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 June 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
incorporation or organization)
(I.R.S. EmployerIdentification No.)
2945 Townsgate Road, Suite 110
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
Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per share
VEL
The New York Stock Exchange
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 July 31, 2025, the registrant had 38,438,579 shares of common stock outstanding.
Table of Contents
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited)
2
Consolidated Balance Sheets
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
37
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
59
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
60
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
62
SIGNATURES
64
i
PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
VELOCITY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
June 30, 2025
December 31, 2024
(Unaudited)
ASSETS
Cash and cash equivalents
$
79,559
49,901
Restricted cash
17,630
20,929
Loans held for investment, at amortized cost (net of allowance for credit losses of $4,882 and $4,174 as of June 30, 2025 and December 31, 2024, respectively)
2,226,720
2,420,116
Loans held for investment, at fair value
3,826,505
2,766,951
Total loans, net
6,053,225
5,187,067
Accrued interest receivables
42,108
35,235
Receivables due from servicers
142,231
123,494
Other receivables
2,006
1,359
Real estate owned, net
93,387
68,000
Property and equipment, net
1,539
1,650
Deferred tax asset
12,488
13,612
Mortgage servicing rights, at fair value
12,940
13,712
Goodwill
6,775
Other assets
11,992
5,674
Total assets
6,475,880
5,527,408
LIABILITIES
Accounts payable and accrued expenses
164,935
147,814
Secured financing, net
285,756
284,833
Securitized debt, at amortized cost
1,859,750
2,019,056
Securitized debt, at fair value
3,232,769
2,207,408
Warehouse and repurchase facilities, net
331,057
348,082
Derivative liability
560
—
Total liabilities
5,874,827
5,007,193
Commitments and contingencies
EQUITY
Common stock ($0.01 par value, 100,000,000 shares authorized; 38,887,827 and 33,761,147 shares issued, 38,289,087 and 33,545,585 shares outstanding as of June 30, 2025 and December 31, 2024, respectively)
390
339
Additional paid-in capital
368,527
322,954
Retained earnings
242,209
197,325
Treasury stock, at cost (598,740 and 215,562 common shares as of June 30, 2025 and December 31, 2024, respectively)
(10,024
)
(2,869
Accumulated other comprehensive loss
(3,207
(805
Total Velocity Financial, Inc. stockholders' equity
597,895
516,944
Noncontrolling interest in subsidiary
3,158
3,271
Total equity
601,053
520,215
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
The following table represents the assets and liabilities of consolidated variable interest entities:
13,194
9,847
Loans held for investment, at amortized cost
2,219,159
2,395,394
3,287,230
2,264,641
Accrued interest and other receivables
177,685
145,891
57,838
1,081
272
5,791,736
4,873,883
118,471
96,895
Securitized debt
5,092,519
4,226,464
5,210,990
4,323,359
3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2025
2024
Interest income
135,567
97,760
254,307
188,289
Interest expense — portfolio related
81,838
59,188
156,926
114,863
Net interest income — portfolio related
53,729
38,572
97,381
73,426
Interest expense — corporate debt
6,143
6,155
12,285
11,535
Net interest income
47,586
32,417
85,096
61,891
Provision for credit losses
1,598
218
3,470
1,219
Net interest income after provision for credit losses
45,988
32,199
81,626
60,672
Other operating income
Gain on disposition of loans
6,286
3,168
9,120
4,865
Unrealized gain on fair value loans
29,906
17,123
64,742
36,049
Unrealized loss on fair value securitized debt
(7,584
(4,643
(21,266
(6,961
Unrealized gain (loss) on mortgage servicing rights
309
(373
(772
71
Origination fee income
8,936
5,072
17,615
10,058
Interest income on cash balance
1,505
1,731
2,844
3,362
Other income
489
483
1,010
892
Total other operating income
39,847
22,561
73,293
48,336
Operating expenses
Compensation and employee benefits
22,605
16,562
44,289
31,919
Origination expenses
1,193
749
2,031
1,395
Securitization expenses
11,521
6,232
15,564
9,106
Loan servicing
8,205
5,160
16,213
9,984
Professional fees
1,992
1,718
3,775
3,833
Rent and occupancy
298
617
573
1,115
3,298
1,355
6,327
3,811
Other operating expenses
2,801
2,494
5,331
4,735
Total operating expenses
51,913
34,887
94,103
65,898
Income before income taxes
33,922
19,873
60,816
43,110
Income tax expense
Federal
5,928
3,675
11,778
7,837
State
1,824
1,487
4,220
3,229
Total income tax expense
7,752
5,162
15,998
11,066
Net income
26,170
14,711
44,818
32,044
Net income (loss) attributable to noncontrolling interest
173
(67
(66
15
Net income attributable to Velocity Financial, Inc.
25,997
14,778
44,884
32,029
Less undistributed earnings attributable to unvested restricted stock awards
286
182
523
394
Net earnings attributable to common stockholders
25,711
14,596
44,361
31,635
Earnings per common share
Basic
0.69
0.45
1.25
0.97
Diluted
0.42
1.20
0.90
Weighted average common shares outstanding
37,194
32,585
35,450
32,563
37,790
35,600
37,309
35,519
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on cash flow hedges arising during the period
(1,613
909
(2,669
2,800
Reclassification adjustments included in net income
205
(105
267
8
Total other comprehensive income (loss), net of tax
(1,408
804
(2,402
2,808
Total comprehensive income attributable to Velocity Financial, Inc.
24,589
15,582
42,482
34,837
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except share data)
Common Stock - Number of Shares
Stockholders' Equity
Shares Issued
Treasury Shares
Shares Outstanding
Common Stock
AdditionalPaid-inCapital
RetainedEarnings
Treasury Stock, at Cost
Accumulated Other Comprehensive Income (Loss), Net of Tax
TotalStockholders'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
152
155
Shares surrendered for tax withholding on vested awards
(79,258
(1,284
Restricted stock awarded and stock-based compensation expenses
189,679
1,371
17,251
82
17,333
Other comprehensive income
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
127,733
1
1,500
1,501
(14,892
(266
1,565
Distribution to non-controlling interest
(20
Net income (loss)
Balance – June 30, 2024
33,314,197
(215,562
33,098,635
335
311,324
160,935
471,323
3,424
474,747
Balance – December 31, 2024
33,761,147
33,545,585
1,569,255
20
28,522
28,542
(115,596
(2,162
385,503
1,970
18,887
(239
18,648
Other comprehensive loss
(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
3,154,630
31
13,052
13,083
Purchase of treasury stock
(258,828
(4,848
(8,754
(145
17,292
2,029
(47
Balance – June 30, 2025
38,887,827
(598,740
38,289,087
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
270
367
Amortization of right-of-use assets
675
716
Origination of loans held for sale
(45,809
Proceeds from sales of loans held for sale
46,954
Net accretion of discount on purchased loans and amortization of deferred loan origination costs
1,991
2,310
Provision for uncollectible borrower advances
587
599
(1,145
(791
Real estate acquired through foreclosure in excess of recorded investment
(7,975
(4,074
Amortization of debt issuance discount and costs
5,343
6,339
Change in valuation of real estate owned
4,223
2,261
Change in valuation of fair value loans
(64,742
(36,049
Change in valuation of mortgage servicing rights
1,223
(71
Change in valuation of fair value securitized debt
21,266
6,961
Gain on sale of real estate owned
(1,090
(249
Stock-based compensation
3,999
2,936
Hedging activities
(3,404
3,240
Deferred tax expense
2,096
648
Change in operating assets and liabilities:
(8,150
(5,559
(6,159
(5,475
12,757
14,681
Net cash provided by operating activities
11,198
22,053
Cash flows from investing activities:
Purchase of loans held for investment
(15,114
Origination of loans held for investment
(1,320,002
(800,896
Proceeds from sales of loans originally classified as held for investment
49,226
Payoffs of loans held for investment and loans at fair value
454,240
346,440
Proceeds from sale of real estate owned
22,537
15,956
Capitalized improvement on real estate held for sale
(19
Change in advances
(2,284
(3,143
Change in impounds and deposits
3,075
1,315
Purchase of property and equipment
(158
(125
Proceeds from sale of property and equipment
640
Purchase of mortgage servicing rights
(3,580
Net cash used in investing activities
(842,611
(409,281
Cash flows from financing activities:
Warehouse repurchase facilities advances
1,481,924
733,776
Warehouse repurchase facilities repayments
(1,498,852
(831,585
Proceeds from secured financing
74,311
Proceeds of securitized debt, net
1,334,657
718,079
Repayment of securitized debt
(493,337
(286,987
Debt issuance costs
(1,043
(2,720
Deferred stock issuance costs
(379
Proceeds from issuance of common stock related to warrants exercised
10,908
Proceeds from issuance of common stock, net
31,096
1,656
(7,155
(1,550
Net cash provided by financing activities
857,772
404,960
Net increase in cash, cash equivalents, and restricted cash
26,359
17,732
Cash, cash equivalents, and restricted cash at beginning of period
70,830
61,927
Cash, cash equivalents, and restricted cash at end of period
97,189
79,659
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental cash flow information:
Cash paid during the period for interest
158,869
115,961
Cash paid during the period for income taxes, net
18,743
15,865
Noncash transactions from investing and financing activities:
Transfer of loans held for investment to held for sale
34,191
Transfer of loans held for investment to real estate owned
43,063
20,383
Transfer of accrued interest to loans held for investment
981
Transfer of loans held for sale to held for investment
2,612
Recognition of new leases in exchange for lease obligations
1,384
Deferred stock issuance costs charged against additional paid-in capital
379
VELOCITY FINANCIAL, INC. AND SUBSIDIARIES
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.”
