UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2025


☐	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. Employer Identification No.)
2945 Townsgate Road, Suite 110 Westlake Village, California	91361
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

VEL

The New York Stock Exchange

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

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

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

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

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

As of July 31, 2025, the registrant had 38,438,579 shares of common stock outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	62

SIGNATURES		64

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

VELOCITY FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)


	June 30, 2025			December 31, 2024
	(Unaudited)
ASSETS
Cash and cash equivalents	$	79,559		$	49,901
Restricted cash		17,630			20,929
Loans held for investment, at amortized cost (net of allowance for credit losses of $4,882 and $4,174 as of June 30, 2025 and December 31, 2024, respectively)		2,226,720			2,420,116
Loans held for investment, at fair value		3,826,505			2,766,951
Total loans, net		6,053,225			5,187,067
Accrued interest receivables		42,108			35,235
Receivables due from servicers		142,231			123,494
Other receivables		2,006			1,359
Real estate owned, net		93,387			68,000
Property and equipment, net		1,539			1,650
Deferred tax asset		12,488			13,612
Mortgage servicing rights, at fair value		12,940			13,712
Goodwill		6,775			6,775
Other assets		11,992			5,674
Total assets	$	6,475,880		$	5,527,408

LIABILITIES
Accounts payable and accrued expenses	$	164,935		$	147,814
Secured financing, net		285,756			284,833
Securitized debt, at amortized cost		1,859,750			2,019,056
Securitized debt, at fair value		3,232,769			2,207,408
Warehouse and repurchase facilities, net		331,057			348,082
Derivative liability		560			—
Total liabilities		5,874,827			5,007,193
Commitments and contingencies
EQUITY
Common stock ($0.01 par value, 100,000,000 shares authorized; 38,887,827 and 33,761,147 shares issued, 38,289,087 and 33,545,585 shares outstanding as of June 30, 2025 and December 31, 2024, respectively)		390			339
Additional paid-in capital		368,527			322,954
Retained earnings		242,209			197,325
Treasury stock, at cost (598,740 and 215,562 common shares as of June 30, 2025 and December 31, 2024, respectively)		(10,024	)		(2,869	)
Accumulated other comprehensive loss		(3,207	)		(805	)
Total Velocity Financial, Inc. stockholders' equity		597,895			516,944
Noncontrolling interest in subsidiary		3,158			3,271
Total equity		601,053			520,215
Total liabilities and equity	$	6,475,880		$	5,527,408

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

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


	June 30, 2025		December 31, 2024
	(Unaudited)
ASSETS
Restricted cash	$	13,194	$	9,847
Loans held for investment, at amortized cost		2,219,159		2,395,394
Loans held for investment, at fair value		3,287,230		2,264,641
Accrued interest and other receivables		177,685		145,891
Real estate owned, net		93,387		57,838
Deferred tax asset		1,081		272
Total assets	$	5,791,736	$	4,873,883

LIABILITIES
Accounts payable and accrued expenses	$	118,471	$	96,895
Securitized debt		5,092,519		4,226,464
Total liabilities	$	5,210,990	$	4,323,359

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
Interest income	$	135,567		$	97,760		$	254,307		$	188,289
Interest expense — portfolio related		81,838			59,188			156,926			114,863
Net interest income — portfolio related		53,729			38,572			97,381			73,426
Interest expense — corporate debt		6,143			6,155			12,285			11,535
Net interest income		47,586			32,417			85,096			61,891
Provision for credit losses		1,598			218			3,470			1,219
Net interest income after provision for credit losses		45,988			32,199			81,626			60,672
Other operating income
Gain on disposition of loans		6,286			3,168			9,120			4,865
Unrealized gain on fair value loans		29,906			17,123			64,742			36,049
Unrealized loss on fair value securitized debt		(7,584	)		(4,643	)		(21,266	)		(6,961	)
Unrealized gain (loss) on mortgage servicing rights		309			(373	)		(772	)		71
Origination fee income		8,936			5,072			17,615			10,058
Interest income on cash balance		1,505			1,731			2,844			3,362
Other income		489			483			1,010			892
Total other operating income		39,847			22,561			73,293			48,336
Operating expenses
Compensation and employee benefits		22,605			16,562			44,289			31,919
Origination expenses		1,193			749			2,031			1,395
Securitization expenses		11,521			6,232			15,564			9,106
Loan servicing		8,205			5,160			16,213			9,984
Professional fees		1,992			1,718			3,775			3,833
Rent and occupancy		298			617			573			1,115
Real estate owned, net		3,298			1,355			6,327			3,811
Other operating expenses		2,801			2,494			5,331			4,735
Total operating expenses		51,913			34,887			94,103			65,898
Income before income taxes		33,922			19,873			60,816			43,110
Income tax expense
Federal		5,928			3,675			11,778			7,837
State		1,824			1,487			4,220			3,229
Total income tax expense		7,752			5,162			15,998			11,066
Net income		26,170			14,711			44,818			32,044
Net income (loss) attributable to noncontrolling interest		173			(67	)		(66	)		15
Net income attributable to Velocity Financial, Inc.	$	25,997		$	14,778		$	44,884		$	32,029
Less undistributed earnings attributable to unvested restricted stock awards		286			182			523			394
Net earnings attributable to common stockholders	$	25,711		$	14,596		$	44,361		$	31,635
Earnings per common share
Basic	$	0.69		$	0.45		$	1.25		$	0.97
Diluted	$	0.69		$	0.42		$	1.20		$	0.90
Weighted average common shares outstanding
Basic		37,194			32,585			35,450			32,563
Diluted		37,790			35,600			37,309			35,519

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
Net income attributable to Velocity Financial, Inc.	$	25,997		$	14,778		$	44,884		$	32,029
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on cash flow hedges arising during the period		(1,613	)		909			(2,669	)		2,800
Reclassification adjustments included in net income		205			(105	)		267			8
Total other comprehensive income (loss), net of tax		(1,408	)		804			(2,402	)		2,808
Total comprehensive income attributable to Velocity Financial, Inc.	$	24,589		$	15,582		$	42,482		$	34,837

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in thousands, except share data)

(Unaudited)


	Common Stock - Number of Shares								Stockholders' Equity
	Shares Issued		Treasury Shares			Shares Outstanding			Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock, at Cost			Accumulated Other Comprehensive Income (Loss), Net of Tax			Total Stockholders' Equity			Noncontrolling Interest			Total Equity
Balance – December 31, 2023		32,987,248		(121,412	)		32,865,836		$	331	$	306,736	$	128,906	$	(1,319	)	$	(1,210	)	$	433,444		$	3,429		$	436,873
Issuance of common stock		9,537		—			9,537			3		152		—		—			—			155			—			155
Shares surrendered for tax withholding on vested awards		—		(79,258	)		(79,258	)		—		—		—		(1,284	)		—			(1,284	)		—			(1,284	)
Restricted stock awarded and stock-based compensation expenses		189,679		—			189,679			—		1,371		—		—			—			1,371			—			1,371
Net income		—		—			—			—		—		17,251		—			—			17,251			82			17,333
Other comprehensive income		—		—			—			—		—		—		—			2,004			2,004			—			2,004
Balance – March 31, 2024		33,186,464		(200,670	)		32,985,794		$	334	$	308,259	$	146,157	$	(2,603	)	$	794		$	452,941		$	3,511		$	456,452
Issuance of common stock		127,733		—			127,733			1		1,500		—		—			—			1,501			—			1,501
Shares surrendered for tax withholding on vested awards		—		(14,892	)		(14,892	)		—		—		—		(266	)		—			(266	)		—			(266	)
Restricted stock awarded and stock-based compensation expenses		—		—			—			—		1,565		—		—			—			1,565			—			1,565
Distribution to non-controlling interest		—		—			—			—		—		—		—			—			—			(20	)		(20	)
Net income (loss)		—		—			—			—		—		14,778		—			—			14,778			(67	)		14,711
Other comprehensive income		—		—			—			—		—		—		—			804			804			—			804
Balance – June 30, 2024		33,314,197		(215,562	)		33,098,635		$	335	$	311,324	$	160,935	$	(2,869	)	$	1,598		$	471,323		$	3,424		$	474,747

Balance – December 31, 2024		33,761,147		(215,562	)		33,545,585		$	339	$	322,954	$	197,325	$	(2,869	)	$	(805	)	$	516,944		$	3,271		$	520,215
Issuance of common stock		1,569,255		—			1,569,255			20		28,522		—		—			—			28,542			—			28,542
Shares surrendered for tax withholding on vested awards		—		(115,596	)		(115,596	)		—		—		—		(2,162	)		—			(2,162	)		—			(2,162	)
Restricted stock awarded and stock-based compensation expenses		385,503		—			385,503			—		1,970		—		—			—			1,970			—			1,970
Net income (loss)		—		—			—			—		—		18,887		—			—			18,887			(239	)		18,648
Other comprehensive loss		—		—			—			—		—		—		—			(994	)		(994	)		—			(994	)
Balance – March 31, 2025		35,715,905		(331,158	)		35,384,747		$	359	$	353,446	$	216,212	$	(5,031	)	$	(1,799	)	$	563,187		$	3,032		$	566,219
Issuance of common stock		3,154,630		—			3,154,630			31		13,052		—		—			—			13,083			—			13,083
Purchase of treasury stock		—		(258,828	)		(258,828	)		—		—		—		(4,848	)		—			(4,848	)		—			(4,848	)
Shares surrendered for tax withholding on vested awards		—		(8,754	)		(8,754	)		—		—		—		(145	)		—			(145	)		—			(145	)
Restricted stock awarded and stock-based compensation expenses		17,292		—			17,292			—		2,029		—		—			—			2,029			—			2,029
Distribution to non-controlling interest		—		—			—			—		—		—		—			—			—			(47	)		(47	)
Net income		—		—			—			—		—		25,997		—			—			25,997			173			26,170
Other comprehensive loss		—		—			—			—		—		—		—			(1,408	)		(1,408	)		—			(1,408	)
Balance – June 30, 2025		38,887,827		(598,740	)		38,289,087		$	390	$	368,527	$	242,209	$	(10,024	)	$	(3,207	)	$	597,895		$	3,158		$	601,053

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended June 30,
	2025			2024
	(Unaudited)
Cash flows from operating activities:
Net income	$	44,818		$	32,044
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		270			367
Amortization of right-of-use assets		675			716
Provision for credit losses		3,470			1,219
Origination of loans held for sale		(45,809	)		—
Proceeds from sales of loans held for sale		46,954			—
Net accretion of discount on purchased loans and amortization of deferred loan origination costs		1,991			2,310
Provision for uncollectible borrower advances		587			599
Gain on disposition of loans		(1,145	)		(791	)
Real estate acquired through foreclosure in excess of recorded investment		(7,975	)		(4,074	)
Amortization of debt issuance discount and costs		5,343			6,339
Change in valuation of real estate owned		4,223			2,261
Change in valuation of fair value loans		(64,742	)		(36,049	)
Change in valuation of mortgage servicing rights		1,223			(71	)
Change in valuation of fair value securitized debt		21,266			6,961
Gain on sale of real estate owned		(1,090	)		(249	)
Stock-based compensation		3,999			2,936
Hedging activities		(3,404	)		3,240
Deferred tax expense		2,096			648
Change in operating assets and liabilities:
Accrued interest and other receivables		(8,150	)		(5,559	)
Other assets		(6,159	)		(5,475	)
Accounts payable and accrued expenses		12,757			14,681
Net cash provided by operating activities		11,198			22,053
Cash flows from investing activities:
Purchase of loans held for investment		—			(15,114	)
Origination of loans held for investment		(1,320,002	)		(800,896	)
Proceeds from sales of loans originally classified as held for investment		—			49,226
Payoffs of loans held for investment and loans at fair value		454,240			346,440
Proceeds from sale of real estate owned		22,537			15,956
Capitalized improvement on real estate held for sale		(19	)		—
Change in advances		(2,284	)		(3,143	)
Change in impounds and deposits		3,075			1,315
Purchase of property and equipment		(158	)		(125	)
Proceeds from sale of property and equipment		—			640
Purchase of mortgage servicing rights		—			(3,580	)
Net cash used in investing activities		(842,611	)		(409,281	)
Cash flows from financing activities:
Warehouse repurchase facilities advances		1,481,924			733,776
Warehouse repurchase facilities repayments		(1,498,852	)		(831,585	)
Proceeds from secured financing		—			74,311
Proceeds of securitized debt, net		1,334,657			718,079
Repayment of securitized debt		(493,337	)		(286,987	)
Debt issuance costs		(1,043	)		(2,720	)
Deferred stock issuance costs		(379	)		—
Proceeds from issuance of common stock related to warrants exercised		10,908			—
Proceeds from issuance of common stock, net		31,096			1,656
Purchase of treasury stock		(7,155	)		(1,550	)
Distribution to non-controlling interest		(47	)		(20	)
Net cash provided by financing activities		857,772			404,960
Net increase in cash, cash equivalents, and restricted cash		26,359			17,732
Cash, cash equivalents, and restricted cash at beginning of period		70,830			61,927
Cash, cash equivalents, and restricted cash at end of period	$	97,189		$	79,659

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)


	Six Months Ended June 30,
	2025		2024
	(Unaudited)
Supplemental cash flow information:
Cash paid during the period for interest	$	158,869	$	115,961
Cash paid during the period for income taxes, net		18,743		15,865
Noncash transactions from investing and financing activities:
Transfer of loans held for investment to held for sale		—		34,191
Transfer of loans held for investment to real estate owned		43,063		20,383
Transfer of accrued interest to loans held for investment		1,219		981
Transfer of loans held for sale to held for investment		—		2,612
Recognition of new leases in exchange for lease obligations		1,384		—
Deferred stock issuance costs charged against additional paid-in capital		379		1

See accompanying Notes to Consolidated Financial Statements.

VELOCITY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Organization and Description of Business

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

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

The Company, through its wholly owned subsidiaries, is the sole beneficial owner of the Velocity Commercial Capital Loan Trusts, from the 2017-2 Trust through and including the 2025-3 Trust, all of which are New York common law trusts, with the exception of the VCC 2025-MC1 Trust, and VCC 2025-RTL1 Trust which are Delaware statutory trusts. The Trusts are bankruptcy remote, variable interest entities (“VIEs”) formed for the purpose of providing secured borrowings to the Company and are consolidated with the accounts of the Company.

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

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

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

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

(a)

Use of Estimates

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

(b)

Significant Accounting Policies

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

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

(c)

Principles of Consolidation

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

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

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

(d)

Fair Value Option Accounting

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

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

(e)

Derivative Instruments and Hedge Accounting

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

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

(f)

Other Comprehensive Income

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

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

Note 3 — Current Accounting Developments

Recently Issued Accounting Standards

Expense Disaggregation

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

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

Recently Adopted Accounting Standards

Liabilities of Crypto-Assets

In March 2025, the FASB issued ASU 2025-02, “Liabilities (Topic 405): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 122,” which rescinds the interpretive guidance in Staff Accounting Bulletin No. 121 regarding the accounting for obligations to safeguard crypto-assets that an entity holds for platform users. The amendments in this ASU were effective immediately and on a fully retrospective basis to annual periods beginning after December 15, 2024. The adoption of this standard did not have a significant impact on the Company’s consolidated financial statements.

