Velocity Financial, Inc. Leases Disclosure
Note 16 — Leases
The Company adopted ASU 2016-02, Leases (Topic 842) and all subsequent related ASUs using the alternative transition method effective January 1, 2019. The Company has elected the package of practical expedients that permits the Company to not reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected all the new standard’s available transition practical expedients, including the short-term lease recognition exemption that includes not recognizing right-of-use (“ROU”) assets or lease liabilities for existing short-term leases, and the practical expedient to not separate lease and non-lease components for all leases.
The Company determines if a contract arrangement is a lease at inception. The Company primarily enters into operating lease contracts for office space and certain equipment. As part of the property lease agreements, the Company may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. The ROU lease asset also includes any lease payments made and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not possess any leases that have variable lease payments or residual value guarantees.
The Company uses its incremental borrowing rates to determine the present value of its lease liabilities. The weighted average borrowing rate was 8.80%, 7.72% and 5.88% as of December 31, 2024, 2023 and 2022, respectively. The Company’s leases have remaining terms ranging from two years to five years, and the weighted average remaining lease term was 5.0 years as of December 31, 2024. Short-term leases (initial term of less than 12 months) are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term.
As of December 31, 2024 and 2023, operating lease ROU assets included in were $2.5 million. included in accounts payable and accrued expenses remained at $2.7 million as of December 31, 2024, and 2023. Operating lease expense is a component of “Rent and occupancy” on the Consolidated Statements of Income. Operating lease expense was $1.9 million, $1.9 million and $1.7 million for the years ended December 31, 2024, 2023 and 2022, respectively, and included short-term leases that were immaterial.
The following table presents supplemental cash flow information related to leases for the years ended December 31, 2024, 2023 and 2022:
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December 31, |
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2024 |
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2023 |
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2022 |
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(In thousands) |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases |
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$ |
1,416 |
|
|
$ |
1,602 |
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|
$ |
1,632 |
|
ROU assets obtained in exchange for lease obligations: |
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Operating leases |
|
$ |
1,180 |
|
|
$ |
1,689 |
|
|
$ |
26 |
|
The following table presents maturities of operating lease liabilities as of December 31, 2024:
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December 31, 2024 |
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|
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(In thousands) |
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2025 |
|
$ |
732 |
|
2026 |
|
|
604 |
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2027 |
|
|
649 |
|
2028 |
|
|
616 |
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2029 |
|
|
364 |
|
Thereafter |
|
|
405 |
|
Total lease payments |
|
|
3,370 |
|
Less: Imputed interest |
|
|
(670 |
) |
Present value of lease liabilities |
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$ |
2,700 |
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About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.