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 2025-3 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 June 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 six months ended June 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.
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.
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.
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 June 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.
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.
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.
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.
10
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
Liabilities of Crypto-Assets
In March 2025, the FASB issued ASU 2025-02, “Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122,” which rescinds the interpretive guidance in Staff Accounting Bulletin No. 121 regarding the accounting for obligations to safeguard crypto-assets that an entity holds for platform users. The amendments in this ASU were effective immediately and on a fully retrospective basis to annual periods beginning after December 15, 2024. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.
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.
Compensation
In March 2024, the FASB issued ASU 2024-01, “Compensation— Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards,” clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 - Compensation - Stock Compensation or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. ASU 2024-01 is effective January 1, 2025, for the Company. The Company adopted the provisions of ASU 2024-01 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.
11
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 $86.6 million and $85.0 million as of June 30, 2025 and 2024, respectively. These amounts are not reflected on the Consolidated Balance Sheets of the Company.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s Consolidated Balance Sheets to the total of the same such amounts shown in the Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024:
June 30,
47,366
32,293
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
Note 5 — Loans Held for Sale at Fair Value
There were no loans held for sale at fair value as of June 30, 2025 and December 31, 2024.
Note 6 — Loans Held for Investment at Amortized Cost and Loans Held for Investment at Fair Value
The following tables summarize loans held for investment as of June 30, 2025 and December 31, 2024:
Loans Held for Investment, at Amortized Cost
Loans Held for Investment, at Fair Value
Total Loans Held for Investment
Unpaid principal balance
2,210,304
3,649,349
5,859,653
Valuation adjustments on FVO loans
177,156
Deferred loan origination costs
21,298
2,231,602
6,058,107
Allowance for credit losses
(4,882
Total loans held for investment
2,400,720
2,655,217
5,055,937
111,734
23,570
2,424,290
5,191,241
(4,174
12
The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and six months ended June 30, 2025 and the year ended December 31, 2024:
Three Months Ended June 30, 2025
Six Months Ended June 30, 2025
UPB
%
Amortized Cost
($ in thousands)
Beginning balance
136,142
137,465
142,827
144,247
Foreclosures
(1,116
(1,124
(1,860
(1,876
Repayments
(4,487
(4,551
(10,428
(10,581
Ending balance
130,539
131,790
Performing/Accruing
98,802
75.7%
99,762
Nonperforming/Nonaccrual
31,737
24.3%
32,028
Year Ended December 31, 2024
174,571
176,515
(5,292
(5,416
(26,452
(26,852
102,769
72.0%
103,790
40,058
28.0%
40,457
Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $413.9 million in UPB of loans, which includes capitalized interest of $15.7 million. As of June 30, 2025, $279.0 million in UPB of modified loans has been paid down, which includes $6.6 million of capitalized interest received.
Approximately 75.7% and 72.0% of the COVID forbearance loans in UPB were performing, and 24.3% and 28.0% were on nonaccrual status as of June 30, 2025 and December 31, 2024, respectively.
13
As of June 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:
The 2013 repurchase agreement
165,810
133,577
The 2021/2024 repurchase agreements
111,727
148,676
The 2021 term repurchase agreement
42,161
74,324
The 2023 repurchase agreement
89,971
42,613
The 2024 bank credit agreement
22,526
23,330
Total pledged loans
432,195
422,520
2017-2 Trust
34,043
39,231
2018-1 Trust
25,780
28,564
2018-2 Trust
54,959
62,845
2019-1 Trust
63,072
71,521
2019-2 Trust
46,940
52,417
2019-3 Trust
47,082
52,177
2020-1 Trust
88,129
98,858
2021-1 Trust
151,683
162,750
2021-2 Trust
123,877
130,363
2021-3 Trust
128,093
136,891
2021-4 Trust
206,187
219,907
2022-1 Trust
211,173
222,909
2022-2 Trust
190,945
201,363
2022-MC1 Trust
58,133
2022-3 Trust
235,592
253,621
2022-4 Trust
234,976
254,668
2022-5 Trust
166,018
187,078
2023-1 Trust
162,754
180,941
2023-2 Trust
137,895
165,155
2023-3 Trust
169,258
200,943
2023-RTL1 Trust
85,530
2023-4 Trust
159,357
185,013
2024-1 Trust
159,217
188,638
2024-2 Trust
235,783
271,542
2024-3 Trust
183,297
198,640
2024-4 Trust
223,432
248,788
2024-5 Trust
277,735
293,881
2024-6 Trust
283,011
299,216
2025-1 Trust
341,853
2025-RTL1 Trust
117,213
2025-2 Trust
383,111
2025-MC1 Trust
112,392
2025-3 Trust
390,039
Total
5,344,896
4,551,583
14
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 June 30, 2025 and December 31, 2024.
Total Nonaccrual
Nonaccrual with No Allowance for Credit Losses
Nonaccrual with Allowance for Credit Losses
Allowance for Loans Individually Evaluated
Commercial - Purchase
33,716
32,960
756
79
Commercial - Refinance
95,099
88,812
6,287
1,104
Residential 1-4 Unit - Purchase
26,164
25,850
314
Residential 1-4 Unit - Refinance
114,570
110,562
4,008
235
Short Term 1-4 Unit - Purchase
2,100
Short Term 1-4 Unit - Refinance
14,682
14,544
138
46
286,331
274,828
11,503
1,470
33,290
32,294
996
85
99,683
96,155
3,528
421
29,573
122,439
114,265
8,174
450
4,754
23,556
23,341
215
73
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 June 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 six months ended June 30, 2025 and 2024:
Interest Reversal
532,379
186
599,314
147
660,040
319
758,179
762
386,393
57
469,400
151
602,809
313
734,003
30,593
33,113
19,388
30,850
54
875
2,624,859
1,545
449
202
598
1,629
198
588
614
80
115
1,913
2,856
The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $14.0 million and $8.4 million for the three months ended June 30, 2025 and 2024, respectively. The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $22.5 million and $15.8 million for the six months ended June 30, 2025 and 2024, respectively. No accrued interest income was recognized on nonaccrual loans for the six months ended June 30, 2025 and 2024. The average recorded investment of individually evaluated loans, computed using month-end balances, was $289.1 million and $322.8 million for the three months ended June 30, 2025 and 2024, respectively, and $294.9 million and $323.9 million for the six months ended June 30, 2025 and 2024, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of June 30, 2025 and 2024.