Codification Improvements

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

Compensation

In March 2024, the FASB issued ASU 2024-01, “Compensation— Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards,” clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 - Compensation - Stock Compensation or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. ASU 2024-01 is effective January 1, 2025, for the Company. The Company adopted the provisions of ASU 2024-01 effective January 1, 2025, and the adoption of this standard did not have a material impact on the Company's consolidated financial statements and related disclosures.

Income Taxes

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

Note 4 — Cash, Cash Equivalents, and Restricted Cash

The Company is required to hold cash for potential future advances due to certain borrowers. In accordance with various mortgage servicing and related agreements, Century maintains escrow accounts for mortgage insurance premium, tax and insurance, working capital, sinking fund and other mortgage related escrows. The total escrow balances payable amounted to $86.6 million and $85.0 million as of June 30, 2025 and 2024, respectively. These amounts are not reflected on the Consolidated Balance Sheets of the Company.

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


	June 30,
	2025		2024
	(In thousands)
Cash and cash equivalents	$	79,559	$	47,366
Restricted cash		17,630		32,293
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	97,189	$	79,659

Note 5 — Loans Held for Sale at Fair Value

There were no loans held for sale at fair value as of June 30, 2025 and December 31, 2024.

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

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


	June 30, 2025
	Loans Held for Investment, at Amortized Cost			Loans Held for Investment, at Fair Value		Total Loans Held for Investment
	(In thousands)
Unpaid principal balance	$	2,210,304		$	3,649,349	$	5,859,653
Valuation adjustments on FVO loans		—			177,156		177,156
Deferred loan origination costs		21,298			—		21,298
		2,231,602			3,826,505		6,058,107
Allowance for credit losses		(4,882	)		—		(4,882	)
Total loans held for investment	$	2,226,720		$	3,826,505	$	6,053,225


	December 31, 2024
	Loans Held for Investment, at Amortized Cost			Loans Held for Investment, at Fair Value		Total Loans Held for Investment
	(In thousands)
Unpaid principal balance	$	2,400,720		$	2,655,217	$	5,055,937
Valuation adjustments on FVO loans		—			111,734		111,734
Deferred loan origination costs		23,570			—		23,570
		2,424,290			2,766,951		5,191,241
Allowance for credit losses		(4,174	)		—		(4,174	)
Total loans held for investment	$	2,420,116		$	2,766,951	$	5,187,067

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


	Three Months Ended June 30, 2025								Six Months Ended June 30, 2025
	UPB			%	Amortized Cost			%	UPB			%	Amortized Cost			%
	($ in thousands)
Beginning balance	$	136,142			$	137,465			$	142,827			$	144,247
Foreclosures		(1,116	)			(1,124	)			(1,860	)			(1,876	)
Repayments		(4,487	)			(4,551	)			(10,428	)			(10,581	)
Ending balance	$	130,539			$	131,790			$	130,539			$	131,790

Performing/Accruing	$	98,802		75.7%	$	99,762		75.7%	$	98,802		75.7%	$	99,762		75.7%

Nonperforming/Nonaccrual	$	31,737		24.3%	$	32,028		24.3%	$	31,737		24.3%	$	32,028		24.3%


	Year Ended December 31, 2024
	UPB			%	Amortized Cost			%
	($ in thousands)
Beginning balance	$	174,571			$	176,515
Foreclosures		(5,292	)			(5,416	)
Repayments		(26,452	)			(26,852	)
Ending balance	$	142,827			$	144,247

Performing/Accruing	$	102,769		72.0%	$	103,790		72.0%

Nonperforming/Nonaccrual	$	40,058		28.0%	$	40,457		28.0%

Since April 1, 2020, the inception of the COVID-19 forbearance program, the Company has modified $413.9 million in UPB of loans, which includes capitalized interest of $15.7 million. As of June 30, 2025, $279.0 million in UPB of modified loans has been paid down, which includes $6.6 million of capitalized interest received.

Approximately 75.7% and 72.0% of the COVID forbearance loans in UPB were performing, and 24.3% and 28.0% were on nonaccrual status as of June 30, 2025 and December 31, 2024, respectively.

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


	June 30, 2025		December 31, 2024
	(In thousands)
The 2013 repurchase agreement	$	165,810	$	133,577
The 2021/2024 repurchase agreements		111,727		148,676
The 2021 term repurchase agreement		42,161		74,324
The 2023 repurchase agreement		89,971		42,613
The 2024 bank credit agreement		22,526		23,330
Total pledged loans	$	432,195	$	422,520

2017-2 Trust	$	34,043	$	39,231
2018-1 Trust		25,780		28,564
2018-2 Trust		54,959		62,845
2019-1 Trust		63,072		71,521
2019-2 Trust		46,940		52,417
2019-3 Trust		47,082		52,177
2020-1 Trust		88,129		98,858
2021-1 Trust		151,683		162,750
2021-2 Trust		123,877		130,363
2021-3 Trust		128,093		136,891
2021-4 Trust		206,187		219,907
2022-1 Trust		211,173		222,909
2022-2 Trust		190,945		201,363
2022-MC1 Trust		—		58,133
2022-3 Trust		235,592		253,621
2022-4 Trust		234,976		254,668
2022-5 Trust		166,018		187,078
2023-1 Trust		162,754		180,941
2023-2 Trust		137,895		165,155
2023-3 Trust		169,258		200,943
2023-RTL1 Trust		—		85,530
2023-4 Trust		159,357		185,013
2024-1 Trust		159,217		188,638
2024-2 Trust		235,783		271,542
2024-3 Trust		183,297		198,640
2024-4 Trust		223,432		248,788
2024-5 Trust		277,735		293,881
2024-6 Trust		283,011		299,216
2025-1 Trust		341,853		—
2025-RTL1 Trust		117,213		—
2025-2 Trust		383,111		—
2025-MC1 Trust		112,392		—
2025-3 Trust		390,039		—
Total	$	5,344,896	$	4,551,583

(a)

Nonaccrual Loans

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


	June 30, 2025
	Total Nonaccrual		Nonaccrual with No Allowance for Credit Losses		Nonaccrual with Allowance for Credit Losses		Allowance for Loans Individually Evaluated
	(In thousands)
Commercial - Purchase	$	33,716	$	32,960	$	756	$	79
Commercial - Refinance		95,099		88,812		6,287		1,104
Residential 1-4 Unit - Purchase		26,164		25,850		314		6
Residential 1-4 Unit - Refinance		114,570		110,562		4,008		235
Short Term 1-4 Unit - Purchase		2,100		2,100		—		—
Short Term 1-4 Unit - Refinance		14,682		14,544		138		46
Total	$	286,331	$	274,828	$	11,503	$	1,470


	December 31, 2024
	Total Nonaccrual		Nonaccrual with No Allowance for Credit Losses		Nonaccrual with Allowance for Credit Losses		Allowance for Loans Individually Evaluated
	(In thousands)
Commercial - Purchase	$	33,290	$	32,294	$	996	$	85
Commercial - Refinance		99,683		96,155		3,528		421
Residential 1-4 Unit - Purchase		29,573		29,573		—		—
Residential 1-4 Unit - Refinance		122,439		114,265		8,174		450
Short Term 1-4 Unit - Purchase		4,754		4,754		—		—
Short Term 1-4 Unit - Refinance		23,556		23,341		215		73
Total	$	313,295	$	300,382	$	12,913	$	1,029

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

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


	Three Months Ended June 30,
	2025				2024
	Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal
	(In thousands)
Commercial - Purchase	$	532,379	$	186	$	599,314	$	147
Commercial - Refinance		660,040		319		758,179		762
Residential 1-4 Unit - Purchase		386,393		57		469,400		151
Residential 1-4 Unit - Refinance		602,809		313		734,003		421
Short Term 1-4 Unit - Purchase		30,593		—		33,113		10
Short Term 1-4 Unit - Refinance		19,388		—		30,850		54
Total	$	2,231,602	$	875	$	2,624,859	$	1,545


	Six Months Ended June 30,
	2025				2024
	Amortized Cost		Interest Reversal		Amortized Cost		Interest Reversal
	(In thousands)
Commercial - Purchase	$	532,379	$	449	$	599,314	$	202
Commercial - Refinance		660,040		598		758,179		1,629
Residential 1-4 Unit - Purchase		386,393		198		469,400		286
Residential 1-4 Unit - Refinance		602,809		588		734,003		614
Short Term 1-4 Unit - Purchase		30,593		80		33,113		10
Short Term 1-4 Unit - Refinance		19,388		—		30,850		115
Total	$	2,231,602	$	1,913	$	2,624,859	$	2,856

The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $14.0 million and $8.4 million for the three months ended June 30, 2025 and 2024, respectively. The cash basis interest income recognized on nonaccrual loans, including loans held for investment at fair value, was $22.5 million and $15.8 million for the six months ended June 30, 2025 and 2024, respectively. No accrued interest income was recognized on nonaccrual loans for the six months ended June 30, 2025 and 2024. The average recorded investment of individually evaluated loans, computed using month-end balances, was $289.1 million and $322.8 million for the three months ended June 30, 2025 and 2024, respectively, and $294.9 million and $323.9 million for the six months ended June 30, 2025 and 2024, respectively. There were no commitments to lend additional funds to debtors whose loans have been modified as of June 30, 2025 and 2024.

(b)

Allowance for Credit Losses

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


	Three Months Ended June 30, 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			Total
	(In thousands)
Allowance for credit losses:
Beginning balance - April 1, 2025	$	655	$	2,129		$	840		$	1,297		$	38		$	58		$	5,017
Provision for (reversal of) credit losses		24		29			(9	)		(14	)		(11	)		1,579			1,598
Charge-offs		—		(73	)		(44	)		(25	)		—			(1,591	)		(1,733	)
Ending balance	$	679	$	2,085		$	787		$	1,258		$	27		$	46		$	4,882

Allowance related to:
Loans individually evaluated	$	79	$	1,104		$	6		$	235		$	—		$	46		$	1,470
Loans collectively evaluated	$	600	$	981		$	781		$	1,023		$	27		$	—		$	3,412
Amortized cost related to:
Loans individually evaluated	$	33,716	$	95,099		$	26,164		$	114,570		$	2,100		$	14,682		$	286,331
Loans collectively evaluated	$	498,663	$	564,941		$	360,229		$	488,239		$	28,493		$	4,706		$	1,945,271


	Three Months Ended June 30, 2024
	Commercial Purchase			Commercial Refinance			Residential 1-4 Unit Purchase			Residential 1-4 Unit Refinance			Short Term 1-4 Unit Purchase		Short Term 1-4 Unit Refinance			Total
	(In thousands)
Allowance for credit losses:
Beginning balance - April 1, 2024	$	861		$	1,894		$	973		$	1,269		$	17	$	253		$	5,267
Provision for (reversal of) credit losses		(51	)		(142	)		(39	)		(61	)		12		499			218
Charge-offs		—			—			—			—			—		(245	)		(245	)
Ending balance	$	810		$	1,752		$	934		$	1,208		$	29	$	507		$	5,240

Allowance related to:
Loans individually evaluated	$	111		$	552		$	189		$	273		$	—	$	489		$	1,614
Loans collectively evaluated	$	698		$	1,200		$	745		$	936		$	29	$	18		$	3,626
Amortized cost related to:
Loans individually evaluated	$	30,198		$	99,844		$	33,640		$	132,448		$	6,904	$	24,256		$	327,290
Loans collectively evaluated	$	569,116		$	658,335		$	435,760		$	601,555		$	26,209	$	6,594		$	2,297,569


	Six Months Ended June 30, 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			Total
	(In thousands)
Allowance for credit losses:
Beginning balance - January 1, 2025	$	662	$	1,399		$	746		$	1,281		$	12		$	74		$	4,174
Provision for credit losses		17		877			262			626			22			1,666			3,470
Charge-offs		—		(191	)		(221	)		(649	)		(7	)		(1,694	)		(2,762	)
Ending balance	$	679	$	2,085		$	787		$	1,258		$	27		$	46		$	4,882

Allowance related to:
Loans individually evaluated	$	79	$	1,104		$	6		$	235		$	—		$	46		$	1,470
Loans collectively evaluated	$	600	$	981		$	781		$	1,023		$	27		$	—		$	3,412
Amortized cost related to:
Loans individually evaluated	$	33,716	$	95,099		$	26,164		$	114,570		$	2,100		$	14,682		$	286,331
Loans collectively evaluated	$	498,663	$	564,941		$	360,229		$	488,239		$	28,493		$	4,706		$	1,945,271


	Six Months Ended June 30, 2024
	Commercial Purchase			Commercial Refinance			Residential 1-4 Unit Purchase			Residential 1-4 Unit Refinance			Short Term 1-4 Unit Purchase			Short Term 1-4 Unit Refinance			Total
	(In thousands)
Allowance for credit losses:
Beginning balance - January 1, 2024	$	935		$	1,805		$	585		$	1,256		$	23		$	165		$	4,769
Provision for (reversal of) credit losses		(125	)		(51	)		645			59			105			586			1,219
Charge-offs		—			(2	)		(296	)		(107	)		(99	)		(244	)		(748	)
Ending balance	$	810		$	1,752		$	934		$	1,208		$	29		$	507		$	5,240

Allowance related to:
Loans individually evaluated	$	111		$	552		$	189		$	273		$	—		$	489		$	1,614
Loans collectively evaluated	$	698		$	1,200		$	745		$	936		$	29		$	18		$	3,626
Amortized cost related to:
Loans individually evaluated	$	30,198		$	99,844		$	33,640		$	132,448		$	6,904		$	24,256		$	327,290
Loans collectively evaluated	$	569,116		$	658,335		$	435,760		$	601,555		$	26,209		$	6,594		$	2,297,569

(c)

Credit Quality Indicator

A credit quality indicator is a statistic used by the Company to monitor and assess the credit quality of loans held for investment, excluding loans held for investment at fair value. The Company monitors its charge-offs rate in relation to its nonperforming loans as a credit quality indicator. The annualized charge-offs rates were 1.89% and 0.47% of average nonperforming loans for the six months ended June 30, 2025 and 2024, respectively.

Other credit quality indicators include aging status and accrual status. Nonperforming loans are loans that are 90 or more days past due, in bankruptcy, in foreclosure, or not accruing interest. Past due status is based on the contractual terms of the loan. The following tables present the aging status of the amortized cost basis in the loans held for investment portfolio, which include $131.8 million and $144.2 million loans in the Company’s COVID-19 forbearance program, excluding loans held for investment at fair value, as of June 30, 2025 and December 31, 2024, respectively:



June 30, 2025	30–59 Days Past Due		60–89 Days Past Due		90+ Days Past Due(1)		Total Past Due		Current		Total Loans
	(In thousands)
Loans individually evaluated
Commercial - Purchase	$	772	$	381	$	32,563	$	33,716	$	—	$	33,716
Commercial - Refinance		4,919		2,706		87,348		94,973		126		95,099
Residential 1-4 Unit - Purchase		1,298		98		24,768		26,164		—		26,164
Residential 1-4 Unit - Refinance		3,529		960		110,081		114,570		—		114,570
Short Term 1-4 Unit - Purchase		—		—		2,100		2,100		—		2,100
Short Term 1-4 Unit - Refinance		—		—		14,682		14,682		—		14,682
Total loans individually evaluated	$	10,518	$	4,145	$	271,542	$	286,205	$	126	$	286,331
Loans collectively evaluated
Commercial - Purchase	$	14,694	$	17,057	$	—	$	31,751	$	466,912	$	498,663
Commercial - Refinance		29,834		7,588		—		37,422		527,519		564,941
Residential 1-4 Unit - Purchase		12,692		5,318		—		18,010		342,219		360,229
Residential 1-4 Unit - Refinance		27,331		9,915		—		37,246		450,993		488,239
Short Term 1-4 Unit - Purchase		—		—		—		—		28,493		28,493
Short Term 1-4 Unit - Refinance		—		4,549		—		4,549		157		4,706
Total loans collectively evaluated	$	84,551	$	44,427	$	—	$	128,978	$	1,816,293	$	1,945,271
Ending balance	$	95,069	$	48,572	$	271,542	$	415,183	$	1,816,419	$	2,231,602

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.



