Equibles

10-Q

Velocity Financial, Inc. (VEL)

10-Q 2025-11-07 For: 2025-09-30
View Original
Added on April 04, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2025

OR

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

For the transition period from ______ to _____

Commission File Number: 001-39183

Velocity Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware 46-0659719
(State or other jurisdiction of<br><br>incorporation or organization) (I.R.S. Employer<br>Identification No.)
2945 Townsgate Road, Suite 110<br><br>Westlake Village, California 91361
(Address of principal executive offices) (Zip Code)

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

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

Title of each class Trading<br><br>Symbol(s) Name of each exchange on which registered
Common stock, par value $0.01 per share VEL The New York Stock Exchange
Common stock, par value $0.01 per share VEL NYSE Texas, Inc.

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

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

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

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth company ☐

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

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

As of October 31, 2025, the registrant had 38,900,030 shares of common stock outstanding.

Table of Contents

Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) 2
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Changes in Stockholders’ Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements (Unaudited) 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures About Market Risk 60
Item 4. Controls and Procedures 60
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 61
Item 1A. Risk Factors 61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61
Item 3. Defaults Upon Senior Securities 61
Item 4. Mine Safety Disclosures 61
Item 5. Other Information 61
Item 6. Exhibits 62
SIGNATURES 64

i

VELOCITY FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

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

September 30, 2025 December 31, 2024
(Unaudited)
ASSETS
Restricted cash $ 14,188 $ 9,847
Loans held for investment, at amortized cost 2,123,222 2,395,394
Loans held for investment, at fair value 3,834,125 2,264,641
Accrued interest and other receivables 173,110 145,891
Real estate owned, net 113,700 57,838
Deferred tax asset 1,130 272
Other assets 7 —
Total assets $ 6,259,482 $ 4,873,883
LIABILITIES
Accounts payable and accrued expenses $ 123,417 $ 96,895
Securitized debt 5,532,039 4,226,464
Total liabilities $ 5,655,456 $ 4,323,359

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Interest income $ 144,119 $ 105,070 $ 398,426 $ 293,359
Interest expense — portfolio related 88,899 63,871 245,825 178,734
Net interest income — portfolio related 55,220 41,199 152,601 114,625
Interest expense — corporate debt 6,144 6,143 18,429 17,677
Net interest income 49,076 35,056 134,172 96,948
Provision for (reversal of) credit losses 381 (69 ) 3,851 1,151
Net interest income after provision for (reversal of) credit losses 48,695 35,125 130,321 95,797
Other operating income
Gain on disposition of loans 4,574 2,291 13,694 7,156
Unrealized gain on fair value loans 30,982 35,530 95,724 71,579
Unrealized loss on fair value securitized debt (9,988 ) (24,995 ) (31,254 ) (31,957 )
Unrealized loss on mortgage servicing rights (343 ) (993 ) (1,115 ) (922 )
Origination fee income 9,723 6,704 27,338 16,762
Interest income on cash balance 1,564 1,676 4,408 5,038
Other income 565 519 1,575 1,412
Total other operating income 37,077 20,732 110,370 69,068
Operating expenses
Compensation and employee benefits 23,300 17,586 67,589 49,505
Origination expenses 1,154 867 3,185 2,262
Securitization expenses 6,433 3,186 21,997 12,292
Loan servicing 7,748 5,656 23,961 15,639
Professional fees 893 2,305 4,668 6,140
Rent and occupancy 274 519 847 1,633
Real estate owned, net 7,931 1,951 14,258 5,762
Other operating expenses 2,664 2,543 7,995 7,278
Total operating expenses 50,397 34,613 144,500 100,511
Income before income taxes 35,375 21,244 96,191 64,354
Income tax expense
Federal 7,603 3,921 19,381 11,759
State 2,360 1,706 6,580 4,934
Income tax expense 9,963 5,627 25,961 16,693
Net income 25,412 15,617 70,230 47,661
Net income (loss) attributable to noncontrolling interest 39 (186 ) (27 ) (171 )
Net income attributable to Velocity Financial, Inc. $ 25,373 $ 15,803 $ 70,257 $ 47,832
Less undistributed earnings attributable to unvested restricted stock awards 352 191 871 580
Net earnings attributable to common stockholders $ 25,021 $ 15,612 $ 69,386 $ 47,252
Earnings per common share
Basic $ 0.66 $ 0.48 $ 1.91 $ 1.45
Diluted $ 0.65 $ 0.44 $ 1.86 $ 1.34
Weighted average common shares outstanding
Basic 38,073 32,711 36,335 32,613
Diluted 38,800 35,895 37,817 35,645

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Net income attributable to Velocity Financial, Inc. $ 25,373 $ 15,803 $ 70,257 $ 47,832
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on cash flow hedges arising during the period 98 (4,161 ) (2,571 ) (1,362 )
Reclassification adjustments included in net income 192 (92 ) 459 (83 )
Total other comprehensive income (loss), net of tax 290 (4,253 ) (2,112 ) (1,445 )
Total comprehensive income attributable to Velocity Financial, Inc. $ 25,663 $ 11,550 $ 68,145 $ 46,387

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in thousands, except share data)

(Unaudited)

Common Stock - Number of Shares Stockholders' Equity
Shares Issued Treasury Shares Shares Outstanding Common Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Treasury Stock, at Cost Accumulated Other Comprehensive Income (Loss), Net of Tax Total<br>Stockholders'<br>Equity Noncontrolling Interest Total Equity
Balance – December 31, 2023 32,987,248 (121,412 ) 32,865,836 $ 331 $ 306,736 $ 128,906 $ (1,319 ) $ (1,210 ) $ 433,444 $ 3,429 $ 436,873
Issuance of common stock 9,537 — 9,537 3 152 — — — 155 — 155
Shares surrendered for tax withholding on vested awards — (79,258 ) (79,258 ) — — — (1,284 ) — (1,284 ) — (1,284 )
Restricted stock awarded and stock-based compensation expenses 189,679 — 189,679 — 1,371 — — — 1,371 — 1,371
Net income — — — — — 17,251 — — 17,251 82 17,333
Other comprehensive income — — — — — — — 2,004 2,004 — 2,004
Balance – March 31, 2024 33,186,464 (200,670 ) 32,985,794 $ 334 $ 308,259 $ 146,157 $ (2,603 ) $ 794 $ 452,941 $ 3,511 $ 456,452
Issuance of common stock 127,733 — 127,733 1 1,500 — — — 1,501 — 1,501
Shares surrendered for tax withholding on vested awards — (14,892 ) (14,892 ) — — — (266 ) — (266 ) — (266 )
Restricted stock awarded and stock-based compensation expenses — — — — 1,565 — — — 1,565 — 1,565
Distribution to non-controlling interest — — — — — — — — — (20 ) (20 )
Net income (loss) — — — — — 14,778 — — 14,778 (67 ) 14,711
Other comprehensive income — — — — — — — 804 804 — 804
Balance – June 30, 2024 33,314,197 (215,562 ) 33,098,635 $ 335 $ 311,324 $ 160,935 $ (2,869 ) $ 1,598 $ 471,323 $ 3,424 $ 474,747
Issuance of common stock 16,210 — 16,210 — 189 — — — 189 — 189
Restricted stock awarded and stock-based compensation expenses — — — — 1,574 — — — 1,574 — 1,574
Distribution to non-controlling interest — — — — — — — — — (185 ) (185 )
Net income (loss) — — — — — 15,803 — — 15,803 (186 ) 15,617
Other comprehensive loss — — — — — — — (4,253 ) (4,253 ) — (4,253 )
Balance – September 30, 2024 33,330,407 (215,562 ) 33,114,845 $ 335 $ 313,087 $ 176,738 $ (2,869 ) $ (2,655 ) $ 484,636 $ 3,053 $ 487,689
Balance – December 31, 2024 33,761,147 (215,562 ) 33,545,585 $ 339 $ 322,954 $ 197,325 $ (2,869 ) $ (805 ) $ 516,944 $ 3,271 $ 520,215
Issuance of common stock 1,569,255 — 1,569,255 20 28,522 — — — 28,542 — 28,542
Shares surrendered for tax withholding on vested awards — (115,596 ) (115,596 ) — — — (2,162 ) — (2,162 ) — (2,162 )
Restricted stock awarded and stock-based compensation expenses 385,503 — 385,503 — 1,970 — — — 1,970 — 1,970
Net income (loss) — — — — — 18,887 — — 18,887 (239 ) 18,648
Other comprehensive loss — — — — — — — (994 ) (994 ) — (994 )
Balance – March 31, 2025 35,715,905 (331,158 ) 35,384,747 $ 359 $ 353,446 $ 216,212 $ (5,031 ) $ (1,799 ) $ 563,187 $ 3,032 $ 566,219
Issuance of common stock 3,154,630 — 3,154,630 31 13,052 — — — 13,083 — 13,083
Purchase of treasury stock — (258,828 ) (258,828 ) — — — (4,848 ) — (4,848 ) — (4,848 )
Shares surrendered for tax withholding on vested awards — (8,754 ) (8,754 ) — — — (145 ) — (145 ) — (145 )
Restricted stock awarded and stock-based compensation expenses 17,292 — 17,292 — 2,029 — — — 2,029 — 2,029
Distribution to non-controlling interest — — — — — — — — — (47 ) (47 )
Net income — — — — — 25,997 — — 25,997 173 26,170
Other comprehensive loss — — — — — — — (1,408 ) (1,408 ) — (1,408 )
Balance – June 30, 2025 38,887,827 (598,740 ) 38,289,087 $ 390 $ 368,527 $ 242,209 $ (10,024 ) $ (3,207 ) $ 597,895 $ 3,158 $ 601,053
Issuance of common stock 471,051 — 471,051 6 8,720 — — — 8,726 — 8,726
Shares surrendered for tax withholding on vested awards — (9,600 ) (9,600 ) — — — (179 ) — (179 ) — (179 )
Restricted stock awarded and stock-based compensation expenses 149,492 — 149,492 — 2,154 — — — 2,154 — 2,154
Net income — — — — — 25,373 — — 25,373 39 25,412
Other comprehensive income — — — — — — — 290 290 — 290
Balance – September 30, 2025 39,508,370 (608,340 ) 38,900,030 $ 396 $ 379,401 $ 267,582 $ (10,203 ) $ (2,917 ) $ 634,259 $ 3,197 $ 637,456

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended September 30,
2025 2024
(Unaudited)
Cash flows from operating activities:
Net income $ 70,230 $ 47,661
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 393 650
Amortization of right-of-use assets 875 1,048
Provision for credit losses 3,851 1,151
Origination of loans held for sale (47,879 ) (18,947 )
Proceeds from sales of loans held for sale 46,953 —
Net accretion of discount on purchased loans and amortization of deferred loan origination costs 2,989 3,317
Provision for uncollectible corporate and escrow advances receivable 711 650
Gain on disposition of loans (1,145 ) (834 )
Real estate acquired through foreclosure in excess of recorded investment (12,549 ) (6,322 )
Amortization of debt issuance discount and costs 7,667 9,468
Change in valuation of real estate owned 10,530 3,903
Change in valuation of fair value loans (95,724 ) (71,579 )
Change in valuation of mortgage servicing rights 1,566 922
Change in valuation of fair value securitized debt 31,254 31,957
Gain on sale of real estate owned (1,242 ) (864 )
Stock-based compensation 6,153 4,510
Hedging activities (3,553 ) (3,145 )
Deferred tax benefit (2,160 ) (11,104 )
Change in operating assets and liabilities:
Accrued interest and other receivables (14,038 ) (3,573 )
Other assets (2,004 ) (1,385 )
Accounts payable and accrued expenses 19,772 16,998
Net cash provided by operating activities 22,650 4,482
Cash flows from investing activities:
Purchase of loans held for investment — (16,210 )
Origination of loans held for investment (2,033,018 ) (1,258,725 )
Proceeds from sales of loans originally classified as held for investment — 50,204
Payments of loans held for investment and loans at fair value 728,965 525,316
Proceeds from sale of real estate owned 34,399 19,798
Capitalized improvement on real estate held for sale (99 ) —
Change in corporate and escrow advances receivable (2,825 ) (4,921 )
Change in impounds and deposits 1,117 (165 )
Purchase of property and equipment (224 ) (190 )
Proceeds from sale of property and equipment — 640
Purchase of mortgage servicing rights — (4,760 )
Net cash used in investing activities (1,271,685 ) (689,013 )
Cash flows from financing activities:
Warehouse repurchase facilities advances 2,072,225 1,365,638
Warehouse repurchase facilities repayments (2,087,575 ) (1,266,288 )
Proceeds from secured financing — 74,311
Proceeds of securitized debt 2,006,012 1,005,044
Repayment of securitized debt (736,521 ) (485,826 )
Debt issuance costs (1,205 ) (3,104 )
Deferred stock issuance costs (379 ) —
Proceeds from issuance of common stock related to warrants exercised 10,908 —
Proceeds from issuance of common stock, net 39,931 1,845
Purchase of treasury stock (7,334 ) (1,550 )
Distribution to non-controlling interest (47 ) (205 )
Net cash provided by financing activities 1,296,015 689,865
Net increase in cash, cash equivalents, and restricted cash 46,980 5,334
Cash, cash equivalents, and restricted cash at beginning of period 70,830 61,927
Cash, cash equivalents, and restricted cash at end of period $ 117,810 $ 67,261

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Nine Months Ended September 30,
2025 2024
(Unaudited)
Supplemental cash flow information:
Cash paid during the period for interest $ 251,053 $ 183,923
Cash paid during the period for income taxes, net 26,801 22,780
Noncash transactions from investing and financing activities:
Transfer of loans held for investment to held for sale — 35,067
Transfer of loans held for investment to real estate owned 76,738 34,608
Transfer of accrued interest to loans held for investment 1,893 1,118
Transfer of loans held for sale to held for investment — 2,612
Recognition of new leases in exchange for lease obligations 1,384 1,164
Deferred stock issuance costs charged against additional paid-in capital 488 2

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Organization and Description of Business

Velocity Financial, LLC (“VF” or “the Company”) was a Delaware limited liability company formed on July 9, 2012, for the purpose of acquiring all membership units in Velocity Commercial Capital, LLC (“VCC”). On January 16, 2020, Velocity Financial, LLC converted from a Delaware limited liability company to a Delaware corporation and changed its name to Velocity Financial, Inc. Upon completion of the conversion, Velocity Financial, LLC’s Class A equity units of 97,513,533 and Class D equity units of 60,193,989 were converted to 11,749,994 shares of Velocity Financial, Inc. common stock. On January 22, 2020, the Company completed its initial public offering of 7,250,000 shares of common stock at a price of $13.00 per share to the public. On January 28, 2020, the Company completed the sale of an additional 1,087,500 shares of its common stock, representing the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The Company’s stock trades on The New York Stock Exchange under the symbol “VEL.” The Company's stock also trades on the NYSE Texas, Inc. under the same symbol “VEL.” starting August 2025.

VCC, a California LLC formed on June 2, 2004, is a mortgage lender that originates and acquires residential and commercial investor real estate loans, providing capital to the investor real estate loan market. The Company is licensed as a California Finance Lender and, as such, is required to maintain a minimum net worth of $250 thousand. The Company does not believe there is any potential risk of not being able to meet this regulatory requirement. The Company uses its equity capital and borrowed funds to originate and invest in investor real estate loans and seeks to generate income based primarily on the difference between the yield on its investor real estate loan portfolio and the cost of its borrowings. The Company may also sell loans from time to time. The Company does not originate or acquire investments outside of the United States of America.

The Company, through its wholly owned subsidiaries, is the sole beneficial owner of the Velocity Commercial Capital Loan Trusts, from the 2017-2 Trust through and including the 2025-4 Trust, all of which are New York common law trusts, with the exception of the VCC 2025-MC1 Trust, and VCC 2025-RTL1 Trust which are Delaware statutory trusts. The Trusts are bankruptcy remote, variable interest entities (“VIEs”) formed for the purpose of providing secured borrowings to the Company and are consolidated with the accounts of the Company.

On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Government National Mortgage Association (“Ginnie Mae” or “GNMA”) issuer/servicer that provides government-insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century is a consolidated subsidiary of the Company as of completion of the acquisition. In addition, as a servicer of Ginnie Mae loans, Century is required to maintain a minimum net worth, and Century is in compliance with this requirement as of September 30, 2025.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited Consolidated Financial Statements as of and for the three and nine months ended September 30, 2025 and 2024 have been prepared on a basis that is substantially consistent with the accounting principles applied to the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for each respective period presented. Such adjustments are of a normal, recurring nature. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter or for the full year. The interim financial information should be read in conjunction with the Company’s audited Consolidated Financial Statements.

  • (a)

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of consolidated income and expenses during the reporting period.

  • (b)

The Company’s significant accounting policies are described in Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, of its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission (“SEC”).

There have been no material changes to the Company’s significant accounting policies as described in its 2024 Annual Report.

  • (c)

The principles of consolidation require management to determine and reassess the requirement to consolidate VIEs each reporting period, and therefore, the determination may change based on new facts and circumstances pertaining to each VIE. This could result in a material impact to the Company’s consolidated financial statements in subsequent reporting periods.

The Company consolidates the assets, liabilities, and remainder interests of the Trusts as management determined that VCC is the primary beneficiary of these entities. The Company’s ongoing asset management responsibilities provide the Company with the power to direct the activities that most significantly impact the VIE’s economic performance, and the remainder interests provide the Company with the right to receive benefits and the obligation to absorb losses, limited to its investment in the remainder interest of the Trusts.

The consolidated financial statements as of September 30, 2025 and December 31, 2024 include only those assets, liabilities, and results of operations related to the business of the Company, its subsidiaries, and VIEs.

  • (d)

The Company elected to apply fair value option (“FVO”) accounting to mortgage loans originated effective October 1, 2022. The fair value option loans are presented as a separate line item in the Consolidated Balance Sheets. Interest income on FVO loans is recorded on an accrual basis in the Consolidated Statements of Income under the heading “Interest income.” Changes in the fair value of the loans are recorded as “Unrealized gain (loss) on fair value of loans” in the Consolidated Statements of Income. The Company does not record a current expected credit loss (“CECL”) reserve on fair value option loans.

The Company elected to apply FVO accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. The FVO securitized debt is presented as a separate line item in the Consolidated Balance Sheets. The Company reflects interest expense on the FVO securitized debt as “Interest expense – portfolio related” and presents the other fair value changes of the FVO securitized debt separately as “Unrealized gain (loss) on fair value securitized debt” in the Consolidated Statements of Income.

  • (e)

The Company issues fixed rate debt at regular intervals during the year through the securitization of its fixed rate mortgage assets. The Company is subject to interest rate risk on its forecasted debt issuances as these fixed rate debt issuances are priced at then-current market rates. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate (“SOFR”) between the time the fixed rate mortgages are originated and the fixed rate debt is issued. To accomplish this hedging strategy, the Company may from time to time enter into derivative instruments such as forward starting payer interest rate swaps or interest rate payer and receiver swaptions designated as cash flow hedges that are designed to be highly correlated to the underlying terms of the forecasted debt instruments. To qualify for hedge accounting, the Company formally documents its hedging relationships at inception, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction at the time the derivative contract is executed. The Company also formally assesses effectiveness both at the hedge's inception and on an ongoing basis.

The Company's policy is to present all derivative balances on a gross basis, without regard to counterparty master netting agreements or similar arrangements. The fair value of the derivative instruments is recorded as a separate line item on the Consolidated Balance Sheets as an asset or liability with the related gains or losses reported as a component of Accumulated Other Comprehensive Income (“AOCI”). Beginning in the period in which the forecasted debt issuance occurs and the related derivative instruments are terminated, the gains or losses accumulated in AOCI are then reclassified into interest expense as a yield adjustment over the term of the related debt. If the Company determines it is not probable that the forecasted transaction will occur, gains and losses are reclassified immediately to earnings. The related cash flows are recognized on the cash flows from operating activities section on the Consolidated Statements of Cash Flows. The Company uses hedge accounting based on the exposure being hedged as cash flow hedges in operations.

  • (f)

Other comprehensive income (“OCI”) is reported in the Consolidated Statements of Comprehensive Income. OCI is comprised of net income and the effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges, net of tax, less amounts reclassified into earnings.