The following tables present the activity in the allowance for credit losses for the three and six months ended June 30, 2025 and 2024:
Commercial Purchase
Commercial Refinance
Residential 1-4 Unit Purchase
Residential 1-4 Unit Refinance
Short Term 1-4 Unit Purchase
Short Term 1-4 Unit Refinance
Allowance for credit losses:
Beginning balance - April 1, 2025
655
2,129
840
1,297
38
58
5,017
Provision for (reversal of) credit losses
24
29
(9
(14
(11
1,579
Charge-offs
(73
(44
(25
(1,591
(1,733
679
2,085
787
1,258
27
4,882
Allowance related to:
Loans individually evaluated
Loans collectively evaluated
600
781
1,023
3,412
Amortized cost related to:
498,663
564,941
360,229
488,239
28,493
4,706
1,945,271
Three Months Ended June 30, 2024
Beginning balance - April 1, 2024
861
1,894
973
1,269
17
253
5,267
(51
(142
(39
(61
499
(245
810
1,752
934
1,208
507
5,240
111
552
189
273
1,614
698
1,200
745
936
18
3,626
30,198
99,844
33,640
132,448
6,904
24,256
327,290
569,116
658,335
435,760
601,555
26,209
6,594
2,297,569
16
Beginning balance - January 1, 2025
662
1,399
746
1,281
74
4,174
877
262
626
22
1,666
(191
(221
(649
(7
(1,694
(2,762
Six Months Ended June 30, 2024
Beginning balance - January 1, 2024
935
1,805
585
1,256
23
165
4,769
645
105
586
(2
(296
(107
(99
(244
(748
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 1.89% and 0.47% of average nonperforming loans for the six months ended June 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 $131.8 million and $144.2 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of June 30, 2025 and December 31, 2024, respectively:
30–59 Days Past Due
60–89 Days Past Due
90+ Days Past Due(1)
Total Past Due
Current
Total Loans
772
381
4,919
2,706
87,348
94,973
126
1,298
98
24,768
3,529
960
110,081
Total loans individually evaluated
10,518
4,145
286,205
14,694
17,057
31,751
466,912
29,834
7,588
37,422
527,519
12,692
5,318
18,010
342,219
27,331
9,915
37,246
450,993
4,549
157
Total loans collectively evaluated
84,551
44,427
128,978
1,816,293
95,069
48,572
415,183
1,816,419
387
555
32,348
3,903
3,326
92,454
606
957
28,010
4,784
708
116,947
203
23,353
9,680
5,749
297,866
19,633
12,027
31,660
500,865
532,525
37,480
12,132
49,612
565,675
615,287
16,040
7,479
23,519
367,015
390,534
32,398
14,302
46,700
499,730
546,430
10,073
15,989
26,062
115,624
45,940
161,564
1,949,431
2,110,995
125,304
51,689
474,859
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 June 30, 2025 and December 31, 2024.
Term Loans Amortized Cost Basis by Origination Year
June 30, 2025:
2022
2021
2020
2019
Prior
Payment performance
Performing
210,375
193,348
23,720
31,943
39,277
Nonperforming
11,336
13,395
3,387
4,383
1,215
Total Commercial - Purchase
221,711
206,743
27,107
36,326
40,492
193,426
159,309
37,141
68,353
106,712
27,548
20,323
3,253
16,327
27,648
Total Commercial - Refinance
220,974
179,632
40,394
84,680
134,360
161,561
154,333
6,726
15,943
21,666
9,287
9,015
1,698
921
5,243
Total Residential 1-4 Unit - Purchase
170,848
163,348
8,424
16,864
26,909
200,352
184,945
14,738
41,623
46,581
39,769
40,589
6,563
12,831
14,818
Total Residential 1-4 Unit - Refinance
240,121
225,534
21,301
54,454
61,399
1,125
20,484
6,884
1,517
583
Total Short Term 1-4 Unit - Purchase
2,642
21,067
1,546
1,845
8,186
3,105
Total Short Term 1-4 Unit - Refinance
6,252
Total Portfolio
862,548
775,257
120,138
207,394
266,265
Gross charge-offs - quarter-ended June 30, 2025
1,636
25
72
1,733
Gross charge-offs - year-to-date June 30, 2025
2,202
266
28
75
191
2,762
19
223,564
210,742
24,253
33,505
40,461
13,046
6,524
4,994
5,758
2,968
236,610
217,266
29,247
39,263
43,429
565,815
207,766
167,568
40,772
76,886
122,295
26,624
19,172
4,305
18,708
30,874
234,390
186,740
45,077
95,594
153,169
714,970
173,252
167,804
8,166
17,740
23,572
9,724
12,384
1,704
657
5,104
182,976
180,188
9,870
18,397
28,676
420,107
226,187
201,247
16,116
46,487
56,393
46,873
34,974
7,560
15,176
17,856
273,060
236,221
23,676
61,663
74,249
668,869
2,044
17,985
6,033
4,170
584
6,214
18,569
30,816
8,293
2,186
9,042
4,035
8,450
23,713
941,700
820,415
128,625
229,992
303,558
Gross charge-offs - quarter-ended December 31, 2024
184
265
139
699
Gross charge-offs - year-ended December 31, 2024
1,132
219
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 June 30, 2025 and December 31, 2024 by loan segments:
Fair Value
Unpaid Principal Balance
Difference
Current–89 Days
90+ Days Past Due
Past Due
or Nonaccrual
707,461
26,248
733,709
652,294
31,788
684,082
(5,540
1,082,800
41,959
1,124,759
992,755
50,282
1,043,037
(8,323
446,851
33,803
480,654
425,958
40,848
466,806
(7,045
1,154,668
136,988
1,291,656
1,091,285
165,994
1,257,279
(29,006
87,610
7,099
94,709
86,608
8,528
95,136
(1,429
83,612
17,406
101,018
81,782
21,227
103,009
(3,821
3,563,002
263,503
3,330,682
318,667
(55,164
Current–89 days
past due
505,244
15,636
520,880
466,526
18,586
485,112
(2,950
672,504
24,129
696,633
620,332
29,195
649,527
(5,066
381,660
28,352
410,012
366,431
34,457
400,888
(6,105
862,971
103,985
966,956
819,633
126,340
945,973
(22,355
78,863
3,981
82,844
78,207
4,854
83,061
(873
76,277
13,349
89,626
74,620
16,036
90,656
(2,687
2,577,519
189,432
2,425,749
229,468
(40,036
Note 7 — Receivables Due From Servicers
The following tables summarize receivables due from servicers as of June 30, 2025 and December 31, 2024:
Securitized Debt
Warehouse and Repurchase Facilities and Other
Loan principal payments due from servicers
74,950
77
75,027
Other loan servicing receivables
24,023
4,242
28,265
Loan servicing receivables
98,973
4,319
103,292
Corporate and escrow advances receivable
38,489
38,939
Total receivables due from servicers
137,462
61,907
1,695
63,602
17,246
5,404
22,650
79,153
86,252
33,387
3,855
37,242
112,540
10,954
21
Note 8 — Real Estate Owned, Net
As of June 30, 2025, the carrying value of real estate owned was $93.4 million, none was pledged as collateral under any warehouse repurchase agreement and 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 $838.2 million and $707.7 million as of June 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 June 30, 2025 and 2024 include: (1) weighted average discount rate of 8.0%, and (2) weighted average conditional prepayment rate of 5.6% and 4.7%, respectively.
The following table presents the Company's mortgage servicing rights activity during the three and six months ended June 30, 2025 and 2024:
Balance at the beginning of period
12,631
9,022
8,578
Mortgage servicing rights acquired
3,580
Additions
451
Fair value adjustments
(1,223
Balance at the end of period
12,229
Note 10 — Goodwill
The following table presents the activity for goodwill as of June 30, 2025 and December 31, 2024:
Note 11 — Securitized Debt at Amortized Cost and Securitized Debt at Fair Value
As of June 30, 2025, the Company is the sole beneficial interest holder of thirty-one 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 June 2055.
The following tables summarize securitized debt at amortized cost and securitized debt at fair value as of June 30, 2025 and December 31, 2024:
Securitized Debt, at Amortized Cost
1,890,469
2,049,790
Deferred issuance costs and discounts
(30,719
(30,734
Total securitized debt, at amortized cost
Securitized Debt, at Fair Value
3,230,107
2,219,218
Adjustment at issuance to recognize fair value (1)
(23,142
(18,231
Fair value at issuance
3,206,965
2,200,987
Valuation adjustment subsequent to issuance (2)
27,687
6,421
Fair value adjustment related to refinance of securitization trust
(1,883
Total securitized debt at fair value
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 June 30, 2025 and December 31, 2024:
2,662
(11,810
The following table presents the effective interest rate of securitized debt at amortized cost and securitized debt at fair value for the six months ended June 30, 2025 and 2024:
Interest expense
140,166
102,355
Average outstanding unpaid principal balance
4,609,818
3,602,754
Effective interest rate (1)
6.08
5.68
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.
