What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-17 · 153 added, 129 removed, 241 unchanged (54% of the section changed)

6 unchanged sentences

We are an approved Fannie Mae DUS lender nationally, a Freddie Mac Multifamily Conventional Loan lender, seller/servicer, in New York, New Jersey and Connecticut, a Freddie Mac affordable, manufactured housing, senior housing and SBL lender, seller/servicer, nationally and a HUD MAP and LEAN senior housing/healthcare lender nationally.

We also originate and service permanent financing loans underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as “Private Label” loans and originate and sell finance products through CMBS programs.

We pool and securitize the Private Label loans and sell certificates in the securitizations to third-party investors, while retaining the servicing rights and APL certificates of the securitization.

We also originate and retain the servicing rights on permanent financing loans underwritten using the guidelines of our existing agency loans sold to the GSEs, which we refer to as “Private Label” loans and originate and sell finance products through CMBS programs.

We either sell the Private Label loans instantaneously or pool and securitize them and sell certificates in the securitizations to third party investors, while retaining the highest risk bottom tranche certificate of the securitization (“APL certificates”).

We conduct our operations to qualify as a REIT.

27 unchanged sentences

COVID-19 Impact.

The ongoing effects of COVID-19 created significant disruptions to the U.S.

and global economies, which could continue a period of global economic slowdown.

Although vaccine availability and usage have continued to increase, which has led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects on inflation, interest rates, capital markets, labor shortages, property values and global supply chains continue to negatively impact many industries, including the U.S.

Although vaccine availability and its usage have led to less negative short-term effects, such as travel bans, quarantines, layoffs and shutdowns, the ongoing longer-term macroeconomic effects of the COVID-19 pandemic on inflation, interest

rates, capital markets, labor shortages, property values and global supply chains continue to negatively impact many industries, including the U.S.

commercial real estate market.

Although we have not been significantly impacted by COVID-19 to-date, the impact of COVID-19 on companies continues to evolve, and the extent and duration of the economic fallout from this pandemic to our business, particularly rising inflation, increasing interest rates and dislocation in capital markets, remains unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.

The extent and duration of the economic fallout from this pandemic to our business, particularly rising inflation, increasing interest rates and dislocation in capital markets, remains unclear and present risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions.

Significant Developments During 2023

Financing and Capital Markets Activity.

● Closed two collateralized securitization vehicles (CLO 18 and 19) totaling $3.10 billion, of which $2.53 billion of investment grade notes were issued to third-party investors and $387.3 million of below investment-grade notes and a $187.1 million equity interest in the portfolio were retained by us;

● Closed a $489.3 million Private Label securitization and retained the most subordinate certificates totaling $43.4 million;

● Closed our first Freddie Mac Q Series securitization totaling $315.8 million and retained certain subordinate and interest-only certificates totaling $79.0 million;

● Raised $485.8 million of capital from the issuances of common stock and an additional issuance of Series F preferred stock;

● Raised $426.9 million from the issuance of our 7.50% convertible notes and 8.50% senior unsecured notes and used a significant portion to repay existing debt;

● Increased our Structured Business warehouse capacity by $1.80 billion;

● Unwound CLO 10, redeeming $441.0 million of outstanding notes, which were repaid from refinancing the remaining assets within CLO 18 and cash held by CLO 10.

• Raised $193.7 million of capital from issuances of approximately 13.1 million shares of common stock under our “At-The-Market” equity offering sales agreement;

• Unwound CLO 12 and 13, redeeming the remaining outstanding notes, which were repaid primarily from the refinancing of the remaining assets within our other CLO vehicles and credit and repurchase facilities;

• Raised $93.4 million from the issuance of our 7.75% senior unsecured notes and used $70.8 million of the net proceeds to redeem our 8.00% senior unsecured notes;

• Redeemed $78.9 million of our 5.625% senior unsecured notes at maturity with cash.

Share Repurchase Program.

We implemented a $50.0 million share repurchase program and repurchased approximately 3.5 million shares of our common stock at a total cost of $37.4 million and an average cost of $10.56 per share.

We subsequently increased the remaining availability under the share repurchase program to $150.0 million.

Structured Business Activity.

● Grew our structured loan and investment portfolio 19% to $14.46 billion on loan originations totaling $6.15 billion, partially offset by loan runoff totaling $3.82 billion;

● Loan runoff included the sale of four bridge loans at par with an aggregate UPB of $296.9 million;

● Sold a $110.5 million loan at a discount for $102.2 million, releasing $66.3 million of capital for investment and recognized a $9.2 million loss.

We have the potential to recover up to $2.8 million depending on the future performance of the loan;

● Within our equity investments, we received cash distributions totaling $37.4 million, including $23.8 million (recognized as a return of capital) from our residential mortgage venture and $11.1 million (recognized as income) from our Lexford venture.

We also recorded $4.9 million of income from our residential mortgage venture, received a $2.6 million equity participation interest and recorded a $2.4 million other-than-temporary impairment (see Note 8);

● Agreed to a $7.4 million settlement on the Extended Stay litigation (see Note 14).

• Reduced our structured loan and investment portfolio by 13% to $12.62 billion on loan runoff of $3.35 billion, which outpaced loan originations totaling $983.3 million;

• Received and recorded $26.7 million in income from equity affiliates from equity participation interests on properties that were sold and cash distributions from our Lexford joint venture.

