What changed in Velocity Financial, Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Velocity Financial, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+232 added−226 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-13)
Top changes in Velocity Financial, Inc.'s 2023 10-K
232 paragraphs added · 226 removed · 186 edited across 3 sections
- Item 7. Management's Discussion & Analysis+180 / −172 · 139 edited
- Item 1. Business+50 / −52 · 46 edited
- Item 5. Market for Registrant's Common Equity+2 / −2 · 1 edited
Item 1. Business
Business — how the company describes what it does
46 edited+4 added−6 removed41 unchanged
Item 1. Business
Business — how the company describes what it does
46 edited+4 added−6 removed41 unchanged
2022 filing
2023 filing
Biggest changeCentury earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio. 1 Market Uncertainties in 2023 Our operational and financial performance will depend on the certain market developments, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine war, a global recession, heightened stress in the commercial 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.
Biggest changeIn 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 December 31, 2023. 1 Market Uncertainties Our operational and financial performance will depend on certain market developments, including any lingering impact of the COVID-19 pandemic, or other highly contagious or infectious disease, the Russia/Ukraine war, the Gaza-Israel conflict, a global recession, heightened stress in residential or commercial real estate, securitization markets, corporate debt markets, and macroeconomic conditions and market fundamentals, which can all potentially impact our business performance.
(3) The approximately 3% portion of our loans held for investment with an LTV greater than 75% consists primarily of acquired loans. We typically do not lend on any property located in a city with a population less than 25,000 and outside a 25-mile radius of a city with a population in excess of 100,000.
(3) The approximately 2% portion of our loans held for investment with an LTV greater than 75% consists primarily of acquired loans. We typically do not lend on any property located in a city with a population less than 25,000 and outside a 25-mile radius of a city with a population in excess of 100,000.
Such rates may be impacted by the competitor’s size, cost of funds, and access to funding sources that are not available to us. Government Regulation Certain states in which we conduct business require approval, registration or licensing.
Such rates may be impacted by the competitor’s size, cost of funds, and access to funding sources that are not available to us. 6 Government Regulation Certain states in which we conduct business require approval, registration or licensing.
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report or any amendment thereto.
Our internet website and the information contained therein or connected to or linked from our internet web site are not incorporated information and do not constitute a part of this Annual Report or any amendment thereto. 7
Our access to 18 years of proprietary data allows us to perform analytics that inform our lending decisions efficiently and effectively, which we believe is a strong competitive advantage. Large In-Place Portfolio with Attractive, Long-Term Financing We believe our in-place portfolio provides a significant and stable income stream for us to invest in future earnings growth.
Our access to 19 years of proprietary data allows us to perform analytics that inform our lending decisions efficiently and effectively, which we believe is a strong competitive advantage. Large In-Place Portfolio with Attractive, Long-Term Financing We believe our in-place portfolio provides a significant and stable income stream for us to invest in future earnings growth.
Our primary growth strategy is predicated on organically continuing to serve and build loyalty within our network of mortgage brokers, while also expanding our network with new mortgage brokers through targeted marketing and improved brand awareness. We believe our reputation and 18-year history within our core market position us well to capture future growth opportunities.
Our primary growth strategy is predicated on organically continuing to serve and build loyalty within our network of mortgage brokers, while also expanding our network with new mortgage brokers through targeted marketing and improved brand awareness. We believe our reputation and 19-year history within our core market position us well to capture future growth opportunities.
This type of financing structure more closely matches the asset duration with the duration of the financing. 6 Competition The business of financing investor real estate loans is competitive.
This type of financing structure more closely matches the asset duration with the duration of the financing. Competition The business of financing investor real estate loans is competitive.
(1) Portfolio stratifications based on unpaid principal balance for loans held for investment as of December 31, 2022. (2) Represents LTV at origination for population of loans held for investment as of December 31, 2022. In instances where LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at time of acquisition.
(1) Portfolio stratifications based on unpaid principal balance for loans held for investment as of December 31, 2023. (2) Represents LTV at origination for population of loans held for investment as of December 31, 2023. In instances where LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at time of acquisition.
Once we have originated between approximately $175 million and $400 million in new loans, we securitize the loans through a real estate mortgage investment conduit, or REMIC, structure and issue the bonds to third parties through individual trust vehicles.
Once we have originated between approximately $175 million and $300 million in new loans, we securitize the loans through a real estate mortgage investment conduit, or REMIC, structure and issue the bonds to third parties through individual trust vehicles.
Our Portfolio Loans Held for Investment Our typical investor real estate loan is secured by a first lien on the underlying property with the added protection of a personal guarantee and, based on the loans in our portfolio as of December 31, 2022, has an average balance of approximately $395,000.
Our Portfolio Loans Held for Investment Our typical investor real estate loan is secured by a first lien on the underlying property with the added protection of a personal guarantee and, based on the loans in our portfolio as of December 31, 2023, has an average balance of approximately $389,000.
Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” Our offices are located at 30699 Russell Ranch Road, Suite 295, Westlake Village, California 91362, and the telephone number of our offices is (818) 532-3700. Our internet address is www.velfinance.com.
Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” Our corporate office is located at 30699 Russell Ranch Road, Suite 295, Westlake Village, California 91362, and the telephone number of our office is (818) 532-3700. Our internet address is www.velfinance.com.
Additionally, as of December 31, 2022, borrowers personally guaranteed 100.0% of the loans in our held for investment portfolio and had a weighted average credit score at origination of 719, excluding the 1.3% of loans for which a credit score is not available. 4 The following charts illustrate the composition of our loans held for investment as of December 31, 2022: (*) Percentages may not sum to 100% due to rounding.
Additionally, as of December 31, 2023, borrowers personally guaranteed 100.0% of the loans in our held for investment portfolio and had a weighted average credit score at origination of 718, excluding the 1.4% of loans for which a credit score is not available. 4 The following charts illustrate the composition of our loans held for investment as of December 31, 2023: (*) Percentages may not sum to 100% due to rounding.
While we have not adopted any diversity quotas, 65% of our employees are men and 35% are women. We are committed to the health, safety, and wellness of our employees. In response to the pandemic, we implemented precautionary policies and significant operational changes to protect and support our employees, including remote working.
While we have not adopted any diversity quotas, 68% of our employees are men and 32% are women. We are committed to the health, safety, and wellness of our employees. In response to the pandemic, we implemented precautionary policies and significant operational changes to protect and support our employees, including remote working.
As of December 31, 2022, substantially all our employees have been able, and continue, to work remotely. 7 We and our employees are also committed to improving the communities in which we work and live.
As of December 31, 2023, substantially all our employees have been able, and continue, to work remotely. We and our employees are also committed to improving the communities in which we work and live.
We target investor real estate loans with loan-to-value ratios, or LTVs, between 60% and 75% at origination as we believe that borrower equity of 25% to 40% provides significant protection against credit losses. As of December 31, 2022, our loans held for investment had a weighted average LTV at origination of 68.2%.
We target investor real estate loans with loan-to-value ratios, or LTVs, between 60% and 75% at origination as we believe that borrower equity of 25% to 40% provides significant protection against credit losses. As of December 31, 2023, our loans held for investment had a weighted average LTV at origination of 67.7%.
All our securitizations are issued as private placements pursuant to Rule 144A under the Securities Act and utilize a REMIC structure except for the 2020 MC1 and 2022 MC1 transactions which were issued as one class of bonds treated as debt for tax purposes. The REMIC transactions can create significant U.S. GAAP versus tax differences. The U.S.
All our securitizations are issued as private placements pursuant to Rule 144A under the Securities Act and utilize a REMIC structure except for the 2022 MC1 and 2023-RTL1 transactions which were issued as bonds treated as debt for tax purposes. The REMIC transactions can create significant U.S. GAAP versus tax differences. The U.S.
There is significant opportunity for us to further penetrate the approximately 3,137 mortgage brokers with whom we have done business over the last five years. Approximately 64% of loan originators originated five or fewer loans with us during the year ended December 31, 2022.
