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, 2026
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
NYSE Texas, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2026, the registrant had 39,481,457 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
41
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
65
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
66
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
67
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
68
SIGNATURES
70
i
PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
VELOCITY FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, 2026
December 31, 2025
(Unaudited)
ASSETS
Cash and cash equivalents
$
76,115
92,103
Restricted cash
169,088
157,134
Loans held for investment, at amortized cost (net of allowance for credit losses of $5,102 and $4,521 as of June 30, 2026 and December 31, 2025, respectively)
1,823,039
2,028,262
Loans held for investment, at fair value
5,460,522
4,729,869
Total loans, net
7,283,561
6,758,131
Retained securities, at fair value
29,924
—
Accrued interest receivables
53,107
49,678
Receivables due from servicers
152,182
150,902
Other receivables
6,006
1,897
Real estate owned, net
142,085
118,289
Property and equipment, net
1,291
1,415
Deferred tax asset, net
19,852
22,709
Mortgage servicing rights, at fair value
14,307
12,963
Derivative assets
118
Goodwill
6,775
Other assets
8,719
9,451
Total assets
7,963,130
7,381,513
LIABILITIES
Accounts payable and accrued expenses
186,020
168,314
Secured financing, net
73,427
286,679
Unsecured senior notes, net
486,170
Securitized debt, at amortized cost
1,570,782
1,705,589
Securitized debt, at fair value
4,609,891
4,236,737
Warehouse and repurchase facilities, net
311,676
308,506
Total liabilities
7,237,966
6,705,825
Commitments and contingencies
EQUITY
Common stock ($0.01 par value, 100,000,000 shares authorized; 40,279,046 and 39,573,657 shares issued, 39,293,655 and 38,965,317 shares outstanding as of June 30, 2026 and December 31, 2025, respectively)
405
398
Additional paid-in capital
390,977
382,564
Retained earnings
349,905
302,379
Treasury stock, at cost (985,391 and 608,340 common shares as of June 30, 2026 and December 31, 2025, respectively)
(17,483
)
(10,204
Accumulated other comprehensive loss
(2,267
(2,602
Total Velocity Financial, Inc. stockholders' equity
721,537
672,535
Noncontrolling interest in subsidiary
3,627
3,153
Total equity
725,164
675,688
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:
157,439
151,827
Loans held for investment, at amortized cost
1,819,613
2,023,030
4,792,922
4,273,757
Accrued interest and other receivables
195,010
191,313
121,480
114,485
895
1,085
7,087,359
6,755,502
123,846
120,691
Securitized debt
6,180,673
5,942,326
6,304,519
6,063,017
3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended June 30,
Six Months Ended June 30,
2026
2025
Interest income
160,986
135,567
314,066
254,307
Interest expense — portfolio related
97,627
81,838
191,654
156,926
Net interest income — portfolio related
63,359
53,729
122,412
97,381
Interest expense — corporate debt
14,469
6,143
29,602
12,285
Net interest income
48,890
47,586
92,810
85,096
Provision for credit losses
980
1,598
2,641
3,470
Net interest income after provision for credit losses
47,910
45,988
90,169
81,626
Other operating income
Gain on disposition of loans
3,954
6,286
6,850
9,120
Unrealized gain on fair value loans
24,483
29,906
25,522
64,742
Unrealized gain (loss) on fair value securitized debt
2,297
(7,584
28,551
(21,266
Unrealized gain (loss) on mortgage servicing rights
1,126
309
789
(772
Origination fee income
12,154
8,936
20,124
17,615
Interest income on cash balance
1,334
1,505
2,739
2,844
Other income
1,730
489
5,460
1,010
Total other operating income
47,078
39,847
90,035
73,293
Operating expenses
Compensation and employee benefits
25,514
22,605
49,034
44,289
Origination expenses
1,405
1,193
2,568
2,031
Securitization expenses
4,669
11,521
9,954
15,564
Loan servicing
15,685
8,205
24,248
16,213
Professional fees
2,173
1,992
7,954
3,775
Rent and occupancy
352
298
692
573
6,723
3,298
13,585
6,327
Other operating expenses
3,232
2,801
6,057
5,331
Total operating expenses
59,753
51,913
114,092
94,103
Income before income taxes
35,235
33,922
66,112
60,816
Income tax expense
Federal
7,198
5,928
13,692
11,778
State
2,303
1,824
4,387
4,220
9,501
7,752
18,079
15,998
Net income
25,734
26,170
48,033
44,818
Net income (loss) attributable to noncontrolling interest
571
173
507
(66
Net income attributable to Velocity Financial, Inc.
25,163
25,997
47,526
44,884
Less undistributed earnings attributable to unvested restricted stock awards
341
286
694
523
Net earnings attributable to common stockholders
24,822
25,711
46,832
44,361
Earnings per common share
Basic
0.64
0.69
1.21
1.25
Diluted
1.20
Weighted average common shares outstanding
38,730
37,194
38,678
35,450
39,304
37,790
39,239
37,309
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive income (loss), net of tax:
Net unrealized loss on cash flow hedges arising during the period
(153
(1,613
(67
(2,669
Reclassification adjustments included in net income
196
205
402
267
Total other comprehensive income (loss), net of tax
43
(1,408
335
(2,402
Total comprehensive income attributable to Velocity Financial, Inc.
25,206
24,589
47,861
42,482
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in thousands, except share data)
Common Stock - Number of Shares
Stockholders' Equity
Shares Issued
TreasuryShares
SharesOutstanding
Common Stock
AdditionalPaid-inCapital
RetainedEarnings
Treasury Stock,at Cost
Accumulated OtherComprehensive Income (Loss), Net of Tax
TotalStockholders'Equity
NoncontrollingInterest
Total Equity
Balance — December 31, 2024
33,761,147
(215,562)
33,545,585
339
322,954
197,325
(2,869)
(805)
516,944
3,271
520,215
Issuance of common stock
1,569,255
20
28,522
28,542
Shares surrendered for tax withholding on vested awards
(115,596)
(2,162)
Restricted stock awarded and stock-based compensation expenses
385,503
1,970
Net income (loss)
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
Distribution to non-controlling interest
(47)
(1,408)
Balance — June 30, 2025
38,887,827
(598,740)
38,289,087
390
368,527
242,209
(10,024)
(3,207)
597,895
3,158
601,053
Balance — December 31, 2025
39,573,657
(608,340)
38,965,317
(10,204)
(2,602)
(228,371)
(4,537)
Share-based awards
498,335
Stock compensation expense
2,690
(33)
22,363
(64)
22,299
Other comprehensive income
292
Balance — March 31, 2026
40,071,992
(836,711)
39,235,281
403
385,254
324,742
(14,741)
(2,310)
693,348
3,056
696,404
(126,769)
(2,364)
(21,911)
(378)
55,042
260
Issuance of shares under the employee stock purchase plan
152,012
2,384
2,386
3,079
Balance — June 30, 2026
40,279,046
(985,391)
39,293,655
(17,483)
(2,267)
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
264
270
Amortization of right-of-use assets
393
675
Origination of loans held for sale
(88,484
(45,809
Proceeds from sales of loans held for sale
86,896
46,954
Net accretion of discount on purchased loans and deferred loan origination costs
1,584
1,991
(Reversal of) provision for uncollectible corporate and escrow advances receivable
(209
587
Loss (gain) on disposition of loans
278
(1,145
Real estate acquired through foreclosure in excess of recorded investment
(7,128
(7,975
Amortization of debt issuance discount and costs
6,878
5,343
Change in valuation of real estate owned
6,852
4,223
Change in valuation of fair value loans
(25,522
(64,742
Change in valuation of mortgage servicing rights
(789
1,223
Change in valuation of fair value securitized debt
(28,551
21,266
Hedging activities
728
(3,404
Gain on sale of real estate owned
(505
(1,090
Stock-based compensation
5,774
3,999
Deferred tax expense
2,482
2,096
Change in operating assets and liabilities:
(8,679
(8,150
1,236
(6,159
11,655
12,757
Net cash provided by operating activities
15,827
11,198
Cash flows from investing activities:
Purchase of loans held for investment
(70
Origination of loans held for investment
(1,223,465
(1,320,002
Proceeds from sales of loans originally classified as held for investment
103,169
Payments of loans held for investment
526,186
454,240
Proceeds from sale of real estate owned
36,497
22,537
Capitalized improvement on real estate owned
(589
(19
Change in corporate and escrow advances receivable
1,855
(2,284
Change in impounds and deposits
5,255
3,075
Purchase of property and equipment
(140
(158
Net cash used in investing activities
(551,302
(842,611
Cash flows from financing activities:
Warehouse repurchase facilities advances
1,058,400
1,481,924
Warehouse repurchase facilities repayments
(1,055,661
(1,498,852
Proceeds from unsecured financing
500,000
Repayment of secured financing
(215,000
Proceeds from securitized debt
912,166
1,334,657
Repayment of securitized debt
(647,925
(493,337
Debt issuance costs
(15,873
(1,043
Deferred stock issuance costs
(379
Proceeds from issuance of common stock related to warrants exercised
10,908
Proceeds from issuance of common stock
2,646
31,096
(7,279
(7,155
(33
(47
Net cash provided by financing activities
531,441
857,772
Net (decrease) increase in cash, cash equivalents, and restricted cash
(4,034
26,359
Cash, cash equivalents, and restricted cash at beginning of period
249,237
70,830
Cash, cash equivalents, and restricted cash at end of period
245,203
97,189
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental cash flow information:
Cash paid during the period for interest
197,963
158,869
Cash paid during the period for income taxes, net
12,761
18,743
Noncash transactions from investing and financing activities:
Transfer of loans held for investment to held for sale
132,438
Transfer of loans held for investment to real estate owned
58,925
43,063
Transfer of accrued interest to loans held for investment
1,073
1,219
Recognition of new leases in exchange for lease obligations
796
1,384
Deferred stock issuance costs charged against additional paid-in capital
379
8
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.” The Company's stock also trades on the NYSE Texas, Inc. under the same symbol “VEL.” starting August 2025.
VCC, a California LLC formed on June 2, 2004, is a mortgage lender that originates and acquires residential and commercial investor real estate loans, providing capital to the investor real estate loan market. The Company is licensed as a California Finance Lender and, as such, is required to maintain a minimum net worth of $250 thousand. The Company does not believe there is any potential risk of not being able to meet this regulatory requirement. The Company uses its equity capital and borrowed funds to originate and invest in investor real estate loans and seeks to generate income based primarily on the difference between the yield on its investor real estate loan portfolio and the cost of its borrowings. The Company may also sell loans from time to time. The Company does not originate or acquire investments outside of the United States of America.
The Company, through its wholly owned subsidiaries, is the sole beneficial owner of the Velocity Commercial Capital Loan Trusts, from the 2017-2 Trust through and including the 2026-2 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 June 30, 2026, the Company sold a pool of nonperforming loans pursuant to a mortgage loan sale agreement (“Mortgage Loan Sale Agreement”) to VCC 2026-MC2 Trust, a Delaware statutory trust. The conveyance of mortgage loans was accounted for as a sale and not deemed as a pledge to secure a debt or other obligation of the Company. The Company determined that VCC 2026-MC2 Trust is also a VIE; however, the Company did not consolidate 2026-MC2 because it concluded it is not the primary beneficiary as it does not have the power to direct the activities that most significantly impact the entity's economic performance. See Note 2 — Basis of Presentation and Summary of Significant Accounting Policies.
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, 2026.
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, 2026 and 2025 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, 2025.
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. These estimates relate to the allowance for credit losses and fair value option accounting.
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, 2025 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 2025 Annual Report.
The Company transfers mortgage loans and certain financial assets to special-purpose entities in securitization transactions. These transactions are used to obtain liquidity while retaining certain interests in the securitization structures.
1. Consolidation Policy
The Company evaluates securitization trusts and other special-purpose entities under the variable interest entity (VIE) model. Under this model, the Company consolidates an entity when it has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.
In substantially all securitization transactions, the Company is the primary beneficiary of the securitization trust and therefore consolidates the trust.
