Velocity Financial Inc

Previous wording

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 19 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.

Current wording

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 20 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.

Previous wording

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, 2024, has an average balance of approximately $387 thousand. As of June 30, 2024, our loan portfolio totaled $4.5 billion of UPB on properties in 45 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 67.4% of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 54.1% of the UPB. For the three months ended June 30, 2024, the annualized yield on our total portfolio was 8.98%.

Current wording

Our primary source of revenue is interest income earned on our loan portfolio. Our typical loan is secured by a first lien on the underlying property with a personal guarantee and, based on all loans in our portfolio as of September 30, 2024, has an average balance of approximately $388.5 thousand. As of September 30, 2024, our loan portfolio totaled $4.8 billion of UPB on properties in 45 states and the District of Columbia. The total portfolio had a weighted average loan-to-value ratio, or LTV at origination, of 67.0% of which the 1-4 unit residential rental loans, which we refer to as investor 1-4 loans, represented 54.0% of the UPB. For the three months ended September 30, 2024, the annualized yield on our total portfolio was 9.18%.

Previous wording

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 thirty-four securitized debt transactions, resulting in a total of over $7.1 billion in gross debt proceeds from May 2011 through June 30, 2024. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.

Current wording

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 thirty-five securitized debt transactions, resulting in a total of over $7.4 billion in gross debt proceeds from May 2011 through September 30, 2024. We may also continue to sell loans from time to time for cash in lieu of holding the loans in our loan portfolio.

Previous wording

One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of our warehouse facilities and securitized debt and excludes our corporate debt. For the three months ended June 30, 2024, our annualized portfolio related net interest margin increased to 3.54% compared to the 3.24% for the three months ended June 30, 2023. 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, 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.

Current wording

One of our core profitably measurements is our portfolio related net interest margin, which measures the difference between interest income earned on our loan portfolio and interest expense paid on our portfolio-related debt, relative to the amount of loans outstanding over the period. Our portfolio-related debt consists of our warehouse facilities and securitized debt and excludes our corporate debt. For the three months ended September 30, 2024, our annualized portfolio related net interest margin increased to 3.60% compared to the 3.34% for the three months ended September 30, 2023. We generate profits to the extent that our portfolio related net interest income exceeds our interest expense on corporate debt, provision for credit losses and operating expenses. For the three and nine months ended September 30, 2024, including net income attributable to noncontrolling interest, we generated pre-tax income of $21.2 million and $64.4 million, and net income of $15.8 million and $47.8 million, respectively.

Previous wording

Our operational and financial performance will depend on certain market developments, including any lingering impact of the COVID-19 pandemic, the Russia/Ukraine war, the Israel-Gaza Conflict, a 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.

Current wording

Our operational and financial performance will depend on certain market developments, including 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.

Previous wording

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 a number of 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 any lingering impact of the COVID-19 pandemic, the Russia/Ukraine and Israel/Hamas wars, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

Current wording

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 a number of 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 any lingering impact of the COVID-19 pandemic, the Russia/Ukraine and the ongoing conflicts in the Middle East, an expected recession, and macroeconomic conditions and market fundamentals, which can all affect each of these factors and potentially impact our business performance.

Previous wording

One of our seven warehouse repurchase facilities have interest payment obligations tied to the one-month American Interbank Offered Rate, (“AMERIBOR”). Six of our warehouse repurchase and revolving loan facilities have interest payment obligations tied to the Secured Overnight Offering Rate (“SOFR”).

Current wording

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

Previous wording

(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $40.7 million, $45.1 million, and $43.5 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of June 30, 2024, March 31, 2024, and June 30, 2023, respectively.

Current wording

(A) Reflects the UPB of loans 90 days or more past due or placed on nonaccrual status. Includes $43.2 million, $40.7 million, and $41.3 million of COVID-19 forbearance-granted loans 90 days or more past due or placed on nonaccrual status as of September 30, 2024, June 30, 2024, and September 30, 2023, respectively.