There is significant opportunity for us to further penetrate the approximately 3,086 mortgage brokers with whom we have done business over the last five years. Approximately 88% of loan originators originated five or fewer loans with us during the year ended December 31, 2023.
We have been originating and acquiring loans in our core market since our inception in 2004, making us a recognizable brand with a proven ability to execute. Additionally, we have successfully executed twenty-five securitizations of our investor real estate loans, issuing $5.4 billion in principal amount of securities between 2011 and the year ended December 31, 2022.
We have been originating and acquiring loans in our core market since our inception in 2004, making us a recognizable brand with a proven ability to execute. Additionally, we have successfully executed thirty-one securitizations of our investor real estate loans, issuing $6.4 billion in principal amount of securities between 2011 and the year ended December 31, 2023.
We are the sole beneficial interest holder of each of the trusts, through our wholly-owned subsidiaries. Proceeds from the issuance of the securities are then used to pay down the balances on our warehouse facilities. As of December 31, 2022, we had successfully executed twenty-five securitizations of our investor real estate loans, issuing $5.4 billion in principal amount of securities.
We are the sole beneficial interest holder of each of the trusts, through our wholly-owned subsidiaries. Proceeds from the issuance of the securities are then used to pay down the balances on our warehouse facilities. As of December 31, 2023, we had successfully executed thirty-one securitizations of our investor real estate loans, issuing $6.4 billion in principal amount of securities.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information about our warehouse repurchase facilities and securitizations. In February 2021, we entered into a five-year $175.0 million syndicated corporate debt agreement (“2021 Term Loan”).
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional information about our warehouse repurchase facilities and securitizations. In March 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement (“the 2022 Term Loan”).
Census Bureau, since 1965, the U.S. home rentership rate (the inverse of the home ownership rate) has averaged approximately 35%. According to an estimate published by Zillow in January 2021, the value of the U.S. residential housing sector is over $43 trillion. Ownership of residential properties for rent has historically been concentrated among smaller investors.
Census Bureau, from 1965 through 2023, the U.S. home rentership rate (the inverse of the home ownership rate) has averaged approximately 35%. According to an estimate published by Zillow in September 2023, the value of the U.S. residential housing sector is over $52 trillion. Ownership of residential properties for rent has historically been concentrated among smaller investors.
As of December 31, 2022, our portfolio of loans held for investment totaled $3.5 billion of unpaid principal balance, or UPB, on properties in 45 states and the District of Columbia.
As of December 31, 2023, our portfolio of loans held for investment totaled $4.1 billion of unpaid principal balance, or UPB, on properties in 45 states and the District of Columbia.
Our failure to maintain or obtain licenses may restrict our investment options and could harm our business. Human Capital Resources As of December 31, 2022, we had a total of 194 employees, a decrease of 10% from the prior year . None of our employees are represented by a labor union.
Our failure to maintain or obtain licenses may restrict our investment options and could harm our business. Human Capital Resources As of December 31, 2023, we had a total of 253 employees, an increase of 30% from the prior year . None of our employees are represented by a labor union.
During the years ended December 31, 2022 and 2021, we originated 4,135 and 3,105 loans to be held for investment totaling $1.5 billion and $1.3 billion, respectively. As of December 31, 2022, 85.7% of our loans held for investment, as measured by UPB, were fully-amortizing over 30 years.
During the years ended December 31, 2023 and 2022, we originated 2,955 and 4,135 loans to be held for investment totaling $1.1 billion and $1.7 billion, respectively. As of December 31, 2023, 86.1% of our loans held for investment, as measured by UPB, were fully-amortizing over 30 years.
We have a dedicated asset management team that, augmented with primary servicing from our loan servicers, focuses exclusively on resolving delinquent loans. Our hands-on approach enables us to generally preserve the value of our assets and helps us to minimize losses.
We have a dedicated asset management team that, augmented with primary servicing from our loan servicers, focuses exclusively on resolving delinquent loans. Our hands-on approach enables us to generally preserve the value of our assets and helps us to minimize losses. We believe this expertise, combined with our outsourced servicing relationships, gives us a distinct competitive advantage.
We have a keen understanding of this securitization market, including complicated structural issues, investor expectations and rating agency requirements. We executed our twentieth through twenty-fifth securitizations in 2022.
We have a keen understanding of this securitization market, including complicated structural issues, investor expectations and rating agency requirements. We executed our twenty-sixth through thirty-first securitizations in 2023.
Despite the adverse macroeconomic conditions caused by inflation and rising interest rates, we funded 4,135 loans sourced by 1,269 different mortgage brokers during the year ended December 31, 2022.
Despite the adverse macroeconomic conditions caused by inflation and rising interest rates, we funded 2,930 loans sourced by 1,046 different mortgage brokers during the year ended December 31, 2023.
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 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.
The size of the mortgage broker market presents an attractive opportunity for us to capture significant growth with very small increases in the share of mortgage brokers that recognize our platform capabilities and utilize us as a preferred lender in our core market.
The size of the mortgage broker market presents an attractive opportunity for us to capture significant growth with very small increases in the share of mortgage brokers that recognize our platform capabilities and utilize us as a preferred lender in our core market. 3 Develop New Products Our primary product is a 30-year fixed-rate amortizing term loan.
We believe this expertise, combined with our outsourced servicing relationships, gives us a distinct competitive advantage. 2 Our Experienced Management Team Led by co-founder and Chief Executive Officer Christopher Farrar, our management team averages more than 25 years of experience in the financial services and real estate lending industries, including extensive experience in commercial and residential lending, structured finance and capital markets.
Our Experienced Management Team Led by co-founder and Chief Executive Officer Christopher Farrar, our management team averages more than 25 years of experience in the financial services and real estate lending industries, including extensive experience in commercial and residential lending, structured finance and capital markets.
We believe that represents a small portion of the mortgage originators in the United States, which consisted of approximately 939,000 state-licensed mortgage originators by the end of 2021 according to the Nationwide Multistate Licensing System.
We believe that represents a small portion of the mortgage originators in the United States, which consisted of approximately 885,933 state-licensed mortgage originators as of June 30, 2023, according to the Nationwide Multistate Licensing System.
Our In-House Asset Management Results in Successful Loss Mitigation Direct management of individual loans is critical to avoiding or minimizing credit losses and we work with our third-party primary servicers with whom we have developed strong relationships to emphasize disciplined loan monitoring and early contact with delinquent borrowers to resolve delinquencies.
We generated $124.3 million in portfolio related net interest income for the year ended December 31, 2023, representing a 3.34% net interest margin during the year. 2 Our In-House Asset Management Results in Successful Loss Mitigation Direct management of individual loans is critical to avoiding or minimizing credit losses and we work with our third-party primary servicers with whom we have developed strong relationships to emphasize disciplined loan monitoring and early contact with delinquent borrowers to resolve delinquencies.
Of the 8,893 loans held for investment as of December 31, 2022, 98.9% of the portfolio, as measured by UPB, was attributable to our loan origination business, while the remaining 1.1% of the portfolio, or 68 loans, totaling $40.1 million in UPB, were related to acquisitions.
Of the 10,424 loans held for investment as of December 31, 2023, 99.1% of the portfolio, as measured by UPB, was attributable to our loan origination business, while the remaining 0.9% of the portfolio, or 56 loans, totaling $35.2 million in UPB, was related to acquisitions.
The decrease in our employees was a result of our planned reduction in loan origination due to the dislocation in the current macroeconomic environment. A driving force in our ability to generate revenue comes from the work of our Account Executives, or AEs. Our AEs generate business for us through their relationships with third-party brokers.
The increase in our employees was a result of growing the business. A driving force in our ability to generate revenue comes from the work of our Account Executives, or AEs. Our AEs generate business for us through their relationships with third-party brokers. Our ability to retain and attract AEs is essential to the growth of our business.