We also received cash distributions totaling $15.0 million from our investment in a residential mortgage banking business;

• Settled the Extended Stay litigation (see Note 14).

Agency Business Activity.

● Loan originations and sales totaled $4.77 billion and $5.44 billion, respectively;

• Loan originations increased 7% to $5.11 billion, and includes $1.69 billion of new agency loans that were recaptured from our Structured Business runoff;

• Grew our fee-based servicing portfolio 11%, or $2.99 billion, to $30.98 billion.

We raised our quarterly common dividend three times during 2022 to an annual run rate of $1.60 per share, representing an 8% increase over the prior year.

We raised our quarterly common dividend twice during 2023 to an annual run rate of $1.72 per share, representing a 7.5% increase over the prior year.

Current Market Conditions, Risks and Recent Trends

As discussed throughout this report, the ongoing COVID-19 pandemic continues to impact the global economy in unprecedented ways, causing significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets.

commercial real estate market.

Although we have not been significantly impacted by COVID-19 to-date, adverse economic conditions have resulted, and may continue to result, in rising interest rates, dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could have a significant impact on our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

The Federal Reserve has raised interest rates throughout 2022 to combat inflation and restore price stability and it is expected that rates will continue to rise throughout the first half of 2023, potentially even longer.

Currently, rising interest rates will positively impact our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR or LIBOR.

The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability.

As inflation begins to cool, it is possible that the Federal Reserve will pause on raising interest rates higher and potentially begin to lower rates during 2024.

We have been very successful in raising capital through various vehicles to grow our businesses.

Inflation, rising interest rates, bank failures, and geopolitical uncertainty has caused significant disruptions in many market segments, including the financial services, real estate and credit markets, which has, and may continue, to result in a further dislocation in capital markets and a continual reduction of available liquidity.

Instability in the banking sector, such as the recent bank failures and consolidations, further contributed to the tightening liquidity conditions in the equity and capital markets and has affected the availability and increased the cost of capital.

The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all.

Additionally, the recent turmoil in the banking sector and financial markets has resulted in multiple regional bank failures and consolidations.

Although the majority of our cash is currently on deposit with major financial institutions, our balances often exceed insured limits.

We limit the exposure relating to these balances by diversifying them among various counterparties.

Generally, deposits may be redeemed upon demand and are maintained at financial institutions with reputable credit and therefore we believe bear minimal credit risk.

These current market conditions could continue to limit our ability to grow our Structured Business since this business is more reliant on the capital markets to grow, but can also present us with options to build on existing relationships or create new relationships with lenders.

Since our Agency Business requires limited capital to grow, as originations are financed through warehouse facilities for generally up to 60 days before the loans are sold, tightening liquidity conditions in equity and capital markets should not have a substantial impact on our ability to sustain this business.

These adverse economic conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes, increased payment delinquencies and defaults and increased loan modifications and foreclosures, all of which could have a significant impact on our future results of operations, financial condition, business prospects and our ability to make distributions to our stockholders.

We are currently in a high interest rate environment and some of our borrowers have experienced, and may continue to experience, financial stress that have resulted in an increase to payment delinquencies, loan loss reserves and realized losses on certain loans within our portfolio.

We employ rigorous risk management and underwriting practices to proactively maintain the quality of our loan portfolio and work very closely with borrowers to mitigate potential losses while safeguarding the integrity of our portfolio.

Given the current elevated interest rate environment, we cannot guarantee that our loan portfolio will perform under the terms originally established.

Currently, the high interest rate environment positively impacts our net interest income since our structured loan portfolio exceeds our corresponding debt balances and the vast majority of our loan portfolio is floating-rate based on SOFR.

In addition, a greater portion of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.

Therefore, increases in interest income due to rising interest rates is likely to be greater than the corresponding increase in interest expense on our variable rate debt.

Additionally, we earn interest on our escrow balances, so an increasing interest rate environment will increase our earnings on such balances.

Additionally, we earn interest on our escrow and cash balances, so an increasing interest rate environment will increase our earnings on such balances.

See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.

Conversely, such rising interest rates could negatively impact real estate values and limit a borrower’s ability to make debt service payments, which may limit new mortgage loan originations and increase the likelihood of incurring losses from defaulted loans if the reduction in the collateral value is insufficient to repay their loans in full.

We have been very successful in raising capital through various vehicles to grow our businesses.

The anticipated continual rise in interest rates and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity.

Tightening liquidity conditions in equity and capital markets affect the availability and cost of capital and the increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms.

Periods of volatility and dislocation in the capital markets, as observed recently, could limit our ability to grow our Structured Business since this business is more reliant on the capital markets to grow, but can also present us with unique avenues to participate in other lower cost financing options and build on existing, and create new, relationships with lenders.

Conversely, such rising interest rates have negatively impacted real estate values and have limited certain borrowers abilities to make debt service payments, which may limit new mortgage loan originations and increase the likelihood of additional delinquencies and losses incurred on defaulted loans if the reduction in the collateral value is insufficient to repay their loans in full.

We are a national originator with Fannie Mae and Freddie Mac, and the GSEs remain the most significant providers of capital to the multifamily market.

In November 2022, the FHFA announced that its 2023 Caps for Fannie Mae and Freddie Mac will be $75 billion for each enterprise for a total opportunity of $150 billion, which has decreased from its 2022 loan origination caps of $78 billion for each enterprise.