Accumulated other comprehensive income represents the cumulative balance of OCI, net of tax, as of the end of the reporting period and relates to unrealized gains or losses on cash flow hedges, net of tax.

Note 3 — Current Accounting Developments

Recently Issued Accounting Standards

Expense Disaggregation

In January 2025, the FASB issued ASU 2025-01, “Income Statement - Reporting Comprehensive Income (Subtopic 220-40) Expense Disaggregation Disclosures,” clarifies for non-calendar year end entities the interim effective date of ASU 2024-03. All public business entities are required to adopt the guidance in the annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income (Subtopic 220-40) Expense Disaggregation Disclosures,” which requires specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively will need to be disclosed. The accounting update is effective January 1, 2027 for the Company. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Standards

Codification Improvements

In March 2024, the FASB issued ASU 2024-02, “Codification Improvements—Amendments to Remove References to the Concepts Statements,” which amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. ASU 2024-02 is effective January 1, 2025, for the Company. The Company adopted the provisions of ASU 2024-02 effective January 1, 2025, and the adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 240): Improvements to Income Tax Disclosures,” which requires additional disclosure and disaggregated information in the Income Tax Rate reconciliation using both percentages and reporting currency amounts, with additional qualitative explanations of individually significant reconciling items. The updated guidance also requires disclosure of the amount of income taxes paid (net of refunds received) disaggregated by jurisdictional categories (federal (national), state, and foreign). The Company adopted the provisions of ASU 2023-09 effective January 1, 2025, and the adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

Note 4 — Cash, Cash Equivalents, and Restricted Cash

The Company is required to hold cash for potential future advances due to certain borrowers. In accordance with various mortgage servicing and related agreements, Century maintains escrow accounts for mortgage insurance premium, tax and insurance, working capital, sinking fund and other mortgage related escrows. The total escrow balances payable amounted to $83.3 million and $81.1 million as of September 30, 2025 and 2024, respectively. These amounts are not reflected on the Consolidated Balance Sheets of the Company.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s Consolidated Balance Sheets to the total of the same such amounts shown in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024:

September 30,
2025 2024
(In thousands)
Cash and cash equivalents $ 98,964 $ 44,094
Restricted cash 18,846 23,167
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 117,810 $ 67,261

Note 5 — Loans Held for Sale at Fair Value

The following table summarizes loans held for sale at fair value as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024
(In thousands)
Unpaid principal balance $ 2,071 $ —
Valuation adjustments on FVO loans held for sale 519 —
Ending balance $ 2,590 $ —

Note 6 — Loans Held for Investment at Amortized Cost and Loans Held for Investment at Fair Value

The following tables summarize loans held for investment as of September 30, 2025 and December 31, 2024:

September 30, 2025
Loans Held for Investment, at Amortized Cost Loans Held for Investment, at Fair Value Total Loans Held for Investment
(In thousands)
Unpaid principal balance $ 2,111,569 $ 4,161,729 $ 6,273,298
Valuation adjustments on FVO loans — 209,588 209,588
Deferred loan origination costs 20,187 — 20,187
2,131,756 4,371,317 6,503,073
Allowance for credit losses (4,586 ) — (4,586 )
Total loans held for investment $ 2,127,170 $ 4,371,317 $ 6,498,487
December 31, 2024
--- --- --- --- --- --- --- --- ---
Loans Held for Investment, at Amortized Cost Loans Held for Investment, at Fair Value Total Loans Held for Investment
(In thousands)
Unpaid principal balance $ 2,400,720 $ 2,655,217 $ 5,055,937
Valuation adjustments on FVO loans — 111,734 111,734
Deferred loan origination costs 23,570 — 23,570
2,424,290 2,766,951 5,191,241
Allowance for credit losses (4,174 ) — (4,174 )
Total loans held for investment $ 2,420,116 $ 2,766,951 $ 5,187,067

The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and nine months ended September 30, 2025 and the year ended December 31, 2024:

Three Months Ended September 30, 2025 Nine Months Ended September 30, 2025
UPB % Amortized Cost % UPB % Amortized Cost %
( in thousands)
Beginning balance $ 131,790 $ 142,827 $ 144,247
Foreclosures ) (120 ) (1,980 ) (1,996 )
Repayments ) (1,111 ) (11,504 ) (11,692 )
Ending balance $ 130,559 $ 129,343 $ 130,559
Performing/Accruing 75.6% $ 98,691 75.6% $ 97,771 75.6% $ 98,691 75.6%
Nonperforming/Nonaccrual 24.4% $ 31,868 24.4% $ 31,572 24.4% $ 31,868 24.4%

All values are in US Dollars.

Year Ended December 31, 2024
UPB % Amortized Cost %
( in thousands)
Beginning balance $ 176,515
Foreclosures ) (5,416 )
Repayments ) (26,852 )
Ending balance $ 144,247
Performing/Accruing 72.0% $ 103,790 72.0%
Nonperforming/Nonaccrual 28.0% $ 40,457 28.0%

All values are in US Dollars.

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $414.4 million in UPB of loans, which includes capitalized interest of $16.3 million. As of September 30, 2025, $280.6 million in UPB of modified loans has been paid down, which includes $6.6 million of capitalized interest received.

Approximately 75.6% and 72.0% of the COVID forbearance loans in UPB were performing, and 24.4% and 28.0% were on nonaccrual status as of September 30, 2025 and December 31, 2024, respectively.

As of September 30, 2025 and December 31, 2024, the gross unpaid principal balances of loans held for investment pledged as collateral for the Company’s warehouse facilities and securitized debt issued were as follows:

September 30, 2025 December 31, 2024
(In thousands)
The 2013 repurchase agreement $ 158,669 $ 133,577
The 2021/2024 repurchase agreements 139,782 148,676
The 2021 term repurchase agreement 39,352 74,324
The 2023 repurchase agreement 61,995 42,613
The 2024 bank credit agreement 33,436 23,330
Total pledged loans $ 433,234 $ 422,520
2017-2 Trust $ 31,456 $ 39,231
2018-1 Trust 24,509 28,564
2018-2 Trust 53,125 62,845
2019-1 Trust 61,184 71,521
2019-2 Trust 44,888 52,417
2019-3 Trust 43,353 52,177
2020-1 Trust 85,580 98,858
2021-1 Trust 143,331 162,750
2021-2 Trust 116,833 130,363
2021-3 Trust 122,492 136,891
2021-4 Trust 201,422 219,907
2022-1 Trust 204,536 222,909
2022-2 Trust 182,871 201,363
2022-MC1 Trust — 58,133
2022-3 Trust 228,666 253,621
2022-4 Trust 225,441 254,668
2022-5 Trust 153,400 187,078
2023-1 Trust 154,982 180,941
2023-2 Trust 124,396 165,155
2023-3 Trust 158,810 200,943
2023-RTL1 Trust — 85,530
2023-4 Trust 147,461 185,013
2024-1 Trust 146,038 188,638
2024-2 Trust 218,822 271,542
2024-3 Trust 172,420 198,640
2024-4 Trust 206,506 248,788
2024-5 Trust 262,032 293,881
2024-6 Trust 275,686 299,216
2025-1 Trust 336,439 —
2025-RTL1 Trust 118,498 —
2025-2 Trust 374,790 —
2025-MC1 Trust 96,786 —
2025-3 Trust 386,034 —
2025-P1 Trust 192,424 —
2025-4 Trust 467,759 —
Total $ 5,762,970 $ 4,551,583
  • (a)

The following tables present the amortized cost basis, or recorded investment, of the Company’s loans held for investment, excluding loans carried at fair value, that were nonperforming and on nonaccrual status as of September 30, 2025 and December 31, 2024.

September 30, 2025
Total <br>Nonaccrual Nonaccrual with No Allowance for Credit Losses Nonaccrual with Allowance for Credit Losses Allowance for Loans Individually Evaluated
(In thousands)
Commercial - Purchase $ 29,995 $ 29,239 $ 756 $ 79
Commercial - Refinance 86,132 80,186 5,946 1,578
Residential 1-4 Unit - Purchase 31,094 30,779 315 6
Residential 1-4 Unit - Refinance 99,419 93,782 5,637 327
Short Term 1-4 Unit - Purchase 1,562 1,562 — —
Short Term 1-4 Unit - Refinance 14,373 14,235 138 46
Total $ 262,575 $ 249,783 $ 12,792 $ 2,036
December 31, 2024
--- --- --- --- --- --- --- --- ---
Total <br>Nonaccrual Nonaccrual with No Allowance for Credit Losses Nonaccrual with Allowance for Credit Losses Allowance for Loans Individually Evaluated
(In thousands)
Commercial - Purchase $ 33,290 $ 32,294 $ 996 $ 85
Commercial - Refinance 99,683 96,155 3,528 421
Residential 1-4 Unit - Purchase 29,573 29,573 — —
Residential 1-4 Unit - Refinance 122,439 114,265 8,174 450
Short Term 1-4 Unit - Purchase 4,754 4,754 — —
Short Term 1-4 Unit - Refinance 23,556 23,341 215 73
Total $ 313,295 $ 300,382 $ 12,913 $ 1,029

The Company has made the accounting policy election not to measure an allowance for accrued interest receivables. The Company has also made the accounting policy election to write off accrued interest receivables by reversing interest income when loans are placed on nonaccrual status, or 90 days or more past due. Any future payments received for these loans will be recognized on a cash basis.

The following tables present the amortized cost basis in loans held for investment, excluding loans held for investment at fair value, as of September 30, 2025 and 2024, and the amount of accrued interest receivable written off by reversing interest income by portfolio segment of loans that have been placed on nonaccrual for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30,
2025 2024
Amortized Cost Interest Reversal Amortized Cost Interest Reversal
(In thousands)
Commercial - Purchase $ 509,401 $ 179 $ 581,860 $ 160
Commercial - Refinance 634,415 195 739,887 377
Residential 1-4 Unit - Purchase 369,413 150 445,893 156
Residential 1-4 Unit - Refinance 569,629 241 703,653 446
Short Term 1-4 Unit - Purchase 29,976 — 30,776 11
Short Term 1-4 Unit - Refinance 18,922 116 29,102 36
Total $ 2,131,756 $ 881 $ 2,531,171 $ 1,186
Nine Months Ended September 30,
--- --- --- --- --- --- --- --- ---
2025 2024
Amortized Cost Interest Reversal Amortized Cost Interest Reversal
(In thousands)
Commercial - Purchase $ 509,401 $ 628 $ 581,860 $ 539
Commercial - Refinance 634,415 792 739,887 1,314
Residential 1-4 Unit - Purchase 369,413 348 445,893 638
Residential 1-4 Unit - Refinance 569,629 829 703,653 1,379
Short Term 1-4 Unit - Purchase 29,976 80 30,776 85
Short Term 1-4 Unit - Refinance 18,922 116 29,102 87
Total $ 2,131,756 $ 2,793 $ 2,531,171 $ 4,042

The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $12.2 million and $9.8 million for the three months ended September 30, 2025 and 2024, respectively. The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $34.7 million and $25.5 million for the nine months ended September 30, 2025 and 2024, respectively. No accrued interest income was recognized on nonaccrual loans for the nine months ended September 30, 2025 and 2024. The average recorded investment of individually evaluated loans, computed using month-end balances, was $270.2 million and $323.4 million for the three months ended September 30, 2025 and 2024, respectively, and $286.6 million and $323.7 million for the nine months ended September 30, 2025 and 2024, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of September 30, 2025 and 2024.

  • (b)

The following tables present the activity in the allowance for credit losses for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, 2025
Commercial Purchase Commercial Refinance Residential <br>1-4 Unit <br>Purchase Residential <br>1-4 Unit <br>Refinance Short Term <br>1-4 Unit <br>Purchase Short Term <br>1-4 Unit <br>Refinance Total
(In thousands)
Allowance for credit losses:
Beginning balance - July 1, 2025 $ 679 $ 2,085 $ 787 $ 1,258 $ 27 $ 46 $ 4,882
Provision for (reversal of) credit losses (129 ) 3 (86 ) 544 (18 ) 67 381
Charge-offs — (49 ) (57 ) (520 ) — (51 ) (677 )
Ending balance $ 550 $ 2,039 $ 644 $ 1,282 $ 9 $ 62 $ 4,586
Allowance related to:
Loans individually evaluated $ 79 $ 1,578 $ 6 $ 327 $ — $ 46 $ 2,036
Loans collectively evaluated $ 471 $ 460 $ 638 $ 955 $ 10 $ 16 $ 2,550
Amortized cost related to:
Loans individually evaluated $ 29,995 $ 86,132 $ 31,094 $ 99,419 $ 1,562 $ 14,373 $ 262,575
Loans collectively evaluated $ 479,406 $ 548,283 $ 338,319 $ 470,210 $ 28,414 $ 4,549 $ 1,869,181
Three Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Purchase Commercial Refinance Residential <br>1-4 Unit <br>Purchase Residential <br>1-4 Unit <br>Refinance Short Term <br>1-4 Unit <br>Purchase Short Term <br>1-4 Unit <br>Refinance Total
(In thousands)
Allowance for credit losses:
Beginning balance - July 1, 2024 $ 810 $ 1,752 $ 934 $ 1,208 $ 29 $ 507 $ 5,240
Provision for (reversal of) credit losses (158 ) (181 ) 15 251 47 (43 ) (69 )
Charge-offs — (32 ) (225 ) (10 ) (53 ) — (320 )
Ending balance $ 652 $ 1,539 $ 724 $ 1,449 $ 23 $ 464 $ 4,851
Allowance related to:
Loans individually evaluated $ 100 $ 547 $ 4 $ 679 $ — $ 460 $ 1,790
Loans collectively evaluated $ 552 $ 992 $ 720 $ 770 $ 23 $ 4 $ 3,061
Amortized cost related to:
Loans individually evaluated $ 30,872 $ 101,933 $ 30,576 $ 126,114 $ 4,038 $ 24,115 $ 317,648
Loans collectively evaluated $ 550,988 $ 637,954 $ 415,317 $ 577,539 $ 26,738 $ 4,987 $ 2,213,523
Nine Months Ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Purchase Commercial Refinance Residential <br>1-4 Unit <br>Purchase Residential <br>1-4 Unit <br>Refinance Short Term <br>1-4 Unit <br>Purchase Short Term <br>1-4 Unit <br>Refinance Total
(In thousands)
Allowance for credit losses:
Beginning balance - January 1, 2025 $ 662 $ 1,399 $ 746 $ 1,281 $ 12 $ 74 $ 4,174
Provision for (reversal of) credit losses (9 ) 880 131 1,208 4 1,637 3,851
Charge-offs (103 ) (240 ) (233 ) (1,207 ) (7 ) (1,649 ) (3,439 )
Ending balance $ 550 $ 2,039 $ 644 $ 1,282 $ 9 $ 62 $ 4,586
Allowance related to:
Loans individually evaluated $ 79 $ 1,578 $ 6 $ 327 $ — $ 46 $ 2,036
Loans collectively evaluated $ 471 $ 460 $ 638 $ 955 $ 10 $ 16 $ 2,550
Amortized cost related to:
Loans individually evaluated $ 29,995 $ 86,132 $ 31,094 $ 99,419 $ 1,562 $ 14,373 $ 262,575
Loans collectively evaluated $ 479,406 $ 548,283 $ 338,319 $ 470,210 $ 28,414 $ 4,549 $ 1,869,181
Nine Months Ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Commercial Purchase Commercial Refinance Residential <br>1-4 Unit <br>Purchase Residential <br>1-4 Unit <br>Refinance Short Term <br>1-4 Unit <br>Purchase Short Term <br>1-4 Unit <br>Refinance Total
(In thousands)
Allowance for credit losses:
Beginning balance - January 1, 2024 $ 935 $ 1,805 $ 585 $ 1,256 $ 23 $ 165 $ 4,769
Provision for (reversal of) credit losses (283 ) (233 ) 662 310 151 544 1,151
Charge-offs — (33 ) (523 ) (117 ) (151 ) (245 ) (1,069 )
Ending balance $ 652 $ 1,539 $ 724 $ 1,449 $ 23 $ 464 $ 4,851
Allowance related to:
Loans individually evaluated $ 100 $ 547 $ 4 $ 679 $ — $ 460 $ 1,790
Loans collectively evaluated $ 552 $ 992 $ 720 $ 770 $ 23 $ 4 $ 3,061
Amortized cost related to:
Loans individually evaluated $ 30,872 $ 101,933 $ 30,576 $ 126,114 $ 4,038 $ 24,115 $ 317,648
Loans collectively evaluated $ 550,988 $ 637,954 $ 415,317 $ 577,539 $ 26,738 $ 4,987 $ 2,213,523
  • (c)

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-offs rate in relation to its nonperforming loans as a credit quality indicator. The annualized charge-offs rates were 1.62% and 0.44% of average nonperforming loans at amortized cost for the nine months ended September 30, 2025 and 2024, respectively.

Other credit quality indicators include aging status and accrual status. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. Past due status is based on the contractual terms of the loan. The following tables present the aging status of the amortized cost basis in the loans held for investment portfolio, which include $130.6 million and $144.2 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of September 30, 2025 and December 31, 2024, respectively:

September 30, 2025 30–59 Days <br>Past Due 60–89 Days <br>Past Due 90+ Days <br>Past Due(1) Total <br>Past Due Current Total <br>Loans
(In thousands)
Loans individually evaluated
Commercial - Purchase $ 197 $ 642 $ 29,156 $ 29,995 $ — $ 29,995
Commercial - Refinance 2,864 1,788 81,357 86,009 123 86,132
Residential 1-4 Unit - Purchase 1,700 853 28,541 31,094 — 31,094
Residential 1-4 Unit - Refinance 1,990 2,428 95,001 99,419 — 99,419
Short Term 1-4 Unit - Purchase — — 1,562 1,562 — 1,562
Short Term 1-4 Unit - Refinance — — 14,373 14,373 — 14,373
Total loans individually evaluated $ 6,751 $ 5,711 $ 249,990 $ 262,452 $ 123 $ 262,575
Loans collectively evaluated
Commercial - Purchase $ 16,021 $ 10,035 $ — $ 26,056 $ 453,350 $ 479,406
Commercial - Refinance 30,842 10,622 — 41,464 506,819 548,283
Residential 1-4 Unit - Purchase 14,218 3,091 — 17,309 321,010 338,319
Residential 1-4 Unit - Refinance 25,588 13,240 — 38,828 431,382 470,210
Short Term 1-4 Unit - Purchase — — — — 28,414 28,414
Short Term 1-4 Unit - Refinance — — — — 4,549 4,549
Total loans collectively evaluated $ 86,669 $ 36,988 $ — $ 123,657 $ 1,745,524 $ 1,869,181
Ending balance $ 93,420 $ 42,699 $ 249,990 $ 386,109 $ 1,745,647 $ 2,131,756
  • Includes loans in bankruptcy and foreclosure less than 90 days past due.
December 31, 2024 30–59 Days <br>Past Due 60–89 Days <br>Past Due 90+ Days <br>Past Due(1) Total <br>Past Due Current Total <br>Loans
(In thousands)
Loans individually evaluated
Commercial - Purchase $ 387 $ 555 $ 32,348 $ 33,290 $ — $ 33,290
Commercial - Refinance 3,903 3,326 92,454 99,683 — 99,683
Residential 1-4 Unit - Purchase 606 957 28,010 29,573 — 29,573
Residential 1-4 Unit - Refinance 4,784 708 116,947 122,439 — 122,439
Short Term 1-4 Unit - Purchase — — 4,754 4,754 — 4,754
Short Term 1-4 Unit - Refinance — 203 23,353 23,556 — 23,556
Total loans individually evaluated $ 9,680 $ 5,749 $ 297,866 $ 313,295 $ — $ 313,295
Loans collectively evaluated
Commercial - Purchase $ 19,633 $ 12,027 $ — $ 31,660 $ 500,865 $ 532,525
Commercial - Refinance 37,480 12,132 — 49,612 565,675 615,287
Residential 1-4 Unit - Purchase 16,040 7,479 — 23,519 367,015 390,534
Residential 1-4 Unit - Refinance 32,398 14,302 — 46,700 499,730 546,430
Short Term 1-4 Unit - Purchase 10,073 — — 10,073 15,989 26,062
Short Term 1-4 Unit - Refinance — — — — 157 157
Total loans collectively evaluated $ 115,624 $ 45,940 $ — $ 161,564 $ 1,949,431 $ 2,110,995
Ending balance $ 125,304 $ 51,689 $ 297,866 $ 474,859 $ 1,949,431 $ 2,424,290
  • Includes loans in bankruptcy and foreclosure less than 90 days past due.