For example, in 2013, in response to the increased demand for rental properties, we moved aggressively into the market for 1-4 unit residential rental loans, which comprised 52.7% of our held for investment loan portfolio as of December 31, 2022. 3 In March 2017, we began originating short-term, interest-only loans to be used for acquiring, repositioning or improving the quality of 1-4 unit residential investment properties.
For example, in 2013, in response to the increased demand for rental properties, we moved aggressively into the market for 1-4 unit residential rental loans, which comprised 54.9% of our held for investment loan portfolio as of December 31, 2023.
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 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.
Accordingly, we believe our acquisition strategy not only augments our origination business, but also provides a counter-cyclical benefit to our overall business.
In our experience, portfolio acquisition opportunities have generally been more attractive and plentiful during market conditions when origination opportunities are less favorable. Accordingly, we believe our acquisition strategy not only augments our origination business, but also provides a counter-cyclical benefit to our overall business.
Our ability to retain and attract AEs is essential to the growth of our business. A significant number of our employees are AEs, representing 30% of our workforce at year-end.
A significant number of our employees are AEs, representing 27% of our workforce at year-end.
According to data published by the Urban Institute in August and October 2017, an estimated 45% of single-family rental units (attached or detached) are owned by investors who own just one unit and an estimated 87% of investors own 10 or fewer units, while institutional ownership comprises less than 3% of the market.
According to data published by the Urban Institute in April and September 2023, an estimated 95% of investors own properties with one to four units and an estimated 98% of investors own 10 or fewer units, while institutional ownership comprises less than 4% of the market.
Item 1. B usiness. Our Company 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.
Item 1. B usiness. Our Company We are a vertically integrated real estate finance company founded in 2004. We originate, securitize, and manage a nationwide portfolio of loans secured by real estate to earn attractive risk adjusted spreads for our shareholders.
These products are used by borrowers to finance stabilized long-term real estate investments. We believe these products have strong receptivity in our market, as evidenced by our success in growing loan originations over time. Since our inception, we have continued to expand our product offering in response to developing market opportunities and the evolving financing needs of our broker network.
These loans comprised 90.0% of our loan originations during the year ended December 31, 2023. This product is used by borrowers to finance stabilized long-term real estate investments. We believe this product has strong receptivity in our market, as evidenced by our success in growing loan originations over time.
We believe that our experience, reputation, and ability to effectively manage these loans makes us an attractive buyer for this asset class, and we are regularly asked to review pools of loans available for purchase. In our experience, portfolio acquisition opportunities have generally been more attractive and plentiful during market conditions when origination opportunities are less favorable.
Our management team has developed relationships with many financial institutions and intermediaries that have been active investor real estate loan originators or investors. We believe that our experience, reputation, and ability to effectively manage these loans makes us an attractive buyer for this asset class, and we are regularly asked to review pools of loans available for purchase.
This product typically serves as an interim solution for borrowers and/or properties that do not meet the investment criteria of our primary 30-year product. The short-term, interest-only loan allows borrowers to address any qualifying issues with their credit and/or the underlying property before bridging into a longer-term loan.
In March 2017, we began originating short-term, interest-only loans to be used for acquiring, repositioning or improving the quality of 1-4 unit residential investment properties. This product typically serves as an interim solution for borrowers and/or properties that do not meet the investment criteria of our primary 30-year product.
In June 2018, we added a second short-term, interest-only loan product which allows borrower draws for rehabbing residential rental property.
The short-term, interest-only loan allows borrowers to address any qualifying issues with their credit and/or the underlying property before bridging into a longer-term loan. In June 2018, we added a second short-term, interest-only loan product which allows borrower draws for rehabbing residential rental property. In 2023, we issued our first securitization of these newly originated, short-term loans.
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 the 2021 Term Loan.
The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. In August 2023, we completed our first securitization collateralized by our short-term loan product with $81.6 million in securities issued.
We originate loans nationwide across our extensive network of independent mortgage brokers which we have built and refined over the 18 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 primarily originate investor loans secured by 1-4 unit residential rental properties, as well as loans for multi-family, mixed use and commercial properties. We originate loans nationwide across our extensive network of independent mortgage brokers and direct borrower relationships, which we have built and refined over the 19 years since our inception.
Removed
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.
Added
Our objective is to be the preferred and one of the most recognized brands in our core market. We operate in a large and highly fragmented market with substantial demand for financing and limited supply of institutional financing alternatives.
Removed
We generated $112.6 million in portfolio related net interest income for the year ended December 31, 2022, representing a 3.64% net interest margin during the year ended December 31, 2022.
Added
On January 22, 2020, we completed the initial public offering (“IPO”) of our common stock, par value $0.01 per share (our “common stock”). Shares of our common stock trade on the New York Stock Exchange under the symbol “VEL.” On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”) .
Removed
Develop New Products Our primary products are a 30-year amortizing term loan with a three-year fixed-rate period which floats at a spread to the prime rate thereafter subject to a floor equal to the starting fixed rate, and a 30-year fixed-rate amortizing term loan. These loans comprised 92.6% of our loan originations during the year ended December 31, 2022.
Added
Century earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio. Century is a consolidated subsidiary of the Company as of completion of the acquisition.
Removed
Historically, we have aggregated and sold most of these short-term, interest-only loans at a premium to par to institutional investors, which has generated attractive income for us with limited capital while also allowing us to establish an underwriting track record and monitor the performance of these loans.
Added
Since our inception, we have continued to expand our product offering in response to developing market opportunities and the evolving financing needs of our broker network.
Removed
Over the past 18 years, our management team has developed relationships with many financial institutions and intermediaries that have been active investor real estate loan originators or investors.
Removed
The 2021 Term Loan bore interest at a rate equal to one-month LIBOR plus 8.00%, with a 1.00% LIBOR floor, and was set to mature in February 2026. In March 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement (“the 2022 Term Loan”).
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+1 added−1 removed2 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
1 edited+1 added−1 removed2 unchanged
2022 filing
2023 filing
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on The New York Stock Exchange under the symbol VEL. As of February 16, 2023, there were approximately 1,500 beneficial holders of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on The New York Stock Exchange under the symbol VEL. As of February 16, 2024, there were approximately 1,560 beneficial holders of our common stock.
Removed
Unregistered Sales of Equity Securities and Use of Proceeds No common stock purchases were made by us during the three months ended December 31, 2022. 9
Added
Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered equity securities sales nor were there any repurchases of common stock, which have not been previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K during the period covered by this report. Item 6. [Reserved] 9
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
139 edited+41 added−33 removed89 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
139 edited+41 added−33 removed89 unchanged
2022 filing
2023 filing
Biggest changeCredit Quality – Total Portfolio of Loans Held for Investment The following table provides delinquency information, by unpaid principal balance, on our held for investment loan portfolio as of the dates indicated: ($ in thousands) December 31, 2022 (A) COVID-19 Forbearance December 31, 2021 (A) COVID-19 Forbearance December 31, 2020 (A) COVID-19 Forbearance Performing/Accruing: Current $ 2,969,989 84.6 % $ 120,884 $ 2,068,023 82.7 % $ 188,466 $ 1,445,131 74.9 % $ 259,147 30-59 days past due 186,051 5.3 33,668 127,046 5.1 36,579 89,284 4.6 32,115 60-89 days past due 63,657 1.8 6,902 31,629 1.3 8,262 62,694 3.2 34,493 90+ days past due — — — — — — 1,953 0.1 1,953 Total performing loans 3,219,697 91.7 161,454 2,226,698 89.1 233,307 1,599,062 82.8 327,708 Nonperforming/Nonaccrual: 17,852 0.5 1,116 19,533 0.8 5,325 20,778 1.1 727 90+ days past due 32,566 0.9 1,681 35,787 1.4 8,510 82,004 4.2 34,120 Bankruptcy 22,435 0.6 7,272 20,038 0.8 6,242 12,655 0.7 1,650 In foreclosure 219,936 6.3 29,482 197,742 7.9 39,045 217,376 11.2 27,868 Total nonperforming loans 292,789 8.3 39,551 273,100 10.9 59,122 332,813 17.2 64,365 Total loans held for investment $ 3,512,486 100.0 % $ 201,005 $ 2,499,798 100.0 % $ 292,429 $ 1,931,875 100.0 % $ 392,073 (A) Balance includes $201.0 million UPB of loans held for investment as of December 31, 2022, $292.4 million as of December 31, 2021 and $392.1 million as of December 31, 2020 in our COVID-19 forbearance program.
