 million for the six months ended June 30, 2024 from $4.1 million for the six months ended June 30, 2023. The increase is mainly due to an increase in data processing costs.
Income Tax Expense. Income tax expense was $5.2 million and $4.6 million for the three months ended June 30, 2024 and 2023, respectively, and $11.1 million and $8.6 million for the six months ended June 30, 2024 and 2023, respectively. Our annual consolidated effective tax rates were 27.3% and 27.6% for the years 2024 and 2023, respectively.
Quarterly Results of Operations
The following table sets forth certain financial information for each of the last eight completed fiscal quarters. The quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the information presented. This information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
The following table sets forth our unaudited quarterly results for the periods indicated:
|
|
Three Months Ended |
|
|
|||||||||||||||||||||||||||||
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
||||||||
|
|
($ in thousands) |
|
|
|||||||||||||||||||||||||||||
|
|
(Unaudited) |
|
|
|||||||||||||||||||||||||||||
Interest income |
|
$ |
97,760 |
|
|
$ |
90,529 |
|
|
$ |
86,269 |
|
|
$ |
79,088 |
|
|
$ |
74,897 |
|
|
$ |
70,521 |
|
|
$ |
65,632 |
|
|
$ |
63,419 |
|
|
Interest expense - portfolio related |
|
|
59,188 |
|
|
|
55,675 |
|
|
|
51,405 |
|
|
|
47,583 |
|
|
|
45,451 |
|
|
|
42,029 |
|
|
|
40,854 |
|
|
|
34,561 |
|
|
Net interest income - portfolio related |
|
|
38,572 |
|
|
|
34,854 |
|
|
|
34,864 |
|
|
|
31,505 |
|
|
|
29,446 |
|
|
|
28,492 |
|
|
|
24,778 |
|
|
|
28,858 |
|
|
Net interest margin - portfolio related |
|
|
3.54 |
% |
|
|
3.35 |
% |
|
|
3.52 |
% |
|
|
3.34 |
% |
|
|
3.24 |
% |
|
|
3.23 |
% |
|
|
2.84 |
% |
|
|
3.59 |
% |
|
Interest expense - corporate debt |
|
|
6,155 |
|
|
|
5,380 |
|
|
|
4,140 |
|
|
|
4,138 |
|
|
|
4,139 |
|
|
|
4,139 |
|
|
|
4,139 |
|
|
|
4,011 |
|
|
Net interest income |
|
|
32,417 |
|
|
|
29,474 |
|
|
|
30,724 |
|
|
|
27,367 |
|
|
|
25,307 |
|
|
|
24,353 |
|
|
|
20,639 |
|
|
|
24,847 |
|
|
Net interest margin - total company |
|
|
2.98 |
% |
|
|
2.83 |
% |
|
|
3.10 |
% |
|
|
2.90 |
% |
|
|
2.78 |
% |
|
|
2.76 |
% |
|
|
2.36 |
% |
|
|
3.09 |
% |
|
Provision for (reversal of) credit losses |
|
|
218 |
|
|
|
1,002 |
|
|
|
827 |
|
|
|
154 |
|
|
|
298 |
|
|
|
636 |
|
|
|
(437 |
) |
|
|
580 |
|
|
Net interest income after provision |
|
|
32,199 |
|
|
|
28,472 |
|
|
|
29,897 |
|
|
|
27,213 |
|
|
|
25,009 |
|
|
|
23,717 |
|
|
|
21,076 |
|
|
|
24,267 |
|
|
Other operating income |
|
|
22,561 |
|
|
|
25,775 |
|
|
|
21,670 |
|
|
|
17,360 |
|
|
|
14,037 |
|
|
|
12,843 |
|
|
|
11,420 |
|
|
|
3,027 |
|
|
Operating expenses |
|
|
34,887 |
|
|
|
31,011 |
|
|
|
29,260 |
|
|
|
27,334 |
|
|
|
22,222 |
|
|
|
21,803 |
|
|
|
20,804 |
|
|
|
13,245 |
|
|
Income before income taxes |
|
|
19,873 |
|
|
|
23,236 |
|
|
|
22,307 |
|
|
|
17,239 |
|
|
|
16,824 |
|
|
|
14,757 |
|
|
|
11,692 |
|
|
|
14,049 |
|
|
Less (loss) income attributable to noncontrolling interest |
|
|
(67 |
) |
|
|
82 |
|
|
|
(189 |
) |
|
|
83 |
|
|
|
39 |
|
|
|
87 |
|
|
|
(235 |
) |
|
|
307 |
|
|
Income tax expense |
|
|
5,162 |
|
|
|
5,903 |
|
|
|
5,141 |
|
|
|
5,070 |
|
|
|
4,602 |
|
|
|
4,021 |
|
|
|
3,465 |
|
|
|
3,759 |
|
|
Net income |
|
$ |
14,778 |
|
|
$ |
17,251 |
|
|
$ |
17,355 |
|
|
$ |
12,086 |
|
|
$ |
12,183 |
|
|
$ |
10,649 |
|
|
$ |
8,462 |
|
|
$ |
9,983 |
|
|
Liquidity and Capital Resources
Sources and Uses of Liquidity