The FHFA has stated that they will continue to monitor the market and reserves the right to increase the 2023 Caps if warranted, however, they will not reduce the 2023 Caps if the market is smaller than initially projected.

The 2023 Caps will continue to apply to all multifamily business, have no exclusions, and mandate that 50% be directed towards mission driven, affordable housing.

The FHFA has removed the requirement that at least 25% be affordable to residents at or below 60% of AMI to reduce inconsistencies with their Housing Goals regulation.

Further, the FHFA has changed certain definitions of mission driven affordable housing and also allows loans to finance energy or water efficiency improvements with units affordable at or below 80% of AMI to be classified as mission-driven, up from 60% AMI in 2022.

This increase will allow the GSEs to expand their effort on energy and water conservation measures at workforce housing properties.

In November 2023, FHFA set its 2024 Caps for Fannie Mae and Freddie Mac at $70 billion for each enterprise for a total opportunity of $140 billion, which is a decrease from its 2023 Caps of $75 billion for each enterprise.

FHFA stated they will continue to monitor the market and reserves the right to increase the 2024 Caps if warranted, however, they will not reduce the 2024 Caps if the market is smaller than initially projected.

To promote affordable housing preservation, loans classified as supporting workforce housing properties will be exempt from the 2024 Caps.

Workforce housing loans preserve rents at affordable levels in multifamily properties, typically without the use of public subsidies.

The 2024 Caps will continue to mandate that at least 50% be directed towards mission driven, affordable housing, with affordability levels corresponding to 80%-120% of area median income, depending on the market.

Our originations with the GSEs are highly profitable executions as they provide significant gains from the sale of our loans, non-cash gains related to MSRs and servicing revenues.

Therefore, a decline in our GSE originations could negatively impact our financial results.

We are unsure whether the FHFA will impose stricter limitations on GSE multifamily production volume in the future.

We are unsure whether FHFA will impose stricter limitations on GSE multifamily production volume in the future.

Changes in Financial Condition

1 unchanged sentence

Our Structured loan and investment portfolio balance was $12.62 billion and $14.46 billion at December 31, 2023 and 2022, respectively.

This increase was primarily due to loan originations exceeding loan payoffs and paydowns by $2.33 billion.

This decrease was primarily due to loan payoffs and paydowns exceeding loan originations by $2.37 billion.

See below for details.

8 unchanged sentences

Weighted average interest rate 10.03 % 5.72 %

(1) We committed to fund SFR loans totaling $1.08 billion and $729.5 million during 2022 and 2021, respectively.

Loan runoff $ 3,354,055 $ 3,818,554

Number of loans 187 177

2 unchanged sentences

Number of loans 64 66

Loans held-for-sale from the Agency Business decreased $739.5 million, primarily from loan sales exceeding originations by $670.4 million as noted in the following table, and the payoff of a $55.0 million Private Label loan.

Loan sales included $489.3 million of Private Label loans which were sold in a Private Label loan securitization in the first quarter of 2022.

Our GSE loans are generally sold within 60 days, while our Private Label loans are generally expected to be sold and securitized within 180 days from the loan origination date.

Loans held-for-sale from the Agency Business increased $197.6 million, primarily from loan originations exceeding sales by $217.6 million as noted in the following table.

Our GSE loans are generally sold within 60 days, while our Private Label loans are either sold instantaneously or pooled and securitized, or sold, within 180 days from the loan origination date.

Activity from our Agency Business portfolio is comprised of the following (in thousands):

Loan Originations

Loan Originations Loan Sales

Fannie Mae $ 3,773,532 $ 3,469,340

Freddie Mac 756,827 715,530

Private Label 299,934 441,319

FHA 257,199 240,079

SFR - Fixed Rate 19,328 22,931

Securities held-to-maturity increased $16.1 million, primarily due to the purchase, at a discount, of $27.6 million of APL certificates in connection with a Private Label securitization, partially offset by principal payments received from underlying loan payoffs from our B Piece bonds.

Investments in equity affiliates decreased $10.5 million, primarily due to $23.8 million in cash distributions received from our investment in a residential mortgage banking business and a $2.4 million other-than-temporary impairment in our North Vermont Avenue venture, partially offset by net fundings totaling $13.1 million on our Fifth Wall (“Fifth Wall”) and AMAC Holdings III LLC (“AMAC III”) ventures and $4.9 million of income from the residential mortgage business.

Other assets increased $101.5 million, primarily due to increases in interest receivables from portfolio growth and increases in the benchmark index rates, along with the $30.1 million acquisition of a multifamily property for full satisfaction of the underlying debt.

Total $ 5,106,820 $ 4,889,199

Investments in equity affiliates remained relatively flat, primarily due to investments made in two new joint ventures, offset by distributions received on existing joint ventures.

Other assets increased $118.8 million, primarily due to an increase in interest receivable (from increases in benchmark index rates), the acquisition of an office property for full satisfaction of the underlying debt, and an increase in unsecured loan fundings.

Liabilities – Comparison of balances at December 31, 2023 to December 31, 2022:

Credit and repurchase facilities decreased $639.8 million, primarily due to loan sales exceeding originations in our Agency Business as described above.

Securitized debt increased $1.96 billion, primarily due to the issuance of two new CLOs and completion of our first Freddie Mac Q Series securitization, where we issued $2.76 billion of notes and certificates to third-party investors, partially offset by the unwind of a CLO totaling $441.0 million and paydowns on existing CLOs totaling $360.1 million.