Biggest changeThe following table illustrates the activity in our allowance for loan losses over the periods indicated: December 31, ($ in thousands) 2023 2022 2021 Allowance for credit losses: Beginning balance $ 4,893 $ 4,262 $ 5,845 Provision for (reversal of) loan losses 1,915 1,152 (292 ) Charge-offs (2,039 ) (521 ) (1,291 ) Ending balance $ 4,769 $ 4,893 $ 4,262 Total loans held for investment (UPB), excluding FVO (1) $ 2,804,541 $ 3,243,854 $ 2,498,466 Allowance for credit losses / loans held for investment, excluding FVO 0.17 % 0.15 % 0.17 % (1) Reflects the UPB of loans held for investment excluding loans held for investment at fair value (FVO). 18 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: ($ in thousands) December 31, 2023 (A) COVID-19 Forbearance December 31, 2022 (A) COVID-19 Forbearance December 31, 2021 (A) COVID-19 Forbearance Performing/Accruing: Current $ 3,354,197 82.7 % $ 116,060 $ 2,969,989 84.6 % $ 120,884 $ 2,068,023 82.7 % $ 188,466 30-59 days past due 231,590 5.7 11,993 186,051 5.3 33,668 127,046 5.1 36,579 60-89 days past due 75,587 1.9 4,336 63,657 1.8 6,902 31,629 1.3 8,262 90+ days past due — — — — — — — — — Total performing loans 3,661,374 90.3 132,389 3,219,697 91.7 161,454 2,226,698 89.1 233,307 Nonperforming/Nonaccrual: 17,746 0.4 1,562 17,852 0.5 1,116 19,533 0.8 5,325 90+ days past due 24,398 0.6 — 32,566 0.9 1,681 35,787 1.4 8,510 Bankruptcy 35,993 0.9 3,705 22,435 0.6 7,272 20,038 0.8 6,242 In foreclosure 316,425 7.8 36,915 219,936 6.3 29,482 197,742 7.9 39,045 Total nonperforming loans 394,562 9.7 42,182 292,789 8.3 39,551 273,100 10.9 59,122 Total loans held for investment $ 4,055,936 100.0 % $ 174,571 $ 3,512,486 100.0 % $ 201,005 $ 2,499,798 100.0 % $ 292,429 (A) Balance includes $174.6 million UPB of loans held for investment as of December 31, 2023, $201.0 million as of December 31, 2022, and $292.4 million as of December 31, 2021 in our COVID-19 forbearance program.
Significant variables or assumptions incorporated in the macroeconomic forecasts include U.S. unemployment, treasury yields, U.S. real gross domestic product (GDP), and U.S. real estate housing prices. We consider multiple scenarios from different macroeconomic forecasts and use different forecast and revision periods for estimating lifetime expected credit losses.
Significant variables or assumptions incorporated in the macroeconomic forecasts include U.S. unemployment, U.S. real gross domestic product (GDP), treasury yields, and U.S. real estate housing prices. We consider multiple scenarios from different macroeconomic forecasts and use different forecast and revision periods for estimating lifetime expected credit losses.
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.
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.
The corporate debt balance was $215.0 million as of December 31, 2022 compared to $170.8 million as of December 31, 2021, as a result of the 2022 Term Loan agreement we entered into in March 2022. Provision for (reversal of) Loan Losses .
The corporate debt balance was $215.0 million as of December 31, 2022 compared to $170.8 million as of December 31, 2021, as a result of 2022 Term Loan agreement we entered into in March 2022. Provision for (reversal of) Loan Losses.
Investing Activities For the year ended December 31, 2022, our net cash used in investing activities of $908.2 million consisted mainly of $1.7 billion in cash used to originate held for investment loans, offset by $541.7 million in cash received in payments on held for investment loans and loans at fair value and by $292.5 million of proceeds from sales of loans originally classified as held for investment.
For the year ended December 31, 2022, our net cash used in investing activities of $908.2 million consisted mainly of $1.7 billion in cash used to originate held for investment loans, offset by $541.7 million in cash received in payments on held for investment loans and loans at fair value and by $292.5 million of proceeds from sales of loans originally classified as held for investment.
Financing Activities For the year ended December 31, 2022, our net cash provided by financing activities of $874.0 million consisted mainly of $1.7 billion in borrowings from our warehouse and repurchase facilities and $1.4 billion in securitizations issued, respectively.
For the year ended December 31, 2022, our net cash provided by financing activities of $874.0 million consisted mainly of $1.7 billion in borrowings from our warehouse and repurchase facilities and $1.4 billion in securitizations issued, respectively.
Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses. Nonperforming Loans.
Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses. 16 Nonperforming Loans.
Year Ended December 31, 2022 and 2021 ($ in thousands) Average Loans Interest Income Average Yield Year Ended December 31, 2022 $ 3,092,198 $ 240,343 7.77 % Year Ended December 31, 2021 2,125,847 181,968 8.56 % Volume variance 966,351 82,718 Rate variance (24,343 ) (0.79 )% Total interest income variance $ 58,375 Interest Expense — Portfolio Related.
Years Ended December 31, 2022 and 2021 ($ in thousands) Average Loans Interest Income Average Yield Year Ended December 31, 2022 $ 3,092,198 $ 240,343 7.77 % Year Ended December 31, 2021 2,125,847 181,968 8.56 % Volume variance 966,351 82,718 Rate variance (24,343 ) (0.79 )% Total interest income variance $ 58,375 Interest Expense — Portfolio Related.
As of December 31, 2022, the balance of the 2022 Term Loan was $215.0 million. Velocity Commercial Capital, LLC is the borrower of the 2022 Term Loan, which is secured by substantially all of the borrower’s non-warehoused assets, with a guarantee from Velocity Financial, Inc., formerly Velocity Financial LLC, that is secured by the equity interests of the borrower.
As of December 31, 2023, the balance of the 2022 Term Loan was $215.0 million. Velocity Commercial Capital, LLC is the borrower of the 2022 Term Loan, which is secured by substantially all of the borrower’s non-warehoused assets, with a guarantee from Velocity Financial, Inc., formerly Velocity Financial LLC, that is secured by the equity interests of the borrower.
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.
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, 21 cash interest received on nonperforming loans, default interest and prepayment fees.
Cash and Cash Equivalents Our total liquidity plus available warehouse capacity was $559.3 million as of December 31, 2022 comprised of $45.2 million in cash, $14.0 million of available borrowings for unencumbered loans and $500.1 million of available warehouse capacity.
As of December 31, 2022, our total liquidity plus available warehouse capacity was $559.3 million, comprised of $45.2 million in cash, $14.0 million of available borrowings for unencumbered loans and $500.1 million of available warehouse capacity.
Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance. 18 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.
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.
Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, or term, as well as for changes in environmental conditions, such as unemployment rates, property values and changes in the competitive or regulatory environment. 14 We use an open pool loss rate methodology to model expected credit losses.
Adjustments to historical loss information are considered for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, or term, as well as for changes in environmental conditions, such as unemployment rates, property values and changes in the competitive or regulatory environment. 12 We use an open pool loss rate methodology to model expected credit losses.
Our critical accounting estimates are summarized below. 13 Allowance for Loan Losses For our loans held for investment where we have not elected fair value option ("FVO") accounting, we calculate an allowance for loan losses. Under the current expected credit loss ("CECL") methodology, the allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.
Our critical accounting estimates are summarized below. 11 Allowance for Loan Losses For our loans held for investment where we have not elected fair value option ("FVO") accounting, we calculate an allowance for loan losses. Under the current expected credit loss ("CECL") methodology, the allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.