We fund our lending activities primarily through borrowings under our warehouse repurchase facilities, securitized debt, other corporate-level debt, equity and debt securities, and net cash provided by operating activities to manage our business. We use cash to originate and acquire investor real estate loans, repay principal and interest on our borrowings, fund our operations and meet other general business needs.
49
Cash and Cash Equivalents
Our total liquidity plus available warehouse capacity, including Century's revolving credit line, was $730.2 million as of June 30, 2024, comprised of $646.5 million of available warehouse capacity, $47.4 million in cash, and $36.4 million available borrowings for unencumbered loans.
We had cash of $47.4 million and $34.0 million, excluding restricted cash of $32.3 million and $16.8 million as of June 30, 2024 and 2023, respectively. The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities for the periods indicated:
|
|
Six Months Ended |
|
|||||
|
|
June 30, 2024 |
|
|
June 30, 2023 |
|
||
|
|
(In thousands) |
|
|||||
Cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
22,053 |
|
|
$ |
32,429 |
|
Investing activities |
|
|
(409,281 |
) |
|
|
(212,609 |
) |
Financing activities |
|
|
404,960 |
|
|
|
168,897 |
|
Net change in cash, cash equivalents, and restricted cash |
|
$ |
17,732 |
|
|
$ |
(11,283 |
) |
Cash flows from operating activities primarily includes net income adjusted for (1) cash used for origination and purchase of held for sale loans and the related cash proceeds from the sales of such loans, (2) non-cash items including depreciation, provision for credit losses, discount accretion, and valuation changes, and (3) changes in the balances of operating assets and liabilities.
For the six months ended June 30, 2024, our net cash provided by operating activities consisted mainly of $32.0 million in net income, $14.7 million in accounts payable and accrued expenses, offset by $36.0 million in the change in valuation of fair value loans.
For the six months ended June 30, 2024, our net cash used in investing activities consisted mainly of $800.9 million in cash used to originate loans held for investment, partially offset by $346.4 million in cash received in payoffs of loans held for investment.
For the six months ended June 30, 2024, our net cash provided by financing activities consisted mainly of $733.8 million in borrowings from our warehouse and repurchase facilities and $718.1 million in proceeds from asset-backed securities issued. The cash generated was offset by repayments of $831.6 million and $287.0 million, on our warehouse and repurchase facilities and asset-backed securities issued, respectively.
During the six months ended June 30, 2024 and 2023, we generated approximately $17.7 million and used $11.3 million, respectively, of net cash and cash equivalents on operating, investing and financing activities.
Warehouse Facilities
As of June 30, 2024, we had six non-mark-to-market warehouse facilities and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. One agreement is a two-year warehouse repurchase facility, three agreements are one-year warehouse repurchase facilities and three agreements are three-year warehouse facilities. The borrowings are collateralized primarily by performing loans. One of the warehouse facilities bear interest at one-month AMERIBOR and six warehouse facilities at SOFR, all at margins ranging from 1.60% to 4.50%. Borrowing under these facilities was $238.5 million with $646.5 million of available capacity as of June 30, 2024.