Senior unsecured notes increased $105.4 million, primarily due to our issuance of $150.0 million of 8.50% notes, partially offset by the repurchase of $46.2 million of our 5.625% notes.

Convertible senior unsecured notes, net increased $21.0 million, primarily due to the issuance of $287.5 million of 7.50% convertible notes, substantially offset by the redemption of our 4.75% convertible notes totaling $264.0 million.

Due to borrowers decreased $35.4 million, primarily due to the funding of previously committed loan originations, partially offset by unfunded commitments on new originations in our Structured Business.

Other liabilities increased $47.9 million, primarily due to a $34.9 million increase in interest payable from greater debt balances on portfolio growth and higher benchmark interest rates and $20.9 million of financing placed on the multifamily property acquisition described above, partially offset by a decrease in accrued commissions from lower origination volume in 2022 compared to 2021.

During 2022, we sold 26,335,788 shares of our common stock through our “At-The-Market” equity agreement and a public offering, raising net proceeds totaling $408.7 million.

During 2022, we completed a public offering of an additional 3,292,000 shares of our Series F preferred stock, generating net proceeds of $77.1 million.

Credit and repurchase facilities decreased $604.0 million, primarily due to runoff in our structured loan portfolio outpacing new originations.

Securitized debt decreased $914.3 million, primarily due to the unwind of two CLO vehicles totaling $842.1 million and paydowns on existing securitizations totaling $87.7 million.

Senior unsecured notes decreased $52.0 million, primarily due to the redemption of our 8.00% and 5.625% notes totaling $149.6 million, partially offset by our issuance of $95.0 million of 7.75% notes.

Due to borrowers increased $60.5 million, primarily due to unfunded commitments on new originations in our Structured Business, partially offset by the funding of previously committed loan originations.

Allowance for loss-sharing obligations increased $14.5 million, primarily due to increases in estimated losses under CECL.

During 2023, we sold 13,113,296 shares of our common stock through our “At-The-Market” equity agreement raising net proceeds totaling $193.7 million.

We also repurchased approximately 3.5 million shares of our common stock under our share repurchase program at a total cost of $37.4 million.

See Note 16 for details of our dividends declared and our deferred compensation transactions during 2023.

2 unchanged sentences

December 31, 2023

Delinquencies

Interest Rate Type

of Portfolio (1)

of Portfolio (2)

Product Portfolio UPB Loan Count Wtd.

Age of Portfolio (years) Wtd.

(years) Interest Rate Type Wtd.

Note Rate Annualized Prepayments as a % of Portfolio (1) Delinquencies as a % of Portfolio (2)

Fixed Adjustable

Fannie Mae $ 21,264,578 2,559 3.4 7.4 96 % 4 % 4.50 % 5.09 % 0.86 %

Freddie Mac 5,181,933 1,148 3.2 8.5 83 % 17 % 4.72 % 7.92 % 4.39 %

Private Label 2,510,449 160 2.5 6.7 100 % — 4.02 % — —

FHA 1,359,624 105 3.0 19.2 100 % — 3.52 % — —

Bridge 379,425 4 1.2 3.2 63 % 37 % 7.14 % — —

SFR - Fixed Rate 287,446 59 2.3 5.1 100 % — 5.20 % 1.18 % —

Total $ 30,983,455 4,035 3.2 8.0 94 % 6 % 4.49 % 4.83 % 1.33 %

December 31, 2022

Fannie Mae $ 19,038,124 2,460 3.1 8.0 96 % 4 % 4.20 % 12.71 % 0.13 %

Freddie Mac 5,153,207 1,214 2.8 9.0 84 % 16 % 4.26 % 19.78 % 0.27 %

Private Label 2,074,859 130 1.9 7.6 100 % — 3.60 % — —

FHA 1,155,893 96 2.5 19.5 100 % — 3.17 % 1.59 % —

Bridge 301,182 4 0.9 1.7 — 100 % 7.68 % — —

SFR - Fixed Rate 274,764 53 1.4 6.0 100 % — 5.04 % 0.30 % —

Total $ 27,998,029 3,957 2.9 8.6 93 % 7 % 4.17 % 12.35 % 0.14 %

________________________________________

(1) Prepayments reflect loans repaid prior to six months from loan maturity.

2 unchanged sentences

(2) Delinquent loans reflect loans that are contractually 60 days or more past due.

At December 31, 2022 and 2021, delinquent loans totaled $38.7 million and $77.6 million, respectively, of which zero and $9.8 million, respectively, were in the foreclosure process.

No loans were in bankruptcy at December 31, 2022 and 2021.

At December 31, 2023 and 2022, delinquent loans totaled $411.1 million and $38.7 million, respectively.

At December 31, 2023, there were two loans totaling $4.8 million in bankruptcy and at both December 31, 2023 and 2022, there were no loans in foreclosure.

Our Agency Business servicing portfolio represents commercial real estate loans, which are generally transferred or sold within 60 days from the date the loan is funded.

