UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 001-42167 DT Cloud Star Acquisition Corporation (Exact name of registrant as specified in its charter) Cayman Islands ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited statements show a significant net income decrease due to higher credit loss provisions, despite moderate asset growth [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $19.14 billion, driven by loans, while shareholders' equity slightly decreased due to a preferred stock redemption Key Balance Sheet Items | Key Balance Sheet Items | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Total Assets** | **$19,141,204** | **$18,805,732** | **+1.8%** | | Loans receivable, net | $10,432,117 | $10,354,002 | +0.8% | | Loans held for sale | $4,105,765 | $3,771,510 | +8.9% | | **Total Liabilities** | **$16,956,572** | **$16,562,422** | **+2.4%** | | Total Deposits | $12,686,835 | $11,919,976 | +6.4% | | Borrowings | $4,009,474 | $4,386,122 | -8.6% | | **Total Shareholders' Equity** | **$2,184,632** | **$2,243,310** | **-2.6%** | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q2 net income fell 50% year-over-year to $38.0 million, primarily driven by a 432% surge in the provision for credit losses Three Months Ended June 30 | Metric (in thousands, except EPS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $128,719 | $128,119 | +0.5% | | Provision for credit losses | $53,027 | $9,965 | +432.2% | | Noninterest Income | $50,480 | $31,351 | +61.0% | | Noninterest Expense | $77,337 | $50,380 | +53.5% | | **Net Income** | **$37,981** | **$76,393** | **-50.3%** | | **Diluted EPS** | **$0.60** | **$1.49** | **-59.7%** | Six Months Ended June 30 | Metric (in thousands, except EPS) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $250,915 | $255,175 | -1.7% | | Provision for credit losses | $60,754 | $14,691 | +313.5% | | Noninterest Income | $74,173 | $72,225 | +2.7% | | Noninterest Expense | $139,001 | $99,292 | +40.0% | | **Net Income** | **$96,220** | **$163,447** | **-41.1%** | | **Diluted EPS** | **$1.53** | **$3.29** | **-53.5%** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail a higher Allowance for Credit Losses, two significant loan sales, a preferred stock redemption, and a new regulatory MOU - The Allowance for Credit Losses on Loans (ACL-Loans) increased to **$91.8 million** at June 30, 2025, from $84.4 million at year-end 2024, with a **$64.0 million** provision and **$56.6 million** in charge-offs for the six-month period[96](index=96&type=chunk)[308](index=308&type=chunk) - The company completed a **$373.3 million** multi-family loan securitization and a **$312.1 million** sale of home equity lines of credit in Q2 2025[134](index=134&type=chunk)[135](index=135&type=chunk) - All outstanding shares of 6% Series B Preferred Stock were redeemed on January 2, 2025, for **$125.0 million**[233](index=233&type=chunk)[234](index=234&type=chunk) - The Bank entered into a **confidential Memorandum of Understanding (MOU) with the FDIC and DFI** on June 30, 2025, and was in compliance with its terms as of the report date[268](index=268&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the net income decline from credit loss provisions, an improved funding mix, and a new regulatory MOU - The **50% decrease in Q2 2025 net income** is directly attributed to a **$43.1 million increase** in the provision for credit losses, linked to multi-family property values and mortgage fraud investigations[282](index=282&type=chunk)[325](index=325&type=chunk)[334](index=334&type=chunk) - The company's funding mix improved as **core deposits grew by $2.0 billion (22%)** since year-end 2024, while **brokered deposits were reduced by $1.3 billion (50%)**[287](index=287&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - A **confidential MOU with the FDIC and DFI** was executed on June 30, 2025, which may limit or delay future expansion plans, though the bank currently exceeds required capital levels[280](index=280&type=chunk)[281](index=281&type=chunk) - Business volumes remain strong, with warehouse loan funding **increasing 49% YoY to $16.3 billion** and multi-family origination volume **increasing 33% YoY to $1.4 billion** in Q2[287](index=287&type=chunk)[419](index=419&type=chunk)[425](index=425&type-chunk) - A strong liquidity position is maintained with **$5.0 billion in unused borrowing capacity** from the FHLB and Federal Reserve Discount Window[282](index=282&type=chunk)[436](index=436&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with models showing an asset-sensitive position within policy limits Net Interest Income Sensitivity (12-Months Forward) | Net Interest Income Sensitivity (12-Months Forward) | -200 bps | -100 bps | +100 bps | +200 bps | | :--- | :--- | :--- | :--- | :--- | | **Dollar Change (in thousands)** | $(84,289) | $(44,357) | $42,895 | $85,982 | | **Percent Change** | (15.9)% | (8.3)% | 8.1% | 16.2% | Economic Value of Equity Sensitivity (Immediate Shock) | Economic Value of Equity Sensitivity (Immediate Shock) | -200 bps | -100 bps | +100 bps | +200 bps | | :--- | :--- | :--- | :--- | :--- | | **Dollar Change (in thousands)** | $54,849 | $36,112 | $2,604 | $4,897 | | **Percent Change** | 2.6% | 1.7% | 0.1% | 0.2% | [Item 4. Controls and Procedures](index=86&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2025, the Company's **disclosure controls and procedures were effective**[486](index=486&type=chunk) - **No material changes** to the Company's internal control over financial reporting occurred during the quarter[487](index=487&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=87&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings for the period - None[490](index=490&type=chunk) [Item 1A. Risk Factors](index=87&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported from the risk factors previously disclosed in the 2024 Annual Report - **No material changes** from the risk factors disclosed in the 2024 Form 10-K[491](index=491&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[492](index=492&type=chunk) [Item 6. Exhibits](index=88&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including Sarbanes-Oxley certifications and XBRL interactive data files - Exhibits filed include **CEO and CFO certifications** under Sarbanes-Oxley Sections 302 and 906, along with XBRL interactive data files[497](index=497&type=chunk)

PART I – FINANCIAL INFORMATION [Item 1 Interim Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20Interim%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements detail the company's financial position and performance [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total assets | $19,141,204 | $18,805,732 | 1.8% | | Loans receivable, net | $10,432,117 | $10,354,002 | 0.8% | | Total deposits | $12,686,835 | $11,919,976 | 6.4% | | Total liabilities | $16,956,572 | $16,562,422 | 2.4% | | Total shareholders' equity | $2,184,632 | $2,243,310 | -2.6% | - Total assets increased by **1.8% to $19.1 billion**, driven by growth in loans held for sale and loan portfolios[12](index=12&type=chunk) [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income Highlights (In thousands, except share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $128,719 | $128,119 | 0.5% | | Provision for credit losses | $53,027 | $9,965 | 432.0% | | Noninterest Income | $50,480 | $31,351 | 61.0% | | Noninterest Expense | $77,337 | $50,380 | 53.5% | | Net Income | $37,981 | $76,393 | -50.3% | | Basic Earnings Per Share | $0.60 | $1.50 | -60.0% | | Diluted Earnings Per Share | $0.60 | $1.49 | -59.7% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $250,915 | $255,175 | -1.7% | | Provision for credit losses | $60,754 | $14,691 | 313.5% | | Noninterest Income | $74,173 | $72,225 | 2.7% | | Noninterest Expense | $139,001 | $99,292 | 40.0% | | Net Income | $96,220 | $163,447 | -41.1% | | Basic Earnings Per Share | $1.53 | $3.30 | -53.6% | | Diluted Earnings Per Share | $1.53 | $3.29 | -53.5% | - Net income for the three months ended June 30, 2025, **decreased by 50.3% to $38.0 million**, primarily due to a **432.0% increase** in the provision for credit losses[15](index=15&type=chunk)[334](index=334&type=chunk) - Diluted earnings per share **decreased by 59.7% to $0.60** for the three months ended June 30, 2025[15](index=15&type=chunk)[282](index=282&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income Highlights (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | $37,981 | $76,393 | -50.3% | | Net unrealized (losses) gains on investment securities available for sale, net of tax | $(170) | $663 | -125.6% | | Comprehensive Income | $37,811 | $77,056 | -50.9% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | $96,220 | $163,447 | -41.1% | | Net unrealized (losses) gains on investment securities available for sale, net of tax | $(114) | $1,896 | -106.0% | | Comprehensive Income | $96,106 | $165,425 | -41.9% | - Comprehensive income for the three months ended June 30, 2025, **decreased by 50.9% to $37.8 million**, primarily reflecting the decrease in net income and net unrealized losses on investment securities available for sale[17](index=17&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Condensed Consolidated Statements of Shareholders' Equity Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Common stock | $241,452 | $240,313 | | Preferred stock (Series C, D, E) | $551,291 | $551,291 | | Retained earnings | $1,392,136 | $1,330,995 | | Accumulated other comprehensive loss | $(247) | $(133) | | Total shareholders' equity | $2,184,632 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 2.6%, to $2.18 billion** at June 30, 2025, primarily due to the redemption of 6% Series B Preferred Stock ($125.0 million) and dividends paid ($29.7 million), partially offset by net income ($96.2 million)[20](index=20&type=chunk)[323](index=323&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, In thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,886 | $(332,653) | | Net cash used in investing activities | $(27,229) | $(1,012,173) | | Net cash provided by financing activities | $170,898 | $1,301,286 | | Net Change in Cash and Cash Equivalents | $170,555 | $(43,540) | | Cash and Cash Equivalents, End of Period | $647,165 | $540,882 | - Net cash provided by operating activities **significantly improved to $26.9 million** for the six months ended June 30, 2025, compared to a net cash used of $332.7 million in the prior year[23](index=23&type=chunk)[439](index=439&type=chunk) - Net cash provided by financing activities **decreased to $170.9 million** for the six months ended June 30, 2025, from $1.3 billion in the prior year[23](index=23&type=chunk)[439](index=439&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1: Basis of Presentation](index=10&type=section&id=Note%201%3A%20Basis%20of%20Presentation) - The financial statements are unaudited and prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, consolidating Merchants Bancorp and its wholly owned subsidiaries[27](index=27&type=chunk)[29](index=29&type=chunk) - Material estimates are particularly susceptible to significant change related to the determination of the **allowance for credit losses** on loans and **fair values** of servicing rights and financial instruments[35](index=35&type=chunk) Restricted Cash for Senior Credit Linked Notes (In thousands) | Date | Balance | | :--- | :--- | | June 30, 2025 | $43,800 | | December 31, 2024 | $33,500 | - FASB ASU 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, 2024, and FASB ASU 2024-03 (Expense Disaggregation) is effective for annual periods beginning after December 15, 2026[40](index=40&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) [Note 2: Investment Securities](index=12&type=section&id=Note%202%3A%20Investment%20Securities) Investment Securities Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Securities available for sale (Fair Value) | $936,343 | $980,050 | | Securities held to maturity (Amortized Cost) | $1,548,211 | $1,664,686 | | FHLB stock and other equity securities | $217,850 | $217,804 | - Unrealized losses on investment securities available for sale are primarily attributable to changes in the prevailing interest rate environment, not credit-related factors[58](index=58&type=chunk) - One held-to-maturity mortgage-backed security (**$550.9 million amortized cost**) was classified as Special Mention at June 30, 2025, due to delinquencies in underlying loans, but no credit losses are expected[61](index=61&type=chunk) [Note 3: Mortgage Loans in Process of Securitization](index=15&type=section&id=Note%203%3A%20Mortgage%20Loans%20in%20Process%20of%20Securitization) Mortgage Loans in Process of Securitization (In thousands) | Date | Balance | | :--- | :--- | | June 30, 2025 | $402,427 | | December 31, 2024 | $428,206 | - The aggregate positive fair value adjustment recorded in mortgage loans in process of securitization **decreased to $3.0 million** at June 30, 2025, from $4.1 million at December 31, 2024[64](index=64&type=chunk) [Note 4: Loans and Allowance for Credit Losses on Loans](index=16&type=section&id=Note%204%3A%20Loans%20and%20Allowance%20for%20Credit%20Losses%20on%20Loans) Loans Receivable, Net and ACL-Loans (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Loans Receivable | $10,523,928 | $10,438,388 | | Less: ACL-Loans | $91,811 | $84,386 | | Loans Receivable, net | $10,432,117 | $10,354,002 | - The ACL-Loans **increased by $7.4 million, or 9%, to $91.8 million** at June 30, 2025, driven by a $64.0 million increase in provision expense, partially offset by $56.6 million in charge-offs[86](index=86&type=chunk)[308](index=308&type=chunk) Provision for Credit Losses and Charge-offs (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses (ACL-Loans) | $54,461 | $8,753 | | Loans charged to the allowance | $(46,063) | $(3,452) | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses (ACL-Loans) | $63,967 | $14,230 | | Loans charged to the allowance | $(56,570) | $(4,377) | - Total collateral dependent loans **increased to $417.7 million** at June 30, 2025, from $317.3 million at December 31, 2024[100](index=100&type=chunk)[101](index=101&type=chunk) Delinquent Loans (In thousands) | Status | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 30-59 Days Past Due | $32,191 | $10,460 | | 60-89 Days Past Due | $160 | $15,633 | | 90+ Days Past Due | $246,658 | $266,170 | | Total Past Due | $279,009 | $292,263 | | Nonaccrual loans | $250,818 | $279,716 | - The Company completed a **$373.3 million securitization** of multi-family mortgage loans (gain $5.9 million) and a **$312.1 million sale** of All-in-One© HELOCs (gain $2.2 million) in June 2025[134](index=134&type=chunk)[135](index=135&type=chunk) [Note 5: Qualified Affordable Housing and Other Tax Credits](index=29&type=section&id=Note%205%3A%20Qualified%20Affordable%20Housing%20and%20Other%20Tax%20Credits) Qualified Affordable Housing Investments (In thousands) | Investment Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | LIHTC (Proportional amortization) | $153,596 | $123,574 | | LIHTC (Lower of cost or market) | $45,580 | $56,533 | | Joint Venture (Consolidated) | $10,937 | $10,937 | | Total Investments | $210,113 | $191,044 | | Unfunded Commitments | $91,904 | $93,929 | Amortization Expense and Expected Tax Credits (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Amortization expense | $7,559 | $5,145 | | Expected tax credits | $8,369 | $5,418 | - The Company advanced LIHTC funds **$81.4 million** as of June 30, 2025, for investment projects, expecting repayment over a similar period[145](index=145&type=chunk) [Note 6: Leases](index=30&type=section&id=Note%206%3A%20Leases) Lease Information (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Operating lease ROU asset | $7,429 | $8,332 | | Operating lease liability | $8,325 | $9,303 | | Weighted average remaining lease term (years) | 4.1 | 4.6 | | Weighted average discount rate | 3.44% | 3.43% | Operating Lease Cost (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Operating lease cost | $1,432 | $1,369 | [Note 7: Other Assets and Receivables](index=31&type=section&id=Note%207%3A%20Other%20Assets%20and%20Receivables) Other Assets and Receivables (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total other assets and receivables | $495,295 | $571,330 | | Joint venture investments | $50,900 | $42,200 | | CDS recovery asset | $445 | $0 | | Total loan pool balances for CDS | $2,000,000 | $1,200,000 | - The decrease in other assets and receivables was primarily due to a **$125.0 million prepaid asset** at December 31, 2024, that was released for the January 2, 2025, redemption of Series B Preferred Stock[313](index=313&type=chunk) [Note 8: Variable Interest Entities](index=32&type=section&id=Note%208%3A%20Variable%20Interest%20Entities) Unconsolidated VIEs Maximum Exposure to Loss (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Investments in VIEs | $266,541 | $257,499 | | Loans to VIEs | $606,689 | $415,628 | | Securities for VIEs | $1,536,441 | $1,652,833 | | Total Maximum Exposure to Loss | $2,409,671 | $2,325,960 | - The Company determined it was not the primary beneficiary for most of its VIEs at June 30, 2025, primarily due to not having control or the obligation to absorb losses/rights to receive benefits that could be significant[160](index=160&type=chunk) [Note 9: Deposits](index=34&type=section&id=Note%209%3A%20Deposits) Deposits Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing deposits | $315,523 | $239,005 | | Interest-bearing deposits | $12,371,312 | $11,680,971 | | Total deposits | $12,686,835 | $11,919,976 | | Total core deposits | $11,432,356 | $9,385,898 | | Total brokered deposits | $1,254,479 | $2,534,078 | - Core deposits **increased by $2.0 billion, or 22%, to $11.4 billion**, representing **90% of total deposits** at June 30, 2025[315](index=315&type=chunk) - Brokered deposits **decreased by 50% to $1.3 billion**, representing **10% of total deposits** at June 30, 2025[316](index=316&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, as of June 30, 2025[318](index=318&type=chunk) [Note 10: Borrowings](index=35&type=section&id=Note%2010%3A%20Borrowings) Borrowings Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Federal Reserve discount window borrowings | $175,000 | $50,000 | | FHLB advances | $3,680,588 | $4,172,030 | | Total borrowings | $4,009,474 | $4,386,122 | - Total borrowings **decreased by $376.6 million, or 9%**, primarily due to a reduction of $491.4 million in FHLB advances, partially offset by a $125.0 million increase in Federal Reserve discount window usage[319](index=319&type=chunk) - The Company entered into new FHLB variable-rate debt agreements totaling **$3.7 billion** in June 2025, with maturities in September 2025[168](index=168&type=chunk)[169](index=169&type=chunk) [Note 11: Derivative Financial Instruments](index=35&type=section&id=Note%2011%3A%20Derivative%20Financial%20Instruments) Derivative Financial Instruments Fair Value (In thousands) | Metric | June 30, 2025 Asset | June 30, 2025 Liability | December 31, 2024 Asset | December 31, 2024 Liability | | :--- | :--- | :--- | :--- | :--- | | Interest rate lock commitments | $270 | $8 | $30 | $176 | | Forward contracts | — | $427 | $229 | $1 | | Interest rate swaps | $2,484 | — | $4,199 | — | | Put options | $45,055 | — | $43,777 | — | | Interest rate floors | $6,118 | — | $4,043 | — | | Credit derivatives | — | — | — | — | | Total | $53,927 | $435 | $52,278 | $177 | Derivative (Loss) Gain in Income Statement (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net (loss) gain in gain on sale of loans | $(382) | $423 | | Net gain in other income | $11,855 | $3,681 | - The Company purchased a Credit Default Swap (CDS) in March 2024 to manage credit risk on specific multi-family mortgage loans, with the protection seller posting **$64.8 million in collateral**[176](index=176&type=chunk) [Note 12: Disclosures about Fair Value of Assets and Liabilities](index=38&type=section&id=Note%2012%3A%20Disclosures%20about%20Fair%20Value%20of%20Assets%20and%20Liabilities) Fair Value Measurements (June 30, 2025, In thousands) | Asset/Liability | Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Mortgage loans in process of securitization | $402,427 | — | $402,427 | — | | Securities available for sale | $936,343 | $70,102 | $866,241 | — | | Loans held for sale | $91,930 | — | $91,930 | — | | Servicing rights | $193,037 | — | — | $193,037 | | Derivative assets | $64,007 | — | $12,500 | $52,598 | | Derivative liabilities | $10,450 | — | $10,442 | $8 | | Collateral dependent loans (nonrecurring) | $194,337 | — | — | $194,337 | - Servicing rights, collateral dependent loans, and certain derivatives (interest rate lock commitments, put options, interest rate floors, credit default swap) are classified within **Level 3** due to significant unobservable