The consolidated financial statements as of June 30, 2026 and December 31, 2025 include only those assets, liabilities, and results of operations related to the business of the Company, its subsidiaries, and consolidated VIEs.
In the 2026-MC2 securitization transaction, the Company concluded it is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the entity's economic performance and, therefore, the Company did not consolidate 2026-MC2. The Company recognized on its consolidated balance sheet its retained interest in the 2026-MC2 security through its ownership of the Trust Certificate.
2. Sale Recognition & Derecognition
For securitization transactions in which the Company is not required to consolidate, the transfer of financial assets is evaluated under the sale accounting and derecognition guidance. For nonconsolidated special-purpose entities, the transferred financial assets are removed from the Company's consolidated balance sheet provided the conditions for sale accounting are met.
The Company recognizes a sale when control over the transferred financial assets has been surrendered, which generally requires that (i) the transferred financial assets are legally isolated from the Company's creditors, (ii) the transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets, and (iii) the Company does not maintain effective control over the transferred financial assets (for example, the Company cannot repurchase the transferred assets before their maturity and does not have the ability to unilaterally cause the holder to return the transferred assets).
In connection with this nonconsolidated securitization transaction involving 2026-MC2, the Company evaluated the transfer under the applicable derecognition criteria, including legal isolation and surrender of control, supported by a true sale legal opinion obtained in connection with the transaction. The Company received gross proceeds of $107.2 million in connection with the transfer, which were used to repay $91.9 million of existing indebtedness and fund a $2.8 million reserve account, resulting in net proceeds of $11.2 million after transaction costs of $1.3 million, received at closing. The Company recognized a $754 thousand gain from the transfer of nonperforming loans into 2026-MC2. In addition, the Company wrote off $6.0 million of protective advances related to the sale of nonperforming loans, which is included in “Loan servicing” in the Consolidated Statements of Income.
10
3. Retained Securities
The Company's retained interest in 2026-MC2 (the “Retained Securities”) consists of the trust certificate. The retained securities may be held to satisfy risk retention requirements and represent the Company’s compliance with the risk retention rules under the Dodd-Frank Act, requiring the Company to retain at least five percent of the credit risk of the assets underlying asset-backed securitizations.
4. Accounting Classification and Measurement
The Company has elected the fair value option for subsequently measuring the retained securities in 2026-MC2. The retained securities are measured at fair value at each reporting date, and changes in fair value are recognized in current period earnings.
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.
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.
11
Note 3 — Current Accounting Developments
Recently Issued Accounting Standards
Codification Improvements
In December 2025, the FASB issued ASU No. 2025-12 “Codification Improvements” to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to U.S. GAAP. The update represents changes to the Codification that (1) clarify, (2) correct errors, or (3) make minor improvements. The amendments make the Codification easier to understand and apply. The guidance is effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
Interim Reporting
In December 2025, the FASB issued ASU No. 2025-11 “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”). ASU 2025-11 clarifies the applicability of interim reporting guidance, types of interim reporting, and the form and content of interim financial statements in accordance with United States generally accepted accounting principles (“GAAP”). ASU 2025-11 does not change the fundamental nature of interim reporting or modify the scope of current interim disclosure requirements, but clarifies and improves the navigability of existing interim reporting requirements. This guidance is effective for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. Upon adoption, ASU 2025-11 may be applied prospectively or retrospectively to any or all periods presented in the interim financial statements. The Company is currently evaluating the impact ASU 2025-11 will have on its consolidated financial statements and related disclosures.
Government Grants
In December 2025, the FASB issued ASU No. 2025-10 “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities” (“ASU 2025-10”), which provides guidance on the recognition, measurement, presentation, and disclosure of government grants received by business entities. ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years, with early adoption permitted. On January 1, 2026, the Company's adoption of this guidance did not have a material impact on its consolidated financial statements and related disclosures.
Derivatives and Hedging
In November 2025, the FASB issued ASU 2025-09 “Derivatives and Hedging (Topic 815), Hedge Accounting Improvements”, which aligns financial reporting with the economics of some of an entity's risk management activities by updating similar risk assessment for cash flow hedges, hedging interest payments on choose-your-rate debt, cash flow hedges of nonfinancial forecasted transactions, net written options as hedging instruments, and foreign currency-denominated debt designated as a hedging instrument and a hedged item. The amendments in ASU 2025-09 are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods and applied on a prospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.
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.
12
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 $82.1 million and $86.6 million as of June 30, 2026 and 2025, respectively. These amounts are not reflected on the Consolidated Balance Sheets of the Company.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s Consolidated Balance Sheets to the total of the same such amounts shown in the Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025:
June 30,
79,559
17,630
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
Note 5 — Loans Held for Sale at Fair Value
There were no loans held for sale at fair value as of June 30, 2026 and December 31, 2025.
Note 6 — Loans Held for Investment at Amortized Cost and Loans Held for Investment at Fair Value
The following tables summarize loans held for investment as of June 30, 2026 and December 31, 2025:
Loans Held for Investment, at Amortized Cost
Loans Held for Investment, at Fair Value
Total Loans Held for Investment
Unpaid principal balance
1,810,757
5,175,134
6,985,891
Valuation adjustments on performing FVO loans
310,104
Valuation adjustments on nonperforming FVO loans
(24,716
Deferred loan origination costs, net
17,384
1,828,141
7,288,663
Allowance for credit losses
(5,102
Total loans held for investment
2,013,514
4,477,824
6,491,338
300,344
(48,299
19,269
2,032,783
6,762,652
(4,521
13
The following tables summarize the Unpaid Principal Balance (“UPB”) and amortized cost basis of loans in the Company's COVID-19 forbearance program for the three and six months ended June 30, 2026 and the year ended December 31, 2025:
Three Months Ended June 30, 2026
Six Months Ended June 30, 2026
UPB
%
Amortized Cost
($ in thousands)
Beginning balance
120,924
122,034
126,142
127,328
Repayments
(4,222
(4,304
(9,440
(9,598
Ending balance
116,702
117,730
Performing/Accruing
90,499
77.5%
91,281
Nonperforming/Nonaccrual
26,203
22.5%
26,449
Year Ended December 31, 2025
142,827
144,247
Foreclosures
(1,980
(1,996
(14,705
(14,923
96,577
76.6%
97,461
76.5%
29,565
23.4%
29,867
23.5%
Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $415.9 million in UPB of loans, which includes capitalized interest of $17.7 million. As of June 30, 2026, $294.3 million in UPB of modified loans has been paid down, which includes $7.0 million of capitalized interest received. The Company has not forgiven any capitalized interest.
Approximately 77.5% and 76.6% of the COVID forbearance loans in UPB were performing, and 22.5% and 23.4% were on nonaccrual status as of June 30, 2026 and December 31, 2025, respectively.
14
As of June 30, 2026 and December 31, 2025, 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
111,610
165,484
The 2021/2024 repurchase agreements
133,621
134,901
The 2021 term repurchase agreement
12,167
23,478
The 2023 repurchase agreement
120,791
50,611
The 2024 bank credit agreement
34,947
36,479
Total pledged loans
413,136
410,953
2017-2 Trust
26,411
29,111
2018-1 Trust
19,753
21,618
2018-2 Trust
45,902
49,759
2019-1 Trust
49,259
58,324
2019-2 Trust
38,529
42,618
2019-3 Trust
37,881
41,166
2020-1 Trust
78,439
83,154
2021-1 Trust
125,518
135,627
2021-2 Trust
102,347
112,332
2021-3 Trust
110,908
119,070
2021-4 Trust
180,411
190,186
2022-1 Trust
188,317
198,203
2022-2 Trust
170,640
178,346
2022-3 Trust
184,091
206,020
2022-4 Trust
180,716
221,652
2022-5 Trust
112,284
146,126
2023-1 Trust
108,741
141,805
2023-2 Trust
82,361
94,269
2023-3 Trust
101,386
124,129
2023-4 Trust
91,550
118,953
2024-1 Trust
106,529
140,464
2024-2 Trust
154,392
183,376
2024-3 Trust
128,624
145,659
2024-4 Trust
158,410
175,820
2024-5 Trust
183,833
246,456
2024-6 Trust
238,620
268,354
2025-1 Trust
289,926
321,431
2025-RTL1 Trust
99,591
117,733
2025-2 Trust
348,588
369,814
2025-MC1 Trust
74,617
86,083
2025-3 Trust
347,309
377,229
2025-P1 Trust
178,599
190,012
2025-4 Trust
442,123
459,557
2025-P2 Trust
197,181
210,368
2025-5 Trust
426,623
445,822
2026-1 Trust
344,703
2026-P1 Trust
187,994
2026-2 Trust
408,112
Total
6,351,218
6,050,646
15
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, 2026 and December 31, 2025.
Total Nonaccrual
Nonaccrual with No Allowance for Credit Losses
Nonaccrual with Allowance for Credit Losses
Allowance for Loans Individually Evaluated
Commercial — Purchase
19,750
19,094
656
76
Commercial — Refinance
59,806
56,953
2,853
362
Residential 1-4 Unit — Purchase
18,115
17,612
503
Residential 1-4 Unit — Refinance
71,141
65,438
5,703
643
Short Term 1-4 Unit — Purchase
1,180
Short Term 1-4 Unit — Refinance
11,373
181,365
171,650
9,715
1,088
30,429
29,773
74,398
71,043
3,355
27,383
27,068
315
90,666
83,143
7,523
535
13,336
237,392
225,543
11,849
1,019
The Company made the accounting policy election not to measure an allowance for accrued interest receivables and 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, 2026 and 2025, 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, 2026 and 2025:
Interest Reversal
445,321
124
532,379
186
549,932
283
660,040
319
325,529
30
386,393
57
458,566
365
602,809
313
32,871
30,593
15,922
19,388
802
2,231,602
875
16
373
449
598
90
198
695
588
80
112
1,857
1,913
The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $12.2 million and $14.0 million for the three months ended June 30, 2026 and 2025, respectively. The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $21.9 million and $22.5 million for the six months ended June 30, 2026 and 2025, respectively. No accrued interest income was recognized on nonaccrual loans for the six months ended June 30, 2026 and 2025. The average recorded investment of individually evaluated loans, computed using month-end balances, was $212.9 million and $289.1 million for the three months ended June 30, 2026 and 2025, respectively, and $228.0 million and $294.9 million for the six months ended June 30, 2026 and 2025, respectively. There were no commitments to lend additional funds to debtors experiencing financial difficulty whose loans have been modified as of June 30, 2026 and 2025.
The following tables present the activity in the allowance for credit losses for the three and six months ended June 30, 2026 and 2025:
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, 2026
300
748
1,497
4,860
Provision for (reversal of) credit losses
(7
482
51
(6
62
Charge-offs
(411
(40
(247
(738
293
2,374
759
1,648
22
5,102
Allowance related to:
Loans individually evaluated
Loans collectively evaluated
217
2,013
752
1,004
4,014
Amortized cost related to:
425,571
490,126
307,414
387,425
31,691
4,549
1,646,776
Three Months Ended June 30, 2025
Beginning balance — April 1, 2025
655
2,129
840
1,297
38
58
5,017
24
29
(9
(14
(11
1,579
(73
(44
(25
(1,591
(1,733
679
2,085
787
1,258
27
46
4,882
79
1,104
235
1,470
600
981
781
1,023
3,412
33,716
95,099
26,164
114,570
2,100
14,682
286,331
498,663
564,941
360,229
488,239
28,493
4,706
1,945,271
17
Beginning balance — January 1, 2026
345
1,858
771
1,540
4,521
(52
141
558
(1
140
(1,339
(450
(118
(2,060
Six Months Ended June 30, 2025
Beginning balance — January 1, 2025
662
1,399
746
1,281
74
4,174
877
262
626
1,666
(191
(221
(649
(1,694
(2,762
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.