3 unchanged sentences

The following table provides our consolidated operating results ($ in thousands):

Year Ended December 31,

Increase / (Decrease)

Year Ended December 31, Increase / (Decrease)

2023 2022 Amount Percent

Interest income $ 1,331,219 $ 948,401 $ 382,818 40 %

5 unchanged sentences

Servicing revenue, net 130,449 92,192 38,257 41 %

Property operating income

Property operating income 5,708 1,877 3,831 nm %

Gain (loss) on derivative instruments, net 6,763 26,609 (19,846) (75) %

Other income, net

Other income (loss), net 7,667 (17,563) 25,230 nm %

Total other revenue 293,021 228,277 64,744 28 %

4 unchanged sentences

Depreciation and amortization 9,743 8,732 1,011 12 %

Provision for loss sharing (net of recoveries)

Provision for credit losses (net of recoveries)

Litigation settlement

Provision for loss sharing (net of recoveries) 15,695 1,862 13,833 nm %

Provision for credit losses (net of recoveries) 73,446 21,169 52,277 nm %

Litigation settlement — 7,350 (7,350) nm %

Total other expenses 315,829 257,064 58,765 23 %

Income before extinguishment of debt, sale of real estate, income from equity affiliates and income taxes

Income before extinguishment of debt, income from equity affiliates and income taxes 405,183 361,997 43,186 12 %

Loss on extinguishment of debt (1,561) (4,933) 3,372 (68) %

Gain on sale of real estate

Income from equity affiliates 24,281 14,247 10,034 70 %

Provision for income taxes (27,347) (17,484) (9,863) 56 %

Net income 400,556 353,827 46,729 13 %

Preferred stock dividends 41,369 40,954 415 1 %

1 unchanged sentence

Net income attributable to common stockholders $ 330,065 $ 284,829 $ 45,236 16 %

________________________________________

nm – not meaningful

1 unchanged sentence

Year ended December 31,

Value (1) Interest

Expense W/A Yield /

Cost (2) Average

Value (1) Interest

Expense W/A Yield /

Structured Business interest-earning assets:

Bridge loans $ 13,190,889 $ 1,208,180 9.16 % $ 13,997,117 $ 859,339 6.14 %

Mezzanine / junior participation loans 224,784 23,939 10.65 % 202,484 19,473 9.62 %

Preferred equity investments 90,960 5,892 6.48 % 142,738 15,219 10.66 %

Other 20,635 3,370 16.33 % 36,262 6,141 16.94 %

Core interest-earning assets 13,527,268 1,241,381 9.18 % 14,378,601 900,172 6.26 %

2 unchanged sentences

Structured Business interest-bearing liabilities:

CLO $ 7,081,594 $ 496,049 7.00 % $ 7,496,568 $ 265,560 3.54 %

Credit and repurchase facilities 3,185,888 251,519 7.89 % 3,967,648 173,365 4.37 %

Unsecured debt 1,658,986 103,147 6.22 % 1,610,809 91,604 5.69 %

Trust preferred

Q Series securitization 229,734 17,158 7.47 % 11,033 703 6.37 %

Trust preferred 154,336 12,729 8.25 % 154,336 7,427 4.81 %

Total interest-bearing liabilities $ 12,310,538 880,602 7.15 % $ 13,240,394 538,659 4.07 %

Net interest income $ 398,831 $ 364,963

________________________________________

(1) Based on UPB for loans, amortized cost for securities and principal amount for debt.

1 unchanged sentence

Net Interest Income

The increase in interest income was mainly due to a $476.6 million increase from our Structured Business, primarily due to a significant increase in our average core interest-earning assets from loan originations exceeding loan runoff, along with increases in the average yield on core interest-earning assets.

The increase in the average yield was primarily due to increases in benchmark index rates, partially offset by lower rates on originations, as compared to loan runoff.

The increase in interest expense was mainly due to a $344.2 million increase from our Structured Business, primarily due to an increase in the average balance of our interest-bearing liabilities, due to the significant growth in our loan portfolio and the issuance of additional unsecured debt, along with an increase in the average cost of our interest-bearing liabilities, mainly from increases in benchmark index rates.

The increase in interest income was mainly due to a $375.8 million increase from our Structured Business, primarily due to a significant increase in the average yield on core interest-earning assets, as a result of increases in benchmark interest rates.

The increase in interest expense was mainly due to a $341.9 million increase from our Structured Business, primarily due to a significant increase in the average cost of our interest-bearing liabilities, mainly from increases in benchmark index rates.

Agency Business Revenue

The decrease in gain on sales, including fee-based services, net was primarily due to a 30% decrease in the sales margin from 1.92% to 1.34%, along with a 15% decrease ($976.5 million) in loan sales volume.

The decrease in the sales margin was primarily due to lower margins received on our Private Label and SFR loan sales.

The decrease in income from MSRs was primarily due to a 34% decrease in the MSR rate from 2.05% to 1.35% and a 19% decrease ($1.20 billion) in loan commitment volume.

The decrease in the MSR rate was primarily due to lower average servicing fees on Fannie Mae loan commitments, due to a reduction in servicing rates on newer loans and a larger average loan size which carries lower servicing fees.

The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in benchmark index rates as well as higher escrow balances during 2022.

The gains and losses on derivative instruments in 2022 and 2021, respectively, were related to changes in the fair values of our Swaps and forward sale commitments held by our Agency Business.

The decrease in other income, net during 2022 was primarily due to $15.7 million of unrealized impairment losses recorded on certain loans held-for sale in our Agency Business and $11.2 million of losses recognized in 2022 related to sales of bridge loans in our Structured Business.

The increase in gain on sales, including fee-based services, net was primarily due to a 10% increase in the sales margin from 1.34% (which includes gains recognized on derivative instruments) to 1.48%, partially offset by a 10% decrease in loan sales volume ($549.4 million).