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 June 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 June 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 $4.2 million and $5.2 million as of June 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 June 30, 2025, the Company was in compliance with all covenants.
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 25, 2025, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of $300.0 million, and bears interest at SOFR plus 3.00%. 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 $75.0 million. During the quarter ended March 31, 2025, the bank temporarily increased the maximum loan amount to $100.0 million, and continues to be in effect as of June 30, 2025.
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 June 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 June 30, 2025 and December 31, 2024:
Contract Date
Maturity Date
Period EndBalance (1)
MaximumBorrowingCapacity
Effective Interest Rate
The September 2022 term repurchase agreement
01/04/11
07/31/25
60,000
6.0
6.5
05/17/13
09/25/25
132,798
300,000
7.7
106,675
9.0
1/29/20217/25/2024
05/20/26
86,889
200,000
7.9
126,815
04/16/21
04/14/28
28,982
100,000
7.5
52,408
8.5
12/27/23
12/27/26
65,900
7.3
44,900
75,000
9.7
11/07/24
05/07/27
18,549
50,000
8.4
19,248
9.2
333,118
810,000
350,046
785,000
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 six months ended June 30, 2025 and 2024:
Average outstanding balance
413,441
263,029
423,615
265,294
Highest outstanding balance at any month-end
556,752
333,850
571,834
361,677
7.99
9.30
7.91
9.43
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 and loan agreements for the three and six months ended June 30, 2025 and 2024:
Warehouse and repurchase facilities
8,254
6,116
16,760
12,508
73,584
53,072
Total interest expense
87,981
65,343
169,211
126,398
Note 13 — Commitments and Contingencies
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 June 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.
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 June 30, 2025.
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 June 30, 2025 and December 31, 2024.
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:
Recognized compensation expense:
Options
131
260
RSAs
761
596
1,508
1,173
PSUs
948
757
1,855
1,304
ESPP
210
376
455
Total recognized compensation expense
Unrecognized compensation expense:
5,360
5,110
Total unrecognized compensation expense
11,574
Weighted average period expected to be recognized (in years)
2.1
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 table below summarizes stock option activity for the six months ended June 30, 2025 and 2024:
($ in thousands, except per share amounts)
Number of shares:
Options outstanding at beginning of period
1,065,772
752,964
Granted
100
Options outstanding at end of period
753,064
Options exercisable at end of period
749,344
747,500
Options expected to vest (1)
316,428
5,564
Weighted average exercise price per share:
14.46
12.88
15.86
12.89
18.19
Aggregate intrinsic value (2):
4,358
3,804
4,238
3,770
120
34
Weighted average remaining contractual life (in years):
5.9
5.6
4.6
9.1
26
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 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 six months ended June 30, 2025 and 2024:
Employee
Non-Employee Director
Unvested at beginning of period
355,505
47,430
402,935
409,137
61,276
470,413
180,003
197,295
15,939
205,618
Vested
(163,779
(26,261
(190,040
(248,796
(29,785
(278,581
Unvested at end of period
371,729
38,461
410,190
350,020
397,450
Weighted average grant date fair value per share:
13.52
12.03
13.34
9.39
9.31
9.38
18.82
16.48
18.61
17.88
16.02
12.92
10.85
12.64
8.61
9.57
8.71
16.35
14.83
16.20
13.45
13.28
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 six months ended June 30, 2025 and 2024:
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
157,994
Performance adjustment
153,637
10.00
102,750
12.63
(205,500
Outstanding at end of period, unvested
620,433
13.69
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 quarters ended June 30, 2025 and 2024, shares withheld were 267,582 and 14,892, at an average price of $18.66 and $17.88 per share, respectively.
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 six months ended June 30, 2025 and 2024:
(In thousands, except per share data)
Basic EPS:
Less: undistributed earnings attributable to unvested restricted stock awards
Basic earnings per common share
Diluted EPS:
Add dilutive effects for warrants
2,395
1,217
2,369
Add dilutive effects for stock options
199
179
Add dilutive effects of unvested restricted stock awards
95
Add dilutive effects of unvested performance-based stock units
302
312
256
Add dilutive effects of employee stock purchase plan
Weighted average diluted common shares outstanding
Diluted earnings per common share
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:
2025(1)
2024(1)
Stock options
312,841
Unvested restricted stock awards
98,648
102,809
Employee stock purchase plan
53,770
Share equivalents excluded from EPS
330,133
16,039
411,489
156,679
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 have been 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. For the three and six months ended June 30, 2025, no loans were sold to any affiliate and $87.3 million of securitized debt was issued to an affiliate. During the three and six months ended June 30, 2024, the Company sold $28.7 million in UPB of loans to an affiliate and no securitized debt was issued to any affiliate.
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 June 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 June 30, 2025 and 2024, $205 thousand of after-tax net loss, and $105 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. For the six months ended June 30, 2025 and 2024, $267 thousand of after-tax net loss and $8 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. As of June 30, 2025 and 2024, the Company had $3.2 million of after-tax net unrealized loss and $1.6 million of after-tax net unrealized gain, respectively, associated with cash flow hedging instruments recorded in AOCI. As of June 30, 2025, the Company expects to reclassify an estimated $0.8 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 June 30, 2025 and December 31, 2024:
Derivatives designated as hedging instruments:
Balance Sheet Location
Notional Amount
Fair Value (1)
Cash flow hedges:
Interest rate payer and receiver swaptions
229,000
Forward starting payer interest rate swaps
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 six months ended June 30, 2025 and 2024:
Net unrealized gain (loss) on cash flow hedges arising during the period, net of tax
The following tables present the components of other comprehensive income (loss) and the related tax effect for the three and six months ended June 30, 2025 and 2024:
Before-Tax
Tax Effect
Net-of-Tax
Interest rate swaps/swaptions:
Net unrealized gain (loss) arising during the period
(2,266
653
1,216
(307
288
(83
(144
39
Other comprehensive income (loss)
(1,978
570
1,072
(268
(3,752
1,083
3,843
375
(108
(3
(3,377
975
3,854
(1,046
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:
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.
30
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 June 30, 2025 and December 31, 2024, by level, in the fair value hierarchy:
Fair Value Measurements Using
Total at
Level 1
Level 2
Level 3
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net
10,033
Total nonrecurring fair value measurements
103,420
Recurring fair value measurements:
Mortgage servicing rights
Total recurring fair value measurements
3,839,445
3,942,865
Liabilities:
3,233,329
32
11,884
79,884
2,780,663
2,860,547
The following table presents gains and losses recognized on assets measured on a nonrecurring basis for the three and six months ended June 30, 2025 and 2024:
Gain (Loss) on Assets Measured on a Nonrecurring Basis
(2,150
(540
(4,223
(2,261
(40
(183
(441
(640
Total net loss
(2,190
(723
(4,664
(2,901
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 June 30, 2025 and December 31, 2024:
Asset Category
PrimaryValuationTechnique
UnobservableInput
Range
WeightedAverage (1)
Nonrecurring:
Market comparables
Selling costs
8.0%
Recurring:
Discounted cash flow
Discount rate
7.9%
Prepayment rate
0.0% to 65.0%
11.1%
Default rate
0.3% to 5.4%
1.2%
Loss severity rate
0.0% to 8.9%
0.9%
2.2% to 15.9%
5.6%
33
8.4%
0.0% to 30.0%
9.0%
0.1% to 2.8%
1.0%
0% to 10.5%
2.2% to 11.7%
5.1%
The following is a roll-forward of loans held for investment that are measured at estimated fair value on a recurring basis for the periods indicated:
3,287,188
1,649,540
1,306,072
Originations
684,465
422,226
1,320,002
800,896
Loans liquidated
(148,951
(77,798
(281,661
(139,550
Acquisition
3,399
14,990
REO transfer
(12,811
(1,296
(19,340
(2,221
Principal paydowns
(13,414
(7,732
(24,189
(13,801
Total gain included in net income
30,028
17,285
36,757
Loans transferred to held for sale
(34,059
(31,578
Loans Repurchased
118
1,971,683
The following is a roll-forward of loans held for sale that are measured at estimated fair value on a recurring basis for the periods indicated:
5,008
17,590
40,922
45,809
(46,953
(33,895
(46,954
(48,429
(31
Total gain (loss) included in net income
(162
1,145
(708
Loans transferred from held for investment
34,059
31,578
The following is a roll-forward of securitized debt measured and recorded at estimated fair value on a recurring basis for the periods indicated:
2,459,767
1,073,843
877,417
982,140
488,711
1,356,500
692,337
Paydowns and payoffs
(216,722
(57,245
(352,405
(66,763
Total loss included in net income
7,584
4,643
1,509,952
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 June 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 $10.0 million and $11.9 million as of June 30, 2025 and December 31, 2024, respectively, net of specific allowance for credit losses of approximately $1.5 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:
Carrying
Estimated
Value
Cash
2,151,250
289,293
1,707,818
Accrued interest payable
32,648
35
2,321,141
Accrued interest receivable
287,970
Warehouse repurchase facilities, net
1,820,945
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 June 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.