18
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 $117.7 million and $127.3 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of June 30, 2026 and December 31, 2025, respectively:
30–59 Days Past Due
60–89 Days Past Due
90+ Days Past Due(1)
Total Past Due
Current
Total Loans
1,151
1,763
16,836
5,422
239
54,033
59,694
2,413
15,702
3,747
2,095
65,299
Total loans individually evaluated
12,733
4,097
164,423
181,253
21,763
5,805
27,568
398,003
25,748
11,964
37,712
452,414
14,681
1,547
16,228
291,186
23,089
10,888
33,977
353,448
Total loans collectively evaluated
85,281
30,204
115,485
1,531,291
98,014
34,301
296,738
1,531,403
197
2,499
27,733
4,403
3,817
66,178
2,621
688
24,074
4,169
2,376
84,121
11,390
9,380
216,622
17,461
10,059
27,520
431,786
459,306
29,871
12,111
41,982
492,895
534,877
8,996
4,474
13,470
311,365
324,835
26,912
17,494
44,406
397,821
442,227
29,598
4,548
83,240
48,686
131,926
1,663,465
1,795,391
94,630
58,066
369,318
19
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, 2026 and December 31, 2025.
Term Loans Amortized Cost Basis by Origination Year
June 30, 2026:
2022
2021
2020
2019
Prior
Payment performance
Performing
176,511
176,249
21,636
25,068
26,107
Nonperforming
2,961
8,471
2,136
3,522
2,660
Total Commercial — Purchase
179,472
184,720
23,772
28,590
28,767
167,906
144,203
29,091
58,583
90,343
6,379
14,742
4,438
14,243
20,004
Total Commercial — Refinance
174,285
158,945
33,529
72,826
110,347
135,671
135,298
4,688
13,826
17,931
2,624
10,306
488
4,042
Total Residential 1-4 Unit — Purchase
138,295
145,604
5,176
14,481
21,973
155,452
149,462
10,816
34,469
37,226
12,939
32,120
901
11,934
13,247
Total Residential 1-4 Unit — Refinance
168,391
181,582
11,717
46,403
50,473
23,237
8,454
597
583
Total Short Term 1-4 Unit — Purchase
23,820
794
1,522
8,271
786
Total Short Term 1-4 Unit — Refinance
Total Portfolio
666,383
670,851
99,536
179,025
212,346
Gross charge-offs — quarter-ended June 30, 2026
461
226
738
Gross charge-offs — year-to-date June 30, 2026
1,016
414
110
520
2,060
195,654
183,471
22,409
26,427
31,345
9,992
12,081
2,981
3,819
1,556
205,646
195,552
25,390
30,246
32,901
489,735
184,326
152,510
32,023
64,788
101,230
18,536
14,907
4,308
14,815
21,832
202,862
167,417
36,331
79,603
123,062
609,275
144,277
142,870
4,718
13,852
19,118
10,318
10,958
1,390
788
3,929
154,595
153,828
6,108
14,640
23,047
352,218
182,214
165,344
38,741
42,681
27,281
34,311
3,178
11,342
14,554
209,495
199,655
16,425
50,083
57,235
532,893
21,904
7,694
22,487
30,778
916
1,844
8,230
2,346
5,464
17,884
778,659
716,452
108,585
190,496
238,591
Gross charge-offs — quarter-ended December 31, 2025
1,321
422
276
2,019
Gross charge-offs — year-ended December 31, 2025
4,120
751
45
75
467
5,458
21
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, 2026 and December 31, 2025 by loan segments:
Fair Value
Unpaid Principal Balance
Difference
Current-89 Days
90+ Days Past Due
Past Due
or Nonaccrual
1,119,985
27,481
1,147,466
1,031,858
28,927
1,060,785
(1,446
1,752,296
134,233
1,886,529
1,613,796
141,298
1,755,094
(7,065
516,362
41,496
557,858
497,539
43,680
541,219
(2,184
1,499,525
224,114
1,723,639
1,434,941
235,902
1,670,843
(11,788
38,943
14,037
52,980
38,999
14,775
53,774
63,657
28,393
92,050
63,532
29,887
93,419
(1,494
4,990,768
469,754
4,680,665
494,469
(24,715
917,607
34,903
952,510
841,434
41,485
882,919
(6,582
1,449,157
60,074
1,509,231
1,325,078
70,790
1,395,868
(10,716
509,464
31,108
540,572
486,499
36,781
523,280
(5,673
1,431,311
121,826
1,553,137
1,356,593
143,147
1,499,740
(21,321
64,004
11,206
75,210
63,552
13,009
76,561
(1,803
86,446
12,763
99,209
84,488
14,968
99,456
(2,205
4,457,989
271,880
4,157,644
320,180
(48,300
Note 7 — Retained Securities, at Fair Value
In connection with the Company's securitization of nonperforming mortgage loans (the “2026-MC2 Securitization”), the Company, through VCC Mortgage Securities LLC, a wholly-owned, bankruptcy-remote special purpose subsidiary of the Company (the "Depositor"), retained a Trust Certificate (the “Retained Securities”) issued by VCC 2026-MC2 Trust (the “Trust”).
The Company elected the fair value option under ASC 825-10, Financial Instruments, for the Retained Securities at the date of initial recognition, concurrent with the true sale and derecognition of the underlying nonperforming loan pool under ASC 860-20-30, Transfers and Servicing. The election was made to align the measurement of the Retained Securities with the fair value basis on which the transaction was priced and to avoid bifurcating the embedded credit and interest rate risk inherent in a subordinate beneficial interest in a securitization of nonperforming loans.
The Retained Securities are measured at fair value at each reporting date, with all changes in fair value, including changes attributable to instrument-specific credit risk, recognized in earnings.
The Trust Certificate represents the Company's retained subordinate interest in the underlying pool of mortgage loans transferred in the 2026-MC2 Securitization. The Trust Certificate had a fair value at the Closing Date of approximately 22.0% of the aggregate fair value of the Notes and the Trust Certificate, representing approximately $30.0 million of subordinated, first-loss exposure to the underlying mortgage loan pool.
The following table presents the Company's retained securities, measured at fair value on a recurring basis, by fair value hierarchy level as of June 30, 2026:
Level 1
Level 2
Level 3
There were no changes in fair value for the three and six months ended June 30, 2026.
The trust certificate is subject to a bullet repayment structure with no scheduled principal or interest payments prior to its contractual maturity of June 25, 2056. Due to the possibility of prepayment, actual receipt of amounts due may occur prior to the certificate's contractual maturity date, and expected maturities may therefore differ from contractual maturities.
Continuing Involvement
Following the 2026-MC2 Securitization, the Company continues to act as Special Servicer with respect to the mortgage loans transferred to the Trust. The Company's role as Special Servicer is limited to certain administrative functions and does not include primary servicing responsibilities or control over key decisions affecting the transferred loans, which are performed by the Master Servicer and Operating Advisor. Because the Company does not have the unilateral ability to substantively affect the transferred loans' performance, its continuing involvement as Special Servicer does not result in the recognition of a servicing asset or liability.
The Master Servicer and Operating Advisor, is not an affiliate or related party of the Company, as defined under ASC 850, Related Party Disclosures. The Company has no ownership interest in, or common control with the Master Servicer and Operating Advisor, and there are no other relationships between the Company and Master Servicer and Operating Advisor that would require disclosure as a related party transaction under ASC 850.
The Company's maximum exposure to loss as a result of its continuing involvement with, and variable interest in, the VCC 2026-MC2 Trust is limited to the carrying value of its retained securities at fair value of $29.9 million as of June 30, 2026. The Company, as Special Servicer, is not obligated to make servicing advances with respect to the underlying loans, and, other than customary representations, warranties, and indemnification obligations which the Company does not believe are material, has not retained any other recourse, guarantee, or indemnification obligations related to the transferred assets.
Note 8 — Receivables Due From Servicers
The following tables summarize receivables due from servicers as of June 30, 2026 and December 31, 2025:
Securitized Debt
Warehouse and Repurchase Facilities and Other
Loan principal payments due from servicers
82,761
1,771
84,532
Other loan servicing receivables
26,573
3,756
30,329
Loan servicing receivables
109,334
5,527
114,861
Corporate and escrow advances receivable
35,903
1,418
37,321
Total receivables due from servicers
145,237
6,945
75,922
4,221
80,143
28,972
2,822
31,794
104,894
7,043
111,937
38,027
938
38,965
142,921
7,981
Note 9 — Real Estate Owned, Net
As of June 30, 2026, the carrying value of real estate owned was $142.1 million, of which $121.5 million were pledged as collateral for the Company's securitized debt and $2.5 million were pledged as collateral under a warehouse repurchase agreement. As of December 31, 2025, the carrying value of real estate owned was $118.3 million, of which $114.5 million were pledged as collateral for the Company's securitized debt.
Note 10 — Mortgage Servicing Rights
Mortgage loans sold with servicing retained are not included in the Consolidated Balance Sheets. 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.
23
The following table presents the Company's mortgage servicing rights, unpaid principal balance of loans serviced for GNMA by Century and BPC MC Trust, a related party (see Note 17 — Related Party Transactions), and significant assumptions used in determining the fair value of servicing rights as of June 30, 2026 and December 31, 2025:
MortgageServicingRights
UPBServiced
WeightedAverageDiscountRate
WeightedAverageConditionalPrepaymentRate
GNMA loans
14,160
872,458
8.0
5.9
BPC MC Trust loans
147
112,237
15.0
39.0
984,695
8.8
9.6
12,748
820,070
5.6
215
128,047
36.5
948,117
8.9
9.7
The following table presents the Company's mortgage servicing rights activity for the three and six months ended June 30, 2026 and 2025:
Balance at the beginning of period
12,645
12,631
13,712
Additions
536
451
555
Fair value adjustments
(142
(1,223
Balance at the end of period
12,940
Note 11 — Goodwill
The following table presents the activity for goodwill as of June 30, 2026 and December 31, 2025:
Note 12 — Securitized Debt at Amortized Cost and Securitized Debt at Fair Value
As of June 30, 2026, the Company is the sole beneficial interest holder of 38 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 March 2030 through May 2056.
The following tables summarize securitized debt at amortized cost and securitized debt at fair value as of June 30, 2026 and December 31, 2025:
Securitized Debt, at Amortized Cost
1,596,888
1,734,350
Deferred issuance costs and discounts
(26,106
(28,761
Total securitized debt, at amortized cost
Securitized Debt, at Fair Value
4,631,625
4,229,767
Adjustment at issuance to recognize fair value (1)
(28,175
(28,022
Fair value at issuance
4,603,450
4,201,745
Valuation adjustment subsequent to issuance (2)
6,441
36,875
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, 2026 and December 31, 2025:
(21,734
6,970
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, 2026 and 2025:
Interest expense
183,877
140,166
Average outstanding unpaid principal balance
6,109,077
4,609,818
Effective interest rate (1)
6.02
6.08
Note 13 — Other Debt
Secured and unsecured 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 bore interest at a fixed rate of 7.125% and was to mature on March 15, 2027. Interest on the 2022 Term Loan was paid every six months. As of December 31, 2025, the balance of the 2022 Term Loan was $215.0 million. The 2022 Term Loan was paid off on January 30, 2026 with proceeds from the issuance and sale of $500.0 million 2026 Term Notes.
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, 2026 and December 31, 2025, the balance of the 2024 Term Loan was $75.0 million.
The total balance of the 2022 Term Loan and the 2024 Term Loan in the Consolidated Balance Sheets is net of debt issuance costs and discount of $1.6 million and $3.3 million as of June 30, 2026 and December 31, 2025, respectively. The secured financing 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, 2026, the Company was in compliance with all covenants.
25
On January 30, 2026, Velocity Commercial Capital, LLC (“VCC”) completed the issuance and sale of $500.0 million aggregate principal amount of 9.375% Unsecured Senior Notes due 2031 (the “2026 Term Notes”). The 2026 Term Notes were sold at an offering price equal to 100% of the principal thereof and bear interest at a rate of 9.375% per annum. Interest on the 2026 Term Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2026 and will mature on February 15, 2031. The 2026 Term Notes are guaranteed by the Company on a senior unsecured basis, with no conditions to the guarantee and no additional risks on a consolidated basis as VCC is the Company's primary operating company. After deducting fees and expenses, the net proceeds from the issuance and sale of the 2026 Term Notes were approximately $484.9 million. The 2026 Term Notes were sold in an offering exempt from the registration requirements of the Securities Act of 1933. The balance of the 2026 Term Notes in the Consolidated Balance Sheets is net of debt issuance costs of $13.8 million as of June 30, 2026.