Six warehouse facilities fund less than 100% and one warehouse facility funds at 100% of the principal balance of the mortgage loans we own, requiring us to use working capital to fund the remaining portion. We may need to use additional working capital if loans become delinquent, because the amount permitted to be financed by the facilities may change based on the delinquency performance of the pledged collateral.
All borrower payments on loans financed under the warehouse facilities are segregated into pledged accounts with the loan servicer. All principal amounts in excess of the interest due are applied to reduce the outstanding borrowings under the warehouse facilities. The warehouse facilities also contain customary covenants, including financial covenants that require us to maintain minimum liquidity, a minimum net worth, a maximum debt-to-net worth ratio and a ratio of a minimum earnings before interest, taxes, depreciation and amortization of interest expense. If we fail to meet any of the covenants, or otherwise default under the facilities, the lenders have the right to terminate their facility and require immediate repayment, which may require us to sell our loans at less than optimal terms. As of June 30, 2024, we were in compliance with these covenants.
50
Securitized debt
From May 2011 through June 2024, we have completed 34 securitized debts, issuing $7.1 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly. We are the sole beneficial interest holder of the applicable trusts, which are variable interest entities included in our consolidated financial statements. The transactions are accounted for as secured borrowings under U.S. GAAP. The following table summarizes the securities issued, securities retained by us at the time of the securitization, and as of June 30, 2024 and December 31, 2023, and the stated maturity for each securitized debt. The securities are callable by us when the stated principal balance is less than a certain percentage, ranging from 10% to 30%, of the original stated principal balance of loans at issuance. As a result, the actual maturity date of the securities issued will likely be earlier than their respective stated maturity date.
|
|
|
|
|
Securities Retained as of |
|
|
|
||||||||||
Trusts |
|
Securities |
|
|
Issuance |
|
|
June 30, |
|
|
December 31, |
|
|
Stated Maturity |
||||
|
|
(In thousands) |
|
|
|
|||||||||||||
2017-2 Trust |
|
$ |
245,601 |
|
|
$ |
12,927 |
|
|
$ |
2,416 |
|
|
$ |
2,416 |
|
|
October 2047 |
2018-1 Trust |
|
|
176,816 |
|
|
|
9,308 |
|
|
|
1,602 |
|
|
|
1,602 |
|
|
April 2048 |
2018-2 Trust |
|
|
307,988 |
|
|
|
16,210 |
|
|
|
3,122 |
|
|
|
3,614 |
|
|
October 2048 |
2019-1 Trust |
|
|
235,580 |
|
|
|
12,399 |
|
|
|
— |
|
|
|
— |
|
|
March 2049 |
2019-2 Trust |
|
|
207,020 |
|
|
|
10,901 |
|
|
|
— |
|
|
|
— |
|
|
July 2049 |
2019-3 Trust |
|
|
154,419 |
|
|
|
8,127 |
|
|
|
— |
|
|
|
— |
|
|
October 2049 |
2020-1 Trust |
|
|
248,700 |
|
|
|
13,159 |
|
|
|
— |
|