36
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 June 30, 2025, has an average balance of approximately $394.0 thousand. As of June 30, 2025, our loan portfolio totaled $5.9 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 65.8%, of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 50.4% of the UPB. For the three and six months ended June 30, 2025, the annualized yield on our total portfolio were 9.65% and 9.39%, 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 42 securitized debt transactions, resulting in a total of over $9.3 billion in gross debt proceeds from May 2011 through June 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 six months ended June 30, 2025, our annualized portfolio related net interest margin were 3.82% and 3.60%, respectively, compared to 3.54% and 3.45% for the three and six months ended June 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 six months ended June 30, 2025, including net income attributable to noncontrolling interest, we generated pre-tax income of $33.9 million and $60.8 million, and net income of $26.2 million and $44.8 million, respectively. For the three and six months ended June 30, 2024, including net income attributable to noncontrolling interest, we generated pre-tax income of $19.9 million and $43.1 million, and net income of $14.7 million and $32.0 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
In April and May 2025, we collapsed and refinanced the 2023-RTL1 Trust and 2022-MC1 Trust, respectively, and redeemed the remaining outstanding balances of the securitized debt.
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, a possible global recession, 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
March 31, 2025
June 30, 2024
Total loans
5,449,901
4,479,901
Loan count
14,854
13,858
11,582
Average loan balance
393
Weighted average loan-to-value
65.8
66.1
67.4
Weighted average coupon
9.6
9.3
Nonperforming loans (UPB) (A)
601,757
587,811
470,649
Nonperforming loans (% of total) (A)
10.3
10.8
10.5
(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $31.7 million, $36.7 million and $40.7 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of June 30, 2025, March 31, 2025, and June 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 and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated:
Loan Count
Loan Balance
AverageLoan Size
WeightedAverageCoupon
WeightedAverageLTV
Three Months Ended June 30, 2025:
Loan originations — held for investment
1,630
420
10.47
62.7
Loan originations — held for sale
5.64
61.4
Total loan originations
1,631
725,387
445
10.20
62.6
Three Months Ended March 31, 2025:
1,513
635,537
10.51
4,886
5.70
19.9
1,514
640,423
423
62.3
Three Months Ended June 30, 2024:
1,109
11.03
64.7
Loan acquisitions — held for investment
3,371
1,124
8.76
53.5
Total loans originated and acquired
1,112
425,597
383
11.02
64.6
During the second quarter of 2025, loan originations increased $85.0 million and $303.2 million from the quarters ended March 31, 2025 and June 30, 2024, respectively.
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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:
Total loans held for investment, gross
Loans held for investment, net
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:
Loans due in less than one year
167,846
2.8
157,521
3.1
Loans due in one to five years
102,949
1.8
83,993
1.7
Loans due in more than five years
5,588,858
95.4
4,814,423
95.2
100.0
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:
Six Months Ended
Three Months Ended
Average nonperforming loans for the period (1)
291,737
297,380
320,392
748
Charge-offs / Average nonperforming loans for the period (1)
1.89
(2)
1.38
0.47
Gain (loss) on REO:
Gain on transfer to REO
7,975
2,834
4,074
REO valuation gain (loss), net
(2,073
249
Gain (loss) on sale of REO
1,090
300
Total gain on REO
4,842
1,061
2,062
Allowance for Credit Losses
For the June 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 announced tariffs and federal government layoffs, contributing to a forecasted decreasing GDP and rising unemployment.
For the March 31, 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 announced tariffs and federal government layoffs, contributing to a forecasted decreasing GDP and rising unemployment.
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For the December 31, 2024 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 decreasing forecasted GDP, unstable labor market, and geopolitical risk.
Our allowance for credit losses as of June 30, 2025 was $4.9 million compared to $5.2 million as of June 30, 2024. The decrease in allowance for credit losses from June 30, 2024 was primarily due to a decrease in the baseline allowance component of the reserve. Our overall expected credit loss reserves range from 0.15% to 0.20% of loans held for investment, excluding FVO loans. 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:
Total UPB(1)
2,599,016
Nonperforming loans UPB
283,227
324,018
Nonperforming loans UPB / Total UPB(1)
12.8
12.5
Allowance for credit losses / Total UPB(1)
0.22
0.20
Charge-offs / Total UPB(1)
0.31
0.04
0.25
0.06
The allowance for credit losses was 0.22% of total UPB of loans held for investment carried at amortized cost as of June 30, 2025. Although slightly higher than our expected range of 0.15% to 0.20%, the 0.22% reserve is reasonable given the current market uncertainty. Nonperforming loans were 12.8% of total UPB of loans held for investment carried at amortized cost as of June 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 eight 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:
June 30, 2025 (A)
COVID-19Forbearance
March 31, 2025 (A)
June 30, 2024 (A)
Performing/Accruing:
4,878,317
83.3
91,325
4,504,854
82.7
88,462
3,669,659
81.9
95,614
30-59 days past due
263,390
4.4
3,971
239,547
9,186
247,100
5.5
17,598
60-89 days past due
116,189
2.0
3,506
112,803
1,800
92,494
4,590
Total Performing Loans
5,257,896
89.7
4,857,204
89.2
99,448
4,009,253
89.5
117,802
Nonperforming/Nonaccrual:
<90 days past due
29,136
0.5
2,302
33,488
0.6
3,189
19,347
90+ days past due
50,269
0.9
46,545
37,161
0.8
710
Bankruptcy
79,327
1.4
4,564
76,606
3,688
47,011
1.0
7,172
In foreclosure
443,025
24,871
431,172
29,612
367,129
8.2
31,787
Total nonperforming loans
36,694
470,648
40,415
5,445,015
158,217
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Loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were $601.8 million, or 10.3% of our held for investment loan portfolio as of June 30, 2025, compared to $587.8 million, or 10.8% as of March 31, 2025, and $470.6 million, or 10.5% as of June 30, 2024. The increase in total nonperforming loans as of June 30, 2025 compared to March 31, 2025 and June 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 $104.0 million of long-term and short-term nonperforming assets for the quarter ended June 30, 2025, which was higher compared to $76.4 million for the quarter ended March 31, 2025, and higher compared to $80.7 million for the quarter ended June 30, 2024. From these resolution activities, we realized net gains of $3.6 million, $1.9 million, and $1.0 million for the quarters ended June 30, 2025, March 31, 2025, and June 30, 2024, respectively. This is largely the result of collecting 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:
Long-Term Nonperforming Assets
Gain /(Loss)
Resolved — loans paid in full
32,220
2,078
20,589
989
26,119
793
Resolved — loans paid current
45,396
30,563
35,292
188
Resolved — REO sold
11,167
548
4,541
337
7,859
(202
Total resolutions
88,783
3,016
55,693
1,701
69,270
779
Recovery rate on resolved nonperforming assets
103.4
103.1
101.1
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:
Short-Term and Forbearance Nonperforming Assets
8,963
371
5,341
4,545
93
11,845
2,689
2,440
243
3,558
(37
4,176
15,173
618
20,744
159
11,410
259
104.1
100.8
102.3
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 June 30, 2025, our REO included 175 properties with a lower of cost or estimated fair value of $93.4 million compared to 157 properties with a lower of cost or estimated fair value of $83.4 million as of March 31, 2025, and 89 properties with a lower of cost or estimated fair value of $50.8 million as of June 30, 2024.