(c) Warehouse Repurchase and Revolving Loan Facilities, Net
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, 2027, and is a short-term borrowing facility, collateralized by performing loans, with a temporary maximum capacity of $100.0 million through December 31, 2026, and bears interest at one-month SOFR plus 1.60% with a 0.25% floor.
On May 17, 2013, the Company entered into a Repurchase Agreement (“the 2013 Repurchase Agreement”) with a warehouse lender. The 2013 Repurchase Agreement is a modified mark-to-market agreement and has a current maturity date of September 23, 2026, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of $400.0 million, and bears interest at SOFR plus 2.75%. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility.
On January 29, 2021, the Company entered into a non-mark-to-market Repurchase Agreement (“the 2021 Repurchase Agreement”) with a warehouse lender. The 2021 Repurchase Agreement has a current extended maturity date of June 20, 2027, 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 an extended maturity date of June 20, 2027, 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 $125.0 million sublimit for nonperforming loans. Borrowings under these two facilities bear interest at SOFR plus 2.650% during the availability period and 3.650% during the amortization period. All borrower payments on loans financed under the warehouse repurchase facilities are first used to pay interest on the facilities.
On April 16, 2021, the Company entered into a non-mark-to-market Term Repurchase Agreement (“the 2021 Term Repurchase Agreement”) with a warehouse lender. The 2021 Term Repurchase Agreement has a maturity date of April 14, 2028, with an extended borrowing period through April 14, 2027. During the borrowing period, the Company can take loan advances from time to time, subject to availability. Each loan advance bears interest at SOFR plus 2.95%. The maximum capacity under this facility is $100.0 million.
On December 27, 2023, the Company entered into a loan facility agreement (“the 2023 Repurchase Agreement”) with a bank. The 2023 Repurchase Agreement has a maturity date of December 27, 2026. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus 3.00%. The maximum loan amount under this facility is $125.0 million.
On November 7, 2024, the Company entered into a non-mark-to-market secured revolving loan facility agreement (“the 2024 Bank Credit Agreement”) with a bank. The 2024 Bank Credit Agreement has a current maturity date of May 7, 2027. Each loan advance bears interest at SOFR plus 3.50%, with a floor of 2.00%. The maximum loan amount under this facility is $50.0 million.
Certain loans are pledged as collateral under the warehouse repurchase facilities and the revolving loan facility, which contain covenants. Should the Company fail to adhere to those covenants or otherwise default under the facilities, the lenders have the right to terminate the facilities and demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of June 30, 2026 and December 31, 2025, the Company was in compliance with all covenants.
26
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, 2026 and December 31, 2025:
Contract Date
Current Maturity Date
Period EndBalance (1)
MaximumBorrowingCapacity
Effective Interest Rate
The September 2022 term repurchase agreement
01/04/11
07/31/27
100,000
5.3
60,000
6.0
05/17/13
09/23/26
89,802
400,000
7.7
132,100
7.6
01/29/2107/25/24
06/20/27
106,923
200,000
8.3
105,712
7.9
04/16/21
04/14/28
8,318
18,132
12/27/23
12/27/26
79,300
125,000
9.3
24,400
11/07/24
05/07/27
28,834
50,000
30,095
8.7
313,177
975,000
310,439
935,000
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, 2026 and 2025:
Average outstanding balance
201,023
413,441
188,891
423,615
Highest outstanding balance at any month-end
556,752
571,834
8.07
7.99
8.23
7.91
The following table provides a summary of interest expense that includes interest, amortization of discount, and deal cost amortization of the Company’s warehouse facilities, securitizations and other financing for the three and six months ended June 30, 2026 and 2025:
Warehouse and repurchase facilities
4,054
8,254
7,777
16,760
93,573
73,584
Interest expense — Corporate — Secured debt
2,004
8,685
Interest expense — Corporate — Unsecured debt
12,465
20,917
Total interest expense
112,096
87,981
221,256
169,211
Note 14 — 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, 2026 and December 31, 2025, 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, 2026.
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, were deferred until the uncertainty surrounding them is resolved. As of March 31, 2026, the IRS statute of limitations for the ERC refunds received related to the first and second quarters of 2021 have expired, as such, the Company recognized $2.4 million of ERC as other income during the quarter ended March 31, 2026. The Company continues to defer the third quarter 2021 net ERC refund of $1.3 million until the special six-year IRS statute of limitations expires in 2028. The deferred net ERC refunds of $1.3 million and $3.6 million are included in “Accounts payable and accrued expenses” on the Consolidated Balance Sheets as of June 30, 2026 and December 31, 2025, respectively.
Century originated a $25.9 million government-backed construction loan in September 2025. The funded advances (draws) on the construction loan were sold after funding. The unfunded portion of the construction loan totaled $15.6 million and $22.0 million as of June 30, 2026 and December 31, 2025, respectively.
Note 15 — 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
32
RSAs
1,324
761
2,433
1,508
PSUs
1,458
948
2,750
ESPP
281
189
559
376
Total recognized compensation expense
28
Unrecognized compensation expense:
7,282
6,165
Total unrecognized compensation expense
13,523
Weighted average period expected to be recognized (in years)
1.4
2.0
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, 2026 and 2025:
($ in thousands, except per share amounts)
Number of shares:
Options outstanding at beginning of period
786,722
1,065,772
Exercised
(20,000
Options outstanding at end of period
766,722
Options exercisable at end of period
760,838
749,344
Options expected to vest (1)
25,884
316,428
Weighted average exercise price per share:
13.12
14.46
13.00
12.96
12.88
17.95
18.19
Aggregate intrinsic value (2):
4,103
4,358
4,083
4,238
120
Weighted average remaining contractual life (in years):
3.8
3.6
4.6
9.1
The fair value of RSAs is determined based on the fair market value of the Company's common shares on the grant date. The estimated fair value of RSA awards is generally amortized as an expense over the three-year requisite service period. The Company has elected to recognize forfeitures as they occur rather than estimating service-based forfeitures over the requisite service period.
The table below summarizes RSA activity for the six months ended June 30, 2026 and 2025:
Employee
Non-Employee Director
Unvested at beginning of period
494,478
38,461
532,939
355,505
47,430
402,935
Granted
191,061
16,239
207,300
180,003
197,295
Vested
(197,662
(21,620
(219,282
(163,779
(26,261
(190,040
Unvested at end of period
487,877
33,080
520,957
371,729
410,190
Weighted average grant date fair value per share:
16.95
14.83
16.79
13.52
12.03
13.34
19.60
17.55
19.44
18.82
16.48
18.61
15.12
13.18
14.93
12.92
10.85
12.64
18.73
17.24
18.63
16.35
16.20
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, 2026 and 2025:
Number of Shares
Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period, unvested
620,433
13.70
517,131
12.83
Granted (1)
169,766
155,165
Performance adjustment
157,994
15.86
153,637
10.00
(326,077
10.46
(205,500
12.63
Outstanding at end of period, unvested
622,116
17.56
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 purchased from the open market and shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting or exercise of stock-based awards. Shares withheld were 21,911 and 267,582, at an average price of $17.26 and $18.66 per share for the three months ended June 30, 2026 and 2025, respectively. Treasury shares acquired from the open market by the employee stock purchase plan for the three months ended June 30, 2026 was 126,769 at a closing price of $18.46 per share.
Note 16 — 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, 2026 and 2025:
(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
1,217
Add dilutive effects for stock options
214
199
227
218
Add dilutive effects of unvested restricted stock awards
104
95
106
111
Add dilutive effects of unvested performance-based stock units
256
302
224
312
Add dilutive effects of employee stock purchase plan
1
Weighted average diluted common shares outstanding
Diluted earnings per common share
The following table sets forth the weighted average number of shares excluded from the computation of diluted earnings per share, as their inclusion would have been anti-dilutive:
Stock options
34
Unvested restricted stock awards
103
99
Unvested performance-based stock units
85
Share equivalents excluded from EPS
50
330
222
412
Note 17 — Related Party Transactions
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.
On December 29, 2025, the Company entered into a Master Flow Mortgage Loan Purchase Agreement (“MLPA”) with BPC MC Trust (a Beach Point Capital affiliate) to sell $128.9 million of nonperforming loans. Beach Point Capital is a related party of the Company. The sale was servicing retained whereby the Company sold whole loans, but retained the servicing rights to the loans. The MLPA contained standard loan level and corporate representations and warranties from the Company as the seller under the agreement. The Company entered into a Servicing Agreement to service and special service the loans for a fee. In addition to the servicing fee, the Company is entitled to a disposition fee of the unpaid principal balance of all loans that are paid off or resolved through an REO sale. This fee is not due on loans that are paid current. The Company also entered into a Servicing Fee Incentive Side Letter with the BPC MC Trust that provides further incentives to the Company based on meeting certain future Internal Rate of Return (“IRR”) hurdles.
The Company recognized $19.3 million gain from the sale of nonperforming loans to BPC MC Trust on December 29, 2025. The Company also recognized mortgage servicing rights of $0.2 million as of December 31, 2025. The mortgage servicing right is approximately $0.1 million as of June 30, 2026, which is included in “Mortgage servicing rights, at fair value” on the Consolidated Balance Sheets. See Note 10 — Mortgage Servicing Rights.
The following table presents the related party transactions completed during the three and six months ended June 30, 2026 and 2025:
Securitized debt issued to related parties
2,000.0
87.3
8,750.0
(1)
Note 18 — 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, 2026, 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, 2026 and 2025, $196 thousand and $205 thousand, respectively, of after-tax net losses on terminated derivative instruments were reclassified from AOCI to interest expense. For the six months ended June 30, 2026 and 2025, $402 thousand and $267 thousand of after-tax net losses on terminated derivative instruments were reclassified from AOCI and interest expense. As of June 30, 2026 and 2025, the Company had $2.3 million and $3.2 million of after-tax net unrealized loss, respectively, associated with cash flow hedging instruments recorded in AOCI. As of June 30, 2026, 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, 2026 and December 31, 2025:
Derivatives designated as hedging instruments:
Balance Sheet Location
Notional Amount
Fair Value (1)
Cash flow hedges:
Interest rate payer and receiver swaptions
Derivative asset
300,000
215,000
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 19 — 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, 2026 and 2025:
(2,310
(1,799
(805
Net unrealized loss on cash flow hedges arising during the period, net of tax
(3,207
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, 2026 and 2025:
Before-Tax
Tax Effect
Net-of-Tax
Interest rate swaps/swaptions:
Net unrealized loss arising during the period
(26
(127
(2,266
653
275
(79
288
(83
Other comprehensive income (loss)
249
(206
(1,978
570
146
(213
(3,752
1,083
565
(163
375
(108
711
(376
(3,377
975
Note 20 — 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
33
with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.
Below is a description of the valuation methods for the assets and liabilities recorded at fair value on either a recurring or nonrecurring basis and for estimating fair value of financial instruments not recorded at fair value for disclosure purposes. While management believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the measurement date.
Cash, Cash Equivalents and Restricted Cash
Cash and restricted cash are recorded at historical cost. The carrying amount is a reasonable estimate of fair value as these instruments have short-term maturities and interest rates that approximate market, a Level 1 measurement.
Loans Held for Investment, at Amortized Cost and Loans Held for Investment, at Fair Value
The Company uses a third-party loan valuation specialist to estimate the fair value of its nonperforming mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s nonperforming mortgage loans are interest rates, market yield requirements, the probability of default, loss given default, voluntary prepayment speed and loss timing. The Company uses a third-party loan valuation model to estimate the fair value of its performing mortgage loans, a Level 3 measurement. The significant unobservable inputs used in the fair value measurement of the Company’s performing mortgage loans are discount rate, constant prepayment rate, constant default rate, and loss severity rate. Significant changes in any of those inputs in isolation could result in a significant change to the mortgage loans’ fair value measurement.