Previous wording

During the second quarter of 2024, loan originations increased $43.6 million and $163.6 million from the quarters ended March 31, 2024 and June 30, 2023, respectively.

Current wording

During the third quarter of 2024, loan originations increased $54.5 million and $186.2 million from the quarters ended June 30, 2024 and September 30, 2023, respectively.

Previous wording

Loans Held for Investment and Loans Held for Investment at Fair Value

Current wording

Loans Held for Investment at amortized cost and Loans Held for Investment at Fair Value

Previous wording

Our total portfolio of loans held for investment consists of both loans held for investment at amortized cost, which are presented in the consolidated balance sheet as loans held for investment, net, and loans held for investment at fair value, which are presented in the consolidated balance sheets as loans held for investment at fair value. The following tables show the various components of loans held for investment as of the dates indicated:

Current wording

Our total portfolio of loans held for investment consists of both loans held for investment at amortized cost, which are presented in the consolidated balance sheets as loans held for investment 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 fair value. The following tables show the various components of loans held for investment as of the dates indicated:

Previous wording

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 gain or loss on sale of REO, and 4) net valuation adjustments on REO. The table below shows our actual charge-offs; gain on transfer of nonperforming loans to REO; gain on disposition of REO; and net valuation adjustments on REO; for the periods indicated:

Current wording

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.

Previous wording

Reflects annualized charge-offs to average nonperforming loans for the period.

Current wording

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

Previous wording

Our allowance for credit losses as of June 30, 2024 was $5.2 million compared to $4.6 million as of June 30, 2023. The increase in allowance for credit losses from June 30, 2023 was primarily due to an increase in the individually-assessed component of the reserve. Our overall credit loss reserve for the periods was within our expected range of 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, is subject to change as conditions in the market change and the Company’s ability to forecast economic events evolves.

Current wording

Our allowance for credit losses as of September 30, 2024 was $4.9 million compared to $4.7 million as of September 30, 2023. The increase in allowance for credit losses from September 30, 2023 was primarily due to an increase in the individually-assessed component of the reserve. Our overall credit loss reserve for the periods was within our expected range of 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, is subject to change as conditions in the market change and our ability to forecast as economic events evolve.

Previous wording

The following table illustrates the activity in our allowance for credit losses over the periods indicated:

Current wording

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:

Previous wording

Credit Quality – Loans Held for Investment and Loans Held for Investment at Fair Value

Current wording

Credit Quality – Loans Held for Investment at amortized cost and Loans Held for Investment at Fair Value

Previous wording

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

Current wording

The following table provides delinquency information on our loans held for investment at amortized cost and loans held for investment at fair value by UPB as of the dates indicated:

Previous wording

Balance includes $158.5 million UPB of loans held for investment as of June 30, 2024, $165.1 million as of March 31, 2024, and $181.9 million as of June 30, 2023 in our COVID-19 forbearance program.

Current wording

Balance includes $153.9 million UPB of loans held for investment at amortized cost as of September 30, 2024, $158.5 million as of June 30, 2024, and $177.0 million as of September 30, 2023 in our COVID-19 forbearance program.

Previous wording

Other than loans in the 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 $470.6 million, or 10.5% of our held for investment loan portfolio as of June 30, 2024, compared to $432.6 million, or 10.1% as of March 31, 2024, and $371.2 million, or 10.0% of the held for investment loan portfolio as of June 30, 2023.The increase in total nonperforming loans as of June 30, 2024 compared to March 31, 2024 and June 30, 2023 is due to an increase in the size of our portfolio and management’s decision to move loans into foreclosure early in the delinquency process.

Current wording

Other than loans in the 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 $503.9 million, or 10.6% of our held for investment loan portfolio as of September 30, 2024, compared to $470.6 million, or 10.5% as of June 30, 2024, and $387.7 million, or 10.1% of the held for investment loan portfolio as of September 30, 2023.The increase in total nonperforming loans as of September 30, 2024 compared to June 30, 2024 and September 30, 2023 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.