In addition to the aging status, the Company also evaluates credit quality by accrual status. The following tables present the amortized cost in loans held for investment, excluding loans held for investment at fair value, based on accrual status and by loan origination year as of September 30, 2025 and December 31, 2024.

Term Loans Amortized Cost Basis by Origination Year
September 30, 2025: 2022 2021 2020 2019 Prior Total
(In thousands)
Commercial - Purchase
Payment performance
Performing $ 202,085 $ 190,177 $ 22,250 $ 29,670 $ 35,224 $ 479,406
Nonperforming 10,520 11,195 3,435 3,477 1,368 29,995
Total Commercial - Purchase $ 212,605 $ 201,372 $ 25,685 $ 33,147 $ 36,592 $ 509,401
Commercial - Refinance
Payment performance
Performing 189,091 $ 154,822 $ 34,322 $ 66,485 $ 103,563 $ 548,283
Nonperforming 25,144 16,673 3,600 15,311 25,404 86,132
Total Commercial - Refinance $ 214,235 $ 171,495 $ 37,922 $ 81,796 $ 128,967 $ 634,415
Residential 1-4 Unit - Purchase
Payment performance
Performing 150,726 $ 147,630 $ 4,789 $ 14,901 $ 20,273 $ 338,319
Nonperforming 12,374 10,569 1,394 1,052 5,705 31,094
Total Residential 1-4<br>   Unit - Purchase $ 163,100 $ 158,199 $ 6,183 $ 15,953 $ 25,978 $ 369,413
Residential 1-4 Unit - Refinance
Payment performance
Performing $ 193,038 $ 177,253 $ 14,534 $ 40,118 $ 45,267 $ 470,210
Nonperforming 30,319 38,334 3,409 12,570 14,787 99,419
Total Residential 1-4<br>   Unit - Refinance $ 223,357 $ 215,587 $ 17,943 $ 52,688 $ 60,054 $ 569,629
Short Term 1-4 Unit - Purchase
Payment performance
Performing $ — $ — $ 21,228 $ 7,186 $ — $ 28,414
Nonperforming 979 — 583 — — 1,562
Total Short Term 1-4<br>   Unit - Purchase $ 979 $ — $ 21,811 $ 7,186 $ — $ 29,976
Short Term 1-4 Unit - Refinance
Payment performance
Performing $ 4,549 $ — $ — $ — $ — $ 4,549
Nonperforming 1,216 — 1,845 8,207 3,105 14,373
Total Short Term 1-4<br>   Unit - Refinance $ 5,765 $ — $ 1,845 $ 8,207 $ 3,105 $ 18,922
Total Portfolio $ 820,041 $ 746,653 $ 111,389 $ 198,977 $ 254,696 $ 2,131,756
Gross charge-offs - quarter-ended September 30, 2025 $ 597 $ 63 $ 17 $ — $ — $ 677
Gross charge-offs - year-to-date September 30, 2025 $ 2,799 $ 329 $ 45 $ 75 $ 191 $ 3,439
Term Loans Amortized Cost Basis by Origination Year
--- --- --- --- --- --- --- --- --- --- --- --- ---
December 31, 2024 2022 2021 2020 2019 Prior Total
(In thousands)
Commercial - Purchase
Payment performance
Performing $ 223,564 $ 210,742 $ 24,253 $ 33,505 $ 40,461 $ 532,525
Nonperforming 13,046 6,524 4,994 5,758 2,968 33,290
Total Commercial - Purchase $ 236,610 $ 217,266 $ 29,247 $ 39,263 $ 43,429 $ 565,815
Commercial - Refinance
Payment performance
Performing $ 207,766 $ 167,568 $ 40,772 $ 76,886 $ 122,295 $ 615,287
Nonperforming 26,624 19,172 4,305 18,708 30,874 99,683
Total Commercial - Refinance $ 234,390 $ 186,740 $ 45,077 $ 95,594 $ 153,169 $ 714,970
Residential 1-4 Unit - Purchase
Payment performance
Performing $ 173,252 $ 167,804 $ 8,166 $ 17,740 $ 23,572 $ 390,534
Nonperforming 9,724 12,384 1,704 657 5,104 29,573
Total Residential 1-4<br>   Unit - Purchase $ 182,976 $ 180,188 $ 9,870 $ 18,397 $ 28,676 $ 420,107
Residential 1-4 Unit - Refinance
Payment performance
Performing $ 226,187 $ 201,247 $ 16,116 $ 46,487 $ 56,393 $ 546,430
Nonperforming 46,873 34,974 7,560 15,176 17,856 122,439
Total Residential 1-4<br>   Unit - Refinance $ 273,060 $ 236,221 $ 23,676 $ 61,663 $ 74,249 $ 668,869
Short Term 1-4 Unit - Purchase
Payment performance
Performing $ 2,044 $ — $ 17,985 $ 6,033 $ — $ 26,062
Nonperforming 4,170 — 584 — — 4,754
Total Short Term 1-4<br>   Unit - Purchase $ 6,214 $ — $ 18,569 $ 6,033 $ — $ 30,816
Short Term 1-4 Unit - Refinance
Payment performance
Performing $ 157 $ — $ — $ — $ — $ 157
Nonperforming 8,293 — 2,186 9,042 4,035 23,556
Total Short Term 1-4<br>   Unit - Refinance $ 8,450 $ — $ 2,186 $ 9,042 $ 4,035 $ 23,713
Total Portfolio $ 941,700 $ 820,415 $ 128,625 $ 229,992 $ 303,558 $ 2,424,290
Gross charge-offs - quarter-ended December 31, 2024 $ 111 $ 184 $ — $ 265 $ 139 $ 699
Gross charge-offs - year-ended December 31, 2024 $ 1,132 $ 219 $ — $ 265 $ 152 $ 1,768

Nonaccrual Loans - Loans Held for Investment at Fair Value

The following tables present the aggregate fair value of loans held for investment at fair value that are 90 days or more past due and/or in nonaccrual status, and the difference between the aggregate fair value and the aggregate unpaid principal balance as of September 30, 2025 and December 31, 2024 by loan segments:

Fair Value Unpaid Principal Balance Difference
Current–89 Days 90+ Days Past Due Current–89 Days 90+ Days Past Due 90+ Days Past Due
September 30, 2025 Past Due or Nonaccrual Total Past Due or Nonaccrual Total or Nonaccrual
(In thousands)
Commercial - Purchase $ 840,108 $ 31,815 $ 871,923 $ 774,279 $ 37,771 $ 812,050 $ (5,956 )
Commercial - Refinance 1,271,431 62,131 1,333,562 1,164,681 74,428 1,239,109 (12,297 )
Residential 1-4 Unit - Purchase 477,334 33,860 511,194 456,303 40,200 496,503 (6,340 )
Residential 1-4 Unit - Refinance 1,320,197 149,338 1,469,535 1,249,718 177,693 1,427,411 (28,355 )
Short Term 1-4 Unit - Purchase 74,743 8,106 82,849 74,076 9,767 83,843 (1,661 )
Short Term 1-4 Unit - Refinance 89,932 12,322 102,254 87,996 14,817 102,813 (2,495 )
Ending balance $ 4,073,745 $ 297,572 $ 4,371,317 $ 3,807,053 $ 354,676 $ 4,161,729 $ (57,104 )
Fair Value Unpaid Principal Balance Difference
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Current–89 Days 90+ Days Past Due Current–89 Days 90+ Days Past Due 90+ Days Past Due
December 31, 2024 Past Due or Nonaccrual Total Past Due or Nonaccrual Total or Nonaccrual
(In thousands)
Commercial - Purchase $ 505,244 $ 15,636 $ 520,880 $ 466,526 $ 18,586 $ 485,112 $ (2,950 )
Commercial - Refinance 672,504 24,129 696,633 620,332 29,195 649,527 (5,066 )
Residential 1-4 Unit - Purchase 381,660 28,352 410,012 366,431 34,457 400,888 (6,105 )
Residential 1-4 Unit - Refinance 862,971 103,985 966,956 819,633 126,340 945,973 (22,355 )
Short Term 1-4 Unit - Purchase 78,863 3,981 82,844 78,207 4,854 83,061 (873 )
Short Term 1-4 Unit - Refinance 76,277 13,349 89,626 74,620 16,036 90,656 (2,687 )
Ending balance $ 2,577,519 $ 189,432 $ 2,766,951 $ 2,425,749 $ 229,468 $ 2,655,217 $ (40,036 )

Note 7 — Receivables Due From Servicers

The following tables summarize receivables due from servicers as of September 30, 2025 and December 31, 2024:

September 30, 2025
Securitized Debt Warehouse and Repurchase Facilities and Other Total
(In thousands)
Loan principal payments due from servicers $ 67,271 $ 497 $ 67,768
Other loan servicing receivables 22,501 2,136 24,637
Loan servicing receivables 89,772 2,633 92,405
Corporate and escrow advances receivable 39,013 343 39,356
Total receivables due from servicers $ 128,785 $ 2,976 $ 131,761
December 31, 2024
--- --- --- --- --- --- ---
Securitized Debt Warehouse and Repurchase Facilities and Other Total
(In thousands)
Loan principal payments due from servicers $ 61,907 $ 1,695 $ 63,602
Other loan servicing receivables 17,246 5,404 22,650
Loan servicing receivables 79,153 7,099 86,252
Corporate and escrow advances receivable 33,387 3,855 37,242
Total receivables due from servicers $ 112,540 $ 10,954 $ 123,494

Note 8 — Real Estate Owned, Net

As of September 30, 2025, the carrying value of real estate owned was $113.7 million, of which all were pledged as collateral for the Company's securitized debt. As of December 31, 2024, the carrying value of real estate owned was $68.0 million, of which

$10.2 million were pledged as collateral under a warehouse repurchase agreement and $57.8 million were pledged as collateral for the Company's securitized debt.

Note 9 — Mortgage Servicing Rights

Mortgage loans sold with servicing retained are related to the Century business and not included in the Consolidated Balance Sheets. The unpaid principal balance of mortgage loans serviced for others amounted to $826.6 million and $804.1 million as of September 30, 2025 and 2024, respectively. The Company has elected to record its mortgage servicing rights using the fair value measurement method. Fair value adjustments recorded at the end of the current period reflect valuation changes from the prior period-end. Significant assumptions used in determining the fair value of servicing rights as of September 30, 2025 and 2024 include: (1) weighted average discount rate of 8.0%, and (2) weighted average conditional prepayment rate of 5.6% and 5.1%, respectively.

The following table presents the Company's mortgage servicing rights activity during the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Balance at the beginning of period $ 12,940 $ 12,229 $ 13,712 $ 8,578
Mortgage servicing rights acquired — 1,180 — 4,760
Additions — — 451 —
Fair value adjustments (343 ) (993 ) (1,566 ) (922 )
Balance at the end of period $ 12,597 $ 12,416 $ 12,597 $ 12,416

Note 10 — Goodwill

The following table presents the activity for goodwill as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024
(In thousands)
Balance at the beginning of period $ 6,775 $ 6,775
Balance at the end of period $ 6,775 $ 6,775

Note 11 — Securitized Debt at Amortized Cost and Securitized Debt at Fair Value

As of September 30, 2025, the Company is the sole beneficial interest holder of 33 Trusts, which are variable interest entities included in the consolidated financial statements. The securitization transactions are accounted for as secured borrowings under U.S. GAAP. The securities are subject to redemption by the Company when the stated principal balance is less than a certain percentage, ranging from 10% to 30% of the original stated principal balance of loans at issuance. As a result, the actual maturity dates of the securities issued could be earlier than their respective stated maturity dates, ranging from July 2028 through September 2055.

The following tables summarize securitized debt at amortized cost and securitized debt at fair value as of September 30, 2025 and December 31, 2024:

Securitized Debt, at Amortized Cost September 30, 2025 December 31, 2024
(In thousands)
Unpaid principal balance $ 1,813,334 $ 2,049,790
Deferred issuance costs and discounts (30,184 ) (30,734 )
Total securitized debt, at amortized cost $ 1,783,150 $ 2,019,056
Securitized Debt, at Fair Value September 30, 2025 December 31, 2024
--- --- --- --- --- --- ---
(In thousands)
Unpaid principal balance $ 3,739,705 $ 2,219,218
Adjustment at issuance to recognize fair value (1) (26,608 ) (18,231 )
Fair value at issuance 3,713,097 2,200,987
Valuation adjustment subsequent to issuance (2) 37,675 6,421
Fair value adjustment related to refinance of securitization trust (1,883 ) —
Total securitized debt at fair value $ 3,748,889 $ 2,207,408
  • Balance sheet adjustment to recognize fair value at issuance. This valuation adjustment is not recognized in net income.
  • Valuation adjustment recognized in net income. No valuation change is due to instrument specific credit risk as the Company’s (issuer) credit risk has not changed.

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of securitized debt at fair value as of September 30, 2025 and December 31, 2024:

Fair Value Unpaid Principal Balance Difference
(In thousands)
September 30, 2025 $ 3,748,889 $ 3,739,705 $ 9,184
December 31, 2024 2,207,408 2,219,218 (11,810 )

The following table presents the effective interest rate of securitized debt at amortized cost and securitized debt at fair value for the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,
2025 2024
( in thousands)
Interest expense $ 159,122
Average outstanding unpaid principal balance 3,668,377
Effective interest rate (1) % 5.78 %

All values are in US Dollars.

  • Effective interest rate represents annualized interest expense divided by average gross outstanding balance, which includes average rates of 5.96% and 5.53%, and debt issuance cost amortization of 0.14% and 0.25% for the nine months ended September 30, 2025 and 2024, respectively.

Note 12 — Other Debt

Secured financings and warehouse facilities are utilized to finance the origination and purchase of commercial real estate mortgage loans. Warehouse facilities are designated to fund mortgage loans that are purchased and originated within specified underwriting guidelines. Most of these lines of credit fund less than 100% of the principal balance of the mortgage loans originated and purchased, requiring the use of working capital to fund the remaining portion.

  • (a)

On March 15, 2022, the Company entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months. As of September 30, 2025 and December 31, 2024, the balance of the 2022 Term Loan was $215.0 million.

On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, the (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months. As of September 30, 2025 and December 31, 2024, the balance of the 2024 Term Loan was $75.0 million.

The total balance of the 2022 Term Loan and the 2024 Term Loan (“Corporate Debt”) in the Consolidated Balance Sheets is net of debt issuance costs and discount of $3.8 million and $5.2 million as of September 30, 2025 and December 31, 2024, respectively. The Corporate Debt is secured by substantially all assets of the Company not otherwise pledged under a securitized debt or warehouse facility and contains certain reporting and financial covenants. Should the Company fail to adhere to those covenants, the lenders have the right to demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of September 30, 2025, the Company was in compliance with all covenants.

  • (b)

On January 4, 2011, Century entered into a Master Participation and Facility Agreement with a bank (“the September 2022 Term Repurchase Agreement”). The Facility Agreement has a current extended maturity date of July 31, 2026, and is a short-term borrowing facility, collateralized by performing loans, with a maximum capacity of $60.0 million, and bears interest at one-month SOFR plus 1.60% with a 0.25% floor.

On May 17, 2013, the Company entered into a Repurchase Agreement (“the 2013 Repurchase Agreement”) with a warehouse lender. The 2013 Repurchase Agreement is a modified mark-to-market agreement and has a current maturity date of September 23, 2026, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of $400.0 million, and bears interest at SOFR plus 2.75%. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility.

On January 29, 2021, the Company entered into a non-mark-to-market Repurchase Agreement (“the 2021 Repurchase Agreement”) with a warehouse lender. The 2021 Repurchase Agreement has a current extended maturity date of May 20, 2026, and is a short-term borrowing facility, collateralized by a pool of loans. On July 25, 2024, the Company entered into a mark-to-market Repurchase Agreement (“the 2024 Repurchase Agreement”) with the same warehouse lender. The 2024 Repurchase Agreement also has a maturity date of May 20, 2026, and is a short-term borrowing facility, collateralized by a pool of loans. The maximum capacity under both agreements is $200.0 million individually and in the aggregate. The 2024 Repurchase Agreement includes a $75.0 million sublimit for nonperforming loans. Borrowings under these two facilities bear interest at SOFR plus 3.00% during the availability period and 4.00% during the amortization period. All borrower payments on loans financed under the warehouse repurchase facilities are first used to pay interest on the facilities.

On April 16, 2021, the Company entered into a non-mark-to-market Term Repurchase Agreement (“the 2021 Term Repurchase Agreement”) with a warehouse lender. The 2021 Term Repurchase Agreement has a maturity date of April 14, 2028, with an extended borrowing period through April 14, 2027. During the borrowing period, the Company can take loan advances from time to time, subject to availability. Each loan advance bears interest at SOFR plus 2.95%. The maximum capacity under this facility is $100.0 million.

On December 27, 2023, the Company entered into a loan facility agreement (“the 2023 Repurchase Agreement”) with a bank. The 2023 Repurchase Agreement has a maturity date of December 27, 2026. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at

SOFR

plus 3.00%. The maximum loan amount under this facility is $125.0 million.

On November 7, 2024, the Company entered into a non-mark-to-market secured revolving loan facility agreement (“the 2024 Bank Credit Agreement”) with a bank. The 2024 Bank Credit Agreement has a current maturity date of May 7, 2027. Each loan advance bears interest at SOFR plus 3.50%, with a floor of 2.00%. The maximum loan amount under this facility is $50.0 million.

Certain loans are pledged as collateral under the warehouse repurchase facilities and the revolving loan facility, which contain covenants. Should the Company fail to adhere to those covenants or otherwise default under the facilities, the lenders have the right to terminate the facilities and demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of September 30, 2025 and December 31, 2024, the Company was in compliance with all covenants.

The following table summarizes the maximum borrowing capacity, current gross balances outstanding, and effective interest rates of the Company’s warehouse facilities and loan agreements as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024
Contract Date Maturity Date Period EndBalance (1) Maximum<br>Borrowing<br>Capacity Effective Interest Rate Period End<br>Balance (1) Maximum<br>Borrowing<br>Capacity Effective Interest Rate
( in thousands)
The September 2022 term repurchase agreement 01/04/11 07/31/26 $ 60,000 6.0 % $ — $ 60,000 6.5 %
The 2013 repurchase agreement 05/17/13 09/23/26 400,000 7.8 106,675 300,000 9.0
The 2021/2024 repurchase agreements 1/29/2021<br>7/25/2024 05/20/26 200,000 8.0 126,815 200,000 9.0
The 2021 term repurchase agreement 04/16/21 04/14/28 100,000 7.7 52,408 100,000 8.5
The 2023 repurchase agreement 12/27/23 12/27/26 125,000 8.4 44,900 75,000 9.7
The 2024 bank credit agreement 11/07/24 05/07/27 50,000 8.8 19,248 50,000 9.2
Total $ 935,000 $ 350,046 $ 785,000

All values are in US Dollars.

  • Warehouse repurchase facilities amounts on the Consolidated Balance Sheets are net of debt issuance costs, amounting to $2.3 million and $2.0 million as of September 30, 2025 and December 31, 2024, respectively.

The following table provides an overview of the activity and effective interest rates of the Company’s warehouse facilities and loan agreements for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
( in thousands)
Average outstanding balance $ 311,560 $ 417,247 $ 280,716
Highest outstanding balance at any month-end 435,700 571,834 435,700
Effective interest rate (1) % 9.12 % 8.00 % 9.32 %

All values are in US Dollars.

  • Effective interest rate represents annualized interest expense divided by average gross outstanding balance. The rate includes average rate of 7.69% and 8.71%, and debt issuance cost amortization of 0.49% and 0.41%, for the three months ended September 30, 2025 and 2024, respectively, and includes average rate of 7.54% and 8.76%, and debt issuance cost amortization of 0.46% and 0.56%, for the nine months ended September 30, 2025 and 2024, respectively.

The following table provides a summary of interest expense that includes interest, amortization of discount, and deal cost amortization of the Company’s warehouse facilities, securitizations and other financing for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Warehouse and repurchase facilities $ 8,277 $ 7,105 $ 25,037 $ 19,612
Securitized debt 80,622 56,766 220,788 159,122
Interest expense — portfolio related 88,899 63,871 245,825 178,734
Interest expense — corporate debt 6,144 6,143 18,429 17,677
Total interest expense $ 95,043 $ 70,014 $ 264,254 $ 196,411

Note 13 — Commitments and Contingencies

  • (a)

When the Company sells loans, it is required to make normal and customary representations and warranties about the loans to the purchaser. The loan sale agreements generally require the Company to repurchase loans if the Company breaches a representation or warranty given to the loan purchaser. In addition, the Company may be required to repurchase loans as a result of borrower fraud or if a payment default occurs on a loan shortly after its sale.

The Company records a repurchase liability relating to representations and warranties and early payment defaults. The method used to estimate the liability for repurchase is a function of the representations and warranties given and considers a combination of factors, including, but not limited to, estimated future defaults and loan repurchase rates and the potential severity of loss in the event of defaults. The Company establishes a liability at the time loans are sold and continually updates the estimated repurchase liability. The level of the repurchase liability for representations and warranties and early payment default requires considerable management judgment.

The Company regularly evaluates the adequacy of repurchase reserves based on trends in repurchase, actual loss experience, estimated future loss exposure and other relevant factors including economic conditions. As of September 30, 2025 and December 31, 2024, the balance of repurchase liability was $144 thousand, and is included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets.

  • (b)

The Company is a party to various legal proceedings in the normal course of business. The Company, after consultation with legal counsel, believes the disposition of all pending litigation will not have a material effect on the Company’s consolidated financial condition or results of operations as of September 30, 2025.

  • (c)

Under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria.

The Company applied for ERC for the first three quarters’ wages paid in calendar year 2021. During the second quarter of 2023, the Company received approximately $4.2 million of ERC. Due to the subjectivity of the credit, the Company elected to account for the ERC as a gain analogizing to ASC 450-30, Gain Contingencies. Accordingly, the $4.2 million ERC, net of the third-party specialist fees of $0.6 million, are deferred until the uncertainty surrounding them is resolved. The net amount is included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024.

  • (d)

Century originated a $25.9 million government-back construction loan in September 2025. The funded portion of the construction loan is presented as “Loans held for sale, at fair value" in the Consolidated Balance Sheets. The unfunded portion of the construction loan totaled $23.8 million as of September 30, 2025.

Note 14 — Stock-Based Compensation

The Company’s Amended and Restated 2020 Omnibus Incentive Plan, or “the 2020 Plan,” authorizes grants of stock‑based compensation instruments including but not limited to non-qualified stock options, restricted stock awards (“RSAs”) and performance stock unit awards (“PSUs”) to certain employees and non-employee directors of the Company, to purchase or issue up to 4,520,000 shares of the Company's common stock.

Expenses related to the stock-based compensation instruments and Employee Stock Purchase Plan (“ESPP”) are included in “Compensation and employee benefits” and “Other operating expenses” on the Consolidated Statements of Income.

Below are summaries of the recognized and unrecognized stock-based compensation expense by instrument for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Recognized compensation expense:
Options $ 71 $ 70 $ 331 $ 74
RSAs 1,001 603 2,509 1,776
PSUs 959 768 2,814 2,072
ESPP 123 133 499 588
Total recognized compensation expense $ 2,154 $ 1,574 $ 6,153 $ 4,510
September 30, 2025
--- --- ---
(In thousands)
Unrecognized compensation expense:
Options $ 125
RSAs 6,691
PSUs 4,151
ESPP 102
Total unrecognized compensation expense $ 11,069
Weighted average period expected to be recognized (in years)
Options 2.0
RSAs 2.2

Stock Options

Stock option awards provide for the option to purchase the Company's common stock. From the date of the grant, the stock options generally vest ratably over a service period of three years and are exercisable for a period up to ten years.

The Company uses the Black-Scholes option pricing model to value stock options in determining the stock-based compensation expense. Compensation expense is recognized over the three-year vesting period using the straight-line method. Forfeitures are recognized as they occur. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The expected dividend yield is zero as the Company does not expect to pay dividends in the foreseeable future. Expected volatility is based on historical volatilities of the Company’s common stock.

The Company modified 283,790 stock options granted to employees in August 2024 into 74,746 RSAs in July 2025. The exchange ratio is based on the original grant-date fair value of the stock options. This change is deemed to be a Type I modification under ASC 718, Compensation - Stock Compensation and did not result in any additional compensation expense to be recognized by the Company.

The table below summarizes stock option activity for the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,
2025 2024
( in thousands, except per share amounts)
Number of shares:
Options outstanding at beginning of period 752,964
Granted 83,359
Modified ) —
Options outstanding at end of period 836,323
Options exercisable at end of period 749,321
Options expected to vest (1) 87,002
Weighted average exercise price per share:
Options outstanding at beginning of period $ 12.88
Granted 18.23
Modified —
Options outstanding at end of period $ 13.41
Options exercisable at end of period 12.88
Options expected to vest (1) 17.95
Aggregate intrinsic value (2):
Options outstanding at end of period $ 5,183
Options exercisable at end of period 5,039
Options expected to vest (1) 144
Weighted average remaining contractual life (in years):
Options outstanding at end of period 5.8
Options exercisable at end of period 5.3
Options expected to vest (1) 9.8

All values are in US Dollars.

  • The number of options expected to vest reflects no expected forfeiture.
  • The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price.

RSAs

The fair value of RSAs is determined based on the fair market value of the Company's common shares on the grant date. The estimated fair value of RSA awards is generally amortized as an expense over the three-year requisite service period. The Company has elected to recognize forfeitures as they occur rather than estimating service-based forfeitures over the requisite service period.

The table below summarizes RSA activity for the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,
2025 2024
Employee Non-Employee Director Total Employee Non-Employee Director Total
Number of shares:
Unvested at beginning of period 355,505 47,430 402,935 409,137 61,276 470,413
Granted 329,495 17,292 346,787 195,164 15,939 211,103
Vested (190,522 ) (26,261 ) (216,783 ) (248,796 ) (29,785 ) (278,581 )
Unvested at end of period 494,478 38,461 532,939 355,505 47,430 402,935
Weighted average grant date fair value per share:
Unvested at beginning of period $ 13.52 $ 12.03 $ 13.35 $ 9.39 $ 9.31 $ 9.38
Granted 18.78 16.48 18.66 15.93 17.88 16.08
Vested 13.73 10.85 13.38 8.61 9.57 8.71
Unvested at end of period $ 16.95 $ 14.83 $ 16.79 $ 13.52 $ 12.03 $ 13.35

PSUs

In February 2022, the Company began granting PSUs to certain employees, including named executive officers under the 2020 Plan. PSUs are linked to the average core net income annual growth over the three-year period from the year of grant. Settlement of vested PSUs will be made on the date that the Compensation Committee certifies the average core net income annual growth for the three-year period. PSUs are subject to forfeiture until predetermined performance conditions have been achieved. The number of shares issued at the end of any performance period could range between 0% and 200% of the original target award amount. Compensation expense related to PSUs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using an estimate of the probability of achieving the performance target. Adjustments to compensation expense are made each year based on changes in estimate of the number of PSUs that are probable of vesting.

The table below summarizes PSU activity for the nine months ended September 30, 2025 and 2024:

Nine Months Ended September 30,
2025 2024
Number of Shares Weighted Average Grant Date Fair Value Per Share Number of Shares Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period, unvested 517,131 $ 12.83 256,387 $ 11.05
Granted (1) 155,165 18.82 157,994 15.86
Performance adjustment 153,637 10.00 102,750 12.63
Vested (205,500 ) 12.63 — —
Outstanding at end of period, unvested 620,433 $ 13.69 517,131 $ 12.83
  • The number of PSUs are presented at 100% of the specified target shares.

ESPP

In July 2022, the Company initiated an ESPP which allows permitted eligible employees to purchase shares of the Company's common stock through payroll deductions of up to 15% of their eligible compensation, subject to certain limitations. The purchase price of the shares under the ESPP equals 85% of the lower of the fair market value of the Company's common stock on either the first or last day of each offering period. Compensation expense for the ESPP is calculated as of the beginning of the offering period as the fair value of the employees’ purchase rights utilizing the Black-Scholes option valuation model and is recognized as a compensation expense over the offering period.

Treasury Stock

Treasury stock represents shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting or exercise of stock-based awards and shares surrendered to the Company to satisfy the warrant price in connection with warrants exercised. During the three months ended September 30, 2025, shares withheld were 9,600 at an average price of $18.74. No shares were withheld for the three months ended September 30, 2024.

Note 15 — Earnings Per Share

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock that shared in earnings.

The following table presents the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands, except per share data)
Basic EPS:
Net income attributable to Velocity Financial, Inc. $ 25,373 $ 15,803 $ 70,257 $ 47,832
Less: undistributed earnings attributable to unvested restricted stock awards 352 191 871 580
Net earnings attributable to common stockholders $ 25,021 $ 15,612 $ 69,386 $ 47,252
Weighted average common shares outstanding 38,073 32,711 36,335 32,613
Basic earnings per common share $ 0.66 $ 0.48 $ 1.91 $ 1.45
Diluted EPS:
Net income attributable to Velocity Financial, Inc. $ 25,373 $ 15,803 $ 70,257 $ 47,832
Weighted average common shares outstanding 38,073 32,711 36,335 32,613
Add dilutive effects for warrants — 2,435 811 2,391
Add dilutive effects for stock options 221 238 219 199
Add dilutive effects of unvested restricted stock awards 138 185 120 163
Add dilutive effects of unvested performance-based stock units 368 323 331 278
Add dilutive effects of employee stock purchase plan — 3 1 1
Weighted average diluted common shares outstanding 38,800 35,895 37,817 35,645
Diluted earnings per common share $ 0.65 $ 0.44 $ 1.86 $ 1.34

The following table sets forth the number of shares excluded from the computation of diluted earnings per share, as their inclusion would have been anti-dilutive:

Three Months Ended September 30, Nine Months Ended September 30,
2025(1) 2024 2025(1) 2024(1)
Stock options 317,581 83,359 314,421 27,853
Unvested restricted stock awards — 5,485 65,765 70,368
Employee stock purchase plan — — — 35,846
Share equivalents excluded from EPS 317,581 88,844 380,186 134,067
  • Weighted average.

Note 16 — Warrants and Related Party Transactions

On April 7, 2020, the Company issued and sold in a private placement 45,000 newly issued shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred”), at a price per share of $1,000, plus warrants (the “Warrants”) to purchase an aggregate of 3,013,125 shares of the Company’s common stock to funds affiliated with TruArc Partners (“TruArc”), formerly Snow Phipps, and a fund affiliated with Pacific Investment Management Company LLC (“TOBI”). TruArc and TOBI are considered affiliates and, therefore, are related parties to the Company. The awards were treated as equity awards at the date of issuance.

On October 8, 2021, the Company exercised its option to convert all of its 45,000 outstanding shares of Series A Convertible Preferred Stock into 11,688,310 shares of its common stock.

In April 2025, three funds affiliated with a related party of the Company completed the exercise of their Warrants to purchase an aggregate 1,339,166 shares of the Company's common stock, resulting in the Company issuing net shares of 1,080,338 common stock after the withholding and transfer of an aggregate of 258,828 shares of common stock into the Company’s treasury account. In May 2025, a related party of the Company completed the exercise of their Warrants to purchase an aggregate 1,673,958 shares of the Company's common stock. Net proceeds from warrants exercised amounted to $10.9 million. As of June 30, 2025, all warrants were exercised by the Company's related parties.

In the ordinary course of business, the Company sells held for sale loans, and issues securitized debt to various financial institutions and investors through a market bidding process. As a result of this process, the Company may sell held for sale loans and/or issue securitized debt to an affiliate.

The following table presents the related party transactions completed for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Loans sold to affiliates $ — $ — $ — $ 28,726
Securitized debt issued to affiliates 6,650 — 93,980 —

Note 17 — Derivative Instruments

In September 2023, the Company began utilizing derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility related to its forecasted issuances of fixed-rate debt through its securitization process. The derivative instruments include forward starting interest rate swaps or interest rate payer and receiver swaptions. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark SOFR between the time the fixed rate mortgages are originated and the fixed rate debt is issued. As of September 30, 2025, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed four years.

The gains or losses on derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the quarters ended September 30, 2025 and 2024, $192 thousand of after-tax net loss, and $92 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. For the nine months ended September 30, 2025 and 2024, $459 thousand of after-tax net loss and $83 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. As of September 30, 2025 and 2024, the Company had $2.9 million and $2.7 million of after-tax net unrealized loss, respectively, associated with cash flow hedging instruments recorded in AOCI. As of September 30, 2025, the Company expects to reclassify an estimated $0.7 million of after-tax net unrealized loss on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following tables present the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024:

September 30, 2025
Derivatives designated as hedging instruments: Balance Sheet Location Notional Amount Fair Value (1)
Cash flow hedges: (In thousands)
Interest rate payer and receiver swaptions Derivative asset $ 226,000 $ 18
December 31, 2024
--- --- --- --- --- ---
Derivatives designated as hedging instruments: Balance Sheet Location Notional Amount Fair Value (1)
Cash flow hedges: (In thousands)
Forward starting payer interest rate swaps Derivative liability $ — $ —
  • Fair value reported is exclusive of collateral held and pledged, related to derivative exposure between the Company and its derivative counterparty. As of September 30, 2025, collateral pledged to its derivative counterparty was $0.6 million. As of December 31, 2024, no collateral was pledged to its derivative counterparty. These amounts were included in “Other receivables” on the Consolidated Balance Sheets.

The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.

Note 18 — Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in the components of accumulated other comprehensive income (loss) balances for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Beginning balance $ (3,207 ) $ 1,598 $ (805 ) $ (1,210 )
Net unrealized gain (loss) on cash flow hedges arising during the period, net of tax 98 (4,161 ) (2,571 ) (1,362 )
Reclassification adjustments included in net income 192 (92 ) 459 (83 )
Ending balance $ (2,917 ) $ (2,655 ) $ (2,917 ) $ (2,655 )

The following tables present the components of other comprehensive income (loss) and the related tax effect for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30,
2025 2024
Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax
(In thousands)
Cash flow hedges:
Interest rate swaps/swaptions:
Net unrealized gain (loss) arising during the period $ 140 $ 42 $ 98 $ (5,731 ) $ (1,570 ) $ (4,161 )
Reclassification adjustments included in net income 269 77 192 (126 ) (34 ) (92 )
Other comprehensive income (loss) $ 409 $ 119 $ 290 $ (5,857 ) $ (1,604 ) $ (4,253 )
Nine Months Ended September 30,
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2025 2024
Before-Tax Tax Effect Net-of-Tax Before-Tax Tax Effect Net-of-Tax
(In thousands)
Cash flow hedges:
Interest rate swaps/swaptions:
Net unrealized loss arising during the period $ (3,613 ) $ (1,042 ) $ (2,571 ) $ (1,889 ) $ (527 ) $ (1,362 )
Reclassification adjustments included in net income 645 186 459 (114 ) (31 ) (83 )
Other comprehensive loss $ (2,968 ) $ (856 ) $ (2,112 ) $ (2,003 ) $ (558 ) $ (1,445 )

Note 19 — Fair Value Measurements

Fair Value Determination

ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:

  • Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets.
  • Level 2 - Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.
  • Level 3 - Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs. Given the nature of some of the Company’s assets and liabilities, clearly determinable

market-based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.

Below is a description of the valuation methods for the assets and liabilities recorded at fair value on either a recurring or nonrecurring basis and for estimating fair value of financial instruments not recorded at fair value for disclosure purposes. While management believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the measurement date.

Cash, Cash Equivalents and Restricted Cash

Cash and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market, a Level 1 measurement.

Loans Held for Investment, at Amortized Cost and Loans Held for Investment, at Fair Value

The Company uses a third-party loan valuation specialist to estimate the fair value of its nonperforming mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s nonperforming mortgage loans are interest rates, market yield requirements, the probability of default, loss given default, voluntary prepayment speed and loss timing. The Company uses a third-party loan valuation model to estimate the fair value of its performing mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s performing mortgage loans are discount rate, constant prepayment rate, constant default rate, and loss severity rate. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement.

Collateral Dependent or Loans Individually Evaluated

Nonaccrual loans held for investment and carried at amortized cost are evaluated individually and are adjusted to the fair value of the collateral when the fair value of the collateral is below the carrying value of the loan. To the extent such a loan is collateral dependent, the Company determines the allowance for credit losses based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on appraisals or broker price opinions obtained, less estimated costs to sell, a Level 3 measurement.

Loans Held for Sale, at Fair Value

The Company elected to account for certain loans originated with the intent to sell at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). The FVO loans held for sale are measured based on a discounted cash flow model, or on the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value, including the value attributable to mortgage servicing and credit risk, and current commitments to purchase loans, a Level 2 measurement. Management identified all loans to be accounted for at estimated fair value at the instrument level. Changes in fair value are reflected in income as they occur.

Real Estate Owned, Net (“REO”)

Real estate owned, net is initially recorded at the property’s estimated fair value, based on appraisals or broker price opinions obtained, less estimated costs to sell at acquisition date, a Level 3 measurement. From time to time, nonrecurring fair value adjustments are made to real estate owned, net based on the current updated appraised value of the property, or management’s judgment and estimation of value based on recent market trends or negotiated sales prices with potential buyers.

Mortgage Servicing Rights

The Company determined the fair values based on a third-party valuation specialist using a model that calculates the present value of estimated future net servicing income, a Level 3 measurement.

Derivative Instruments

Derivative financial instruments are measured at fair value using readily observable market inputs and the overall fair value measurement is classified as Level 2.

Secured Financing, Net (“Corporate Debt”)

The Company determined the fair values estimate of the secured financing using the estimated cash flows discounted at an appropriate market rate, a Level 3 measurement.

Warehouse Repurchase Facilities, Net

Warehouse repurchase facilities are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities of one-year or less and interest rates that approximate market plus a spread, a Level 2 measurement.

Securitized Debt, at Amortized Cost and Securitized Debt, at Fair Value

The Company obtains the fair value estimates at instrument level from a third-party broker dealer based on trader input on benchmark securities. The fair values take into consideration input factors such as bond structure and collateral characteristics, and performance and pricing factors such as yield, spread, average life, prepayment speeds, default rate, and severity. The fair values are considered a Level 2 measurement. Significant changes in any of the input factors in isolation could result in a significant change to securitized debt’s fair value measurement.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and accrued interest payable approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

The Company does not have any off-balance sheet financial instruments.

Receivables Due From Servicers

The carrying amounts of receivables due from servicers approximate fair value due to the short-term nature of these instruments, a Level 1 measurement.