inputs[195](index=195&type=chunk)[197](index=197&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[211](index=211&type=chunk) Key Unobservable (Level 3) Inputs (June 30, 2025) | Asset/Liability | Unobservable Inputs | Weighted Average | | :--- | :--- | :--- | | Collateral dependent loans | Marketability discount and costs to sell | 14% | | Servicing rights - Multi-family | Discount rate | 9% | | Servicing rights - Multi-family | Constant prepayment rate | 9% | | Interest rate lock commitments | Loan closing rates | 82% | | Put options | Market credit spread | 4% | | Interest rate floors | Discount rate | 7% | [Note 13: Common Stock](index=47&type=section&id=Note%2013%3A%20Common%20Stock) - As of August 1, 2025, **45,885,458 shares** of the Company's common stock were issued and outstanding[4](index=4&type=chunk) - On May 13, 2024, the Company issued **2,400,000 shares** of common stock in a public offering, generating **$97.7 million in net proceeds**[229](index=229&type=chunk) [Note 14: Preferred Stock](index=47&type=section&id=Note%2014%3A%20Preferred%20Stock) - The Company redeemed all outstanding Series A Preferred Stock on April 1, 2024, for **$52.0 million**[231](index=231&type=chunk) - All outstanding Series B Preferred Stock were redeemed on January 2, 2025, for **$125.0 million**, resulting in $4.2 million in expenses and a $1.2 million excise tax[233](index=233&type=chunk)[234](index=234&type=chunk) - On November 25, 2024, the Company issued 9,200,000 depositary shares of Series E Preferred Stock, raising **$222.7 million in net proceeds**[242](index=242&type=chunk) Dividends on Preferred Stock (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Dividends on preferred stock | $(20,531) | $(16,424) | [Note 15: Share-Based Payment Plans](index=49&type=section&id=Note%2015%3A%20Share-Based%20Payment%20Plans) Share-Based Payment Plan Activity | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Shares issued to non-executive directors | 3,752 | 2,849 | | ESOP expenses (In thousands) | $389 | $286 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Shares contributed to ESOP | 30,802 | 23,414 | [Note 16: Earnings Per Share](index=49&type=section&id=Note%2016%3A%20Earnings%20Per%20Share) Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Basic EPS | $0.60 | $1.50 | | Diluted EPS | $0.60 | $1.49 | Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Basic EPS | $1.53 | $3.30 | | Diluted EPS | $1.53 | $3.29 | [Note 17: Segment Information](index=50&type=section&id=Note%2017%3A%20Segment%20Information) - The Company operates in three primary reportable business segments: **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking**, along with an 'Other' segment[250](index=250&type=chunk) Net Income (Loss) by Segment (Three Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $9,269 | $9,037 | | Mortgage Warehousing | $22,986 | $22,270 | | Banking | $14,574 | $52,378 | | Other | $(8,848) | $(7,292) | | Total | $37,981 | $76,393 | Net Income (Loss) by Segment (Six Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $12,682 | $25,646 | | Mortgage Warehousing | $38,384 | $42,460 | | Banking | $61,681 | $108,803 | | Other | $(16,527) | $(13,462) | | Total | $96,220 | $163,447 | [Note 18: Regulatory Matters](index=53&type=section&id=Note%2018%3A%20Regulatory%20Matters) - The Company and Merchants Bank met all regulatory capital adequacy requirements and were categorized as **'well capitalized'** as of June 30, 2025, and December 31, 2024[263](index=263&type=chunk)[461](index=461&type=chunk) Company Capital Ratios (June 30, 2025, In thousands) | Ratio | Actual Amount | Actual Ratio | Minimum Amount to be Well Capitalized with Basel III Buffer | Minimum Ratio to be Well Capitalized with Basel III Buffer | | :--- | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | $2,280,183 | 13.4% | $1,788,568 | 10.5% | | Tier I capital (to risk-weighted assets) | $2,176,150 | 12.8% | $1,447,889 | 8.5% | | Common Equity Tier I capital (to risk-weighted assets) | $1,624,860 | 9.5% | $1,192,379 | 7.0% | | Tier I capital (to average assets) | $2,176,150 | 11.5% | $948,810 | 5.0% | - Merchants Bank entered into a confidential **Memorandum of Understanding (MOU)** with the FDIC and DFI on June 30, 2025, agreeing to maintain certain capital thresholds and manage asset concentrations[268](index=268&type=chunk)[280](index=280&type=chunk) - The MOU is **not expected to have a material adverse impact** on the Company's financial performance or the Bank's day-to-day operations, but may limit or delay expansion[270](index=270&type=chunk)[281](index=281&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, asset quality, and liquidity for the reporting period [Regulatory Developments Regarding the Bancorp and Bank](index=57&type=section&id=Regulatory%20Developments%20Regarding%20the%20Bancorp%20and%20Bank) - Merchants Bank entered into a confidential **Memorandum of Understanding (MOU)** with the FDIC and DFI on June 30, 2025, requiring the Bank to maintain certain capital thresholds and manage asset concentrations[280](index=280&type=chunk) - As of June 30, 2025, the Bank's capital **exceeded the levels agreed to in the MOU** and was within the asset concentration limits[280](index=280&type=chunk) - Management **does not expect the MOU to have a material adverse impact** on financial performance or day-to-day operations, but it may limit or delay expansion[281](index=281&type=chunk) [Financial Highlights for the Three Months Ended June 30, 2025](index=57&type=section&id=Financial%20Highlights%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025) Financial Highlights (Three Months Ended June 30) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net income | $38.0 million | $76.4 million | -50% | | Diluted earnings per share | $0.60 | $1.49 | -60% | | Provision for credit losses increase | $43.1 million | N/A | 432% | | Tangible book value per common share | $35.42 | $31.27 | 13% | | Total assets | $19.1 billion | $18.8 billion (Dec 31, 2024) | 2% | | Loans receivable, net | $10.4 billion | $10.35 billion (Dec 31, 2024) | 1% | | Core deposits | $11.4 billion | $9.4 billion (Dec 31, 2024) | 22% | | Brokered deposits | $1.3 billion | $2.5 billion (Dec 31, 2024) | -50% | | Net interest margin | 2.83% | 2.99% | -16 bps | | Efficiency ratio | 43.16% | 31.59% | 1157 bps | | Warehouse loans funded volume | $16.3 billion | $10.9 billion | 49% | | Multi-family loan origination/acquisition volume | $1.4 billion | $1.1 billion | 33% | - The **$43.1 million increase in provision for credit losses** was primarily associated with estimated declines on multi-family property values and ongoing investigations of mortgage fraud[282](index=282&type=chunk) [Business Overview](index=58&type=section&id=Business%20Overview) - Merchants Bancorp is a diversified bank holding company operating in **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking** segments[284](index=284&type=chunk) - The Company's business model focuses on originating and selling low-risk, government-program-eligible loans, retaining adjustable-rate loans, and utilizing diverse funding sources to maximize net income and shareholder return[285](index=285&type=chunk) [Critical Accounting Policies and Estimates](index=59&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Key estimates include the **allowance for credit losses** on loans and **fair values** of servicing rights and financial instruments[289](index=289&type=chunk) - There have been **no significant changes** in critical accounting policies or the assumptions and judgments utilized since December 31, 2024[290](index=290&type=chunk) [Financial Condition](index=59&type=section&id=Financial%20Condition) [Comparison of Financial Condition at June 30, 2025 and December 31, 2024](index=59&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030%2C%202025%20and%20December%2031%2C%202024) - Total assets **increased by $335.5 million, or 2%, to $19.1 billion** at June 30, 2025, compared to December 31, 2024[292](index=292&type=chunk) - The increase was primarily due to growth in loans held for sale and in the warehouse and multi-family loan portfolios, despite two loan sales totaling over **$685.4 million**[292](index=292&type=chunk) [Total Assets](index=59&type=section&id=Total%20Assets) Total Assets (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $19,141,204 | | December 31, 2024 | $18,805,732 | - Total assets **increased by $335.5 million, or 2%**, primarily driven by growth in loans held for sale and the warehouse and multi-family loan portfolios[292](index=292&type=chunk) [Cash and Cash Equivalents](index=59&type=section&id=Cash%20and%20Cash%20Equivalents) Cash and Cash Equivalents (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $647,165 | | December 31, 2024 | $476,610 | - Cash and cash equivalents **increased by $170.6 million, or 36%**, including $43.8 million in restricted cash associated with senior credit linked notes[293](index=293&type=chunk) [Mortgage Loans in Process of Securitization](index=59&type=section&id=Mortgage%20Loans%20in%20Process%20of%20Securitization) Mortgage Loans in Process of Securitization (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $402,427 | | December 31, 2024 | $428,206 | - Mortgage loans in process of securitization **decreased by $25.8 million, or 6%**, representing loans pending settlement as mortgage-backed securities[294](index=294&type=chunk) [Securities Available for Sale](index=59&type=section&id=Securities%20Available%20for%20Sale) Securities Available for Sale (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $936,343 | | December 31, 2024 | $980,050 | - Securities available for sale **decreased by $43.7 million, or 4%**, primarily due to $391.8 million in calls, maturities, and repayments, partially offset by $348.1 million in purchases[295](index=295&type=chunk)[297](index=297&type=chunk) - Accumulated other comprehensive loss (AOCL) related to securities available for sale **increased by $0.1 million, or 86%**, to $0.2 million at June 30, 2025[299](index=299&type=chunk) [Securities Held to Maturity](index=60&type=section&id=Securities%20Held%20to%20Maturity) Securities Held to Maturity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $1,548,211 | | December 31, 2024 | $1,664,686 | - Securities held to maturity **decreased by $116.5 million, or 7%**, due to repayments and amortization[300](index=300&type=chunk) [Loans Held for Sale](index=60&type=section&id=Loans%20Held%20for%20Sale) Loans Held for Sale (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $4,105,765 | | December 31, 2024 | $3,771,510 | - Loans held for sale **increased by $334.3 million, or 9%**, primarily due to an increase in warehouse participations from higher volume[301](index=301&type=chunk) [Loans Receivable, Net](index=60&type=section&id=Loans%20Receivable%2C%20Net) Loans Receivable, Net (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $10,432,117 | | December 31, 2024 | $10,354,002 | - Loans receivable, net of ACL-Loans, **increased by $78.1 million, or 1%**, driven by increases in mortgage warehouse repurchase agreements (up 28%) and multi-family financing loans (up 5%), partially offset by a decrease in residential real estate loans (down 25%) due to a loan sale[302](index=302&type=chunk)[303](index=303&type=chunk) - Approximately **95% of total loans reprice within three months**, reducing interest rate risk[302](index=302&type=chunk) Top 5 Geographic Concentrations for Multi-family and Healthcare Financing (June 30, 2025, In thousands) | Multi-family State | Amount | % of Total | Healthcare State | Amount | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Indiana | $1,244,946 | 26% | Michigan | $347,464 | 24% | | New York | $650,800 | 13% | Ohio | $254,783 | 18% | | Ohio | $251,923 | 5% | Texas | $124,152 | 9% | | Georgia | $233,565 | 5% | South Carolina | $102,500 | 7% | | California | $233,409 | 5% | New Jersey | $88,668 | 6% | [ACL-Loans](index=61&type=section&id=ACL-Loans) ACL-Loans (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $91,811 | | December 31, 2024 | $84,386 | - The ACL-Loans **increased by $7.4 million, or 9%**, primarily due to a $64.0 million increase in provision expense, largely related to estimated declines in multi-family property values and mortgage fraud investigations, partially offset by $56.6 million in charge-offs[308](index=308&type=chunk) [Goodwill](index=61&type=section&id=Goodwill) Goodwill (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $8,014 | | December 31, 2024 | $8,014 | - Goodwill remained **unchanged at $8.0 million** at June 30, 2025, compared to December 31, 2024[309](index=309&type=chunk) [Servicing Rights](index=61&type=section&id=Servicing%20Rights) Servicing Rights (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $193,037 | | December 31, 2024 | $189,935 | - Servicing rights **increased by $3.1 million, or 2%**, with $8.7 million in originated and purchased servicing partially offset by $5.1 million in paydowns and a $0.5 million negative fair market value adjustment due to lower interest rates[310](index=310&type=chunk)[312](index=312&type=chunk) [Other Assets and Receivables](index=62&type=section&id=Other%20Assets%20and%20Receivables) Other Assets and Receivables (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $495,295 | | December 31, 2024 | $571,330 | - Other assets and receivables **decreased by $76.0 million, or 13%**, primarily due to the release of a $125.0 million prepaid asset for the Series B Preferred Stock redemption[313](index=313&type=chunk) [Deposits](index=62&type=section&id=Deposits) Deposits (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $12,686,835 | | December 31, 2024 | $11,919,976 | - Total deposits **increased by $766.9 million, or 6%**, driven by a $2.1 billion increase in demand deposits and $260.7 million in savings deposits, partially offset by a $1.6 billion decrease in certificates of deposit[314](index=314&type=chunk) - Core deposits **increased by $2.0 billion, or 22%, to $11.4 billion**, representing 90% of total deposits, while brokered deposits **decreased by 50% to $1.3 billion**, representing 10% of total deposits[315](index=315&type=chunk)[316](index=316&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, at June 30, 2025[318](index=318&type=chunk) [Borrowings](index=62&type=section&id=Borrowings) Borrowings (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $4,009,474 | | December 31, 2024 | $4,386,122 | - Borrowings **decreased by $376.6 million, or 9%**, primarily due to a $491.4 million reduction in FHLB advances, partially offset by a $125.0 million increase in Federal Reserve discount window usage[319](index=319&type=chunk) - The Company maintains **$5.0 billion in unused borrowing capacity** with the FHLB and Federal Reserve discount window, up from $4.3 billion at December 31, 2024[320](index=320&type=chunk) [Other Liabilities](index=62&type=section&id=Other%20Liabilities) Other Liabilities (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $231,035 | | December 31, 2024 | $231,035 | - Other liabilities remained **essentially unchanged at $231.0 million**[320](index=320&type=chunk) [Total Shareholders' Equity](index=63&type=section&id=Total%20Shareholders'%20Equity) Total Shareholders' Equity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $2,184,632 | | December 31, 2024 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 3%**, primarily due to the $125.0 million redemption of 6% Series B Preferred Stock and $29.7 million in dividends, partially offset by $96.2 million in net income[323](index=323&type=chunk) [Asset Quality](index=63&type=section&id=Asset%20Quality) - The allowance for credit losses on loans **increased by $7.4 million, or 9%, to $91.8 million** at June 30, 2025, driven by a $64.0 million provision expense and $56.6 million in charge-offs[325](index=325&type=chunk) - The increase in provision expenses and charge-offs was primarily associated with estimated declines on multi-family property values, new appraisals, and investigations of mortgage fraud[325](index=325&type=chunk) Charge-offs and Recoveries (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Charge-offs | $(56,570) | $(4,377) | | Recoveries | $28 | $16 | - Substandard loans **increased to $417.7 million** at June 30, 2025, from $317.3 million at December 31, 2024, following additional access to information to assess collateral[327](index=327&type=chunk) - Nonperforming loans (nonaccrual and >90 days past due) **decreased to $251.5 million (2.39% of total loans)** at June 30, 2025, from $279.7 million (2.68%) at December 31, 2024[330](index=330&type=chunk) - The ACL-Loans as a percentage of nonperforming loans **increased to 37%** at June 30, 2025, from 30% at December 31, 2024[331](index=331&type=chunk) - The Company has **$2.8 billion in loans subject to credit protection arrangements** (up from $2.3 billion at December 31, 2024), with incremental coverage ranging from 13-14%[333](index=333&type=chunk) [Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024](index=64&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) [General Operating Results](index=64&type=section&id=General%20Operating%20Results) - Net income **decreased by $38.4 million, or 50%, to $38.0 million**, primarily due to a **$43.1 million (432%) increase** in provision for credit losses[334](index=334&type=chunk) - The decrease in net income also reflected a **$27.0 million (54%) increase** in noninterest expense, partially offset by a **$19.1 million (61%) increase** in noninterest income and an $11.9 million (52%) decrease in provision for income tax[334](index=334&type=chunk) [Net Interest Income](index=66&type=section&id=Net%20Interest%20Income) Net Interest Income and Margin (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $128,719 | $128,119 | $600 | | Interest rate spread | 2.33% | 2.45% | -12 bps | | Net interest margin | 2.83% | 2.99% | -16 bps | - Net interest income **increased slightly by $0.6 million**, reflecting lower interest expense on deposits partially offset by lower interest income and higher interest expense on borrowings[340](index=340&type=chunk) - The net interest margin **decreased by 16 basis points to 2.83%**, negatively impacted by a significant shift in business mix towards lower-margin loans held for sale and warehouse repurchase agreements[341](index=341&type=chunk) [Interest Income](index=66&type=section&id=Interest%20Income) Interest Income (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Loans | $255,641 | $284,421 | -10.1% | | Mortgage loans in process of securitization | $5,304 | $3,044 | 74.3% | | Investment securities available for sale | $12,095 | $14,784 | -18.2% | | Investment securities held to maturity | $23,166 | $19,799 | 17.0% | | Total interest income | $304,399 | $328,273 | -7.3% | - Interest income on loans and loans held for sale **decreased by $28.8 million, or 10%**, due to a 105 basis point decrease in average yield to 6.92%, despite a 3% increase in average loan balance[343](index=343&type=chunk) - Interest income on mortgage loans in process of securitization **increased by $2.3 million, or 74%**, due to a 61% increase in average balance and a 42 basis point increase in average yield[348](index=348&type=chunk) [Interest Expense](index=67&type=section&id=Interest%20Expense) Interest Expense (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Deposits | $131,375 | $179,651 | -26.8% | | Short-term borrowings | $36,981 | $11,612 | 218.5% | | Long-term borrowings | $7,324 | $8,891 | -17.6% | | Total interest expense | $175,680 | $200,154 | -12.2% | - Interest expense on deposits **decreased by $48.3 million, or 27%**, primarily due to lower average balances and rates on certificates of deposit[350](index=350&type=chunk) - Interest expense on borrowings **increased by $23.8 million, or 116%**, due to a 235% increase in overall average borrowings, despite a 285 basis point decrease in the average interest rate to 5.15%[353](index=353&type=chunk) [Provision for Credit Losses](index=68&type=section&id=Provision%20for%20Credit%20Losses) Provision for Credit Losses (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for credit losses | $53,027 | $9,965 | 432.0% | - The **$53.0 million provision for credit losses** consisted of $54.5 million for ACL-Loans, net of a $1.1 million release for ACL-OBCE's and a $0.3 million release for ACL-Guarantees[356](index=356&type=chunk) - The increase was primarily associated with estimated declines on multi-family property values and ongoing investigations of mortgage fraud[357](index=357&type=chunk) [Noninterest Income](index=68&type=section&id=Noninterest%20Income) Noninterest Income (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Gain on sale of loans | $23,342 | $11,168 | 109% | | Loan servicing fees, net | $6,138 | $10,827 | -43% | | Mortgage warehouse fees | $2,039 | $1,524 | 34% | | Syndication and asset management fees | $9,707 | $3,233 | 200% | | Other income | $9,254 | $4,599 | 101% | | Total noninterest income | $50,480 | $31,351 | 61% | - Gain on sale of loans **increased by $12.2 million, or 109%**, driven by higher volume in the multi-family loan portfolio[359](index=359&type=chunk) - Syndication and asset management fees **increased by $6.5 million, or 200%**, due to an increase in managed projects and funds, and new equity raises[362](index=362&type=chunk) - Other noninterest income **increased by $4.7 million, or 101%**, including a $4.3 million positive fair value adjustment to floor derivatives[363](index=363&type=chunk) [Noninterest Expense](index=69&type=section&id=Noninterest%20Expense) Noninterest Expense (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $43,566 | $28,373 | 54% | | Deposit insurance expense | $7,152 | $5,579 | 28% | | Credit risk transfer premium expense | $4,767 | $2,294 | 108% | | Other expense | $12,611 | $5,487 | 130% | | Total noninterest expense | $77,337 | $50,380 | 54% | - Salaries and employee benefits **increased by $15.2 million, or 54%**, including $5.8 million for the addition of production staff[365](index=365&type=chunk) - Other expense **increased by $7.1 million**, primarily related to taxes, insurance, receiver expenses, and legal fees tied to preserving collateral for nonperforming loans[365](index=365&type=chunk) - The efficiency ratio **increased to 43.16% from 31.59%**, with credit default swap premiums, collateral preservation, and production staff additions negatively impacting it by 941 basis points[367](index=367&type=chunk) [Income Taxes](index=70&type=section&id=Income%20Taxes) Income Taxes (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for income taxes | $10,854 | $22,732 | -52% | | Effective tax rate | 22.2% | 22.9% | -0.7 pp | - Income tax expense **decreased by $11.9 million, or 52%**, primarily due to a 51% decrease in pretax income[368](index=368&type=chunk) [Comparison of Operating Results for the Six Months Ended June 30, 2025 and 2024](index=70&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) [General Operating Results](index=70&type=section&id=General%20Operating%20Results) - Net income **decreased by $67.2 million, or 41%, to $96.2 million**, primarily due to a $46.1 million increase in provision for credit losses and a $39.7 million increase in noninterest expense[369](index=369&type=chunk) - These were partially offset by a $20.9 million decrease in the provision for income taxes and a $1.9 million increase in noninterest income[369](index=369&type=chunk) [Net Interest Income](index=72&type=section&id=Net%20Interest%20Income) Net Interest Income and Margin (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $250,915 | $255,175 | -$4,260 | | Interest rate spread | 2.36% | 2.52% | -16 bps | | Net interest margin | 2.86% | 3.07% | -21 bps | - Net interest income **decreased by $4.3 million, or 2%**, reflecting lower interest income and higher interest expense on borrowings, partially offset by lower interest expense on deposits[374](index=374&type=chunk) - The net interest margin **decreased by 21 basis points to 2.86%**, negatively impacted by a shift in business mix towards lower-margin loans held for sale and warehouse repurchase agreements[375](index=375&type=chunk) [Interest Income](index=72&type=section&id=Interest%20Income) Interest Income (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Loans | $494,921 | $556,419 | -11.0% | | Mortgage loans in process of securitization | $9,047 | $4,764 | 89.9% | | Investment securities available for sale | $24,453 | $29,172 | -16.2% | | Investment securities held to maturity | $47,524 | $40,321 | 17.9% | | Total interest income | $591,603 | $642,446 | -7.9% | - Interest income on loans and loans held for sale **decreased by $61.5 million, or 11%**, due to a 106 basis point decrease in average yield to 6.98%, despite a 3% increase in average loan balance[377](index=377&type=chunk) - Interest income on securities held to maturity **increased by $7.2 million, or 18%**, due to a 36% increase in average balance, partially offset by a 92 basis point decrease in average yield[381](index=381&type=chunk) [Interest Expense](index=73&type=section&id=Interest%20Expense) Interest Expense (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Deposits | $255,316 | $350,673 | -27.2% | | Short-term borrowings | $70,345 | $18,834 | 273.5% | | Long-term borrowings | $15,027 | $17,764 | -15.4% | | Total interest expense | $340,688 | $387,271 | -12.0% | - Interest expense on deposits **decreased by $95.4 million, or 27%**, primarily due to lower average balances and rates for certificate of deposit accounts[384](index=384&type=chunk) - Interest expense on borrowings **increased by $48.8 million, or 133%**, due to a 277% increase in average balances, despite a 319 basis point decrease in the average rate to 5.23%[388](index=388&type=chunk) [Provision for Credit Losses](index=74&type=section&id=Provision%20for%20Credit%20Losses) Provision for Credit Losses (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for credit losses | $60,754 | $14,691 | 313.5% | - The **$60.8 million provision for credit losses** consisted of $64.0 million for ACL-Loans, net of a $2.8 million release for ACL-OBCE's and a $0.4 million release for ACL-Guarantees[392](index=392&type=chunk) - The increase was primarily associated with estimated declines on multi-family property values, ongoing investigations of mortgage fraud, and certain types of subordinated loans[391](index=391&type=chunk) [Noninterest Income](index=74&type=section&id=Noninterest%20Income) Noninterest Income (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Gain on sale of loans | $34,961 | $20,524 | 70% | | Loan servicing fees, net | $10,148 | $30,229 | -66% | | Mortgage warehouse fees | $3,552 | $2,506 | 42% | | Syndication and asset management fees | $13,096 | $8,536 | 53% | | Other income | $12,416 | $10,538 | 18% | | Total noninterest income | $74,173 | $72,225 | 3% | - Gain on sale of loans **increased by $14.4 million, or 70%**, driven by higher volume in the multi-family loan portfolio[394](index=394&type=chunk) - Loan servicing fees **decreased by $20.1 million, or 66%**, including a $0.5 million negative fair market value adjustment to servicing rights (compared to a $19.0 million positive adjustment in 2024)[400](index=400&type=chunk) - Syndication and asset management fees **increased by $4.6 million, or 53%**, due to an increase in managed projects and funds, and new equity raises[398](index=398&type=chunk) [Noninterest Expense](index=75&type=section&id=Noninterest%20Expense) Noninterest Expense (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $79,985 | $57,969 | 38% | | Deposit insurance expense | $14,380 | $10,704 | 34% | | Credit risk transfer premium expense | $8,629 | $2,294 | 276% | | Other expense | $18,349 | $10,532 | 74% | | Total noninterest expense | $139,001 | $99,292 | 40% | - Salaries and employee benefits **increased by $22.0 million, or 38%**, including $8.3 million for the addition of production staff[403](index=403&type=chunk) - Credit risk transfer premium expense **increased by $6.3 million, or 276%**, stemming from credit default swaps[403](index=403&type=chunk) - The efficiency ratio **increased to 42.76% from 30.33%**, with credit default swap premiums, collateral preservation, and production staff additions negatively impacting it by 714 basis points[404](index=404&type=chunk) [Income Taxes](index=76&type=section&id=Income%20Taxes) Income Taxes (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for income taxes | $29,113 | $49,970 | -42% | | Effective tax rate | 23.2% | 23.4% | -0.2 pp | - Income tax expense **decreased by $20.9 million, or 42%**, reflecting a 41% lower pre-tax income[405](index=405&type=chunk) [Our Segments](index=76&type=section&id=Our%20Segments) - The Company's three primary segments are **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking**, which offer distinct but complementary products and services and provide synergies across the Bank[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) Net Income (Loss) by Segment (Three Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $9,269 | $9,037 | | Mortgage Warehousing | $22,986 | $22,270 | | Banking | $14,574 | $52,378 | | Other | $(8,848) | $(7,292) | Net Income (Loss) by Segment (Six Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $12,682 | $25,646 | | Mortgage Warehousing | $38,384 | $42,460 | | Banking | $61,681 | $108,803 | | Other | $(16,527) | $(13,462) | [Multi-family Mortgage Banking](index=76&type=section&id=Multi-family%20Mortgage%20Banking) - Net income for the three months ended June 30, 2025, **increased by 3% to $9.3 million**, driven by a $9.0 million increase in gain on sale of loans and a $6.5 million increase in syndication and asset management fees, despite a $12.9 million increase in noninterest expense[416](index=416&type=chunk) - Loan volume originated and acquired **increased by 33% to $1.4 billion** for the three months ended June 30, 2025[419](index=419&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 51% to $12.7 million**, primarily due to a $17.9 million increase in noninterest expense and a $15.3 million decrease in loan servicing fees[420](index=420&type=chunk) - The total servicing portfolio had an unpaid principal balance of **$31.0 billion** at June 30, 2025, primarily Ginnie Mae multi-family servicing rights[407](index=407&type=chunk) [Mortgage Warehousing](index=78&type=section&id=Mortgage%20Warehousing) - Net income for the three months ended June 30, 2025, **increased by 3% to $23.0 million**, reflecting an increase in other noninterest income (including a $4.3 million positive fair market value adjustment to derivatives)[423](index=423&type=chunk)[424](index=424&type=chunk) - The volume of loans funded **increased by 49% to $16.3 billion** for the three months ended June 30, 2025[425](index=425&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 10% to $38.4 million**, primarily due to an increase in noninterest expense related to premiums for credit risk transfers[427](index=427&type=chunk) - The volume of loans funded **increased by 49% to $28.1 billion** for the six months ended June 30, 2025[429](index=429&type=chunk) [Banking](index=79&type=section&id=Banking) - Net income for the three months ended June 30, 2025, **decreased by 72% to $14.6 million**, primarily due to an increase in provision for credit losses[430](index=430&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 43% to $61.7 million**, also primarily due to the increase in provision for credit losses[432](index=432&type=chunk) - The Bank has established a limit not to increase its commercial real estate portfolio by **more than 10%** from the prior calendar year-end[433](index=433&type=chunk) [Other Segment](index=77&type=section&id=Other%20Segment) - The 'Other' segment includes general and administrative expenses, internal funds transfer pricing offsets, elimination entries, and investments in low-income housing tax credit limited partnerships or LLCs[414](index=414&type=chunk) [Liquidity and Capital Resources](index=79&type=section&id=Liquidity%20and%20Capital%20Resources) [Liquidity](index=79&type=section&id=Liquidity) - The Company had **$5.0 billion in available unused borrowing capacity** with the FHLB and Federal Reserve discount window at June 30, 2025, up from $4.3 billion at December 31, 2024[436](index=436&type=chunk) - Liquid assets (cash, short-term investments, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit) totaled **$11.9 billion, or 62% of total assets**, at June 30, 2025[437](index=437&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, which are well-covered by the Company's liquidity, including a Federal Reserve line of credit that could fund 106% of uninsured deposits[438](index=438&type=chunk) - Net cash provided by operating activities was **$26.9 million** for the six months ended June 30, 2025, a significant improvement from $(332.7) million used in the prior year[439](index=439&type=chunk) [Off-Balance Sheet Arrangements](index=80&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company had **$3.9 billion in outstanding commitments to extend credit** and $3.6 billion in commitments subject to certain performance criteria and cancellation at June 30, 2025[442](index=442&type=chunk) - The business model is designed to continuously sell a significant portion of its loans, providing flexibility in managing liquidity[444](index=444&type=chunk) [Capital Resources](index=81&type=section&id=Capital%20Resources) - The Company filed a shelf registration statement on Form S-3, effective June 4, 2025, to issue up to **$500 million** in registered securities to finance growth objectives[445](index=445&type=chunk) - The Company aims to maintain a strong capital base to support growth, provide stability, and promote public confidence[446](index=446&type=chunk) [Shareholders' Equity](index=81&type=section&id=Shareholders'%20Equity) Total Shareholders' Equity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $2,184,632 | | December 31, 2024 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 3%**, primarily due to the $125.0 million redemption of 6% Series B Preferred Stock and $29.7 million in dividends, partially offset by $96.2 million in net income[447](index=447&type=chunk) [Preferred Stock/Dividends](index=81&type=section&id=Preferred%20Stock%2FDividends) - The Company redeemed all outstanding Series A Preferred Stock on April 1, 2024, for **$52 million**[448](index=448&type=chunk) - All outstanding Series B Preferred Stock were redeemed on January 2, 2025, for **$125.0 million**, resulting in $4.2 million in expenses and a $1.2 million excise tax[449](index=449&type=chunk) - On November 25, 2024, the Company issued 9,200,000 depositary shares of 7.625% Series E Preferred Stock, raising **$222.7 million in net proceeds**[451](index=451&type=chunk) - Dividends declared to preferred shareholders for the six months ended June 30, 2025, totaled **$10.3 million**[454](index=454&type=chunk) [Common Shares/Dividends](index=82&type=section&id=Common%20Shares%2FDividends) - As of June 30, 2025, the Company had **45,885,458 common shares** issued and outstanding[455](index=455&type=chunk) - The Board declared a quarterly dividend of **$0.10 per share** for the first two quarters of 2025[455](index=455&type=chunk) [Capital Adequacy](index=82&type=section&id=Capital%20Adequacy) - Both the Company and Merchants Bank met all capital adequacy requirements and were categorized as **'well capitalized'** as of June 30, 2025, and December 31, 2024[460](index=460&type=chunk)[461](index=461&type=chunk) - The Bank's capital **exceeded the levels agreed to in the MOU** as of June 30, 2025[461](index=461&type=chunk) - Merchants Bank has established a **minimum leverage ratio of 9.0%** and a **minimum total capital ratio of 12.5%**[462](index=462&type=chunk) - Dividend payments to shareholders are limited by Indiana law (retained net income) and the MOU (if capital ratios fall below minimums)[463](index=463&type=chunk)[465](index=465&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) [Market Risk Overview](index=84&type=section&id=Market%20Risk%20Overview) - Market risk is the risk of loss due to changes in market values of assets and liabilities, primarily from interest rate risk and price risk related to market demand[466](index=466&type=chunk) - Interest rate risk arises from reprice risk, option risk, yield curve risk, and changes in spread relationships[467](index=467&type=chunk) [Interest Rate Risk Management](index=84&type=section&id=Interest%20Rate%20Risk%20Management) - The Company manages interest rate risk by funding low-risk, government-backed loans (originate-to-sell model) and retaining adjustable-rate loans as held for investment[468](index=468&type=chunk) - The Asset-Liability Committee (ALCO) manages interest rate risk within board-established policy limits, meeting quarterly to monitor sensitivity and ensure compliance[469](index=469&type=chunk) [Income Simulation and Economic Value Analysis](index=84&type=section&id=Income%20Simulation%20and%20Economic%20Value%20Analysis) - The Company uses Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (EVE) models to measure interest rate risk[473](index=473&type=chunk) Net Interest Income Sensitivity (Twelve Months Forward, June 30, 2025, In thousands) | Scenario | Dollar change | Percent change | | :--- | :--- | :--- | | -200 bps | $(84,289) | -15.9% | | -100 bps | $(44,357) | -8.3% | | +100 bps | $42,895 | 8.1% | | +200 bps | $85,982 | 16.2% | Economic Value of Equity Sensitivity (Immediate Change in Rates, June 30, 2025, In thousands) | Scenario | Dollar change | Percent change | | :--- | :--- | :--- | | -200 bps | $54,849 | 2.6% | | -100 bps | $36,112 | 1.7% | | +100 bps | $2,604 | 0.1% | | +200 bps | $4,897 | 0.2% | - At June 30, 2025, the Company was **within policy limits** for both NII at Risk (20% for +/- 100 bps, 30% for +/- 200 bps) and EVE (15% for +/- 100 bps, 20% for +/- 200 bps)[478](index=478&type=chunk)[480](index=480&type=chunk) [Non-GAAP Financial Measures](index=85&type=section&id=Non-GAAP%20Financial%20Measures) - The Company provides non-GAAP financial measures, such as tangible book value per common share, to supplement GAAP reporting and assist users in assessing operating performance[483](index=483&type=chunk) Non-GAAP Financial Measures (In thousands, except share data) | Metric | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total equity | $2,184,632 | $1,888,147 | | Less: goodwill and intangibles | $(8,062) | $(8,108) | | Less: preferred stock | $(551,291) | $(449,387) | | Tangible common shareholders' equity | $1,625,279 | $1,430,652 | | Assets | $19,141,204 | $18,212,422 | | Less: goodwill and intangibles | $(8,062) | $(8,108) | | Tangible assets | $19,133,142 | $18,204,314 | | Ending common shares | 45,885,458 | 45,757,567 | | Tangible book value per common share | $35.42 | $31.27 | [Item 3 Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the detailed discussion of market risk within Item 2 of this Form 10-Q - The required information is included in Item 2 under the headings "Liquidity and Capital Resources" and "Interest Rate Risk"[486](index=486&type=chunk) [Item 4 Controls and Procedures](index=86&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Company's disclosure controls and procedures were **effective** as of June 30, 2025[486](index=486&type=chunk) - There have been **no material changes** in the Company's internal control over financial reporting during the period[487](index=487&type=chunk) PART II – OTHER INFORMATION [Item 1 Legal Proceedings](index=87&type=section&id=Item%201%20Legal%20Proceedings) There are no legal proceedings to report for the period - None[490](index=490&type=chunk) [Item 1A Risk Factors](index=87&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes from risk factors previously disclosed in the Company's Annual Report - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[491](index=491&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There are no unregistered sales of equity securities or use of proceeds to report for the period - None[492](index=492&type=chunk) [Item 3 Defaults Upon Senior Securities](index=87&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report for the period - None[493](index=493&type=chunk) [Item 4 Mine Safety Disclosures](index=87&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[494](index=494&type=chunk) [Item 5 Other Information](index=87&type=section&id=Item%205%20Other%20Information) There is no other information to report for the period - None[495](index=495&type=chunk) [Item 6 Exhibits](index=88&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL data files - Exhibits include Second Amended and Restated Articles of Incorporation, Articles of Amendment for Preferred Stock, Second Amended and Restated By-Laws, CEO and CFO Certifications (Sarbanes-Oxley Act), and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[497](index=497&type=chunk) SIGNATURES [SIGNATURES](index=89&type=section&id=SIGNATURES) The report is duly signed by the Chairman & CEO and the CFO as of August 11, 2025 - The report was signed by Michael F. Petrie (Chairman & Chief Executive Officer) and Sean A. Sievers (Chief Financial Officer) on August 11, 2025[501](index=501&type=chunk)

(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 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________ Commission File No. 001-38258 MERCHANTS BANCORP (Exact name of registrant as specified in its charter) | Ind ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________ Commission File No. 001-38258 MERCHANTS BANCORP (Exact name of registrant as specified in its charter) | Ind ...

