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 March 31, 2026 as compared to the three months ended March 31, 2025 was primarily driven by the increase in weighted average loan coupons. Portfolio yield for the three months ended March 31, 2026 decreased slightly from three months ended December 31, 2025 mainly attributable to less interest income and default interest collected on nonperforming loans.

Average Debt — Portfolio Related and Total Company

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

Cost of Funds — Portfolio Related and Total Company

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

Our portfolio related cost of funds decreased to 6.09% for the three months ended March 31, 2026 from 6.23% for the prior quarter and 6.23% for the three months ended March 31, 2025. The decrease was primarily due to lower 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 3.56% for the three months ended March 31, 2026 from 3.35% for the three months ended March 31, 2025, and decreased from 3.59% for the three months ended December 31, 2025. The increase from the three months ended March 31, 2025 was primarily due to higher average yield and balance. The decrease from the three month ended December 31, 2025 was primarily due to lower average yield.

Total company net interest margin of 2.65% for the three months ended March 31, 2026 decreased from 2.88% for the three months ended March 31, 2025, and decreased from 3.21% for the three months ended December 31, 2025. The decreases were primarily due to higher interest expense on our corporate debt due to expensing the non-cash unamortized debt issuance costs related to the payoff of our $215.0 million corporate debt in January 2025.

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:

Charge-Offs

Our annualized charge-offs rate over average loans held for investment carried at amortized cost for the three months ended March 31, 2026 decreased to 0.27% as compared to 0.39% for the three months ended December 31, 2025 and increased from 0.18% for the three months ended March 31, 2025. The charge-offs rate reflects year-to-date annualized charge-offs as a percentage of average loans held for investment at amortized cost, for the respective quarters. We do not record charge-offs on loans carried at estimated fair value and loans held for sale.

Return on Average Equity

Pre-tax return on average equity and return on average equity reflect income before income taxes and net income including income attributable to noncontrolling interest, respectively, as a percentage of the monthly average total stockholders’ equity including noncontrolling interest over the specified period. Pre-tax return on average equity and return on average equity decreased during the quarter ended March 31, 2026 as compared to the quarter ended December 31, 2025 primarily due to a gain of $19.7 million on sale of nonperforming loans in December 2025 and higher average shareholders' equity. Pre-tax return on average equity and return on average equity slightly decreased as compared to the quarter ended March 31, 2025 primarily due to non-recurring expenses during the quarter ended March 31, 2026.

Components of Results of Operations

Interest Income

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

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

Interest Expense — Portfolio Related

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

Net Interest Income — Portfolio Related

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

Interest Expense — Corporate Debt

Interest expense on corporate debt consists of interest expense paid with respect to the 2022 Term Loan until its payoff in January 2026 and the 2024 Term Loan, as reflected in “Secured financing, net” on our Consolidated Balance Sheets, and the related amortization of deferred debt issuance costs. Interest expense on corporate debt also includes the interest expense paid with respect to the 2026 Term Notes, as reflected in “Unsecured senior notes, net” on our Consolidated Balance Sheets, and the related amortization of deferred debt issuance costs.

Net Interest Income

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. We earn 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.

Portfolio related net interest income is the largest contributor to our net income. Our portfolio related net interest income increased 35.3% to $59.1 million from $43.7 million for the three months ended March 31, 2026 and 2025, respectively.

Interest Income. Interest income increased by $34.3 million or 28.9% to $153.1 million for the three months ended March 31, 2026, compared to $118.7 million for the three months ended March 31, 2025, attributable to higher average loan portfolio balances and yield. For the three months ended March 31, 2026, the average loan yield was 9.23% compared to 9.11% for the three months ended March 31, 2025.

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 months ended March 31, 2026 and 2025.

Interest Expense — Portfolio Related. Portfolio related interest expense, which consists of interest incurred on our warehouse facilities and securitized debt, increased 25.2% to $94.0 million for the three months ended March 31, 2026 from $75.1 million for the three months ended March 31, 2025. The increase was primarily attributable to a higher loan portfolio being financed, offsets by lower portfolio cost of funds.

The following tables present information regarding portfolio related interest expense and distinguish between the changes in interest expense attributable to changes in the average outstanding debt balance (volume) and changes in cost of funds (rate) for the three months ended March 31, 2026 and 2025.

Net Interest Income After Provision for Credit Losses

Interest Expense — Corporate Debt. Corporate debt interest expense increased to $15.1 million from $6.1 million for the three months ended March 31, 2026 and 2025, respectively. The increase in corporate debt interest expense was primarily due to the issuance of $500.0 million unsecured senior notes in January 2026 and write-off of $1.3 million non-cash unamortized debt issuance costs related to the payoff of the $215.0 million secured corporate debt in January 2026.