December 31, 2024	30–59 Days Past Due		60–89 Days Past Due		90+ Days Past Due(1)		Total Past Due		Current		Total Loans
	(In thousands)
Loans individually evaluated
Commercial - Purchase	$	387	$	555	$	32,348	$	33,290	$	—	$	33,290
Commercial - Refinance		3,903		3,326		92,454		99,683		—		99,683
Residential 1-4 Unit - Purchase		606		957		28,010		29,573		—		29,573
Residential 1-4 Unit - Refinance		4,784		708		116,947		122,439		—		122,439
Short Term 1-4 Unit - Purchase		—		—		4,754		4,754		—		4,754
Short Term 1-4 Unit - Refinance		—		203		23,353		23,556		—		23,556
Total loans individually evaluated	$	9,680	$	5,749	$	297,866	$	313,295	$	—	$	313,295
Loans collectively evaluated
Commercial - Purchase	$	19,633	$	12,027	$	—	$	31,660	$	500,865	$	532,525
Commercial - Refinance		37,480		12,132		—		49,612		565,675		615,287
Residential 1-4 Unit - Purchase		16,040		7,479		—		23,519		367,015		390,534
Residential 1-4 Unit - Refinance		32,398		14,302		—		46,700		499,730		546,430
Short Term 1-4 Unit - Purchase		10,073		—		—		10,073		15,989		26,062
Short Term 1-4 Unit - Refinance		—		—		—		—		157		157
Total loans collectively evaluated	$	115,624	$	45,940	$	—	$	161,564	$	1,949,431	$	2,110,995
Ending balance	$	125,304	$	51,689	$	297,866	$	474,859	$	1,949,431	$	2,424,290

(1)

Includes loans in bankruptcy and foreclosure less than 90 days past due.

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


	Term Loans Amortized Cost Basis by Origination Year
June 30, 2025:	2022		2021		2020		2019		Prior		Total
	(In thousands)
Commercial - Purchase
Payment performance
Performing	$	210,375	$	193,348	$	23,720	$	31,943	$	39,277	$	498,663
Nonperforming		11,336		13,395		3,387		4,383		1,215		33,716
Total Commercial - Purchase	$	221,711	$	206,743	$	27,107	$	36,326	$	40,492	$	532,379

Commercial - Refinance
Payment performance
Performing	$	193,426	$	159,309	$	37,141	$	68,353	$	106,712	$	564,941
Nonperforming		27,548		20,323		3,253		16,327		27,648		95,099
Total Commercial - Refinance	$	220,974	$	179,632	$	40,394	$	84,680	$	134,360	$	660,040

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	161,561	$	154,333	$	6,726	$	15,943	$	21,666	$	360,229
Nonperforming		9,287		9,015		1,698		921		5,243		26,164
Total Residential 1-4 Unit - Purchase	$	170,848	$	163,348	$	8,424	$	16,864	$	26,909	$	386,393

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	200,352	$	184,945	$	14,738	$	41,623	$	46,581	$	488,239
Nonperforming		39,769		40,589		6,563		12,831		14,818		114,570
Total Residential 1-4 Unit - Refinance	$	240,121	$	225,534	$	21,301	$	54,454	$	61,399	$	602,809

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	1,125	$	—	$	20,484	$	6,884	$	—	$	28,493
Nonperforming		1,517		—		583		—		—		2,100
Total Short Term 1-4 Unit - Purchase	$	2,642	$	—	$	21,067	$	6,884	$	—	$	30,593

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	4,706	$	—	$	—	$	—	$	—	$	4,706
Nonperforming		1,546		—		1,845		8,186		3,105		14,682
Total Short Term 1-4 Unit - Refinance	$	6,252	$	—	$	1,845	$	8,186	$	3,105	$	19,388

Total Portfolio	$	862,548	$	775,257	$	120,138	$	207,394	$	266,265	$	2,231,602

Gross charge-offs - quarter-ended June 30, 2025	$	1,636	$	25	$	—	$	—	$	72	$	1,733

Gross charge-offs - year-to-date June 30, 2025	$	2,202	$	266	$	28	$	75	$	191	$	2,762


	Term Loans Amortized Cost Basis by Origination Year
December 31, 2024	2022		2021		2020		2019		Prior		Total
	(In thousands)
Commercial - Purchase
Payment performance
Performing	$	223,564	$	210,742	$	24,253	$	33,505	$	40,461	$	532,525
Nonperforming		13,046		6,524		4,994		5,758		2,968		33,290
Total Commercial - Purchase	$	236,610	$	217,266	$	29,247	$	39,263	$	43,429	$	565,815

Commercial - Refinance
Payment performance
Performing	$	207,766	$	167,568	$	40,772	$	76,886	$	122,295	$	615,287
Nonperforming		26,624		19,172		4,305		18,708		30,874		99,683
Total Commercial - Refinance	$	234,390	$	186,740	$	45,077	$	95,594	$	153,169	$	714,970

Residential 1-4 Unit - Purchase
Payment performance
Performing	$	173,252	$	167,804	$	8,166	$	17,740	$	23,572	$	390,534
Nonperforming		9,724		12,384		1,704		657		5,104		29,573
Total Residential 1-4 Unit - Purchase	$	182,976	$	180,188	$	9,870	$	18,397	$	28,676	$	420,107

Residential 1-4 Unit - Refinance
Payment performance
Performing	$	226,187	$	201,247	$	16,116	$	46,487	$	56,393	$	546,430
Nonperforming		46,873		34,974		7,560		15,176		17,856		122,439
Total Residential 1-4 Unit - Refinance	$	273,060	$	236,221	$	23,676	$	61,663	$	74,249	$	668,869

Short Term 1-4 Unit - Purchase
Payment performance
Performing	$	2,044	$	—	$	17,985	$	6,033	$	—	$	26,062
Nonperforming		4,170		—		584		—		—		4,754
Total Short Term 1-4 Unit - Purchase	$	6,214	$	—	$	18,569	$	6,033	$	—	$	30,816

Short Term 1-4 Unit - Refinance
Payment performance
Performing	$	157	$	—	$	—	$	—	$	—	$	157
Nonperforming		8,293		—		2,186		9,042		4,035		23,556
Total Short Term 1-4 Unit - Refinance	$	8,450	$	—	$	2,186	$	9,042	$	4,035	$	23,713

Total Portfolio	$	941,700	$	820,415	$	128,625	$	229,992	$	303,558	$	2,424,290

Gross charge-offs - quarter-ended December 31, 2024	$	111	$	184	$	—	$	265	$	139	$	699

Gross charge-offs - year-ended December 31, 2024	$	1,132	$	219	$	—	$	265	$	152	$	1,768

Nonaccrual Loans - Loans Held for Investment at Fair Value

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


	Fair Value						Unpaid Principal Balance						Difference
	Current–89 Days		90+ Days Past Due				Current–89 Days		90+ Days Past Due				90+ Days Past Due
June 30, 2025	Past Due		or Nonaccrual		Total		Past Due		or Nonaccrual		Total		or Nonaccrual
	(In thousands)
Commercial - Purchase	$	707,461	$	26,248	$	733,709	$	652,294	$	31,788	$	684,082	$	(5,540	)
Commercial - Refinance		1,082,800		41,959		1,124,759		992,755		50,282		1,043,037		(8,323	)
Residential 1-4 Unit - Purchase		446,851		33,803		480,654		425,958		40,848		466,806		(7,045	)
Residential 1-4 Unit - Refinance		1,154,668		136,988		1,291,656		1,091,285		165,994		1,257,279		(29,006	)
Short Term 1-4 Unit - Purchase		87,610		7,099		94,709		86,608		8,528		95,136		(1,429	)
Short Term 1-4 Unit - Refinance		83,612		17,406		101,018		81,782		21,227		103,009		(3,821	)
Ending balance	$	3,563,002	$	263,503	$	3,826,505	$	3,330,682	$	318,667	$	3,649,349	$	(55,164	)


	Fair Value						Unpaid Principal Balance						Difference
	Current–89 Days		90+ Days Past Due				Current–89 days		90+ Days Past Due				90+ Days Past Due
December 31, 2024	Past Due		or Nonaccrual		Total		past due		or Nonaccrual		Total		or Nonaccrual
	(In thousands)
Commercial - Purchase	$	505,244	$	15,636	$	520,880	$	466,526	$	18,586	$	485,112	$	(2,950	)
Commercial - Refinance		672,504		24,129		696,633		620,332		29,195		649,527		(5,066	)
Residential 1-4 Unit - Purchase		381,660		28,352		410,012		366,431		34,457		400,888		(6,105	)
Residential 1-4 Unit - Refinance		862,971		103,985		966,956		819,633		126,340		945,973		(22,355	)
Short Term 1-4 Unit - Purchase		78,863		3,981		82,844		78,207		4,854		83,061		(873	)
Short Term 1-4 Unit - Refinance		76,277		13,349		89,626		74,620		16,036		90,656		(2,687	)
Ending balance	$	2,577,519	$	189,432	$	2,766,951	$	2,425,749	$	229,468	$	2,655,217	$	(40,036	)

Note 7 — Receivables Due From Servicers

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


	June 30, 2025
	Securitized Debt		Warehouse and Repurchase Facilities and Other		Total
	(In thousands)
Loan principal payments due from servicers	$	74,950	$	77	$	75,027
Other loan servicing receivables		24,023		4,242		28,265
Loan servicing receivables		98,973		4,319		103,292
Corporate and escrow advances receivable		38,489		450		38,939
Total receivables due from servicers	$	137,462	$	4,769	$	142,231


	December 31, 2024
	Securitized Debt		Warehouse and Repurchase Facilities and Other		Total
	(In thousands)
Loan principal payments due from servicers	$	61,907	$	1,695	$	63,602
Other loan servicing receivables		17,246		5,404		22,650
Loan servicing receivables		79,153		7,099		86,252
Corporate and escrow advances receivable		33,387		3,855		37,242
Total receivables due from servicers	$	112,540	$	10,954	$	123,494

Note 8 — Real Estate Owned, Net

As of June 30, 2025, the carrying value of real estate owned was $93.4 million, none was pledged as collateral under any warehouse repurchase agreement and all were pledged as collateral for the Company's securitized debt. As of December 31, 2024, the carrying value of real estate owned was $68.0 million, of which $10.2 million were pledged as collateral under a warehouse repurchase agreement and $57.8 million were pledged as collateral for the Company's securitized debt.

Note 9 — Mortgage Servicing Rights

Mortgage loans sold with servicing retained are related to the Century business and not included in the Consolidated Balance Sheets. The unpaid principal balance of mortgage loans serviced for others amounted to $838.2 million and $707.7 million as of June 30, 2025 and 2024, respectively. The Company has elected to record its mortgage servicing rights using the fair value measurement method. Fair value adjustments recorded at the end of the current period reflect valuation changes from the prior period-end. Significant assumptions used in determining the fair value of servicing rights as of June 30, 2025 and 2024 include: (1) weighted average discount rate of 8.0%, and (2) weighted average conditional prepayment rate of 5.6% and 4.7%, respectively.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	(In thousands)
Balance at the beginning of period	$	12,631		$	9,022		$	13,712		$	8,578
Mortgage servicing rights acquired		—			3,580			—			3,580
Additions		451			—			451			—
Fair value adjustments		(142	)		(373	)		(1,223	)		71
Balance at the end of period	$	12,940		$	12,229		$	12,940		$	12,229

Note 10 — Goodwill

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


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

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

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

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


Securitized Debt, at Amortized Cost	June 30, 2025			December 31, 2024
	(In thousands)
Unpaid principal balance	$	1,890,469		$	2,049,790
Deferred issuance costs and discounts		(30,719	)		(30,734	)
Total securitized debt, at amortized cost	$	1,859,750		$	2,019,056


Securitized Debt, at Fair Value	June 30, 2025			December 31, 2024
	(In thousands)
Unpaid principal balance	$	3,230,107		$	2,219,218
Adjustment at issuance to recognize fair value (1)		(23,142	)		(18,231	)
Fair value at issuance		3,206,965			2,200,987
Valuation adjustment subsequent to issuance (2)		27,687			6,421
Fair value adjustment related to refinance of securitization trust		(1,883	)		—
Total securitized debt at fair value	$	3,232,769		$	2,207,408

(1)

Balance sheet adjustment to recognize fair value at issuance. This valuation adjustment is not recognized in net income.

(2)

Valuation adjustment recognized in net income. No valuation change is due to instrument specific credit risk as the Company’s (issuer) credit risk has not changed.

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


	Fair Value		Unpaid Principal Balance		Difference
	(In thousands)
June 30, 2025	$	3,232,769	$	3,230,107	$	2,662
December 31, 2024		2,207,408		2,219,218		(11,810	)

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


	Six Months Ended June 30,
	2025			2024
	($ in thousands)
Interest expense	$	140,166		$	102,355
Average outstanding unpaid principal balance		4,609,818			3,602,754
Effective interest rate (1)		6.08	%		5.68	%

(1)

Effective interest rate represents annualized interest expense divided by average gross outstanding balance, which includes average rates of 5.93% and 5.43%, and debt issuance cost amortization of 0.15% and 0.25% for the six months ended June 30, 2025 and 2024, respectively.

Note 12 — Other Debt

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

(a)

Secured Financing, Net (“Corporate Debt”)

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

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

The total balance of the 2022 Term Loan and the 2024 Term Loan (“Corporate Debt”) in the Consolidated Balance Sheets is net of debt issuance costs and discount of $4.2 million and $5.2 million as of June 30, 2025 and December 31, 2024, respectively. The Corporate Debt is secured by substantially all assets of the Company not otherwise pledged under a securitized debt or warehouse facility and contains certain reporting and financial covenants. Should the Company fail to adhere to those covenants, the lenders have the right to demand immediate repayment that may require the Company to sell the collateral at less than the carrying amounts. As of June 30, 2025, the Company was in compliance with all covenants.

(b)

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, 2026, and is a short-term borrowing facility, collateralized by performing loans, with a maximum capacity of $60.0 million, and bears interest at one-month SOFR plus 1.60% with a 0.25% floor.