Other operating expenses consist of general and administrative costs such as, travel and entertainment, marketing, data processing, insurance and office equipment. 27 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.
Other operating expenses consist of general and administrative costs such as, travel and entertainment, marketing, data processing, insurance and office equipment. 25 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.
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 December 31, 2022, we were in compliance with these covenants.
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 December 31, 2023, we were in compliance with these covenants.
The cash generated was offset by payments we made of $1.7 billion and $543.6 million on our warehouse and repurchase facilities and securitizations issued, respectively. 36 For the year ended December 31, 2021, our net cash provided by financing activities of $626.2 million consisted mainly of $1.2 billion in borrowings from our warehouse and repurchase facilities and $977.7 million in securitizations issued, respectively.
The cash generated was offset by payments we made of $1.7 billion and $543.6 million on our warehouse and repurchase facilities and securitizations issued, respectively. 35 For the year ended December 31, 2021, our net cash provided by financing activities of $626.2 million consisted mainly of $1.2 billion in borrowings from our warehouse and repurchase facilities and $977.7 million in securitizations issued, respectively.
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 securitizations, corporate debt and equity.
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.
The increase was driven by higher origination activity as well as the fair value election for loans originated in the fourth quarter.
This increase was driven by higher origination activity as well as the fair value election for loans originated in the fourth quarter.
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 securitizations and excludes our corporate debt.
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.
The prepayment penalty terms differ between the short-term and long-term loans, and we have developed a CPR curve for our short-term loans (2-year or less) and one for our long-term loans (30-year). Data from 2012-2022 is used to develop prepayment rates for our long-term loans.
The prepayment penalty terms differ between the short-term and long-term loans, and we have developed a CPR curve for our short-term loans (2-year or less) and one for our long-term loans (30-year). Data from 2012-2023 is used to develop prepayment rates for our long-term loans.
Includes $39.6 million and $53.8 million of COVID-19 forbearance-granted loans 90 days or more past due as of December 31, 2022 and 2021, 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 loan losses. Loan Count.
Includes $42.2 million, $39.6 million, and $53.8 million of COVID-19 forbearance-granted loans 90 days or more past due as of December 31, 2023, 2022 and 2021, 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 loan losses. Loan Count.
Through the issuance of long-term securitizations, we have been able to fix a significant portion of our borrowing costs over time. The strong credit performance on our securitizations has allowed us to issue debt at attractive rates.
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.
The $14.0 million net increase is primarily due to the unrealized gains related to loans originated after September 30, 2022 and the 2022 election of fair value option for our Century mortgage servicing rights.
The $14.5 million net increase is primarily due to the unrealized gains related to loans originated after September 30, 2022 and the 2022 election of fair value option for our Century mortgage servicing rights.
The amount of the provision is derived by adjusting our reported pretax income with various permanent differences. The tax-adjusted income amount is then multiplied by the applicable federal and state income tax rates to arrive at the provision for income taxes.
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.
This is largely the result of collecting default interest and prepayment penalties in excess of the contractual interest due and collected. The table below includes nonperforming loan resolutions for our long-term loans and REO's.
This is largely the result of collecting default interest and prepayment penalties in excess of the contractual interest due and collected. The table below includes nonperforming loan resolutions for our long-term loans and REOs.
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 securitizations. 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.
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.
Tables summarizing the investor real estate loans securitized, securities issued, securities retained by the Company at the time of the securitization, and as of December 31, 2022 and 2021, the stated maturity for each securitization, the outstanding bond balances, and the weighted average rate on the securities for the Trusts as of December 31, 2022 and 2021, are included in Item 15.
Tables summarizing the investor real estate loans securitized, securities issued, securities retained by the Company at the time of the securitization, and as of December 31, 2023 and 2022, the stated maturity for each securitized debt, the outstanding bond balances, and the weighted average rate on the securities for the Trusts as of December 31, 2023 and 2022, are included in Item 15.
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 war, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.
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.
Similarly, the effect of rate changes is calculated by multiplying the change in average yield (0.79%) by the current period’s average loan balance ($3.1 billion).
Similarly, the effect of rate changes is calculated by multiplying the change in average yield (i.e., 0.79%) by the current period’s average loan balance (i.e., $3.1 billion).
The 2021 effective tax rate differed from the federal statutory rate of 21% principally because of state taxes. 33 Quarterly Results of Operations The following table sets forth certain financial information for each completed fiscal quarter since the quarter ended March 31, 2021.
The 2021 effective tax rate differed from the federal statutory rate of 21% principally because of state taxes. 32 Quarterly Results of Operations The following table sets forth certain financial information for each completed fiscal quarter since the quarter ended March 31, 2022.
The following table distinguishes between the change in interest income attributable to change in volume and the change in interest income attributable to change in rate. The effect of changes in volume is determined by 28 multiplying the change in average loan balance ($966.4 million) by the previous period’s average yield (8.56%).
The following table distinguishes between the change in interest income attributable to change in volume and the change in interest income attributable to change in rate. The effect of changes in volume is determined by multiplying the change in average loan balance (i.e., $966.4 million) by the previous period’s average yield (i.e., 8.56%).
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.
We believe our fully amortizing loan structures and avoidance of large balloon payments for long term loans, 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.
The U.S. GAAP treatment considers each REMIC as a variable interest entity that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
GAAP versus tax differences. The U.S. GAAP treatment considers each REMIC as a variable interest entity that is required to be consolidated in our financial statements, accounting for the securitization as a secured borrowing.
We believe we have an established brand in the term securitization 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 securitizations and, thereby, limit our options for long-term financing.
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.
For the year ended December 31, 2022, our portfolio related net interest margin was 3.64%. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for loan losses and operating expenses.
For the year ended December 31, 2023, our portfolio related net interest margin was 3.34%. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for loan losses and operating expenses.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read together with “Item 6. Selected Financial Data” and the consolidated financial statements and related notes and the other financial information included elsewhere in this Annual Report .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes and the other financial information included elsewhere in this Annual Report .
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 were nonperforming or became nonperforming during the periods indicated. We resolved $142.2 million, $201.9 million, and $83.4 million of long-term and short-term nonperforming loans during the years ended December 31, 2022, 2021, and 2020, respectively.
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 were nonperforming or became nonperforming during the periods indicated. We resolved $206.1 million, $142.2 million, and $201.9 million of long-term and short-term nonperforming loans during the years ended December 31, 2023, 2022, and 2021, respectively.
As of December 31, 2021, we had four 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, two agreements are one-year warehouse repurchase facilities and two agreements are three-year warehouse facilities.
As of December 31, 2022, we had five 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 two agreements are three-year warehouse facilities.
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, a global recession, heightened stress in the commercial 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.
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, recent bank failures, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.
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. Other Operating Income Gain on Disposition of Loans.
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.
Year Ended December 31, ($ in thousands) 2022 2021 2020 Income before income taxes (A) $ 44,552 $ 39,793 $ 23,129 Net income (B) 32,519 29,224 17,777 Monthly average balance: Stockholders' / Members' equity (C) 364,282 255,331 216,289 Pre-tax return on equity (A)/(C) 12.2 % 15.6 % 10.7 % Return on equity (B)/(C) 8.9 % 11.4 % 8.2 % 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).
Year Ended December 31, ($ in thousands) 2023 2022 2021 Income before income taxes (A) $ 71,127 $ 44,552 $ 39,793 Net income (B) 52,293 32,519 29,224 Monthly average balance: Stockholders' / Members' equity (C) 407,305 364,282 255,331 Pre-tax return on equity (A)/(C) 17.5 % 12.2 % 15.6 % Return on equity (B)/(C) 12.8 % 8.9 % 11.4 % 23 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).
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 December 31, 2022, has an average balance of approximately $395,000. As of December 31, 2022, our loan portfolio totaled $3.5 billion of UPB on properties in 45 states and the District of Columbia.
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 December 31, 2023, has an average balance of approximately $389,000. As of December 31, 2023, our loan portfolio totaled $4.1 billion of UPB on properties in 45 states and the District of Columbia.