The increase in the sales margin was primarily driven by a higher percentage of Fannie Mae loans sold in 2023, which contain higher sales margins.

Overall, the income from MSRs remained relatively flat.

The slight increase was primarily due to an increase in Fannie Mae loan commitment volume ($829.6 million), partially offset by a decrease in Freddie Mac loan commitment volume ($596.2 million).

The positive impact from the net increase in loan commitment volume was largely offset by a decrease in the Fannie Mae and Freddie Mac MSR rates, as a result of lower servicing rates on newer loans.

The increase in servicing revenue, net was primarily due to an increase in earnings on escrow balances as a result of increases in benchmark index rates, partially offset by less prepayment penalties received from early runoff.

Other Income (Loss)

The gain (loss) on derivative instruments in both 2023 and 2022 were related to changes in the fair values of our forward sale commitments and treasury futures held by our Agency Business.

Other income (loss), net in 2023 primarily reflects $4.8 million of loan origination fees from our Structured Business and a $2.5 million mark-to-market recovery on Private Label and SFR loans in our Agency Business, while 2022 primarily reflects a $15.7 million unrealized impairment loss recorded on certain loans held-for-sale in our Agency Business and $11.2 million of losses recognized in 2022 related to sales of bridge loans in our Structured Business.

Other Expenses

The decrease in employee compensation and benefits expense was primarily due to a decrease in commissions from lower GSE/Agency loan sales volume, partially offset by an increase in headcount as a result of the portfolio growth in both business segments.

The increase in selling and administrative expenses was primarily due to higher professional fees (legal and consulting) in connection with the growth in both business segments, as well as increases in travel and events as travel continues to gain momentum from COVID-19.

We recorded CECL provisions totaling $23.0 million during 2022 and a provision recovery of $27.3 million during 2021.

The CECL provision in 2022 primarily reflects increases in our loans and investments balance, as a result of portfolio growth, along with rising interest rates and inflation in our CECL models for our Structured Business, which predominantly consists of variable rate loans.

The provision recovery during 2021 was primarily due to the reversal of CECL reserves in both business segments in connection with improved market conditions and expected future forecasts.

The decrease in employee compensation and benefits expense was primarily due to a decrease in incentive compensation.

The decrease in selling and administrative expenses was primarily due to lower professional fees as a result of the settlement of the Extended Stay litigation in early 2023.

The increases in our CECL provisions were primarily due to the impact of a continued decline in the macroeconomic outlook for commercial real estate, including specifically identified impaired assets.

We recorded an accrual of $7.4 million in 2022 pertaining to the settlement of the Extended Stay litigation as described in Note 14.

Loss on Extinguishment of Debt

The loss on extinguishment of debt in 2022 and 2021 represents deferred financing fees recognized in connection with the unwind of CLOs, along with the 2022 repurchase of our 4.75% convertible notes.

Gain on Sale of Real Estate

The gain recorded in 2021 was from our acquisition of an office property (for full satisfaction of the underlying debt) with an appraisal value in excess of the outstanding loan and the sale of a repurchased Fannie Mae loan.

The loss on extinguishment of debt in both 2023 and 2022 represents deferred financing fees recognized in connection with the unwind of CLOs, along with the 2022 repurchase of our 4.75% convertible notes.

Income from Equity Affiliates

Income from equity affiliates in 2022 primarily reflects $11.1 million in distributions received from our Lexford venture, $4.9 million of income from our investment in a residential mortgage banking business, and $2.6 million from an equity participation interest on a property that was sold.

The income in 2022 was partially offset by a $2.4 million other-than-temporary impairment in our North Vermont Avenue investment.

Income from equity affiliates in 2021 primarily reflects $34.6 million of income from our residential mortgage business.

The higher income in 2021 from the residential mortgage business was driven by the historically low interest rates and strength in the residential housing market during 2021.

Income from equity affiliates in 2023 primarily reflects $14.5 million received from equity participation interests on properties that were sold and $12.2 million in distributions received from our Lexford joint venture.

Income from equity affiliates in 2022 primarily reflects $11.1 million in distributions received from our Lexford joint venture, $4.9 million of income from our investment in a residential mortgage banking business and a $2.6 million equity participation interest on a property that was sold, partially offset by a $2.4 million other-than-temporary impairment in our North Vermont Avenue investment.

Provision for Income Taxes

In 2023, we recorded a tax provision of $27.3 million, which consisted of a current tax provision of $34.6 million and a deferred tax benefit of $7.3 million.

In 2021, we recorded a tax provision of $46.3 million, which consisted of current and deferred tax provisions of $35.4 million and $10.9 million, respectively.

The decrease in the tax provision was primarily due to lower income generated from our investment in a residential banking business and a decrease in the pre-tax income from our Agency Business.

Preferred Stock Dividends

The increase in preferred stock dividends was due to the issuances of our Series D, E and F preferred stock, which included a significantly larger number of shares than our Series A, B and C preferred stock that were redeemed in the second quarter of 2021.

In 2022, we recorded a tax provision of $17.5 million, which consisted of a current tax provision of $19.2 million and a deferred tax benefit of $1.7 million.

The increase in the tax provision was primarily due to an increase in income generated from our equity investments and an increase in the pre-tax income from our Agency Business.

Net Income Attributable to Noncontrolling Interest

The noncontrolling interest relates to the outstanding operating partnership units (“OP Units”) issued as part of the 2016 acquisition of ACM’s agency platform (the “Acquisition”).