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Quest Resource Holding Corporation reported Q2 2025 revenue of $59.5 million with sequential gross profit growth, alongside year-to-date revenue decline and significant debt reduction [Second Quarter 2025 Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) Quest Resource Holding Corporation reported a revenue of $59.5 million in Q2 2025, an 18.6% decrease year-over-year and a 13.0% sequential decrease, with gross profit up 1.0% sequentially and gross margin improving by 250 basis points sequentially to 18.5% Second Quarter 2025 Financial Metrics | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Q1 2025 (Millions) | YoY Change | QoQ Change | | :----- | :----------------- | :----------------- | :----------------- | :--------- | :--------- | | Revenue | $59.5 | $73.1 | $68.4 (implied) | -18.6% | -13.0% | | Gross Profit | $11.0 | $13.5 | $10.9 (implied) | -18.4% | +1.0% | | Gross Margin | 18.5% | 18.5% | 16.0% (implied) | 0 bps | +250 bps | | GAAP Net Loss | $(2.0) | $(1.5) | $(10.4) | -33.3% | +80.8% | | GAAP Net Loss per Share | $(0.09) | $(0.07) | $(0.50) | -28.6% | +82.0% | | Adjusted EBITDA | $2.7 | $5.1 | $1.6 | -47.1% | +68.8% | | Adjusted Net Loss per Share | $(0.04) | $0.03 | $(0.14) | N/A | +71.4% | [Year-to-Date 2025 Financial Highlights](index=1&type=section&id=Year-to-Date%202025%20Highlights) For the first six months of 2025, Quest reported revenue of $128.0 million, a 12.2% decrease year-over-year, with gross profit declining by 20.3% and Adjusted EBITDA decreasing by 58.7% Year-to-Date 2025 Financial Metrics | Metric | YTD 2025 (Millions) | YTD 2024 (Millions) | YoY Change | | :----- | :------------------ | :------------------ | :--------- | | Revenue | $128.0 | $145.8 | -12.2% | | Gross Profit | $22.0 | $27.6 | -20.3% | | Gross Margin | 17.2% | 18.9% | -170 bps | | GAAP Net Loss | $(12.4) | $(2.2) | -463.6% | | GAAP Net Loss per Share | $(0.59) | $(0.11) | -436.4% | | Adjusted EBITDA | $4.2 | $10.3 | -58.7% | | Adjusted Net Loss per Share | $(0.18) | $0.10 | N/A | [Recent Operational & Strategic Highlights](index=1&type=section&id=Recent%20Highlights) Quest generated $3.9 million in operating cash flow during Q2 2025, reduced debt by $6.6 million year-to-date, and secured new client wins in the restaurant and retail sectors - Generated **$3.9 million** of operating cash flow during the second quarter of 2025[6](index=6&type=chunk) - Reduced debt by **$6.6 million** year-to-date[6](index=6&type=chunk) - Secured significant competitive wins, including a new client in the restaurant end market and a geographic expansion with an existing client in the retail end market[6](index=6&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Management addresses past operational challenges and market slowdowns, highlighting decisive actions, cultural shifts, and operational excellence initiatives leading to sequential improvements and new client acquisitions [Chairman's Remarks](index=2&type=section&id=Chairman%27s%20Remarks) Chairman Dan M. Friedberg acknowledged past operational issues, industrial sector slowdown, and client attrition, highlighting decisive actions that led to sequential growth in gross profit, decreased SG&A, and strong operating cash flow - Experienced a host of issues last year, including operational issues, an industrial sector slowdown, client attrition, and challenges related to adding new clients and systems integration[7](index=7&type=chunk) - Took decisive actions to address issues, including reductions and additions to the management team, cost reductions, selling an underperforming business line (RWS), and resetting financial covenants with lenders[7](index=7&type=chunk)[8](index=8&type=chunk) - Efforts resulted in sequential growth in **gross profit dollars**, a decrease in **SG&A costs**, and strong **operating cash flow generation**, indicating an improving business trajectory despite continued softness in the industrial end market[8](index=8&type=chunk) [CEO's Remarks](index=2&type=section&id=CEO%27s%20Remarks) CEO Perry W. Moss emphasized a cultural shift towards performance and accountability, driven by data and KPIs, with operational excellence initiatives improving cash generation and efficiency, alongside active pursuit of growth initiatives - Fundamentally changing Quest's culture to one of performance and accountability, driven by data and KPI philosophy[9](index=9&type=chunk) - Operational Excellence Initiatives are improving **cash generation**, efficiency, reducing operational variability, strengthening vendor relationships, and increasing employee satisfaction[9](index=9&type=chunk) - Actively pursuing growth initiatives, winning new clients (e.g., restaurant industry), and expanding geographic footprint with existing clients (e.g., retail), despite macro uncertainties causing prospective clients to delay decision making[10](index=10&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) This section presents the company's financial performance and position, including statements of operations, reconciliation of non-GAAP measures, and balance sheet details for Q2 and YTD 2025 [Statements of Operations](index=4&type=section&id=STATEMENTS%20OF%20OPERATIONS) The Statements of Operations show a decline in revenue and gross profit for both the three and six months ended June 30, 2025, compared to the prior year, resulting in increased net losses due to higher operating expenses Statements of Operations Summary | Metric (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------- | :------ | :------ | :------- | :------- | | Revenue | $59,540 | $73,145 | $127,970 | $145,796 | | Cost of revenue | $48,503 | $59,613 | $106,002 | $118,228 | | Gross profit | $11,037 | $13,532 | $21,968 | $27,568 | | Total operating expenses | $10,655 | $11,750 | $29,747 | $23,910 | | Operating income (loss) | $382 | $1,782 | $(7,779) | $3,658 | | Net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Basic and diluted EPS | $(0.09) | $(0.07) | $(0.59) | $(0.11) | [Reconciliation of Net Loss to Adjusted EBITDA](index=5&type=section&id=RECONCILIATION%20OF%20NET%20LOSS%20TO%20ADJUSTED%20EBITDA) This reconciliation details adjustments from GAAP net loss to Adjusted EBITDA, including depreciation, interest, stock-based compensation, and non-cash items, showing a decrease in Adjusted EBITDA for both Q2 and YTD 2025 Adjusted EBITDA Reconciliation | Metric (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------- | :------ | :------ | :------- | :------- | | Net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Depreciation and amortization | $1,500 | $2,605 | $3,246 | $5,101 | | Interest expense | $2,375 | $2,612 | $4,642 | $5,084 | | Stock-based compensation expense | $533 | $363 | $1,195 | $720 | | Loss on sale of assets | $61 | — | $4,491 | — | | Impairment loss | — | — | $1,707 | — | | Adjusted EBITDA | $2,684 | $5,139 | $4,239 | $10,259 | [Adjusted Net Income (Loss) Per Share](index=5&type=section&id=ADJUSTED%20NET%20INCOME%20(LOSS)%20PER%20SHARE) This section reconciles reported net loss to adjusted net income (loss) and per-share amounts, primarily by eliminating non-cash amortization, acquisition/integration costs, loss on asset sales, and impairment losses Adjusted Net Income (Loss) Per Share Reconciliation | Metric (in thousands, except per share) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Reported net loss | $(1,971) | $(1,514) | $(12,377) | $(2,169) | | Amortization of intangibles | $1,104 | $2,221 | $2,468 | $4,441 | | Loss on sale of assets | $61 | — | $4,491 | — | | Impairment loss | — | — | $1,707 | — | | Adjusted net income (loss) | $(806) | $726 | $(3,711) | $2,333 | | Reported net loss per share | $(0.09) | $(0.07) | $(0.59) | $(0.11) | | Adjusted net income (loss) per share | $(0.04) | $0.03 | $(0.18) | $0.10 | [Balance Sheets](index=6&type=section&id=BALANCE%20SHEETS) As of June 30, 2025, total assets decreased to $153.1 million, primarily due to reduced accounts receivable and reclassified assets held for sale, while total liabilities and stockholders' equity also decreased Balance Sheet Summary | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total assets | $153,062 | $175,645 | $(22,583) | | Cash and cash equivalents | $449 | $396 | $53 | | Accounts receivable, net | $53,660 | $62,252 | $(8,592) | | Assets held for sale | — | $9,890 | $(9,890) | | Total current assets | $56,727 | $75,139 | $(18,412) | | Total liabilities | $110,124 | $121,489 | $(11,365) | | Notes payable, net | $69,680 | $76,265 | $(6,585) | | Total stockholders' equity | $42,938 | $54,156 | $(11,218) | [Additional Information](index=2&type=section&id=Additional%20Information) This section provides background on Quest's business, explains non-GAAP financial measures, includes a safe harbor statement for forward-looking information, and details investor contact and conference call information [About Quest Resource Holding Corporation](index=2&type=section&id=About%20Quest%20Resource%20Holding%20Corporation) Quest is a national provider of environmental waste and recycling services, offering single-source, client-specific solutions to help large businesses achieve their environmental and sustainability goals - Quest is a national provider of waste and recycling services[13](index=13&type=chunk) - Empowers larger businesses to excel in achieving their environmental and sustainability goals and responsibilities[13](index=13&type=chunk) - Delivers focused expertise across multiple industry sectors to build single-source, client-specific solutions that generate quantifiable business and sustainability results[13](index=13&type=chunk) [Non-GAAP Financial Measures Explanation](index=2&type=section&id=Reconciliation%20of%20U.S.%20GAAP%20to%20Non-GAAP%20Financial%20Measures) Quest uses non-GAAP financial measures like Adjusted EBITDA and Adjusted Net Income (Loss) to clarify underlying performance trends by excluding non-operating or non-cash items, though these measures have limitations - Quest uses non-GAAP financial measures, **"Adjusted EBITDA"** and **"Adjusted Net Income (Loss),"** to provide an improved understanding of underlying performance trends[14](index=14&type=chunk) - These measures exclude items such as depreciation and amortization, interest expense, stock-based compensation expense, income tax expense, and certain other adjustments[14](index=14&type=chunk) - Non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for the Company's GAAP measures[14](index=14&type=chunk)[15](index=15&type=chunk) [Safe Harbor Statement](index=3&type=section&id=Safe%20Harbor%20Statement) This safe harbor statement cautions that forward-looking statements in the press release may differ materially from actual results due to various factors, advising readers to consult SEC filings for risks - The press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934[16](index=16&type=chunk) - Actual events or results could differ materially from forward-looking statements due to factors including competition, economic environment, supply chain interruptions, commodity price fluctuations, and other risks detailed in SEC filings[16](index=16&type=chunk) - Readers are cautioned not to place undue reliance on such statements and to consult SEC filings for additional risks and uncertainties[16](index=16&type=chunk) [Investor Relations Contact & Conference Call](index=2&type=section&id=Second%20Quarter%202025%20Earnings%20Conference%20Call%20and%20Webcast) Quest will host a conference call on August 11, 2025, at 5:00 PM ET to discuss Q2 2025 financial results, with details provided for participation and webcast access, along with investor relations contact information - Quest will host a conference call on Monday, August 11, 2025, at 5:00 PM ET, to review the financial results for the second quarter ended June 30, 2025[11](index=11&type=chunk) - To participate, dial 1-800-717-1738 or 1-646-307-1865, or access online through a listen-only webcast on the investor relations section of Quest's website at http://investors.qrhc.com/[11](index=11&type=chunk) - Investor Relations Contact: Joe Noyons of Three Part Advisors, LLC, at **817.778.8424**[17](index=17&type=chunk)

[Second Quarter 2025 Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Highlights) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management highlights strong sequential operating income and EBITDA improvement in Q2 2025, driven by cost management and pricing actions - Sequentially, Q2 income from operations increased by **$15 million** to **$20 million**, and Consolidated EBITDA increased by **$5 million** to **$74 million** compared to Q1 2025[2](index=2&type=chunk) - The Expedited Freight segment achieved its highest reported **EBITDA margin** since Q4 2023, benefiting from rigorous cost controls and pricing actions completed in February[3](index=3&type=chunk) - Year-to-date cash provided by operating activities showed a **$111 million improvement**, reaching **$14 million** compared to a **$97 million** use of cash in the first half of 2024[6](index=6&type=chunk) Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q2 2024 | Sequential Change (vs Q1 2025) | | :--- | :--- | :--- | :--- | | Consolidated Revenue (Millions) | $619M | $644M | +$6M | | Income from Operations (Millions) | $20M | -$3M (ex-impairment) | +$15M | | Consolidated EBITDA (Millions) | $74M | $89M | +$5M | | Liquidity (End of Quarter, Millions) | $368M | N/A | -$25M | [Consolidated Financial Performance Summary](index=2&type=section&id=Consolidated%20Financial%20Performance%20Summary) Q2 2025 consolidated revenue decreased 3.9% year-over-year, but income from continuing operations turned positive, despite a 17.1% decline in Consolidated EBITDA Q2 2025 vs Q2 2024 Consolidated Results (in thousands, except per share data) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | Percent Change | | :--- | :--- | :--- | :--- | | Operating revenue | $618,844 | $643,666 | (3.9)% | | Income (loss) from continuing operations | $19,522 | $(1,095,755) | 101.8% | | Net loss from continuing operations per diluted share | $(0.41) | $(23.29) | 98.2% | | Consolidated EBITDA (Non-GAAP) | $73,813 | $88,997 | (17.1)% | | Free cash flow (Non-GAAP) | $(17,157) | $(59,069) | 71.0% | [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) [Statements of Comprehensive (Loss) Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Q2 2025 net loss from continuing operations significantly improved to $20.4 million due to the absence of a prior year goodwill impairment Q2 2025 Revenue by Segment (in thousands) | Segment | Q2 2025 Revenue (Thousands) | Q2 2024 Revenue (Thousands) | | :--- | :--- | :--- | | Expedited Freight | $257,696 | $291,282 | | Omni Logistics | $328,316 | $311,856 | | Intermodal | $59,146 | $59,299 | Q2 2025 Income (Loss) from Continuing Operations by Segment (in thousands) | Segment | Q2 2025 Income (Loss) (Thousands) | Q2 2024 Income (Loss) (Thousands) | | :--- | :--- | :--- | | Expedited Freight | $19,495 | $21,946 | | Omni Logistics | $7,186 | $(1,105,871) | | Intermodal | $4,415 | $5,317 | - The significant year-over-year improvement in net loss was primarily due to the absence of the **$1.09 billion impairment of goodwill charge** recorded in Q2 2024[12](index=12&type=chunk) [Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased to $2.76 billion, while shareholders' equity declined to $216.2 million due to accumulated deficit Key Balance Sheet Items (in thousands) | Account | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :--- | :--- | :--- | | Total current assets | $474,607 | $472,500 | | Total assets | $2,761,235 | $2,802,641 | | Total current liabilities | $396,685 | $384,046 | | Long-term debt, less current portion | $1,681,468 | $1,675,930 | | Total shareholders' equity | $216,241 | $285,868 | [Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly improved year-over-year, with $14.4 million provided for the six months ended June 30, 2025 Cash Flow Summary (in thousands) | Period | Net Cash from Operating Activities (Thousands) | Net Cash from Investing Activities (Thousands) | Net Cash from Financing Activities (Thousands) | | :--- | :--- | :--- | :--- | | **Three Months Ended** | | | | | June 30, 2025 | $(13,217) | $(3,885) | $(4,618) | | June 30, 2024 | $(45,200) | $(13,954) | $(4,231) | | **Six Months Ended** | | | | | June 30, 2025 | $14,398 | $(15,124) | $(9,943) | | June 30, 2024 | $(96,924) | $(1,583,406) | $(162,957) | [Segment Performance](index=4&type=section&id=Segment%20Performance) [Expedited Freight](index=4&type=section&id=Expedited%20Freight%20Segment%20Information) Expedited Freight revenue decreased 11.5% to $257.7 million, but operating margin remained stable at 7.6% due to pricing actions Expedited Freight Financials (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | Percent Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $257,696 | $291,282 | (11.5)% | | Income from operations | $19,495 | $21,946 | (11.2)% | | Operating Margin | 7.6% | 7.5% | +0.1 ppt | Expedited Freight Operating Statistics | Metric | Q2 2025 | Q2 2024 | Percent Change | | :--- | :--- | :--- | :--- | | Total pounds (thousands) | 623,394 | 713,919 | (12.7)% | | Total shipments (thousands) | 739 | 870 | (15.1)% | | Weight per shipment | 843 | 821 | 2.7% | | Revenue per hundredweight, ex fuel | $24.82 | $24.38 | 1.8% | [Omni Logistics](index=6&type=section&id=Omni%20Logistics%20Segment%20Information) Omni Logistics revenue increased 5.3% to $328.3 million, with income from operations at $7.2 million, a significant recovery from prior year's impairment loss Omni Logistics Financials (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | Percent Change | | :--- | :--- | :--- | :--- | | Operating revenue | $328,316 | $311,856 | 5.3% | | Income (loss) from operations | $7,186 | $(1,105,871) | 100.6% | | Operating Margin | 2.2% | (354.6)% | N/A | [Intermodal](index=7&type=section&id=Intermodal%20Segment%20Information) Intermodal revenue remained flat at $59.1 million, but income from operations decreased 17.0% to $4.4 million, with operating margin contracting to 7.5% Intermodal Financials (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | Percent Change | | :--- | :--- | :--- | :--- | | Operating revenue | $59,146 | $59,299 | (0.3)% | | Income from operations | $4,415 | $5,317 | (17.0)% | | Operating Margin | 7.5% | 9.0% | -1.5 ppt | Intermodal Operating Statistics | Metric | Q2 2025 | Q2 2024 | Percent Change | | :--- | :--- | :--- | :--- | | Drayage shipments | 62,313 | 64,877 | (4.0)% | | Drayage revenue per shipment | $862 | $826 | 4.4% | [Non-GAAP Financial Measures](index=11&type=section&id=Non-GAAP%20Financial%20Measures) [Reconciliation of Non-GAAP Measures](index=11&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) Reconciliations show Q2 2025 Consolidated EBITDA at $73.8 million and free cash flow at negative $17.2 million, providing adjusted performance insights Reconciliation of Net Loss to Consolidated EBITDA (in thousands) | Line Item | Q2 2025 (Thousands) | Q2 2024 (Thousands) | | :--- | :--- | :--- | | Net loss from continuing operations | $(20,364) | $(966,471) | | Interest expense | 45,326 | 47,265 | | Income tax (benefit) expense | (16,749) | (174,942) | | Depreciation and amortization | 36,806 | 48,639 | | **Reported EBITDA** | **45,019** | **(1,045,509)** | | Impairment of goodwill | — | 1,092,714 | | Other Adjustments | 28,794 | 41,792 | | **Consolidated EBITDA** | **$73,813** | **$88,997** | Reconciliation of Net Cash from Operating Activities to Free Cash Flow (in thousands) | Line Item | Q2 2025 (Thousands) | Q2 2024 (Thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(13,217) | $(45,200) | | Proceeds from sale of property and equipment | 804 | 557 | | Purchases of property and equipment | (4,744) | (14,426) | | **Free cash flow** | **$(17,157)** | **$(59,069)** | [Other Information](index=13&type=section&id=Other%20Information) [Forward-Looking Statements](index=13&type=section&id=Note%20Regarding%20Forward-Looking%20Statements) This section outlines standard disclaimers for forward-looking statements, detailing risks that could cause actual results to differ materially - Forward-looking statements in the release relate to long-term growth, synergy capture from the Omni Logistics acquisition, and expectations for financial performance[35](index=35&type=chunk) - Key risks that could cause actual results to differ include economic factors (recessions, inflation), challenges with the Omni Logistics integration, a continued weak freight environment, and competition[36](index=36&type=chunk)

FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) Ellington Financial Inc. filed its Q2 2025 Form 10-Q, a Delaware corporation and Large Accelerated Filer - **Ellington Financial Inc.** is a Delaware corporation, registered under Commission file number 001-34569, and is classified as a Large Accelerated Filer[2](index=2&type=chunk)[4](index=4&type=chunk)[5](index=5&type=chunk) - As of August 8, 2025, the number of shares of common stock outstanding was **99,893,894**[5](index=5&type=chunk) Title of Each Class | Title of Each Class | | :------------------ | | Common Stock, $0.001 par value per share | | 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock | | 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock | | 8.625% Series C Fixed-Rate Reset Cumulative Redeemable Preferred Stock | | 7.000% Series D Cumulative Perpetual Redeemable Preferred Stock | Part I. Financial Information [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements of Ellington Financial Inc. for the period ended June 30, 2025, including the balance sheets, statements of operations, changes in equity, and cash flows, along with comprehensive notes detailing the company's organization, significant accounting policies, valuation methodologies, and specific investment details [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and equity increased from Dec 2024 to June 2025, driven by loans and unconsolidated investments - Loans, at fair value, increased from **$14.00 billion** at December 31, 2024, to **$14.67 billion** at June 30, 2025[10](index=10&type=chunk) - HMBS-related obligations, at fair value, increased from **$9.15 billion** at December 31, 2024, to **$9.81 billion** at June 30, 2025[10](index=10&type=chunk) (In thousands) | (In thousands) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | **Assets** | | | | Total Assets | $17,071,895 | $16,317,028 | | **Liabilities**| | | | Total Liabilities | $15,382,385 | $14,726,206 | | **Equity** | | |\ | Total Equity | $1,689,510 | $1,590,822 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income attributable to common stockholders decreased in Q2 2025 due to lower other income and higher expenses - Net change from HECM reverse mortgage loans, at fair value, was **$168.82 million** for the three-month period ended June 30, 2025, and **$345.81 million** for the six-month period ended June 30, 2025[14](index=14&type=chunk) Three-Month Period Ended June 30 | (In thousands, except per share amounts) | Three-Month Period Ended June 30, 2025 | Three-Month Period Ended June 30, 2024 | | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Interest Income | $43,343 | $33,596 | | Total other income (loss) | $49,199 | $57,561 | | Total expenses | $57,066 | $42,985 | | Net Income (Loss) Attributable to Common Stockholders | $42,923 | $52,347 | | Net Income (Loss) per Share of Common Stock: Basic and Diluted | $0.45 | $0.62 | Six-Month Period Ended June 30 | (In thousands, except per share amounts) | Six-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2024 | | :------------------------------------- | :----------------------------------- | :----------------------------------- | | Net Interest Income | $86,600 | $64,652 | | Total other income (loss) | $88,850 | $102,045 | | Total expenses | $109,050 | $86,640 | | Net Income (Loss) Attributable to Common Stockholders | $74,572 | $79,262 | | Net Income (Loss) per Share of Common Stock: Basic and Diluted | $0.80 | $0.94 | [Condensed Consolidated Statements of Changes in Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased from Dec 2024 to June 2025, driven by net income and common stock issuance - Common stock shares issued and outstanding increased from **90,678,492** at December 31, 2024, to **97,891,157** at June 30, 2025[10](index=10&type=chunk)[16](index=16&type=chunk) (In thousands, except share amounts) | (In thousands, except share amounts) | BALANCE, December 31, 2024 | BALANCE, June 30, 2025 | | :--------------------------------- | :------------------------- | :--------------------- | | Total Equity | $1,590,822 | $1,689,510 | | Net income (loss) | N/A | $51,073 | | Net proceeds from the issuance of common stock | N/A | $44,520 | | Common dividends | N/A | $(37,655) | | Preferred dividends | N/A | $(7,036) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating and investing activities used cash, offset by financing, leading to a net cash increase - Proceeds from issuance of Other secured borrowings significantly increased to **$1.24 billion** in 2025 from **$784.87 million** in 2024[20](index=20&type=chunk) - Net proceeds from the issuance of common stock increased to **$95.55 million** in 2025 from **$26.90 million** in 2024[20](index=20&type=chunk) (In thousands) | (In thousands) | Six-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2024 | | :------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by (used in) operating activities | $(336,913) | $(148,056) | | Net cash provided by (used in) investing activities | $(1,129,502) | $469,261 | | Net cash provided by (used in) financing activities | $1,488,097 | $(347,139) | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $21,682 | $(25,934) | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $230,630 | $204,611 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's financial statements, covering its organizational structure, investment objectives, significant accounting policies, and specific financial instrument details [1. Organization and Investment Objective](index=9&type=section&id=1.%20Organization%20and%20Investment%20Objective) The REIT aims for risk-adjusted returns through its Investment Portfolio and Longbridge reverse mortgage segments - Ellington Financial Inc. operates through its **99.1% owned** consolidated subsidiary, Ellington Financial Operating Partnership LLC, and has elected to be taxed as a REIT[26](index=26&type=chunk)[27](index=27&type=chunk) - The company has two reportable segments: the Investment Portfolio Segment, which invests in diverse financial assets like mortgage loans, RMBS, CMBS, and derivatives; and the Longbridge Segment, focused on origination and servicing of reverse mortgage loans (HECMs and Proprietary reverse mortgage loans)[30](index=30&type=chunk) - Longbridge Financial, LLC, a wholly owned subsidiary, is an approved issuer of HMBS and securitizes HECM loans into HMBS, selling them while retaining servicing rights[30](index=30&type=chunk) [2. Significant Accounting Policies](index=10&type=section&id=2.%20Significant%20Accounting%20Policies) Key accounting policies include fair value measurement, fair value option election, and REIT income tax treatment - The company applies ASC 820-10, Fair Value Measurement, using a three-level valuation hierarchy based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable and significant inputs)[32](index=32&type=chunk)[34](index=34&type=chunk) - The company has elected the Fair Value Option (FVO) for most of its financial instruments, including securities, loans, MSRs, Forward MSR-related investments, loan commitments, and financial derivatives, to record changes in fair value in the Condensed Consolidated Statement of Operations[49](index=49&type=chunk)[53](index=53&type=chunk)[39](index=39&type=chunk)[66](index=66&type=chunk)[82](index=82&type=chunk) - As a REIT, the company is generally not subject to federal and state income tax if it distributes at least **90%** of its taxable income, but its taxable REIT subsidiaries (TRSs) are subject to corporate income taxes[109](index=109&type=chunk)[112](index=112&type=chunk) [3. Valuation](index=22&type=section&id=3.%20Valuation) Fair value measurements are categorized into Level 1, 2, and 3, with details on Level 3 inputs and transfers - For the three-month period ended June 30, 2025, the net change in unrealized gain (loss) for Level 3 financial instruments still held by the Company was **$210.73 million** for Loans, at fair value, and **$(142.21) million** for HMBS-related obligations, at fair value[124](index=124&type=chunk) - At June 30, 2025, the company transferred **$38.4 million** of assets from Level 3 to Level 2 and **$8.0 million** from Level 2 to Level 3, based on the availability of observable inputs[124](index=124&type=chunk) Fair Value Measurements (June 30, 2025) | Description | Level 1 (In thousands) | Level 2 (In thousands) | Level 3 (In thousands) | Total (In thousands) | | :---------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | **Assets (June 30, 2025):** | | | | | | Securities, at fair value | $290 | $520,115 | $309,626 | $830,031 | | Loans, at fair value | — | — | $14,668,365 | $14,668,365 | | Financial derivatives–assets | $5,119 | $155,435 | — | $160,554 | | Total assets | $5,409 | $683,574 | $15,509,523 | $16,198,506 | | **Liabilities (June 30, 2025):** | | | | | | Securities sold short | — | $(264,511) | — | $(264,511) | | Financial derivatives–liabilities | $(2,578) | $(78,860) | $(3) | $(81,441) | | Other secured borrowings, at fair value | — | — | $(2,127,225) | $(2,127,225) | | HMBS-related obligations, at fair value | — | — | $(9,814,811) | $(9,814,811) | | Unsecured borrowings, at fair value | — | — | $(249,036) | $(249,036) | | Total liabilities | $(2,578) | $(343,371) | $(12,191,075) | $(12,537,024) | [4. Investment in Securities](index=38&type=section&id=4.%20Investment%20in%20Securities) Securities portfolio fair value decreased, with details on interest income, gains/losses, and credit losses - As of June 30, 2025, the company had expected future credit losses of **$35.2 million** related to adverse changes in estimated future cash flows on its securities[175](index=175&type=chunk) Securities Portfolio Fair Value | ($ in thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------- | :----------------------- | :--------------------------- | | Agency RMBS | $268,507 | $296,717 | | Non-Agency RMBS | $223,468 | $123,591 | | CMBS | $33,797 | $36,715 | | CLOs | $44,161 | $67,418 | | ABS backed by consumer loans | $55,186 | $60,227 | | U.S. Treasury securities | $125,374 | $226,523 | | Total Long | $938,454 | $962,254 | Interest Income from Securities | (In thousands) | Three-Month Period Ended June 30, 2025 Interest Income | Three-Month Period Ended June 30, 2024 Interest Income | | :------------- | :----------------------------------------------------- | :----------------------------------------------------- | | Agency RMBS | $2,841 | $6,859 | | Non-Agency RMBS and CMBS | $7,606 | $5,561 | | CLOs | $1,361 | $2,624 | | Other securities | $4,316 | $4,703 | | Total | $16,124 | $19,747 | [5. Investment in Loans](index=42&type=section&id=5.%20Investment%20in%20Loans) Loan portfolio fair value increased, primarily driven by reverse mortgage loans, with credit loss details - As of June 30, 2025, reverse mortgage loans constituted the largest portion of the loan portfolio at **$11.11 billion**, with HECM loans collateralizing HMBS being the largest component[201](index=201&type=chunk) Loan Portfolio Fair Value | (In thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------- | :----------------------- | :--------------------------- | | Residential mortgage loans | $3,107,555 | $3,539,534 | | Commercial mortgage loans | $435,222 | $350,515 | | Consumer loans | $271 | $477 | | Corporate loans | $19,709 | $11,767 | | Reverse mortgage loans | $11,105,608 | $10,097,279 | | Total | $14,668,365 | $13,999,572 | Delinquent Loans (90+ days past due) | (In thousands) | June 30, 2025 Unpaid Principal Balance | June 30, 2025 Fair Value | | :------------- | :------------------------------------- | :----------------------- | | Residential mortgage loans (90+ days past due) | $264,168 | $247,030 | | Commercial mortgage loans (90+ days past due) | $54,689 | $54,680 | | Consumer loans (90+ days past due) | $30 | $13 | [6. Mortgage Servicing Rights](index=49&type=section&id=6.%20Mortgage%20Servicing%20Rights) Reverse MSRs fair value was $29.3 million, with net losses recognized for the periods ended June 30, 2025 - As of June 30, 2025, the company's Reverse MSRs related to underlying reverse mortgage loans with an aggregate unpaid principal balance of **$2.7 billion**, and the fair value was **$29.3 million**[212](index=212&type=chunk) - For the three-month period ended June 30, 2025, the company recognized a net loss of **$(0.3) million** related to its Reverse MSRs, and for the six-month period, a net loss of **$(0.5) million**[213](index=213&type=chunk) [7. Forward MSR-related Investments](index=50&type=section&id=7.%20Forward%20MSR-related%20Investments) Forward MSR-related investments had a fair value of $81.3 million, with mixed unrealized gains/losses - The company's Forward MSR-related investments allow it to participate in the economic returns of a portfolio of Forward MSRs, including receiving excess servicing spread and sale proceeds[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - As of June 30, 2025, the fair value of Forward MSR-related investments was **$81.3 million**, up from **$77.8 million** at December 31, 2024[219](index=219&type=chunk) Change in Unrealized Gain (Loss) | (In thousands) | Three-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2025 | | :------------- | :------------------------------------- | :----------------------------------- | | Change in unrealized gain (loss) | $(2,752) | $11,990 | [8. Investments in Unconsolidated Entities](index=51&type=section&id=8.%20Investments%20in%20Unconsolidated%20Entities) Investments in unconsolidated entities increased to $307.7 million, generating significant earnings - As of June 30, 2025, the aggregate fair value of the company's investments in unconsolidated entities was **$307.7 million**, an increase from **$220.1 million** at December 31, 2024[221](index=221&type=chunk) - For the six-month period ended June 30, 2025, the company recognized **$25.4 million** in earnings from investments in unconsolidated entities, compared to **$14.3 million** in the prior year period[222](index=222&type=chunk) Percentage Ownership in Unconsolidated Entities | Investment in Unconsolidated Entity | Percentage Ownership (June 30, 2025) | | :---------------------------------- | :----------------------------------- | | LendSure Mortgage Corp. | 62.8% | | Elizon DB 2015-1 LLC | 31.3% | | Elizon NM CRE 2020-1 LLC | 23.9% | | Elizon CH CRE 2021-1 LLC | 38.7% | [9. Real Estate Owned](index=52&type=section&id=9.%20Real%20Estate%20Owned) REO carrying value increased to $48.8 million, with a net loss from property sales - During the three-month period ended June 30, 2025, the company sold **53** REO properties, realizing a net loss of approximately **$(1.4) million**[230](index=230&type=chunk) - As of June 30, 2025, **$20.1 million** of the company's total REO holdings were measured at fair value on a non-recurring basis[230](index=230&type=chunk) Real Estate Owned Carrying Value | (In thousands) | June 30, 2025 Carrying Value | December 31, 2024 Carrying Value | | :------------- | :--------------------------- | :------------------------------- | | Ending Balance | $48,821 | $46,661 | [10. Financial Derivatives](index=53&type=section&id=10.%20Financial%20Derivatives) Net fair value of financial derivatives decreased to $78.8 million, used for risk management - For the three-month period ended June 30, 2025, the company reported net realized gains (losses) on financial derivatives of **$(0.52) million** and change in net unrealized gains (losses) of **$(25.61) million**[247](index=247&type=chunk) - The average notional value of interest rate swaps for the six-month period ended June 30, 2025, was **$9.60 billion**[249](index=249&type=chunk) Financial Derivatives Fair Value | (In thousands) | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :------------- | :----------------------- | :--------------------------- | | Total financial derivatives–assets | $160,584 | $184,395 | | Total financial derivatives–liabilities | $(81,812) | $(71,024) | | Total | $78,772 | $113,371 | [11. Other Assets](index=62&type=section&id=11.%20Other%20Assets) Other assets include intangibles ($1.92 million) and lease right-of-use assets, with future amortization - The estimated future amortization expense on intangible assets is **$0.72 million**, with **$0.13 million** expected in 2025[258](index=258&type=chunk) Other Assets | Other Assets (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Prepaid expenses, advances, and deferred offering costs | $13,379 | $12,396 | | Leases—right of use assets | $4,132 | $5,161 | | Loan purchase commitments | $4,009 | — | | Intangible assets | $1,920 | $2,171 | | Total | $32,983 | $32,804 | Intangible Assets Net Carrying Value | Intangible Asset (In thousands) | June 30, 2025 Net Carrying Value | | :------------------------------ | :------------------------------- | | Internally developed software | $116 | | Trademarks/trade names | $1,200 | | Customer relationships | $604 | | Total identified intangible assets | $1,920 | [12. Consolidated VIEs](index=64&type=section&id=12.%20Consolidated%20VIEs) Consolidated VIEs had $4.66 billion in assets and $3.71 billion in liabilities as of June 30, 2025 - Loans, at fair value, within consolidated VIEs amounted to **$4.37 billion** as of June 30, 2025[260](index=260&type=chunk) - Repurchase agreements within consolidated VIEs were **$1.54 billion** as of June 30, 2025[260](index=260&type=chunk) Consolidated VIEs Financial Position | (In thousands) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Total Assets | $4,663,826 | $4,729,180 |\ | Total Liabilities | $3,708,350 | $3,753,659 | | Total Equity | $955,476 | $975,521 | [13. Securitization Transactions](index=64&type=section&id=13.