Velocity Financial Reports Record-Breaking Results for 2023

Velocity Financial (VEL), a prominent real estate finance company in the United States, recently announced its record-breaking results for the fourth quarter and full year 2023. Despite challenges in the commercial real estate sector, the company’s strong financial performance, strategic growth initiatives, and optimistic outlook have garnered significant attention. Let’s delve into the details of Velocity Financial’s achievements, financial highlights, strategic growth initiatives, future outlook, and unique business model.

Velocity Financial: A Brief Overview

Velocity Financial, Inc. operates as a real estate finance company headquartered in Westlake Village, California. Since its inception in 2004, the company has specialized in originating and acquiring loans secured by mortgage liens on various income-producing properties, including residential rentals, multifamily units, retail properties, and more. Velocity Financial serves independent real estate investors and small business owners through a network of independent mortgage brokers.

Record-Breaking Performance in 2023

Velocity Financial achieved outstanding execution across all business segments, marking its best year in history. Despite challenges in certain commercial real estate segments, the company witnessed robust growth in originations, expansion of platform capabilities, and strong performance in single-family rental and small commercial properties.

Key financial highlights for 2023 include:

• Core net income increased by 77% from the previous year.
• Net interest margin (NIM) improved by 18 basis points sequentially in the fourth quarter.
• Annual pretax return on equityReturn on Equity (ROE) is a financial metric that stands as a beacon illuminating a company's performance and efficiency. It transcends the realm of numbers, offering a profound gl... More (ROE) experienced a healthy increase.
• Addition of $350 million in new unpaid principal balance (UPB) to the portfolio.
• Total portfolio exceeded $4 billion, with plans to reach $5 billion.
• Stable non-performing loan (NPL) assets with positive gains realized in the fourth quarter.
• Successful closure of securitization deals in Q4 and early January, indicating a strong securitization market.

Strategic Growth Initiatives

Velocity Financial’s strategic initiatives played a pivotal role in its exceptional performance in 2023. The company focused on expanding its loan production, enhancing portfolio capabilities, and improving asset management processes. Some key initiatives include:

• A 21% increase in loan production in Q4 compared to the previous quarter.
• A 16% year-over-year increase in the total loan portfolio, reaching $4.1 billion.
• Maintaining a weighted average coupon for new originations at 11%.
• Significant year-over-year improvement in net interest margin.
• Decrease in non-performing loan rate, reflecting successful collection efforts.
• Resolution of over $225 million UPB of NPL loans and REOs in 2023, resulting in a net gain for the year.

Future Outlook and Growth Strategies

Looking ahead to 2024, Velocity Financial remains optimistic about its momentum and is committed to delivering value to customers and shareholders. The company anticipates continued growth towards achieving its $5 billion portfolio target by 2025. Additionally, plans to transition to fair value accounting are expected to unlock significant gains in adjusted book value in the future.

Financial Performance and Loan Resolution Activities

Velocity Financial reported strong resolution activities in 2023, with a net gain on loan charge-offs and REO valuation activities. The company maintained a total liquidity of $63 million at the end of the year, comprising cash and cash equivalents along with available liquidity on unfinanced collateral. Notably, Velocity Financial issued securities and secured notes to support its growth initiatives and enhance its financial position.

Business Outlook and Risk Management

Management believes the market conditions are favorable, particularly in Velocity Financial’s niche, with expectations of strong demand and favorable asset resolutions. The company emphasizes disciplined credit practices, maintaining margins, and achieving growth targets while adapting to market dynamics. Additionally, Velocity Financial aims to attract better borrowers amidst tight credit conditions from banks and credit unions.

Asset Resolution Process and Unique Business Model

Velocity Financial’s success can be attributed to its robust asset resolution process and unique business model. The company focuses on disciplined underwriting, asset management, and niche market focus, aligning incentives throughout the loan origination and resolution process. Velocity Financial’s ownership of risk, balance sheetThe balance sheet is a snapshot of a company's financial position at a specific point in time. It shows the company's assets, liabilities, and equity. More approach, and niche market focus set it apart from traditional mortgage companies and contribute to its market differentiation and resilience.

Velocity Financial (VEL) Technical Analysis

• Trend: The price appears to be in a moderate uptrend as indicated by the price being above both the 50-day (blue line) and 200-day (red line) moving averages.
• Moving Averages: The 50-day MA is above the 200-day MA, suggesting a bullish signal.
• Volume: Volume doesn’t show significant spikes on the most recent dates, which may suggest a lack of strong conviction behind recent price movements.
• RSIIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (14): At a level of 63.27, it’s neither overbought nor oversold, indicating there’s room for the price to go either direction without being stretched too thin.
• OBV (On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More): The OBV is relatively flat, indicating that buying and selling pressures are balanced.
• Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More (14): It’s in the overbought territory with a value of 1.000. This could indicate potential for a reversal or a slowdown in the upward momentum.

Strategy:

• Confidence Level: Moderate Confidence
• Action: Considering the RSI and Stochastic levels, along with the position above the moving averages, this may be a time to hold with a bias towards going Long if not already in position.
• Entry Price: A pullback near the 50-day MA could be a more favorable entry point, around $15.95.
• Exit Price: If the upward trend continues, the next resistance could be around the recent high near $17.25. If the Stochastic RSI proves true, be cautious of a short-term pullback.

In conclusion, Velocity Financial’s record-breaking performance in 2023 reflects its commitment to excellence, strategic initiatives, and unique business model. With a strong outlook for the future and a focus on innovation and growth, Velocity Financial continues to solidify its position as a leader in the real estate finance industry.