Previous wording

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 $68.6 million of long-term and short-term non-performing loans for the quarter ended June 30, 2024, which was higher, compared to $49.5 million and $43.6 million for the quarters ended March 31, 2024 and June 30, 2023, respectively. From these resolution activities, including the REO resolutions, we realized net gains of $1.0 million, $1.3 million, and $1.5 million for the quarters ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively. This is largely the result of collecting default interest and prepayment penalties in excess of the contractual principal and interest due on loans.

Current wording

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 $65.9 million of long-term and short-term non-performing loans for the quarter ended September 30, 2024, which was lower, compared to $68.6 million for the quarter ended June 30, 2024, and higher compared to $56.9 million for the quarter ended September 30, 2023. From these resolution activities, including the REO resolutions, we realized net gains of $2.3 million, $1.0 million, and $1.2 million for the quarters ended September 30, 2024, June 30, 2024, and September 30, 2023, respectively. This is largely the result of collecting default interest and prepayment penalties in excess of the contractual principal and interest due on loans.

Previous wording

As of June 30, 2024, our REO included 89 properties with a lower of cost or estimated fair value of $50.8 million compared to 76 properties with a lower of cost or estimated fair value of $46.3 million as of March 31, 2024, and 45 properties with a lower of cost or estimated fair value of $20.4 million as of June 30, 2023.

Current wording

As of September 30, 2024, our REO included 112 properties with a lower of cost or estimated fair value of $62.4 million compared to 89 properties with a lower of cost or estimated fair value of $50.8 million as of June 30, 2024, and 61 properties with a lower of cost or estimated fair value of $29.3 million as of September 30, 2023.

Previous wording

As of June 30, 2024, our held for investment loan portfolio was concentrated in investor 1-4 loans, representing 54.1% of the UPB. Mixed used properties represented 11.4% of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated 21.3% in California, 17.2% in New York, 13.3% in Florida, 7.4% in New Jersey, and 5.1% in Texas.

Current wording

As of September 30, 2024, our held for investment loan portfolio was concentrated in investor 1-4 loans, representing 54.2% of the UPB. Mixed used properties represented 11.3% of the UPB. No other property type represented more than 10.0% of our held for investment loan portfolio. Geographically, the principal balance of our loans held for investment were concentrated 21.5% in California, 16.7% in New York, 12.9% in Florida, and 7.4% in New Jersey.

Previous wording

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 fluctuations in our portfolio yield over the periods shown was primarily driven by loans placed on non-accrual status during the periods.

Current wording

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 over the periods shown was primarily driven by the increase in weighted average loan coupons.

Previous wording

Our portfolio related cost of funds increased to 6.01% for the three months ended June 30, 2024 from 5.93% for the prior quarter and increased from 5.58% for the three months ended June 30, 2023.

Current wording

Our portfolio related cost of funds increased to 6.15% for the three months ended September 30, 2024 from 6.01% for the prior quarter and increased from 5.63% for the three months ended September 30, 2023. The increase was primarily due to higher market interest rates.

Previous wording

Over the periods shown below, our portfolio related net interest margin increased to 3.54% for the three months ended June 30, 2024 from 3.35% and 3.24% for the three months ended March 31, 2024 and June 30, 2023, respectively. The increase was primarily due to higher average yield on our loan portfolio.

Current wording

Over the periods shown below, our portfolio related net interest margin increased to 3.60% for the three months ended September 30, 2024 from 3.34% for the three months September 30, 2023. Our portfolio related net interest margin increased to 3.50% for the nine months ended September 30, 2024 from 3.27% for the nine months ended September 30, 2023.The increase was primarily due to a higher increase in the average yield on our loan portfolio than the increase in our average cost of funds.

Previous wording

Our total company net interest margin of 2.98% for the three months ended June 30, 2024 increased from 2.83% for the prior quarter, and increased from 2.78% for the three months ended June 30, 2023. The increase in total company net interest margin during the three months ended June 30, 2024 was primarily due to higher average yield on our loan portfolio.

