ADAMAS TRUST, INC. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are a real estate investment trust (“REIT”) for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive single-family and multi-family assets. Executive Summary The global pandemic associated with COVID-19 and its related economic conditions have caused, and continue to cause, a significant disruption in the U.S. and world economies. To slow the spread of COVID-19, since mid-March, many countries, including in the U.S., implemented public heath responses that involved social distancing measures that substantially prohibited large gatherings, including at sporting events, religious services and schools, shelter-in-place and stay-at-home orders or other measures designed to limit capacity or services on a number of businesses. Many businesses have moved to a remote working environment, temporarily suspended operations, laid off a significant percentage of their workforce and/or shut down completely. The economic fallout caused by the pandemic and certain of the actions taken to reduce its spread have been startling, resulting in lost business revenue, rapid and significant increases in unemployment, changes in consumer behavior and significant volatility in market liquidity and fair value of many assets. Many of these conditions, or some level thereof, are expected to continue over the near term and may prevail throughout 2021. Although economic data and markets generally, including those in which we invest, showed signs of improvement beginning in the second quarter and continuing through the end of 2020, these markets and the economy continue to face significant challenges from the impact of the ongoing pandemic. The exact length and pace of the economic recovery are uncertain at this time. The global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress beginning in mid-March, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties in March, particularly with respect to our investment securities portfolio. In an effort to manage our portfolio through this unprecedented turmoil in the financial markets and improve liquidity, in March 2020, we paused funding of margin calls to our repurchase agreement financing counterparties, sold approximately $2.0 billion of assets, terminated interest rate swap positions with an aggregate notional value of $495.5 million and reduced our outstanding repurchase agreements decreasing our overall leverage to less than one times as of March 31, 2020. Since the market disruption and through the date hereof, we have continued our deliberate and patient approach to enhancing liquidity and strengthening our balance sheet by completing two non-mark-to-market securitizations of residential loans, a non-mark-to-market re-securitization of non-Agency RMBS, two non-mark-to-market repurchase agreement financings for residential loans and opportunistically selling non-Agency RMBS, CMBS and residential loans in our portfolio. The proceeds from these transactions were used to further reduce our outstanding mark-to-market repurchase agreements and invest in new single-family and multi-family residential investments. As of December 31, 2020, we have reduced our portfolio leverage to 0.2 times and reduced our outstanding repurchase agreements that finance investment securities to zero. 51 Table of Contents Our targeted investments currently include (i) residential loans, second mortgages and business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, as well as joint venture equity investments in multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets. Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company, we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related assets that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads and securities issued by newly originated securitizations, including credit sensitive securities from these securitizations. We intend to continue to focus on our core portfolio strengths of single-family and multi-family residential credit assets, which we believe will deliver better risk adjusted returns over time. In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in credit assets that meet our underwriting and return requirements. Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. We expect to maintain a defensive posture as it relates to new investments and focus on assets that may benefit from active management in a prolonged, low rate environment. We also expect to continue to selectively monetize gains from the price recovery experienced by our non-Agency RMBS and Freddie-K mezzanine securities. We seek to achieve a balanced and diverse funding mix to finance our assets and operations, which has typically included a combination of short-term borrowings, such as repurchase agreements with terms typically of 30-90 days, longer-term repurchase agreement borrowings with terms between one year and 24 months and longer-term financings, such as securitizations and convertible notes, with terms longer than one year. As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets during March 2020, looking forward, we expect to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations, term financings and corporate debt securities, that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. While longer-termed financings may involve greater expense relative to repurchase agreement funding, we believe, over time, this approach may better allow us to manage our liquidity risk and reduce exposures to market events like those caused by the COVID-19 pandemic during March 2020. We have completed five non-mark-to-market financings since June 2020, including two non-mark-to-market repurchase agreement financings with new and existing counterparties. We intend to continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing or the size, timing or terms thereof. We transitioned in March to a fully remote work force, ensuring the safety and well-being of our employees. Our prior investments in technology, business continuity planning and cyber-security protocols have enabled us to continue working with limited operational impact and we expect to continue our remote work arrangement for the foreseeable future. 52 Table of Contents Portfolio Update In March 2020, as a direct result of the negative impact of the COVID-19 pandemic on our markets, we executed an extensive portfolio reduction to improve our liquidity and risk management exposures, including approximately $1.9 billion in sales of investment securities. In the second quarter of 2020, we sought to further improve our liquidity position by reducing our outstanding repurchase agreements, engaging in opportunistic dispositions and maintaining a defensive posture as it related to new investments. During the second half of the year, we pursued new single-family and multi-family investments while we opportunistically sold certain investment securities. The following table presents the activity for our investment portfolio for the year ended December 31, 2020 (dollar amounts in thousands): December 31, 2019 Acquisitions Repayments (1) Sales Fair Value Changes and Other (2) December 31, 2020 Residential loans $ 1,632,510 $ 569,557 $ (344,542) $ (96,892) $ 21,748 $ 1,782,381 Preferred equity investments, mezzanine loans and equity investments 370,010 80,500 (45,611) — 17,789 422,688 Investment securities Agency securities Agency RMBS (3) 922,877 199,472 (43,809) (930,364) (8,781) 139,395 Agency CMBS (3) (4) 50,958 — (77) (145,411) 94,530 — Total Agency securities 973,835 199,472 (43,886) (1,075,775) 85,749 139,395 CMBS (5) 267,777 72,896 (6,129) (248,741) 100,637 186,440 Non-Agency RMBS 715,314 273,897 (139,717) (433,076) (60,752) 355,666 ABS 49,214 — — — (5,989) 43,225 Total investment securities available for sale 2,006,140 546,265 (189,732) (1,757,592) 119,645 724,726 Consolidated SLST (6) (7) 276,770 39,984 (1,152) (62,602) (40,856) 212,144 Consolidated K-Series (8) 1,092,295 — (92,425) (555,218) (444,652) — Total investment securities 3,375,205 586,249 (283,309) (2,375,412) (365,863) 936,870 Other investments (9) 16,870 1,747 — (14,457) 5,274 9,434 Total investment portfolio $ 5,394,595 $ 1,238,053 $ (673,462) $ (2,486,761) $ (321,052) $ 3,151,373 (1) Primarily includes principal repayments. (2) Primarily includes net realized gains or losses, changes in net unrealized gains or losses (including reversals of previously recognized net unrealized gains or losses on sales), net amortization/accretion and transfers within investment categories. (3) Agency RMBS issued by Consolidated SLST is included in footnote (6) below. Agency CMBS issued by the Consolidated K-Series as of December 31, 2019 is included in footnote (7) below. (4) Includes transfer of Agency CMBS issued by the Consolidated K-Series as a result of the de-consolidation of the Consolidated K-Series and the subsequent sale of these Agency CMBS during the year. (5) Includes IOs and mezzanine securities transferred from the Consolidated K-Series as a result of de-consolidation with total fair value of $97.6 million as of December 31, 2020. (6) Consolidated SLST is presented on our consolidated balance sheets as residential loans, at fair value and collateralized debt obligations, at fair value. A reconciliation to our consolidated financial statements as of December 31, 2020 and 2019, respectively, follows (dollar amounts in thousands): December 31, 2020 December 31, 2019 Residential loans, at fair value $ 1,266,785 $ 1,328,886 Deferred interest (a) (306) 713 Less: Collateralized debt obligations, at fair value (1,054,335) (1,052,829) Consolidated SLST investment securities owned by NYMT $ 212,144 $ 276,770 (a) Included in other liabilities and other assets on our consolidated balance sheets as of December 31, 2020 and 2019, respectively. 