Collateral Dependent or Loans Individually Evaluated
Nonaccrual loans held for investment and carried at amortized cost are evaluated individually and are adjusted to the fair value of the collateral when the fair value of the collateral is below the carrying value of the loan. To the extent such a loan is collateral dependent, the Company determines the allowance for credit losses based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on appraisals or broker price opinions obtained, less estimated costs to sell, a Level 3 measurement.
Loans Held for Sale, at Fair Value
The Company elected to account for certain loans originated with the intent to sell at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). The FVO loans held for sale are measured based on a discounted cash flow model, or on the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value, including the value attributable to mortgage servicing and credit risk, and current commitments to purchase loans, a Level 2 measurement. Management identified all loans to be accounted for at estimated fair value at the instrument level. Changes in fair value are reflected in income as they occur.
Retained Securities, at Fair Value
Retained securities, or Trust Certificate, is carried at fair value. The fair value of the Trust Certificate is classified within Level 3 of the fair value hierarchy, as it is not actively traded and its valuation requires the use of significant unobservable inputs. The Company estimates the fair value of the Trust Certificate using a discounted cash flow model, which incorporates projected cash flows from the underlying mortgage loan pool, including assumptions regarding the timing and amount of loan liquidations (the “liquidation rate”) and a discount rate reflecting the risk profile of a subordinated, first-loss interest in nonperforming loan collateral. Significant changes in any of the input factors in isolation, including the liquidation rate, could result in a significant change to the Trust Certificate's fair value measurement.
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 and Unsecured Financing, Net (“Corporate Debt”)
The Company determined the fair values estimate of the secured and unsecured 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 severities. 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.
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Fair Value Disclosures
The following tables present information on assets and liabilities measured and recorded at fair value as of June 30, 2026 and December 31, 2025, by level, in the fair value hierarchy:
Fair Value Measurements Using
Total at
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net
8,627
Total nonrecurring fair value measurements
150,712
Recurring fair value measurements:
Mortgage servicing rights
Total recurring fair value measurements
5,504,753
5,504,871
5,655,465
5,655,583
Liabilities:
10,830
129,119
4,742,832
4,742,898
4,871,951
4,872,017
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The following table presents gains and losses recognized on assets measured on a nonrecurring basis for the three and six months ended June 30, 2026 and 2025:
Gain (Loss) on Assets Measured on a Nonrecurring Basis
(3,636
(2,150
(6,852
(4,223
(441
Total net loss
(3,617
(2,190
(6,922
(4,664
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, 2026 and December 31, 2025:
Asset Category
PrimaryValuationTechnique
UnobservableInput
Range
WeightedAverage (1)
Nonrecurring:
Market comparables
Selling costs
8.0%
Recurring:
Discounted cash flow
Discount rate
7.8%
Prepayment rate
0.0% to 65.0%
11.0%
Default rate
0.6% to 6.3%
1.4%
Loss severity rate
0.0% to 22.8%
9.3%
12.0%
Monthly liquidation rate
0.5% to 2.6%
1.2%
Mortgage servicing rights — GNMA loans
8.0% to 12.0%
2.2% to 12.1%
5.9%
Mortgage servicing rights — BPC MC Trust loans
15.0%
3.0% to 75.6%
39.0%
37
7.6%
0.4% to 6.0%
1.0%
0.0% to 8.7%
2.2% to 12.0%
5.6%
4.9% to 54.1%
36.5%
The following is a roll-forward of loans held for investment that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:
5,154,508
3,287,188
2,766,951
Originations
586,319
684,465
1,223,465
1,320,002
Loans liquidated
(187,067
(148,951
(361,818
(281,661
REO transfer
(20,913
(12,811
(46,955
(19,340
Principal paydowns
(14,495
(13,414
(27,318
(24,189
Unrealized gain included in net income
30,028
Loans transferred to held for sale
(82,313
Loans repurchased
3,826,505
The following is a roll-forward of loans held for sale that are measured and recorded at estimated fair value on a recurring basis for the periods indicated:
5,008
86,258
40,922
88,484
45,809
Loans sold
(168,571
(46,953
(170,797
(46,954
1,145
Loans transferred from held for investment
82,313
The following is a roll-forward of securitized debt measured and recorded at estimated fair value on a recurring basis for the periods indicated:
4,426,240
2,459,767
2,207,408
398,441
982,140
1,356,500
Paydowns and payoffs
(212,493
(216,722
(510,461
(352,405
Total unrealized (gain) loss included in net income
(2,297
7,584
3,232,769
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, 2026 and December 31, 2025, 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, securitized debt at fair value and retained securities 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 $8.6 million and $10.8 million as of June 30, 2026 and December 31, 2025, respectively, net of specific allowance for credit losses of approximately $1.1 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
1,780,007
74,972
497,453
1,442,690
Accrued interest payable
52,961
39
1,976,279
Accrued interest receivable
289,660
Warehouse repurchase facilities, net
1,588,620
37,111
Note 21 — 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 22 — Subsequent Events
The Company has evaluated events that have occurred subsequent to June 30, 2026 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.
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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, 2025, 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 originate, securitize, and manage a nationwide portfolio of loans secured by real estate to earn attractive risk adjusted spreads for our shareholders. We primarily originate investor loans secured by 1-4 unit residential rental properties, as well as loans for multi-family, mixed use and commercial properties. We originate loans nationwide across our extensive network of independent mortgage brokers and direct borrower relationships, which we have built and refined over the 22 years since our inception. Our objective is to be the preferred and one of the most recognized brands in our core market.
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, 2026, has an average balance of approximately $383 thousand. As of June 30, 2026, our loan portfolio totaled $7.0 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 64.6%, of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 45.6% of the UPB. For the three and six months ended June 30, 2026, the annualized yields on our total portfolio were 9.29% and 9.26%, respectively.
We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitized debt, unsecured and secured debt, and equity. The securitized debt market is our primary source of long-term financing. We have successfully executed 49 securitized debt transactions, resulting in a total of approximately $11.5 billion in gross debt proceeds from May 2011 through June 2026. We may also 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 and unsecured debt. For the three and six months ended June 30, 2026, our annualized portfolio related net interest margin was 3.66% and 3.61%, respectively, compared to 3.82% and 3.60% for the three and six months ended June 30, 2025. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt and unsecured debt, provision for credit losses and operating expenses. For the three and six months ended June 30, 2026, including net income attributable to noncontrolling interest, we generated pre-tax income of $35.2 million and $66.1 million, and net income of $25.2 million and $47.5 million, respectively. 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 $26.0 million and $44.9 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
Securitization of Nonperforming Loans
In June 2026, we completed a securitization of nonperforming mortgage loans (the “2026-MC2 Securitization”), through which we sold and transferred the underlying loans to VCC 2026-MC2 Trust (the “Trust”) via our Depositor subsidiary. The transaction qualifies for sale accounting under ASC 860, Transfers and Servicing, resulting in a corresponding decrease in nonperforming loans on our balance sheet during the period.
Corporate Debt
In January 2026, we completed the issuance and sale of $500.0 million aggregate principal amount of 9.375% Senior Notes due 2031 (“the 2026 Term Notes”), which will mature on February 15, 2031. The 2026 Term Notes bear interest at 9.375% and are guaranteed by us on an unsecured basis.
In January 2026, we paid off the $215.0 million secured debt, or the “2022 Term Loan” with proceeds from the issuance and sale of $500.0 million Senior Notes.
In February 2026, we completed the securitization of $355.2 million of investor real estate loans, as measured by UPB, through a consolidated VIE.
In March 2026, we completed the securitization of $189.9 million of investor real estate loans, as measured by UPB, through a consolidated VIE.
In May 2026, we completed the securitization of $414.5 million of investor real estate loans, as measured by UPB, through a consolidated VIE.
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, 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, 2025, 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.
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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 secured and unsecured 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, 2026
June 30, 2025
Total loans (UPB)
6,836,544
5,859,653
Loan count
18,219
17,639
14,854
Average loan balance
383
388
394
Weighted average loan-to-value
64.6
64.9
65.8
Weighted average coupon
9.74
9.75
9.70
Nonperforming loans (UPB) (A)
673,335
692,073
601,757
Nonperforming loans (% of total) (A)
10.1
10.3
(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $26.2 million, $27.3 million and $31.7 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of June 30, 2026, March 31, 2026, and June 30, 2025, 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.
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Originations and Acquisitions
The following table presents new loan originations including unfunded commitments and acquisitions and includes average loan size, weighted average coupon and weighted average loan-to-value for the periods indicated:
Loan Count
Loan Balance
AverageLoan Size
WeightedAverageCoupon
WeightedAverageLTV
Three Months Ended June 30, 2026:
Loan originations — held for investment
1,682
349
9.99
61.1
Loan originations — held for sale
82,046
27,349
4.88
69.5
Construction loan advances — held for sale
4,212
5.90
85.0
Total loans originations
1,685
672,577
399
9.35
62.3
Three Months Ended March 31, 2026:
637,146
10.15
62.5
2,226
639,372
380
Three Months Ended June 30, 2025:
1,630
420
10.47
62.7
5.64
61.4
1,631
725,387
445
10.62
63.1
During the second quarter of 2026, loan originations increased $33.2 million and decreased $52.8 million from the quarters ended March 31, 2026 and June 30, 2025, respectively.
Loans Held for Investment
Our total portfolio of loans held for investment consists of both loans held for investment carried at amortized cost and loans held for investment at fair value, which are presented in the Consolidated Balance Sheets as “Loans held for investment, at amortized cost” and “Loans held for investment, at fair value,” respectively. The following tables show the various components of loans held for investment as of the dates indicated:
Deferred loan origination costs
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
154,351
2.2
159,623
2.5
Loans due in one to five years
62,754
0.9
78,875
1.2
Loans due in more than five years
6,768,786
96.9
6,252,840
96.3
100.0
Allowance for Credit Losses
For the June 30, 2026 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 economic uncertainties due to the ongoing conflict in Iran, unstable labor market, and softening economic conditions.
For the March 31, 2026 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 economic uncertainties due to the recent Iran War and unstable labor market conditions.
For the December 31, 2025 CECL estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. The severe stress scenario was applied to reflect the uncertainties in the market with the tariffs, change in immigration policy, and unstable inflation rates.
Our allowance for credit losses as of June 30, 2026 was $5.1 million compared to $4.9 million as of June 30, 2025. The increase in allowance for credit losses from June 30, 2025 was primarily due to a higher loss rate driven by increased charge-off activity in recent periods. 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)
2,210,304
Nonperforming loans UPB
178,986
283,227
Nonperforming loans UPB / Total UPB(1)
9.9
12.8
Allowance for credit losses / Total UPB(1)
0.28
0.22
Charge-offs / Total UPB(1)
0.16
(2)
0.31
0.23
0.25
The allowance for credit losses was 0.28% of total UPB of loans held for investment carried at amortized cost as of June 30, 2026. Nonperforming loans were 9.9% of total UPB of loans held for investment carried at amortized cost as of June 30, 2026. Management believes the allowance for credit losses is adequate to absorb expected lifetime credit losses because historically, most loans that become nonperforming either paid off or paid current, resulting in an overall gain. This is due to low LTVs at origination and active management of our portfolio. Historically, our actual annual charge-offs rate was 0.11% over the last five 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, 2026 (A)
COVID-19Forbearance
March 31, 2026 (A)
June 30, 2025 (A)
Performing/Accruing:
5,772,386
82.6
82,751
5,648,159
87,769
4,878,317
83.3
91,325
30-59 days past due
374,269
5.4
5,006
293,479
4.3
4,201
263,390
4.4
3,971
60-89 days past due
165,901
2.4
2,742
202,833
3.0
1,661
116,189
3,506
Total Performing Loans
6,312,556
90.4
6,144,471
89.9
93,631
5,257,896
89.7
98,802
Nonperforming/Nonaccrual:
<90 days past due
53,708
0.8
1,107
57,685
1,030
29,136
0.5
2,302
90+ days past due
113,895
1.6
108,963
487
50,269
Bankruptcy
83,447
12,440
50,669
0.7
10,128
79,327
4,564
In foreclosure
422,285
12,429
474,756
7.0
15,648
443,025
7.5
24,871
Total nonperforming loans
27,293
31,737
130,539
Loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were $673.3 million, or 9.6% of our held for investment loan portfolio as of June 30, 2026, compared to $692.1 million, or 10.1% as of March 31, 2026, and $601.8 million, or 10.3% as of June 30, 2025. The decrease in total nonperforming loans as of June 30, 2026 compared to March 31, 2026 and June 30, 2025 was primarily attributable to the sale of nonperforming loans into the securitization trust in connection with the 2026-MC2 Securitization offset by an increase in the size and aging of our portfolio.