Current wording

Our total company net interest margin of 3.06% for the three months ended September 30, 2024 increased from 2.90% for the three months ended September 30, 2023. Our total company net interest margin of 2.96% for the nine months ended September 30, 2024 increased from 2.82% for the nine months ended September 30, 2023. The increase in total company net interest margin was primarily due to a higher increase in the average yield on our loan portfolio than the increase in our average cost of funds.

Previous wording

Our annualized charge-off rate over average loans held for investment carried at amortized cost for the three months ended June 30, 2024 decreased to 0.04% as compared to 0.07% and 0.09% for the three months ended March 31, 2024 and June 30, 2023, respectively. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment for the respective quarters. We do not record charge-offs on FVO loans which are carried at estimated fair value. We do not record charge-offs on our loans held for sale which are carried either at fair value, or at the lower of cost or estimated fair value.

Current wording

Our annualized charge-off rate over average loans held for investment carried at amortized cost for the three months ended September 30, 2024 remained minimal at 0.05% as compared to 0.04% and 0.01% for the three months ended June 30, 2024 and September 30, 2023, 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 FVO loans which are carried at estimated fair value. We do not record charge-offs on our loans held for sale which are carried either at fair value, or at the lower of cost or estimated fair value.

Previous wording

Pre-tax return on equity and return on 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 equity and return on equity decreased during the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024 due to the decrease in income before income taxes and net income. Pre-tax return on equity and return on equity remained consistent compared to the quarter ended June 30, 2023.

Current wording

Pre-tax return on equity and return on 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 equity and return on equity increased during the quarter ended September 30, 2024 as compared to the quarters ended June 30, 2024 and September 30, 2023 primarily due to the increase in income before income taxes and the increase in net income.

Previous wording

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. 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.

Current wording

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.

Previous wording

Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2022 Term Loan and the 2024 Term Loan, as reflected on our consolidated balance sheets, and the related amortization of deferred debt issuance costs.

Current wording

Interest expense on corporate debt primarily consists of interest expense paid with respect to the 2022 Term Loan and the 2024 Term Loan, as reflected in "Secured financing, net" on our consolidated balance sheets, and the related amortization of deferred debt issuance costs.

Previous wording

Gain 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 sales 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.

Current wording

Gain 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.

Previous wording

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased to $38.6 million from $29.4 million for the three months ended June 30, 2024 and 2023, respectively. Our portfolio related net interest income increased to $73.4 million for the six months ended June 30, 2024 from $57.9 million for the six months ended June 30, 2023.

Current wording

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased to $41.2 million from $31.5 million for the three months ended September 30, 2024 and 2023, respectively. Our portfolio related net interest income increased to $114.6 million for the nine months ended September 30, 2024 from $89.4 million for the nine months ended September 30, 2023.

Previous wording

Interest Income. Interest income increased by $22.9 million to $97.8 million for the three months ended June 30, 2024, compared to $74.9 million for the three months ended June 30, 2023, primarily attributable to higher portfolio balances and higher average loan yield. For the three months ended June 30, 2024, the average loan yield was 8.98% compared to 8.24% for the three months ended June 30, 2023. Interest income increased by $42.9 million to $188.3 million for the six months ended June 30, 2024, compared to $145.4 million for the six months ended June 30, 2023. The increase in interest income for the six months ended June 30, 2024 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.

Current wording

Interest Income. Interest income increased by $26.0 million to $105.1 million for the three months ended September 30, 2024, compared to $79.1 million for the three months ended September 30, 2023, primarily attributable to higher portfolio balances and higher average loan yield. For the three months ended September 30, 2024, the average loan yield was 9.18% compared to 8.38% for the three months ended September 30, 2023. Interest income increased by $68.9 million to $293.4 million for the nine months ended September 30, 2024, compared to $224.5 million for the nine months ended September 30, 2023. The increase in interest income for the nine months ended September 30, 2024 was primarily attributable to higher portfolio balances due to loan originations and higher average loan yield.