|
|
— |
|
|
February 2050 |
2020-2 Trust |
|
|
96,352 |
|
|
|
32,118 |
|
|
|
12,847 |
|
|
|
12,847 |
|
|
June 2050 |
2021-1 Trust |
|
|
251,301 |
|
|
|
13,227 |
|
|
|
— |
|
|
|
— |
|
|
May 2051 |
2021-2 Trust |
|
|
194,918 |
|
|
|
10,260 |
|
|
|
— |
|
|
|
— |
|
|
August 2051 |
2021-3 Trust |
|
|
204,205 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
October 2051 |
2021-4 Trust |
|
|
319,116 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
December 2051 |
2022-1 Trust |
|
|
273,594 |
|
|
|
5,015 |
|
|
|
4,077 |
|
|
|
4,206 |
|
|
February 2052 |
2022-2 Trust |
|
|
241,388 |
|
|
|
11,202 |
|
|
|
10,282 |
|
|
|
10,971 |
|
|
March 2052 |
2022-MC1 Trust |
|
|
84,967 |
|
|
|
40,911 |
|
|
|
46,862 |
|
|
|
45,026 |
|
|
May 2047 |
2022-3 Trust |
|
|
296,323 |
|
|
|
18,914 |
|
|
|
15,489 |
|
|
|
15,489 |
|
|
May 2052 |
2022-4 Trust |
|
|
308,357 |
|
|
|
25,190 |
|
|
|
13,336 |
|
|
|
13,414 |
|
|
July 2052 |
2022-5 Trust |
|
|
188,754 |
|
|
|
65,459 |
|
|
|
12,649 |
|
|
|
12,649 |
|
|
October 2052 |
2023-1 Trust |
|
|
198,715 |
|
|
|
41,593 |
|
|
|
4,043 |
|
|
|
4,043 |
|
|
December 2052 |
2023-1R Trust |
|
|
64,833 |
|
|
|
66,228 |
|
|
|
66,228 |
|
|
|
66,228 |
|
|
October 2025 |
2023-2 Trust |
|
|
202,210 |
|
|
|
24,229 |
|
|
|
23,839 |
|
|
|
23,948 |
|
|
April 2053 |
2023-RTL1 Trust |
|
|
81,608 |
|
|
|
4,296 |
|
|
|
4,296 |
|
|
|
4,296 |
|
|
July 2028 |
2023-3 Trust |
|
|
234,741 |
|
|
|
28,718 |
|
|
|
28,480 |
|
|
|
28,480 |
|
|
July 2053 |
2023-4 Trust |
|
|
202,890 |
|
|
|
26,623 |
|
|
|
3,995 |
|
|
|
26,482 |
|
|
November 2053 |
2024-1 Trust |
|
|
209,862 |
|
|
|
11,278 |
|
|
|
11,229 |
|
|
|
— |
|
|
January 2054 |
2024-2 Trust |
|
|
286,235 |
|
|
|
8,853 |
|
|
|
8,767 |
|
|
|
— |
|
|
April 2054 |
2024-3 Trust |
|
|
204,599 |
|
|
|
5,255 |
|
|
|
5,231 |
|
|
|
— |
|
|
June 2054 |
Total |
|
$ |
5,721,092 |
|
|
$ |
522,400 |
|
|
$ |
278,790 |
|
|
$ |
275,711 |
|
|
|
51
The following table summarizes outstanding bond balances for each securitized debt as of June 30, 2024 and December 31, 2023:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
(In thousands) |
|
|||||
2017-2 Trust |
|
$ |
39,444 |
|
|
$ |
45,869 |
|
2018-1 Trust |
|
|
29,170 |
|
|
|
33,505 |
|
2018-2 Trust |
|
|
67,437 |
|
|
|
76,871 |
|
2019-1 Trust |
|
|
69,189 |
|
|
|
76,391 |
|
2019-2 Trust |
|
|
54,005 |
|
|
|
66,340 |
|
2019-3 Trust |
|
|
53,431 |
|
|
|
58,089 |
|
2020-1 Trust |
|
|
99,102 |
|
|
|
106,976 |
|
2020-2 Trust |
|
|
40,293 |
|
|
|
45,180 |
|
2021-1 Trust |
|
|
160,668 |
|
|
|
171,748 |
|
2021-2 Trust |
|
|
133,508 |
|
|
|
143,797 |
|
2021-3 Trust |
|
|
146,569 |
|
|
|
158,043 |
|
2021-4 Trust |
|
|
223,950 |
|
|
|
244,919 |
|
2022-1 Trust |
|
|
227,222 |
|
|
|
236,358 |
|
2022-2 Trust |
|
|
200,677 |
|
|
|
210,217 |
|
2022-MC1 Trust |
|
|
20,213 |
|
|
|
31,508 |
|
2022-3 Trust |
|
|
244,398 |
|
|
|
257,047 |
|
2022-4 Trust |
|
|
255,922 |
|
|
|
274,419 |
|
2022-5 Trust |
|
|
147,377 |
|
|
|
162,925 |
|
2023-1 Trust |
|
|
161,344 |
|
|
|
177,250 |