No other property type represented more than 10.0% of our held for investment loan portfolio. By geography, the principal balance of our loans held for investment were concentrated 22.8% in California, 19.9% in New York, 13.3% in Florida, and 7.5% in New Jersey.
No other property type represented more than 10.0% of our held for investment loan portfolio. By geography, the principal balance of our loans held for investment were concentrated 21.9% in California, 18.3% in New York, 13.4% in Florida, and 7.3% in New Jersey.
The net fees and costs associated with loans held for sale 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 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.
One agreement is a two-year warehouse repurchase facility, three agreements are one-year warehouse repurchase facilities and two agreements are three-year warehouse facilities. The borrowings are collateralized by primarily performing loans, two of the warehouse facilities bear interest at one-month LIBOR and four warehouse facility at SOFR, all at margins that range from 2.75% to 4.50%.
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 by primarily performing loans, one of the warehouse facilities bear interest at one-month AMERIBOR and six warehouse facilities at SOFR, all at margins that range from 1.60% to 4.50%.
We believe any financing of assets and/or securitizations we may undertake will be sufficient to fund our working capital requirements. 35 Cash Flows The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities as of the periods indicated: Year Ended December 31, ($ in thousands) 2022 2021 2020 Cash provided by (used in): Operating activities $ 48,674 $ 57,622 $ 54,892 Investing activities (908,238 ) (656,483 ) 87,739 Financing activities 874,016 626,172 (149,890 ) Net change in cash, cash equivalents, and restricted cash $ 14,452 $ 27,311 $ (7,259 ) Operating Activities Cash flows from operating activities primarily includes net income adjusted for (1) non-cash items including depreciation, provision for loan loss, discount accretion, and valuation changes, (2) changes in the balances of operating assets and liabilities, (3) gain on disposition of loans.
We believe any financing of assets and/or securitized debt we may undertake will be sufficient to fund our working capital requirements. 34 Cash Flows The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities as of the periods indicated: Year Ended December 31, ($ in thousands) 2023 2022 2021 Cash provided by (used in): Operating activities $ 48,835 $ 48,674 $ 57,622 Investing activities (584,732 ) (908,238 ) (656,483 ) Financing activities 535,768 874,016 626,172 Net change in cash, cash equivalents, and restricted cash $ (129 ) $ 14,452 $ 27,311 Operating Activities Cash flows from operating activities primarily includes net income adjusted for (1) non-cash items including depreciation, provision for loan loss, discount accretion, and valuation changes, (2) changes in the balances of operating assets and liabilities, (3) gain on disposition of loans.
Interest Expense — Corporate Debt Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2021 Term Loan and the 2022 Term Loan, as reflected on our consolidated balance sheets, and the related amortization of deferred debt issuance costs. 26 Net Interest Income Net interest income represents the difference between portfolio related net interest income and interest expense on corporate debt.
Interest Expense — Corporate Debt Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2021 Term Loan and the 2022 Term Loan, as reflected on our consolidated balance sheets, and the related amortization of deferred debt issuance costs.
We also resolved $16.2 million, $10.7 million, and $4.4 million of nonperforming loans transferred to REO during the years ended December 31, 2022, 2021 and 2020, respectively. From these resolution activities, we realized net gains of $10.8 million, $7.5 million, and $2.7 million during the years ended December 31, 2022, 2021, and 2020, respectively.
We also resolved $19.3 million, $16.2 million, and $10.7 million of long-term and short-term nonperforming loans transferred to REO during the years ended December 31, 2023, 2022 and 2021, respectively. From these resolution activities, we realized net gains of $5.5 million, $10.8 million, and $7.5 million during the years ended December 31, 2023, 2022, and 2021, respectively.
Compensation and employee benefits increased from $19.2 million during the year ended December 31, 2021 to $30.5 million during year ended December 31, 2022. The increase was attributable to higher commission expense driven by the increase in loan originations and not deferring compensations costs attributable to loan origination activities on FVO loans starting on October 1, 2022.
The increase was attributable to higher commission expense driven by the increase in loan originations and not deferring compensations costs attributable to loan origination activities on FVO loans starting on October 1, 2022. Origination Expenses . Origination expenses increased from $2.2 million during the year ended December 31, 2021 to $4.0 million during the year ended December 31, 2022.
The increase in allowance is primarily due to the increase in our loans held for investment carried at amortized cost from $2.5 billion as of December 31, 2021 to $3.3 billion as of December 31, 2022. Our allowance decreased to $4.3 million as of December 31, 2021, from $5.8 million as of December 31, 2020.
The increase in allowance was primarily due to the increase in our loans held for investment carried at amortized cost from $2.5 billion as of December 31, 2021 to $3.2 billion as of December 31, 2022.
Securitizations From May 2011 through December 2022, we have completed 25 securitizations, issuing $5.4 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.
Securitized Debt From May 2011 through December 2023, we have completed 31 transactions, issuing $6.4 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.
The lower cost of funds was mainly attributable to improved securitization spreads. 31 The following table presents information regarding the increase in portfolio related interest expense and distinguishes between the dollar amount of change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the years ended December 31, 2021 and 2020.
The following table presents information regarding the increase in portfolio related interest expense and distinguishes between the dollar amount of change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the years ended December 31, 2023 and 2022.
Nonperforming loans were $292.8 million, or 8.3% of our held for investment loan portfolio as of December 31, 2022, compared to $273.1 million, or 10.9% as of December 31, 2021, and $332.8 million, or 17.2% of the loan portfolio as of December 31, 2020.
Nonperforming loans were $394.6 million, or 9.7% of our held for investment loan portfolio as of December 31, 2023, compared to $292.8 million, or 8.3% as of December 31, 2022, and $273.1 million, or 10.9% of the loan portfolio as of December 31, 2021.
Key Performance Metrics Year Ended December 31, ($ in thousands) 2022 2021 2020 Average loans $ 3,092,198 $ 2,125,847 $ 2,043,665 Portfolio yield 7.77 % 8.56 % 8.19 % Average debt — portfolio related 2,750,822 1,814,048 1,803,188 Average debt — total company 2,956,801 1,968,938 1,885,306 Cost of funds — portfolio related 4.64 % 4.71 % 4.87 % Cost of funds — total company 5.32 % 5.38 % 5.30 % Net interest margin — portfolio related 3.64 % 4.54 % 3.89 % Net interest margin — total company 2.69 % 3.57 % 3.30 % Charge-offs 0.02 % 0.06 % 0.08 % Pre-tax return on equity 12.23 % 15.58 % 10.69 % Return on equity 8.93 % 11.45 % 8.22 % 23 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.
Key Performance Metrics Year Ended December 31, ($ in thousands) 2023 2022 2021 Average loans $ 3,725,197 $ 3,092,198 $ 2,125,847 Portfolio yield 8.34 % 7.77 % 8.56 % Average debt — portfolio related 3,341,411 2,750,822 1,814,048 Average debt — total company 3,556,411 2,956,801 1,968,938 Cost of funds — portfolio related 5.58 % 4.64 % 4.71 % Cost of funds — total company 5.71 % 5.32 % 5.38 % Net interest margin — portfolio related 3.34 % 3.64 % 4.54 % Net interest margin — total company 2.89 % 2.69 % 3.57 % Charge-offs/Average loans held for investment, excluding FVO loans 0.07 % 0.02 % 0.06 % Pre-tax return on equity 17.46 % 12.23 % 15.58 % Return on equity 12.84 % 8.93 % 11.45 % 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.
The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 68.2%, and was concentrated in 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, representing 52.7% of the UPB. During the year ended December 31, 2022, the yield on our total portfolio was 7.77%.
The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 67.8%, and was concentrated in 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, representing 55.0% of the UPB. During the year ended December 31, 2023, the yield on our total portfolio was 8.34%.
We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitizations, corporate debt and equity. The securitization market is our primary source of long-term financing. We have successfully executed 25 securitizations, issuing $5.4 billion in principal amount of securities from May 2011 through December 2022.