53 Table of Contents (7) In the first quarter of 2020, the Company sold its investment in the senior securities issued by Consolidated SLST for sales proceeds of approximately $62.6 million. (8) The Consolidated K-Series are presented on our consolidated balance sheets as multi-family loans, at fair value and collateralized debt obligations, at fair value. A reconciliation to our consolidated financial statements as of December 31, 2019 follows (dollar amounts in thousands): December 31, 2019 Multi-family loans, at fair value $ 17,816,746 Less: Collateralized debt obligations, at fair value (16,724,451) Consolidated K-Series investment securities owned by NYMT $ 1,092,295 (9) Includes the following balances as of December 31, 2020 and 2019, respectively (dollar amounts in thousands): December 31, 2020 December 31, 2019 Preferred equity investment in Consolidated VIE $ 9,434 $ — Real estate under development in Consolidated VIEs — 14,464 Other loan investments — 2,406 Total other investments $ 9,434 $ 16,870 54 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including the supply and demand for mortgage, housing and credit assets in the marketplace, the ability of our operating partners and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets. Financial and mortgage-related asset markets experienced improving conditions during the fourth quarter of 2020 with the U.S. economy continuing its recovery. U.S. stocks continued to show signs of recovery during the fourth quarter of 2020 following the sharp sell-off during the back half of the first quarter. Reflective of abundant liquidity, demand for yield and encouraging signs for growth in 2021, credit-sensitive asset pricing continued to improve during the fourth quarter. Overall, U.S. economic activity showed signs of advancement during the fourth quarter of 2020 buoyed by increases in corporate and residential fixed investment, offset in part by a reduction in consumer spending. While prospects for 2021 remain hopeful with expected gains on the job-front, pent-up consumer demand, elevated household savings and further government stimulus, uncertainty abounds with the discovery of new COVID-19 variants, concerns over vaccine efficacy and the timing for lifting of restrictions designed to mitigate the spread of the virus. As was the case for credit-sensitive assets generally across markets, pricing for many of the assets in our investment portfolio during the fourth quarter continued to improve due to further credit spread tightening. Liquidity to MBS and mortgage financing markets was stable and favorably-priced during the fourth quarter, as evidenced by the Company completing a longer-term, securitization financing transaction during the quarter generating approximately $299.3 million of net proceeds to the Company. Due to the discovery here in the U.S. of new COVID-19 variants and uncertainty relating to the speed of vaccine distribution, stimulus negotiations and other policy matters, we expect markets to continue to experience volatility in 2021. The market conditions discussed below significantly influence our investment strategy and results, many of which have been significantly impacted since mid-March by the ongoing COVID-19 pandemic: Select U.S. Financial and Economic Data. The 2020 fiscal year was marked by the COVID-19 pandemic and the measures taken in response to contain its spread in the United States and abroad and their impact on the global economy and markets generally. After experiencing a sharp sell-off during the first quarter with the S&P 500 down approximately 20%, U.S. stocks recovered throughout the remainder of 2020 with the S&P 500 posting a total return of 18.40% for the full year. The interest rate environment experienced volatility during 2020 with the Treasury curve steepening as the Federal Reserve held short-term interest rates near zero beginning in March. On December 31, 2020, the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield closed at 80 basis points, up 50 basis points from January 2, 2020. The U.S. economy contracted in 2020 as compared to 2019 as a result of the fallout from the COVID-19 pandemic and related economic consequences, with real gross domestic product (“GDP”) decreasing by 3.5% for full year 2020, versus growth of 2.2% for full year 2019. After the most severe contraction of the GDP since the Great Depression in the second quarter at -31.4%, the third and fourth quarter GDP growth of 33.4% and 4%, respectively, suggests that the U.S. economy continues to recover. According to the minutes of the Federal Reserve’s December 2020 meeting, Federal Reserve policymakers expect the GDP growth rate to improve in 2021 with a median projection for GDP growth at or slightly above 4.2%, while projecting a deceleration in GDP growth in 2022 and 2023. After the effects of the COVID-19 pandemic and efforts to contain it led to a loss of 20.7 million jobs from nonfarm payrolls and an unemployment rate of 14.7% in April, the U.S. labor market continued to show improvements throughout the second half of 2020. The U.S. Department of Labor attributed these improvements to the resumption of economic activity that had been curtailed due to the COVID-19 pandemic. According to the U.S. Department of Labor, the U.S. unemployment rate rose from 3.5% at the end of December 2019 to 6.7% at the end of December 2020. Although initial weekly jobless claims remain elevated, there have been more encouraging signs in the labor market recently, with average hourly earnings for all employees of private nonfarm payrolls increasing by 3.7% during 2020. 55 Table of Contents Single-Family Homes and Residential Mortgage Market. The residential real estate market was a bright spot in an otherwise challenging economic environment in 2020. According to the National Association of Realtors (“NAR”), total existing-home sales, which includes single-family homes, townhomes, condominiums and co-ops, increased 0.7% from November 2020 to a seasonally-adjusted annual rate of 6.76 million in December 2020. In total, existing-home sales rose 22.2% year-over-year, up from 5.53 million in December 2019. In addition, NAR reported that the median existing-home price for all housing types in December 2020 was $309,800, up 12.9% from December 2019 ($274,500). In addition, according to data provided by the U.S. Department of Commerce, privately-owned housing starts for single-family homes averaged a seasonally adjusted annual rate of 1,237,000 and 1,002,000 for the quarter and year ended December 31, 2020, respectively, as compared to an annual rate of 894,000 for the year ended December 31, 2019. Declining single-family housing fundamentals may adversely impact the overall credit profile of our existing portfolio of single-family residential credit investments. As of December 31, 2020, approximately 2% of borrowers in our residential loan portfolio remained in an active COVID-19 relief plan. Multi-family Housing. According to data provided by the U.S. Department of Commerce, starts on multi-family homes containing five or more units averaged a seasonally adjusted annual rate of 339,000 and 382,000 for the quarter and year ended December 31, 2020, as compared to 390,000 for the full year 2019. Supply expansion remained solid in 2020, and vacancy concerns among multi-family industry participants eased during the second half of 2020. According to the Multifamily Vacancy Index (“MVI”), which is produced by the National Association of Home Builders and surveys the multi-family housing industry’s perception of vacancies, the MVI was at 44 for the third quarter of 2020, a decrease from the second quarter score of 62. The MVI was at 59 for the first quarter of 2020 and 40 for the fourth quarter of 2019. However, with record jobless claims filed during the ongoing COVID-19 pandemic, the financial ability of households to meet their rental payment obligations is a present and ongoing concern. Data released by the National Multifamily Housing Council shows that 89.8% of professionally-managed apartment households made a full or partial December rent payment by December 20, 2020 in its survey of over 11.1 million professionally-managed apartment units across the country. This represents a 3.4-percentage point decrease in the share who paid rent through December 20, 2019 and compares to 90.3% that had paid by November 20, 2020. This data encompasses a wide variety of market-rate rental properties, which can vary by size, type and average rental price. As of December 31, 2020, the Company had one loan that is delinquent in making its distributions to us and one loan that is in a forbearance arrangement with us. These loans represent 3.6% of our total preferred equity and mezzanine loan investment portfolio. Although the multi-family housing sector held up relatively well during 2020, weakening multi-family housing fundamentals, may cause our operating partners to fail to meet their obligations to us and/or contribute to valuation declines for multi-family properties, and in turn, many of the structured multi-family investments that we own. Credit Spreads. Credit spreads tightened from the second quarter onward as the economy experienced a resumption of activity from the beginning of the COVID-19 pandemic. Tightening credit spreads generally increase the value of many of our credit sensitive assets, while widening credit spreads tend to have a negative impact on the value of many of our credit sensitive assets. Financial markets. During 2020, the bond market experienced volatility with the closing yield of the 10-year U.S. Treasury Note dropping from 1.88% on January 2, 2020 to as low as 0.52% on August 4, 2020, and closing at 0.93% on December 31, 2020. Overall interest rate volatility tends to increase the costs of hedging and may place downward pressure on some of our strategies. During 2020, the Treasury curve steepened with the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield closing at 80 basis points on December 31, 2020, up 50 basis points from January 2, 2020. As of January 31, 2021, the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield was 100 basis points. This spread is important as it is indicative of opportunities for investing in levered assets. Increases in interest rates raises the costs of many of our liabilities, while overall interest rate volatility generally increases the costs of hedging. 56 Table of Contents Monetary and Fiscal Policy and Recent Regulatory Developments. The Federal Reserve has taken a number of actions to stabilize markets as a result of the impact of the COVID-19 pandemic. To address funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 pandemic, the Federal Reserve has been conducting large scale overnight repo operations in the U.S. Treasury, Agency debt and Agency RMBS financing markets and substantially increased these operations. On March 15, 2020, the Federal Reserve announced a $700 billion asset purchase program to provide liquidity to the U.S. Treasury and Agency RMBS markets. Specifically, the Federal Reserve stated that it would purchase at least $500 billion of U.S. Treasuries and at least $200 billion of Agency RMBS. On January 21, 2021, the Federal Reserve announced it would continue to increase its holdings of U.S. Treasuries by at least $80 billion per month and of Agency MBS by at least $40 billion per month until “substantial further progress has been made toward the Committee’s maximum employment and price stability goals.” Additionally, in view of the COVID-19 pandemic and to foster maximum employment and price stability, the Federal Reserve decided to lower the target range for the federal funds rate by a total of 150 basis points in March 2020 to a target range of 0% to .25%. The Federal Reserve indicated that in determining the size and timing of future adjustments to the target range for the federal funds rate, it will assess “realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.” Since lowering the target range for the federal funds rate in March 2020, the Federal Reserve continues to signal an intention to hold the target range at present levels with Federal Reserve Chairman Jerome Powell stating in January 2021 that the time to raise the target range “is no time soon.” According to the latest Monetary Policy Report submitted to Congress in June 2020 by the Federal Reserve Board of Governors, trading conditions in U.S. Treasuries and MBS markets improved gradually since the March 2020 announcement of Federal Reserve policies and the functioning and liquidity of the MBS market have mostly returned to pre-February 2020 standards, though strains continue in less liquid parts of the market. However, bid-ask spreads for longer-maturity and off-the-run Treasuries remain wider than in mid-February 2020. An updated assessment of trading conditions in U.S. Treasuries and MBS markets is expected from the Federal Reserve in its next Monetary Policy Report due to Congress in February 2021. To address the COVID-19 pandemic and its effects on the economy, the federal government enacted three relief spending bills in 2020 and is considering a fourth such bill that was introduced in January 2021. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law to provide many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity resulting from the COVID-19 pandemic. The over $2 trillion relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health care providers, loans and investments to businesses, states and municipalities and grants to the airline industry. On April 24, 2020, President Trump signed a second funding bill into law that provided $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts. On December 30, 2020, President Trump signed a third COVID-19 relief package into law. This relief package included $600 direct payments to Americans making up to $75,000 a year, enhanced unemployment benefits, rental assistance, loans to businesses, and funds for the purchase and distribution of vaccines, among other relief provisions. In January 2021, President Biden introduced a $1.9 trillion COVID-19 relief bill. As proposed, President Biden’s relief package includes: direct payments of $1,400 to Americans; increased per-week unemployment benefits of $400 through September; an extension of the eviction and foreclosure moratorium until the end of September; and $590 billion in aid for local governments, schools, COVID-19 testing and a vaccination program. Democratic leaders in Congress have indicated a desire to pass President Biden’s proposed stimulus plan by mid-March when emergency unemployment benefits expire. However, ideological divisions and narrow Democratic majorities in Congress are likely to affect the content and timing of the passage of President Biden’s plan, if it is to pass. In addition, in response to the economic impact of the COVID-19 pandemic, governors of several states issued executive orders prohibiting evictions and foreclosures for specified periods of time, and many courts enacted emergency rules delaying hearings related to evictions or foreclosures. While some of these state protections have expired, the Centers for Disease Control and Prevention issued an order to temporarily halt residential evictions under certain circumstances in an effort to prevent the spread of the COVID-19 pandemic, which became effective on September 4, 2020 and has been extended by the Biden administration to March 31, 2021. 57 Table of Contents To address the severe dislocations experienced in the mortgage and fixed-income markets that resulted from the COVID-19 pandemic, since March 23, 2020, the Federal Housing Finance Agency (“FHFA”) took steps to implement portions of the CARES Act and to support mortgage servicers. Under the CARES Act, borrowers experiencing hardship from the COVID-19 pandemic are eligible to receive forbearance of up to 12 months. The FHFA announced that the GSEs will offer such forbearance to qualifying multi-family borrowers through March 31, 2021. The GSEs will also offer such forbearance arrangements to single-family mortgages indefinitely until the GSEs provide further notice. In response to such forbearance arrangements and to assist servicers facing revenue losses caused by the COVID-19 pandemic, the FHFA limited the advance payments required to be made to the GSEs. Specifically, servicers of Agency RMBS are only required to advance four months of missed payments on loans in forbearance. The government continues to provide enhanced unemployment support as unemployment levels remain precarious. In February 2021, Federal Reserve Chair Jerome Powell stated that the true level of unemployment in January 2021 was significantly higher than the 6.3% unemployment rate reported by the U.S. Department of Labor. Chair Powell said January’s unemployment rate was “close to 10 percent” when accounting for misclassified workers and those that have left the workforce altogether. With unemployment levels so uncertain, government support programs have aided the broader economy in recovering from the ongoing effects of the COVID-19 pandemic. The CARES Act provided enhanced unemployment benefits and extended the length of time during which unemployment benefits could be collected. On December 27, 2020, Congress extended eligibility for certain enhanced unemployment programs until March 14, 2021. Without such continued unemployment support, we anticipate that the number of our operating partners and borrowers of our residential loans and those that underlie our investment securities that become delinquent or default on their financial obligations could increase significantly. Such increased levels could materially adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders. In 2017, policymakers announced that LIBOR will be replaced by 2021. The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level. LIBOR will be replaced with a new Secured Overnight Funding Rate (“SOFR”), a rate based on U.S. repo trading. The new benchmark rate will be based on overnight Treasury General Collateral repo rates. The rate-setting process will be managed and published by the Federal Reserve and the Treasury’s Office of Financial Research. On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While this announcement extends the transition period to June 2023, the Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. In light of these recent announcements, the future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. We continue to monitor the emergence of this new rate carefully, as it will likely become the new benchmark for hedges and a range of interest rate investments. The scope and nature of the actions the Federal Reserve and other governmental authorities will ultimately undertake are unknown and will continue to evolve. There can be no assurance as to how, in the long term, these and other actions, as well as the negative impacts from the ongoing COVID-19 pandemic, will affect the efficiency, liquidity and stability of the financial, credit and mortgage markets, and thus, our business. Greater uncertainty frequently leads to wider asset spreads or lower prices and higher hedging costs. 58 Table of Contents Full Year 2020 Summary Earnings and Return Metrics The following table presents key earnings and return metrics for the year ended December 31, 2020 (dollar amounts in thousands, except per share data): Year Ended December 31, 2020 Net interest income $ 127,093 Net loss attributable to Company's common stockholders $ (329,696) Net loss attributable to Company's common stockholders per share (basic) $ (0.89) Comprehensive loss attributable to Company's common stockholders $ (353,834) Comprehensive loss attributable to Company's common stockholders per share (basic) $ (0.95) Book value per common share $ 4.71 Economic return on book value (1) (14.62) % Dividends per common share $ 0.23 (1) Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share during the period. Developments • During the first half of the first quarter of 2020, we issued 85.1 million shares of common stock collectively through two underwritten public offerings, resulting in total net proceeds of $511.9 million. • Additionally, in the first quarter of 2020, we acquired single-family and multi-family residential credit assets totaling $531.2 million and Agency RMBS totaling $100.9 million. • In the latter portion of the first quarter of 2020, we experienced unprecedented market conditions resulting from the COVID-19 pandemic. In response, we took the following actions to manage our portfolio through the disruption and improved liquidity: • Sold all of our first loss POs and certain mezzanine CMBS securities issued by the Consolidated K-Series for total sales proceeds of $555.2 million, recognized a net realized loss of $54.1 million and reversed previously recognized net unrealized gains of $168.5 million. As a result of the sales, we de-consolidated $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in collateralized debt obligations issued by the Consolidated K-Series. • Sold $1.4 billion of investment securities, including $993.0 million of Agency RMBS, $145.4 million of Agency CMBS, $130.9 million of non-Agency RMBS and $114.0 million of CMBS and recognized a net realized loss of $58.7 million. • Sold residential loans for approximately $50.0 million in proceeds, recognized a realized loss of $16.2 million and reversed previously recognized unrealized gains of $4.5 million. • Terminated interest rate swaps resulting in a net realized loss of $73.1 million, which was partially offset by the reversal of previously recognized unrealized losses of $29.0 million for a total net loss of $44.1 million. • Reduced outstanding repurchase agreements for investment securities by $1.6 billion from previous year-end levels. • Temporarily suspended payment of quarterly dividends on both our common and preferred stock. • Throughout the remainder of the year, we entered into new financing transactions, repaid or restructured repurchase agreement financings, invested in our targeted assets, opportunistically sold assets and reinstated our quarterly dividend payments on both our common and preferred stock, including as follows: 59 Table of Contents • Completed a non-mark-to-market re-securitization backed by non-Agency RMBS generating net proceeds of approximately $109.0 million. • Completed two securitizations of residential loans, resulting in approximately $540.4 million in net proceeds to us. Portions of the net proceeds were utilized to repay approximately $466.6 million on outstanding repurchase agreements related to residential loans. • Repaid all outstanding repurchase agreements that financed investment securities. • Obtained non-mark-to-market financing for residential loans through repurchase agreements with new and existing counterparties. • Purchased $415.7 million in residential loans and $138.5 million in Agency RMBS and funded $50.0 million in multi-family preferred equity investments. • Sold non-Agency RMBS for approximately $302.1 million in proceeds, CMBS for approximately $134.7 million in proceeds and residential loans for approximately $46.9 million in proceeds. • Reinstated the payment of quarterly dividends on both our common and preferred stock and declared and paid preferred stock dividends in arrears for the first quarter of 2020. 