%20Securitization%20Transactions) The company engages in various securitization transactions, consolidating some and retaining HMBS servicing rights - The company participates in CLO securitization transactions but is not deemed the primary beneficiary, limiting its maximum risk of loss to its investment in each CLO Issuer[261](index=261&type=chunk)[263](index=263&type=chunk) - For Consolidated non-QM Securitizations, the company is the primary beneficiary and consolidates the Issuing Entities, reflecting the loans on its balance sheet and the debt as Other secured borrowings, at fair value[270](index=270&type=chunk)[273](index=273&type=chunk) - Longbridge, as an approved HMBS issuer, pools HECM loans into HMBS, which are accounted for as secured borrowings (HMBS-related obligations, at fair value) rather than sales, with servicing rights retained[302](index=302&type=chunk) [14. Borrowings](index=71&type=section&id=14.%20Borrowings) Total secured borrowings increased to $14.6 billion, supplemented by unsecured notes - Total secured borrowings were **$14.6 billion** as of June 30, 2025, up from **$13.9 billion** at December 31, 2024[305](index=305&type=chunk) - Unsecured borrowings include **$210.0 million** of 5.875% Senior Notes due April 2027, **$37.8 million** of 6.00% Senior Notes due August 2026, and **$15.0 million** of Trust Preferred Debt[322](index=322&type=chunk)[324](index=324&type=chunk)[327](index=327&type=chunk) Outstanding Borrowings (June 30, 2025) | (In thousands) | June 30, 2025 Outstanding Borrowings | | :------------- | :----------------------------------- | | Repurchase agreements | $2,347,458 | | Other secured borrowings | $340,289 | | Other secured borrowings, at fair value | $2,127,225 | | HMBS-related obligations, at fair value | $9,814,811 | | Unsecured borrowings, at fair value | $249,036 | [15. Income Taxes](index=76&type=section&id=15.%20Income%20Taxes) As a REIT, the company recorded $1.5 million income tax expense and a $64.2 million valuation allowance - The company has elected to be taxed as a REIT, generally not subject to federal and state income tax on distributed income, provided it meets qualification requirements[331](index=331&type=chunk) - For the three-month period ended June 30, 2025, income tax expense was **$1.5 million**, and for the six-month period, it was **$1.4 million**[333](index=333&type=chunk) - A valuation allowance of **$64.2 million** was recorded against deferred tax assets of its TRSs, as recoverability was deemed unlikely[333](index=333&type=chunk) [16. Related Party Transactions](index=76&type=section&id=16.%20Related%20Party%20Transactions) Significant related party transactions include management fees, investments, and financing with affiliates - The company pays its Manager a base management fee of **1.50%** per annum of total equity and an incentive fee based on Adjusted Net Income exceeding a Hurdle Amount[335](index=335&type=chunk)[339](index=339&type=chunk)[342](index=342&type=chunk) - For the six-month period ended June 30, 2025, the total base management fee incurred was **$12.4 million** (net of **$0.1 million** in rebates), and an incentive fee of **$4.5 million** was incurred[338](index=338&type=chunk)[345](index=345&type=chunk) - The company has non-controlling equity investments in several loan originators (e.g., LendSure Mortgage Corp.) and co-investments with Ellington affiliates in entities holding commercial mortgage loans and REO, and participates in multi-borrower financing facilities[350](index=350&type=chunk)[352](index=352&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[363](index=363&type=chunk)[366](index=366&type=chunk) [17. Long-Term Incentive Plan Units](index=82&type=section&id=17.%20Long-Term%20Incentive%20Plan%20Units) OP LTIP Units, convertible to common stock, incurred $1.0 million expense in Q2 2025 - OP LTIP Units are convertible into OP Units, which are redeemable for common stock or cash, and costs are expensed ratably over the vesting period[376](index=376&type=chunk) - Total expense for OP LTIP Units was **$1.0 million** for the three-month period and **$1.3 million** for the six-month period ended June 30, 2025[376](index=376&type=chunk) - As of June 30, 2025, there were **363,262** unvested OP LTIP Units outstanding[377](index=377&type=chunk) [18. Non-controlling Interests](index=83&type=section&id=18.%20Non-controlling%20Interests) Non-controlling interests include convertible units and joint venture partner interests, totaling $15.4 million - Non-controlling interests include Convertible Non-controlling Interests (OP LTIP Units and OP Units) in the Operating Partnership and joint venture partners' interests in consolidated subsidiaries[103](index=103&type=chunk)[379](index=379&type=chunk)[381](index=381&type=chunk) - As of June 30, 2025, Convertible Non-controlling Interests comprised **1,087,022** OP LTIP Units and **46,360** OP Units, representing approximately **0.9%** ownership in the Operating Partnership, with a fair value of **$15.4 million**[380](index=380&type=chunk) - Joint venture partners' interests in subsidiaries were **$8.4 million** as of June 30, 2025, and are not convertible into common stock[382](index=382&type=chunk) [19. Equity](index=84&type=section&id=19.%20Equity) Equity includes $345.0 million in preferred stock and 97.9 million common shares, managed via ATM and repurchases - As of June 30, 2025, the company had **13,800,089** shares of preferred stock outstanding across Series A, B, C, and D, with an aggregate liquidation preference of **$345.0 million**[10](index=10&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk) - Common stock outstanding increased to **97,891,157** shares as of June 30, 2025, from **90,678,492** shares at December 31, 2024[396](index=396&type=chunk) - Under the Common ATM Program, the company issued **7,178,788** shares of common stock for **$95.3 million** in net proceeds during the six-month period ended June 30, 2025. It also has a Common Share Repurchase Program with **$45.1 million** remaining authorization[397](index=397&type=chunk)[399](index=399&type=chunk) [20. Earnings Per Share](index=87&type=section&id=20.%20Earnings%20Per%20Share) Basic and diluted EPS were $0.45 for Q2 2025 and $0.80 for the six-month period - Basic EPS is computed using the two-class method, including Convertible Non-controlling Interests as participating securities[106](index=106&type=chunk) - Weighted average shares of common stock and Convertible Non-controlling Interest Units outstanding were **96,995,375** for the three-month period and **94,774,611** for the six-month period ended June 30, 2025[401](index=401&type=chunk) Earnings Per Share | (In thousands except share amounts) | Three-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2025 | | :---------------------------------- | :------------------------------------- | :----------------------------------- | | Net Income (Loss) Attributable to Common Stockholders | $42,923 | $74,572 | | Basic and Diluted EPS | $0.45 | $0.80 | [21. Restricted Cash](index=87&type=section&id=21.%20Restricted%20Cash) Restricted cash increased to $19.6 million, held for specific purposes like warehouse lines - Restricted cash was **$19.6 million** as of June 30, 2025, compared to **$16.6 million** as of December 31, 2024[402](index=402&type=chunk) - Restricted cash balances are primarily held under warehouse line of credit agreements and in securitization reserve funds[402](index=402&type=chunk) [22. Offsetting of Assets and Liabilities](index=87&type=section&id=22.%20Offsetting%20of%20Assets%20and%20Liabilities) Financial instruments are generally recorded gross, with some transactions allowing net settlement in specific events - The company generally records financial instruments at fair value on a gross basis on the Condensed Consolidated Balance Sheet[403](index=403&type=chunk) - The company has not entered into master netting agreements with any counterparties, but certain transactions allow for net settlement or offset in default/bankruptcy[404](index=404&type=chunk)[405](index=405&type=chunk) Offsetting of Assets and Liabilities (June 30, 2025) | Description (In thousands) | Amount of Assets (Liabilities) Presented in the Condensed Consolidated Balance Sheet (June 30, 2025) | | :------------------------- | :------------------------------------------------------------------------------------------------- | | Financial derivatives–assets | $160,584 | | Reverse repurchase agreements | $348,389 | | Financial derivatives–liabilities | $(81,812) | | Repurchase agreements | $(2,347,458) | [23. Counterparty Risk](index=89&type=section&id=23.%20Counterparty%20Risk) Counterparty risk is mitigated by diversification, with specific exposure limits noted - The company manages counterparty risk by diversifying its exposure among various counterparties[412](index=412&type=chunk) - As of June 30, 2025, the company had an aggregate amount at risk under its repos with **23** counterparties of approximately **$632.6 million**[705](index=705&type=chunk) Counterparty Exposure (June 30, 2025) | (In thousands) | Amount of Exposure (June 30, 2025) | Maximum Percentage of Exposure to a Single Counterparty | | :------------- | :--------------------------------- | :---------------------------------------------------- | | Cash and cash equivalents | $211,013 | 28.9% | | Collateral on repurchase agreements held by dealers | $2,979,858 | 14.7% | | Due from brokers | $45,973 | 59.5% | [24. Commitments and Contingencies](index=89&type=section&id=24.%20Commitments%20and%20Contingencies) Commitments include unfunded mortgage loans ($269.2 million), loan purchases ($470.5 million), and lease liabilities - Unfunded commitments for residential mortgage loans totaled **$269.2 million** as of June 30, 2025[420](index=420&type=chunk) - Loan purchase commitments amounted to **$470.5 million** as of June 30, 2025, with a fair value of **$4.0 million**[421](index=421&type=chunk) - Unfunded commitments related to reverse mortgage loans were **$2.2 billion** as of June 30, 2025, and operating lease liabilities were **$4.64 million**[431](index=431&type=chunk)[435](index=435&type=chunk) [25. Segment Reporting](index=91&type=section&id=25.%20Segment%20Reporting) Segment reporting shows Investment Portfolio net income of $57.4 million and Longbridge net income of $10.7 million - The company has two reportable segments: Investment Portfolio Segment and Longbridge Segment, with unallocable items in Corporate/Other[438](index=438&type=chunk)[440](index=440&type=chunk) Net Income (Loss) by Segment (Three-Month Period) | (In thousands) | Investment Portfolio Segment (3-Month) | Longbridge Segment (3-Month) | Corporate/Other (3-Month) | Total (3-Month) | | :------------- | :------------------------------------- | :--------------------------- | :------------------------ | :-------------- | | Net Income (Loss) | $57,433 | $10,681 | $(17,041) | $51,073 | Total Assets and Liabilities by Segment (June 30, 2025) | (In thousands) | Investment Portfolio Segment (June 30, 2025) | Longbridge Segment (June 30, 2025) | Corporate/Other (June 30, 2025) | Total (June 30, 2025) | | :------------- | :------------------------------------------- | :--------------------------------- | :------------------------------ | :-------------------- | | Total Assets | $5,322,931 | $11,521,278 | $227,686 | $17,071,895 | | Total Liabilities | $3,776,344 | $11,290,194 | $315,847 | $15,382,385 | [26. Subsequent Events](index=94&type=section&id=26.%20Subsequent%20Events) Subsequent events include common stock dividends, ATM issuance, and a new management agreement - On July 8, 2025, and August 7, 2025, the Board approved common stock dividends of **$0.13** per share[446](index=446&type=chunk) - Subsequent to June 30, 2025, the company issued **2,002,737** shares of common stock under the Common ATM Program, providing **$26.1 million** in net proceeds[447](index=447&type=chunk) - A Ninth Amended and Restated Management Agreement was entered into and became effective on August 11, 2025, clarifying definitions of 'Hurdle Amount' and 'Stockholders' Common Equity'[448](index=448&type=chunk)[449](index=449&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=96&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A discusses financial condition, operations, market trends, financing, and liquidity, highlighting opportunistic strategy [Executive Summary](index=96&type=section&id=Executive%20Summary) The company, a REIT, pursues risk-adjusted returns through its Investment Portfolio and Longbridge segments - The company's primary objective is to generate attractive, risk-adjusted total returns for stockholders through an opportunistic investment strategy[453](index=453&type=chunk) - All operations are conducted through Ellington Financial Operating Partnership LLC, with the company holding approximately **99.1%** ownership[454](index=454&type=chunk) - The company operates two reportable segments: Investment Portfolio (investing in diverse financial assets) and Longbridge (origination and servicing of reverse mortgage loans)[458](index=458&type=chunk)[459](index=459&type=chunk) [Our Targeted Asset Classes](index=98&type=section&id=Our%20Targeted%20Asset%20Classes) The company targets diverse asset classes including RMBS, CMBS, various loans, and derivatives, using hedging strategies - Targeted asset classes include Agency RMBS (whole pool, partial pool, CMOs), CMBS, commercial mortgage loans, consumer loans, ABS, corporate CLOs, non-Agency RMBS, residential mortgage loans (non-QM, transition, NPLs, RPLs, HELOCs), reverse mortgage loans, MSRs, strategic investments in loan originators, TBAs, and other mortgage-related derivatives[463](index=463&type=chunk)[464](index=464&type=chunk) - The company uses various hedging instruments, such as interest rate swaps, TBAs, U.S. Treasury securities, futures, and forward currency contracts, to mitigate interest rate, credit, and foreign currency risks[495](index=495&type=chunk)[498](index=498&type=chunk)[500](index=500&type=chunk) - Longbridge, a consolidated subsidiary, acquires HECM loans (FHA-insured, securitized into HMBS) and proprietary reverse mortgage loans, retaining servicing rights[487](index=487&type=chunk)[488](index=488&type=chunk) [Trends and Recent Market Developments](index=103&type=section&id=Trends%20and%20Recent%20Market%20Developments) Q2 2025 saw volatile interest rates, strong equity markets, and growth in Investment Portfolio and Longbridge segments - The Federal Reserve maintained the federal funds rate at **4.25%–4.50%** in May and June 2025, while reducing the pace of balance sheet contraction for U.S. Treasury securities[502](index=502&type=chunk) - Interest rates were volatile in Q2 2025, with the 10-year U.S. Treasury yield ending up **2** basis points to **4.23%**. Mortgage rates increased, and SOFR rates remained generally unchanged[503](index=503&type=chunk) - U.S. equity markets rallied in Q2 2025, with NASDAQ up **17.7%** and S&P 500 up **10.6%**, both reaching all-time highs. The company's total adjusted long credit portfolio increased by **1%** to **$3.32 billion**, and the Longbridge segment reported net gains from originations and servicing[505](index=505&type=chunk)[513](index=513&type=chunk)[542](index=542&type=chunk) [Financing—Overall](index=111&type=section&id=Financing%E2%80%94Overall) Total borrowings reached $14.9 billion, with a recourse debt-to-equity ratio of 1.7:1 and 5.25% average cost of funds - The company's financing includes secured borrowings (repos, secured lines of credit, securitization debt, HMBS-related obligations) and unsecured borrowings (senior notes, subordinated notes)[546](index=546&type=chunk)[547](index=547&type=chunk) - The average cost of funds (secured and unsecured) decreased to **5.25%** for the three-month period ended June 30, 2025, from **5.32%** in the prior quarter[555](index=555&type=chunk) Borrowings and Debt-to-Equity Ratios | ($ in thousands) | June 30, 2025 | March 31, 2025 | | :--------------- | :------------ | :------------- | | Total recourse borrowings | $2,950,497 | $3,099,550 | | Debt-to-equity ratio based on total recourse borrowings | 1.7:1 | 1.9:1 | | Total non-recourse borrowings | $11,942,036 | $11,421,843 | | Debt-to-equity ratio based on total recourse and non-recourse borrowings | 8.8:1 | 8.9:1 | [Critical Accounting Estimates](index=113&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates include valuation, VIE consolidation, investment income recognition, and REIT income taxes - Valuation is a critical estimate, with the company electing the fair value option for most financial instruments and relying on a mix of quoted market prices, third-party valuations, and discounted cash flow methodologies, especially for instruments not traded in active markets[557](index=557&type=chunk)[558](index=558&type=chunk) - Determining the primary beneficiary of Variable Interest Entities (VIEs) involves significant qualitative and quantitative analysis and judgment[561](index=561&type=chunk) - Accounting for purchases and sales of investments and investment income involves estimates for future cash flows, prepayment rates, default rates, and loss severities, which are subject to significant uncertainties and can lead to Catch-up Amortization Adjustments[563](index=563&type=chunk)[564](index=564&type=chunk)[565](index=565&type=chunk) [Financial Condition](index=115&type=section&id=Financial%20Condition) Total assets grew to $17.1 billion, equity to $1.69 billion, with a debt-to-equity ratio of 8.8:1 - The net fair value of financial derivatives decreased to **$78.8 million** as of June 30, 2025, from **$113.4 million** at December 31, 2024[574](index=574&type=chunk)[576](index=576&type=chunk)[577](index=577&type=chunk) - The debt-to-equity ratio was **8.8:1** as of June 30, 2025, compared to **8.9:1** at December 31, 2024[587](index=587&type=chunk) Financial Position | (In thousands) | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Total Long Investments | $16,069,447 | $15,331,504 | | Total Short Investments | $(264,511) | $(293,574) | | Total Assets | $17,071,895 | $16,317,028 | | Total Liabilities | $15,382,385 | $14,726,206 | | Total Equity | $1,689,510 | $1,590,822 | [Results of Operations](index=118&type=section&id=Results%20of%20Operations) Net income attributable to common stockholders decreased due to lower other income and higher expenses - Longbridge segment's other income (loss) for the six-month period ended June 30, 2025, was **$70.3 million**, primarily driven by gains from HECM reverse mortgage loans at fair value (**$345.8 million**) and net gains on securities and loans (**$30.1 million**), partially offset by HMBS obligations at fair value (**$(289.7) million**)[674](index=674&type=chunk) Three-Month Period Ended June 30 | (In thousands, except per share amounts) | Three-Month Period Ended June 30, 2025 | Three-Month Period Ended June 30, 2024 | | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Income (Loss) Attributable to Common Stockholders | $42,923 | $52,347 | | Net Interest Income | $43,343 | $33,596 | | Total other income (loss) | $49,199 | $57,561 | | Total expenses | $57,066 | $42,985 | Six-Month Period Ended June 30 | (In thousands, except per share amounts) | Six-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2024 | | :------------------------------------- | :----------------------------------- | :----------------------------------- | | Net Income (Loss) Attributable to Common Stockholders | $74,572 | $79,262 | | Net Interest Income | $86,600 | $64,652 | | Total other income (loss) | $88,850 | $102,045 | | Total expenses | $109,050 | $86,640 | [Adjusted Distributable Earnings](index=132&type=section&id=Adjusted%20Distributable%20Earnings) ADE, a non-GAAP measure, was $53.2 million for Q2 2025, assessing performance and dividend capacity - Adjusted Distributable Earnings (ADE) is a non-GAAP measure that adjusts U.S. GAAP net income for realized/unrealized gains/losses on various financial instruments, incentive fees, Catch-up Amortization Adjustment, non-cash equity compensation, income taxes, and non-capitalized transaction costs[680](index=680&type=chunk) - ADE is considered a useful indicator for current and projected long-term financial performance and dividend-paying ability, but it is not a substitute for U.S. GAAP net income and differs from REIT taxable income[681](index=681&type=chunk)[682](index=682&type=chunk)[683](index=683&type=chunk) Adjusted Distributable Earnings | (In thousands) | Three-Month Period Ended June 30, 2025 | Six-Month Period Ended June 30, 2025 | | :------------- | :------------------------------------- | :----------------------------------- | | Total Adjusted Distributable Earnings | $53,159 | $96,418 | | Adjusted Distributable Earnings Attributable to Common Stockholders, per share | $0.47 | $0.86 | [Liquidity and Capital Resources](index=137&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by $211.0 million cash, $2.3 billion repos, and active ATM/repurchase programs - Liquidity is met through cash on hand, cash flow from investments, borrowings (repos, other secured), and proceeds from equity/debt offerings[694](index=694&type=chunk) - As of June 30, 2025, cash and cash equivalents were **$211.0 million**, and repurchase agreements outstanding were **$2.3 billion** with a weighted average remaining term of **135** days[695](index=695&type=chunk)[700](index=700&type=chunk) - The company has active Common ATM and Preferred ATM Programs, with **$203.8 million** and **$99.5 million** remaining authorization, respectively, and a Common Share Repurchase Program with **$45.1 million** remaining authorization[709](index=709&type=chunk)[710](index=710&type=chunk)[712](index=712&type=chunk) [Contractual Obligations and Commitments](index=142&type=section&id=Contractual%20Obligations%20and%20Commitments) Contractual obligations include management fees, borrowings, derivatives, and various unfunded commitments - Contractual obligations include management fees, outstanding borrowings, and financial derivatives[723](index=723&type=chunk)[724](index=724&type=chunk) - Other commitments include unfunded commitments for residential mortgage loans and loan originators, loan purchase commitments, and operating lease obligations[420](index=420&type=chunk)[422](index=422&type=chunk)[421](index=421&type=chunk)[433](index=433&type=chunk) - The company has mandatory repurchase obligations for HECM loans that reach **98%** of their maximum claim amount from HMBS pools[432](index=432&type=chunk) [Off-Balance Sheet Arrangements](index=142&type=section&id=Off-Balance%20Sheet%20Arrangements) No material off-balance sheet arrangements, with Longbridge holding $97.4 million in custodial funds - As of June 30, 2025, the company had no material off-balance sheet arrangements with unconsolidated entities or financial partnerships[725](index=725&type=chunk) - Longbridge holds **$97.4 million** in escrow balances and other custodial funds, which are not reflected on the Condensed Consolidated Balance Sheet as they do not represent company assets or liabilities[726](index=726&type=chunk) [Inflation](index=142&type=section&id=Inflation) Performance is driven by interest rates, with long-term inflation posing risks to real income and cash flow - Interest rates and other factors generally influence the company's performance more than inflation, though inflation can impact interest rates and monetary policy[728](index=728&type=chunk) - Elevated, long-term inflation could adversely impact the investment portfolio by reducing borrowers' real income and declining net cash flow from commercial mortgage loans[729](index=729&type=chunk) Part II. Other Information [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=143&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Market risks include credit, prepayment, and interest rate risks, managed through hedging and capital levels - Primary market risks include credit risk (default and severity), prepayment risk, and interest rate risk[730](index=730&type=chunk)[735](index=735&type=chunk)[739](index=739&type=chunk)[740](index=740&type=chunk) - Credit risk arises from assets like non-Agency RMBS, residential/commercial mortgage loans, consumer loans, and corporate investments, with mitigation efforts including credit default swaps and reliance on third-party servicers[731](index=731&type=chunk)[736](index=736&type=chunk)[737](index=737&type=chunk) Estimated Change in Portfolio Value Due to Interest Rate Shifts | (In thousands) | Estimated Change for a Decrease in Interest Rates by 50 Basis Points | Estimated Change for an Increase in Interest Rates by 50 Basis Points | | :------------- | :--------------------------------------------------- | :-------------------------------------------------- | | Agency RMBS | $6,628 | $(7,151) | | Non-Agency RMBS, CMBS, ABS, Loans, and MSRs | $26,457 | $(33,686) | | U.S. Treasury Securities and Interest Rate Swaps, Options, and Futures | $(31,328) | $30,568 | | Total | $(3,118) | $(4,776) | [Item 4. Controls and Procedures](index=147&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of June 30, 2025, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[750](index=750&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[751](index=751&type=chunk) [Item 1. Legal Proceedings](index=148&type=section&id=Item%201.%20Legal%20Proceedings) No material legal proceedings, but future inquiries are possible in highly regulated markets - Neither the company nor its subsidiaries or affiliates are currently subject to any legal proceedings considered material[753](index=753&type=chunk) - The company operates in highly regulated markets and may face future inquiries, investigations, enforcement actions, or litigation[753](index=753&type=chunk)[754](index=754&type=chunk) [Item 1A. Risk Factors](index=148&type=section&id=Item%201A.%20Risk%20Factors) Refers to the Annual Report's 'Risk Factors' and 'Forward-Looking Statements' for potential impacts - Readers are directed to the 'Risk Factors' in the Annual Report on Form 10-K for factors affecting operations, financial condition, and liquidity[755](index=755&type=chunk) - Information regarding forward-looking statements is also referenced for potential risks and uncertainties[755](index=755&type=chunk) [Item 6. Exhibits](index=148&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including management agreement and CEO/CFO certifications - The Ninth Amended and Restated Management Agreement (Exhibit 10.2) was entered into and effective as of August 11, 2025[756](index=756&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are included as Exhibits 31.1, 31.2, 32.1, and 32.2[756](index=756&type=chunk) - Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases) and the Cover Page Interactive Data File are also filed[756](index=756&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ——————————————— FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-38469 ———————————————— Equitable Holdings, Inc. (Exact name of registrant as specified in its charter) (State ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)](index=4&type=section&id=ITEM%201.%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(Unaudited)) Unaudited condensed consolidated financial statements and notes for VAALCO Energy, Inc. for Q2 2025 and FY2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20June%2030%2C%202025%20and%20December%2031%2C%202024) | Metric | As of June 30, 2025 (in thousands) | As of December 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------- | :----------------------------------- | | **Assets** | | | | Total current assets | $223,729 | $237,927 | | Crude oil, natural gas and NGLs properties and equipment, net | $587,263 | $538,103 | | Total assets | $964,922 | $954,950 | | **Liabilities** | | | | Total current liabilities | $160,917 | $181,728 | | Long-term debt | $60,000 | $— | | Total liabilities | $453,363 | $453,367 | | **Shareholders' Equity** | | | | Total shareholders' equity | $511,559 | $501,583 | - Total assets increased by approximately **$10 million** from December 31, 2024, to June 30, 2025, primarily driven by an increase in crude oil, natural gas, and NGLs properties and equipment, net, which rose by **$49.16 million**[10](index=10&type=chunk) - Long-term debt increased significantly from **$0** at December 31, 2024, to **$60 million** at June 30, 2025, reflecting new borrowings under the 2025 RBL Facility[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Crude oil, natural gas and NGLs sales | $96,893 | $116,778 | $207,222 | $216,933 | | Total operating costs and expenses | $79,711 | $96,510 | $163,846 | $162,993 | | Operating income | $17,182 | $20,400 | $43,376 | $53,906 | | Net income | $8,380 | $28,151 | $16,111 | $35,837 | | Basic net income per share | $0.08 | $0.27 | $0.15 | $0.34 | | Diluted net income per share | $0.08 | $0.27 | $0.15 | $0.34 | - Net income decreased significantly for both the three and six months ended June 30, 2025, compared to the same periods in 2024, primarily due to lower revenues and higher interest expenses[12](index=12&type=chunk) - Crude oil, natural gas, and NGLs sales decreased by **17%** for the three months and **4%** for the six months ended June 30, 2025, compared to the prior year, mainly due to lower realized prices and reduced sales volumes in certain segments[12](index=12&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) | Metric | Balance at January 1, 2025 (in thousands) | Balance at June 30, 2025 (in thousands) | Balance at January 1, 2024 (in thousands) | Balance at June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------------------- | :-------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total Shareholders' Equity | $501,583 | $511,559 | $478,782 | $493,648 | | Net income (Q2 2025) | N/A | $8,380 | N/A | $28,151 | | Dividend distributions (Q2 2025) | N/A | $(6,557) | N/A | $(6,579) | | Other comprehensive loss (Q2 2025) | N/A | $4,759 | N/A | $(1,068) | - Total shareholders' equity increased from **$501.6 million** at January 1, 2025, to **$511.6 million** at June 30, 2025, driven by net income and other comprehensive income, partially offset by dividend distributions and treasury stock purchases[13](index=13&type=chunk) - Dividend distributions for the three months ended June 30, 2025, were **$6.56 million**, consistent with **$6.58 million** for the same period in 2024[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $51,049 | $21,394 | | Net cash used in investing activities | $(107,460) | $(48,687) | | Net cash provided by (used in) financing activities | $32,922 | $(23,567) | | Net change in cash, cash equivalents and restricted cash | $(23,393) | $(51,093) | | Cash, cash equivalents and restricted cash at end of period | $74,333 | $78,085 | - Net cash provided by operating activities increased significantly to **$51.05 million** for the six months ended June 30, 2025, from **$21.39 million** in the prior year, primarily due to changes in operating assets and liabilities, including increased collections from Egypt receivables[15](index=15&type=chunk)[96](index=96&type=chunk) - Net cash used in investing activities increased to **$107.46 million** in 2025 from **$48.69 million** in 2024, driven by development drilling programs in Egypt and project costs for Gabon and Côte d'Ivoire[15](index=15&type=chunk)[97](index=97&type=chunk) - Financing activities shifted from a net use of **$23.57 million** in 2024 to a net provision of **$32.92 million** in 2025, mainly due to **$60 million** in proceeds from borrowings under the 2025 RBL Facility[15](index=15&type=chunk)[98](index=98&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) [1. Organization and Accounting Policies](index=10&type=section&id=1.%20ORGANIZATION%20AND%20ACCOUNTING%20POLICIES) - Vaalco Energy, Inc. is a Houston, Texas-based independent energy company focused on the acquisition, exploration, development, and production of crude oil, natural gas, and NGLs properties, with a diversified African-focused asset portfolio in Gabon, Egypt, Côte d'Ivoire, Nigeria, Equatorial Guinea, and producing properties in Canada[18](index=18&type=chunk) **Credit Loss Allowance Changes (in thousands):** | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Balance at beginning of period | $(2,527) | $(7,829) | $(2,554) | $(6,029) | | Credit losses and other | $(326) | $(3,341) | $(637) | $(5,153) | | Credit recoveries and other | $297 | $— | $635 | $— | | Foreign currency gain | $— | $(1,434) | $— | $(1,422) | | Balance at end of period | $(2,556) | $(12,604) | $(2,556) | $(12,604) | [2. New Accounting Standards](index=11&type=section&id=2.%20NEW%20ACCOUNTING%20STANDARDS) - The FASB issued new guidance in December 2023 to improve income tax disclosures, effective for annual periods beginning after December 15, 2024. The Company is evaluating its impact[25](index=25&type=chunk) - ASU 2024-03, issued in November 2024, requires disaggregation of income statement expenses, effective for annual periods beginning after December 15, 2026, and interim periods after December 15, 2027. Early adoption is permitted, and the Company is evaluating its impact[26](index=26&type=chunk) [3. Acquisitions](index=11&type=section&id=3.%20ACQUISITIONS) - In March 2025, the Company farmed into the CI-705 block offshore Côte d'Ivoire, becoming the operator with a **70%** working interest and **100%** paying interest for approximately **$3.0 million**[27](index=27&type=chunk) - In February 2025, the Company acquired the Baobab FPSO in Côte d'Ivoire for a total purchase price of **$20.0 million**, with a net cost to the Company of approximately **$5.5 million**[28](index=28&type=chunk) - The Svenska Acquisition was completed on April 30, 2024, for a net adjusted purchase price of **$40.2 million**, resulting in an initial bargain purchase gain of **$19.9 million**, later reduced by **$6.4 million** due to purchase price allocation adjustments[29](index=29&type=chunk)[30](index=30&type=chunk) [4. Segment Information](index=13&type=section&id=4.%20SEGMENT%20INFORMATION) - The Company's operations are segmented geographically across Gabon, Egypt, Côte d'Ivoire, Canada, Nigeria, and Equatorial Guinea, with performance evaluated primarily based on Operating income (loss)[35](index=35&type=chunk) **Operating Income (Loss) by Segment (Three Months Ended June 30, 2025, in thousands):** | Segment | Operating Income (Loss) | | :---------------- | :---------------------- | | Gabon | $20,658 | | Egypt | $10,845 | | Canada | $(972) | | Equatorial Guinea | $(798) | | Côte d'Ivoire | $(4,428) | | Corporate and Other | $(8,123) | | **Total** | **$17,182** | **Operating Income (Loss) by Segment (Six Months Ended June 30, 2025, in thousands):** | Segment | Operating Income (Loss) | | :---------------- | :---------------------- | | Gabon | $37,194 | | Egypt | $24,672 | | Canada | $(297) | | Equatorial Guinea | $(1,473) | | Côte d'Ivoire | $(489) | | Corporate and Other | $(16,231) | | **Total** | **$43,376** | [5. Earnings Per Share](index=16&type=section&id=5.%20EARNINGS%20PER%20SHARE) **Net Income Per Share (Three Months Ended June 30):** | Metric | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Basic net income per share | $0.08 | $0.27 | | Diluted net income per share | $0.08 | $0.27 | **Net Income Per Share (Six Months Ended June 30):** | Metric | 2025 | 2024 | | :---------------------------------- | :--- | :--- | | Basic net income per share | $0.15 | $0.34 | | Diluted net income per share | $0.15 | $0.34 | **Weighted Average Shares Outstanding (in thousands):** | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Basic weighted average shares outstanding | 103,936 | 103,528 | 103,848 | 103,594 | | Diluted weighted average shares outstanding | 103,958 | 103,676 | 103,872 | 103,677 | [6. Revenue](index=16&type=section&id=6.%20REVENUE) - The Company's oil entitlement under Production Sharing Contracts (PSCs) in Gabon, Egypt, Côte d'Ivoire, and Equatorial Guinea is generally the sum of cost oil, profit oil, and excess cost oil, with royalties paid out of the government's share of production[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) **Net Revenues by Segment (Three Months Ended June 30, in thousands):** | Segment | 2025 | 2024 | | :-------------- | :----- | :----- | | Gabon | $58,567 | $53,674 | | Egypt | $33,257 | $35,481 | | Canada | $4,715 | $10,384 | | Côte d'Ivoire | $353 | $17,240 | **Net Revenues by Segment (Six Months Ended June 30, in thousands):** | Segment | 2025 | 2024 | | :-------------- | :----- | :----- | | Gabon | $110,754 | $111,178 | | Egypt | $67,177 | $72,442 | | Canada | $10,895 | $16,073 | | Côte d'Ivoire | $18,396 | $17,240 | [7. Crude Oil, Natural Gas and NGLs Properties and Equipment, Net](index=20&type=section&id=7.%20CRUDE%20OIL%2C%20NATURAL%20GAS%20AND%20NGLs%20PROPERTIES%20AND%20EQUIPMENT%2C%20NET) **Crude Oil, Natural Gas and NGLs Properties and Equipment, Net (in thousands):** | Category | As of June 30, 2025 | As of December 31, 2024 | | :------------------------------------------ | :------------------ | :-------------------- | | Wells, platforms and other production facilities | $1,617,365 | $1,593,243 | | Work-in-progress | $105,131 | $44,517 | | Unproved properties | $66,576 | $60,761 | | Capitalized equipment, spare parts and other | $90,165 | $75,581 | | **Total gross properties and equipment** | **$1,879,237** | **$1,774,102** | | Accumulated depreciation, depletion, amortization and impairment | $(1,291,974) | $(1,235,999) | | **Net properties and equipment** | **$587,263** | **$538,103** | - Net crude oil, natural gas, and NGLs properties and equipment increased by **$49.16 million** from December 31, 2024, to June 30, 2025, primarily due to an increase in work-in-progress and wells, platforms, and other production facilities[55](index=55&type=chunk) [8. Derivatives and Fair Value](index=20&type=section&id=8.