Fair Value Disclosures

The following tables present information on assets and liabilities measured and recorded at fair value as of September 30, 2025 and December 31, 2024, by level, in the fair value hierarchy:

Fair Value Measurements Using Total at
September 30, 2025 Level 1 Level 2 Level 3 Fair Value
(In thousands)
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net $ — $ — $ 10,756 $ 10,756
Real estate owned, net — — 113,700 113,700
Total nonrecurring fair value measurements — — 124,456 124,456
Recurring fair value measurements:
Loans held for sale, at fair value — 2,590 — 2,590
Loans held for investment, at fair value — — 4,371,317 4,371,317
Mortgage servicing rights — — 12,597 12,597
Derivative assets — 18 — 18
Total recurring fair value measurements — 2,608 4,383,914 4,386,522
Total assets $ — $ 2,608 $ 4,508,370 $ 4,510,978
Liabilities:
Recurring fair value measurements:
Securitized debt, at fair value $ — $ 3,748,889 $ — $ 3,748,889
Total recurring fair value measurements — 3,748,889 — 3,748,889
Total liabilities $ — $ 3,748,889 $ — $ 3,748,889
Fair Value Measurements Using Total at
--- --- --- --- --- --- --- --- ---
December 31, 2024 Level 1 Level 2 Level 3 Fair Value
(In thousands)
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net $ — $ — $ 11,884 $ 11,884
Real estate owned, net — — 68,000 68,000
Total nonrecurring fair value measurements — — 79,884 79,884
Recurring fair value measurements:
Loans held for investment, at fair value — — 2,766,951 2,766,951
Mortgage servicing rights — — 13,712 13,712
Total recurring fair value measurements — — 2,780,663 2,780,663
Total assets $ — $ — $ 2,860,547 $ 2,860,547
Liabilities:
Recurring fair value measurements:
Securitized debt, at fair value $ — $ 2,207,408 $ — $ 2,207,408
Total recurring fair value measurements — 2,207,408 — 2,207,408
Total liabilities $ — $ 2,207,408 $ — $ 2,207,408

The following table presents gains and losses recognized on assets measured on a nonrecurring basis for the three and nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, Nine Months Ended September 30,
Gain (Loss) on Assets Measured on a Nonrecurring Basis 2025 2024 2025 2024
(In thousands)
Real estate owned, net $ (6,307 ) $ (1,642 ) $ (10,530 ) $ (3,903 )
Individually evaluated loans requiring specific allowance, net (566 ) (176 ) (1,007 ) (816 )
Total net loss $ (6,873 ) $ (1,818 ) $ (11,537 ) $ (4,719 )

The following tables present the primary valuation techniques and unobservable inputs related to Level 3 assets that are recorded on a recurring and nonrecurring basis as of September 30, 2025 and December 31, 2024:

September 30, 2025
Asset Category Fair Value Primary<br>Valuation<br>Technique Unobservable<br>Input Range Weighted<br>Average (1)
( in thousands)
Nonrecurring:
Individually evaluated<br>   loans requiring specific<br>   allowance, net Market comparables Selling costs 8.0% 8.0%
Real estate owned, net Market comparables Selling costs 8.0% 8.0%
Recurring:
Loans held for investment,<br>   at fair value Discounted cash flow Discount rate 7.8% 7.8%
Prepayment rate 0.0% to 65.0% 11.4%
Default rate 0.4% to 6.0% 1.4%
Loss severity rate 0.0% to 8.9% 0.9%
Mortgage servicing rights Discounted cash flow Discount rate 8.0% 8.0%
Prepayment rate 2.2% to 12.0% 5.6%

All values are in US Dollars.

  • Individually evaluated loans requiring specific allowance, net is weighted by collateral value; real estate owned, net is weighted by selling price; loans held for investment at fair value and mortgage servicing rights are weighted by UPB.
December 31, 2024
Asset Category Fair Value Primary<br>Valuation<br>Technique Unobservable<br>Input Range Weighted<br>Average (1)
( in thousands)
Nonrecurring:
Individually evaluated<br>   loans requiring specific<br>   allowance, net Market comparables Selling costs 8.0% 8.0%
Real estate owned, net Market comparables Selling costs 8.0% 8.0%
Recurring:
Loans held for investment,<br>   at fair value Discounted cash flow Discount rate 8.4% 8.4%
Prepayment rate 0.0% to 30.0% 9.0%
Default rate 0.1% to 2.8% 1.0%
Loss severity rate 0.0% to 10.5% 1.0%
Mortgage servicing rights Discounted cash flow Discount rate 8.0% 8.0%
Prepayment rate 2.2% to 11.7% 5.1%

All values are in US Dollars.

  • Individually evaluated loans requiring specific allowance, net is weighted by collateral value; real estate owned, net is weighted by selling price; loans held for investment at fair value and mortgage servicing rights are weighted by UPB.

The following is a roll-forward of loans held for investment that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Beginning balance $ 3,826,505 $ 1,971,683 $ 2,766,951 $ 1,306,072
Originations 713,017 456,328 2,033,018 1,257,225
Loans liquidated (155,963 ) (93,065 ) (437,624 ) (232,615 )
Acquisition — 1,500 — 16,490
REO transfer (23,186 ) (4,227 ) (42,526 ) (6,448 )
Principal paydowns (19,519 ) (12,784 ) (43,707 ) (26,586 )
Unrealized gain included in net income 30,463 35,246 95,205 72,003
Loans transferred to held for sale — (936 ) — (32,515 )
Loans repurchased — 973 — 1,092
Ending balance $ 4,371,317 $ 2,354,718 $ 4,371,317 $ 2,354,718

The following is a roll-forward of loans held for sale that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Beginning balance $ — $ — $ — $ 17,590
Originations 2,071 18,947 47,879 18,947
Loans liquidated — (936 ) (46,953 ) (49,366 )
Principal paydowns — — — (31 )
Unrealized gain included in net income 519 — 519 —
Realized gain (loss) included in net income — 284 1,145 (424 )
Loans transferred from held for investment — 936 — 32,515
Ending balance $ 2,590 $ 19,231 $ 2,590 $ 19,231

The following is a roll-forward of securitized debt measured and recorded at estimated fair value on a recurring basis for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Beginning balance $ 3,232,769 $ 1,509,952 $ 2,207,408 $ 877,417
Additions 666,237 286,966 2,022,738 1,005,044
Paydowns and payoffs (160,105 ) (72,645 ) (512,511 ) (165,150 )
Total loss included in net income 9,988 24,995 31,254 31,957
Ending balance $ 3,748,889 $ 1,749,268 $ 3,748,889 $ 1,749,268

The Company estimates the fair value of certain financial instruments on a quarterly basis. These instruments are recorded at fair value using a valuation allowance only if they are individually evaluated. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. As of September 30, 2025 and December 31, 2024, financial assets and liabilities measured at fair value include loans held for investment at fair value, loans held for sale at fair value, mortgage servicing rights, derivative instruments, and securitized debt at fair value. Financial assets measured at the lower of cost or estimated fair value include certain individually evaluated loans held for investment and REOs, which are measured using unobservable inputs, including appraisals and broker price opinions on the values of the underlying collateral. Individually evaluated loans requiring an allowance were carried at approximately $10.8 million and $11.9 million as of September 30, 2025 and December 31, 2024, respectively, net of specific allowance for credit losses of approximately $2.0 million and $1.0 million, respectively.

A financial instrument is cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable terms. The methods and assumptions used in estimating the fair values of the Company’s financial instruments are described above.

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:

September 30, 2025
Carrying Estimated
Asset Category Value Level 1 Level 2 Level 3 Fair Value
(In thousands)
Assets:
Cash $ 98,964 $ 98,964 $ — $ — $ 98,964
Restricted cash 18,846 18,846 — — 18,846
Loans held for sale, at fair value 2,590 — 2,590 — 2,590
Loans held for investment, at amortized cost 2,127,170 — — 2,061,812 2,061,812
Loans held for investment, at fair value 4,371,317 — — 4,371,317 4,371,317
Accrued interest receivables 46,553 46,553 — — 46,553
Mortgage servicing rights 12,597 — — 12,597 12,597
Derivative assets 18 — 18 — 18
Liabilities:
Secured financing, net $ 286,218 $ — $ — $ 289,650 $ 289,650
Warehouse and repurchase facilities, net 332,386 — 332,386 — 332,386
Securitized debt, at amortized cost 1,783,150 — 1,653,645 — 1,653,645
Securitized debt, at fair value 3,748,889 — 3,748,889 — 3,748,889
Accrued interest payable 32,914 32,914 — — 32,914
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Carrying Estimated
Asset Category Value Level 1 Level 2 Level 3 Fair Value
(In thousands)
Assets:
Cash $ 49,901 $ 49,901 $ — $ — $ 49,901
Restricted cash 20,929 20,929 — — 20,929
Loans held for investment, at amortized cost 2,420,116 — — 2,321,141 2,321,141
Loans held for investment, at fair value 2,766,951 — — 2,766,951 2,766,951
Accrued interest receivable 35,235 35,235 — — 35,235
Mortgage servicing rights 13,712 — — 13,712 13,712
Liabilities:
Secured financing, net $ 284,833 $ — $ — $ 287,970 $ 287,970
Warehouse repurchase facilities, net 348,082 — 348,082 — 348,082
Securitized debt, at amortized cost 2,019,056 — 1,820,945 — 1,820,945
Securitized debt, at fair value 2,207,408 — 2,207,408 — 2,207,408
Accrued interest payable 28,028 28,028 — — 28,028

Note 20 — Segment Information

The Company operates as a single reportable segment, conducting its business activities within the United States. The Company's chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM regularly reviews net income as presented on the Company’s Consolidated Statements of Income for purposes of assessing performance and making decisions about resource allocation. Items regularly reviewed by the CODM include those line items reported on the Company’s Consolidated Statements of Income, the most significant of which include net interest income, unrealized gain (loss) on fair value loans, unrealized gain (loss) on fair value securitized debt, origination fee income, and compensation and benefits. See Consolidated Statements of Income.

Note 21 — Subsequent Events

The Company has evaluated events that have occurred subsequent to September 30, 2025 through the issuance of the accompanying consolidated financial statements and has concluded there are no other subsequent events that would require recognition or disclosure in the accompanying consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2024, as well as the unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”).

In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of federal securities laws. In particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond are forward-looking statements. For important information regarding these forward-looking statements, please see the discussion below under the caption “Forward-Looking Statements.”

References to “the Company,” “Velocity,” “we,” “us” and “our” refer to Velocity Financial, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise.

Business

We are a vertically integrated real estate finance company founded in 2004. We primarily originate and manage investor loans secured by 1-4 unit residential rental and commercial properties, which we refer to collectively as investor real estate loans. We originate loans nationwide across our extensive network of independent mortgage brokers which we have built and refined over the 21 years since our inception. Our objective is to be the preferred and one of the most recognized brands in our core market, particularly within our network of mortgage brokers.

We operate in a large and highly fragmented market with substantial demand for financing and limited supply of institutional financing alternatives. We have developed the highly specialized skill set required to effectively compete in this market, which we believe has afforded us a durable business model capable of generating attractive risk-adjusted returns for our stockholders throughout various business cycles. We offer competitive pricing to our borrowers by pursuing low-cost financing strategies and by driving front-end process efficiencies through customized technology designed to control the cost of originating a loan. Furthermore, by originating loans through our efficient and scalable network of approved mortgage brokers, we are able to maintain a wide geographical presence and nimble operating infrastructure capable of reacting quickly to changing market environments.

Our primary source of revenue is interest income earned on our loan portfolio. Our typical loan is secured by a first lien on the underlying property with a personal guarantee, and based on all loans in our portfolio as of September 30, 2025, has an average balance of approximately $393 thousand. As of September 30, 2025, our loan portfolio totaled $6.3 billion of UPB on properties in 48 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 65.5%, of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 49.2% of the UPB. For the three and nine months ended September 30, 2025, the annualized yields on our total portfolio were 9.54% and 9.44%, respectively.

We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitized debt, corporate debt, and equity. The securitized debt market is our primary source of long-term financing. We have successfully executed 44 securitized debt transactions, resulting in a total of over $9.9 billion in gross debt proceeds from May 2011 through September 2025. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.

One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on loans and interest expense paid on portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of warehouse facilities and securitized debt and excludes corporate debt. For the three and nine months ended September 30, 2025, our annualized portfolio related net interest margin were 3.65% and 3.62%, respectively, compared to 3.60% and 3.50% for the three and nine months ended September 30, 2024, respectively. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for credit losses and operating expenses. For the three and nine months ended September 30, 2025, including net income attributable to noncontrolling interest, we generated pre-tax income of $35.4 million and $96.2 million, and net income of $25.4 million and $70.2 million, respectively. For the three and nine months ended September 30, 2024, including net income attributable to noncontrolling interest, we generated pre-tax income of $21.2 million and $64.4 million, and net income of $15.8 million and $47.8 million, respectively.

On December 28, 2021, the Company acquired an 80% ownership interest in Century Health & Housing Capital, LLC (“Century”). Century is a licensed Ginnie Mae issuer/servicer that provides government-insured Federal Housing Administration (“FHA”) mortgage financing for multifamily housing, senior housing and long-term care/assisted living facilities. Century originates loans through its borrower-direct origination channel and services the loans through its in-house servicing platform, which enables the formation of long-term relationships with its clients and drives strong portfolio retention. Century earns origination fees and servicing fees from the mortgage servicing rights on its servicing portfolio.

Items Affecting Comparability of Results

Due to a number of factors, our historical financial results may not be comparable, either from period to period, or to our financial results in future periods. We have summarized the key factors affecting the comparability of our financial results below.

Recent Developments

Continued Market Uncertainties

Our operational and financial performance will depend on certain market developments, including the impact of tariffs, the actions of the Federal Reserve, the Russia/Ukraine war, the ongoing conflicts in the Middle East, the prolonged government shutdown, heightened stress in the real estate and corporate debt markets, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires certain judgments and assumptions, based on information available at the time of preparation of the consolidated financial statements, in determining accounting estimates used in preparation of the consolidated financial statements. The following discussion addresses the accounting policies that we believe apply to us based on the nature of our operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all the decisions and assessments used to prepare our financial statements are based upon reasonable assumptions given the information available at that time.

These policies and estimates relate to the allowance for credit losses and fair value option accounting. Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC.

How We Assess Our Business Performance

Net income is the primary metric by which we assess our business performance. Accordingly, we closely monitor the primary drivers of net income which consist of the following:

Net Interest Income

Net interest income is the largest contributor to our net income and is monitored both on an absolute basis and relative to provision for credit losses and operating expenses. We generate net interest income to the extent that the rate at which we lend in our portfolio exceeds the cost of financing our portfolio, which we primarily achieve through long-term securitized debt. Accordingly, we closely monitor the financing markets and maintain consistent dialogue with investors and financial institutions as we evaluate our financing sources and cost of funds.

To evaluate net interest income, we measure and monitor: (1) the yields on our loans, (2) the costs of our funding sources, (3) our net interest spread and (4) our net interest margin. Net interest spread measures the difference between the rates earned on our loans and the rates paid on our funding sources. Net interest margin measures the difference between our annualized interest income and annualized interest expense, or net interest income, as a percentage of average loans outstanding over the specified time period.

Periodic changes in net interest income are primarily driven by: (1) origination volume and changes in average outstanding loan balances and (2) interest rates and changes in interest earned on our portfolio or paid on our debt. Historically, origination volume and portfolio size have been the largest contributors to the growth in our net interest income. We measure net interest income before and after interest expense related to our corporate debt and before and after our provision for credit losses.

Credit Losses

We strive to minimize actual credit losses through our rigorous screening and underwriting process and life of loan portfolio management and special servicing practices. We closely monitor the credit performance of our loan portfolio, including delinquency rates and expected and actual credit losses, as a key factor in assessing our overall business performance.

Operating Expenses

We incur operating expenses from compensation and benefits related to our employee base, rent and other occupancy costs associated with our leased facilities, our third-party primary loan servicing vendors, professional fees to the extent we utilize third-party legal, consulting and advisory firms, and costs associated with the resolution and disposition of real estate owned, and securitization expenses, among other items. We monitor and strive to prudently manage operating expenses and to balance current period profitability with investment in the continued development of our platform. Because volume and portfolio size determine the magnitude of the impact of each of the above factors on our earnings, we also closely monitor origination volume along with all key terms of new loan originations, such as interest rates, loan-to-value ratios, estimated credit losses and expected duration.

Factors Affecting Our Results of Operations

Our results of operations depend on, among other things, the level of our net interest income, the credit performance of our loan portfolio and the efficiency of our operating platform. These measures are affected by various factors, including the demand for investor real estate loans, the competitiveness of the market for originating or acquiring investor real estate loans, the cost of financing our portfolio, operating costs, the availability of funding sources and the underlying performance of the collateral supporting our loans. While we have been successful at managing these elements in the past, there are certain circumstances beyond our control, including the ongoing geopolitical conflicts, the changing economic policies, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

Competition

The investor real estate loan market is highly competitive which could affect our profitability and growth. We believe we compete favorably through diversified borrower access driven by our extensive network of mortgage brokers and by emphasizing a high level of real estate and financial expertise, customer service, and flexibility in structuring transactions, as well as by attracting and retaining experienced managerial and marketing personnel. However, some of our competitors may be better positioned to market their services and financing programs because of their ability to offer more favorable rates and terms and other services.

Availability and Cost of Funding

Our primary funding sources have historically included cash from operations, warehouse facilities, term securitized debt, corporate debt, and equity. We believe we have an established brand in the term securitized debt market and that this market will continue to support our portfolio growth with long-term financing. Changes in macroeconomic conditions can adversely impact our ability to issue securitized debt and, thereby, limit our options for long-term financing. In consideration of this potential risk, we have entered into a credit facility for longer-term financing that will provide us with capital resources to fund loan growth in the event we are not able to issue securitized debt.

All our warehouse repurchase and revolving loan facilities have interest payment obligations tied to the Secured Overnight Offering Rate (“SOFR”).

Loan Performance

We underwrite and structure our loans to minimize potential losses. We believe our fully amortizing loan structures and avoidance of large balloon payments, coupled with meaningful borrower equity in properties, limit the probability of losses and that our proven in-house asset management capability allows us to minimize potential losses in situations where there is insufficient equity in the property. Our income is highly dependent upon borrowers making their payments and resolving delinquent loans as favorably as possible. Macroeconomic conditions can, however, impact credit trends in our core market and adversely affect financial results.

Macroeconomic Conditions

The investor real estate loan market may be impacted by a wide range of macroeconomic factors such as interest rates, residential and commercial real estate prices, home ownership and unemployment rates, and availability of credit, among others. We believe our prudent underwriting, conservative loan structures and interest rate protections, and proven in-house asset management capability leave us well positioned to manage changing macroeconomic conditions.

Portfolio and Asset Quality

Key Portfolio Statistics

September 30, 2025 June 30, 2025 September 30, 2024
( in thousands)
Total loans (UPB) $ 5,859,653 $ 4,753,266
Loan count 14,854 12,235
Average loan balance $ 394 $ 388
Weighted average loan-to-value % 65.8 % 67.0 %
Weighted average coupon % 9.70 % 9.37 %
Nonperforming loans (UPB) (A) $ 601,757 $ 503,939
Nonperforming loans (% of total) (A) % 10.3 % 10.6 %

All values are in US Dollars.

(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $31.6 million, $31.7 million and $43.2 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of September 30, 2025, June 30, 2025, and September 30, 2024, respectively.

Total Loans. Total loans reflects the aggregate UPB at the end of the period. It excludes deferred origination costs, acquisition discounts, fair value adjustments and allowance for credit losses.

Loan Count. Loan count reflects the number of loans at the end of the period. It includes all loans with an outstanding principal balance.

Average Loan Balance. Average loan balance reflects the average UPB at the end of the period (i.e., total loans divided by loan count).

Weighted Average Loan-to-Value. Loan-to-value, or LTV, reflects the ratio of the original loan amount to the appraised value of the underlying property at the time of origination. In instances where the LTV at origination is not available for an acquired loan, the LTV reflects our best estimate of value at the time of acquisition. Weighted average LTV is calculated for the population of loans outstanding at the end of each specified period using the original loan amounts and appraised LTVs at the time of origination of each loan. LTV is a key statistic because requiring the borrower to invest more equity in the collateral minimizes our exposure for future credit losses.

Weighted Average Coupon. Weighted average coupon reflects the weighted average loan rate at the end of the period.

Nonperforming Loans. Loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest, are considered nonperforming loans. The dollar amount of nonperforming loans presented in the table above reflects the UPB of all loans that meet this definition.

Originations and Acquisitions

The following table presents new loan originations including unfunded commitments and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated:

Loan Count Loan Balance Average<br>Loan Size Weighted<br>Average<br>Coupon Weighted<br>Average<br>LTV
( in thousands)
Three Months Ended September 30, 2025:
Loan originations — held for investment $ 713,016 $ 401 10.48 % 62.8 %
Loan originations — held for sale 2,071 2,071 5.90 % 85.0 %
Total loan originations $ 715,087 402 10.46 % 62.8 %
Unfunded commitments 23,869
Total loans originations including unfunded commitments $ 738,956 $ 415 10.46 % 62.8 %
Three Months Ended June 30, 2025:
Loan originations — held for investment $ 684,465 $ 420 10.47 % 62.7 %
Loan originations — held for sale 40,922 40,922 5.64 % 61.4 %
Total loan originations $ 725,387 $ 445 10.20 % 62.6 %
Three Months Ended September 30, 2024:
Loan originations — held for investment $ 457,828 $ 388 10.85 % 63.0 %
Loan originations — held for sale 18,947 18,947 5.16 % 65.8 %
Total loan originations $ 476,775 $ 404 10.62 % 63.1 %

All values are in US Dollars.

During the third quarter of 2025, loan originations including unfunded commitments increased $13.6 million and $262.2 million from the quarters ended June 30, 2025 and September 30, 2024, respectively.

Loans Held for Investment

Our total portfolio of loans held for investment consists of both loans held for investment carried at amortized cost and loans held for investment at fair value, which are presented in the Consolidated Balance Sheets as “Loans held for investment, at amortized cost” and “Loans held for investment, at fair value,” respectively. The following table shows the various components of loans held for investment as of the dates indicated:

September 30, 2025 December 31, 2024
(In thousands)
Unpaid principal balance $ 6,273,298 $ 5,055,937
Valuation adjustments on FVO loans 209,588 111,734
Deferred loan origination costs 20,187 23,570
Total loans held for investment, gross 6,503,073 5,191,241
Allowance for credit losses (4,586 ) (4,174 )
Loans held for investment, net $ 6,498,487 $ 5,187,067

The following table illustrates the contractual maturities of our loans held for investment in aggregate UPB and as a percentage of total held for investment loan portfolio as of the dates indicated:

September 30, 2025 December 31, 2024
UPB % UPB %
( in thousands)
Loans due in less than one year 2.7 % $ 157,521 3.1 %
Loans due in one to five years 1.4 83,993 1.7
Loans due in more than five years 95.9 4,814,423 95.2
Total loans held for investment 100.0 % $ 5,055,937 100.0 %

All values are in US Dollars.

Charge-offs, Gain (Loss) on REO

Our actual charge-offs have been minimal as a percentage of nonperforming loans held for investment. The valuation impact to our earnings from loans becoming REO or in REO is a combination of: (1) loan charge-offs, (2) gain on transfer to REO included in “Gain on disposition of loans” in the Consolidated Statements of Income, (3) net valuation adjustments on REO, and (4) net gain or loss on sale of REO.

The table below shows our actual charge-offs, gain on transfer of nonperforming loans to REO, net valuation adjustments on REO, and gain on sale of REO, for the periods indicated:

Nine Months Ended Nine Months Ended
September 30, 2025 September 30, 2024
( in thousands)
Average nonperforming loans for the period (1) $ 320,306
Charge-offs 1,069
Charge-offs / Average nonperforming loans for the period (1) % (2) 0.44 % (2)
Gain (loss) on REO:
Gain on transfer to REO $ 6,322
REO valuation loss, net ) (3,903 )
Gain on sale of REO 864
Total gain on REO $ 3,283

All values are in US Dollars.

  • Reflects the monthly average of nonperforming loans held for investment, excluding FVO loans, during the period.
  • Reflects annualized charge-offs to average nonperforming loans held for investment, excluding FVO loans, for the period.

Allowance for Credit Losses

For the September 30, 2025 current expected credit loss (“CECL”) estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate and reflected the uncertainties of a volatile market in light of the economic uncertainties surrounding tariffs and federal government layoffs and prolonged shutdown, contributing to a forecasted decreasing GDP and rising unemployment.

For the June 30, 2025 CECL estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate and reflected the uncertainties of a volatile market in light of the announced tariffs and federal government layoffs, contributing to a forecasted decreasing GDP and rising unemployment.

For the March 31, 2025 CECL estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate and reflected the uncertainties of a volatile market in light of the announced tariffs and federal government layoffs, contributing to a forecasted decreasing GDP and rising unemployment.

Our allowance for credit losses as of September 30, 2025 was $4.6 million compared to $4.9 million as of September 30, 2024. The decrease in allowance for credit losses from September 30, 2024 was primarily due to a decrease in the amortized cost loan portfolio subject to CECL, and the removal of COVID pandemic era data from the macroeconomic forecasts in the latest CECL model update. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices. Additionally, we believe borrower equity of 25% to 40% provides significant protection against credit losses. The various scenarios, the weighting of scenarios, as well as the forecast period and reversion to historical loss are subject to change as conditions in the market change and our ability to forecast as economic events evolve.

To estimate the allowance for credit losses in our portfolio of loans held for investment carried at amortized cost, we follow a detailed internal review process, considering a number of different factors including, but not limited to, our ongoing analyses of loans, historical loss rates, relevant environmental factors, relevant market research, trends in delinquencies, effects and changes in credit concentrations, and ongoing evaluation of fair values.

The following table illustrates the activity in our allowance for credit losses of loans held for investment, excluding loans held for investment, at fair value over the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Allowance for credit losses: ( in thousands)
Beginning balance $ 5,240 $ 4,174 $ 4,769
Provision for (reversal of) credit losses (69 ) 3,851 1,151
Charge-offs ) (320 ) (3,439 ) (1,069 )
Ending balance $ 4,851 $ 4,586 $ 4,851
Total UPB(1) $ 2,506,426 $ 2,111,569 $ 2,506,426
Nonperforming loans UPB $ 314,456 $ 259,683 $ 314,456
Nonperforming loans UPB / Total UPB(1) % 12.5 % 12.3 % 12.5 %
Allowance for credit losses / Total UPB(1) % 0.19 % 0.22 % 0.19 %
Charge-offs / Total UPB(1) % (2) 0.05 % (2) 0.22 % (2) 0.06 % (2)

All values are in US Dollars.

  • Reflects the UPB of loans held for investment at amortized cost.
  • Annualized.

The allowance for credit losses was 0.22% of total UPB of loans held for investment carried at amortized cost as of September 30, 2025. Nonperforming loans were 12.3% of total UPB of loans held for investment carried at amortized cost as of September 30, 2025. We believe the allowance for credit losses is adequate because historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and active management of our portfolio. Historically, our actual annual charge-offs rate was 0.07% over the last six years.

Credit Quality – Loans Held for Investment

The following table provides delinquency information on our loans held for investment by UPB as of the dates indicated:

September 30, 2025 (A) COVID-19<br>Forbearance June 30, 2025 (A) COVID-19<br>Forbearance September 30, 2024 (A) COVID-19<br>Forbearance
( in thousands)
Performing/Accruing:
Current 82.9 % $ 85,206 $ 4,878,317 83.3 % $ 91,325 $ 3,921,488 82.8 % $ 90,815
30-59 days past due 5.1 8,827 263,390 4.4 3,971 197,890 4.2 8,962
60-89 days past due 2.2 3,738 116,189 2.0 3,506 111,002 2.4 10,893
Total Performing Loans 90.2 97,771 5,257,896 89.7 98,802 4,230,380 89.4 110,670
Nonperforming/Nonaccrual:
<90 days past due 0.5 835 29,136 0.5 2,302 20,055 0.4 1,557
90+ days past due 0.9 1,772 50,269 0.9 — 46,584 1.0 2,632
Bankruptcy 1.1 4,490 79,327 1.4 4,564 54,087 1.1 6,272
In foreclosure 7.3 24,475 443,025 7.5 24,871 383,213 8.1 32,724
Total nonperforming loans 9.8 31,572 601,757 10.3 31,737 503,939 10.6 43,185
Total loans held for investment 100.0 % $ 129,343 $ 5,859,653 100.0 % $ 130,539 $ 4,734,319 100.0 % $ 153,855

All values are in US Dollars.

  • Balance includes $129.3 million UPB of loans held for investment at amortized cost as of September 30, 2025, $130.5 million as of June 30, 2025, and $153.9 million as of September 30, 2024 in our COVID-19 forbearance program.

Loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were $614.2 million, or 9.8% of our held for investment loan portfolio as of September 30, 2025, compared to $601.8 million, or 10.3% as of June 30, 2025, and $503.9 million, or 10.6% as of September 30, 2024. The increase in total nonperforming loans as of September 30, 2025 compared to June 30, 2025 and September 30, 2024 was due to an increase in the size of our portfolio and management’s decision to move loans into foreclosure early in the delinquency process.

Resolution of Nonperforming Assets

Historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that became nonperforming prior to the beginning of the periods indicated or became nonperforming and subsequently resolved during the periods indicated. We resolved $108.0 million of long-term and short-term nonperforming assets for the quarter ended September 30, 2025, which was higher compared to $104.0 million for the quarter ended June 30, 2025, and $68.6 million for the quarter ended September 30, 2024. From these resolution activities, we realized net gains of $2.8 million, $3.6 million, and $2.3 million for the quarters ended September 30, 2025, June 30, 2025, and September 30, 2024, respectively. This is largely the result of collecting default interest and prepayment penalties in excess of the principal on loans and selling our REOs at prices higher than their carrying value.

The table below includes resolutions of our long-term nonperforming loans and REOs for the periods indicated:

Three Months Ended
Long-Term Nonperforming Assets September 30, 2025 June 30, 2025 September 30, 2024
UPB Gain /<br>(Loss) UPB Gain /<br>(Loss) UPB Gain /<br>(Loss)
( in thousands)
Resolved — loans paid in full $ 1,980 $ 32,220 $ 2,078 $ 23,875 $ 965
Resolved — loans paid current 448 45,396 390 34,957 567
Resolved — REO sold 97 11,167 548 1,431 290
Total resolutions $ 2,525 $ 88,783 $ 3,016 $ 60,263 $ 1,822
Recovery rate on resolved<br>   nonperforming assets 102.7 % 103.4 % 103.0 %

All values are in US Dollars.

Short-term loans, or loans with a maturity of two-year or less, do not require prepayment fees and usually result in a lower gain when paid in full, as compared to long-term loans. The table below includes resolutions of our short-term nonperforming loans and REOs, and loans granted a COVID-19 forbearance in 2020, for the periods indicated:

Three Months Ended
Short-Term and Forbearance Nonperforming Assets September 30, 2025 June 30, 2025 September 30, 2024
UPB Gain /<br>(Loss) UPB Gain /<br>(Loss) UPB Gain /<br>(Loss)
( in thousands)
Resolved — loans paid in full $ 197 $ 8,963 $ 371 $ 4,974 $ 151
Resolved — loans paid current 25 3,770 4 2,122 7
Resolved — REO sold 55 2,440 243 1,260 325
Total resolutions $ 277 $ 15,173 $ 618 $ 8,356 $ 483
Recovery rate on resolved<br>   nonperforming assets 101.8 % 104.1 % 105.8 %

All values are in US Dollars.

Real Estate Owned, Net (“REO”)

REO includes real estate we acquire through foreclosure or by deed-in-lieu of foreclosure. REO assets are initially recorded at fair value, less estimated costs to sell on the date of foreclosure. Adjustments that reduce the carrying value of the loan to the fair value of the real estate at the time of foreclosure are recognized as charge-offs in the allowance for credit losses. Gains at the time of foreclosure are recognized in other operating income. After foreclosure, we periodically obtain new valuations and any subsequent changes to fair value, less estimated costs to sell, are reflected as valuation adjustments, included in “Real estate owned, net” in the Consolidated Statements of Income.

As of September 30, 2025, REO included 223 properties with a lower of cost or estimated fair value of $113.7 million compared to 175 properties with a lower of cost or estimated fair value of $93.4 million as of June 30, 2025, and 112 properties with a lower of cost or estimated fair value of $62.4 million as of September 30, 2024.

Concentrations – Loans Held for Investment

As of September 30, 2025, our held for investment loan portfolio was concentrated in Investor 1-4 loans, representing 49.3% of the UPB. Mixed use and Retail properties represented 10.7% and 10.2%, respectively, of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated 21.1% in California, 13.8% in New York, 12.3% in Florida, 7.4% in New Jersey, and 6.0% in Texas.

Property Type September 30, 2025
Loan Count UPB % of Total UPB
( in thousands)
Investor 1-4 $ 3,089,325 49.3 %
Mixed use 670,470 10.7
Retail 640,005 10.2
Office 504,282 8.0
Multifamily 459,166 7.3
Warehouse 421,276 6.7
Other (1) 488,774 7.8
Total loans held for investment $ 6,273,298 100.0 %

All values are in US Dollars.

  • All other properties individually comprise less than 5.0% of the total unpaid principal balance.
Geography (State) September 30, 2025
Loan Count UPB % of Total UPB
( in thousands)
California $ 1,318,571 21.1 %
New York 866,980 13.8
Florida 772,823 12.3
New Jersey 465,382 7.4
Texas 377,504 6.0
Other (1) 2,472,038 39.4
Total loans held for investment $ 6,273,298 100.0 %

All values are in US Dollars.

  • All other states individually comprise less than 5.0% of the total unpaid principal balance.

Key Performance Metrics

Three Months Ended
September 30, 2025 (1) June 30, 2025 (1) September 30, 2024 (1)
( in thousands)
Average loans $ 5,620,763 $ 4,578,911
Portfolio yield % 9.65 % 9.18 %
Average debt — portfolio related 5,245,799 4,152,040
Average debt — total company 5,535,799 4,442,040
Cost of funds — portfolio related % 6.24 % 6.15 %
Cost of funds — total company % 6.36 % 6.30 %
Net interest margin — portfolio related % 3.82 % 3.60 %
Net interest margin — total company % 3.39 % 3.06 %
Charge-offs/Average loans held for investment at amortized cost % 0.31 % 0.05 %
Pre-tax return on average equity % 23.0 % 17.6 %
Return on average equity % 17.8 % 12.9 %

All values are in US Dollars.

  • Percentages are annualized.

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.

Portfolio Yield

Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees. The increase in our portfolio yield for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 was primarily driven by the increase in weighted average loan coupons. Portfolio yield for the three months ended September 30, 2025 decreased slightly from three months ended June 30, 2025 mainly attributable to less interest income and default interest collected on nonperforming loans.

Average Debt — Portfolio Related and Total Company

Portfolio-related debt consists of borrowings related directly to financing our loan portfolio, which includes our warehouse facilities and securitized debt. Total company debt consists of portfolio-related debt and corporate debt. The measures presented here reflect the monthly average of all portfolio-related and total company debt, as measured by outstanding principal balance, over the specified time period.

Cost of Funds — Portfolio Related and Total Company

Portfolio related cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt as a percentage of average portfolio-related debt outstanding over the given period. Total company cost of funds is an annualized measure of the interest expense incurred on our portfolio-related debt and corporate debt outstanding over the given period. Interest expense includes the amortization of expenses incurred in connection with our portfolio related financing activities and corporate debt. Through the issuance of long-term securitized debt, we have been able to fix a significant portion of our borrowing costs over time. The strong credit performance on our securitized debt has allowed us to issue debt at attractive rates.

Our portfolio related cost of funds slightly increased to 6.27% for the three months ended September 30, 2025 from 6.24% for the prior quarter and 6.15% for the three months ended September 30, 2024. The increase was primarily due to higher securitized debt interest expense.

Net Interest Margin — Portfolio Related and Total Company

Portfolio related net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt as a percentage of average loans over the specified time period. Total company net interest margin measures the difference between the interest income earned on our loan portfolio and the interest expense paid on our portfolio-related debt and corporate debt as a percentage of average loans over the specified time period.

Over the periods shown in the tables below, portfolio related net interest margin increased to 3.65% for the three months ended September 30, 2025 from 3.60% for the three months ended September 30, 2024. Portfolio related net interest margin increased to 3.62% for the nine months ended September 30, 2025 from 3.50% for the nine months ended September 30, 2024. The increases were primarily due to higher average yields and balances.

Total company net interest margin of 3.25% for the three months ended September 30, 2025 increased from 3.06% for the three months ended September 30, 2024. Total company net interest margin of 3.18% for the nine months ended September 30, 2025 increased from 2.96% for the nine months ended September 30, 2024. The increases were primarily due to the higher increase in the average yields on our loan portfolio than the increase in our average cost of funds.

The following tables show the average outstanding balance of our loan portfolio and portfolio-related debt, together with interest income and the corresponding yield earned on our portfolio, and interest expense and the corresponding rate paid on our portfolio-related debt for the periods indicated:

Three Months Ended September 30,
2025 2024
Interest Average Interest Average
Average Income / Yield / Average Income / Yield /
Balance Expense Rate (1) Balance Expense Rate (1)
( in thousands)
Loan portfolio:
Loans held for sale $ 3,166
Loans held for investment 4,575,745
Total loans $ 144,119 9.54 % $ 4,578,911 $ 105,070 9.18 %
Debt:
Warehouse facilities $ 8,277 8.18 % $ 311,560 $ 7,105 9.12 %
Securitized debt 80,622 6.12 % 3,840,480 56,766 5.91 %
Total debt - portfolio related 88,899 6.27 % 4,152,040 63,871 6.15 %
Corporate debt 6,144 8.47 % 290,000 6,143 8.47 %
Total debt $ 95,043 6.37 % $ 4,442,040 $ 70,014 6.30 %
Net interest spread -<br>   portfolio related (2) 3.27 % 3.03 %
Net interest margin -<br>   portfolio related 3.65 % 3.60 %
Net interest spread -<br>   total company (3) 3.16 % 2.87 %
Net interest margin - <br>   total company 3.25 % 3.06 %

All values are in US Dollars.

  • Annualized.
  • Net interest spread - portfolio related is the difference between the rate earned on our loan portfolio and the interest rates paid on our portfolio-related debt.
  • Net interest spread - total company is the difference between the rate earned on our loan portfolio and the interest rates paid on our total debt.
Nine Months Ended September 30,
2025 2024
Interest Average Interest Average
Average Income / Yield / Average Income / Yield /
Balance Expense Rate (1) Balance Expense Rate (1)
( in thousands)
Loan portfolio:
Loans held for sale $ 7,602
Loans held for investment 4,357,152
Total loans $ 398,426 9.44 % $ 4,364,754 $ 293,359 8.96 %
Debt:
Warehouse facilities $ 25,037 8.00 % $ 280,716 $ 19,612 9.32 %
Securitized debt 220,788 6.10 % 3,668,377 159,122 5.78 %
Total debt - portfolio related 245,825 6.25 % 3,949,093 178,734 6.03 %
Corporate debt 18,429 8.47 % 280,517 17,677 8.40 %
Total debt $ 264,254 6.36 % $ 4,229,610 $ 196,411 6.19 %
Net interest spread -<br>   portfolio related (2) 3.20 % 2.93 %
Net interest margin -<br>   portfolio related 3.62 % 3.50 %
Net interest spread -<br>   total company (3) 3.08 % 2.77 %
Net interest margin - <br>   total company 3.18 % 2.96 %

All values are in US Dollars.

  • Annualized.
  • Net interest spread - portfolio related is the difference between the rate earned on our loan portfolio and the interest rates paid on our portfolio-related debt.
  • Net interest spread - total company is the difference between the rate earned on our loan portfolio and the interest rates paid on our total debt.

Charge-Offs

Our annualized charge-offs rate over average loans held for investment carried at amortized cost for the three months ended September 30, 2025 decreased to 0.13% as compared to 0.31% for the three months ended June 30, 2025 and increased from 0.05% for the three months ended September 30, 2024. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment at amortized cost, for the respective quarters. We do not record charge-offs on loans carried at estimated fair value and loans held for sale.

Return on Average Equity

Pre-tax return on average equity and return on average equity reflect income before income taxes and net income including income attributable to noncontrolling interest, respectively, as a percentage of the monthly average total stockholders’ equity including noncontrolling interest over the specified period. Pre-tax return on average equity and return on average equity decreased during the quarter ended September 30, 2025 as compared to the quarter ended June 30, 2025 primarily due to a higher tax rate and the higher average shareholders' equity. Pre-tax return on average equity and return on average equity increased as compared to the quarter ended September 30, 2024 primarily due to improved operating margins.

Three Months Ended
September 30, 2025 June 30, 2025 September 30, 2024
( in thousands)
Income before income taxes (A) $ 33,922 $ 21,244
Net income (B) 26,170 15,617
Monthly average balance:
Stockholders' equity (C) 588,814 484,197
Pre-tax return on average equity (A)/(C) (1) % 23.0 % 17.5 %
Return on average equity (B)/(C) (1) % 17.8 % 12.9 %

All values are in US Dollars.

  • Annualized.

Components of Results of Operations

Interest Income

We accrue interest on the UPB of our loans in accordance with the individual terms and conditions of each loan, discontinuing interest and reversing previously accrued interest once a loan becomes 90 days or more past due (nonaccrual status). When a loan is placed on nonaccrual status, the accrued and unpaid interest is reversed as a reduction to interest income and accrued interest receivable. Interest income is subsequently recognized only to the extent that cash payments are received or when the loan has returned to accrual status. Payments received on nonaccrual loans are first applied to interest due, then principal. Interest accrual resumes once a borrower has made all principal and interest payments due, bringing the loan back to current status.

Interest income on loans held for investment is comprised of interest income on loans and prepayment fees, less the amortization of deferred net costs related to the origination of loans carried at amortized cost. Interest income on loans held for sale is comprised of interest income earned on loans prior to their sale. The net fees and costs associated with loans held for sale carried at the lower of cost or fair value, are deferred as part of the carrying value of the loan and recognized as a gain or loss on the sale of the loan. The fees and costs associated with loans carried at fair value are recognized and expensed as incurred.

Interest Expense — Portfolio Related

Portfolio related interest expense is incurred on the debt we obtained to fund our loan origination and portfolio activities and consists of our warehouse facilities and securitized debt. Portfolio related interest expense also includes the amortization of other comprehensive income or loss from terminated derivative instruments, amortization of expenses incurred as a result of issuing the debt when the debt is carried at amortized cost. Other comprehensive income or loss, and deferred debt issuance costs are amortized using the level yield method. Key drivers of interest expense include the debt amounts outstanding, interest rates, other comprehensive income or loss from terminated derivative instruments, and the mix of our securitized debt and warehouse liabilities.

Net Interest Income — Portfolio Related

Portfolio related net interest income represents the difference between interest income and portfolio related interest expense.

Interest Expense — Corporate Debt

Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2022 Term Loan and the 2024 Term Loan (“Corporate Debt”), as reflected in “Secured financing, net” on our Consolidated Balance Sheets, and the related amortization of deferred debt issuance costs.

Net Interest Income

Net interest income represents the difference between portfolio related net interest income and interest expense on corporate debt.

Provision for Credit Losses

Under the CECL methodology, the allowance for credit losses is calculated using a third-party model with our historical loss rates by segment, loan position as of the balance sheet date, and assumptions from us. We do not record provision for credit losses on loans held for sale, or loans carried at fair value.

Other Operating Income

Gain (Loss) on Disposition of Loans. When we sell a loan held for sale, we record a gain or loss that reflects the difference between the proceeds received for the sale of the loans and their respective carrying values. The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sale price of the loans. In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell, at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off.

Unrealized Gain (Loss) on Fair Value Loans. We have elected to apply fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). We regularly estimate the fair value of these loans. Changes in fair value, subsequent to initial recognition of fair value loans are reported as “Unrealized gain (loss) on fair value loans,” a component of other operating income within the Consolidated Statements of Income.

Unrealized Gain (Loss) on Mortgage Servicing Rights. We have elected to record our mortgage servicing rights using the fair value measurement method. Changes in fair value are reported as “Unrealized gain (loss) on mortgage servicing rights,” a component of other operating income within the Consolidated Statements of Income.

Unrealized Gain (Loss) on Fair Value Securitized Debt. We have elected to apply fair value option accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. We regularly estimate the fair value of securitized debt. Changes in fair value subsequent to initial recognition of fair value securitized debt are reported as “Unrealized gain (loss) on fair value securitized debt,” a component of other operating income within the Consolidated Statements of Income.

Origination Income. Fee income related to our loan origination activities.

Interest Income on Cash Balance. Interest income on bank balances.

Other Income. Other income primarily consists of servicing fee income and other miscellaneous income. Century earns servicing fees for servicing mortgage loans for others.

Operating Expenses

Compensation and Employee Benefits. Costs related to employee compensation, commissions and related employee benefits, such as health, retirement, and payroll taxes.

Origination Expenses. Costs related to our loan origination activities.

Securitization Expenses. Costs related to issuance of our securitized debt.

Loan Servicing. Costs related to our third-party servicers.

Professional Fees. Costs related to professional services, such as external audits, legal fees, tax, compliance and outside consultants.

Rent and Occupancy. Costs related to occupying our locations, including rent, maintenance and property taxes.

Real Estate Owned, Net. Costs related to our real estate owned, net, including gains (losses) on disposition of REO, maintenance of REO properties, and taxes and insurance.

Other Operating Expenses. Other operating expenses consist of general and administrative costs such as travel and entertainment, marketing, data processing, insurance and office equipment.

Provision for Income Taxes

The provision for income taxes consists of the current and deferred U.S. federal and state income taxes we expect to pay, currently and in future years, with respect to the net income for the year. The amount of the provision is derived by adjusting our reported net income with various permanent differences. The tax-adjusted net income amount is then multiplied by the applicable federal and state income tax rates to arrive at the provision for income taxes.

Consolidated Results of Operations

The following table summarizes our unaudited consolidated results of operations for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands)
Interest income $ 144,119 $ 105,070 $ 398,426 $ 293,359
Interest expense - portfolio related 88,899 63,871 245,825 178,734
Net interest income - portfolio related 55,220 41,199 152,601 114,625
Interest expense - corporate debt 6,144 6,143 18,429 17,677
Net interest income 49,076 35,056 134,172 96,948
Provision for (reversal of) credit losses 381 (69 ) 3,851 1,151
Net interest income after provision for (reversal of) credit losses 48,695 35,125 130,321 95,797
Other operating income 37,077 20,732 110,370 69,068
Total operating expenses 50,397 34,613 144,500 100,511
Income before income taxes 35,375 21,244 96,191 64,354
Income tax expense 9,963 5,627 25,961 16,693
Net income 25,412 15,617 70,230 47,661
Net income (loss) attributable to noncontrolling interest 39 (186 ) (27 ) (171 )
Net income attributable to Velocity Financial, Inc. $ 25,373 $ 15,803 $ 70,257 $ 47,832

Net Interest Income — Portfolio Related

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 Change 2025 2024 Change
(In thousands)
Interest income $ 144,119 $ 105,070 $ 398,426 $ 293,359
Interest expense - portfolio related 88,899 63,871 245,825 178,734
Net interest income - portfolio related $ 55,220 $ 41,199 $ 152,601 $ 114,625

All values are in US Dollars.

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased 34.0% to $55.2 million from $41.2 million for the three months ended September 30, 2025 and 2024, respectively. Our portfolio related net interest income increased 33.1% to $152.6 million from $114.6 million for the nine months ended September 30, 2025 and 2024, respectively.

Interest Income. Interest income increased by $39.0 million to $144.1 million for the three months ended September 30, 2025, compared to $105.1 million for the three months ended September 30, 2024, attributable to higher average loan portfolio balances and yield. For the three months ended September 30, 2025, the average loan yield was 9.54% compared to 9.18% for the three months ended September 30, 2024. Interest income increased by $105.1 million to $398.4 million for the nine months ended September 30, 2025, compared to $293.4 million for the nine months ended September 30, 2024. The increase in interest income for the nine months ended September 30, 2025 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.

The following tables distinguish between the changes in interest income attributable to changes in average loan balance (volume) and the changes in interest income attributable to changes in annualized yield (rate) for the three and nine months ended September 30, 2025 and 2024.

Average Loans Interest Income Average Yield(1)
( in thousands)
Three months ended September 30, 2025 $ 144,119 9.54 %
Three months ended September 30, 2024 105,070 9.18 %
Volume variance 33,625
Rate variance 5,424 0.36 %
Total interest income variance 39,049

All values are in US Dollars.

  • Annualized.
Average Loans Interest Income Average Yield(1)
( in thousands)
Nine months ended September 30, 2025 $ 398,426 9.44 %
Nine months ended September 30, 2024 293,359 8.96 %
Volume variance 84,797
Rate variance 20,270 0.48 %
Total interest income variance 105,067

All values are in US Dollars.

  • Annualized.

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $88.9 million for the three months ended September 30, 2025 from $63.9 million for the three months ended September 30, 2024. Portfolio related interest expense increased to $245.8 million for the nine months ended September 30, 2025 from $178.7 million for the nine months ended September 30, 2024. The increases were primarily attributable to a higher loan portfolio being financed and increased interest rates.

The following tables present information regarding portfolio related interest expense and distinguish between the changes in interest expense attributable to changes in the average outstanding debt balance (volume) and changes in cost of funds (rate) for the three and nine months ended September 30, 2025 and 2024.

Average Debt(1) Interest Expense Cost of Funds(2)
( in thousands)
Three months ended September 30, 2025 $ 88,899 6.27 %
Three months ended September 30, 2024 63,871 6.15 %
Volume variance 23,417
Rate variance 1,611 0.11 %
Total interest expense variance 25,028

All values are in US Dollars.

  • Includes securitized debt and warehouse agreements.
  • Annualized.
Average Debt(1) Interest Expense Cost of Funds(2)
( in thousands)
Nine months ended September 30, 2025 $ 245,825 6.25 %
Nine months ended September 30, 2024 178,734 6.03 %
Volume variance 58,745
Rate variance 8,346 0.21 %
Total interest expense variance 67,091

All values are in US Dollars.

  • Includes securitized debt and warehouse agreements.
  • Annualized.

Net Interest Income After Provision for Credit Losses

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 Change 2025 2024 Change
(In thousands)
Net interest income - portfolio related $ 55,220 $ 41,199 $ 152,601 $ 114,625
Interest expense - corporate debt 6,144 6,143 18,429 17,677
Net interest income 49,076 35,056 134,172 96,948
Provision for (reversal of) credit losses 381 (69 ) 3,851 1,151
Net interest income after provision for (reversal of) credit losses $ 48,695 $ 35,125 $ 130,321 $ 95,797

All values are in US Dollars.

Interest Expense — Corporate Debt. Corporate debt interest expense remained consistent at $6.1 million for each of the three months ended September 30, 2025 and 2024. Corporate debt interest expense increased to $18.4 million for the nine months ended September 30, 2025, compared to $17.7 million for the nine months ended September 30, 2024, primarily due to the issuance of $75.0 million of additional secured debt in February 2024.

Provision for Credit Losses. Our provision for credit losses increased to $0.4 million for the three months ended September 30, 2025 from a $0.1 million reversal of provision for the three months ended September 30, 2024, due mainly to an increase in individually-assessed allowance. Our provision for credit losses increased to $3.9 million for the nine months ended September 30, 2025 from $1.2 million for the nine months ended September 30, 2024. The increased provision for credit losses was primarily attributable to charge-offs taken during the quarter ended June 30, 2025 and an increase in the individually-assessed allowance.

Other Operating Income

The $16.3 million increase in total other operating income from the three months ended September 30, 2024 to the three months ended September 30, 2025 was primarily due to improved securitized bond prices resulting in lower unrealized loss on fair value securitized debt and increased loan origination fee income, offset by lower unrealized gain on fair value loans. The $41.3 million increase from the nine months ended September 30, 2024 to the nine months ended September 30, 2025 was mainly due to increased origination volumes driving a higher unrealized gain on fair value loans and an increase in loan origination fee income.

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 Change 2025 2024 Change
(In thousands)
Gain on disposition of loans $ 4,574 $ 2,291 $ 13,694 $ 7,156
Unrealized gain on fair value loans 30,982 35,530 ) 95,724 71,579
Unrealized loss on fair value securitized debt (9,988 ) (24,995 ) (31,254 ) (31,957 )
Unrealized loss on mortgage servicing rights (343 ) (993 ) (1,115 ) (922 ) )
Origination fee income 9,723 6,704 27,338 16,762
Interest income on cash balance 1,564 1,676 ) 4,408 5,038 )
Other income 565 519 1,575 1,412
Total other operating income $ 37,077 $ 20,732 $ 110,370 $ 69,068

All values are in US Dollars.

Gain on Disposition of Loans. Gain on disposition of loans increased by $2.3 million to $4.6 million for the three months ended September 30, 2025 compared to $2.3 million for the three months ended September 30, 2024. Gain on disposition of loans increased by $6.5 million to $13.7 million for the nine months ended September 30, 2025 compared to $7.2 million for the nine months ended September 30, 2024. The increases were primarily due to the increase in gain on transfer to REO upon foreclosure.

Unrealized Gain on Fair Value Loans. Unrealized gain on fair value loans decreased by $4.5 million to $31.0 million for the three months ended September 30, 2025 compared to $35.5 million for the three months ended September 30, 2024. The decrease was mainly driven by a higher nonperforming loan balance. Unrealized gain on fair value loans increased by $24.1 million to $95.7 million for the nine months ended September 30, 2025 compared to $71.6 million for the nine months ended September 30, 2024. The increase was mainly driven by new loan originations.

Unrealized Loss on Fair Value Securitized Debt. Unrealized loss on fair value securitized debt decreased by $15.0 million to $10.0 million for the three months ended September 30, 2025 from $25.0 million for the three months ended September 30, 2024. Unrealized loss on fair value securitized debt decreased by $0.7 million to $31.3 million for the nine months ended September 30, 2025 from $32.0 million for the nine months ended September 30, 2024. The decreases in unrealized loss on fair value securitized debt were primarily attributable to the decrease in market interest rates and spreads.

Unrealized Gain (Loss) on Mortgage Servicing Rights. Unrealized loss on mortgage servicing rights was $0.3 million for the three months ended September 30, 2025 as compared to $1.0 million for the three months ended September 30, 2024. The decrease in unrealized loss on mortgage servicing rights was mainly driven by an increase in the loan servicing portfolio. Unrealized loss on mortgage servicing rights was $1.1 million for the nine months ended September 30, 2025 as compared to $0.9 million for the nine months ended September 30, 2024. The increase in unrealized loss on mortgage servicing rights resulted from an increase in prepayment rate.

Origination Fee Income. Origination fee income increased by $3.0 million to $9.7 million for the three months ended September 30, 2025 compared to $6.7 million for the three months ended September 30, 2024. Origination fee income increased by $10.6 million to $27.3 million for the nine months ended September 30, 2025 compared to $16.8 million for the nine months ended September 30, 2024. The increases were driven by higher loan originations.

Interest Income on Cash Balance. Interest income on cash balance decreased by $0.1 million to $1.6 million for the three months ended September 30, 2025 compared to $1.7 million for the three months ended September 30, 2024. Interest income on cash balance decreased by $0.6 million to $4.4 million for the nine months ended September 30, 2025 compared to $5.0 million for the nine months ended September 30, 2024. The decreases were attributable to a decrease in interest rates.

Other Income. Other income was $0.6 million and $0.5 for the three months ended September 30, 2025 and 2024, respectively. Other income increased to $1.6 million for the nine months ended September 30, 2025 compared to $1.4 million for the nine months ended September 30, 2024. The increase was mainly driven by higher servicing fee income from the increase in our loan servicing portfolio.

Operating Expenses

Operating expenses are presented in the following table. Changes in operating expenses comparing to the same period prior year are discussed below.

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 Change 2025 2024 Change
(In thousands)
Compensation and employee benefits $ 23,300 $ 17,586 $ 67,589 $ 49,505
Origination expenses 1,154 867 3,185 2,262
Securitization expenses 6,433 3,186 21,997 12,292
Loan servicing 7,748 5,656 23,961 15,639
Professional fees 893 2,305 ) 4,668 6,140 )
Rent and occupancy 274 519 ) 847 1,633 )
Real estate owned, net 7,931 1,951 14,258 5,762
Other operating expenses 2,664 2,543 7,995 7,278
Total operating expenses $ 50,397 $ 34,613 $ 144,500 $ 100,511

All values are in US Dollars.

Compensation and Employee Benefits. Compensation and employee benefits increased by $5.7 million to $23.3 million for the three months ended September 30, 2025 compared to $17.6 million for the three months ended September 30, 2024. Compensation and employee benefits increased by $18.1 million to $67.6 million for the nine months ended September 30, 2025 compared to $49.5 million for the nine months ended September 30, 2024. The increases were mainly driven by higher headcount and commissions expense as loan originations increased.

Origination Expenses. Origination expenses increased by $0.3 million to $1.2 million for the three months ended September 30, 2025 from $0.9 million for the three months ended September 30, 2024. Origination expenses increased by $0.9 million to $3.2 million for the nine months ended September 30, 2025 from $2.3 million for the nine months ended September 30, 2024. The increases in origination expenses were due to higher loan originations.

Securitization Expenses. Securitization expenses were $6.4 million for the three months ended September 30, 2025 compared to $3.2 million for the three months ended September 30, 2024. Securitization expenses were $22.0 million for the nine months ended September 30, 2025 compared to $12.3 million for the nine months ended September 30, 2024. The increases in securitization expenses resulted from more securitization transactions and securitized debt issued in 2025 as compared to the prior year.

Loan Servicing. Loan servicing expenses increased to $7.7 million for the three months ended September 30, 2025 from $5.7 million for the three months ended September 30, 2024. Loan servicing expenses increased to $24.0 million for the nine months ended September 30, 2025 from $15.6 million for the nine months ended September 30, 2024. The increases were primarily attributable to the growth of our loan portfolio.

Professional Fees. Professional fees decreased to $0.9 million for the three months ended September 30, 2025 compared to $2.3 million for the three months ended September 30, 2024. Professional fees were $4.7 million and $6.1 million for the nine months ended September 30, 2025 and 2024, respectively. The decreases were primarily attributable to lower legal fees.

Rent and Occupancy. Rent and occupancy expenses decreased to $0.3 million for the three months ended September 30, 2025 compared to $0.5 million for the three months ended September 30, 2024. Rent and occupancy expenses decreased to $0.8 million for the nine months ended September 30, 2025 compared to $1.6 million for the nine months ended September 30, 2024. The decreases resulted from the relocation to offices with less space and lower rent expense.

Real Estate Owned, Net. Net expenses of real estate owned increased to $7.9 million for the three months ended September 30, 2025 from $2.0 million for the three months ended September 30, 2024. Net expenses of real estate owned increased to $14.3 million for the nine months ended September 30, 2025 from $5.8 million for the nine months ended September 30, 2024. The increases were mainly due to the increase in REOs combined with higher valuation adjustments.

Other Operating Expenses. Other operating expenses increased to $2.7 million for the three months ended September 30, 2025 from $2.5 million for the three months ended September 30, 2024. Other operating expenses increased to $8.0 million for the nine months ended September 30, 2025 from $7.3 million for the nine months ended September 30, 2024. The increases were mainly due to higher information technology maintenance and data processing costs.

Income Tax Expense. Income tax expense was $10.0 million and $5.6 million for the three months ended September 30, 2025 and 2024, respectively, and $26.0 million and $16.7 million for the nine months ended September 30, 2025 and 2024, respectively. Our annual consolidated effective tax rates were 27.4% and 28.5% for the years 2025 and 2024, respectively.

Quarterly Results of Operations

The following table sets forth certain unaudited financial information for each of the last eight completed quarters. The quarterly information has been prepared on the same basis as the consolidated financial statements and includes all adjustments (consisting of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of the information presented. This information should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

Three Months Ended
September 30,2025 June 30,<br>2025 March 31,<br>2025 December 31,<br>2024 September 30,<br>2024 June 30,<br>2024 March 31,<br>2024 December 31,<br>2023
( in thousands)
(Unaudited)
Interest income $ 135,567 $ 118,740 $ 113,484 $ 105,070 $ 97,760 $ 90,529 $ 86,269
Interest expense - portfolio related 81,838 75,088 68,484 63,871 59,188 55,675 51,405
Net interest income - portfolio related 53,729 43,652 45,000 41,199 38,572 34,854 34,864
Net interest margin - portfolio related % 3.82 % 3.35 % 3.70 % 3.60 % 3.54 % 3.35 % 3.52 %
Interest expense - corporate debt 6,143 6,142 6,143 6,143 6,155 5,380 4,140
Net interest income 47,586 37,510 38,857 35,056 32,417 29,474 30,724
Net interest margin - total company % 3.39 % 2.88 % 3.20 % 3.06 % 2.98 % 2.83 % 3.10 %
Provision for (reversal of) credit losses 1,598 1,872 22 (69 ) 218 1,002 827
Net interest income after provision for (reversal of) credit losses 45,988 35,638 38,835 35,125 32,199 28,472 29,897
Other operating income 39,847 33,446 32,330 20,732 22,561 25,775 21,670
Operating expenses 51,913 42,190 39,127 34,613 34,887 31,011 29,260
Income before income taxes 33,922 26,894 32,038 21,244 19,873 23,236 22,307
Income tax expense 7,752 8,246 11,233 5,627 5,162 5,903 5,141
Net income 26,170 18,648 20,805 15,617 14,711 17,333 17,166
Net income (loss) attributable to noncontrolling interest 173 (239 ) 218 (186 ) (67 ) 82 (189 )
Net income attributable to Velocity Financial, Inc. $ 25,997 $ 18,887 $ 20,587 $ 15,803 $ 14,778 $ 17,251 $ 17,355

All values are in US Dollars.

Liquidity and Capital Resources

Sources and Uses of Liquidity

We fund our lending activities primarily through borrowings under our warehouse repurchase facilities, securitized debt, other corporate-level debt, equity and debt securities, and net cash provided by operating activities to manage our business. We use cash to originate and acquire investor real estate loans, repay principal and interest on our borrowings, fund our operations and meet other general business needs.

Cash and Cash Equivalents

Our total liquidity was $143.5 million as of September 30, 2025, comprised of $99.0 million in cash and $44.5 million in borrowings from available warehouse capacity on unencumbered loans. Our additional available warehouse capacity as of September 30, 2025, was $555.8 million, bringing total liquidity plus available warehouse capacity to $699.3 million.

We had cash of $99.0 million and $44.1 million, excluding restricted cash of $18.8 million and $23.2 million as of September 30, 2025 and 2024, respectively.

Cash Flows

The following table summarizes the net cash provided by (used in) operating activities, investing activities and financing activities for the periods indicated:

Nine Months Ended September 30,
2025 2024
(In thousands)
Cash provided by (used in):
Operating activities $ 22,650 $ 4,482
Investing activities (1,271,685 ) (689,013 )
Financing activities 1,296,015 689,865
Net change in cash, cash equivalents, and restricted cash $ 46,980 $ 5,334

Cash flows from operating activities primarily includes net income adjusted for: (1) cash used for origination of held for sale loans and the related cash proceeds from the sales of such loans, (2) non-cash items including valuation changes, provision for credit losses, discount accretion, and amortization of debt issuance discount and costs, and (3) changes in the balances of operating assets and liabilities.

For the nine months ended September 30, 2025, our net cash provided by operating activities consisted mainly of $70.2 million in net income, $47.0 million in proceeds from sale of loans held for sale, and $31.3 million change in valuation of securitized debt at fair value, partially offset by $95.7 million change in valuation of loans carried at fair value and $47.9 million in origination of loans held for sale.

For the nine months ended September 30, 2025, our net cash used in investing activities consisted mainly of $2.0 billion in cash used to originate loans held for investment at fair value, partially offset by $0.7 billion in cash received from payments of loans held for investment.

For the nine months ended September 30, 2025, our net cash provided by financing activities consisted mainly of $2.1 billion in borrowings from our warehouse and repurchase facilities and $2.0 billion in proceeds from issuing securitized debt. The cash generated was partially offset by repayments of $2.1 billion and $0.7 billion, on our warehouse and repurchase facilities and securitized debt, respectively.

During the nine months ended September 30, 2025 and 2024, we generated approximately $47.0 million and $5.3 million, respectively, of net cash and cash equivalents on operating, investing and financing activities.

Warehouse Facilities

As of September 30, 2025, we had five non-mark-to-market warehouse facilities, one mark-to-market warehouse facility, and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. The maturity of our warehouse facilities ranges from one to three years. The borrowings are collateralized primarily by performing loans. All warehouse facilities are based on SOFR, plus margins ranging from 1.60% to 4.00%. Borrowing under these facilities was $334.7 million with $600.3 million of available capacity as of September 30, 2025.

Six warehouse facilities fund less than 100% and one warehouse facility funds at 100% of the principal balance of the mortgage loans we own, requiring us to use working capital to fund the remaining portion. We may need to use additional working

capital if loans become delinquent, because the amount permitted to be financed by the facilities may change based on the delinquency performance of the pledged collateral.

All borrower payments on loans financed under the warehouse facilities are segregated into pledged accounts with the loan servicer. All principal amounts in excess of the interest due are applied to reduce the outstanding borrowings under the warehouse facilities. The warehouse facilities also contain customary covenants, including financial covenants that require us to maintain minimum liquidity, a minimum net worth, a maximum debt-to-net worth ratio and a ratio of a minimum earnings before interest, taxes, depreciation and amortization of interest expense. If we fail to meet any of the covenants, or otherwise default under the facilities, the lenders have the right to terminate their facility and require immediate repayment, which may require us to sell our loans at less than optimal terms. As of September 30, 2025, we were in compliance with these covenants.

Securitized debt

From May 2011 through September 2025, we have completed 44 transactions, issuing $9.9 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly. We are the sole beneficial interest holder of the applicable trusts, which are variable interest entities included in our consolidated financial statements. The transactions are accounted for as secured borrowings under U.S. GAAP. The following table summarizes the securities issued, securities retained by us at the time of the securitization, as of September 30, 2025 and December 31, 2024, and the stated maturity for each securitized debt. The securities are callable by us when the stated principal balance is less than a certain percentage, ranging from 10% to 30%, of the original stated principal balance of loans at issuance. As a result, the actual maturity date of the securities issued will likely be earlier than their respective stated maturity date.

Securities Retained as of
Trusts Securities<br>Issued Issuance<br>Date September 30,<br>2025 December 31,<br>2024 Stated Maturity<br>Date
(In thousands)
2017-2 Trust $ 245,601 $ 12,927 $ 2,416 $ 2,416 October 2047
2018-1 Trust 176,816 9,308 1,602 1,602 April 2048
2018-2 Trust 307,988 16,210 2,656 2,698 October 2048
2019-1 Trust 235,580 12,399 2,167 — March 2049
2019-2 Trust 207,020 10,901 1,887 — July 2049
2019-3 Trust 154,419 8,127 1,926 — October 2049
2020-1 Trust 248,700 13,159 3,935 — February 2050
2021-1 Trust 251,301 13,227 7,147 — May 2051
2021-2 Trust 194,918 10,260 — — August 2051
2021-3 Trust 204,205 — — — October 2051
2021-4 Trust 319,116 — — — December 2051
2022-1 Trust 273,594 5,015 3,549 3,876 February 2052
2022-2 Trust 241,388 11,202 8,446 9,246 March 2052
2022-MC1 Trust (1) 84,967 40,911 — 47,936 May 2047
2022-3 Trust 296,323 18,914 17,013 15,489 May 2052
2022-4 Trust 308,357 25,190 11,742 10,362 July 2052
2022-5 Trust 188,754 65,459 16,443 12,649 October 2052
2023-1 Trust 198,715 41,593 7,522 4,043 December 2052
2023-1R Trust (1) (2) 64,833 66,228 — 66,228 October 2025
2023-2 Trust 202,210 24,229 3,357 6,714 April 2053
2023-RTL1 Trust (1) 81,608 4,296 — 4,296 July 2028
2023-3 Trust 234,741 28,718 — 9,146 July 2053
2023-4 Trust 202,890 26,623 3,995 3,995 November 2053
2024-1 Trust 209,862 11,278 — 11,229 January 2054
2024-2 Trust 286,235 8,853 8,767 8,767 April 2054
2024-3 Trust 204,599 5,255 — 5,211 June 2054
2024-4 Trust 253,612 3,080 2,372 3,064 July 2054
2024-5 Trust 292,880 7,510 3,740 7,481 October 2054
2024-6 Trust 293,895 7,690 7,627 7,687 December 2054
2025-1 Trust 342,791 8,790 8,779 — February 2055
2025-RTL1 Trust 111,395 5,864 5,864 — March 2030
2025-2 Trust 377,526 15,117 14,773 — April 2055
2025-MC1 Trust 114,136 27,210 25,703 — May 2055
2025-3 Trust 382,461 9,809 9,749 — June 2055
2025-P1 Trust 190,865 3,895 3,852 — July 2055
2025-4 Trust 457,543 11,731 11,706 — September 2055
Total $ 8,441,844 $ 590,978 $ 198,735 $ 244,135
  • The outstanding bond balances associated with the Trusts were paid off when collapsed.
  • The retained securities owned by this trust were returned to their respective issuing trusts.

The following table summarizes outstanding bond balances for each securitized debt as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024
(In thousands)
2017-2 Trust $ 24,777 $ 33,012
2018-1 Trust 20,316 24,482
2018-2 Trust 49,537 59,091
2019-1 Trust 51,857 60,459
2019-2 Trust 40,578 46,872
2019-3 Trust 39,517 46,827
2020-1 Trust 80,474 91,135
2021-1 Trust 133,860 152,995
2021-2 Trust 113,156 125,391
2021-3 Trust 122,053 136,510
2021-4 Trust 196,435 214,284
2022-1 Trust 196,937 217,190
2022-2 Trust 174,872 191,764
2022-MC1 Trust (1) — 12,041
2022-3 Trust 209,884 234,647
2022-4 Trust 210,757 232,064
2022-5 Trust 148,323 132,519
2023-1 Trust 143,066 144,724
2023-1R Trust (1) — 38,508
2023-2 Trust 128,229 157,198
2023-RTL1 Trust (1) — 81,608
2023-3 Trust 157,912 195,799
2023-4 Trust 143,803 181,307
2024-1 Trust 143,970 178,234
2024-2 Trust 211,331 260,500
2024-3 Trust 172,893 191,583
2024-4 Trust 199,697 243,945
2024-5 Trust 258,487 290,552
2024-6 Trust 266,804 293,767
2025-1 Trust 322,347 —
2025-RTL1 Trust 111,395 —
2025-2 Trust 358,915 —
2025-MC1 Trust 101,164 —
2025-3 Trust 374,345 —
2025-P1 Trust 188,775 —
2025-4 Trust 456,573 —
Total $ 5,553,039 $ 4,269,008
  • The outstanding bond balances associated with the Trusts were paid off when collapsed.

As of September 30, 2025 and December 31, 2024, the weighted average annualized rates on the securities and certificates for the Trusts were as follows:

September 30, 2025 December 31, 2024
2017-2 Trust 4.21 % 4.09 %
2018-1 Trust 4.38 4.13
2018-2 Trust 4.52 4.47
2019-1 Trust 4.10 4.07
2019-2 Trust 3.48 3.41
2019-3 Trust 3.30 3.30
2020-1 Trust 2.86 2.88
2021-1 Trust 1.78 1.76
2021-2 Trust 2.05 2.04
2021-3 Trust 2.47 2.47
2021-4 Trust 3.27 3.25
2022-1 Trust 3.95 3.94
2022-2 Trust 5.00 5.06
2022-MC1 Trust — 6.90
2022-3 Trust 5.64 5.72
2022-4 Trust 6.22 6.21
2022-5 Trust 7.29 7.04
2023-1 Trust 7.21 7.02
2023-1R Trust — 7.57
2023-2 Trust 7.72 7.33
2023-RTL1 Trust — 8.24
2023-3 Trust 8.21 7.94
2023-4 Trust 8.31 8.33
2024-1 Trust 8.11 7.75
2024-2 Trust 7.03 7.11
2024-3 Trust 7.20 7.20
2024-4 Trust 7.38 7.08
2024-5 Trust 6.18 6.14
2024-6 Trust 6.14 5.92
2025-1 Trust 6.61 —
2025-RTL1 Trust 7.17 —
2025-2 Trust 6.60 —
2025-MC1 Trust 8.40 —
2025-3 Trust 6.45 —
2025-P1 Trust 6.56 —
2025-4 Trust 5.80 —

Our intent is to use the proceeds from the issuance of new securities primarily to repay our warehouse borrowings and originate new investor real estate loans in accordance with our underwriting guidelines, as well as for general corporate purposes. Our financing sources may include borrowings in the form of additional bank credit facilities (including term loans and revolving credit facilities), agreements, warehouse facilities and other sources of private financing. We also plan to continue using securitized debt as long-term financing for our portfolio, and we do not plan to structure any securitized debt as sales or utilize off-balance-sheet vehicles. We believe any financing of assets and/or securitized debt we may undertake will be sufficient to fund our working capital requirements.

Secured Financing (Corporate Debt)

On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months.

On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months.

At-The-Market Equity Offering Program

On September 3, 2021, we entered into separate Equity Distribution Agreements with counterparties to establish an at-the-market equity offering program (“ATM Program”) where we may issue and sell, from time to time, shares of our common stock. Our ATM Program allows for aggregate gross sales of our common stock of up to $50,000,000 provided that the number of shares sold under the ATM Program does not exceed 4,000,000.

On May 3, 2024, we entered into separate Equity Distribution Agreements, each as amended by Amendment No. 1 to such agreement, dated December 12, 2024, with counterparties to establish a successor ATM Program, with substantially the same terms as the prior Equity Distribution Agreements noted above, under which we may issue and sell, from time to time, shares of our common stock up to $50,000,000 provided that the number of shares sold under the ATM Program does not exceed 4,000,000.

On April 11, 2025, we entered into separate Amendment No. 2 (the “Amendments”) to the Equity Distribution Agreements, each dated as of May 3, 2024, each as amended by Amendment No. 1 thereto, each dated December 12, 2024. The Amendments increased the maximum aggregate offering amount of shares of the Company’s common stock that may be sold pursuant to the Equity Distribution Agreements, from $50,000,000 to $100,000,000, and increased the maximum number of shares that may be sold pursuant to the Equity Distribution Agreements from 4,000,000 to 6,000,000.

The following table summarizes the activity in our ATM Program for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(In thousands, except per share amount)
Number of shares sold 471 11 2,067 20
Net sale proceeds $ 8,834 $ 190 $ 38,120 $ 344
Weighted average price per share $ 19.04 $ 18.10 $ 18.74 $ 17.34

Contractual Obligations and Commitments

On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bears interest at a fixed rate of 7.125% and matures on March 15, 2027. Interest on the 2022 Term Loan is paid every six months.

On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months.

As of September 30, 2025, we maintained warehouse facilities to finance our investor real estate loans and had approximately $334.7 million in outstanding borrowings with $600.3 million of available capacity under our warehouse and repurchase facilities.

Off-Balance-Sheet Arrangements

At no time have we maintained any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance, or special-purpose or variable interest entities, established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes. Further, we have never guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.

Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. All statements (other than statements of historical facts) in this Quarterly Report regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “plan,” “believe,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Forward-looking statements may contain expectations regarding our operations, including our loan originations, our ability to resolve non-performing loans and avoid losses on non-performing loans and the disposition of REOs and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future funding and development of our business and products, including the future results of our at-the-market equity offering program. Although we believe that the expectations reflected in these forward-looking statements have a reasonable basis, we cannot provide any assurance that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in this Quarterly Report and other documents we file. You should read and interpret any forward-looking statement together with these documents, including the following:

  • the description of our business contained in our Annual Report on Form 10-K for the year ended December 31, 2024 and filed with the Securities and Exchange Commission on March 12, 2025
  • the discussion of our analysis of financial condition and results of operations contained in this Quarterly Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
  • the notes to the consolidated financial statements contained in this Quarterly Report
  • cautionary statements we make in our public documents, reports and announcements

Any forward-looking statement speaks only as of the date on which that statement is made. We will not update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In accordance with Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report and has concluded that our disclosure controls and procedures, as of such date, were effective to accomplish their objectives at a reasonable assurance level. Management concluded that the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Changes in Internal Control over Financial Reporting.

During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

Item 6. Exhibits.

The exhibits below are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Incorporated by Reference
Exhibit<br><br>Number Exhibit Title Form File No. Exhibit Filing Date
3.1 Certificate of Conversion 8-K 001-39183 3.1 1/22/2020
3.2 Restated Certificate of Incorporation of Velocity Financial, Inc. 8-K 001-39183 3 5/23/2022
3.3 Amended and Restated Bylaws of Velocity Financial, Inc. 8-K 001-39183 3.2 3/25/2022
4.1 Form of Stock Certificate for Common Stock S-1 333-234250 4.1 10/18/2019
4.2 Form of Warrant to Purchase Common Stock 8-K 001-39183 4.1 4/7/2020
4.3 Description of the Registrant’s Securities 10K 001-39183 4.3 4/7/2020
10.1 Stockholders Agreement, dated as of January 16, 2020 10-K 001-39183 10.1 4/7/2020
10.2 Registration Rights Agreement, dated as of January 16, 2020 10-K 001-39183 10.2 4/7/2020
10.3 Registration Rights Agreement, dated as of April 7, 2020 8-K 333-234250 10.1 4/7/2020
10.4 Securities Purchase Agreement among Velocity Financial, Inc. and the Purchasers Party thereto dated April 5, 2020 8-K 001-39183 10.1 4/6/2020
10.5 Velocity Financial, Inc. Employee Stock Purchase Plan* DEF 14A 001-39183 AII 4/8/2022
10.6 Amended and Restated Velocity Financial, Inc. 2020 Omnibus Incentive Plan* DEF 14A 001-39183 AI 4/11/2025
10.7 Form of Nonqualified Stock Option Award Notice and Agreement under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.6 1/6/2020
10.8 Form of Nonqualified Stock Option Award Notice and Agreement (Director Grant-IPO) under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.7 1/6/2020
10.9 Form of Nonqualified Stock Option Award Notice and Agreement (Executive Officer Grant-IPO) under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.8 1/6/2020
10.10 Form of Restricted Stock Unit Grant and Agreement (Director Grant) under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.9 1/6/2020
10.11 Form of Restricted Stock Unit Grant and Agreement (Standard Grant) under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.10 1/6/2020
10.12 Form of Restricted Stock Grant and Agreement under the 2020 Omnibus Incentive Plan* S-1/A 333-234250 10.11 1/6/2020
10.13 Velocity Financial 2025 Annual Cash Incentive and Performance Stock Units Programs for Messrs. Farrar, Szczepaniak and Taylor* 8-K 001-39183 - 1/22/2025
10.14 Form of Equity Distribution Agreement, dated May 3, 2024 8-K 001-39183 1.1 5/3/2024
10.15 Form of Amendment No. 1 to Equity Distribution Agreement, dated December 12, 2024 10-K 001-39183 10.15 3/12/2025
10.16 Form of Officer and Director Indemnity Agreement* S-1/A 333-234250 10.37 11/6/2019
10.17 Form of Performance Stock Unit Grant and Agreement* 10-K 001-39183 10.16 3/15/2024
10.18 Note Purchase Agreement Dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association, as collateral agent, and the respective purchasers of the Notes. 8-K 001-39183 10.1 3/16/2022
10.19 Security Agreement, dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC and U.S. Bank Trust Company, National Association, as collateral agent. 8-K 001-39183 10.2 3/16/2022
10.20 Velocity Financial, Inc. Incentive Compensation Clawback Policy* 8-K 001-39183 99 2/7/2024
10.21 Form of Note Purchase Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association, as Collateral Agent and the respective purchasers of the Notes. 8-K 001-39183 10.1 2/6/2024
--- --- --- --- --- ---
10.22 Security Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC and U.S. Bank Trust Company, National Association. 8-K 001-39183 10.2 2/6/2024
10.23 Equal Priority Intercreditor Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association as the 2027 Notes Collateral Agent and U.S. Bank Trust Company, National Association as the 2029 Notes Collateral Agent. 8-K 001-39183 10.3 2/6/2024
10.24 Form of Amendment No. 2 to Equity Distribution Agreement, dated April 11, 2025 10-Q 001-39183 10.24 5/1/2025
19.1 Securities Trading Policy 10-K 001-39183 19.1 3/12/2025
31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
32.2 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2025 and 2024, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2025 and 2024, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 and (v) the Notes to unaudited Consolidated Financial Statements.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Management contract or compensatory plan or arrangement.

  • This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VELOCITY FINANCIAL, INC.
Date: November 6, 2025 By: /s/ Christopher D. Farrar
Christopher D. Farrar
Chief Executive Officer
Date: November 6, 2025 By: /s/ Mark R. Szczepaniak
Mark R. Szczepaniak
Chief Financial Officer

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Christopher D. Farrar, certify that:

  • I have reviewed this Quarterly Report on Form 10-Q of Velocity Financial, Inc.;
  • Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  • Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  • The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  • Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  • The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  • All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2025 By: /s/ Christopher D. Farrar
Christopher D. Farrar
Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Mark R. Szczepaniak, certify that:

  • I have reviewed this Quarterly Report on Form 10-Q of Velocity Financial, Inc.;
  • Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
  • Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
  • The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  • Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
  • Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
  • Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
  • Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  • The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  • All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
  • Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 6, 2025 By: /s/ Mark R. Szczepaniak
Mark R. Szczepaniak
Chief Financial Officer
(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Velocity Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher D. Farrar, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

  • The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
  • The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2025 By: /s/ Christopher D. Farrar
Christopher D. Farrar
Chief Executive Officer
(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Velocity Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2025 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Szczepaniak, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

  • The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
  • The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 6, 2025 By: /s/ Mark R. Szczepaniak
Mark R. Szczepaniak
Chief Financial Officer
(Principal Financial Officer)

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