|
2023-1R Trust |
|
|
51,383 |
|
|
|
58,237 |
|
2023-2 Trust |
|
|
162,932 |
|
|
|
188,805 |
|
2023-RTL1 Trust |
|
|
81,608 |
|
|
|
81,608 |
|
2023-3 Trust |
|
|
213,787 |
|
|
|
227,228 |
|
2023-4 Trust |
|
|
208,449 |
|
|
|
201,813 |
|
2024-1 Trust |
|
|
195,460 |
|
|
|
— |
|
2024-2 Trust |
|
|
280,139 |
|
|
|
— |
|
2024-3 Trust |
|
|
203,662 |
|
|
|
— |
|
Total |
|
$ |
3,771,339 |
|
|
$ |
3,335,143 |
|
52
As of June 30, 2024 and December 31, 2023, the weighted average rates on the securities and certificates for the Trusts are as follows:
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
2017-2 Trust |
|
|
4.08 |
% |
|
|
3.97 |
% |
2018-1 Trust |
|
|
4.09 |
% |
|
|
4.03 |
% |
2018-2 Trust |
|
|
4.41 |
% |
|
|
4.48 |
% |
2019-1 Trust |
|
|
4.09 |
% |
|
|
4.07 |
% |
2019-2 Trust |
|
|
3.40 |
% |
|
|
3.42 |
% |
2019-3 Trust |
|
|
3.32 |
% |
|
|
3.29 |
% |
2020-1 Trust |
|
|
2.87 |
% |
|
|
2.85 |
% |
2020-2 Trust |
|
|
4.67 |
% |
|
|
4.61 |
% |
2021-1 Trust |
|
|
1.76 |
% |
|
|
1.76 |
% |
2021-2 Trust |
|
|
2.02 |
% |
|
|
2.02 |
% |
2021-3 Trust |
|
|
2.47 |
% |
|
|
2.46 |
% |
2021-4 Trust |
|
|
3.26 |
% |
|
|
3.22 |
% |
2022-1 Trust |
|
|
3.93 |
% |
|
|
3.93 |
% |
2022-2 Trust |
|
|
5.06 |
% |
|
|
5.07 |
% |
2022-MC1 Trust |
|
|
6.87 |
% |
|
|
6.90 |
% |
2022-3 Trust |
|
|
5.73 |
% |
|
|
5.70 |
% |
2022-4 Trust |
|
|
6.25 |
% |
|
|
6.24 |
% |
2022-5 Trust |
|
|
7.05 |
% |
|
|
7.06 |
% |
2023-1 Trust |
|
|
7.01 |
% |
|
|
7.02 |
% |
2023-1R Trust |
|
|
7.61 |
% |
|
|
7.68 |
% |
2023-2 Trust |
|
|
7.25 |
% |
|
|
7.19 |
% |
2023-RTL1 Trust |
|
|
8.24 |
% |
|
|
8.24 |
% |
2023-3 Trust |
|
|
7.86 |
% |
|
|
7.82 |
% |
2023-4 Trust |
|
|
8.35 |
% |
|
|
8.38 |
% |
2024-1 Trust |
|
|
7.64 |
% |
|
|
— |
% |
2024-2 Trust |
|
|
7.15 |
% |
|
|
— |
% |
2024-3 Trust |
|
|
7.24 |
% |
|
|
— |
% |
Our intent is to use the proceeds from the issuance of new securities primarily to repay our warehouse borrowings and originate new investor real estate loans in accordance with our underwriting guidelines, as well as for general corporate purposes. Our financing sources may include borrowings in the form of additional bank credit facilities (including term loans and revolving credit facilities), agreements, warehouse facilities and other sources of private financing. We also plan to continue using securitized debt as long-term financing for our portfolio, and we do not plan to structure any securitized debt as sales or utilize off-balance-sheet vehicles. We believe any financing of assets and/or securitized debt we may undertake will be sufficient to fund our working capital requirements.
Secured Financing (Corporate Debt)
On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. A portion of the net proceeds from the 2022 Term Loan was used to redeem all the amounts owed pursuant to a term loan previously entered into during 2021. The remaining portion of the net proceeds from the 2022 Term Loan was used for loan originations and general corporate purposes.