There were 16,293,589 OP Units and 16,325,095 OP Units outstanding at December 31, 2022 and 2021, respectively, which represented 8.4% and 9.7% of our outstanding stock at December 31, 2022 and 2021, respectively.

There were 16,293,589 OP Units outstanding at both December 31, 2023 and 2022, which represented 8.0% and 8.4% of our outstanding stock at December 31, 2023 and 2022, respectively.

Comparison of Results of Operations for Years Ended December 31, 2022 and 2021

2 unchanged sentences

Sources of Liquidity.

Liquidity is a measure of our ability to meet our potential cash requirements, including ongoing commitments to repay borrowings, satisfaction of collateral requirements under the Fannie Mae DUS risk-sharing agreement and, as an approved designated seller/servicer of Freddie Mac’s SBL program, operational liquidity requirements of the GSE agencies, fund new loans and investments, fund operating costs and distributions to our stockholders, as well as other general business needs.

investments, fund operating costs and distributions to our stockholders, as well as other general business needs.

Our primary sources of funds for liquidity consist of proceeds from equity and debt offerings, proceeds from CLOs and securitizations, debt facilities and cash flows from operations.

We closely monitor our liquidity position and believe our existing sources of funds and access to additional liquidity will be adequate to meet our liquidity needs.

The ongoing COVID-19 pandemic has contributed to adverse economic and market conditions, causing significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets, while adding to ongoing longer-term macroeconomic effects on inflation, interest rates and capital markets.

We are monitoring the COVID-19 pandemic and its impact on our financing sources, borrowers and their tenants, as well as the economy as a whole, including the tightening liquidity conditions in equity and capital markets.

To the extent that our financing sources, borrowers and their tenants continue to be impacted by the pandemic, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

The ongoing adverse economic and market conditions, including inflation, high interest rate environment, bank failures and geopolitical uncertainty, continues to cause significant disruptions and liquidity constraints in many market segments, including the financial services, real estate and credit markets.

These conditions have created, and may continue to create, a dislocation in capital markets and a continual reduction of available liquidity.

The increased cost of credit, or degradation in debt financing terms, may impact our ability to identify and execute investments on attractive terms, or at all.

If our financing sources, borrowers and their tenants continue to be impacted by these adverse economic and market conditions, or by the other risks disclosed in our filings with the SEC, it would have a material adverse effect on our liquidity and capital resources.

As described in Note 10, certain of our repurchase facilities include margin call provisions associated with changes in interest spreads which are designed to limit the lenders credit exposure.

If we experience significant decreases in the value of the properties serving as collateral under these repurchase agreements, which is set by the lenders based on current market conditions, the lenders have the right to require us to repay all, or a portion, of the funds advanced, or provide additional collateral.

While we expect to extend or renew all of our facilities as they mature, we cannot provide assurance that they will be extended or renewed on as favorable terms.

We had $11.57 billion in total structured debt outstanding at December 31, 2023.

Of this total, $8.74 billion, or 76%, does not contain mark-to-market provisions and is comprised of non-recourse securitized debt, senior unsecured debt and junior subordinated notes, the majority of which have maturity dates in 2025, or later.

The remaining $3.55 billion of debt is in credit and repurchase facilities with several different banks that we have long-standing relationships with.

While we expect to extend or renew all of our facilities as they mature, we cannot provide assurance that they will be extended or renewed on as favorable terms.

As of February 8, 2023, we had approximately $685.0 million in cash and $420.0 million of replenishable cash available under our CLO vehicles, as well as other liquidity sources.

The remaining $2.83 billion of debt is in credit and repurchase facilities with several different banks with which we have long-standing relationships.

At December 31, 2023, we had $1.65 billion of debt from credit and repurchase facilities that were subject to margin calls related to changes in interest spreads.

As of February 18, 2024, we had approximately $1.00 billion in cash and approximately $600.0 million of replenishable cash available under our CLO vehicles, as well as other liquidity sources.

In addition to our ability to extend our credit and repurchase facilities and raise funds from equity and debt offerings, we also have a $30.98 billion agency servicing portfolio at December 31, 2023, which is mostly prepayment protected and generates approximately $121.1 million per year in recurring cash flow.

At December 31, 2022, we had $2.49 billion of debt that was subject to margin calls related to changes in interest spreads.

To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT-taxable income.

1 unchanged sentence

However, we believe that our capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital and liquidity requirements.

Cash flows provided by operating activities totaled $1.10 billion during 2022 and consisted primarily of net cash inflows of $650.4 million as a result of loan sales exceeding loan originations in our Agency Business and net income of $353.8 million, as well as certain other non-cash net income adjustments.

Cash flows used in investing activities totaled $2.32 billion during 2022.

Cash flows provided by operating activities totaled $235.9 million during 2023 and consisted primarily of net income of $400.6 million, as well as certain other non-cash net income adjustments, partially offset by net cash outflows of $196.4 million as a result of loan originations exceeding loan sales in our Agency Business.

Cash flows provided by investing activities totaled $1.88 billion during 2023.

Loan and investment activity (originations and payoffs/paydowns) comprise the majority of our investing activities.

Loan originations from our Structured Business totaling $5.96 billion, net of payoffs and paydowns of $3.42 billion and proceeds from the sale of $397.3 million of structured loans, resulted in net cash outflows of $2.13 billion.