Resolution of Nonperforming Loans
Historically, most loans that become nonperforming resolve prior to converting to REO. 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 $90.5 million of long-term and short-term nonperforming loans for the quarter ended June 30, 2026, compared to $70.1 million for the quarter ended March 31, 2026, and $90.3 million for the quarter ended June 30, 2025. We recovered total revenue of $6.9 million, $4.6 million and $8.7 million for the quarters ended June 30, 2026, March 31, 2026, and June 30, 2025, respectively. This is largely the result of collecting all regular accrued interest, default interest, and prepayment penalties in excess of the principal on loans.
The tables below include resolutions of our long-term nonperforming loans during the periods indicated. Historically, we have resolved our nonperforming loans at a gain over and above contractual interest due. Below is a breakout of the net gains, regular accrued interest income and expense recognized with the resolution of these nonperforming loans. Total nonperforming loans recovered include default interest, prepayment penalty, and contractual regular interest received, and any servicing advance recovered or written off:
Long-Term Nonperforming Loans
DefaultInterest
PrepaymentPenalty
Net Gain
RegularAccruedInterest
Servicing Advances Write-Offs
Total Recovered
Resolved — loans paid off
29,674
1,103
633
1,736
2,494
(522
3,708
Resolved — loans paid current
45,298
486
510
2,107
2,616
Total resolutions
1,589
657
2,246
4,601
(523
6,324
Recovery rate
103.0
108.4
Three Months Ended March 31, 2026
32,971
433
1,006
1,695
(709
29,491
409
1,603
(31
1,981
62,462
982
(740
3,973
102.3
106.4
47
32,220
1,184
894
2,078
3,117
(350
4,845
45,396
2,299
2,622
77,616
1,574
2,468
5,416
(417
7,467
103.2
109.6
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 tables below include resolutions of our short-term nonperforming loans and loans granted a COVID-19 forbearance in 2020, for the periods indicated:
Short-Term Nonperforming Loans
8,583
152
(613
277
6,921
268
325
15,504
209
602
101.3
103.9
Servicing Advances Recoveries
3,829
137
138
178
348
3,798
221
7,627
165
166
102.2
107.8
8,963
357
371
792
(60
3,770
175
(2
177
361
967
(62
1,280
102.9
110.1
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. The difference between the carrying value of the FVO loan and the REO fair value less estimated costs to sell, is recorded as unrealized gain or loss on fair value loans. 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, 2026, REO included 286 properties with a lower of cost or estimated fair value of $142.1 million compared to 259 properties with a lower of cost or estimated fair value of $131.8 million as of March 31, 2026, and 175 properties with a lower of cost or estimated fair value of $93.4 million as of June 30, 2025.
48
Gain (Loss) on REO
The table below shows our initial REO gain (loss) upon transfer from loans, for the periods indicated:
Six months ended June 30,
Gain (loss) on new REO:
Gain on transfer to REO — amortized cost loans
1,667
4,373
Valuation gain on transfer to REO — fair value loans
8,335
6,472
Total gain on new REO
10,002
10,845
The table below shows the gain (loss) activity subsequent to the REO being recorded, for the periods indicated:
Gain (loss) on existing REO:
REO valuation loss, net
(6,853
Gain on sale of REO
505
1,090
Total (loss) on existing REO
(6,348
(3,133
Concentrations – Loans Held for Investment
As of June 30, 2026, our held for investment loan portfolio was concentrated in Investor 1-4 loans, representing 45.6% of the UPB. Retail and Mixed use properties represented 11.5% and 11.0%, respectively, of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio.
Property Type
% of Total UPB
Investor 1-4
11,098
3,184,378
45.6
Retail
1,513
803,952
11.5
Mixed use
1,816
763,371
11.0
Office
1,348
658,180
9.4
Warehouse
820
525,597
Multifamily
822
490,402
Other (1)
560,011
Geographically, the principal balance of our loans held for investment were concentrated 19.7% in California, 13.1% in New York, 11.5% in Florida, 7.9% in New Jersey, and 6.3% in Texas as of June 30, 2026.
Geography (State)
California
2,007
1,375,967
19.7
New York
1,738
913,815
13.1
Florida
2,047
801,798
New Jersey
1,333
555,015
Texas
1,252
442,203
6.3
9,842
2,897,093
41.5
49
Key Performance Metrics
Three Months Ended
Average loans
6,931,705
6,632,988
5,620,763
Portfolio yield
9.29
9.23
9.65
Average debt — portfolio related
6,415,860
6,180,078
5,245,799
Average debt — total company
6,990,860
6,655,454
5,535,799
Cost of funds — portfolio related
6.09
6.24
Cost of funds — total company
6.41
6.56
6.36
Net interest margin — portfolio related
3.66
3.56
3.82
Net interest margin — total company
2.82
2.65
3.39
Charge-offs/Average loans held for investment at amortized cost
0.27
Pre-tax return on average equity (2)
20.0
18.1
23.0
Return on average equity
14.6
17.8
Average Loans
Average loans reflects the daily average of total outstanding loans, including both loans held for investment and loans held for sale, as measured by UPB, over the specified time period.
Portfolio Yield
Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees. The decrease in our portfolio yield for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025 was primarily driven by lower average coupons. Portfolio yield for the three months ended June 30, 2026 increased slightly from the three months ended March 31, 2026 mainly attributable to more interest income and default interest collected on resolutions of nonperforming loans.
Average Debt — Portfolio Related and Total Company
Portfolio-related debt consists of borrowings related directly to financing our loan portfolio, which includes our warehouse facilities and securitized debt. Total company debt consists of portfolio-related debt and corporate debt including secured and unsecured 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 was relatively consistent at 6.09% for both the three months ended June 30, 2026 and the prior quarter, and decreased from 6.24% for the three months ended June 30, 2025. The decrease was primarily due to lower average cost of securitized debt.
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 decreased to 3.66% for the three months ended June 30, 2026 from 3.82% for the three months ended June 30, 2025. Portfolio related net interest margin increased slightly to 3.61% for the six months ended June 30, 2026 from 3.60% for the six months ended June 30, 2025. The decrease from the three months ended June 30, 2025 was primarily due to elevated yields on loans for the three months ended June 30, 2025 due to the timing of receipts of regular interest on a cash basis on past due loans, default interest, and prepayment fees.
Total company net interest margin of 2.82% for the three months ended June 30, 2026 decreased from 3.39% for the three months ended June 30, 2025. Total company net interest margin of 2.74% for the six months ended June 30, 2026 decreased from 3.14% for the six months ended June 30, 2025. The decreases were primarily due to higher interest expense on our corporate debt due to expensing the non-cash unamortized debt issuance costs related to the payoff of our $215.0 million corporate debt in January 2026.
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
14,159
12,677
Loans held for investment
6,917,546
5,608,086
Total loans
Debt:
Warehouse facilities
6,214,837
4,832,358
Total debt — portfolio related
Corporate — secured debt
75,000
10.69
290,000
8.47
Corporate — unsecured debt
9.97
Total debt
Net interest spread — portfolio related (2)
3.20
3.41
Net interest spread — total company (3)
2.88
3.29
7,174
6,838
6,775,173
5,410,637
6,782,347
9.26
5,417,475
9.39
6,297,968
5,033,433
108,522
16.01
(4)
416,667
10.04
(5)
6,823,157
6.49
5,323,433
3.18
3.15
3.61
3.60
2.78
3.03
2.74
3.14
Charge-Offs
Our annualized charge-offs rate over average loans held for investment carried at amortized cost for the three months ended June 30, 2026 decreased to 0.16% as compared to 0.27% for the three months ended March 31, 2026 and from 0.31% for the three months ended June 30, 2025. 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, 2026 as compared to the quarter ended March 31, 2026 primarily due to higher income before income taxes and net income. Pre-tax return on average equity and return on average equity decreased as compared to the quarter ended June 30, 2025 primarily due to higher average shareholders' equity for the three months ended June 30, 2026.
52
Income before income taxes (A)
30,877
Net income (B)
Monthly average balance:
Stockholders' equity (C)
704,138
682,417
588,814
Pre-tax return on average equity (A)/(C) (1)
Return on average equity (B)/(C) (1)
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 consists of interest expense paid with respect to the 2022 Term Loan until its payoff in January 2026 and the 2024 Term Loan, as reflected in “Secured financing, net” on our Consolidated Balance Sheets, and the related amortization of deferred debt issuance costs. Interest expense on corporate debt also includes the interest expense paid with respect to the 2026 Term Notes, as reflected in “Unsecured senior notes, 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.
53
Other Operating Income
Gain (Loss) on Disposition of Loans. When we sell a loan held for sale, we record a gain or loss that reflects the difference between the proceeds received for the sale of the loans and their respective carrying values. The gain or loss that we ultimately realize on the sale of our loans held for sale is primarily determined by the terms of the originated loans, current market interest rates and the sale price of the loans. In addition, when we transfer a loan to REO, we record the REO at its fair value, less estimated costs to sell, at the time of the transfer. The difference between the fair value of the real estate and the carrying value of the loan is recorded as a gain or a loan charge-off.
Unrealized Gain (Loss) on Fair Value Loans. We have elected to apply fair value option accounting to all our originated mortgage loans on a go-forward basis beginning October 1, 2022. We have elected to account for certain purchased distressed loans at fair value using FASB ASC Topic 825, Financial Instruments (ASC 825). We regularly estimate the fair value of these loans. Changes in fair value, subsequent to initial recognition of fair value loans are reported as “Unrealized gain (loss) on fair value loans,” a component of other operating income within the Consolidated Statements of Income.
Unrealized Gain (Loss) on Mortgage Servicing Rights. We have elected to record our mortgage servicing rights using the fair value measurement method. Changes in fair value are reported as “Unrealized gain (loss) on mortgage servicing rights,” a component of other operating income within the Consolidated Statements of Income.
Unrealized Gain (Loss) on Fair Value Securitized Debt. We have elected to apply fair value option accounting to securitized debt issued effective January 1, 2023 when the underlying collateral is also carried at fair value. We regularly estimate the fair value of securitized debt. Changes in fair value subsequent to initial recognition of fair value securitized debt are reported as “Unrealized gain (loss) on fair value securitized debt,” a component of other operating income within the Consolidated Statements of Income.
Origination Income. Fee income related to our loan origination activities.
Interest Income on Cash Balance. Interest income on bank balances.
Other Income. Other income primarily consists of servicing fee income and other miscellaneous income. We earn 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.
54
Consolidated Results of Operations
The following table summarizes our unaudited consolidated results of operations for the periods indicated:
$ Change
25,419
59,759
15,789
34,728
9,630
25,031
Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased 17.9% to $63.4 million from $53.7 million for the three months ended June 30, 2026 and 2025, respectively. Our portfolio related net interest income increased 25.7% to $122.4 million from $97.4 million for the six months ended June 30, 2026 and 2025, respectively.
Interest Income. Interest income increased by $25.4 million or 18.8% to $161.0 million for the three months ended June 30, 2026, compared to $135.6 million for the three months ended June 30, 2025, primarily attributable to higher average loan portfolio balances. For the three months ended June 30, 2026, the average loan yield was 9.29% compared to 9.65% for the three months ended June 30, 2025. Interest income increased by $59.8 million to $314.1 million for the six months ended June 30, 2026, compared to $254.3 million for the six months ended June 30, 2025. The increase in interest income for the six months ended June 30, 2026 was primarily attributable to higher average portfolio balances due to loan originations.