On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months.
At-The-Market Equity Offering Program
On September 3, 2021, we entered into separate Equity Distribution Agreements with counterparties to establish an at-the-market equity offering program (“ATM Program”) where we may issue and sell, from time to time, shares of our common stock. Our ATM Program allows for aggregate gross sales of our common stock of up to $50,000,000 provided that the number of shares sold under the ATM Program does not exceed 5,000,000. For the three months ended March 31, 2024, 9,537 shares of common stock were sold under the ATM Program for net proceeds of $154.1 thousand. No shares were sold under the ATM program for the three months ended June 30, 2024.
53
Contractual Obligations and Commitments
On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months.
On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months.
As of June 30, 2024, we maintained warehouse facilities to finance our investor real estate loans and had approximately $238.5 million in outstanding borrowings with $646.5 million of available capacity under our warehouse and repurchase facilities.
Off-Balance-Sheet Arrangements
At no time have we maintained any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance, or special-purpose or variable interest entities, established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. Further, we have never guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.
Forward-Looking Statements
This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. All statements (other than statements of historical facts) in this Quarterly Report regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “plan,” “believe,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Forward-looking statements may contain expectations regarding our operations, including our loan originations, our ability to resolve non-performing loans and avoid losses on non-performing loans and the disposition of REOs and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future funding and development of our business and products, including the future results of our at-the-market equity offering program. Although we believe that the expectations reflected in these forward-looking statements have a reasonable basis, we cannot provide any assurance that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in this Quarterly Report and other documents we file. You should read and interpret any forward-looking statement together with these documents, including the following:
Any forward-looking statement speaks only as of the date on which that statement is made. We will not update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.
54
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our primary market risk is interest rate volatility. Because we fund a portion of our investments with borrowings, fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. To manage our exposure to interest rate risk, we may utilize financial instruments, including forward starting payer interest rate swaps, and interest rate swaption structure. The use of these types of instruments to hedge a portion of our exposure to changes in interest rates may carry additional risks, such as counterparty credit risk and the legal enforceability of hedge agreements.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In accordance with Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report and has concluded that our disclosure controls and procedures, as of such date, were effective to accomplish their objectives at a reasonable assurance level. Management concluded that the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Changes in Internal Control over Financial Reporting.
During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.
55
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, in the ordinary course of business, we are involved in various judicial, regulatory or administrative claims, proceedings and investigations. These proceedings and actions may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. Although occasional adverse decisions or settlements may occur, our management does not believe that the final disposition of any currently pending or threatened matter will have a material adverse effect on our business, financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides the information with respect to purchases made by us of shares of our common stock during the three months ended June 30, 2024.
Period |
|
Total Number of Shares Purchased (1)(2) |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
|
|
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs |
|
||||
April 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
May 2024 |
|
|
14,892 |
|
|
|
17.88 |
|
|
|
— |
|
|
|
— |
|
June 2024 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
14,892 |
|
|
$ |
17.88 |
|
|
|
— |
|
|
$ |
— |
|
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Insider Trading Arrangements and Policies
None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c ) or any “non-Rule 10b5-1 trading arrangement” in effect at any time during the three months ended June 30, 2024.
56
Item 6. Exhibits.