Cash flows provided by financing activities totaled $1.57 billion during 2022 and consisted primarily of net proceeds of $1.96 billion from securitized debt activity, $486.3 million of proceeds from the issuance of common and preferred stock and $124.6 million from senior unsecured notes activity, partially offset by net cash outflows of $617.0 million from debt facility activities (facility paydowns were greater than financed loan originations) and $321.7 million of distributions to our stockholders and OP Unit holders.

Loan payoffs and paydowns from our Structured Business totaling $3.36 billion, net of originations of $1.36 billion, resulted in net cash inflows of $2.00 billion.

Cash flows used in financing activities totaled $1.83 billion during 2023 and consisted primarily of $929.8 million of payoffs and paydowns of securitized debt, net cash outflows of $598.8 million from debt facility activities (facility paydowns were greater than financed loan originations), $380.6 million of distributions to our stockholders and OP Unit holders and $54.6 million from senior unsecured notes activity, partially offset by $193.7 million of proceeds from the issuance of common stock.

Agency Business Requirements.

2 unchanged sentences

Our adjusted net worth and operational liquidity exceeded the agencies’ requirements at December 31, 2023.

Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $69.0 million.

Our restricted liquidity and purchase and loss obligations were satisfied with letters of credit totaling $69.0 million and cash.

See Note 14 for details about our performance regarding these requirements.

5 unchanged sentences

The following is a summary of our debt facilities (in thousands):

December 31, 2022

Debt Instruments

Debt Instruments December 31, 2023

Commitment UPB (1) Available Maturity Dates (2)

Structured Business

8 unchanged sentences

Consolidated total $ 17,419,812 $ 11,986,059 $ 5,433,753

________________________________________

(1) Excludes the impact of deferred financing costs.

5 unchanged sentences

The following table provides additional information regarding the balances of our borrowings (in thousands):

Quarterly Average

End of Period

Maximum UPB at

Quarter Ended

Any Month-End

Quarter Ended Quarterly Average UPB End of Period UPB Maximum UPB at Any Month End

December 31, 2023 $ 3,274,139 $ 3,242,938 $ 3,251,330

13 unchanged sentences

At December 31, 2023, we had no off-balance-sheet arrangements.

In addition, a greater portion of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.

The Federal Reserve raised interest rates throughout 2022 and 2023 to combat inflation and restore price stability.

As inflation begins to cool, it is possible that the Federal Reserve will pause on raising interest rates higher and potentially begin to lower rates during 2024.

In addition, a greater portion

of our debt is fixed-rate (convertible and senior unsecured notes), as compared to our structured loan portfolio, and will not reset as interest rates rise.

Therefore, increases in interest income due to rising interest rates is likely to be greater than the corresponding increase in interest expense on our variable rate debt.

Additionally, we earn interest on our escrow and cash balances, so an increasing interest rate environment will increase our earnings on such balances.

See “Quantitative and Qualitative Disclosures about Market Risk” below for additional details.

Derivative Financial Instruments

5 unchanged sentences

Actual results could differ from these estimates.

A summary of our critical accounting policies is presented in Note 2.

A summary of our significant accounting policies is presented in Note 2.

Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements.

The accounting estimates requiring complex judgement that we consider to be most critical to an investor’s understanding of our financial results and condition are included in our allowance for credit losses and capitalized mortgage servicing rights accounting policies.

Each quarter, we assess these estimates and assumptions based on several factors, including historical experience, which we believe to be reasonable under the circumstances.

6 unchanged sentences

We consider distributable earnings in determining our quarterly dividend and believe that, over time, distributable earnings is a useful indicator of our dividends per share.

We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, changes in fair value of GSE-related derivatives that temporarily flow through earnings (net of any tax impact), deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), amortization of the convertible senior notes conversion option (in comparative periods prior to 2022) and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).

We define distributable earnings as net income (loss) attributable to common stockholders computed in accordance with GAAP, adjusted for accounting items such as depreciation and amortization (adjusted for unconsolidated joint ventures), non-cash stock-based compensation expense, income from MSRs, amortization and write-offs of MSRs, gains/losses on derivative instruments primarily associated with Private Label loans not yet sold and securitized, changes in fair value of GSE-related derivatives that temporarily flow through earnings (net of any tax impact), deferred tax provision (benefit), CECL provisions for credit losses (adjusted for realized losses as described below), amortization of the convertible senior notes conversion option (for 2021 only) and gains/losses on the receipt of real estate from the settlement of loans (prior to the sale of the real estate).

We also add back one-time charges such as acquisition costs and one-time gains/losses on the early extinguishment of debt and redemption of preferred stock.

8 unchanged sentences

Year Ended December 31,

2023 2022 2021

Net income attributable to common stockholders $ 330,065 $ 284,829 $ 317,412

6 unchanged sentences

Provision for credit losses, net 68,642 25,077 (39,856)

Loss on derivative instruments, net

Gain on real estate from settlement of loan

(Gain) loss on derivative instruments, net (8,844) 3,480 432

Stock-based compensation 14,940 14,973 9,929

Loss on redemption of preferred stock — — 3,479

Gain on real estate from settlement of loan — — (2,466)

Distributable earnings (1) $ 452,479 $ 405,696 $ 313,729

3 unchanged sentences

Diluted distributable earnings per share (1) $ 2.25 $ 2.23 $ 2.01

________________________________________

(1) Amounts are attributable to common stockholders and OP Unit holders.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis