Velocity Financial, Inc.

Current report

Risks Related to the Pending Toorak Acquisition and Other Strategic Transactions

Current report

The pending Toorak Acquisition is subject to conditions, some of which are outside our control, and may not be completed on the anticipated terms or timeline, or at all.

Current report

On August 26, 2026, Velocity Commercial Capital, LLC (“VCC”), our wholly owned subsidiary, entered into an Equity Purchase Agreement with Toorak Capital LLC to acquire the equity interests of certain Toorak entities (the “Toorak Acquisition”). The purchase price is a base amount of approximately $62.0 million subject to certain adjustments. Completion depends on several conditions, including:

Current report

receipt of certain required regulatory approvals;

Current report

completion of certain pre-closing transactions by the seller, including a statutory division of Toorak Capital Partners LLC; and

Current report

the completion, or substantially concurrent completion, of a separate acquisition by affiliates of TOBI III SPE I LLC of certain loan assets and securitization equity interests of the seller (the “Back Book Acquisition”).

Current report

We are not a party to the Back Book Acquisition and do not control whether or when it closes. Either party may terminate the Purchase Agreement if the transaction has not closed within 120 days after signing, subject to certain exceptions and extension rights. We cannot assure you that the conditions will be satisfied or waived, that required approvals will be obtained without burdensome conditions, or that the acquisition will close in the fourth quarter of 2026 as we expect.

Current report

If the Toorak Acquisition is delayed or not completed, we would not realize its expected benefits. We would also not receive the securitization-related fees contemplated by our Master Transaction Agreement with Titan RR LLC, which depend on completion of both the Toorak Acquisition and the Back Book Acquisition. We would still bear significant costs. Through September 30, 2026, we incurred $7.2 million of acquisition-related costs, and we expect to incur additional costs whether or not the transaction closes.

Current report

The pending transaction has also diverted, and will continue to divert, management’s attention from our existing business. A failure to complete the acquisition, or a significant delay, could adversely affect our business, results of operations and the market price of our common stock.

Current report

While the transaction is pending, the Toorak business may lose employees, loan sourcing relationships, financing counterparties or other business relationships, and our ability to influence how that business is operated before closing is limited. Any such losses could reduce the value of the business we acquire.

Current report

We may not successfully integrate the Toorak business or realize the anticipated benefits of the Toorak Acquisition, and the acquired business may expose us to unanticipated liabilities.

Current report

The success of the Toorak Acquisition depends on our ability to integrate the acquired business with ours and to operate it profitably. Integration may be more difficult, costly or time-consuming than we expect. We may be unable to manage the associated credit, operational and regulatory risks effectively.

Current report

The value of the acquired business depends substantially on retaining its key personnel and its relationships with originators, correspondents and other loan sourcing partners and financing counterparties. Some of these may terminate or change their relationships as a result of the transaction.

Current report

We may also discover liabilities, deficiencies or compliance issues that were not identified in due diligence or that exceed our estimates, such as:

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obligations relating to loans previously originated, acquired or sold;

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repurchase or indemnification obligations;

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licensing or regulatory matters; and

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litigation.

Current report

Our indemnification and other contractual protections under the Purchase Agreement are subject to limitations and may not fully cover such liabilities.

Current report

In addition, the acquired equity interests will result from a statutory division under Delaware law. Liabilities of the divided entity are allocated among the resulting entities under a plan of division, and creditors or other third parties may challenge that allocation. As a result, we could become subject to liabilities we did not expect to assume.

Current report

Before the acquisition, the acquired business was not subject to the internal control over financial reporting requirements that apply to us as a public company. Integrating it into our control environment may require significant resources, and any deficiencies could adversely affect our ability to report our results accurately and on time.

Current report

We expect to account for the Toorak Acquisition as a business combination. This requires us to estimate the fair values of acquired assets and assumed liabilities, and those estimates may change during the measurement period. The purchase price is also subject to post-closing adjustments. Any goodwill or intangible assets we record will be subject to future impairment testing, and an impairment charge could adversely affect our results of operations.

Current report

If we do not integrate the acquired business successfully, or do not realize the expected growth, synergies or other benefits within the expected timeframe or at all, our business, financial condition and results of operations could be materially and adversely affected.

Current report

Funding the Toorak Acquisition will reduce our available liquidity and may increase our leverage.

Current report

We expect to fund the purchase price with cash. As of September 30, 2026, we had $86.8 million of unrestricted cash. Our warehouse and repurchase facilities are generally secured by mortgage loans, and their use is subject to eligibility criteria and other terms. Using cash and borrowing capacity for the acquisition will reduce the liquidity available to originate loans, meet margin or other obligations under our financing arrangements, and absorb adverse market developments.