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, 2026 and 2025.
Average Yield(1)
Three months ended June 30, 2026
Three months ended June 30, 2025
Volume variance
1,310,942
31,619
Rate variance
(6,200
(0.36
)%
Total interest income variance
55
Six months ended June 30, 2026
Six months ended June 30, 2025
1,364,872
64,070
(4,311
(0.13
Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased 19.3% to $97.6 million for the three months ended June 30, 2026 from $81.8 million for the three months ended June 30, 2025. Portfolio related interest expense increased to $191.7 million for the six months ended June 30, 2026 from $156.9 million for the six months ended June 30, 2025. The increases were primarily attributable to a higher loan portfolio being financed, offsets by lower portfolio cost of funds.
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, 2026 and 2025.
Average Debt(1)
Interest Expense
Cost of Funds(2)
1,170,061
18,254
(2,465
(0.15
Total interest expense variance
1,264,535
39,424
(4,696
Net Interest Income After Provision for Credit Losses
8,326
17,317
1,304
7,714
(618
(829
1,922
8,543
Interest Expense — Corporate Debt. Corporate debt interest expense increased to $14.5 million from $6.1 million for the three months ended June 30, 2026 and 2025, respectively. Corporate debt interest expense increased to $29.6 million for the six months ended June 30, 2026, compared to $12.3 million for the six months ended June 30, 2025. The increase in corporate debt interest expense was primarily due to the issuance of $500.0 million unsecured senior notes in January 2026 and write-off of $1.3 million non-cash unamortized debt issuance costs related to the payoff of the $215.0 million secured corporate debt in January 2026.
56
Provision for Credit Losses. Our provision for credit losses decreased to $1.0 million for the three months ended June 30, 2026 from $1.6 million for the three months ended June 30, 2025. Our provision for credit losses decreased to $2.6 million for the six months ended June 30, 2026 from $3.5 million for the six months ended June 30, 2025. The decreases resulted from the decrease in loans carried at amortized cost subject to the CECL allowance methodology.
The $7.2 million increase in total other operating income from the three months ended June 30, 2025 to the three months ended June 30, 2026 was primarily due to higher net unrealized gain of $4.5 million on loans and securitized debt and $3.2 million in origination fee income. The $16.7 million increase from the six months ended June 30, 2025 to the six months ended June 30, 2026 was mainly due to higher net unrealized gain of $10.6 million on loans and securitized debt, $2.5 million in origination fee income and $2.4 million employee retention credit as other income in the first quarter of 2026.
(2,332
(2,270
(5,423
(39,220
9,881
49,817
817
1,561
3,218
2,509
(171
(105
1,241
4,450
7,231
16,742
Gain on Disposition of Loans. Gain on disposition of loans decreased to $4.0 million for the three months ended June 30, 2026 compared to $6.3 million for the three months ended June 30, 2025. Gain on disposition of loans decreased by $2.3 million to $6.9 million for the six months ended June 30, 2026 compared to $9.1 million for the six months ended June 30, 2025 primarily due to less gain recognized upon disposition of loans in 2026.
Unrealized Gain on Fair Value Loans. Unrealized gain on fair value loans decreased by $5.4 million to $24.5 million for the three months ended June 30, 2026 compared to $29.9 million for the three months ended June 30, 2025. Unrealized gain on fair value loans decreased by $39.2 million to $25.5 million for the six months ended June 30, 2026 compared to $64.7 million for the six months ended June 30, 2025. The decrease was mainly driven by an increase in market interest rates.
Unrealized Gain (Loss) on Fair Value Securitized Debt. Unrealized gain on fair value securitized debt was $2.3 million for the three months ended June 30, 2026, compared to $7.6 million of unrealized loss for the three months ended June 30, 2025. Unrealized gain on fair value securitized debt increased by $49.8 million to $28.6 million for the six months ended June 30, 2026 from $21.3 million unrealized loss for the six months ended June 30, 2025. The increases in unrealized gain on fair value securitized debt were primarily attributable to the increase in market interest rates.
Unrealized Gain (Loss) on Mortgage Servicing Rights. Unrealized gain on mortgage servicing rights was $1.1 million for the three months ended June 30, 2026 as compared to $0.3 million for the three months ended June 30, 2025. Unrealized gain on mortgage servicing rights was $0.8 million for the six months ended June 30, 2026 as compared to an unrealized loss of $0.8 million for the six months ended June 30, 2025. The increases in unrealized gain on mortgage servicing rights were primarily attributable to new servicing rights on Century loan originations.
Origination Fee Income. Origination fee income increased by $3.2 million to $12.2 million for the three months ended June 30, 2026 compared to $8.9 million for the three months ended June 30, 2025. Origination fee income increased by $2.5 million to $20.1 million for the six months ended June 30, 2026 compared to $17.6 million for the six months ended June 30, 2025. The increases were primarily attributable to interest rate buy downs in the current quarter.
Interest Income on Cash Balance. Interest income on cash balance decreased by $0.2 million to $1.3 million for the three months ended June 30, 2026 compared to $1.5 million for the three months ended June 30, 2025. Interest income on cash balance decreased by $0.1 million to $2.7 million for the six months ended June 30, 2026 compared to $2.8 million for the six months ended June 30, 2025. The decreases were primarily attributable to a decrease in interest rates combined with a decrease in average bank balances.
Other Income. Other income was $1.7 million and $0.5 million for the three months ended June 30, 2026 and 2025, respectively. Other income increased to $5.5 million for the six months ended June 30, 2026 compared to $1.0 million for the six months ended June 30, 2025, primarily attributable to the recognition of $2.4 million employee retention credit as other income in March 2026, and higher servicing fee income from the new loan servicing portfolio serviced for others.
Operating expenses are presented in the following table. Changes in operating expenses compared to the same period of the prior year are discussed below.
2,909
4,745
212
537
(5,610
7,480
8,035
181
4,179
119
3,425
7,258
431
726
7,840
19,989
Compensation and Employee Benefits. Compensation and employee benefits increased by $2.9 million to $25.5 million for the three months ended June 30, 2026 compared to $22.6 million for the three months ended June 30, 2025. Compensation and employee benefits increased by $4.7 million to $49.0 million for the six months ended June 30, 2026 compared to $44.3 million for the six months ended June 30, 2025. The increases were primarily attributable to the annual salary increases and increase in headcount to support future growth in loan production.
Origination Expenses. Origination expenses increased by $0.2 million to $1.4 million for the three months ended June 30, 2026 from $1.2 million for the three months ended June 30, 2025. Origination expenses increased by $0.5 million to $2.6 million for the six months ended June 30, 2026 from $2.0 million for the six months ended June 30, 2025. The increase in origination expenses was due to higher third party fees paid.
Securitization Expenses. Securitization expenses were $4.7 million for the three months ended June 30, 2026 compared to $11.5 million for the three months ended June 30, 2025. Securitization expenses were $10.0 million for the six months ended June 30, 2026 compared to $15.6 million for the six months ended June 30, 2025. The decreases in securitization expenses resulted from fewer securitization transactions and securitized debt issued in 2026 as compared to the prior year.
Loan Servicing. Loan servicing expenses increased to $15.7 million for the three months ended June 30, 2026 from $8.2 million for the three months ended June 30, 2025. Loan servicing expenses increased to $24.2 million for the six months ended June 30, 2026 from $16.2 million for the six months ended June 30, 2025. The increases were primarily attributable to the $6.0 million write-off of protective advances related to the nonperforming loans that we elected to transfer into the 2026-MC2 Trust in June 2026.
Professional Fees. Professional fees increased to $2.2 million for the three months ended June 30, 2026 compared to $2.0 million for the three months ended June 30, 2025. Professional fees were $8.0 million for the six months ended June 30, 2026 compared to $3.8 million for the six months ended June 30, 2025. The increases were primarily attributable to higher legal fees related to potential merger and acquisition due diligence.
Rent and Occupancy. Rent and occupancy expenses slightly increased to $0.4 million for the three months ended June 30, 2026 and $0.3 million for the three months ended June 30, 2025. Rent and occupancy expenses increased to $0.7 million for the six months ended June 30, 2026 compared to $0.6 million for the six months ended June 30, 2025.
Real Estate Owned, Net. Net expenses of real estate owned increased to $6.7 million for the three months ended June 30, 2026 from $3.3 million for the three months ended June 30, 2025. Net expenses of real estate owned increased to $13.6 million for the six months ended June 30, 2026 from $6.3 million for the six months ended June 30, 2025. The increases were mainly due to the increase in REOs combined with higher valuation adjustments.
Other Operating Expenses. Other operating expenses increased to $3.2 million for the three months ended June 30, 2026 from $2.8 million for the three months ended June 30, 2025. Other operating expenses increased to $6.1 million for the six months ended June 30, 2026 from $5.3 million for the six months ended June 30, 2025. The increases reflected higher information technology maintenance and data processing costs.
Income Tax Expense. Income tax expense was $9.5 million and $7.8 million for the three months ended June 30, 2026 and 2025, respectively, and $18.1 million and $16.0 million for the six months ended June 30, 2026 and 2025, respectively. The increases in income tax expense were primarily attributable to the lower income tax rate in Q2 2025. Our annual consolidated effective tax rates as a percentage of pre-tax income were 28.3% and 28.2% for the years 2026 and 2025, 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 30,2026
March 31,2026
December 31,2025
September 30,2025
June 30,2025
March 31,2025
December 31,2024
September 30,2024
153,080
152,403
144,119
118,740
113,484
105,070
94,027
94,652
88,899
75,088
68,484
63,871
59,053
57,751
55,220
43,652
45,000
41,199
3.59
3.65
3.35
3.70
15,133
6,142
6,144
43,920
51,609
49,076
37,510
38,857
35,056
3.21
3.25
3.06
1,954
381
1,872
(69
Net interest income after provision for (reversal of) credit losses
42,259
49,655
48,695
35,638
38,835
35,125
42,957
53,249
37,077
33,446
32,330
20,732
54,339
52,855
50,397
42,190
39,127
34,613
50,049
35,375
26,894
32,038
21,244
8,578
15,296
9,963
8,246
11,233
5,627
34,753
25,412
20,805
15,617
(64
(239
(186
34,797
25,373
20,587
15,803
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 $240.0 million as of June 30, 2026, comprised of $76.1 million in cash and $163.9 million in borrowings from available warehouse capacity on unencumbered loans. Our additional available warehouse capacity as of June 30, 2026, was $497.9 million, bringing total liquidity plus available warehouse capacity to $737.9 million.
We had cash of $76.1 million and $79.6 million, excluding restricted cash of $169.1 million and $17.6 million as of June 30, 2026 and 2025, respectively. $50.3 million of the $169.1 million in restricted cash was released in July 2026.
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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, 2026, our net cash provided by operating activities consisted mainly of $48.0 million in net income, $86.9 million in proceeds from sales of loans held for sale, partially offset by $88.5 million of origination of loans held for sale, and $54.1 million of net valuation gain in securitized debt and loans at fair value.
For the six months ended June 30, 2026, our net cash used in investing activities consisted mainly of $1.2 billion in cash used to originate loans held for investment at fair value, partially offset by $526.2 million in cash received from payments of loans held for investment and $103.2 million in cash proceeds from sales of loans originally classified as held for investment.
For the six months ended June 30, 2026, our net cash provided by financing activities consisted mainly of $1.1 billion in borrowings from our warehouse and repurchase facilities, $912.2 million in proceeds from issuing securitized debt, and $500.0 million in proceeds from the issuance of unsecured corporate debt. The cash generated was partially offset by repayments of $1.1 billion on warehouse and repurchase facilities, repayments of $647.9 million on securitized debt, and $215.0 million in the payoff of the 2022 Term Loan.
During the six months ended June 30, 2026 and 2025, we used approximately $4.0 million and generated $26.4 million, respectively, of net cash and cash equivalents on operating, investing and financing activities.
Warehouse Facilities
As of June 30, 2026, we have five non-mark-to-market warehouse facilities, one mark-to-market warehouse facility, and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. The maturity of our warehouse facilities ranges from one to three years. The borrowings are collateralized primarily by performing loans. All warehouse facilities are based on SOFR, plus margins ranging from 1.60% to 4.00%. Borrowing under these facilities was $313.2 million with $661.8 million of available capacity as of June 30, 2026.
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, 2026, we were in compliance with these covenants.
From May 2011 through June 2026, we have completed 49 transactions, issuing $11.5 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.
60
Accumulated interest represents our total ownership interest in each trust which is the difference between the UPB of the loan collateral and the principal amount due external bondholders. The following table summarizes securities issued at the time of securitization, accumulated interest as of June 30, 2026 and December 31, 2025, and the stated maturity for each outstanding 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.
Accumulated Interest as of
Trusts
SecuritiesIssued
Stated MaturityDate
245,601
6,759
6,693
October 2047
176,816
4,872
4,967
April 2048
307,988
9,132
10,001
October 2048
235,580
8,709
12,021
March 2049
207,020
6,644
July 2049
154,419
5,114
5,792
October 2049
248,700
8,173
8,881
February 2050
251,301
12,598
13,097
May 2051
194,918
5,642
5,056
August 2051
204,205
5,714
5,875
October 2051
319,116
7,990
6,974
December 2051
273,594
8,891
9,304
February 2052
241,388
12,729
11,611
March 2052
296,323
18,497
25,409
May 2052
308,357
19,482
20,062
July 2052
188,754
16,907
17,162
October 2052
198,715
16,654
17,030
December 2052
202,210
5,270
10,669
April 2053
234,741
2,316
7,055
July 2053
202,890
3,963
8,227
November 2053
209,862
10,058
9,714
January 2054
286,235
10,820
17,786
April 2054
204,599
4,922
7,172
June 2054
253,612
7,676
13,358
July 2054
292,880
18,291
14,220
October 2054
293,895
23,192
18,490
December 2054
342,791
23,195
18,152
February 2055
111,395
8,064
7,048
March 2030
377,526
26,969
20,898
April 2055
114,136
19,580
20,925
May 2055
382,461
20,282
15,367
June 2055
190,865
8,248
5,370
July 2055
457,543
23,027
14,769
September 2055
207,013
8,933
5,305
October 2055
439,292
18,323
11,346
December 2055
335,448
22,813
February 2056
178,333
12,055
March 2056
398,538
15,906
May 2056
9,769,060
468,618
412,450
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The following table summarizes outstanding bond principal balances for each securitized debt as of June 30, 2026 and December 31, 2025:
19,658
22,445
15,300
17,828
41,055
46,790
41,804
50,131
34,199
38,266
33,868
37,606
72,014
76,345
115,435
126,176
99,455
108,845
108,824
113,979
177,206
187,001
181,622
190,618
162,292
170,257
182,091
203,208
188,818
204,089
123,246
140,766
119,776
134,177
87,561
116,579
147,149
95,265
136,392
122,199
138,490
162,751
199,850
133,998
162,649
157,345
187,255
203,002
240,918
228,653
259,120
276,820
312,863
92,600
327,789
350,312
79,207
91,607
334,944
365,978
173,879
185,424
422,890
445,803
191,837
206,550
413,822
437,256
325,398
176,418
396,138
6,228,513
5,964,117
As of June 30, 2026 and December 31, 2025, the weighted average annualized rates on the securities and certificates for the Trusts were as follows:
4.54
4.23
4.68
4.35
4.61
4.53
3.98
4.11
3.51
3.46
3.32
1.80
1.77
2.02
2.03
2.51
2.48
3.23
3.93
3.94
5.05
2022-MC1 Trust
6.78
5.68
6.28
6.23
7.31
7.26
7.40
7.23
2023-1R Trust
13.75
7.55
7.66
2023-RTL1 Trust
9.86
8.08
8.16
7.93
8.63
7.56
7.06
7.46
7.30
7.50
6.76
6.27
6.00
6.19
6.39
6.61
6.59
7.17
6.64
8.69
8.49
6.47
6.46
6.57
5.78
5.76
6.06
5.88
6.10
5.49
6.07
5.85
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.
Secured and Unsecured Financing (Corporate Debt)
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.
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On January 30, 2026, we entered into a five-year $500.0 million syndicated corporate debt agreement, the (“the 2026 Term Notes”). The 2026 Term Notes bears interest at a fixed rate of 9.375% and matures on January 30, 2031. Interest on the 2026 Term Notes is paid every three months. A portion of the proceeds was used to pay off the $215.0 million 2022 Term Loan in January 2026.
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
Contractual Obligations and Commitments
On March 15, 2022, we entered into a five-year $215.0 million syndicated corporate debt agreement, the (“the 2022 Term Loan”). The 2022 Term Loan bore interest at a fixed rate of 7.125% and was to mature on March 15, 2027. Interest on the 2022 Term Loan was paid every six months. The 2022 Term Loan was paid off in January 2026 with proceeds from the 2026 Term Notes.
On February 5, 2024, the Company entered into a five-year $75.0 million syndicated corporate debt agreement, (“the 2024 Term Loan”). The 2024 Term Loan bears interest at 9.875% and matures on February 15, 2029. Interest on the 2024 Term Loan is paid every six months. As of June 30, 2026 and December 31, 2025, the balance of the 2024 Term Loan was $75.0 million.
On January 30, 2026, we entered into a five-year $500.0 million unsecured syndicated corporate debt agreement, the (“the 2026 Term Notes”). The 2026 Term Notes bears interest at a fixed rate of 9.375% and matures on January 30, 2031. Interest on the 2026 Term Notes is paid every three months. A portion of the proceeds was used to pay off the 2022 Term Loan in January 2026. As of June 30, 2026, the balance of the 2026 Term Notes was $500.0 million.
Velocity Commercial Capital, LLC is the borrower of the 2024 Term Loan, which is secured by substantially all of the borrower’s non-warehoused assets, with a guarantee from Velocity Financial, Inc., that is secured by the equity interests of the borrower. The syndicated unsecured corporate debt (the 2026 Term Notes) agreement contains customary affirmative and negative covenants, including financial maintenance covenants and limitations on dividends by the borrower.
As of June 30, 2026, we maintained warehouse facilities to finance our investor real estate loans and had approximately $313.2 million in outstanding borrowings with $661.8 million of available capacity under our warehouse and repurchase facilities. The warehouse and repurchase facilities have maturity dates ranging from September 2026 to April 2028.
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.
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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 nonperforming loans and avoid losses on nonperforming 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.
We have included in Part I, Item 1A of our 2025 Form 10-K descriptions of certain risks and uncertainties that could affect our business, future performance, or financial condition (the "Risk Factors"). Other than as updated below, there have been no material changes from the disclosures provided in our 2025 Form 10-K. Investors should consider the Risk Factors prior to making an investment decision with respect to our stock.
Risks Related to Mergers, Acquisitions and Strategic Investments
We may be unable to successfully identify, complete, integrate or realize the anticipated benefits of mergers, acquisitions, strategic investments, joint ventures or other business combinations, which could adversely affect our business, financial condition and results of operations.
From time to time, we may pursue acquisitions, strategic investments, joint ventures, minority investments, asset purchases or other business combinations that we believe will complement or expand our business. There can be no assurance that we will be able to identify suitable opportunities, negotiate acceptable terms, obtain required financing, secure necessary regulatory or third-party approvals, or otherwise complete transactions on favorable terms or at all.
Even if completed, acquisitions and other strategic transactions involve numerous risks and uncertainties, including difficulties in integrating operations, technologies, products, controls, personnel and corporate cultures; diversion of management's attention from existing business operations; challenges in retaining key employees, customers, counterparties and business relationships; failure to achieve anticipated synergies, cost savings, growth opportunities or other expected benefits; assumption of unknown, contingent or unexpected liabilities; increased legal, regulatory, compliance and operational risks; and potential impairment charges related to goodwill, intangible assets or other acquired assets.
In addition, acquired businesses may have liabilities, deficiencies, cybersecurity vulnerabilities, compliance issues or other risks that were not identified during the due diligence process or that exceed our estimates. Any such issues could result in increased costs, litigation, regulatory scrutiny, reputational harm or operational disruptions. If we are unable to successfully integrate acquired businesses or realize the anticipated benefits of a transaction within the expected timeframe, or at all, our business strategy, results of operations, financial condition, cash flows and stock price could be materially and adversely affected.
Furthermore, acquisitions and strategic transactions may require the use of substantial cash resources, the incurrence of indebtedness, the issuance of equity securities or other financing arrangements, which could dilute existing stockholders, increase our leverage, restrict operational flexibility or otherwise adversely affect our financial condition. As a result, any future merger, acquisition or strategic investment may not contribute positively to our results and could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Retained Securities
Our retained interests in securitization trusts are subject to valuation, credit, and liquidity risks that could adversely affect our financial condition and results of operations.
As part of our loan securitization program, we transfer commercial real estate and residential mortgage loans to securitization trusts and retain interests in those trusts, including subordinate certificates, interest-only strips, and other residual interests. We record these retained interests at fair value, which requires management to make significant estimates and assumptions regarding, among other things, prepayment speeds, default and loss severity rates, discount rates, and the timing and amount of expected future cash flows. These assumptions are inherently subjective and subject to change based on economic conditions, borrower behavior, and performance of the underlying collateral. If actual performance of the securitized loans differs materially from our assumptions, or if market conditions affecting the assumptions used by market participants to value similar instruments change, we may be required to record other-than-temporary impairments or fair value adjustments that could materially and adversely affect our earnings and financial condition in the periods in which they occur.
Our retained interests are subordinate to the interests of senior certificate holders in the related trusts. As a result, we bear a disproportionate share of the credit risk associated with the underlying loan pools, and we would generally not receive any
distributions on our retained interests until the senior classes have been paid the amounts to which they are entitled. An increase in delinquencies, defaults, or loss severities on the underlying loans—whether due to weakening economic conditions, declines in commercial or residential real estate values, borrower-specific factors, or other causes—could reduce or eliminate the value of our retained interests and reduce or delay the cash flows we expect to receive.
Our ability to continue to securitize loans and retain interests on terms favorable to us also depends on conditions in the capital markets that are outside of our control, including investor demand for asset-backed securities, prevailing interest rates, credit spreads, and regulatory requirements applicable to securitization transactions (including risk retention rules). Adverse changes in any of these factors could reduce the value of, or our ability to monetize, our retained interests, could require us to hold a greater proportion of credit risk on our balance sheet than we currently anticipate, and could adversely affect our liquidity, financial condition, and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information on common stock purchases made by us during the three months ended June 30, 2026.
Period
Total Number of Shares Purchased (1) (2)
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 2026
May 2026
7,206
17.17
June 2026
141,474
18.51
148,680
18.45
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Insider Trading Arrangements and Policies
On March 20, 2026, Jeffrey T. Taylor, our Executive Vice President, Capital Markets, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 25,980 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.
On March 19, 2026, Mark R. Szczepaniak, our Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 24,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.
On March 14, 2026, Fiona L. Tam, our Chief Accounting Officer, adopted a Rule10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 10,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.
On March 18, 2026, Roland T. Kelly, our Chief Legal Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 20,000 shares of our common stock. The plan will expire June 30, 2027, subject to early termination for certain specified events as set forth in the plan.
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
3.1
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
Description of the Registrant’s Securities
10K
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
10.5
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
10.8
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 2026 Annual Cash Incentive and Performance Stock Units Programs for Messrs. Farrar, Szczepaniak and Taylor*
-
1/20/2026
10.14
Form of Equity Distribution Agreement, dated May 3, 2024
1.1
5/3/2024
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.
10.20
Velocity Financial, Inc. Incentive Compensation Clawback Policy*
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, 2026 and December 31, 2025 (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2026 and 2025, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2026 and 2025, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 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
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
69
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 5, 2026
By:
/s/ Christopher D. Farrar
Christopher D. Farrar
Chief Executive Officer
/s/ Mark R. Szczepaniak
Mark R. Szczepaniak
Chief Financial Officer