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Concentrations – Loans Held for Investment
As of June 30, 2025, our held for investment loan portfolio was concentrated in Investor 1-4 loans, representing 50.4% of the UPB. Mixed use properties represented 10.8% 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 20.9% in California, 14.3% in New York, 12.6% in Florida, 7.7% in New Jersey, and 5.8% in Texas.
Property Type
% of Total UPB
Investor 1-4
9,241
2,951,750
50.4
Mixed use
1,482
632,372
Retail
1,111
569,053
9.4
Multifamily
422,603
7.2
Office
993
459,036
6.7
Warehouse
634
392,734
6.4
Other (1)
683
432,105
Geography (State)
California
1,773
1,224,558
20.9
New York
1,584
836,166
14.3
Florida
1,815
738,964
12.6
New Jersey
1,166
449,807
Texas
926
342,072
5.8
7,590
2,268,086
38.7
Key Performance Metrics
June 30, 2025 (1)
March 31, 2025 (1)
June 30, 2024 (1)
Average loans
5,620,763
5,214,186
4,355,941
Portfolio yield
9.65
9.11
8.98
Average debt — portfolio related
5,245,799
4,821,067
3,941,507
Average debt — total company
5,535,799
5,111,067
4,231,507
Cost of funds — portfolio related
6.24
6.23
6.01
Cost of funds — total company
6.36
6.18
Net interest margin — portfolio related
3.82
3.35
3.54
Net interest margin — total company
3.39
2.88
2.98
Charge-offs/Average loans held for investment at amortized cost
0.18
Pre-tax return on average equity
23.0
20.1
17.0
Return on average equity
17.8
13.9
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.
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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 June 30, 2025 as compared to the three months ended March 31, 2025 and June 30, 2024 was primarily driven by the increase in weighted average loan coupons.
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 increased to 6.24% for the three months ended June 30, 2025 from 6.23% for the prior quarter and 6.01% for the three months ended June 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 3.82% for the three months ended June 30, 2025 from 3.54% for the three months ended June 30, 2024. Portfolio related net interest margin increased to 3.60% for the six months ended June 30, 2025 from 3.45% for the six months ended June 30, 2024. The increases were primarily due to higher average yields and average balances.
Total company net interest margin of 3.39% for the three months ended June 30, 2025 increased from 2.98% for the three months ended June 30, 2024. Total company net interest margin of 3.14% for the six months ended June 30, 2025 increased from 2.91% for the six months ended June 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.
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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:
Interest
Average
Income /
Yield /
Balance
Expense
Rate (1)
Loan portfolio:
Loans held for sale
12,677
9,979
Loans held for investment
5,608,086
4,345,962
Debt:
Warehouse facilities
4,832,358
6.09
3,678,478
5.77
Total debt - portfolio related
Corporate debt
290,000
8.47
8.49
Total debt
Net interest spread - portfolio related (2)
3.41
2.97
Net interest margin - portfolio related
Net interest spread - total company (3)
3.29
2.80
Net interest margin - total company
6,838
9,820
5,410,637
4,247,856
5,417,475
4,257,676
8.84
3,582,325
5.71
5,033,433
3,847,619
5.97
275,776
8.37
5,323,433
4,123,395
6.13
3.15
2.87
3.60
3.45
3.03
2.71
3.14
2.91
Charge-Offs
Our annualized charge-offs rate over average loans held for investment carried at amortized cost for the three months ended June 30, 2025 increased to 0.31% as compared to 0.18% and 0.04% for the three months ended March 31, 2025 and June 30, 2024, respectively. 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 increased during the quarter ended June 30, 2025 as compared to the quarters ended March 31, 2025 and June 30, 2024 primarily due to the increase in income before income taxes and the increase in net income.
Income before income taxes (A)
26,893
Net income (B)
Monthly average balance:
Stockholders' equity (C)
588,814
534,940
469,071
Pre-tax return on average equity (A)/(C) (1)
16.9
Return on average equity (B)/(C) (1)
47
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 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.
48
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.
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:
Interest expense - portfolio related
Net interest income - portfolio related
Interest expense - corporate debt
49
$ Change
37,807
66,018
42,063
15,157
23,955
Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased 39.3% to $53.7 million from $38.6 million for the three months ended June 30, 2025 and 2024, respectively. Our portfolio related net interest income increased 32.6% to $97.4 million from $73.4 million for the six months ended June 30, 2025 and 2024, respectively.
Interest Income. Interest income increased by $37.8 million to $135.6 million for the three months ended June 30, 2025, compared to $97.8 million for the three months ended June 30, 2024, attributable to higher average loan portfolio balances and yield. For the three months ended June 30, 2025, the average loan yield was 9.65% compared to 8.98% for the three months ended June 30, 2024. Interest income increased by $66.0 million to $254.3 million for the six months ended June 30, 2025, compared to $188.3 million for the six months ended June 30, 2024. The increase in interest income for the six months ended June 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 six months ended June 30, 2025 and 2024.
Average Yield(1)
Three months ended June 30, 2025
Three months ended June 30, 2024
Volume variance
1,264,822
28,386
Rate variance
9,421
0.67
Total interest income variance
Six months ended June 30, 2025
Six months ended June 30, 2024
1,159,799
51,290
14,728
0.54
Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $81.8 million for the three months ended June 30, 2025 from $59.2 million for the three months ended June 30, 2024. Portfolio related interest expense increased to $156.9 million for the six months ended June 30, 2025 from $114.9 million for the six months ended June 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 six months ended June 30, 2025 and 2024.
Average Debt(1)
Interest Expense
Cost of Funds(2)
1,304,292
19,586
3,064
0.23
Total interest expense variance
50
1,185,814
35,400
6,663
0.26
Net Interest Income After Provision for Credit Losses
(12
750
15,169
23,205
1,380
2,251
13,789
20,954
Interest Expense — Corporate Debt. Corporate debt interest expense remained consistent at $6.1 million for the three months ended June 30, 2025, compared to $6.2 million for the three months ended June 30, 2024. Corporate debt interest expense increased to $12.3 million for the six months ended June 30, 2025, compared to $11.5 million for the six months ended June 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 $1.6 million for the three months ended June 30, 2025 from $0.2 million for the three months ended June 30, 2024. Our provision for credit losses increased to $3.5 million for the six months ended June 30, 2025 from $1.2 million for the six months ended June 30, 2024. The increased provision for credit losses was primarily attributable to a $1.4 million charge-off taken during the quarter ended June 30, 2025.
The $17.3 million and $25.0 million increases in total other operating income for the three and six months ended June 30, 2025 were mainly due to the increased loan originations.
3,118
4,255
12,783
28,693
(2,941
(14,305
682
(843
3,864
7,557
(226
(518
17,286
24,957
Gain on Disposition of Loans. Gain on disposition of loans increased by $3.1 million to $6.3 million for the three months ended June 30, 2025 compared to $3.2 million for the three months ended June 30, 2024. Gain on disposition of loans increased by $4.3 million to $9.1 million for the six months ended June 30, 2025 compared to $4.9 million for the six months ended June 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 increased by $12.8 million to $29.9 million for the three months ended June 30, 2025 compared to $17.1 million for the three months ended June 30, 2024. Unrealized gain on fair value loans increased by $28.7 million to $64.7 million for the six months ended June 30, 2025 compared to $36.0 million for the six months ended June 30, 2024. The increases were mainly driven by new loan originations.
51
Unrealized Loss on Fair Value Securitized Debt. Unrealized loss on fair value securitized debt increased by $2.9 million to $7.6 million for the three months ended June 30, 2025 from $4.6 million for the three months ended June 30, 2024. Unrealized loss on fair value securitized debt increased by $14.3 million to $21.3 million for the six months ended June 30, 2025 from $7.0 million for the six months ended June 30, 2024. The increases in unrealized loss on fair value securitized debt were primarily attributable to the decrease in market interest rates.
Unrealized Gain (Loss) on Mortgage Servicing Rights. Unrealized gain on mortgage servicing rights was $0.3 million for the three months ended June 30, 2025 as compared to an unrealized loss of $0.4 million for the three months ended June 30, 2024. The increase in unrealized gain on mortgage servicing rights was mainly driven by an increase in the loan servicing portfolio Unrealized loss on mortgage servicing rights was $0.8 million for the six months ended June 30, 2025 as compared to an unrealized gain of $0.1 million for the six months ended June 30, 2024. The increase in unrealized loss on mortgage servicing rights was mainly driven by a decrease in the loan servicing portfolio resulting from loan payoffs and paydowns, and an increase in prepayment rate in the first three months of 2025.
Origination Fee Income. Origination fee income increased by $3.9 million to $8.9 million for the three months ended June 30, 2025 compared to $5.1 million for the three months ended June 30, 2024. Origination fee income increased by $7.6 million to $17.6 million for the six months ended June 30, 2025 compared to $10.1 million for the six months ended June 30, 2024. The increases were driven by higher loan originations.
Interest Income on Cash Balance. Interest income on cash balance decreased by $0.2 million to $1.5 million for the three months ended June 30, 2025 compared to $1.7 million for the three months ended June 30, 2024. Interest income on cash balance decreased by $0.5 million to $2.8 million for the six months ended June 30, 2025 compared to $3.4 million for the six months ended June 30, 2024. The decreases were attributable to a decrease in interest rates and lower bank balances.
Other Income. Other income was fairly consistent at $0.5 million for the three months ended June 30, 2025 and 2024. Other income increased to $1.0 million for the six months ended June 30, 2025 compared to $0.9 million for the six months ended June 30, 2024. The increase was driven by higher servicing fee income from the increase in our loan servicing portfolio.
Operating expenses are presented in the following table. Changes in operating expenses comparing to the same period prior year are discussed below.
6,043
12,370
444
636
5,289
6,458
3,045
6,229
274
(58
(319
(542
1,943
2,516
307
17,026
28,205
Compensation and Employee Benefits. Compensation and employee benefits increased by $6.0 million to $22.6 million for the three months ended June 30, 2025 compared to $16.6 million for the three months ended June 30, 2024. Compensation and employee benefits increased by $12.4 million to $44.3 million for the six months ended June 30, 2025 compared to $31.9 million for the six months ended June 30, 2024. The increases were mainly driven by an increase in headcount and higher commissions expense as our loan originations increased.
Origination Expenses. Origination expenses increased by $0.4 million to $1.2 million for the three months ended June 30, 2025 from $0.7 million for the three months ended June 30, 2024. Origination expenses increased by $0.6 million to $2.0 million for the six months ended June 30, 2025 from $1.4 million for the six months ended June 30, 2024. The increases in origination expenses were due to higher loan originations.
Securitization Expenses. Securitization expenses were $11.5 million for the three months ended June 30, 2025 compared to $6.2 million for the three months ended June 30, 2024. Securitization expenses were $15.6 million for the six months ended June 30, 2025 compared to $9.1 million for the six months ended June 30, 2024. The increases in securitization expenses resulted from more securitization transactions and securitized debt issued in 2025 as compared to the prior year.
52
Loan Servicing. Loan servicing expenses increased to $8.2 million for the three months ended June 30, 2025 from $5.2 million for the three months ended June 30, 2024. Loan servicing expenses increased to $16.2 million for the six months ended June 30, 2025 from $10.0 million for the six months ended June 30, 2024. The increases were primarily attributable to the growth of our loan portfolio.
Professional Fees. Professional fees increased to $2.0 million for the three months ended June 30, 2025 compared to $1.7 million for the three months ended June 30, 2024 primarily due to an increase in consulting expenses. Professional fees remained relatively consistent at $3.8 million for the six months ended June 30, 2025 and 2024.
Rent and Occupancy. Rent and occupancy expenses decreased to $0.3 million for the three months ended June 30, 2025 compared to $0.6 million for the three months ended June 30, 2024. Rent and occupancy expenses decreased to $0.6 million for the six months ended June 30, 2025 compared to $1.1 million for the six months ended June 30, 2024. The decreases resulted from the relocation to offices with lower rent expense.
Real Estate Owned, Net. Net expenses of real estate owned increased to $3.3 million for the three months ended June 30, 2025 from $1.4 million for the three months ended June 30, 2024. Net expenses of real estate owned increased to $6.3 million for the six months ended June 30, 2025 from $3.8 million for the six months ended June 30, 2024. The increases were mainly due to the increase in REOs and higher valuation adjustments.
Other Operating Expenses. Other operating expenses increased to $2.8 million for the three months ended June 30, 2025 from $2.5 million for the three months ended June 30, 2024. Other operating expenses increased to $5.3 million for the six months ended June 30, 2025 from $4.7 million for the six months ended June 30, 2024. The increases were mainly due to higher information technology maintenance, marketing, and travel expenses.
Income Tax Expense. Income tax expense was $7.8 million and $5.2 million for the three months ended June 30, 2025 and 2024, respectively, and $16.0 million and $11.1 million for the six months ended June 30, 2025 and 2024, respectively. Our annual consolidated effective tax rates were 27.4% and 27.3% 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.
June 30,2025
March 31,2025
December 31,2024
September 30,2024
June 30,2024
March 31,2024
December 31,2023
September 30,2023
118,740
113,484
105,070
90,529
86,269
79,088
75,088
68,484
63,871
55,675
51,405
47,583
43,652
45,000
41,199
34,854
34,864
31,505
3.70
3.52
3.34
6,142
5,380
4,140
4,138
37,510
38,857
35,056
29,474
30,724
27,367
3.20
3.06
2.83
3.10
2.90
1,872
(69
1,002
827
154
Net interest income after provision for (reversal of) credit losses
35,638
38,835
35,125
28,472
29,897
27,213
33,446
32,330
20,732
25,775
21,670
17,360
42,190
39,127
34,613
31,011
29,260
27,334
26,894
32,038
21,244
23,236
22,307
17,239
8,246
11,233
5,627
5,903
5,141
5,070
20,805
15,617
17,166
12,169
(186
(189
83
20,587
15,803
17,355
12,086
53
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 $139.3 million as of June 30, 2025, comprised of $79.6 million in cash and $59.7 million in borrowings from available warehouse capacity on unencumbered loans. Our additional available warehouse capacity as of June 30, 2025, was $417.3 million, bringing total liquidity plus available warehouse capacity to $556.5 million.
We had cash of $79.6 million and $47.4 million, excluding restricted cash of $17.6 million and $32.3 million as of June 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:
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash, cash equivalents, and restricted cash
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 six months ended June 30, 2025, our net cash provided by operating activities consisted mainly of $44.8 million in net income, $47.0 million in proceeds from sale of loans held for sale, and $21.3 million change in valuation of securitized debt at fair value, offset by $64.7 million change in valuation of loans carried at fair value and $45.8 million in origination of loans held for sale.
For the six months ended June 30, 2025, our net cash used in investing activities consisted mainly of $1.3 billion in cash used to originate loans held for investment at fair value, partially offset by $454.2 million in cash received from payoffs of loans held for investment.
For the six months ended June 30, 2025, our net cash provided by financing activities consisted mainly of $1.5 billion in borrowings from our warehouse and repurchase facilities, $1.3 billion in proceeds from issuing securitized debt and $42.0 million in net proceeds from issuance of common stocks. The cash generated was offset by repayments of $1.5 billion and $493.3 million, on our warehouse and repurchase facilities and securitized debt, respectively.
During the six months ended June 30, 2025 and 2024, we generated approximately $26.4 million and $17.7 million, respectively, of net cash and cash equivalents on operating, investing and financing activities.
Warehouse Facilities
As of June 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 4.50%. Borrowing under these facilities was $333.1 million with $476.9 million of available capacity as of June 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 June 30, 2025, we were in compliance with these covenants.