60 Table of Contents Significant Estimates and Critical Accounting Policies We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate conditions as of December 31, 2020 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented. Moreover, the uncertainty over the ultimate impact that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic. Changes in the estimates and assumptions could have a material effect on these financial statements. Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements. In accordance with SEC guidance, those material accounting policies and estimates that we believe are most critical to an investor’s understanding of our financial results and condition and which require complex management judgment are discussed below. Revenue Recognition . Interest income on our investment securities available for sale is accrued based on the outstanding principal balance and their contractual terms. Purchase premiums or discounts associated with our Agency RMBS and Agency CMBS assessed as high credit quality at the time of purchase are amortized or accreted to interest income over the estimated life of these investment securities using the effective yield method. Adjustments to amortization are made for actual prepayment activity on our Agency RMBS. Interest income on certain of our credit sensitive securities that were purchased at a premium or discount to par value, such as certain of our non-Agency RMBS, CMBS and ABS of less than high credit quality, is recognized based on the security’s effective yield. The effective yield on these securities is based on management’s estimate of the projected cash flows from each security, which incorporates assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, management reviews and, if appropriate, adjusts its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield (or interest income) recognized on these securities. A portion of the purchase discount on the Company’s first loss PO multi-family CMBS was designated as non-accretable purchase discount or credit reserve, which estimated the Company’s risk of loss on the mortgages collateralizing such multi-family CMBS, and was not expected to be accreted into interest income. The amount designated as a credit reserve could be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors. If the performance of a security with a credit reserve was more favorable than forecasted, a portion of the amount designated as credit reserve could be accreted into interest income over time. Conversely, if the performance of a security with a credit reserve was less favorable than forecasted, the amount designated as credit reserve could be increased, or impairment charges and write-downs of such securities to a new cost basis could be required. Interest income on our residential loans is accrued based on the outstanding principal balance and their contractual terms. Premiums and discounts associated with the purchase of residential loans are amortized or accreted into interest income over the life of the related loan using the effective interest method. With respect to interest rate swaps that have not been designated as hedges, any net payments under, or fluctuations in the fair value of, such swaps will be recognized in current earnings. 61 Table of Contents Fair Value. The Company has established and documented processes for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, then fair value is based upon internally developed models that primarily use inputs that are market-based or independently sourced market parameters, including interest rate yield curves. The Company’s residential loans, multi-family loans, investment securities available for sale, equity investments, Consolidated SLST CDOs and Consolidated K-Series CDOs are considered to be the most significant of its fair value estimates. The Company’s valuation methodologies are described in “Note 14 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K. Fair Value Option – The fair value option provides an election that allows companies to irrevocably elect fair value for financial assets and liabilities on an instrument-by-instrument basis at initial recognition. Changes in fair value for assets and liabilities for which the election is made will be recognized in earnings as they occur. The Company has elected the fair value option for the Company’s residential loans, preferred equity and mezzanine loan investments that are accounted for as loans, certain of its investment securities, available for sale and preferred equity investments that are accounted for under the equity method. Variable Interest Entities – A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE. As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. Loan Consolidation Reporting Requirement for Certain Multi-Family K-Series Securitizations and Residential Loan Securitizations – As of December 31, 2020 and 2019, we owned 100% of the first loss subordinated securities of Consolidated SLST. Consolidated SLST represents a Freddie Mac-sponsored residential mortgage loan securitization, of which we own or owned the first loss subordinated securities and certain IOs and senior securities. We determined that Consolidated SLST was a VIE and that we are the primary beneficiary of Consolidated SLST. As a result, we are required to consolidate Consolidated SLST’s underlying residential loans including their liabilities, income and expenses in our consolidated financial statements. As of December 31, 2019, we owned 100% of the first loss POs of the Consolidated K-Series. The Consolidated K-Series represents certain Freddie Mac-sponsored multi-family loan K-Series securitizations of which we, or one of our special purpose entities, or SPEs, owned the first loss POs, certain IOs and certain senior or mezzanine securities. We determined that the Consolidated K-Series were VIEs and that we were the primary beneficiary of the Consolidated K-Series. As a result, we were required to consolidate the Consolidated K-Series’ underlying multi-family loans including their liabilities, income and expenses in our consolidated financial statements. In March 2020, we sold our entire portfolio of first loss POs within the Consolidated K-Series, which resulted in the de-consolidation of the underlying multi-family loans and their liabilities. We have elected the fair value option on the assets and liabilities held within both Consolidated SLST and the Consolidated K-Series, which requires that changes in valuations in the assets and liabilities of Consolidated SLST and the Consolidated K-Series be reflected in our consolidated statement of operations. Recent Accounting Pronouncements A discussion of recent accounting pronouncements and the possible effects on our financial statements is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 62 Table of Contents Capital Allocation The following provides an overview of the allocation of our total equity as of December 31, 2020 and 2019, respectively. We fund our investing and operating activities with a combination of cash flow from operations, proceeds from common and preferred equity and debt securities offerings, including convertible notes, short-term and longer-term repurchase agreements, CDOs and trust preferred debentures. A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section. The following tables set forth our allocated capital by investment category at December 31, 2020 and 2019, respectively (dollar amounts in thousands). At December 31, 2020: Single-Family Multi-Family Other Total Residential loans $ 3,049,166 $ — $ — $ 3,049,166 Consolidated SLST CDOs (1,054,335) — — (1,054,335) Multi-family loans — 163,593 — 163,593 Investment securities available for sale (1) 495,061 186,440 43,225 724,726 Equity investments — 182,765 76,330 259,095 Other investments (2) — 9,434 — 9,434 Total investment portfolio carrying value 2,489,892 542,232 119,555 3,151,679 Liabilities: Repurchase agreements (405,531) — — (405,531) Collateralized debt obligations Residential loan securitizations (554,067) — — (554,067) Non-Agency RMBS re-securitization (15,256) — — (15,256) Convertible notes — — (135,327) (135,327) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 50,687 46,014 207,789 304,490 Other 59,516 (158) (52,773) 6,585 Net capital allocated $ 1,625,241 $ 588,088 $ 94,244 $ 2,307,573 Total Leverage Ratio (4) 0.3 Portfolio Leverage Ratio (5) 0.2 (1) Agency RMBS with a fair value of $139.4 million are included in Single-Family. (2) Represents the Company's preferred equity investment in a consolidated VIE. (3) Restricted cash is included in the Company’s accompanying consolidated balance sheets in other assets. (4) Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company’s total stockholders’ equity. Does not include Consolidated SLST CDOs amounting to $1.1 billion, residential loan securitizations amounting to $554.1 million and non-Agency RMBS re-securitization amounting to $15.3 million as they are non-recourse debt for which the Company has no obligation. (5) Represents outstanding repurchase agreement financing divided by the Company’s total stockholders’ equity. 63 Table of Contents At December 31, 2019: Single-Family Multi-Family Other Total Residential loans $ 2,961,396 $ — $ — $ 2,961,396 Consolidated SLST CDOs (1,052,829) — — (1,052,829) Multi-family loans — 17,996,791 — 17,996,791 Consolidated K-Series CDOs — (16,724,451) — (16,724,451) Investment securities available for sale (1) (2) 1,638,191 318,735 49,214 2,006,140 Equity investments — 124,392 65,573 189,965 Other investments (3) 3,119 14,464 — 17,583 Total investment portfolio carrying value 3,549,877 1,729,931 114,787 5,394,595 Liabilities: Repurchase agreements (2,160,342) (945,074) — (3,105,416) Collateralized debt obligations (40,429) — — (40,429) Convertible notes — — (132,955) (132,955) Subordinated debentures — — (45,000) (45,000) Hedges (net) (4) 15,878 — — 15,878 Cash, cash equivalents and restricted cash (5) 44,604 4,152 72,856 121,612 Goodwill — — 25,222 25,222 Other 55,943 (10,143) (74,278) (28,478) Net capital allocated $ 1,465,531 $ 778,866 $ (39,368) $ 2,205,029 Total Leverage Ratio (6) 1.5 Portfolio Leverage Ratio (7) 1.4 (1) Agency RMBS with a fair value of $922.9 million are included in Single-Family. (2) Agency CMBS with a fair value of $51.0 million are included in Multi-Family. (3) Includes real estate under development in the amount of $14.5 million, other loan investments in the amount of $2.4 million and deferred interest related to residential loans held in Consolidated SLST of $0.7 million, all of which are included in the Company’s accompanying consolidated balance sheets in other assets. (4) Includes derivative liabilities of $29.0 million netted against a $44.8 million variation margin. (5) Restricted cash is included in the Company’s accompanying consolidated balance sheets in other assets. (6) Represents total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by the Company’s total stockholders’ equity. Does not include Consolidated K-Series CDOs amounting to $16.7 billion, Consolidated SLST CDOs amounting to $1.1 billion and other collateralized debt obligations amounting to $40.4 million that are consolidated in the Company's financial statements as they are non-recourse debt for which the Company has no obligation. (7) Represents outstanding repurchase agreement financing divided by the Company’s total stockholders’ equity. 64 Table of Contents Analysis of Changes in Book Value The following table analyzes the changes in book value of our common stock for the year ended December 31, 2020 (amounts in thousands, except per share): Year Ended December 31, 2020 Amount Shares Per Share (1) Beginning Balance $ 1,683,911 291,371 $ 5.78 Cumulative-effect adjustment for implementation of fair value option (2) 12,284 Common stock issuance, net (3) 522,012 86,373 Balance after cumulative-effect adjustment and share issuance activity 2,218,207 377,744 5.87 Dividends declared (84,993) (0.23) Net change in accumulated other comprehensive income (loss): Investment securities available for sale (4) (24,138) (0.06) Net loss attributable to Company's common stockholders (329,696) (0.87) Ending Balance $ 1,779,380 377,744 $ 4.71 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2020 are 377,744,476. (2) On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and elected to apply the fair value option provided by ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief to our residential loans, net, preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method, resulting in a cumulative-effect adjustment to beginning book value of our common stock and book value per common share. (3) Includes amortization of stock based compensation. (4) The decrease relates to unrealized losses in our investment securities due to reductions in pricing. The following table analyzes the changes in book value of our common stock for the year ended December 31, 2019 (amounts in thousands, except per share): Year Ended December 31, 2019 Amount Shares Per Share (1) Beginning Balance $ 879,389 155,590 $ 5.65 Common stock issuance, net (2) 809,752 135,781 Preferred stock issuance, net 215,010 Preferred stock liquidation preference (221,822) Balance after share issuance activity 1,682,329 291,371 5.77 Dividends declared (190,520) (0.65) Net change in accumulated other comprehensive income: Investment securities available for sale (3) 47,267 0.16 Net income attributable to Company's common stockholders 144,835 0.50 Ending Balance $ 1,683,911 291,371 $ 5.78 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2019 are 291,371,039. (2) Includes amortization of stock based compensation. (3) The increase relates to unrealized gains in our investment securities due to improved pricing. 65 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2020, 2019, and 2018, including a comparison of year-over-year results and related commentary. Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019 A number of the following tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2020 are greater or less than the results from the respective period in 2019. Unless otherwise specified, references in this section to increases or decreases in 2020 refer to the change in results for the year ended December 31, 2020 when compared to the year ended December 31, 2019. Beginning in mid-March and continuing into the second quarter, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to experience significant volatility. The significant dislocation in the financial markets in March and part of April caused, among other things, credit spread widening, a sharp decrease in interest rates, higher unemployment levels and unprecedented illiquidity in repurchase agreement financing and MBS markets, which in turn materially negatively impacted liquidity and pricing of our assets. Although we took a number of steps in March 2020 in response to these unprecedented market conditions as discussed above in “—Executive Summary” and “—Full Year 2020 Summary”, the COVID-19 pandemic and related disruptions in the real estate, mortgage and financial markets materially negatively affected our business in the first quarter of 2020. Market conditions improved and volatility subsided to an extent in the latter part of the second quarter and into the third and fourth quarters as parts of the global and U.S. economy "re-opened", leading to partial pricing recovery for a number of assets in our portfolio and improved results in each of the final three quarters of 2020. That said, we expect volatility and markets to continue to fluctuate and that these conditions may continue to negatively affect our business due to the uncertain duration and ongoing impact of the pandemic. The factors described above and throughout this Annual Report on Form 10-K (particularly as related to the COVID-19 pandemic) have driven the majority of our results of operations for the year ended December 31, 2020, and may impact our results of operations in future periods. Thus, our results of operations should be read and viewed, in large part, in the context of the unprecedented conditions experienced in March 2020 and subsequent thereto. The following table presents the main components of our net (loss) income for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands, except per share data): For the Years Ended December 31, 2020 2019 $ Change Net interest income $ 127,093 $ 127,864 $ (771) Total non-interest (loss) income (359,792) 94,448 (454,240) Total general, administrative and operating expenses 54,563 49,835 4,728 (Loss) income from operations before income taxes (287,262) 172,477 (459,739) Income tax expense (benefit) 981 (419) 1,400 Net (loss) income attributable to Company (288,510) 173,736 (462,246) Preferred stock dividends 41,186 28,901 12,285 Net (loss) income attributable to Company's common stockholders (329,696) 144,835 (474,531) Basic (loss) earnings per common share $ (0.89) $ 0.65 $ (1.54) Diluted (loss) earnings per common share $ (0.89) $ 0.64 $ (1.53) Net Interest Income Our results of operations for our investment portfolio during a given period typically reflect, in large part, the net interest income earned on our investment portfolio of RMBS, CMBS, ABS, residential loans and preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans (collectively, our “Interest Earning Assets”). The net interest spread is impacted by factors such as our cost of financing, the interest rate that our investments bear and our interest rate hedging strategies. Furthermore, the amount of premium or discount paid on purchased portfolio investments and the prepayment rates on portfolio investments will impact the net interest spread as such factors will be amortized over the expected term of such investments. 66 Table of Contents The decrease in net interest income in 2020 was primarily driven by a decrease in average Interest Earning Assets due to asset sales largely in response to the impacts of the COVID-19 pandemic. In particular, we sold our entire portfolio of higher yielding first loss POs within the Consolidated K-Series in March 2020. This decrease was partially offset by the acquisition of higher-yielding business purpose loans and investment securities and residential loans throughout 2020 and a decrease in financing costs related to both single-family and multi-family assets. Portfolio Net Interest Margin The following tables set forth certain information about our portfolio by investment category and their related interest income, interest expense, average yield on interest earning assets, average portfolio financing cost and portfolio net interest margin for our average interest earning assets (by investment category) for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): Year Ended December 31, 2020 Single-Family (1) (3) Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 128,287 $ 54,707 $ 5,741 $ 188,735 Interest Expense (41,109) (7,351) (13,182) (61,642) Net Interest Income (Expense) $ 87,178 $ 47,356 $ (7,441) $ 127,093 Average Interest Earning Assets (3) (5) $ 2,595,576 $ 656,067 $ 43,855 $ 3,295,498 Average Yield on Interest Earning Assets (6) 4.94 % 8.34 % 13.08 % 5.73 % Average Portfolio Financing Cost (7) (3.14) % (3.18) % — (3.14) % Portfolio Net Interest Margin (8) 1.80 % 5.16 % 13.08 % 2.59 % Year Ended December 31, 2019 Single-Family (1) (3) Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 119,064 $ 113,419 $ 2,054 $ 234,537 Interest Expense (63,185) (29,810) (13,678) (106,673) Net Interest Income (Expense) $ 55,879 $ 83,609 $ (11,624) $ 127,864 Average Interest Earning Assets (3) (5) $ 2,761,428 $ 1,086,266 $ 19,209 $ 3,866,903 Average Yield on Interest Earning Assets (6) 4.31 % 10.44 % 10.70 % 6.07 % Average Portfolio Financing Cost (7) (3.42) % (4.03) % — (3.59) % Portfolio Net Interest Margin (8) 0.89 % 6.41 % 10.70 % 2.48 % (1) The Company, through its ownership of certain securities purchased in the fourth quarter of 2019, has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that are actually owned by the Company. A reconciliation of net interest income generated by our single-family portfolio to our consolidated financial statements for the years ended December 31, 2020 and 2019, respectively, is set forth below (dollar amounts in thousands): 67 Table of Contents For the Years Ended December 31, 2020 2019 Interest income, residential loans $ 81,782 $ 66,253 Interest income, Consolidated SLST 45,194 4,764 Interest income, investment securities available for sale 32,974 50,992 Interest expense, Consolidated SLST CDOs (31,663) (2,945) Interest income, Single-Family, net 128,287 119,064 Interest expense, repurchase agreements (30,852) (61,503) Interest expense, residential loan securitizations (6,967) (1,682) Interest expense, non-Agency RMBS re-securitization (3,290) — Net interest income, Single-Family $ 87,178 $ 55,879 (2) Prior to the sale of first loss POs in March 2020, the Company had determined it was the primary beneficiary of the Consolidated K-Series and had consolidated the Consolidated K-Series into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that were owned by the Company. A reconciliation of net interest income generated by our multi-family portfolio to our consolidated financial statements for the years ended December 31, 2020 and 2019, respectively, is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 Interest income, multi-family loans held in Consolidated K-Series $ 151,841 $ 535,226 Interest income, investment securities available for sale 11,729 14,424 Interest income, preferred equity and mezzanine loan investments 20,899 20,899 Interest expense, Consolidated K-Series CDOs (129,762) (457,130) Interest income, Multi-Family, net 54,707 113,419 Interest expense, repurchase agreements (7,351) (29,316) Interest expense, CMBS re-securitization — (494) Net interest income, Multi-Family $ 47,356 $ 83,609 (3) Average Interest Earning Assets for the periods indicated exclude all Consolidated SLST assets and all Consolidated K-Series assets other than, in each case, those securities actually owned and deposits held by the Company. (4) Includes interest income earned on cash accounts held by the Company. (5) Average Interest Earning Assets is calculated based on daily average amortized cost for the respective periods. (6) Average Yield on Interest Earning Assets is calculated by dividing our interest income relating to our interest earning assets by our Average Interest Earning Assets for the respective periods. (7) Average Portfolio Financing Cost is calculated by dividing our interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures and convertible notes, for the respective periods. For the years ended December 31, 2020 and 2019, respectively, interest expense generated by our subordinated debentures and convertible notes is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 Subordinated debentures $ 2,187 $ 2,865 Convertible notes 10,997 10,813 Total $ 13,184 $ 13,678 (8) Portfolio Net Interest Margin is the difference between our Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, excluding the weighted average cost of subordinated debentures and convertible notes. 68 Table of Contents Non-interest (Loss) Income Realized (Losses) Gains, Net The Company sold approximately $2.5 billion of assets during the year ended December 31, 2020, the majority of which was in response to the disruption of the financial markets caused by the COVID-19 pandemic in the first quarter. The following table presents the components of realized (losses) gains, net recognized for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change Residential loans $ (13,431) $ 10,827 $ (24,258) Investment securities and related hedges (134,627) 21,815 (156,442) Total realized (losses) gains, net $ (148,058) $ 32,642 $ (180,700) During the year ended December 31, 2020, the Company recognized net realized losses of $61.5 million on the sale of Agency RMBS, Agency CMBS, non-Agency RMBS and CMBS and realized losses of $73.1 million on the termination of interest rate swaps. The Company also recognized net realized losses on residential loans in 2020, primarily as a result of the sale of performing and re-performing loans. The Company sold residential loans with an aggregate unpaid principal balance of $119.8 million that resulted in net realized losses of $18.1 million during the year ended December 31, 2020, a majority of which was incurred in the first quarter of 2020. During the year ended December 31, 2019, the Company recognized $21.8 million of net realized gains primarily on sales of certain Freddie Mac-sponsored multi-family loan K-Series first loss POs and IOs and CMBS. The Company also recognized net realized gains on residential loans during the year ended December 31, 2019, primarily as a result of sale activity and loan prepayments. Realized Loss on De-consolidation of Consolidated K-Series In March 2020, the Company sold its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO and a realized net loss on de-consolidation of Consolidated K-Series of $54.1 million for the year ended December 31, 2020. The sales also resulted in the de-consolidation of $17.4 billion in multifamily loans held in the Consolidated K-Series and $16.6 billion in Consolidated K-Series CDOs. Unrealized (Losses) Gains, Net The disruptions of the financial markets due to the COVID-19 pandemic caused credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets during the first quarter of 2020. These conditions put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the first quarter. Pricing for our investment portfolio during the second, third, and fourth quarters of 2020 rebounded with credit spreads tightening on a majority of our assets, which resulted in a partial reversal of unrealized losses recognized in the first quarter of 2020. The following table presents the components of unrealized (losses) gains, net recognized for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change Residential loans $ 25,249 $ 42,087 $ (16,838) Consolidated SLST (32,073) (83) (31,990) Consolidated K-Series (171,011) 23,962 (194,973) Preferred equity and mezzanine loan investments (1,542) — (1,542) Investment securities and related hedges 19,216 (30,129) 49,345 Total unrealized (losses) gains, net $ (160,161) $ 35,837 $ (195,998) 69 Table of Contents For the year ended December 31, 2020, the Company recognized $160.2 million in net unrealized losses. Included in unrealized losses on both investment securities and related hedges and the Consolidated K-Series are $135.3 million of net unrealized gain reversals primarily due to sales and interest rate swap terminations recognized during the year ended December 31, 2020. The majority of this activity occurred in the first quarter of 2020 when the Company recognized $168.5 million of net unrealized gain reversals due to the sale of first loss POs issued by the Consolidated K-Series and $29.0 million of net unrealized loss reversals due to interest rate swap terminations. Income from Equity Investments The following table presents the components of income from equity investments for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change Income from preferred equity investments accounted for as equity (1) $ 16,587 $ 8,539 $ 8,048 (Loss) income from joint venture equity investments in multi-family properties (949) 10,468 (11,417) Income from entities that invest in residential properties and loans 11,032 4,619 6,413 Total income from equity investments $ 26,670 $ 23,626 $ 3,044 (1) Includes income earned from preferred equity ownership interests in entities that invest in multi-family properties accounted for under the equity method of accounting. The increase is primarily due to an increase in income from preferred equity investments accounted for as equity due to additional investments made since December 31, 2019 as well as an increase in the income generated by the Company's investment in entities that invest in residential properties and loans resulting from realized gains on sale and unrealized gains recognized by these entities. The increase in income from equity investments in 2020 was partially offset by a decrease in income from joint venture equity investments in multi-family properties due to the redemption of these investments. Impairment of Goodwill In March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. This analysis yielded an impairment of the entire goodwill balance of $25.2 million for the year ended December 31, 2020. Other Income The following table presents the components of other income for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change Preferred equity and mezzanine loan premiums resulting from early redemption (1) $ 1,105 $ 3,858 $ (2,753) Net losses in Consolidated VIEs (2) (2,249) (2,209) (40) Miscellaneous income 2,241 771 1,470 Total other income $ 1,097 $ 2,420 $ (1,323) (1) Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans. (2) Net losses in Consolidated VIEs exclude income or loss from the Consolidated K-Series and Consolidated SLST and are offset by allocations of losses or increased by allocations of income to non-controlling interests in the respective Consolidated VIEs, resulting in net losses to the Company of $2.2 million and $1.4 million for the years ended December 31, 2020 and 2019, respectively. 70 Table of Contents The decrease in other income in 2020 is primarily due to a decrease of $2.7 million in income related to the redemptions of preferred equity and mezzanine loan investments as a result of fewer redemptions in 2020. Expenses The following tables present the components of general, administrative and operating expenses for the years ended December 31, 2020 and 2019, respectively (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change General and Administrative Expenses Salaries, benefits and directors’ compensation $ 29,762 $ 24,006 $ 5,756 Professional fees 5,394 4,460 934 Other 7,072 7,328 (256) Total general and administrative expenses $ 42,228 $ 35,794 $ 6,434 The increase in general and administrative expenses in 2020 is primarily due to an increase in stock-based compensation expense and an increase in employee headcount as part of the expansion of our investment platforms. Professional fees also increased in 2020 as a result of additional legal expenses incurred in March 2020 in connection with the disruptions in the financial markets. For the Years Ended December 31, 2020 2019 $ Change Operating Expenses Operating expenses related to portfolio investments $ 11,573 $ 13,559 $ (1,986) Operating expenses in Consolidated VIEs 762 482 280 Total operating expenses $ 12,335 $ 14,041 $ (1,706) The decrease in operating expenses related to portfolio investments in 2020 can be attributed primarily to a reduction in investing activities during the year as compared to the prior year. 71 Table of Contents Comprehensive (Loss) Income The main components of comprehensive (loss) income for the years ended December 31, 2020 and 2019, respectively, are detailed in the following table (dollar amounts in thousands): For the Years Ended December 31, 2020 2019 $ Change NET (LOSS) INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (329,696) $ 144,835 $ (474,531) OTHER COMPREHENSIVE (LOSS) INCOME (Decrease) increase in fair value of available for sale securities Agency RMBS — 38,231 (38,231) Non-Agency RMBS (23,599) 13,843 (37,442) CMBS (8,055) 13,302 (21,357) Total (31,654) 65,376 (97,030) Reclassification adjustment for net loss (gain) included in net (loss) income 7,516 (18,109) 25,625 TOTAL OTHER COMPREHENSIVE (LOSS) INCOME (24,138) 47,267 (71,405) COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (353,834) $ 192,102 $ (545,936) The changes in other comprehensive income ("OCI") in 2020 can be attributed primarily to a decrease in the fair value of our investment securities, where fair value option was not elected, as a result of significant spread widening during the first quarter of 2020 due to the market turmoil caused by the COVID-19 pandemic. These losses were partially offset by fair value increases during the second, third and fourth quarters of 2020 as well as the reversal of previously recognized net unrealized losses reported in OCI that were reclassified to net realized loss as a result of the sale of certain investment securities in 2020, mostly occurring in the first quarter. Beginning in the fourth quarter of 2019, the Company’s newly purchased investment securities are presented at fair value as a result of a fair value election made at the time of acquisition pursuant to ASC 825, Financial Instruments (“ASC 825”). The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in the market values of investment securities where the Company elected the fair value option are reflected in earnings instead of in OCI. Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 A number of the following tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2019 are greater or less than the results from the respective period in 2018. Unless otherwise specified, references in this section to increases or decreases in 2019 refer to the change in results for the year ended December 31, 2019 when compared to the year ended December 31, 2018. 72 Table of Contents The following table presents the main components of our net income for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands, except per share data): For the Years Ended December 31, 2019 2018 $ Change Net interest income $ 127,864 $ 78,728 $ 49,136 Total non-interest income 94,448 66,480 27,968 Total general, administrative and operating expenses 49,835 41,470 8,365 Income from operations before income taxes 172,477 103,738 68,739 Income tax benefit (419) (1,057) 638 Net income attributable to Company 173,736 102,886 70,850 Preferred stock dividends 28,901 23,700 5,201 Net income attributable to Company's common stockholders 144,835 79,186 65,649 Basic earnings per common share $ 0.65 $ 0.62 $ 0.03 Diluted earnings per common share $ 0.64 $ 0.61 $ 0.03 Net Interest Income The increase in net interest income in 2019 was primarily driven by increases in average Interest Earning Assets in our single-family and multi-family portfolios resulting from purchase activity since December 31, 2018. These increases were partially offset by decreases in net interest income in our Agency securities due to (1) reductions in average interest earnings assets caused primarily by paydowns, (2) increased prepayment rates compared to the corresponding period in 2018 and (3) the impact of our exit from our Agency IO portfolio in 2018. Portfolio Net Interest Margin The following tables set forth certain information about our portfolio by investment category and their related interest income, interest expense, average yield on interest earning assets, average portfolio financing cost and portfolio net interest margin for our average interest earning assets (by investment category) for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): Year Ended December 31, 2019 Single-Family (1) (3) Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 119,064 $ 113,419 $ 2,054 $ 234,537 Interest Expense (63,185) (29,810) (13,678) (106,673) Net Interest Income (Expense) $ 55,879 $ 83,609 $ (11,624) $ 127,864 Average Interest Earning Assets (3) (5) $ 2,761,428 $ 1,086,266 $ 19,209 $ 3,866,903 Average Yield on Interest Earning Assets (6) 4.31 % 10.44 % 10.70 % 6.07 % Average Portfolio Financing Cost (7) (3.42) % (4.03) % — (3.59) % Portfolio Net Interest Margin (8) 0.89 % 6.41 % 10.70 % 2.48 % 73 Table of Contents Year Ended December 31, 2018 Single-Family Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 65,928 $ 76,769 $ — $ 142,697 Interest Expense (33,421) (17,162) (13,386) (63,969) Net Interest Income (Expense) $ 32,507 $ 59,607 $ (13,386) $ 78,728 Average Interest Earning Assets (3) (5) $ 1,807,757 $ 682,148 $ — $ 2,489,905 Average Yield on Interest Earning Assets (6) 3.65 % 11.25 % — 5.73 % Average Portfolio Financing Cost (7) (2.73) % (4.80) % — (3.20) % Portfolio Net Interest Margin (8) 0.92 % 6.45 % — 2.53 % (1) The Company, through its ownership of certain securities purchased in the year ended December 31, 2019, has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that are actually owned by the Company. A reconciliation of net interest income generated by our single-family portfolio to our consolidated financial statements for the year ended December 31, 2019 is set forth below (dollar amounts in thousands): For the Year Ended December 31, 2019 Interest income, residential loans $ 66,253 Interest income, Consolidated SLST 4,764 Interest income, investment securities available for sale 50,992 Interest expense, Consolidated SLST CDOs (2,945) Interest income, Single-Family, net 119,064 Interest expense, repurchase agreements (61,503) Interest expense, residential loan securitizations (1,682) Interest expense, non-Agency RMBS re-securitization — Net interest income, Single-Family $ 55,879 (2) The Company, through its ownership of certain securities, had determined it was the primary beneficiary of the Consolidated K-Series and had consolidated the Consolidated K-Series into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that were owned by the Company. A reconciliation of net interest income generated by our multi-family portfolio to our consolidated financial statements for the years ended December 31, 2019 and 2018, respectively, is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 Interest income, multi-family loans held in Consolidated K-Series $ 535,226 $ 358,712 Interest income, investment securities available for sale 14,424 10,123 Interest income, preferred equity and mezzanine loan investments 20,899 21,036 Interest expense, Consolidated K-Series CDOs (457,130) (313,102) Interest income, Multi-Family, net 113,419 76,769 Interest expense, repurchase agreements (29,316) (14,252) Interest expense, CMBS re-securitization (494) (2,910) Net interest income, Multi-Family $ 83,609 $ 59,607 (3) Average Interest Earning Assets for the periods indicated exclude all Consolidated SLST assets (for the year ended December 31, 2019) and all Consolidated K-Series assets other than, in each case, those securities actually owned and deposits held by the Company. 74 Table of Contents (4) Includes interest income earned on cash accounts held by the Company. (5) Average Interest Earning Assets was calculated based on daily average amortized cost for the respective periods. (6) Average Yield on Interest Earning Assets was calculated by dividing our interest income relating to our interest earning assets by our Average Interest Earning Assets for the respective periods. (7) Average Portfolio Financing Cost was calculated by dividing our interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures and convertible notes, for the respective periods. For the years ended December 31, 2019 and 2018, respectively, interest expense generated by our subordinated debentures and convertible notes is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 Subordinated debentures $ 2,865 $ 2,743 Convertible notes 10,813 10,643 Total $ 13,678 $ 13,386 (8) Portfolio Net Interest Margin is the difference between our Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, excluding the weighted average cost of subordinated debentures and convertible notes. Non-interest Income Realized Gains (Losses), Net The following table presents the components of realized gains (losses), net recognized for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change Residential loans $ 10,827 $ 4,495 $ 6,332 Investment securities and related hedges 21,815 (12,270) 34,085 Total realized gains (losses), net $ 32,642 $ (7,775) $ 40,417 Realized gains on residential loans increased in 2019 due to increased sale and payoff activity in 2019. Realized gains on investment securities and related hedges increased in 2019 due to the sales of certain Freddie Mac-sponsored multi-family loan K-Series first loss POs and IOs resulting in realized gains of $16.8 million and other CMBS and non-Agency RMBS resulting in realized gains of $5.0 million. Also in 2018, the Company liquidated its Agency IO portfolio resulting in a $12.4 million realized loss. Unrealized Gains, Net The following table presents the components of unrealized gains, net recognized for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change Residential loans $ 42,087 $ 4,096 $ 37,991 Consolidated SLST (83) — (83) Consolidated K-Series 23,962 37,581 (13,619) Investment securities and related hedges (30,129) 11,104 (41,233) Total unrealized gains, net $ 35,837 $ 52,781 $ (16,944) The increase in unrealized gains on residential loans in 2019 was primarily due to an increase in loans accounted for at fair value and credit spread tightening. 75 Table of Contents Unrealized gains on Consolidated K-Series decreased during 2019 due to deceleration in the tightening of credit spreads as compared to the previous period as well as lower unrealized gains on certain Consolidated K-Series investments that were nearing maturity. This decrease was partially offset by unrealized gains on additional Consolidated K-Series investments purchased in 2019. Unrealized losses on investment securities and related hedges increased in 2019 due to unrealized losses recognized on our interest rate swaps in 2019 and reversals of unrealized losses upon liquidation of the Agency IO portfolio in 2018. The unrealized losses on our interest rate swaps were offset by unrealized gains on our investment securities portfolio (where fair value option was not elected) recorded in OCI. Income from Equity Investments The following table presents the components of income from equity investments for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change Income from preferred equity investments accounted for as equity (1) $ 8,539 $ 1,437 $ 7,102 Income from joint venture equity investments in multi-family properties 10,468 8,016 2,452 Income from entities that invest in residential properties and loans 4,619 1,132 3,487 Total income from equity investments $ 23,626 $ 10,585 $ 13,041 (1) Includes income earned from preferred equity ownership interests in entities that invest in multi-family properties accounted for under the equity method of accounting. The increase in income from equity investments in 2019 was primarily due to a $7.1 million increase in income from preferred equity investments accounted for as equity due to additional investments made in 2019. The increase was also due to a $3.5 million increase in income recognized on the Company’s equity investments in entities that invest in residential properties and loans, primarily due to an investment added in 2019. Income from joint venture equity investments in multi-family properties increased by $2.5 million in 2019 as a result of increased realized and unrealized gains related to those investments. Other Income The following table presents the components of other income for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change Preferred equity and mezzanine loan premiums resulting from early redemption (1) $ 3,858 $ 6,438 $ (2,580) Net (loss) income in Consolidated VIEs (2) (2,209) 5,401 (7,610) Miscellaneous income 771 307 464 Total other income $ 2,420 $ 12,146 $ (9,726) (1) Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans. (2) Net (loss) income in Consolidated VIEs excludes income or loss from the Consolidated K-Series and Consolidated SLST and are offset by allocations of losses or increased by allocations of income to non-controlling interests in the respective Consolidated VIEs, resulting in a net loss to the Company of $1.4 million for the year ended December 31, 2019 and net income to the Company of $3.5 million for the year ended December 31, 2018. 