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, non-recourse financing. We have successfully executed 31 securitized debt offerings, issuing $6.4 billion in principal amount of securities from May 2011 through December 2023.
The short-term loans do not require prepayment fees and usually result in a lower gain when paid in full, as compared to long term loans.
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.
In addition, when we transfer a loan to REO, we record the REO at its fair value 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 loss.
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.
Fair Value Option Accounting We have made an election to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We will consider applying FVO accounting to acquired loans on a case-by-case basis.
Fair Value Option Accounting We made an election to apply the fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We will consider applying FVO accounting to acquired loans on a case-by-case basis. The fair value option loans will be presented on a separate line item in the consolidated balance sheet.
Our portfolio related cost of funds decreased to 4.64% for the year ended December 31, 2022 from 4.71% and 4.87% for the years ended December 31, 2021 and 2020, respectively.
Our portfolio related cost of funds increased to 5.58% for the year ended December 31, 2023 from 4.64% and 4.71% for the years ended December 31, 2022 and 2021, respectively.
During the year ended December 31, 2021, we used approximately $27.3 million of net cash and cash equivalents from operations, investing and financing activities. 34 Warehouse Facilities As of December 31, 2022, we had five non-mark-to-market warehouse facilities and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities.
During the year ended December 31, 2022, we generated approximately $14.5 million of net cash and cash equivalents from operations, investing and financing activities. 33 Warehouse Facilities As of December 31, 2023, 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.
Origination Volume Portfolio related net interest income is the largest contributor to our net income. We grew our portfolio related net interest income by $16.0 million or 16.7% from $96.6 million for the year ended December 31, 2021 to $112.6 million for the year ended December 31, 2022.
Origination Volume Portfolio related net interest income is the largest contributor to our net income. We grew our portfolio related net interest income by $11.7 million or 10.4% from $112.6 million for the year ended December 31, 2022 to $124.3 million for the year ended December 31, 2023.
Portfolio and Asset Quality Key Portfolio Statistics December 31, 2022 2021 2020 ($ in thousands) Total loans (UPB) $ 3,512,486 $ 2,587,221 $ 1,944,804 Loan count 8,893 6,964 5,878 Average loan balance $ 395 $ 372 $ 331 Weighted average loan-to-value 68.2 % 67.7 % 66.1 % Weighted average coupon 7.95 % 7.76 % 8.51 % Nonperforming loans (UPB) (A) $ 292,789 $ 273,100 $ 332,813 Nonperforming loans (% of total) (A) 8.34 % 10.56 % 17.11 % (A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status.
Portfolio and Asset Quality Key Portfolio Statistics December 31, 2023 2022 2021 ($ in thousands) Total loans (UPB) $ 4,072,890 $ 3,512,486 $ 2,587,221 Loan count 10,477 8,893 6,964 Average loan balance $ 389 $ 395 $ 372 Weighted average loan-to-value 67.8 % 68.2 % 67.7 % Weighted average coupon 8.88 % 7.95 % 7.76 % Nonperforming loans (UPB) (A) $ 394,562 $ 292,789 $ 273,100 Nonperforming loans (% of total) (A) 9.69 % 8.34 % 17.11 % (A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status.
The following tables show the various components of loans held for investment as of the dates indicated: December 31, (in thousands) 2022 2021 2020 Unpaid principal balance $ 3,512,486 $ 2,499,798 $ 1,931,875 Valuation adjustments on FVO loans 7,463 27 (2 ) Deferred loan origination costs 33,429 33,360 23,600 Total loans held for investment, gross 3,553,378 2,533,185 1,955,473 Allowance for credit losses (4,893 ) (4,262 ) (5,845 ) Loans held for investment, net $ 3,548,485 $ 2,528,923 $ 1,949,628 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 December 31, 2022: December 31, 2022 2021 2020 ($ in thousands) UPB % UPB % UPB % Loans due in less than one year $ 146,916 4.2 % $ 96,502 3.9 % $ 100,025 5.2 % Loans due in one to five years 31,777 0.9 5,023 0.2 79,398 4.1 Loans due in more than five years 3,333,793 94.9 2,398,273 96.0 1,752,452 90.7 Total loans held for investment $ 3,512,486 100.0 % $ 2,499,798 100.0 % $ 1,931,875 100.0 % Allowance for Loan Losses Our allowance for loan losses increased to $4.9 million as of December 31, 2022, from $4.3 million as of December 31, 2021.
The following tables show the various components of loans held for investment as of the dates indicated: December 31, (in thousands) 2023 2022 2021 Unpaid principal balance $ 4,055,936 $ 3,512,486 $ 2,499,798 Valuation adjustments on FVO loans 54,677 7,463 27 Deferred loan origination costs 28,351 33,429 33,360 Total loans held for investment, gross 4,138,964 3,553,378 2,533,185 Allowance for credit losses (4,769 ) (4,893 ) (4,262 ) Loans held for investment, net $ 4,134,195 $ 3,548,485 $ 2,528,923 17 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: December 31, 2023 2022 2021 ($ in thousands) UPB % UPB % UPB % Loans due in less than one year $ 151,670 3.8 % $ 146,916 4.2 % $ 96,502 3.9 % Loans due in one to five years 54,345 1.3 31,777 0.9 5,023 0.2 Loans due in more than five years 3,849,921 94.9 3,333,793 94.9 2,398,273 96.0 Total loans held for investment $ 4,055,936 100.0 % $ 3,512,486 100.0 % $ 2,499,798 100.0 % Allowance for Loan Losses Our allowance for loan losses decreased to $4.8 million as of December 31, 2023, from $4.9 million as of December 31, 2022.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that included the enactment date, as applicable. 12 Interest Expense on Corporate Debt The 2021 Term Loan was a five-year $175.0 million syndicated corporate debt agreement.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that included the enactment date, as applicable. Interest Expense on Corporate Debt In March 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement (“the 2022 Term Loan”).
Year Ended December 31, 2022 and 2021 ($ in thousands) Average Debt (1) Interest Expense Cost of Funds Year Ended December 31, 2022 $ 2,750,822 $ 127,723 4.64 % Year Ended December 31, 2021 1,814,048 85,386 4.71 % Volume variance 936,774 44,093 Rate variance (1,756 ) (0.06 )% Total interest expense variance $ 42,337 (1) Includes securitizations and warehouse repurchase agreements.
Years Ended December 31, 2022 and 2021 ($ in thousands) Average Debt (1) Interest Expense Cost of Funds Year Ended December 31, 2022 $ 2,750,822 $ 127,723 4.64 % Year Ended December 31, 2021 1,814,048 85,386 4.71 % Volume variance 936,774 44,093 Rate variance (1,756 ) (0.06 )% Total interest expense variance $ 42,337 (1) Includes securitizations and warehouse repurchase agreements. 30 Net Interest Income After Provision for Loan Losses Net interest income after provision for loan losses increased 7.5% over the prior year driven by higher net interest income.
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: ($ in thousands) Loan Count Loan Balance Average Loan Size Weighted Average Coupon Weighted Average LTV Year Ended December 31, 2022: Loan originations — held for investment 4,133 $ 1,730,526 $ 419 7.9 % 69.2 % Loan originations — held for sale 2 31,327 15,663 5.0 % 64.7 % Total loan originations 4,135 $ 1,761,853 426 7.9 % 68.0 % Loan acquisitions — held for investment 14 14,455 1,032 8.8 % 62.0 % Total loans originated and acquired 4,149 $ 1,776,308 Year Ended December 31, 2021: Loan originations — held for investment 3,105 $ 1,326,275 $ 427 6.9 % 69.6 % Loan originations — held for sale — — — (— )% (— )% Total loan originations 3,105 $ 1,326,275 427 6.9 % 69.6 % Loan acquisitions — held for investment 26 11,300 435 7.0 % 61.4 % Total loans originated and acquired 3,131 $ 1,337,575 Year Ended December 31, 2020: Loan originations — held for investment 955 $ 338,815 $ 355 8.3 % 68.0 % Loan originations — held for sale 316 96,223 305 9.7 % 68.3 % Total loan originations 1,271 $ 435,038 342 8.6 % 68.1 % Loan acquisitions — held for investment 3 3,467 1,156 6.5 % 73.5 % Total loans originated and acquired 1,274 $ 438,505 For the year ended December 31, 2022, we originated $1.8 billion of loans, which was an increase of $435.6 million, or 32.8% from $1.3 billion for the year ended December 31, 2021.