From May 2011 through June 2025, we have completed 42 transactions, issuing $9.3 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 June 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
SecuritiesIssued
IssuanceDate
Stated MaturityDate
245,601
12,927
2,416
October 2047
176,816
9,308
1,602
April 2048
307,988
16,210
2,656
2,698
October 2048
235,580
12,399
2,362
March 2049
207,020
10,901
2,018
July 2049
154,419
8,127
October 2049
248,700
13,159
4,166
February 2050
251,301
13,227
7,407
May 2051
194,918
10,260
August 2051
204,205
October 2051
319,116
December 2051
273,594
5,015
3,636
3,876
February 2052
241,388
11,202
9,246
March 2052
2022-MC1 Trust (1)
84,967
40,911
47,936
May 2047
296,323
18,914
17,271
15,489
May 2052
308,357
25,190
19,180
10,362
July 2052
188,754
65,459
16,443
12,649
October 2052
198,715
41,593
22,589
4,043
December 2052
2023-1R Trust (1) (2)
64,833
66,228
October 2025
202,210
24,229
3,357
6,714
April 2053
2023-RTL1 Trust (1)
81,608
4,296
July 2028
234,741
28,718
9,146
July 2053
202,890
26,623
3,995
November 2053
209,862
11,278
11,229
January 2054
286,235
8,853
8,767
April 2054
204,599
5,255
5,211
June 2054
253,612
3,080
July 2054
292,880
7,510
7,481
October 2054
293,895
7,690
7,627
7,687
December 2054
342,791
8,790
8,779
February 2055
111,395
5,864
March 2030
377,526
15,117
14,911
April 2055
114,136
27,210
27,207
May 2055
382,461
9,809
9,785
June 2055
7,793,436
575,352
219,046
244,135
55
The following table summarizes outstanding bond balances for each securitized debt as of June 30, 2025 and December 31, 2024:
28,437
33,012
21,760
24,482
51,134
59,091
54,753
60,459
42,491
46,872
41,587
46,827
85,203
91,135
141,700
152,995
118,569
125,391
128,486
136,510
198,533
214,284
206,236
217,190
182,357
191,764
12,041
218,850
234,647
213,687
232,064
156,686
132,519
138,485
144,724
2023-1R Trust (1)
38,508
136,454
157,198
169,039
195,799
156,312
181,307
156,890
178,234
226,175
260,500
177,842
191,583
216,955
243,945
267,775
290,552
277,786
293,767
333,742
370,201
109,548
381,508
5,120,576
4,269,008
56
As of June 30, 2025 and December 31, 2024, the weighted average annualized rates on the securities and certificates for the Trusts were as follows:
4.20
4.09
4.29
4.13
4.54
4.47
4.07
3.46
3.27
3.30
1.77
1.76
2.05
2.04
2.47
3.23
3.25
3.96
3.94
5.05
5.06
6.57
6.90
5.69
5.72
6.21
7.32
7.04
7.23
7.02
2023-1R Trust
7.57
7.68
7.33
67.27
8.24
8.20
7.94
8.26
8.33
7.75
7.11
7.22
7.20
7.31
7.08
6.16
6.14
6.12
5.92
6.60
7.17
6.64
8.70
6.47
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:
(In thousands, except per share amount)
Number of shares sold
1,596
Net sale proceeds
491
29,287
Weighted average price per share
18.66
16.49
Contractual Obligations and Commitments
As of June 30, 2025, we maintained warehouse facilities to finance our investor real estate loans and had approximately $333.1 million in outstanding borrowings with $476.9 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:
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.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, in the ordinary course of business, we are involved in various judicial, regulatory or administrative claims, proceedings and investigations. These proceedings and actions may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. Although occasional adverse decisions or settlements may occur, our management does not believe that the final disposition of any currently pending or threatened matter will have a material adverse effect on our business, financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On March 27, 2025, warrants to purchase an aggregate of 1,339,166 shares of our common stock were exercised on a net settlement basis, and settled on April 2, 2025, resulting in a net issuance of 1,080,338 shares of our common stock after the withholding and transfer of an aggregate of 258,828 shares of our common stock into our treasury account. The number of shares of our common stock netted was determined using the last sale price of our common stock on March 27, 2025 pursuant to the terms of such warrants. Of such exercised warrants, 892,777 had an exercise price of $2.96 per share and 446,389 had an exercise price of $4.94 per share. On May 1, 2025, warrants to purchase an aggregate of 1,673,958 shares of our common stock were exercised and settled on May 2, 2025. Of such exercised warrants, 1,115,972 had an exercise price of $2.96 per share and 557,986 had an exercise price of $4.94 per share. The issuance of common stock upon exercise of the warrants was conducted in reliance upon exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) and Section 4(a)(2) thereof, based on the terms of the exercise and other relevant facts.
The following table provides information on common stock purchases made by us during the three months ended June 30, 2025.
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
April 2025
258,828
18.73
May 2025
8,754
(3)
16.62
June 2025
267,582
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Insider Trading Arrangements and Policies
On March 18, 2025, 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 21,250 shares of our common stock. The plan will expire June 30, 2026, subject to early termination for certain specified events as set forth in the plan.
On March 20, 2025, 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 18,870 shares of our common stock. The plan will expire June 30, 2026, subject to early termination for certain specified events as set forth in the plan.
61
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
Number
Exhibit Title
Form
File No.
Filing Date
Certificate of Conversion
8-K
001-39183
1/22/2020
3.2
Restated Certificate of Incorporation of Velocity Financial, Inc.
5/23/2022
3.3
Amended and Restated Bylaws of Velocity Financial, Inc.
3/25/2022
4.1
Form of Stock Certificate for Common Stock
S-1
333-234250
10/18/2019
4.2
Form of Warrant to Purchase Common Stock
4/7/2020
4.3
Description of the Registrant’s Securities
10K
10.1
Stockholders Agreement, dated as of January 16, 2020
10-K
10.2
Registration Rights Agreement, dated as of January 16, 2020
Registration Rights Agreement, dated as of April 7, 2020
10.4
Securities Purchase Agreement among Velocity Financial, Inc. and the Purchasers Party thereto dated April 5, 2020
4/6/2020
Velocity Financial, Inc. Employee Stock Purchase Plan*
DEF 14A
AII
4/8/2022
10.6
Amended and Restated Velocity Financial, Inc. 2020 Omnibus Incentive Plan*
AI
4/11/2025
10.7
Form of Nonqualified Stock Option Award Notice and Agreement under the 2020 Omnibus Incentive Plan*
S-1/A
1/6/2020
Form of Nonqualified Stock Option Award Notice and Agreement (Director Grant-IPO) under the 2020 Omnibus Incentive Plan*
10.9
Form of Nonqualified Stock Option Award Notice and Agreement (Executive Officer Grant-IPO) under the 2020 Omnibus Incentive Plan*
10.10
Form of Restricted Stock Unit Grant and Agreement (Director Grant) under the 2020 Omnibus Incentive Plan*
10.11
Form of Restricted Stock Unit Grant and Agreement (Standard Grant) under the 2020 Omnibus Incentive Plan*
10.12
Form of Restricted Stock Grant and Agreement under the 2020 Omnibus Incentive Plan*
10.13
Velocity Financial 2025 Annual Cash Incentive and Performance Stock Units Programs for Messrs. Farrar, Szczepaniak and Taylor*
-
1/22/2025
10.14
Form of Equity Distribution Agreement, dated May 3, 2024
1.1
5/3/2024
10.15
Form of Amendment No. 1 to Equity Distribution Agreement, dated December 12, 2024
3/12/2025
10.16
Form of Officer and Director Indemnity Agreement*
10.37
11/6/2019
10.17
Form of Performance Stock Unit Grant and Agreement*
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.
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.
Velocity Financial, Inc. Incentive Compensation Clawback Policy*
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.
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.
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.
10.24
Form of Amendment No. 2 to Equity Distribution Agreement, dated April 11, 2025
10-Q
5/1/2025
19.1
Securities Trading Policy
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 June 30, 2025 and December 31, 2024 (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2025 and 2024, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024, (iv) the Consolidated Statements of Cash Flows for the six months ended June 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
63
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.
Date: August 7, 2025
By:
/s/ Christopher D. Farrar
Christopher D. Farrar
Chief Executive Officer
/s/ Mark R. Szczepaniak
Mark R. Szczepaniak
Chief Financial Officer