On May 17, 2013, the Company entered into a Repurchase Agreement (“the 2013 Repurchase Agreement”) with a warehouse lender. The 2013 Repurchase Agreement is a modified mark-to-market agreement and has a current maturity date of September 25, 2025, and is a short-term borrowing facility, collateralized by a pool of performing loans, with a maximum capacity of $300.0 million, and bears interest at SOFR plus 3.00%. All borrower payments on loans financed under the warehouse repurchase facility are first used to pay interest on the facility.

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

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

On December 27, 2023, the Company entered into a loan facility agreement (“the 2023 Repurchase Agreement”) with a bank. The 2023 Repurchase Agreement has a maturity date of December 27, 2026. During the borrowing period, the Company can take loan advances from time to time subject to availability. Each loan advance bears interest at SOFR plus 3.00%. The maximum loan amount under this facility is $75.0 million. During the quarter ended March 31, 2025, the bank temporarily increased the maximum loan amount to $100.0 million, and continues to be in effect as of June 30, 2025.

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

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

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


			June 30, 2025							December 31, 2024
	Contract Date	Maturity Date	Period End Balance (1)		Maximum Borrowing Capacity		Effective Interest Rate			Period End Balance (1)		Maximum Borrowing Capacity		Effective Interest Rate
			($ in thousands)
The September 2022 term repurchase agreement	01/04/11	07/31/25	$	—	$	60,000		6.0	%	$	—	$	60,000		6.5	%
The 2013 repurchase agreement	05/17/13	09/25/25		132,798		300,000		7.7			106,675		300,000		9.0
The 2021/2024 repurchase agreements	1/29/2021 7/25/2024	05/20/26		86,889		200,000		7.9			126,815		200,000		9.0
The 2021 term repurchase agreement	04/16/21	04/14/28		28,982		100,000		7.5			52,408		100,000		8.5
The 2023 repurchase agreement	12/27/23	12/27/26		65,900		100,000		7.3			44,900		75,000		9.7
The 2024 bank credit agreement	11/07/24	05/07/27		18,549		50,000		8.4			19,248		50,000		9.2
Total			$	333,118	$	810,000				$	350,046	$	785,000

(1)

Warehouse repurchase facilities amounts on the Consolidated Balance Sheets are net of debt issuance costs, amounting to $2.1 million and $2.0 million as of June 30, 2025 and December 31, 2024, respectively.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	($ in thousands)
Average outstanding balance	$	413,441		$	263,029		$	423,615		$	265,294
Highest outstanding balance at any month-end		556,752			333,850			571,834			361,677
Effective interest rate (1)		7.99	%		9.30	%		7.91	%		9.43	%

(1)

Effective interest rate represents annualized interest expense divided by average gross outstanding balance. The rate includes average rate of 7.48% and 8.73%, and debt issuance cost amortization of 0.51% and 0.57%, for the three months ended June 30, 2025 and 2024, respectively, and includes average rate of 7.46% and 8.78%, and debt issuance cost amortization of 0.45% and 0.65%, for the six months ended June 30, 2025 and 2024, respectively.

The following table provides a summary of interest expense that includes interest, amortization of discount, and deal cost amortization of the Company’s warehouse facilities and loan agreements for the three and six months ended June 30, 2025 and 2024:


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
	(In thousands)
Warehouse and repurchase facilities	$	8,254	$	6,116	$	16,760	$	12,508
Securitized debt		73,584		53,072		140,166		102,355
Interest expense — portfolio related		81,838		59,188		156,926		114,863
Interest expense — corporate debt		6,143		6,155		12,285		11,535
Total interest expense	$	87,981	$	65,343	$	169,211	$	126,398

Note 13 — Commitments and Contingencies

(a)

Repurchase Liability

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

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

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

(b)

Legal Proceedings

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

(c)

Employee Retention Credit

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

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

Note 14 — Stock-Based Compensation

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

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
	(In thousands)
Recognized compensation expense:
Options	$	131	$	2	$	260	$	4
RSAs		761		596		1,508		1,173
PSUs		948		757		1,855		1,304
ESPP		189		210		376		455
Total recognized compensation expense	$	2,029	$	1,565	$	3,999	$	2,936


	June 30, 2025
	(In thousands)
Unrecognized compensation expense:
Options	$	1,104
RSAs		5,360
PSUs		5,110
Total unrecognized compensation expense	$	11,574
Weighted average period expected to be recognized (in years)
Options		2.1
RSAs		2.1

Stock Options

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

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

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


	Six Months Ended June 30,
	2025		2024
	($ in thousands, except per share amounts)
Number of shares:
Options outstanding at beginning of period		1,065,772		752,964
Granted		—		100
Options outstanding at end of period		1,065,772		753,064
Options exercisable at end of period		749,344		747,500
Options expected to vest (1)		316,428		5,564
Weighted average exercise price per share:
Options outstanding at beginning of period	$	14.46	$	12.88
Granted		—		15.86
Options outstanding at end of period	$	14.46	$	12.88
Options exercisable at end of period		12.88		12.89
Options expected to vest (1)		18.19		12.89
Aggregate intrinsic value (2):
Options outstanding at end of period	$	4,358	$	3,804
Options exercisable at end of period		4,238		3,770
Options expected to vest (1)		120		34
Weighted average remaining contractual life (in years):
Options outstanding at end of period		5.9		5.6
Options exercisable at end of period		4.6		5.6
Options expected to vest (1)		9.1		9.2

(1)

The number of options expected to vest reflects no expected forfeiture.

(2)

The aggregate intrinsic value represents the amount by which the fair value of underlying stock exceeds the “in-the-money” option exercise price.

RSAs

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

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


	Six Months Ended June 30,
	2025									2024
	Employee			Non-Employee Director			Total			Employee			Non-Employee Director			Total
Number of shares:
Unvested at beginning of period		355,505			47,430			402,935			409,137			61,276			470,413
Granted		180,003			17,292			197,295			189,679			15,939			205,618
Vested		(163,779	)		(26,261	)		(190,040	)		(248,796	)		(29,785	)		(278,581	)
Unvested at end of period		371,729			38,461			410,190			350,020			47,430			397,450

Weighted average grant date fair value per share:
Unvested at beginning of period	$	13.52		$	12.03		$	13.34		$	9.39		$	9.31		$	9.38
Granted		18.82			16.48			18.61			15.86			17.88			16.02
Vested		12.92			10.85			12.64			8.61			9.57			8.71
Unvested at end of period	$	16.35		$	14.83		$	16.20		$	13.45		$	12.03		$	13.28

PSUs

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

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


	Six Months Ended June 30,
	2025					2024
	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period, unvested		517,131		$	12.83		256,387	$	11.05
Granted (1)		155,165			18.82		157,994		15.86
Performance adjustment		153,637			10.00		102,750		12.63
Vested		(205,500	)		12.63		—		—
Outstanding at end of period, unvested		620,433		$	13.69		517,131	$	12.83

(1)

The number of PSUs are presented at 100% of the specified target shares.

ESPP

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

Treasury Stock

Treasury stock represents shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting or exercise of stock-based awards and shares surrendered to the Company to satisfy the warrant price in connection with warrants exercised. During the quarters ended June 30, 2025 and 2024, shares withheld were 267,582 and 14,892, at an average price of $18.66 and $17.88 per share, respectively.

Note 15 — Earnings Per Share

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
	(In thousands, except per share data)
Basic EPS:
Net income attributable to Velocity Financial, Inc.	$	25,997	$	14,778	$	44,884	$	32,029
Less: undistributed earnings attributable to unvested restricted stock awards		286		182		523		394
Net earnings attributable to common stockholders	$	25,711	$	14,596	$	44,361	$	31,635
Weighted average common shares outstanding		37,194		32,585		35,450		32,563
Basic earnings per common share	$	0.69	$	0.45	$	1.25	$	0.97
Diluted EPS:
Net income attributable to Velocity Financial, Inc.	$	25,997	$	14,778	$	44,884	$	32,029
Weighted average common shares outstanding		37,194		32,585		35,450		32,563
Add dilutive effects for warrants		—		2,395		1,217		2,369
Add dilutive effects for stock options		199		202		218		179
Add dilutive effects of unvested restricted stock awards		95		152		111		152
Add dilutive effects of unvested performance-based stock units		302		266		312		256
Add dilutive effects of employee stock purchase plan		—		—		1		—
Weighted average diluted common shares outstanding		37,790		35,600		37,309		35,519
Diluted earnings per common share	$	0.69	$	0.42	$	1.20	$	0.90

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025(1)		2024		2025(1)		2024(1)
Stock options		312,841		100		312,841		100
Unvested restricted stock awards		17,292		15,939		98,648		102,809
Employee stock purchase plan		—		—		—		53,770
Share equivalents excluded from EPS		330,133		16,039		411,489		156,679

(1)

Weighted average.

Note 16 — Warrants and Related Party Transactions

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

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

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

In the ordinary course of business, the Company sells held for sale loans, and issues securitized debt to various financial institutions and investors through a market bidding process. As a result of this process, the Company may sell held for sale loans and/or issue securitized debt to an affiliate. For the three and six months ended June 30, 2025, no loans were sold to any affiliate and $87.3 million of securitized debt was issued to an affiliate. During the three and six months ended June 30, 2024, the Company sold $28.7 million in UPB of loans to an affiliate and no securitized debt was issued to any affiliate.

Note 17 — Derivative Instruments

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

The gains or losses on derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the quarters ended June 30, 2025 and 2024, $205 thousand of after-tax net loss, and $105 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. For the six months ended June 30, 2025 and 2024, $267 thousand of after-tax net loss and $8 thousand of after-tax net gain, respectively, on terminated derivative instruments were reclassified from AOCI to interest expense. As of June 30, 2025 and 2024, the Company had $3.2 million of after-tax net unrealized loss and $1.6 million of after-tax net unrealized gain, respectively, associated with cash flow hedging instruments recorded in AOCI. As of June 30, 2025, the Company expects to reclassify an estimated $0.8 million of after-tax net unrealized loss on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

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


		June 30, 2025
Derivatives designated as hedging instruments:	Balance Sheet Location	Notional Amount		Fair Value (1)
Cash flow hedges:		(In thousands)
Interest rate payer and receiver swaptions	Derivative liability	$	229,000	$	560


		December 31, 2024
Derivatives designated as hedging instruments:	Balance Sheet Location	Notional Amount		Fair Value (1)
Cash flow hedges:		(In thousands)
Forward starting payer interest rate swaps	Derivative liability	$	—	$	—

(1)

Fair value reported is exclusive of collateral held and pledged, related to derivative exposure between the Company and its derivative counterparty. As of June 30, 2025, collateral pledged to its derivative counterparty was $0.6 million. As of December 31, 2024, no collateral was pledged to its derivative counterparty. These amounts were included in “Other receivables” on the Consolidated Balance Sheets.

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

Note 18 — Accumulated Other Comprehensive Income (Loss)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	(In thousands)
Beginning balance	$	(1,799	)	$	794		$	(805	)	$	(1,210	)
Net unrealized gain (loss) on cash flow hedges arising during the period, net of tax		(1,613	)		909			(2,669	)		2,800
Reclassification adjustments included in net income		205			(105	)		267			8
Ending balance	$	(3,207	)	$	1,598		$	(3,207	)	$	1,598

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


	Three Months Ended June 30,
	2025									2024
	Before-Tax			Tax Effect			Net-of-Tax			Before-Tax			Tax Effect			Net-of-Tax
	(In thousands)
Cash flow hedges:
Interest rate swaps/swaptions:
Net unrealized gain (loss) arising during the period	$	(2,266	)	$	653		$	(1,613	)	$	1,216		$	(307	)	$	909
Reclassification adjustments included in net income		288			(83	)		205			(144	)		39			(105	)
Other comprehensive income (loss)	$	(1,978	)	$	570		$	(1,408	)	$	1,072		$	(268	)	$	804


	Six Months Ended June 30,
	2025									2024
	Before-Tax			Tax Effect			Net-of-Tax			Before-Tax		Tax Effect			Net-of-Tax
	(In thousands)
Cash flow hedges:
Interest rate swaps/swaptions:
Net unrealized gain (loss) arising during the period	$	(3,752	)	$	1,083		$	(2,669	)	$	3,843	$	(1,043	)	$	2,800
Reclassification adjustments included in net income		375			(108	)		267			11		(3	)		8
Other comprehensive income (loss)	$	(3,377	)	$	975		$	(2,402	)	$	3,854	$	(1,046	)	$	2,808

Note 19 — Fair Value Measurements

Fair Value Determination

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

Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable and can be corroborated by market data.

Level 3 - Valuation is based on significant unobservable inputs for determining the fair value of assets or liabilities. These significant unobservable inputs reflect assumptions that market participants may use in pricing the assets or liabilities.

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period in which a change in valuation technique or methodology occurs. Given the nature of some of the Company’s assets and liabilities, clearly determinable market-based valuation inputs are often not available; therefore, these assets and liabilities are valued using internal estimates. As subjectivity exists with respect to the valuation estimates used, the fair values disclosed may not equal prices that can ultimately be realized if the assets are sold or the liabilities are settled with third parties.

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

Cash, Cash Equivalents and Restricted Cash

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

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

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

Collateral Dependent or Loans Individually Evaluated

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

Loans Held for Sale, at Fair Value

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

Real Estate Owned, Net (“REO”)

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

Mortgage Servicing Rights

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

Derivative Instruments

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

Secured Financing, Net (“Corporate Debt”)

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

Warehouse Repurchase Facilities, Net

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

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

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

Accrued Interest Receivable and Accrued Interest Payable

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

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

Receivables Due From Servicers

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

Fair Value Disclosures

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


	Fair Value Measurements Using						Total at
June 30, 2025	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net	$	—	$	—	$	10,033	$	10,033
Real estate owned, net		—		—		93,387		93,387
Total nonrecurring fair value measurements		—		—		103,420		103,420
Recurring fair value measurements:
Loans held for investment, at fair value		—		—		3,826,505		3,826,505
Mortgage servicing rights		—		—		12,940		12,940
Total recurring fair value measurements		—		—		3,839,445		3,839,445
Total assets	$	—	$	—	$	3,942,865	$	3,942,865

Liabilities:
Recurring fair value measurements:
Securitized debt, at fair value	$	—	$	3,232,769	$	—	$	3,232,769
Derivative liability		—		560		—		560
Total recurring fair value measurements		—		3,233,329		—		3,233,329
Total liabilities	$	—	$	3,233,329	$	—	$	3,233,329


	Fair Value Measurements Using						Total at
December 31, 2024	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets:
Nonrecurring fair value measurements:
Individually evaluated loans requiring specific allowance, net	$	—	$	—	$	11,884	$	11,884
Real estate owned, net		—		—		68,000		68,000
Total nonrecurring fair value measurements		—		—		79,884		79,884
Recurring fair value measurements:
Loans held for investment, at fair value		—		—		2,766,951		2,766,951
Mortgage servicing rights		—		—		13,712		13,712
Total recurring fair value measurements		—		—		2,780,663		2,780,663
Total assets	$	—	$	—	$	2,860,547	$	2,860,547

Liabilities:
Recurring fair value measurements:
Securitized debt, at fair value	$	—	$	2,207,408	$	—	$	2,207,408
Total recurring fair value measurements		—		2,207,408		—		2,207,408
Total liabilities	$	—	$	2,207,408	$	—	$	2,207,408