%20DERIVATIVES%20AND%20FAIR%20VALUE) - The Company uses commodity derivative instruments (swaps, costless collars, put options) to hedge price risk for a portion of its anticipated oil and gas production, primarily with counterparties that are also lenders under the 2025 RBL Facility[56](index=56&type=chunk)[102](index=102&type=chunk) **Outstanding Derivative Contracts as of June 30, 2025:** | Instrument | Index | July-Sep 2025 | Oct-Dec 2025 | Jan-Mar 2026 | Apr-Jun 2026 | | :-------------------------- | :---------- | :------------ | :----------- | :----------- | :----------- | | **Crude oil Swaps** | Dated Brent | 100,000 Bbls | — | — | — | | Weighted avg fixed price ($/Bbl) | | $65.45 | — | — | — | | **Crude oil Collars** | Dated Brent | 405,000 Bbls | 480,000 Bbls | 400,000 Bbls | 360,000 Bbls | | Weighted avg floor price ($/Bbl) | | $63.02 | $60.83 | $62.29 | $61.88 | | Weighted avg ceiling price ($/Bbl) | | $74.36 | $67.81 | $68.63 | $67.95 | | **Natural Gas Swaps** | AECO 7A | 342,000 GJs | 114,000 GJs | — | — | | Weighted avg fixed price (CAD/GJ) | | $2.15 | $2.15 | — | — | **Derivative Instruments Gain (Loss), Net (in thousands):** | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30, | $400 | $257 | | Six Months Ended June 30, | $326 | $(590) | [9. Current Accrued Liabilities and Other](index=22&type=section&id=9.%20CURRENT%20ACCRUED%20LIABILITIES%20AND%20OTHER) **Accrued Liabilities and Other Balances (in thousands):** | Category | As of June 30, 2025 | As of December 31, 2024 | | :------------------------------ | :------------------ | :-------------------- | | Accrued accounts payable invoices | $33,429 | $48,913 | | State oil liability | $18,244 | $19,616 | | Accrued capital expenditures | $14,763 | $8,923 | | Egypt modernization payable | $9,555 | $9,933 | | Gabon contractual obligations | $7,611 | $6,977 | | Accrued wages and other compensation | $4,496 | $4,956 | | Seismic data | $4,975 | $2,455 | | Asset retirement obligation, current portion | $183 | $1,174 | | Other | $6,637 | $4,763 | | **Total accrued liabilities and other** | **$99,893** | **$107,710** | - Total accrued liabilities and other decreased by **$7.82 million** from December 31, 2024, to June 30, 2025, primarily due to a reduction in accrued accounts payable invoices and the settlement of the Backdated Receivables[58](index=58&type=chunk)[147](index=147&type=chunk)[165](index=165&type=chunk) [10. Commitments and Contingencies](index=22&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company has a cash funding arrangement for abandonment of offshore wells, platforms, and facilities on the Etame Marin block in Gabon, with **$10.7 million** (**$6.3 million** net to Vaalco) funded as of June 30, 2025[59](index=59&type=chunk)[110](index=110&type=chunk) - The share buyback program, which allowed for up to **$30 million** in common stock purchases, was completed on March 12, 2024, with **6,797,711** shares purchased at an average price of **$4.41** per share[60](index=60&type=chunk) - Under the Merged Concession Agreement in Egypt, the Company is required to make a **$10.0 million** annual modernization payment to EGPC through February 1, 2026. The 2025 payment was offset against receivables, with one further payment due in 2026[61](index=61&type=chunk)[113](index=113&type=chunk) - The Company has exceeded its five-year minimum financial work commitments of **$50 million** in Egypt, with any excess carrying forward to offset against subsequent five-year commitments[61](index=61&type=chunk)[114](index=114&type=chunk) [11. Debt](index=23&type=section&id=11.%20DEBT) - In April 2025, the Company drew down **$60.0 million** under the 2025 RBL Facility, accruing interest at **10.8%** per annum (Term SOFR plus **6.5%** margin) and due within three months, with a rollover option[63](index=63&type=chunk) - As of June 30, 2025, **$60.0 million** was outstanding under the 2025 RBL Facility, compared to no outstanding borrowings at December 31, 2024[64](index=64&type=chunk) - The 2025 RBL Facility has aggregate commitments of **$190.0 million** and an initial borrowing base of **$184.0 million** (increased from **$182.0 million**), with **$126.6 million** of available borrowing capacity as of June 30, 2025[67](index=67&type=chunk) [12. Income Taxes](index=25&type=section&id=12.%20INCOME%20TAXES) **Effective Tax Rate (excluding discrete items):** | Period | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30, | 52.91% | 43.78% | | Six Months Ended June 30, | 58.36% | 54.58% | - The effective tax rate for both periods in 2025 was higher than in 2024, primarily due to higher tax rates in foreign jurisdictions and non-deductible items[77](index=77&type=chunk) - Income tax expense for the three months ended June 30, 2025, included a **$3.1 million** favorable oil price adjustment related to Gabon's Profit Oil allocation, reducing the expense to **$7.0 million**[78](index=78&type=chunk) [13. Other Comprehensive Income](index=25&type=section&id=13.%20OTHER%20COMPREHENSIVE%20INCOME) - The Company's other comprehensive loss was **$4.8 million** and **$4.9 million** for the three and six months ended June 30, 2025, respectively, arising entirely from currency translation adjustments of the Canadian segment to USD[80](index=80&type=chunk) **Accumulated Other Comprehensive Income (in thousands):** | Metric | Amount | | :------------------------------------------ | :----- | | Balance at December 31, 2024 | $(4,962) | | Amounts reclassified from accumulated other comprehensive income (Jan-Mar 2025) | $117 | | Balance at March 31, 2025 | $(4,845) | | Amounts reclassified from accumulated other comprehensive income (Apr-Jun 2025) | $4,759 | | Balance at June 30, 2025 | $(86) | [14. Subsequent Event](index=25&type=section&id=14.%20SUBSEQUENT%20EVENT) - On July 4, 2025, the One Big Beautiful Bill Act of 2025 (OBBBA) was signed into law, making permanent key elements of the Tax Cuts and Jobs Act of 2017. The Company is evaluating its potential effects but does not anticipate any material financial impact[82](index=82&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=26&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management's discussion and analysis of financial condition, results of operations, and liquidity for Q2 2025 and 2024 [Cautionary Statement Regarding Forward-Looking Statements](index=26&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) - The report contains forward-looking statements regarding future operations, financial position, reserve quantities, market prices, and business strategy, which are subject to various risks and uncertainties[83](index=83&type=chunk) - Key risks include volatility in crude oil and natural gas prices, geopolitical events, ability to obtain financing, operating hazards, and compliance with governmental regulations[83](index=83&type=chunk)[88](index=88&type=chunk) - The Company disclaims any duty to update forward-looking statements to reflect events or circumstances occurring after the report date, except as required by law[86](index=86&type=chunk) [Introduction](index=27&type=section&id=INTRODUCTION) - Vaalco is a Houston, Texas-based, African-focused independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and NGLs, with assets in Gabon, Egypt, Equatorial Guinea, Nigeria, Côte d'Ivoire, and Canada[87](index=87&type=chunk) [Recent Developments](index=28&type=section&id=RECENT%20DEVELOPMENTS) - The Company paid a quarterly cash dividend of **$0.0625** per share for Q2 2025 and announced the same for Q3 2025, with future payments at the board's discretion[89](index=89&type=chunk) - Gabon's 2025/2026 drilling program is expected to begin near the end of Q3 2025, including development, appraisal/exploration wells, and workovers[90](index=90&type=chunk) - In Egypt, six wells were completed in Q2 2025 as part of a drilling campaign that began in December 2024, with three wells to be hydraulically fractured in Q3 2025[92](index=92&type=chunk) - The Baobab FPSO in Côte d'Ivoire ceased production on January 31, 2025, for planned dry dock refurbishment, with its return to service and significant development drilling expected in 2026[94](index=94&type=chunk) - The Company deferred additional drilling in Canada in 2025 to reallocate capital to projects with higher expected returns across its portfolio[93](index=93&type=chunk) [Capital Resources and Liquidity](index=29&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) - Net cash provided by operating activities increased by **$29.7 million** to **$51.05 million** for the six months ended June 30, 2025, driven by changes in operating assets and liabilities, including increased collections from Egypt receivables[96](index=96&type=chunk) - Accrual basis capital expenditures for the six months ended June 30, 2025, were **$92.2 million**, up from **$46.5 million** in 2024, primarily for new wells in Egypt and FPSO dry dock preparation in Côte d'Ivoire[99](index=99&type=chunk) - The Company uses commodity derivative instruments to hedge price risk for a portion of its anticipated crude oil and gas production, as required by its 2025 RBL Facility[102](index=102&type=chunk) - As of June 30, 2025, the Company had **$67.9 million** in unrestricted cash and believes it has sufficient liquidity through existing cash, cash flow from operations, and the 2025 RBL Facility to support current cash requirements[103](index=103&type=chunk)[105](index=105&type=chunk) [Trends and Uncertainties](index=31&type=section&id=Trends%20and%20Uncertainties) - Geopolitical conflicts (Russia-Ukraine, Middle East) and Houthi attacks in the Red Sea have intensified volatility in oil/natural gas prices, lengthened material lead times, and increased prices, impacting global supply chains[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - New U.S. trade legislation in 2025, including significant tariff increases, may lead to increased costs and longer lead times for equipment and materials sourced through the U.S. or U.S.-aligned routes[119](index=119&type=chunk) - Despite a deceleration in sustainability regulation in the U.S., the Company expects continued focus on ESG and climate change issues, potentially leading to demand shifts away from fossil fuels and higher compliance costs[125](index=125&type=chunk)[127](index=127&type=chunk) - The SEC ended its defense of climate-related disclosure rules in March 2025, signaling a potential shift in U.S. regulatory direction, but the Company remains committed to transparency and TCFD-aligned reporting[128](index=128&type=chunk)[129](index=129&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - There have been no material changes to the Company's critical accounting policies and estimates since December 31, 2024[131](index=131&type=chunk) [New Accounting Standards](index=33&type=section&id=NEW%20ACCOUNTING%20STANDARDS) - Refer to Part I, Item 1, Note 2 for details on new accounting standards[132](index=132&type=chunk) [Results of Operations](index=33&type=section&id=RESULTS%20OF%20OPERATIONS) **Net Income (in thousands):** | Period | 2025 | 2024 | Change | | :-------------------------- | :----- | :----- | :------- | | Three Months Ended June 30, | $8,380 | $28,151 | $(19,771) | | Six Months Ended June 30, | $16,111 | $35,837 | $(19,726) | - Crude oil, natural gas, and NGLs revenues decreased by **$19.9 million** (**17%**) for the three months and **$9.7 million** (**4%**) for the six months ended June 30, 2025, primarily due to lower realized prices and reduced sales volumes in Côte d'Ivoire and Canada[134](index=134&type=chunk)[153](index=153&type=chunk) - Production expenses decreased by **$12.1 million** (**23%**) for the three months ended June 30, 2025, mainly due to reductions in Côte d'Ivoire, but increased by **$0.7 million** for the six months due to higher costs in Gabon[143](index=143&type=chunk)[161](index=161&type=chunk) - Exploration expense of **$2.5 million** for both periods in 2025 was attributable to seismic data purchase for Block 705 in Côte d'Ivoire, with minimal costs in 2024[144](index=144&type=chunk)[162](index=162&type=chunk) - Interest expense, net, increased to **$2.6 million** for the three months and **$3.9 million** for the six months ended June 30, 2025, primarily due to amortization of debt issue costs, commitment fees, and interest on the 2025 RBL Facility[149](index=149&type=chunk)[167](index=167&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=41&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Details the Company's exposure to market risks, including foreign exchange, counterparty, commodity price, and interest rate risks [Foreign Exchange Risk](index=41&type=section&id=FOREIGN%20EXCHANGE%20RISK) - The Company is exposed to foreign exchange risk from costs and liabilities denominated in Central African CFA Franc (XAF) in Gabon, Canadian dollars (CAD) in Canada, Egyptian pounds (EGP) in Egypt, and Swedish Krona (SEK) in Côte d'Ivoire[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - A **10%** weakening of the CFA relative to the U.S. dollar would reduce the value of net XAF liabilities by **$13.2 million** as of June 30, 2025[172](index=172&type=chunk) - The Company does not use derivative instruments to manage foreign exchange risk[176](index=176&type=chunk) [Counterparty Risk](index=41&type=section&id=COUNTERPARTY%20RISK) - The Company is exposed to counterparty risk on its open derivative instruments due to potential nonperformance, mitigated by entering into contracts with creditworthy financial institutions[177](index=177&type=chunk) [Commodity Price Risk](index=41&type=section&id=COMMODITY%20PRICE%20RISK) - The Company's financial performance is highly sensitive to volatile crude oil, natural gas, and NGLs prices, which can significantly impact revenue, profitability, and liquidity[178](index=178&type=chunk)[179](index=179&type=chunk) **Impact of $5/Bbl Decrease in Crude Oil Price on Revenues and Operating Income (Six Months Ended June 30, 2025, in Millions):** | Segment | 2025 Sales Volumes (Mbls) | Decrease in Revenues | Decrease in Operating Income (Increase in Operating Loss) | | :-------------- | :------------------------ | :------------------- | :------------------------------------------------------ | | Gabon | 1,558 | $7.8 | $7.0 | | Egypt | 1,334 | $6.7 | $4.0 | | Côte d'Ivoire | 238 | $1.2 | $0.6 | | Canada | 351 | $1.8 | $1.4 | | **Consolidated** | **3,481** | | | - No impairment was recorded at June 30, 2025, despite commodity price volatility, but prolonged low prices or negative reserve revisions could lead to future impairment charges[184](index=184&type=chunk)[185](index=185&type=chunk) [Interest Rate Risk](index=43&type=section&id=INTEREST%20RATE%20RISK) - The Company's primary interest rate exposure as of June 30, 2025, was from its **$60.0 million** outstanding borrowings under the 2025 RBL Facility, which accrues interest at a variable rate of **10.8%** per annum (Term SOFR plus **6.5%**)[188](index=188&type=chunk) - A **10%** increase in applicable average interest rates would have resulted in an estimated **$0.06 million** increase in interest expense for the period from drawdown through June 30, 2025[188](index=188&type=chunk) - The Company currently does not hedge its interest rate exposure[188](index=188&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=43&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Addresses effectiveness of disclosure controls, internal control over financial reporting, material weaknesses, and remediation plans [Evaluation of Disclosure Controls and Procedures](index=43&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) - As of June 30, 2025, the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting identified in the 2024 Annual Report on Form 10-K[189](index=189&type=chunk)[190](index=190&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=44&type=section&id=MATERIAL%20WEAKNESS%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) - Material weaknesses include ineffective general information technology controls (GITCs) supporting the procure-to-pay system and ineffective design, implementation, or operation of process-level control activities related to the financial reporting process, specifically procure-to-pay[198](index=198&type=chunk) - Despite the material weaknesses, management concluded that the unaudited condensed consolidated financial statements for the period present fairly the Company's financial position, results of operations, and cash flows in accordance with GAAP[192](index=192&type=chunk) [Management's Plan for Remediation of the Material Weakness](index=44&type=section&id=MANAGEMENT'S%20PLAN%20FOR%20REMEDIATION%20OF%20THE%20MATERIAL%20WEAKNESS) - The Company is implementing a remediation plan to address the identified material weaknesses, but remediation will not be considered complete until controls operate effectively for a sufficient period and are tested[193](index=193&type=chunk) - Management is committed to investing significant time and resources to enhance the control environment and will continue to perform additional analyses to ensure financial statements comply with U.S. GAAP until remediation is complete[195](index=195&type=chunk) [Changes in Internal Control Over Financial Reporting](index=44&type=section&id=CHANGES%20IN%20INTERNAL%20CONTROL%20OVER%20FINANCIAL%20REPORTING) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025, except for activities related to the remediation of the material weaknesses[196](index=196&type=chunk) [PART II. OTHER INFORMATION](index=44&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=44&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Discusses ordinary course litigation and governmental proceedings, with no anticipated material adverse financial effect - The Company is subject to ordinary course litigation and governmental/regulatory proceedings[197](index=197&type=chunk) - Management believes current claims and litigation are not likely to have a material adverse effect on the Company's unaudited condensed consolidated financial position, cash flows, or results of operations[197](index=197&type=chunk) [ITEM 1A. RISK FACTORS](index=45&type=section&id=ITEM%201A.%20RISK%20FACTORS) Highlights business risks, referencing 2024 Form 10-K, and introduces a new risk factor on discouraging third-party acquisitions - The Company's business is exposed to many risks, as discussed in its 2024 Form 10-K[199](index=199&type=chunk)[200](index=200&type=chunk) - A new risk factor identifies that provisions in production sharing contracts, joint operating agreements, and other agreements could discourage or prevent third-party acquisitions of the Company or its assets[201](index=201&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=45&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Confirms no previously unreported unregistered sales of equity securities during Q2 2025 - There were no unregistered sales of equity securities during the three months ended June 30, 2025, that were not previously reported on a Current Report on Form 8-K[202](index=202&type=chunk) [ITEM 5. OTHER INFORMATION](index=45&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No directors or officers adopted, terminated, or modified Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[203](index=203&type=chunk) [ITEM 6. EXHIBITS](index=46&type=section&id=ITEM%206.%20EXHIBITS) Lists exhibits filed with Form 10-Q, including organizational documents, stock awards, and SOX certifications - The exhibits include the Restated Certificate of Incorporation, Third Amended and Restated Bylaws, Form of Restricted Stock Award Agreement, Sarbanes-Oxley Section 302 and 906 certifications, and Inline XBRL documents[204](index=204&type=chunk)