The exhibits below are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
|
|
|
Incorporated by Reference |
|||
|
Exhibit Number |
|
Exhibit Title |
Form |
File No. |
Exhibit |
Filing Date |
|
|
|
|
|
|
|
3.1 |
|
8-K |
001-39183 |
3.1 |
1/22/2020 |
|
|
|
|
|
|
|
|
3.2 |
|
Restated Certificate of Incorporation of Velocity Financial, Inc. |
8-K |
001-39183 |
3 |
5/23/2022 |
|
|
|
|
|
|
|
3.3 |
|
8-K |
001-39183 |
3.2 |
3/25/2022 |
|
|
|
|
|
|
|
|
4.1 |
|
S-1 |
333-234250 |
4.1 |
10/18/2019 |
|
|
|
|
|
|
|
|
4.2 |
|
8-K |
001-39183 |
4.1 |
4/7/2020 |
|
|
|
|
|
|
|
|
4.3 |
|
10K |
001-39183 |
4.3 |
4/7/2020 |
|
|
|
|
|
|
|
|
10.1 |
|
10-K |
001-39183 |
10.1 |
4/7/2020 |
|
|
|
|
|
|
|
|
10.2 |
|
10-K |
001-39183 |
10.2 |
4/7/2020 |
|
|
|
|
|
|
|
|
10.3 |
|
8-K |
333-234250 |
10.1 |
4/7/2020 |
|
|
|
|
|
|
|
|
10.4 |
|
8-K |
001-39183 |
10.1 |
4/6/2020 |
|
|
|
|
|
|
|
|
10.5 |
|
DEF 14A |
001-39183 |
AII |
4/8/2022 |
|
|
|
|
|
|
|
|
10.6 |
|
Amended and Restated Velocity Financial, Inc. 2020 Omnibus Incentive Plan* |
DEF 14A |
001-39183 |
AI |
4/8/2022 |
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10.7 |
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Form of Nonqualified Stock Option Award Notice and Agreement under the 2020 Omnibus Incentive Plan* |
S-1/A |
333-234250 |
10.6 |
1/6/2020 |
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10.8 |
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S-1/A |
333-234250 |
10.7 |
1/6/2020 |
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10.9 |
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S-1/A |
333-234250 |
10.8 |
1/6/2020 |
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10.10 |
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S-1/A |
333-234250 |
10.9 |
1/6/2020 |
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10.11 |
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S-1/A |
333-234250 |
10.10 |
1/6/2020 |
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10.12 |
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Form of Restricted Stock Grant and Agreement under the 2020 Omnibus Incentive Plan* |
S-1/A |
333-234250 |
10.11 |
1/6/2020 |
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10.13 |
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8-K |
001-39183 |
- |
2/14/2024 |
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10.14 |
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Form of Equity Distribution Agreement, dated September 3, 2021 |
8-K |
001-39183 |
1.1 |
9/7/2021 |
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10.15 |
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S-1/A |
333-234250 |
10.37 |
11/6/2019 |
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10.16 |
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10-K |
001-39183 |
10.16 |
3/15/2024 |
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10.17 |
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8-K |
001-39183 |
10.1 |
3/16/2022 |
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10.18 |
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8-K |
001-39183 |
10.2 |
3/16/2022 |
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10.19 |
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Velocity Financial, Inc. Incentive Compensation Clawback Policy* |
8-K |
001-39183 |
99 |
2/7/2024 |
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57
10.20 |
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8-K |
001-39183 |
10.1 |
2/6/2024 |
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10.21 |
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8-K |
001-39183 |
10.2 |
2/6/2024 |
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10.22 |
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8-K |
001-39183 |
10.3 |
2/6/2024 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101 |
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Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2024 and 2023, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 and (v) the Notes to unaudited Consolidated Financial Statements. |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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* Management contract or compensatory plan or arrangement.
+ This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
58
SIGNATURES
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VELOCITY FINANCIAL, INC. |
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Date: August 1, 2024 |
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By: |
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/s/ Christopher D. Farrar |
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Christopher D. Farrar |
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Chief Executive Officer |
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Date: August 1, 2024 |
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By: |
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/s/ Mark R. Szczepaniak |
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Mark R. Szczepaniak |
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Chief Financial Officer |
59
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Christopher D. Farrar, certify that:
Date: |
August 1, 2024 |
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By: |
/s/ Christopher D. Farrar |
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Christopher D. Farrar |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Mark R. Szczepaniak, certify that:
Date: |
August 1, 2024 |
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By: |
/s/ Mark R. Szczepaniak |
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Mark R. Szczepaniak |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Velocity Financial, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher D. Farrar, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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Date: |
August 1, 2024 |
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By: |
/s/ Christopher D. Farrar |
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Christopher D. Farrar |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Velocity Financial, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Szczepaniak, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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Date: |
August 1, 2024 |
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By: |
/s/ Mark R. Szczepaniak |
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Mark R. Szczepaniak |
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Chief Financial Officer |
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(Principal Financial Officer) |