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


	Three Months Ended June 30,						Six Months Ended June 30,
Gain (Loss) on Assets Measured on a Nonrecurring Basis	2025			2024			2025			2024
	(In thousands)
Real estate owned, net	$	(2,150	)	$	(540	)	$	(4,223	)	$	(2,261	)
Individually evaluated loans requiring specific allowance, net		(40	)		(183	)		(441	)		(640	)
Total net loss	$	(2,190	)	$	(723	)	$	(4,664	)	$	(2,901	)

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

 
June 30, 2025

Asset Category

Fair Value

Primary
Valuation
Technique

Unobservable
Input

Range

Weighted
Average (1)

 
($ in thousands)

Nonrecurring:

Individually evaluated
   loans requiring specific
   allowance, net

10,033

Market comparables

Selling costs

8.0%

8.0%

Real estate owned, net

93,387

Market comparables

Selling costs

8.0%

8.0%

Recurring:

Loans held for investment,
   at fair value

3,826,505

Discounted cash flow

Discount rate

7.9%

7.9%

 
Prepayment rate

0.0% to 65.0%

11.1%

 
Default rate

0.3% to 5.4%

1.2%

 
Loss severity rate

0.0% to 8.9%

0.9%

Mortgage servicing rights

12,940

Discounted cash flow

Discount rate

8.0%

8.0%

 
Prepayment rate

2.2% to 15.9%

5.6%

(1)

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

 
December 31, 2024

Asset Category

Fair Value

Primary
Valuation
Technique

Unobservable
Input

Range

Weighted
Average (1)

 
($ in thousands)

Nonrecurring:

Individually evaluated
   loans requiring specific
   allowance, net

11,884

Market comparables

Selling costs

8.0%

8.0%

Real estate owned, net

68,000

Market comparables

Selling costs

8.0%

8.0%

Recurring:

Loans held for investment,
   at fair value

2,766,951

Discounted cash flow

Discount rate

8.4%

8.4%

 
Prepayment rate

0.0% to 30.0%

9.0%

 
Default rate

0.1% to 2.8%

1.0%

 
Loss severity rate

0% to 10.5%

1.0%

Mortgage servicing rights

13,712

Discounted cash flow

Discount rate

8.0%

8.0%

 
Prepayment rate

2.2% to 11.7%

5.1%

(1)

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	(In thousands)
Beginning balance	$	3,287,188		$	1,649,540		$	2,766,951		$	1,306,072
Originations		684,465			422,226			1,320,002			800,896
Loans liquidated		(148,951	)		(77,798	)		(281,661	)		(139,550	)
Acquisition		—			3,399			—			14,990
REO transfer		(12,811	)		(1,296	)		(19,340	)		(2,221	)
Principal paydowns		(13,414	)		(7,732	)		(24,189	)		(13,801	)
Total gain included in net income		30,028			17,285			64,742			36,757
Loans transferred to held for sale		—			(34,059	)		—			(31,578	)
Loans Repurchased		—			118			—			118
Ending balance	$	3,826,505		$	1,971,683		$	3,826,505		$	1,971,683

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	(In thousands)
Beginning balance	$	5,008		$	—		$	—		$	17,590
Originations		40,922			—			45,809			—
Loans liquidated		(46,953	)		(33,895	)		(46,954	)		(48,429	)
Principal paydowns		—			(2	)		—			(31	)
Total gain (loss) included in net income		1,023			(162	)		1,145			(708	)
Loans transferred from held for investment		—			34,059			—			31,578
Ending balance	$	—		$	—		$	—		$	—

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
	(In thousands)
Beginning balance	$	2,459,767		$	1,073,843		$	2,207,408		$	877,417
Additions		982,140			488,711			1,356,500			692,337
Paydowns and payoffs		(216,722	)		(57,245	)		(352,405	)		(66,763	)
Total loss included in net income		7,584			4,643			21,266			6,961
Ending balance	$	3,232,769		$	1,509,952		$	3,232,769		$	1,509,952

The Company estimates the fair value of certain financial instruments on a quarterly basis. These instruments are recorded at fair value using a valuation allowance only if they are individually evaluated. As described above, these adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. As of June 30, 2025 and December 31, 2024, financial assets and liabilities measured at fair value include loans held for investment at fair value, loans held for sale at fair value, mortgage servicing rights, derivative instruments, and securitized debt at fair value. Financial assets measured at the lower of cost or estimated fair value include certain individually evaluated loans held for investment and REOs, which are measured using unobservable inputs, including appraisals and broker price opinions on the values of the underlying collateral. Individually evaluated loans requiring an allowance were carried at approximately $10.0 million and $11.9 million as of June 30, 2025 and December 31, 2024, respectively, net of specific allowance for credit losses of approximately $1.5 million and $1.0 million, respectively.

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

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


	June 30, 2025
	Carrying								Estimated
Asset Category	Value		Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets:
Cash	$	79,559	$	79,559	$	—	$	—	$	79,559
Restricted cash		17,630		17,630		—		—		17,630
Loans held for investment, at amortized cost		2,226,720		—		—		2,151,250		2,151,250
Loans held for investment, at fair value		3,826,505		—		—		3,826,505		3,826,505
Accrued interest receivables		42,108		42,108		—		—		42,108
Mortgage servicing rights		12,940		—		—		12,940		12,940

Liabilities:
Secured financing, net	$	285,756	$	—	$	—	$	289,293	$	289,293
Warehouse and repurchase facilities, net		331,057		—		331,057		—		331,057
Securitized debt, at amortized cost		1,859,750		—		1,707,818		—		1,707,818
Securitized debt, at fair value		3,232,769		—		3,232,769		—		3,232,769
Derivative liability		560		—		560		—		560
Accrued interest payable		32,648		32,648		—		—		32,648


	December 31, 2024
	Carrying								Estimated
Asset Category	Value		Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets:
Cash	$	49,901	$	49,901	$	—	$	—	$	49,901
Restricted cash		20,929		20,929		—		—		20,929
Loans held for investment, at amortized cost		2,420,116		—		—		2,321,141		2,321,141
Loans held for investment, at fair value		2,766,951		—		—		2,766,951		2,766,951
Accrued interest receivable		35,235		35,235		—		—		35,235
Mortgage servicing rights		13,712		—		—		13,712		13,712

Liabilities:
Secured financing, net	$	284,833	$	—	$	—	$	287,970	$	287,970
Warehouse repurchase facilities, net		348,082		—		348,082		—		348,082
Securitized debt, at amortized cost		2,019,056		—		1,820,945		—		1,820,945
Securitized debt, at fair value		2,207,408		—		2,207,408		—		2,207,408
Accrued interest payable		28,028		28,028		—		—		28,028

Note 20 — Segment Information

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

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

Note 21 — Subsequent Events

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

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

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

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

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

Business

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

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

Our primary source of revenue is interest income earned on our loan portfolio. Our typical loan is secured by a first lien on the underlying property with a personal guarantee, and based on all loans in our portfolio as of June 30, 2025, has an average balance of approximately $394.0 thousand. As of June 30, 2025, our loan portfolio totaled $5.9 billion of UPB on properties in 48 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 65.8%, of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 50.4% of the UPB. For the three and six months ended June 30, 2025, the annualized yield on our total portfolio were 9.65% and 9.39%, respectively.

We fund our portfolio primarily through a combination of committed and uncommitted secured warehouse facilities, securitized debt, corporate debt, and equity. The securitized debt market is our primary source of long-term financing. We have successfully executed 42 securitized debt transactions, resulting in a total of over $9.3 billion in gross debt proceeds from May 2011 through June 2025. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.

One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on loans and interest expense paid on portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of warehouse facilities and securitized debt and excludes corporate debt. For the three and six months ended June 30, 2025, our annualized portfolio related net interest margin were 3.82% and 3.60%, respectively, compared to 3.54% and 3.45% for the three and six months ended June 30, 2024, respectively. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for credit losses and operating expenses. For the three and six months ended June 30, 2025, including net income attributable to noncontrolling interest, we generated pre-tax income of $33.9 million and $60.8 million, and net income of $26.2 million and $44.8 million, respectively. For the three and six months ended June 30, 2024, including net income attributable to noncontrolling interest, we generated pre-tax income of $19.9 million and $43.1 million, and net income of $14.7 million and $32.0 million, respectively.

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

Items Affecting Comparability of Results

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

Recent Developments

Securitized Debt

In April and May 2025, we collapsed and refinanced the 2023-RTL1 Trust and 2022-MC1 Trust, respectively, and redeemed the remaining outstanding balances of the securitized debt.

Continued Market Uncertainties

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

Critical Accounting Policies and Use of Estimates

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

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

How We Assess Our Business Performance

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

Net Interest Income

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

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

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

Credit Losses

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

Operating Expenses

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

Factors Affecting Our Results of Operations

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

Competition

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

Availability and Cost of Funding

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

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

Loan Performance

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

Macroeconomic Conditions

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

Portfolio and Asset Quality

Key Portfolio Statistics


	June 30, 2025			March 31, 2025			June 30, 2024
	($ in thousands)
Total loans	$	5,859,653		$	5,449,901		$	4,479,901
Loan count		14,854			13,858			11,582
Average loan balance	$	394		$	393		$	387
Weighted average loan-to-value		65.8	%		66.1	%		67.4	%
Weighted average coupon		9.7	%		9.6	%		9.3	%
Nonperforming loans (UPB) (A)	$	601,757		$	587,811		$	470,649
Nonperforming loans (% of total) (A)		10.3	%		10.8	%		10.5	%

(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $31.7 million, $36.7 million and $40.7 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of June 30, 2025, March 31, 2025, and June 30, 2024, respectively.

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

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

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

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

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

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

Originations and Acquisitions

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


	Loan Count		Loan Balance		Average Loan Size		Weighted Average Coupon			Weighted Average LTV
	($ in thousands)
Three Months Ended June 30, 2025:
Loan originations — held for investment		1,630	$	684,465	$	420		10.47	%		62.7	%
Loan originations — held for sale		1		40,922		40,922		5.64	%		61.4	%
Total loan originations		1,631	$	725,387	$	445		10.20	%		62.6	%
Three Months Ended March 31, 2025:
Loan originations — held for investment		1,513	$	635,537	$	420		10.51	%		62.6	%
Loan originations — held for sale		1		4,886		4,886		5.70	%		19.9	%
Total loan originations		1,514	$	640,423	$	423		10.47	%		62.3	%
Three Months Ended June 30, 2024:
Loan originations — held for investment		1,109	$	422,226	$	381		11.03	%		64.7	%
Loan acquisitions — held for investment		3		3,371		1,124		8.76	%		53.5	%
Total loans originated and acquired		1,112	$	425,597	$	383		11.02	%		64.6	%

During the second quarter of 2025, loan originations increased $85.0 million and $303.2 million from the quarters ended March 31, 2025 and June 30, 2024, respectively.

Loans Held for Investment

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


	June 30, 2025			December 31, 2024
	(In thousands)
Unpaid principal balance	$	5,859,653		$	5,055,937
Valuation adjustments on FVO loans		177,156			111,734
Deferred loan origination costs		21,298			23,570
Total loans held for investment, gross		6,058,107			5,191,241
Allowance for credit losses		(4,882	)		(4,174	)
Loans held for investment, net	$	6,053,225		$	5,187,067

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


	June 30, 2025					December 31, 2024
	UPB		%			UPB		%
	($ in thousands)
Loans due in less than one year	$	167,846		2.8	%	$	157,521		3.1	%
Loans due in one to five years		102,949		1.8			83,993		1.7
Loans due in more than five years		5,588,858		95.4			4,814,423		95.2
Total loans held for investment	$	5,859,653		100.0	%	$	5,055,937		100.0	%

Charge-offs, Gain (Loss) on REO

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

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


	Six Months Ended				Three Months Ended				Six Months Ended
	June 30, 2025				March 31, 2025				June 30, 2024
	($ in thousands)
Average nonperforming loans for the period (1)	$	291,737			$	297,380			$	320,392
Charge-offs		2,762				1,029				748
Charge-offs / Average nonperforming loans for the period (1)		1.89	%	(2)		1.38	%	(2)		0.47	%	(2)
Gain (loss) on REO:
Gain on transfer to REO	$	7,975			$	2,834			$	4,074
REO valuation gain (loss), net		(4,223	)			(2,073	)			249
Gain (loss) on sale of REO		1,090				300				(2,261	)
Total gain on REO	$	4,842			$	1,061			$	2,062

(1)

Reflects the monthly average of nonperforming loans held for investment, excluding FVO loans, during the period.

(2)

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

Allowance for Credit Losses

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

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

For the December 31, 2024 CECL estimate, we considered a severe stress scenario with a seven-quarter reasonable and supportable forecast period followed by a three-quarter straight-line reversion period. Management concluded that applying the severe stress scenario was appropriate and reflected the uncertainties of a decreasing forecasted GDP, unstable labor market, and geopolitical risk.

Our allowance for credit losses as of June 30, 2025 was $4.9 million compared to $5.2 million as of June 30, 2024. The decrease in allowance for credit losses from June 30, 2024 was primarily due to a decrease in the baseline allowance component of the reserve. Our overall expected credit loss reserves range from 0.15% to 0.20% of loans held for investment, excluding FVO loans. We strive to minimize actual credit losses through our rigorous screening and underwriting process, life of loan portfolio management and special servicing practices. Additionally, we believe borrower equity of 25% to 40% provides significant protection against credit losses. The various scenarios, the weighting of scenarios, as well as the forecast period and reversion to historical loss are subject to change as conditions in the market change and our ability to forecast as economic events evolve.

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

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2025				2024				2025				2024
Allowance for credit losses:	($ in thousands)
Beginning balance	$	5,017			$	5,267			$	4,174			$	4,769
Provision for credit losses		1,598				218				3,470				1,219
Charge-offs		(1,733	)			(245	)			(2,762	)			(748	)
Ending balance	$	4,882			$	5,240			$	4,882			$	5,240
Total UPB(1)	$	2,210,304			$	2,599,016			$	2,210,304			$	2,599,016
Nonperforming loans UPB	$	283,227			$	324,018			$	283,227			$	324,018
Nonperforming loans UPB / Total UPB(1)		12.8	%			12.5	%			12.8	%			12.5	%
Allowance for credit losses / Total UPB(1)		0.22	%			0.20	%			0.22	%			0.20	%
Charge-offs / Total UPB(1)		0.31	%	(2)		0.04	%	(2)		0.25	%	(2)		0.06	%	(2)

(1)

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

(2)

Annualized.

The allowance for credit losses was 0.22% of total UPB of loans held for investment carried at amortized cost as of June 30, 2025. Although slightly higher than our expected range of 0.15% to 0.20%, the 0.22% reserve is reasonable given the current market uncertainty. Nonperforming loans were 12.8% of total UPB of loans held for investment carried at amortized cost as of June 30, 2025. We believe the allowance for credit losses is adequate because historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and active management of our portfolio. Historically, our actual annual charge-offs rate was 0.07% over the last eight years.