Originations and Acquisitions The following table presents new loan originations and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated: ($ in thousands) Loan Count Loan Balance Average Loan Size Weighted Average Coupon Weighted Average LTV Year Ended December 31, 2023: Loan originations — held for investment 2,955 $ 1,079,811 $ 365 11.1 % 66.4 % Loan originations — held for sale 10 38,036 3,804 7.9 % 48.2 % Total loans originated 2,965 $ 1,117,847 Year Ended December 31, 2022: Loan originations — held for investment 4,133 $ 1,730,526 $ 419 7.9 % 69.2 % Loan originations — held for sale 2 31,327 15,663 5.0 % 64.7 % Total loan originations 4,135 $ 1,761,853 426 7.9 % 68.0 % Loan acquisitions — held for investment 14 14,455 1,032 8.8 % 62.0 % Total loans originated and acquired 4,149 $ 1,776,308 Year Ended December 31, 2021: Loan originations — held for investment 3,105 $ 1,326,275 $ 427 6.9 % 69.6 % Loan originations — held for sale — — — (— )% (— )% Total loan originations 3,105 $ 1,326,275 427 6.9 % 69.6 % Loan acquisitions — held for investment 26 11,300 435 7.0 % 61.4 % Total loans originated and acquired 3,131 $ 1,337,575 For the year ended December 31, 2023, we originated $1.1 billion of loans, which was a decrease of $644.0 million, or 36.6% from $1.8 billion for the year ended December 31, 2022.
As of December 31, 2021, the balance of the 2021 Term Loan was $170.8 million. On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement ("the 2022 Term Loan"). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027.
On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement ("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.
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. Income Taxes Our REMIC transactions can create significant U.S. GAAP versus tax differences.
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.
Balance of $330.8 million in the consolidated balance sheets as of December 31, 2022 is net of $926 thousand debt issuance costs. 38 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.
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.
Other operating expenses increased from $8.5 million for the year ended December 31, 2021 to $11.1 million for the year ended December 31, 2022, mainly due to an increase in appraisal costs on higher origination volume and resumed marketing activity via trade shows after a pandemic-impacted 2021. Income Tax Expense.
Other operating expenses slightly increased from $8.0 million for the year ended December 31, 2021 to $9.2 million for the year ended December 31, 2022 mainly due to an increase in marketing activity via trade shows after a pandemic-impacted 2021. Income Tax Expense.
Our provision for loan losses increased by approximately $1.4 million from the reversal of $0.3 million for the year ended December 31, 2021 to a provision of $1.2 million for the year ended December 31, 2022.
Our provision for loan losses increased by approximately $1.4 million from the reversal of $0.3 million for the year ended December 31, 2021 to a provision of $1.2 million for the year ended December 31, 2022. The increase in provision for loan losses is primarily attributable to an increase in general reserve resulting from the increased non-FVO loan portfolio.
Long-Term Loans December 31, 2022 December 31, 2021 December 31, 2020 ($ in thousands) UPB Gain / (Loss) UPB Gain / (Loss) UPB Gain / (Loss) Resolved — paid in full $ 50,441 $ 5,073 $ 62,703 $ 4,106 $ 45,662 $ 2,029 Resolved — paid current 46,062 449 45,654 650 37,705 1,213 Resolved — REO sold 10,204 1,602 10,151 226 4,362 (498 ) Total resolutions $ 106,707 $ 7,124 $ 118,508 $ 4,982 $ 87,729 $ 2,744 Recovery rate on resolved nonperforming UPB 106.7 % 104.2 % 103.1 % The table below includes resolutions for our short-term nonperforming loans and REO's, now being held for investment, and also includes loans that were granted a COVID-19 forbearance in 2020.
Long-Term Loans December 31, 2023 December 31, 2022 December 31, 2021 ($ in thousands) UPB Gain / (Loss) UPB Gain / (Loss) UPB Gain / (Loss) Resolved — paid in full $ 67,769 $ 3,181 $ 50,441 $ 5,073 $ 62,703 $ 4,106 Resolved — paid current 101,224 925 46,062 449 45,654 650 Resolved — REO sold 13,335 57 10,204 1,602 10,151 226 Total resolutions $ 182,328 $ 4,163 $ 106,707 $ 7,124 $ 118,508 $ 4,982 Recovery rate on resolved nonperforming UPB 102.3 % 106.7 % 104.2 % 19 The table below includes resolutions for our short-term nonperforming loans and REOs, and also includes loans that were granted a COVID-19 forbearance in 2020.
As of December 31, 2022, we maintained warehouse facilities to finance our investor real estate loans and had approximately $331.7 million in outstanding borrowings with $500.1 million of available capacity under our warehouse and repurchase facilities. 37 The following table illustrates our contractual obligations existing as of December 31, 2022: January 1, 2023 - January 1, 2024 - ($ in thousands) December 31, 2023 December 31, 2025 Thereafter Total Warehouse and repurchase facilities $ 331,740 $ — $ — $ 331,740 (1) Notes payable (corporate debt) — — 215,000 215,000 Leases payments under noncancelable operating leases 1,514 1,379 448 3,341 Total $ 333,254 $ 1,379 $ 215,448 $ 550,081 (1) Amount represents gross warehouse borrowing.
As of December 31, 2023, we maintained warehouse facilities to finance our investor real estate loans and had approximately $336.4 million in outstanding borrowings with $554.2 million of available capacity under our warehouse and repurchase facilities. 36 The following table illustrates our contractual obligations existing as of December 31, 2023: January 1, 2024 - January 1, 2025 - ($ in thousands) December 31, 2024 December 31, 2026 Thereafter Total Warehouse and repurchase facilities $ 336,351 $ — $ — $ 336,351 (1) Notes payable (corporate debt) — — 215,000 215,000 Leases payments under noncancelable operating leases 1,289 838 1,127 3,254 Total $ 337,640 $ 838 $ 216,127 $ 554,605 (1) Amount represents gross warehouse borrowing.
The $4.0 million increase during the year ended December 31, 2022 is mainly due to the increase in our loan portfolio. Professional Fees . Professional fees remained relatively consistent from $3.8 million for the year ended December 31, 2021 to $4.2 million for the year ended December 31, 2022. Net Expenses of Real Estate Owned .
The $4.0 million increase during the year ended 2022 is mainly due to the increase in our loan portfolio. Professional Fees . Professional fees increased from $3.8 million for the year ended December 31, 2021 to $4.2 million for the year ended December 31, 2022. Rent and Occupancy .
Under IRS rules, the REMICs require sale treatment and we are required to either recognize taxable income or loss to the extent the fair market value of the REMICs is greater than or less than our cost basis, the payment of which creates either a deferred tax asset or deferred tax liability.
Under IRS rules, the REMICs require sale treatment, and we are required to either recognize taxable income or loss to the extent the fair market value of the REMICs is greater than or less than our cost basis, the payment of which creates either a deferred tax asset or deferred tax liability. 10 We will continue to recognize deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of our existing assets and liabilities and their respective tax bases.
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.
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. 14 Factors Affecting Our Results of Operations We believe there are a number of factors that impact our business, including those discussed below and elsewhere in this Annual Report.
Costs related to employee compensation, commissions and related employee benefits, such as health, retirement, and payroll taxes. Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes. 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.
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.
Compensation and employee benefits decreased from $20.7 million during the year ended December 31, 2020 to $19.2 million during the year ended December 31, 2021.
Compensation and Employee Benefits . Compensation and employee benefits increased from $19.2 million during the year ended December 31, 2021 to $30.5 million during the year ended December 31, 2022.
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