Previous wording

The following tables distinguish between the change in interest income attributable to change in volume and the change in interest income attributable to a change in rate for the three and six months ended June 30, 2024 and 2023, respectively. The effect of changes in volume is determined by multiplying the change in average loan balance of $0.7 billion by the previous period’s average yield of 8.24%. The effect of rate changes is calculated by multiplying the change in average yield of 0.74% by the current period’s average loan balance of $4.4 billion.

Current wording

The following table distinguishes between the change in interest income attributable to change in average loan balance (volume) and the change in interest income attributable to a change in annualized yield (rate) for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $59.2 million for the three months ended June 30, 2024 from $45.5 million for the three months ended June 30, 2023, and increased to $114.9 million for the six months ended June 30, 2024 from $87.5 million for the six months ended June 30, 2023, primarily attributable to a higher loan portfolio being financed and increased interest rates.

Current wording

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased to $63.9 million for the three months ended September 30, 2024 from $47.6 million for the three months ended September 30, 2023, and increased to $178.7 million for the nine months ended September 30, 2024 from $135.1 million for the nine months ended September 30, 2023, primarily attributable to a higher loan portfolio being financed and increased interest rates.

Previous wording

The following tables present the information regarding the portfolio related interest expense and distinguishes between the change in interest expense attributable to changes in the average outstanding debt balance (volume) versus changes in cost of funds (rate) for the three and six months ended June 30, 2024 and 2023, respectively.

Current wording

The following table presents the information regarding the portfolio related interest expense and distinguishes between the change in interest expense attributable to changes in the average outstanding debt balance (volume) and the change in cost of funds (rate) for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net Interest Income After Provision for Credit Losses

Current wording

Net Interest Income After Provision for (Reversal of) Credit Losses

Previous wording

Interest Expense — Corporate Debt. Corporate debt interest expense increased to $6.2 million for the three months ended June 30, 2024, compared to $4.1 million for the three months ended June 30, 2023, and increased to $11.5 million for the six months ended June 30, 2024, compared to $8.3 million for the six months ended June 30, 2023, primarily due to the issuance of $75.0 million of additional secured debt in February 2024.

Current wording

Interest Expense — Corporate Debt. Corporate debt interest expense increased to $6.1 million for the three months ended September 30, 2024, compared to $4.1 million for the three months ended September 30, 2023, and increased to $17.7 million for the nine months ended September 30, 2024, compared to $12.4 million for the nine months ended September 30, 2023, primarily due to the issuance of $75.0 million of additional secured debt in February 2024.

Previous wording

Provision for Credit Losses. Our provision for credit losses remained relatively consistent at $0.2 million for the three months ended June 30, 2024 compared to $0.3 million for the three months ended June 30, 2023, and increased to $1.2 million for the six months ended June 30, 2024 from $0.9 million for the six months ended June 30, 2023. The increase is primarily due to the decrease in the valuation of underlying collateral for nonperforming loans.

Current wording

Provision for (Reversal of) Credit Losses. Our provision for credit losses was a reversal of $0.1 million for the three months ended September 30, 2024 compared to a provision of $0.2 million for the three months ended September 30, 2023, and remained relatively consistent at $1.2 million for the nine months ended September 30, 2024 from $1.1 million for the nine months ended September 30, 2023. The reversal of credit losses in the current quarter was primarily due to the decrease in our loans held for investment carried at amortized cost.

Previous wording

The $8.5 million and $21.5 million increases in total other operating income for the three and six months ended June 30, 2024, respectively, were mainly due to the unrealized gains from new originations.

Current wording

The $3.4 million and $24.8 million increases in total other operating income for the three and nine months ended September 30, 2024, respectively, were mainly due to the unrealized gains from valuation of loans, offset by the unrealized loss on valuation of securitized debt at fair value.