Provision for Credit Losses. Our provision for credit losses decreased to $1.7 million for the three months ended March 31, 2026 from $1.9 million for the three months ended March 31, 2025, primarily due to the decrease in loans carried at amortized cost subject to the CECL allowance methodology.

Gain on Disposition of Loans. Gain on disposition of loans remained relatively consistent at $2.9 million for the three months ended March 31, 2026 compared to $2.8 million for the three months ended March 31, 2025.

Unrealized Gain on Fair Value Loans. Unrealized gain on fair value loans decreased by $33.8 million to $1.0 million for the three months ended March 31, 2026 compared to $34.8 million for the three months ended March 31, 2025. The decrease was mainly driven by an increase in market interest rates and spreads.

Unrealized Gain (Loss) on Fair Value Securitized Debt. Unrealized gain on fair value securitized debt was $26.3 million for the three months ended March 31, 2026, compared to $13.7 million of unrealized loss for the three months ended March 31, 2025. The increase in unrealized gain on fair value securitized debt was primarily attributable to the increase in market interest rates and spreads.

Unrealized Gain (Loss) on Mortgage Servicing Rights. Unrealized loss on mortgage servicing rights was $0.3 million for the three months ended March 31, 2026 as compared to $1.1 million for the three months ended March 31, 2025. The decrease in unrealized loss on mortgage servicing rights was primarily attributable to an increase in the servicing portfolio.

Origination Fee Income. Origination fee income slightly decreased by $0.7 million to $8.0 million for the three months ended March 31, 2026 compared to $8.7 million for the three months ended March 31, 2025. The decrease was primarily attributable to slightly lower fees collected on new loans.

Interest Income on Cash Balance. Interest income on cash balance increased by $0.1 million to $1.4 million for the three months ended March 31, 2026 compared to $1.3 million for the three months ended March 31, 2025. The increase was primarily attributable to an overall higher cash balance.

Other Income. Other income was $3.7 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively. The increase was primarily attributable to the recognition of $2.4 million employee retention credit as other income in March 2026, and higher servicing fee income from the new loan servicing portfolio serviced for others.

Compensation and Employee Benefits. Compensation and employee benefits slightly increased by $1.8 million to $23.5 million for the three months ended March 31, 2026 compared to $21.7 million for the three months ended March 31, 2025. The increase was primarily attributable to the annual salary increases and increase in headcount to support future growth in loan production.

Origination Expenses. Origination expenses increased by $0.3 million to $1.2 million for the three months ended March 31, 2026 from $0.8 million for the three months ended March 31, 2025. The increase in origination expenses was due to higher third party fees paid.

Securitization Expenses. Securitization expenses were $5.3 million for the three months ended March 31, 2026 compared to $4.0 million for the three months ended March 31, 2025. The increase in securitization expenses was due to two securitization transactions issued in the first quarter of 2026 as compared to one transaction in the same period of the prior year.

Loan Servicing. Loan servicing expenses increased to $8.6 million for the three months ended March 31, 2026 from $8.0 million for the three months ended March 31, 2025. The increase was primarily attributable to the growth of our loan portfolio.

Professional Fees. Professional fees increased to $5.8 million for the three months ended March 31, 2026 compared to $1.8 million for the three months ended March 31, 2025. The increase was primarily attributable to higher legal fees related to potential merger and acquisition due diligence.

Rent and Occupancy. Rent and occupancy expenses remained relatively consistent at $0.3 million for the three months ended March 31, 2026 and the three months ended March 31, 2025.

Real Estate Owned, Net. Net expenses of real estate owned increased to $6.9 million for the three months ended March 31, 2026 from $3.0 million for the three months ended March 31, 2025. The increase was mainly due to the increase in REOs combined with higher valuation adjustments.

Other Operating Expenses. Other operating expenses increased to $2.8 million for the three months ended March 31, 2026 from $2.5 million for the three months ended March 31, 2025. The increase reflected higher information technology maintenance and data processing costs.

Income Tax Expense. Income tax expense was $8.6 million and $8.2 million for the three months ended March 31, 2026 and 2025, respectively. The increase in income tax expense was primarily attributable to the increase in pretax income. Our annual consolidated effective tax rates were 28.2% and 28.5% for the years 2026 and 2025, respectively.

Quarterly Results of Operations

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