Current report

Several of our facilities mature in the near term, including our 2023 Repurchase Agreement, which matures on December 27, 2026. Our ability to renew or replace these facilities on acceptable terms is not assured. The final purchase price may also exceed our current estimates due to other adjustments.

Current report

We may pursue other acquisitions or strategic transactions that involve similar risks.

Current report

Beyond the Toorak Acquisition, we may from time to time pursue other acquisitions, strategic investments, joint ventures or asset purchases. These transactions involve risks similar to those described above, including:

Current report

difficulties in completing and integrating transactions;

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diversion of management attention;

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loss of key personnel or business relationships;

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assumption of unknown liabilities; and

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the need to use cash, incur debt or issue equity securities, which could dilute our stockholders.

Current report

During the quarter ended September 30, 2026, none of our directors or officers adopted, modified orterminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as defined in Item 408(a) of Regulation S-K.

Previous report

Risks Related to Mergers, Acquisitions and Strategic Investments

Previous report

We may be unable to successfully identify, complete, integrate or realize the anticipated benefits of mergers, acquisitions, strategic investments, joint ventures or other business combinations, which could adversely affect our business, financial condition and results of operations.

Previous report

From time to time, we may pursue acquisitions, strategic investments, joint ventures, minority investments, asset purchases or other business combinations that we believe will complement or expand our business. There can be no assurance that we will be able to identify suitable opportunities, negotiate acceptable terms, obtain required financing, secure necessary regulatory or third-party approvals, or otherwise complete transactions on favorable terms or at all.

Previous report

Even if completed, acquisitions and other strategic transactions involve numerous risks and uncertainties, including difficulties in integrating operations, technologies, products, controls, personnel and corporate cultures; diversion of management's attention from existing business operations; challenges in retaining key employees, customers, counterparties and business relationships; failure to achieve anticipated synergies, cost savings, growth opportunities or other expected benefits; assumption of unknown, contingent or unexpected liabilities; increased legal, regulatory, compliance and operational risks; and potential impairment charges related to goodwill, intangible assets or other acquired assets.

Previous report

In addition, acquired businesses may have liabilities, deficiencies, cybersecurity vulnerabilities, compliance issues or other risks that were not identified during the due diligence process or that exceed our estimates. Any such issues could result in increased costs, litigation, regulatory scrutiny, reputational harm or operational disruptions. If we are unable to successfully integrate acquired businesses or realize the anticipated benefits of a transaction within the expected timeframe, or at all, our business strategy, results of operations, financial condition, cash flows and stock price could be materially and adversely affected.

Previous report

Risks Related to Retained Securities

Previous report

Our retained interests in securitization trusts are subject to valuation, credit, and liquidity risks that could adversely affect our financial condition and results of operations.

Previous report

As part of our loan securitization program, we transfer commercial real estate and residential mortgage loans to securitization trusts and retain interests in those trusts, including subordinate certificates, interest-only strips, and other residual interests. We record these retained interests at fair value, which requires management to make significant estimates and assumptions regarding, among other things, prepayment speeds, default and loss severity rates, discount rates, and the timing and amount of expected future cash flows. These assumptions are inherently subjective and subject to change based on economic conditions, borrower behavior, and performance of the underlying collateral. If actual performance of the securitized loans differs materially from our assumptions, or if market conditions affecting the assumptions used by market participants to value similar instruments change, we may be required to record other-than-temporary impairments or fair value adjustments that could materially and adversely affect our earnings and financial condition in the periods in which they occur.

Previous report

Our retained interests are subordinate to the interests of senior certificate holders in the related trusts. As a result, we bear a disproportionate share of the credit risk associated with the underlying loan pools, and we would generally not receive any distributions on our retained interests until the senior classes have been paid the amounts to which they are entitled. An increase in delinquencies, defaults, or loss severities on the underlying loans—whether due to weakening economic conditions, declines in commercial or residential real estate values, borrower-specific factors, or other causes—could reduce or eliminate the value of our retained interests and reduce or delay the cash flows we expect to receive.

Previous report

Our ability to continue to securitize loans and retain interests on terms favorable to us also depends on conditions in the capital markets that are outside of our control, including investor demand for asset-backed securities, prevailing interest rates, credit spreads, and regulatory requirements applicable to securitization transactions (including risk retention rules). Adverse changes in any of these factors could reduce the value of, or our ability to monetize, our retained interests, could require us to hold a greater proportion of credit risk on our balance sheet than we currently anticipate, and could adversely affect our liquidity, financial condition, and results of operations.

Previous report

On March 20, 2026, Jeffrey T. Taylor, our Executive Vice President, Capital Markets, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 25,980 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.

Previous report

On March 19, 2026, Mark R. Szczepaniak, our Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 24,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.

Previous report

On March 14, 2026, Fiona L. Tam, our Chief Accounting Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 10,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.

Previous report

On March 18, 2026, Roland T. Kelly, our Chief Legal Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 20,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.