Credit Quality – Loans Held for Investment

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


	June 30, 2025 (A)				COVID-19 Forbearance		March 31, 2025 (A)				COVID-19 Forbearance		June 30, 2024 (A)				COVID-19 Forbearance
	($ in thousands)
Performing/Accruing:
Current	$	4,878,317	83.3	%	$	91,325	$	4,504,854	82.7	%	$	88,462	$	3,669,659	81.9	%	$	95,614
30-59 days past due		263,390	4.4			3,971		239,547	4.4			9,186		247,100	5.5			17,598
60-89 days past due		116,189	2.0			3,506		112,803	2.1			1,800		92,494	2.1			4,590
Total Performing Loans		5,257,896	89.7			98,802		4,857,204	89.2			99,448		4,009,253	89.5			117,802
Nonperforming/Nonaccrual:
<90 days past due		29,136	0.5			2,302		33,488	0.6			3,189		19,347	0.5			746
90+ days past due		50,269	0.9			—		46,545	0.9			205		37,161	0.8			710
Bankruptcy		79,327	1.4			4,564		76,606	1.4			3,688		47,011	1.0			7,172
In foreclosure		443,025	7.5			24,871		431,172	7.9			29,612		367,129	8.2			31,787
Total nonperforming loans		601,757	10.3			31,737		587,811	10.8			36,694		470,648	10.5			40,415
Total loans held for investment	$	5,859,653	100.0	%	$	130,539	$	5,445,015	100.0	%	$	136,142	$	4,479,901	100.0	%	$	158,217

(A)

Balance includes $130.5 million UPB of loans held for investment at amortized cost as of June 30, 2025, $136.1 million as of March 31, 2025, and $158.2 million as of June 30, 2024 in our COVID-19 forbearance program.

Loans that are 90+ days past due, in bankruptcy, in foreclosure, or not accruing interest are considered nonperforming loans. Nonperforming loans were $601.8 million, or 10.3% of our held for investment loan portfolio as of June 30, 2025, compared to $587.8 million, or 10.8% as of March 31, 2025, and $470.6 million, or 10.5% as of June 30, 2024. The increase in total nonperforming loans as of June 30, 2025 compared to March 31, 2025 and June 30, 2024 was due to an increase in the size of our portfolio and management’s decision to move loans into foreclosure early in the delinquency process.

Resolution of Nonperforming Assets

Historically, most loans that become nonperforming resolve prior to converting to REO. This is due to low LTVs at origination and our active management of the portfolio. The following tables summarize the resolution activities of loans that became nonperforming prior to the beginning of the periods indicated or became nonperforming and subsequently resolved during the periods indicated. We resolved $104.0 million of long-term and short-term nonperforming assets for the quarter ended June 30, 2025, which was higher compared to $76.4 million for the quarter ended March 31, 2025, and higher compared to $80.7 million for the quarter ended June 30, 2024. From these resolution activities, we realized net gains of $3.6 million, $1.9 million, and $1.0 million for the quarters ended June 30, 2025, March 31, 2025, and June 30, 2024, respectively. This is largely the result of collecting interest and prepayment penalties in excess of the principal on loans and selling our REOs at prices higher than their carrying value.

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


	Three Months Ended
Long-Term Nonperforming Assets	June 30, 2025					March 31, 2025					June 30, 2024
	UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)
	($ in thousands)
Resolved — loans paid in full	$	32,220	$	2,078		$	20,589	$	989		$	26,119	$	793
Resolved — loans paid current		45,396		390			30,563		375			35,292		188
Resolved — REO sold		11,167		548			4,541		337			7,859		(202	)
Total resolutions	$	88,783	$	3,016		$	55,693	$	1,701		$	69,270	$	779
Recovery rate on resolved nonperforming assets				103.4	%				103.1	%				101.1	%

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


	Three Months Ended
Short-Term and Forbearance Nonperforming Assets	June 30, 2025					March 31, 2025					June 30, 2024
	UPB		Gain / (Loss)			UPB		Gain / (Loss)			UPB		Gain / (Loss)
	($ in thousands)
Resolved — loans paid in full	$	8,963	$	371		$	5,341	$	182		$	4,545	$	93
Resolved — loans paid current		3,770		4			11,845		14			2,689		1
Resolved — REO sold		2,440		243			3,558		(37	)		4,176		165
Total resolutions	$	15,173	$	618		$	20,744	$	159		$	11,410	$	259
Recovery rate on resolved nonperforming assets				104.1	%				100.8	%				102.3	%

Real Estate Owned, Net (“REO”)

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

As of June 30, 2025, our REO included 175 properties with a lower of cost or estimated fair value of $93.4 million compared to 157 properties with a lower of cost or estimated fair value of $83.4 million as of March 31, 2025, and 89 properties with a lower of cost or estimated fair value of $50.8 million as of June 30, 2024.

Concentrations – Loans Held for Investment

As of June 30, 2025, our held for investment loan portfolio was concentrated in Investor 1-4 loans, representing 50.4% of the UPB. Mixed use properties represented 10.8% of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated 20.9% in California, 14.3% in New York, 12.6% in Florida, 7.7% in New Jersey, and 5.8% in Texas.


Property Type	June 30, 2025
	Loan Count		UPB		% of Total UPB
	($ in thousands)
Investor 1-4		9,241	$	2,951,750		50.4	%
Mixed use		1,482		632,372		10.8
Retail		1,111		569,053		9.4
Multifamily		710		422,603		7.2
Office		993		459,036		6.7
Warehouse		634		392,734		6.4
Other (1)		683		432,105		9.1
Total loans held for investment		14,854	$	5,859,653		100.0	%

(1)

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


Geography (State)	June 30, 2025
	Loan Count		UPB		% of Total UPB
	($ in thousands)
California		1,773	$	1,224,558		20.9	%
New York		1,584		836,166		14.3
Florida		1,815		738,964		12.6
New Jersey		1,166		449,807		7.7
Texas		926		342,072		5.8
Other (1)		7,590		2,268,086		38.7
Total loans held for investment		14,854	$	5,859,653		100.0	%

(1)

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

Key Performance Metrics


	Three Months Ended
	June 30, 2025 (1)			March 31, 2025 (1)			June 30, 2024 (1)
	($ in thousands)
Average loans	$	5,620,763		$	5,214,186		$	4,355,941
Portfolio yield		9.65	%		9.11	%		8.98	%
Average debt — portfolio related		5,245,799			4,821,067			3,941,507
Average debt — total company		5,535,799			5,111,067			4,231,507
Cost of funds — portfolio related		6.24	%		6.23	%		6.01	%
Cost of funds — total company		6.36	%		6.36	%		6.18	%
Net interest margin — portfolio related		3.82	%		3.35	%		3.54	%
Net interest margin — total company		3.39	%		2.88	%		2.98	%
Charge-offs/Average loans held for investment at amortized cost		0.31	%		0.18	%		0.04	%
Pre-tax return on average equity		23.0	%		20.1	%		17.0	%
Return on average equity		17.8	%		13.9	%		12.5	%

(1)

Percentages are annualized.

Average Loans

Average loans reflects the daily average of total outstanding loans, including both loans held for investment and loans held for sale, as measured by UPB, over the specified time period.

Portfolio Yield

Portfolio yield is an annualized measure of the total interest income earned on our loan portfolio as a percentage of average loans over the given period. Interest income includes interest earned on performing loans, cash interest received on nonperforming loans, default interest and prepayment fees. The increase in our portfolio yield for the three months ended June 30, 2025 as compared to the three months ended March 31, 2025 and June 30, 2024 was primarily driven by the increase in weighted average loan coupons.

Average Debt — Portfolio Related and Total Company

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

Cost of Funds — Portfolio Related and Total Company

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

Our portfolio related cost of funds increased to 6.24% for the three months ended June 30, 2025 from 6.23% for the prior quarter and 6.01% for the three months ended June 30, 2024. The increase was primarily due to higher securitized debt interest expense.

Net Interest Margin — Portfolio Related and Total Company

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

Over the periods shown in the tables below, portfolio related net interest margin increased to 3.82% for the three months ended June 30, 2025 from 3.54% for the three months ended June 30, 2024. Portfolio related net interest margin increased to 3.60% for the six months ended June 30, 2025 from 3.45% for the six months ended June 30, 2024. The increases were primarily due to higher average yields and average balances.

Total company net interest margin of 3.39% for the three months ended June 30, 2025 increased from 2.98% for the three months ended June 30, 2024. Total company net interest margin of 3.14% for the six months ended June 30, 2025 increased from 2.91% for the six months ended June 30, 2024. The increases were primarily due to the higher increase in the average yields on our loan portfolio than the increase in our average cost of funds.

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


	Three Months Ended June 30,
	2025							2024
			Interest		Average					Interest		Average
	Average		Income /		Yield /			Average		Income /		Yield /
	Balance		Expense		Rate (1)			Balance		Expense		Rate (1)
	($ in thousands)
Loan portfolio:
Loans held for sale	$	12,677						$	9,979
Loans held for investment		5,608,086							4,345,962
Total loans	$	5,620,763	$	135,567		9.65	%	$	4,355,941	$	97,760		8.98	%

Debt:
Warehouse facilities	$	413,441	$	8,254		7.99	%	$	263,029	$	6,116		9.30	%
Securitized debt		4,832,358		73,584		6.09	%		3,678,478		53,072		5.77	%
Total debt - portfolio related		5,245,799		81,838		6.24	%		3,941,507		59,188		6.01	%
Corporate debt		290,000		6,143		8.47	%		290,000		6,155		8.49	%
Total debt	$	5,535,799	$	87,981		6.36	%	$	4,231,507	$	65,343		6.18	%

Net interest spread - portfolio related (2)						3.41	%						2.97	%
Net interest margin - portfolio related						3.82	%						3.54	%

Net interest spread - total company (3)						3.29	%						2.80	%
Net interest margin - total company						3.39	%						2.98	%

(1)

Annualized.

(2)

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

(3)

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


	Six Months Ended June 30,
	2025							2024
			Interest		Average					Interest		Average
	Average		Income /		Yield /			Average		Income /		Yield /
	Balance		Expense		Rate (1)			Balance		Expense		Rate (1)
	($ in thousands)
Loan portfolio:
Loans held for sale	$	6,838						$	9,820
Loans held for investment		5,410,637							4,247,856
Total loans	$	5,417,475	$	254,307		9.39	%	$	4,257,676	$	188,289		8.84	%

Debt:
Warehouse facilities	$	423,615	$	16,760		7.91	%	$	265,294	$	12,508		9.43	%
Securitized debt		4,609,818		140,166		6.08	%		3,582,325		102,355		5.71	%
Total debt - portfolio related		5,033,433		156,926		6.24	%		3,847,619		114,863		5.97	%
Corporate debt		290,000		12,285		8.47	%		275,776		11,535		8.37	%
Total debt	$	5,323,433	$	169,211		6.36	%	$	4,123,395	$	126,398		6.13	%

Net interest spread - portfolio related (2)						3.15	%						2.87	%
Net interest margin - portfolio related						3.60	%						3.45	%

Net interest spread - total company (3)						3.03	%						2.71	%
Net interest margin - total company						3.14	%						2.91	%

(1)

Annualized.

(2)

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

(3)

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

Charge-Offs

Our annualized charge-offs rate over average loans held for investment carried at amortized cost for the three months ended June 30, 2025 increased to 0.31% as compared to 0.18% and 0.04% for the three months ended March 31, 2025 and June 30, 2024, respectively. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment at amortized cost, for the respective quarters. We do not record charge-offs on loans carried at estimated fair value and loans held for sale.

Return on Average Equity

Pre-tax return on average equity and return on average equity reflect income before income taxes and net income including income attributable to noncontrolling interest, respectively, as a percentage of the monthly average total stockholders’ equity including noncontrolling interest over the specified period. Pre-tax return on average equity and return on average equity increased during the quarter ended June 30, 2025 as compared to the quarters ended March 31, 2025 and June 30, 2024 primarily due to the increase in income before income taxes and the increase in net income.


	Three Months Ended
	June 30, 2025			March 31, 2025			June 30, 2024
	($ in thousands)
Income before income taxes (A)	$	33,922		$	26,893		$	19,873
Net income (B)		26,170			18,648			14,711

Monthly average balance:
Stockholders' equity (C)		588,814			534,940			469,071

Pre-tax return on average equity (A)/(C) (1)		23.0	%		20.1	%		16.9	%

Return on average equity (B)/(C) (1)		17.8	%		13.9	%		12.5	%

(1)

Annualized.

Components of Results of Operations

Interest Income

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

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

Interest Expense — Portfolio Related

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

Net Interest Income — Portfolio Related

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

Interest Expense — Corporate Debt

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

Net Interest Income

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

Provision for Credit Losses

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

Other Operating Income

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

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

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

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

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

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

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

Operating Expenses

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

Origination Expenses. Costs related to our loan origination activities.

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

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

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

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

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

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

Provision for Income Taxes

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

Consolidated Results of Operations

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


	Three Months Ended June 30,					Six Months Ended June 30,
	2025		2024			2025			2024
	(In thousands)
Interest income	$	135,567	$	97,760		$	254,307		$	188,289
Interest expense - portfolio related		81,838		59,188			156,926			114,863
Net interest income - portfolio related		53,729		38,572			97,381			73,426
Interest expense - corporate debt		6,143		6,155			12,285			11,535
Net interest income		47,586		32,417			85,096			61,891
Provision for credit losses		1,598		218			3,470			1,219
Net interest income after provision for credit losses		45,988		32,199			81,626			60,672
Other operating income		39,847		22,561			73,293			48,336
Total operating expenses		51,913		34,887			94,103			65,898
Income before income taxes		33,922		19,873			60,816			43,110
Income tax expense		7,752		5,162			15,998			11,066
Net income		26,170		14,711			44,818			32,044
Net income (loss) attributable to noncontrolling interest		173		(67	)		(66	)		15
Net income attributable to Velocity Financial, Inc.	$	25,997	$	14,778		$	44,884		$	32,029

Net Interest Income — Portfolio Related


	Three Months Ended June 30,						Six Months Ended June 30,
	2025		2024		$ Change		2025		2024		$ Change
	(In thousands)
Interest income	$	135,567	$	97,760	$	37,807	$	254,307	$	188,289	$	66,018
Interest expense - portfolio related		81,838		59,188		22,650		156,926		114,863		42,063
Net interest income - portfolio related	$	53,729	$	38,572	$	15,157	$	97,381	$	73,426	$	23,955

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased 39.3% to $53.7 million from $38.6 million for the three months ended June 30, 2025 and 2024, respectively. Our portfolio related net interest income increased 32.6% to $97.4 million from $73.4 million for the six months ended June 30, 2025 and 2024, respectively.

Interest Income. Interest income increased by $37.8 million to $135.6 million for the three months ended June 30, 2025, compared to $97.8 million for the three months ended June 30, 2024, attributable to higher average loan portfolio balances and yield. For the three months ended June 30, 2025, the average loan yield was 9.65% compared to 8.98% for the three months ended June 30, 2024. Interest income increased by $66.0 million to $254.3 million for the six months ended June 30, 2025, compared to $188.3 million for the six months ended June 30, 2024. The increase in interest income for the six months ended June 30, 2025 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.

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


	Average Loans		Interest Income		Average Yield(1)
	(In thousands)
Three months ended June 30, 2025	$	5,620,763	$	135,567		9.65	%
Three months ended June 30, 2024		4,355,941		97,760		8.98	%
Volume variance		1,264,822		28,386
Rate variance				9,421		0.67	%
Total interest income variance				37,807

(1)

Annualized.


	Average Loans		Interest Income		Average Yield(1)
	(In thousands)
Six months ended June 30, 2025	$	5,417,475	$	254,307		9.39	%
Six months ended June 30, 2024		4,257,676		188,289		8.84	%
Volume variance		1,159,799		51,290
Rate variance				14,728		0.54	%
Total interest income variance				66,018

(1)

Annualized.

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $81.8 million for the three months ended June 30, 2025 from $59.2 million for the three months ended June 30, 2024. Portfolio related interest expense increased to $156.9 million for the six months ended June 30, 2025 from $114.9 million for the six months ended June 30, 2024. The increases were primarily attributable to a higher loan portfolio being financed and increased interest rates.

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


	Average Debt(1)		Interest Expense		Cost of Funds(2)
	(In thousands)
Three months ended June 30, 2025	$	5,245,799	$	81,838		6.24	%
Three months ended June 30, 2024		3,941,507		59,188		6.01	%
Volume variance		1,304,292		19,586
Rate variance				3,064		0.23	%
Total interest expense variance				22,650

(1)

Includes securitized debt and warehouse agreements.

(2)

Annualized.


	Average Debt(1)		Interest Expense		Cost of Funds(2)
	(In thousands)
Six months ended June 30, 2025	$	5,033,433	$	156,926		6.24	%
Six months ended June 30, 2024		3,847,619		114,863		5.97	%
Volume variance		1,185,814		35,400
Rate variance				6,663		0.26	%
Total interest expense variance				42,063

(1)

Includes securitized debt and warehouse agreements.

(2)

Annualized.

Net Interest Income After Provision for Credit Losses


	Three Months Ended June 30,							Six Months Ended June 30,
	2025		2024		$ Change			2025		2024		$ Change
	(In thousands)
Net interest income - portfolio related	$	53,729	$	38,572	$	15,157		$	97,381	$	73,426	$	23,955
Interest expense - corporate debt		6,143		6,155		(12	)		12,285		11,535		750
Net interest income		47,586		32,417		15,169			85,096		61,891		23,205
Provision for credit losses		1,598		218		1,380			3,470		1,219		2,251
Net interest income after provision for credit losses	$	45,988	$	32,199	$	13,789		$	81,626	$	60,672	$	20,954

Interest Expense — Corporate Debt. Corporate debt interest expense remained consistent at $6.1 million for the three months ended June 30, 2025, compared to $6.2 million for the three months ended June 30, 2024. Corporate debt interest expense increased to $12.3 million for the six months ended June 30, 2025, compared to $11.5 million for the six months ended June 30, 2024, primarily due to the issuance of $75.0 million of additional secured debt in February 2024.

Provision for Credit Losses. Our provision for credit losses increased to $1.6 million for the three months ended June 30, 2025 from $0.2 million for the three months ended June 30, 2024. Our provision for credit losses increased to $3.5 million for the six months ended June 30, 2025 from $1.2 million for the six months ended June 30, 2024. The increased provision for credit losses was primarily attributable to a $1.4 million charge-off taken during the quarter ended June 30, 2025.

Other Operating Income

The $17.3 million and $25.0 million increases in total other operating income for the three and six months ended June 30, 2025 were mainly due to the increased loan originations.


	Three Months Ended June 30,									Six Months Ended June 30,
	2025			2024			$ Change			2025			2024			$ Change
	(In thousands)
Gain on disposition of loans	$	6,286		$	3,168		$	3,118		$	9,120		$	4,865		$	4,255
Unrealized gain on fair value loans		29,906			17,123			12,783			64,742			36,049			28,693
Unrealized loss on fair value securitized debt		(7,584	)		(4,643	)		(2,941	)		(21,266	)		(6,961	)		(14,305	)
Unrealized gain (loss) on mortgage servicing rights		309			(373	)		682			(772	)		71			(843	)
Origination fee income		8,936			5,072			3,864			17,615			10,058			7,557
Interest income on cash balance		1,505			1,731			(226	)		2,844			3,362			(518	)
Other income		489			483			6			1,010			892			118
Total other operating income	$	39,847		$	22,561		$	17,286		$	73,293		$	48,336		$	24,957

Gain on Disposition of Loans. Gain on disposition of loans increased by $3.1 million to $6.3 million for the three months ended June 30, 2025 compared to $3.2 million for the three months ended June 30, 2024. Gain on disposition of loans increased by $4.3 million to $9.1 million for the six months ended June 30, 2025 compared to $4.9 million for the six months ended June 30, 2024. The increases were primarily due to the increase in gain on transfer to REO upon foreclosure.

Unrealized Gain on Fair Value Loans. Unrealized gain on fair value loans increased by $12.8 million to $29.9 million for the three months ended June 30, 2025 compared to $17.1 million for the three months ended June 30, 2024. Unrealized gain on fair value loans increased by $28.7 million to $64.7 million for the six months ended June 30, 2025 compared to $36.0 million for the six months ended June 30, 2024. The increases were mainly driven by new loan originations.

Unrealized Loss on Fair Value Securitized Debt. Unrealized loss on fair value securitized debt increased by $2.9 million to $7.6 million for the three months ended June 30, 2025 from $4.6 million for the three months ended June 30, 2024. Unrealized loss on fair value securitized debt increased by $14.3 million to $21.3 million for the six months ended June 30, 2025 from $7.0 million for the six months ended June 30, 2024. The increases in unrealized loss on fair value securitized debt were primarily attributable to the decrease in market interest rates.

Unrealized Gain (Loss) on Mortgage Servicing Rights. Unrealized gain on mortgage servicing rights was $0.3 million for the three months ended June 30, 2025 as compared to an unrealized loss of $0.4 million for the three months ended June 30, 2024. The increase in unrealized gain on mortgage servicing rights was mainly driven by an increase in the loan servicing portfolio Unrealized loss on mortgage servicing rights was $0.8 million for the six months ended June 30, 2025 as compared to an unrealized gain of $0.1 million for the six months ended June 30, 2024. The increase in unrealized loss on mortgage servicing rights was mainly driven by a decrease in the loan servicing portfolio resulting from loan payoffs and paydowns, and an increase in prepayment rate in the first three months of 2025.

Origination Fee Income. Origination fee income increased by $3.9 million to $8.9 million for the three months ended June 30, 2025 compared to $5.1 million for the three months ended June 30, 2024. Origination fee income increased by $7.6 million to $17.6 million for the six months ended June 30, 2025 compared to $10.1 million for the six months ended June 30, 2024. The increases were driven by higher loan originations.

Interest Income on Cash Balance. Interest income on cash balance decreased by $0.2 million to $1.5 million for the three months ended June 30, 2025 compared to $1.7 million for the three months ended June 30, 2024. Interest income on cash balance decreased by $0.5 million to $2.8 million for the six months ended June 30, 2025 compared to $3.4 million for the six months ended June 30, 2024. The decreases were attributable to a decrease in interest rates and lower bank balances.

Other Income. Other income was fairly consistent at $0.5 million for the three months ended June 30, 2025 and 2024. Other income increased to $1.0 million for the six months ended June 30, 2025 compared to $0.9 million for the six months ended June 30, 2024. The increase was driven by higher servicing fee income from the increase in our loan servicing portfolio.

Operating Expenses

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


	Three Months Ended June 30,							Six Months Ended June 30,
	2025		2024		$ Change			2025		2024		$ Change
	(In thousands)
Compensation and employee benefits	$	22,605	$	16,562	$	6,043		$	44,289	$	31,919	$	12,370
Origination expenses		1,193		749		444			2,031		1,395		636
Securitization expenses		11,521		6,232		5,289			15,564		9,106		6,458
Loan servicing		8,205		5,160		3,045			16,213		9,984		6,229
Professional fees		1,992		1,718		274			3,775		3,833		(58	)
Rent and occupancy		298		617		(319	)		573		1,115		(542	)
Real estate owned, net		3,298		1,355		1,943			6,327		3,811		2,516
Other operating expenses		2,801		2,494		307			5,331		4,735		596
Total operating expenses	$	51,913	$	34,887	$	17,026		$	94,103	$	65,898	$	28,205

Compensation and Employee Benefits. Compensation and employee benefits increased by $6.0 million to $22.6 million for the three months ended June 30, 2025 compared to $16.6 million for the three months ended June 30, 2024. Compensation and employee benefits increased by $12.4 million to $44.3 million for the six months ended June 30, 2025 compared to $31.9 million for the six months ended June 30, 2024. The increases were mainly driven by an increase in headcount and higher commissions expense as our loan originations increased.

Origination Expenses. Origination expenses increased by $0.4 million to $1.2 million for the three months ended June 30, 2025 from $0.7 million for the three months ended June 30, 2024. Origination expenses increased by $0.6 million to $2.0 million for the six months ended June 30, 2025 from $1.4 million for the six months ended June 30, 2024. The increases in origination expenses were due to higher loan originations.

Securitization Expenses. Securitization expenses were $11.5 million for the three months ended June 30, 2025 compared to $6.2 million for the three months ended June 30, 2024. Securitization expenses were $15.6 million for the six months ended June 30, 2025 compared to $9.1 million for the six months ended June 30, 2024. The increases in securitization expenses resulted from more securitization transactions and securitized debt issued in 2025 as compared to the prior year.

Loan Servicing. Loan servicing expenses increased to $8.2 million for the three months ended June 30, 2025 from $5.2 million for the three months ended June 30, 2024. Loan servicing expenses increased to $16.2 million for the six months ended June 30, 2025 from $10.0 million for the six months ended June 30, 2024. The increases were primarily attributable to the growth of our loan portfolio.

Professional Fees. Professional fees increased to $2.0 million for the three months ended June 30, 2025 compared to $1.7 million for the three months ended June 30, 2024 primarily due to an increase in consulting expenses. Professional fees remained relatively consistent at $3.8 million for the six months ended June 30, 2025 and 2024.

Rent and Occupancy. Rent and occupancy expenses decreased to $0.3 million for the three months ended June 30, 2025 compared to $0.6 million for the three months ended June 30, 2024. Rent and occupancy expenses decreased to $0.6 million for the six months ended June 30, 2025 compared to $1.1 million for the six months ended June 30, 2024. The decreases resulted from the relocation to offices with lower rent expense.

Real Estate Owned, Net. Net expenses of real estate owned increased to $3.3 million for the three months ended June 30, 2025 from $1.4 million for the three months ended June 30, 2024. Net expenses of real estate owned increased to $6.3 million for the six months ended June 30, 2025 from $3.8 million for the six months ended June 30, 2024. The increases were mainly due to the increase in REOs and higher valuation adjustments.

Other Operating Expenses. Other operating expenses increased to $2.8 million for the three months ended June 30, 2025 from $2.5 million for the three months ended June 30, 2024. Other operating expenses increased to $5.3 million for the six months ended June 30, 2025 from $4.7 million for the six months ended June 30, 2024. The increases were mainly due to higher information technology maintenance, marketing, and travel expenses.

Income Tax Expense. Income tax expense was $7.8 million and $5.2 million for the three months ended June 30, 2025 and 2024, respectively, and $16.0 million and $11.1 million for the six months ended June 30, 2025 and 2024, respectively. Our annual consolidated effective tax rates were 27.4% and 27.3% for the years 2025 and 2024, respectively.

Quarterly Results of Operations

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


	Three Months Ended
	June 30, 2025			March 31, 2025			December 31, 2024			September 30, 2024			June 30, 2024			March 31, 2024			December 31, 2023			September 30, 2023
	($ in thousands)
	(Unaudited)
Interest income	$	135,567		$	118,740		$	113,484		$	105,070		$	97,760		$	90,529		$	86,269		$	79,088
Interest expense - portfolio related		81,838			75,088			68,484			63,871			59,188			55,675			51,405			47,583
Net interest income - portfolio related		53,729			43,652			45,000			41,199			38,572			34,854			34,864			31,505
Net interest margin - portfolio related		3.82	%		3.35	%		3.70	%		3.60	%		3.54	%		3.35	%		3.52	%		3.34	%
Interest expense - corporate debt		6,143			6,142			6,143			6,143			6,155			5,380			4,140			4,138
Net interest income		47,586			37,510			38,857			35,056			32,417			29,474			30,724			27,367
Net interest margin - total company		3.39	%		2.88	%		3.20	%		3.06	%		2.98	%		2.83	%		3.10	%		2.90	%
Provision for (reversal of) credit losses		1,598			1,872			22			(69	)		218			1,002			827			154
Net interest income after provision for (reversal of) credit losses		45,988			35,638			38,835			35,125			32,199			28,472			29,897			27,213
Other operating income		39,847			33,446			32,330			20,732			22,561			25,775			21,670			17,360
Operating expenses		51,913			42,190			39,127			34,613			34,887			31,011			29,260			27,334
Income before income taxes		33,922			26,894			32,038			21,244			19,873			23,236			22,307			17,239
Income tax expense		7,752			8,246			11,233			5,627			5,162			5,903			5,141			5,070
Net income		26,170			18,648			20,805			15,617			14,711			17,333			17,166			12,169
Net income (loss) attributable to noncontrolling interest		173			(239	)		218			(186	)		(67	)		82			(189	)		83
Net income attributable to Velocity Financial, Inc.	$	25,997		$	18,887		$	20,587		$	15,803		$	14,778		$	17,251		$	17,355		$	12,086

Liquidity and Capital Resources

Sources and Uses of Liquidity

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

Cash and Cash Equivalents

Our total liquidity was $139.3 million as of June 30, 2025, comprised of $79.6 million in cash and $59.7 million in borrowings from available warehouse capacity on unencumbered loans. Our additional available warehouse capacity as of June 30, 2025, was $417.3 million, bringing total liquidity plus available warehouse capacity to $556.5 million.

We had cash of $79.6 million and $47.4 million, excluding restricted cash of $17.6 million and $32.3 million as of June 30, 2025 and 2024, respectively.

Cash Flows

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


	Six Months Ended June 30,
	2025			2024
	(In thousands)
Cash provided by (used in):
Operating activities	$	11,198		$	22,053
Investing activities		(842,611	)		(409,281	)
Financing activities		857,772			404,960
Net change in cash, cash equivalents, and restricted cash	$	26,359		$	17,732

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

For the six months ended June 30, 2025, our net cash provided by operating activities consisted mainly of $44.8 million in net income, $47.0 million in proceeds from sale of loans held for sale, and $21.3 million change in valuation of securitized debt at fair value, offset by $64.7 million change in valuation of loans carried at fair value and $45.8 million in origination of loans held for sale.

For the six months ended June 30, 2025, our net cash used in investing activities consisted mainly of $1.3 billion in cash used to originate loans held for investment at fair value, partially offset by $454.2 million in cash received from payoffs of loans held for investment.

For the six months ended June 30, 2025, our net cash provided by financing activities consisted mainly of $1.5 billion in borrowings from our warehouse and repurchase facilities, $1.3 billion in proceeds from issuing securitized debt and $42.0 million in net proceeds from issuance of common stocks. The cash generated was offset by repayments of $1.5 billion and $493.3 million, on our warehouse and repurchase facilities and securitized debt, respectively.

During the six months ended June 30, 2025 and 2024, we generated approximately $26.4 million and $17.7 million, respectively, of net cash and cash equivalents on operating, investing and financing activities.

Warehouse Facilities

As of June 30, 2025, we had five non-mark-to-market warehouse facilities, one mark-to-market warehouse facility, and one modified mark-to-market warehouse facility to support our loan origination and acquisition facilities. The maturity of our warehouse facilities ranges from one to three years. The borrowings are collateralized primarily by performing loans. All warehouse facilities are based on SOFR, plus margins ranging from 1.60% to 4.50%. Borrowing under these facilities was $333.1 million with $476.9 million of available capacity as of June 30, 2025.

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

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

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

Securitized debt

From May 2011 through June 2025, we have completed 42 transactions, issuing $9.3 billion in principal amount of securities to third parties. All borrower payments are segregated into remittance accounts at the primary servicer and remitted to the trustee of each trust monthly. We are the sole beneficial interest holder of the applicable trusts, which are variable interest entities included in our consolidated financial statements. The transactions are accounted for as secured borrowings under U.S. GAAP. The following table summarizes the securities issued, securities retained by us at the time of the securitization, as of June 30, 2025 and December 31, 2024, and the stated maturity for each securitized debt. The securities are callable by us when the stated principal balance is less than a certain percentage, ranging from 10% to 30%, of the original stated principal balance of loans at issuance. As a result, the actual maturity date of the securities issued will likely be earlier than their respective stated maturity date.


			Securities Retained as of
Trusts	Securities Issued		Issuance Date		June 30, 2025		December 31, 2024		Stated Maturity Date
	(In thousands)
2017-2 Trust	$	245,601	$	12,927	$	2,416	$	2,416	October 2047
2018-1 Trust		176,816		9,308		1,602		1,602	April 2048
2018-2 Trust		307,988		16,210		2,656		2,698	October 2048
2019-1 Trust		235,580		12,399		2,362		—	March 2049
2019-2 Trust		207,020		10,901		2,018		—	July 2049
2019-3 Trust		154,419		8,127		2,006		—	October 2049
2020-1 Trust		248,700		13,159		4,166		—	February 2050
2021-1 Trust		251,301		13,227		7,407		—	May 2051
2021-2 Trust		194,918		10,260		—		—	August 2051
2021-3 Trust		204,205		—		—		—	October 2051
2021-4 Trust		319,116		—		—		—	December 2051
2022-1 Trust		273,594		5,015		3,636		3,876	February 2052
2022-2 Trust		241,388		11,202		9,246		9,246	March 2052
2022-MC1 Trust (1)		84,967		40,911		—		47,936	May 2047
2022-3 Trust		296,323		18,914		17,271		15,489	May 2052
2022-4 Trust		308,357		25,190		19,180		10,362	July 2052
2022-5 Trust		188,754		65,459		16,443		12,649	October 2052
2023-1 Trust		198,715		41,593		22,589		4,043	December 2052
2023-1R Trust (1) (2)		64,833		66,228		—		66,228	October 2025
2023-2 Trust		202,210		24,229		3,357		6,714	April 2053
2023-RTL1 Trust (1)		81,608		4,296		—		4,296	July 2028
2023-3 Trust		234,741		28,718		—		9,146	July 2053
2023-4 Trust		202,890		26,623		3,995		3,995	November 2053
2024-1 Trust		209,862		11,278		—		11,229	January 2054
2024-2 Trust		286,235		8,853		8,767		8,767	April 2054
2024-3 Trust		204,599		5,255		5,211		5,211	June 2054
2024-4 Trust		253,612		3,080		3,064		3,064	July 2054
2024-5 Trust		292,880		7,510		7,481		7,481	October 2054
2024-6 Trust		293,895		7,690		7,627		7,687	December 2054
2025-1 Trust		342,791		8,790		8,779		—	February 2055
2025-RTL1 Trust		111,395		5,864		5,864		—	March 2030
2025-2 Trust		377,526		15,117		14,911		—	April 2055
2025-MC1 Trust		114,136		27,210		27,207		—	May 2055
2025-3 Trust		382,461		9,809		9,785		—	June 2055
Total	$	7,793,436	$	575,352	$	219,046	$	244,135

(1)

The outstanding bond balances associated with the Trusts were paid off when collapsed.

(2)

The retained securities owned by this trust were returned to their respective issuing trusts.

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


	June 30, 2025		December 31, 2024
	(In thousands)
2017-2 Trust	$	28,437	$	33,012
2018-1 Trust		21,760		24,482
2018-2 Trust		51,134		59,091
2019-1 Trust		54,753		60,459
2019-2 Trust		42,491		46,872
2019-3 Trust		41,587		46,827
2020-1 Trust		85,203		91,135
2021-1 Trust		141,700		152,995
2021-2 Trust		118,569		125,391
2021-3 Trust		128,486		136,510
2021-4 Trust		198,533		214,284
2022-1 Trust		206,236		217,190
2022-2 Trust		182,357		191,764
2022-MC1 Trust (1)		—		12,041
2022-3 Trust		218,850		234,647
2022-4 Trust		213,687		232,064
2022-5 Trust		156,686		132,519
2023-1 Trust		138,485		144,724
2023-1R Trust (1)		—		38,508
2023-2 Trust		136,454		157,198
2023-RTL1 Trust (1)		—		81,608
2023-3 Trust		169,039		195,799
2023-4 Trust		156,312		181,307
2024-1 Trust		156,890		178,234
2024-2 Trust		226,175		260,500
2024-3 Trust		177,842		191,583
2024-4 Trust		216,955		243,945
2024-5 Trust		267,775		290,552
2024-6 Trust		277,786		293,767
2025-1 Trust		333,742		—
2025-RTL1 Trust		111,395		—
2025-2 Trust		370,201		—
2025-MC1 Trust		109,548		—
2025-3 Trust		381,508		—
Total	$	5,120,576	$	4,269,008

(1)

The outstanding bond balances associated with the Trusts were paid off when collapsed.

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


	June 30, 2025			December 31, 2024
2017-2 Trust		4.20	%		4.09	%
2018-1 Trust		4.29			4.13
2018-2 Trust		4.54			4.47
2019-1 Trust		4.07			4.07
2019-2 Trust		3.46			3.41
2019-3 Trust		3.27			3.30
2020-1 Trust		2.88			2.88
2021-1 Trust		1.77			1.76
2021-2 Trust		2.05			2.04
2021-3 Trust		2.47			2.47
2021-4 Trust		3.23			3.25
2022-1 Trust		3.96			3.94
2022-2 Trust		5.05			5.06
2022-MC1 Trust		6.57			6.90
2022-3 Trust		5.69			5.72
2022-4 Trust		6.21			6.21
2022-5 Trust		7.32			7.04
2023-1 Trust		7.23			7.02
2023-1R Trust		—			7.57
2023-2 Trust		7.68			7.33
2023-RTL1 Trust (1)		67.27			8.24
2023-3 Trust		8.20			7.94
2023-4 Trust		8.26			8.33
2024-1 Trust		7.94			7.75
2024-2 Trust		7.02			7.11
2024-3 Trust		7.22			7.20
2024-4 Trust		7.31			7.08
2024-5 Trust		6.16			6.14
2024-6 Trust		6.12			5.92
2025-1 Trust		6.60			—
2025-RTL1 Trust		7.17			—
2025-2 Trust		6.64			—
2025-MC1 Trust		8.70			—
2025-3 Trust		6.47			—

(1)

The higher weighted average annualized rate for the three months ended June 30, 2025 resulted from additional interest paid to collapse 2023-RTL1 in April 2025.

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

Secured Financing (Corporate Debt)

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

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

At-The-Market Equity Offering Program

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

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

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

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
	(In thousands, except per share amount)
Number of shares sold		27		—		1,596		10
Net sale proceeds	$	491	$	—	$	29,287	$	154
Weighted average price per share	$	18.61	$	—	$	18.66	$	16.49

Contractual Obligations and Commitments

As of June 30, 2025, we maintained warehouse facilities to finance our investor real estate loans and had approximately $333.1 million in outstanding borrowings with $476.9 million of available capacity under our warehouse and repurchase facilities.

Off-Balance-Sheet Arrangements

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

Forward-Looking Statements

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

•

the description of our business contained in our Annual Report on Form 10-K for the year ended December 31, 2024 and filed with the Securities and Exchange Commission on March 12, 2025

•

the discussion of our analysis of financial condition and results of operations contained in this Quarterly Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

•

the notes to the consolidated financial statements contained in this Quarterly Report

•

cautionary statements we make in our public documents, reports and announcements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

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

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

Changes in Internal Control over Financial Reporting.

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

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.

Intentionally omitted pursuant to smaller reporting company reduced disclosure requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On March 27, 2025, warrants to purchase an aggregate of 1,339,166 shares of our common stock were exercised on a net settlement basis, and settled on April 2, 2025, resulting in a net issuance of 1,080,338 shares of our common stock after the withholding and transfer of an aggregate of 258,828 shares of our common stock into our treasury account. The number of shares of our common stock netted was determined using the last sale price of our common stock on March 27, 2025 pursuant to the terms of such warrants. Of such exercised warrants, 892,777 had an exercise price of $2.96 per share and 446,389 had an exercise price of $4.94 per share. On May 1, 2025, warrants to purchase an aggregate of 1,673,958 shares of our common stock were exercised and settled on May 2, 2025. Of such exercised warrants, 1,115,972 had an exercise price of $2.96 per share and 557,986 had an exercise price of $4.94 per share. The issuance of common stock upon exercise of the warrants was conducted in reliance upon exemptions from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) and Section 4(a)(2) thereof, based on the terms of the exercise and other relevant facts.

The following table provides information on common stock purchases made by us during the three months ended June 30, 2025.


Period	Total Number of Shares Purchased (1)			Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
April 2025		258,828	(2)	$	18.73		—	$	—
May 2025		8,754	(3)		16.62		—		—
June 2025		—			—		—		—
Total		267,582		$	18.66		—	$	—

(1)

The Company currently does not have a common stock repurchase program.

(2)

Shares withheld from warrants exercised.

(3)

Shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting or exercise of stock-based awards.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Insider Trading Arrangements and Policies

On March 18, 2025, Jeffrey T. Taylor, our Executive Vice President, Capital Markets, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 21,250 shares of our common stock. The plan will expire June 30, 2026, subject to early termination for certain specified events as set forth in the plan.

On March 20, 2025, Mark R. Szczepaniak, our Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in Item 408(a) of Regulation S-K) intended to satisfy the affirmative defense of Rule 10b5-1(c) with respect to the sale of up to an aggregate of 18,870 shares of our common stock. The plan will expire June 30, 2026, subject to early termination for certain specified events as set forth in the plan.

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.	Exhibit	Filing Date

3.1	Certificate of Conversion	8-K	001-39183	3.1	1/22/2020

3.2	Restated Certificate of Incorporation of Velocity Financial, Inc.	8-K	001-39183	3	5/23/2022

3.3	Amended and Restated Bylaws of Velocity Financial, Inc.	8-K	001-39183	3.2	3/25/2022

4.1	Form of Stock Certificate for Common Stock	S-1	333-234250	4.1	10/18/2019

4.2	Form of Warrant to Purchase Common Stock	8-K	001-39183	4.1	4/7/2020

4.3	Description of the Registrant’s Securities	10K	001-39183	4.3	4/7/2020

10.1	Stockholders Agreement, dated as of January 16, 2020	10-K	001-39183	10.1	4/7/2020

10.2	Registration Rights Agreement, dated as of January 16, 2020	10-K	001-39183	10.2	4/7/2020

10.3	Registration Rights Agreement, dated as of April 7, 2020	8-K	333-234250	10.1	4/7/2020

10.4	Securities Purchase Agreement among Velocity Financial, Inc. and the Purchasers Party thereto dated April 5, 2020	8-K	001-39183	10.1	4/6/2020

10.5	Velocity Financial, Inc. Employee Stock Purchase Plan*	DEF 14A	001-39183	AII	4/8/2022

10.6	Amended and Restated Velocity Financial, Inc. 2020 Omnibus Incentive Plan*	DEF 14A	001-39183	AI	4/11/2025

10.7	Form of Nonqualified Stock Option Award Notice and Agreement under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.6	1/6/2020

10.8	Form of Nonqualified Stock Option Award Notice and Agreement (Director Grant-IPO) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.7	1/6/2020

10.9	Form of Nonqualified Stock Option Award Notice and Agreement (Executive Officer Grant-IPO) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.8	1/6/2020

10.10	Form of Restricted Stock Unit Grant and Agreement (Director Grant) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.9	1/6/2020

10.11	Form of Restricted Stock Unit Grant and Agreement (Standard Grant) under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.10	1/6/2020

10.12	Form of Restricted Stock Grant and Agreement under the 2020 Omnibus Incentive Plan*	S-1/A	333-234250	10.11	1/6/2020

10.13	Velocity Financial 2025 Annual Cash Incentive and Performance Stock Units Programs for Messrs. Farrar, Szczepaniak and Taylor*	8-K	001-39183	-	1/22/2025

10.14	Form of Equity Distribution Agreement, dated May 3, 2024	8-K	001-39183	1.1	5/3/2024

10.15	Form of Amendment No. 1 to Equity Distribution Agreement, dated December 12, 2024	10-K	001-39183	10.15	3/12/2025

10.16	Form of Officer and Director Indemnity Agreement*	S-1/A	333-234250	10.37	11/6/2019

10.17	Form of Performance Stock Unit Grant and Agreement*	10-K	001-39183	10.16	3/15/2024

10.18	Note Purchase Agreement Dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association, as collateral agent, and the respective purchasers of the Notes.	8-K	001-39183	10.1	3/16/2022

10.19	Security Agreement, dated as of March 15, 2022, among Velocity Financial, Inc., Velocity Commercial Capital, LLC and U.S. Bank Trust Company, National Association, as collateral agent.	8-K	001-39183	10.2	3/16/2022

10.20	Velocity Financial, Inc. Incentive Compensation Clawback Policy*	8-K	001-39183	99	2/7/2024


10.21	Form of Note Purchase Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association, as Collateral Agent and the respective purchasers of the Notes.	8-K	001-39183	10.1	2/6/2024

10.22	Security Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC and U.S. Bank Trust Company, National Association.	8-K	001-39183	10.2	2/6/2024

10.23	Equal Priority Intercreditor Agreement, dated as of February 5, 2024, among Velocity Financial, Inc., Velocity Commercial Capital, LLC, U.S. Bank Trust Company, National Association as the 2027 Notes Collateral Agent and U.S. Bank Trust Company, National Association as the 2029 Notes Collateral Agent.	8-K	001-39183	10.3	2/6/2024

10.24	Form of Amendment No. 2 to Equity Distribution Agreement, dated April 11, 2025	10-Q	001-39183	10.24	5/1/2025

19.1	Securities Trading Policy	10-K	001-39183	19.1	3/12/2025

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2025 and 2024, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 and (v) the Notes to unaudited Consolidated Financial Statements.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema with Embedded Linkbases Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Management contract or compensatory plan or arrangement.

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

SIGNATURES

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


	VELOCITY FINANCIAL, INC.

Date: August 7, 2025	By:	/s/ Christopher D. Farrar
		Christopher D. Farrar
		Chief Executive Officer

Date: August 7, 2025	By:	/s/ Mark R. Szczepaniak
		Mark R. Szczepaniak
		Chief Financial Officer

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