76 Table of Contents The decrease in other income in 2019 is primarily attributable to a decrease of $7.6 million in net income in Consolidated VIEs resulting from sales of real estate held for sale in Consolidated VIEs and realized losses and impairment recognized on real estate under development held in Consolidated VIEs. The decrease in other income was also due to a decrease of $2.6 million in redemption premiums collected from preferred equity and mezzanine loan investments in 2019. Expenses The following tables present the components of general, administrative and operating expenses for the years ended December 31, 2019 and 2018, respectively (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change General and Administrative Expenses Salaries, benefits and directors’ compensation $ 24,006 $ 14,243 $ 9,763 Professional fees 4,460 4,468 (8) Other 7,328 9,161 (1,833) Total general and administrative expenses $ 35,794 $ 27,872 $ 7,922 The increase in general and administrative expenses in 2019 was primarily due to an increase in employee headcount as part of the expansion of our investment platforms. This change was partially offset by a decrease in base management and incentive fees (included in "Other" category above) in 2019 due to the termination of our last management agreement and the end of transition services related to that agreement in the second quarter of 2019. For the Years Ended December 31, 2019 2018 $ Change Operating Expenses Operating expenses related to portfolio investments $ 13,559 $ 9,270 $ 4,289 Operating expenses in Consolidated VIEs 482 4,328 (3,846) Total operating expenses $ 14,041 $ 13,598 $ 443 The increase in operating expenses related to portfolio investments in 2019 is primarily due to overall growth in the portfolio resulting from the expansion of our investment platforms. Operating expenses in Consolidated VIEs decreased in 2019 as a result of the de-consolidation of the VIEs after the sales of the real estate held by these entities. 77 Table of Contents Comprehensive Income The main components of comprehensive income for the years ended December 31, 2019 and 2018, respectively, are detailed in the following table (dollar amounts in thousands): For the Years Ended December 31, 2019 2018 $ Change NET INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ 144,835 $ 79,186 $ 65,649 OTHER COMPREHENSIVE INCOME (LOSS) Increase (decrease) in fair value of available for sale securities Agency RMBS 38,231 (23,776) 62,007 Non-Agency RMBS 13,843 (3,134) 16,977 CMBS 13,302 (778) 14,080 Total 65,376 (27,688) 93,064 Reclassification adjustment for net gain included in net income (18,109) — (18,109) TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 47,267 (27,688) 74,955 COMPREHENSIVE INCOME ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ 192,102 $ 51,498 $ 140,604 The changes in OCI in 2019 can be attributed primarily to an increase in the fair value of our investment securities where fair value option was not elected due to the expansion of our investment portfolio and general spread tightening. The changes were partially offset by the reclassification of unrealized gains reported in OCI to net income in relation to the sale of certain multi-family CMBS in 2019. Beginning in the fourth quarter of 2019, the Company’s newly purchased investment securities are presented at fair value as a result of a fair value election made at the time of acquisition pursuant to ASC 825. The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in the market values of investment securities where the Company elected the fair value option are reflected in earnings instead of in OCI. 78 Table of Contents Balance Sheet Analysis As of December 31, 2020, we had approximately $4.7 billion of total assets. Included in this amount is approximately $1.3 billion of assets held in Consolidated SLST, which we consolidate in accordance with GAAP. As of December 31, 2019, we had approximately $23.5 billion of total assets, $1.3 billion of which represented Consolidated SLST assets that we consolidate in accordance with GAAP and $17.9 billion of which represented assets comprising the Consolidated K-Series that we consolidated in accordance with GAAP. The Company sold its first loss POs and certain mezzanine securities issued by the Consolidated K-Series in March 2020 resulting in the de-consolidation of $17.4 billion in multi-family loans. For a reconciliation of our actual interests in the Consolidated K-Series and Consolidated SLST to our financial statements, see “Capital Allocation” and “Comparative Portfolio Net Interest Margin” above. 79 Table of Contents Residential Loans Acquired Residential Loans As of December 31, 2020, all of the Company’s acquired residential loans, including performing, re-performing, and non-performing residential loans and business purpose loans, are presented at fair value on its consolidated balance sheets. Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s consolidated statements of operations. The following table details our acquired residential loans by strategy at December 31, 2020 and 2019, respectively (dollar amounts in thousands): December 31, 2020 December 31, 2019 Number of Loans Unpaid Principal Fair Value Number of Loans Unpaid Principal Fair Value Re-performing residential loan strategy (1) 6,453 $ 945,625 $ 945,038 7,713 $ 1,131,855 $ 1,098,867 Performing residential loan strategy (2) 3,452 $ 848,446 $ 837,343 2,700 $ 547,379 $ 533,643 (1) As of December 31, 2019, the Company had 5,696 residential loans within our re-performing residential loan strategy with aggregate unpaid principal of $964.8 million and an aggregate carrying value of $940.1 million accounted for at fair value. The Company also had 2,017 residential loans with aggregate unpaid principal of $167.0 million and an aggregate carrying value of $158.7 million accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality as of December 31, 2019. (2) As of December 31, 2019, the Company had 2,534 residential loans within our performing loan strategy with an aggregate unpaid principal balance of $500.1 million and an aggregate carrying value of $489.6 million accounted for at fair value. The Company also had 166 residential loans held in securitization trusts with an aggregate unpaid principal balance of $47.2 million and an aggregate carrying value of $44.0 million accounted for at amortized cost, net as of December 31, 2019. Characteristics of Our Acquired Residential Loans: Loan to Value at Purchase (1) December 31, 2020 December 31, 2019 50.00% or less 13.9 % 15.4 % 50.01% - 60.00% 12.2 % 12.6 % 60.01% - 70.00% 23.4 % 17.9 % 70.01% - 80.00% 21.0 % 18.5 % 80.01% - 90.00% 11.9 % 14.5 % 90.01% - 100.00% 8.7 % 10.0 % 100.01% and over 8.9 % 11.1 % Total 100.0 % 100.0 % (1) For second mortgages, the Company calculates the combined loan to value. For business purpose loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. 80 Table of Contents FICO Scores at Purchase December 31, 2020 December 31, 2019 550 or less 18.9 % 22.1 % 551 to 600 16.7 % 20.4 % 601 to 650 15.4 % 17.1 % 651 to 700 16.0 % 14.2 % 701 to 750 15.9 % 12.1 % 751 to 800 13.0 % 10.4 % 801 and over 4.1 % 3.7 % Total 100.0 % 100.0 % Current Coupon December 31, 2020 December 31, 2019 3.00% or less 6.2 % 5.1 % 3.01% - 4.00% 18.8 % 17.1 % 4.01% - 5.00% 29.6 % 38.4 % 5.01% – 6.00% 11.7 % 18.1 % 6.01% and over 33.7 % 21.3 % Total 100.0 % 100.0 % Delinquency Status December 31, 2020 December 31, 2019 Current 85.0 % 80.8 % 31 – 60 days 3.6 % 6.4 % 61 – 90 days 1.9 % 2.6 % 90+ days 9.5 % 10.2 % Total 100.0 % 100.0 % Origination Year December 31, 2020 December 31, 2019 2007 or earlier 47.1 % 59.3 % 2008 - 2016 9.3 % 13.8 % 2017 3.8 % 6.1 % 2018 8.0 % 11.0 % 2019 13.4 % 9.8 % 2020 18.4 % — Total 100.0 % 100.0 % Consolidated SLST The Company owns first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitization and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST. We do not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities owned by the Company). Our investment in Consolidated SLST as of December 31, 2020 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $212.1 million. In March 2020, we sold our entire investment in the senior securities issued by Consolidated SLST. As of December 31, 2019, our investment in Consolidated SLST was limited to the RMBS comprised of first loss subordinated securities, IOs and senior securities with an aggregate carrying value of $276.8 million. For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 81 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2020 and 2019, respectively (dollar amounts in thousands, except as noted): December 31, 2020 December 31, 2019 Current balance of loans $ 1,231,669 $ 1,322,131 Number of loans 7,645 8,103 Current average loan size $ 188,532 $ 162,804 Weighted average original loan term (in months) 351 351 Weighted average LTV at purchase 67.0 % 66.2 % Weighted average credit score at purchase 705 711 Current Coupon: 3.00% or less 2.9 % 3.8 % 3.01% – 4.00% 36.4 % 35.2 % 4.01% – 5.00% 40.2 % 40.2 % 5.01% – 6.00% 12.3 % 12.4 % 6.01% and over 8.2 % 8.4 % Delinquency Status: Current 63.3 % 47.6 % 31 - 60 12.4 % 35.5 % 61 - 90 5.1 % 13.1 % 90+ 19.2 % 3.8 % Origination Year: 2005 or earlier 30.9 % 30.9 % 2006 15.4 % 15.4 % 2007 20.8 % 20.7 % 2008 or later 32.9 % 33.0 % Geographic state concentration (greater than 5.0%): California 10.9 % 11.0 % Florida 10.5 % 10.6 % New York 9.3 % 9.1 % New Jersey 7.1 % 6.9 % Illinois 6.8 % 6.6 % 82 Table of Contents Residential Loans Financing Repurchase Agreements As of December 31, 2020, the Company had repurchase agreements with three third-party financial institutions to fund the purchase of residential loans. The following table presents detailed information about these repurchase agreements and associated assets pledged as collateral at December 31, 2020 and 2019, respectively (dollar amounts in thousands): Maximum Aggregate Uncommitted Principal Amount Outstanding Repurchase Agreements Net Deferred Finance Costs (1) Carrying Value of Repurchase Agreements Carrying Value of Loans Pledged (2) Weighted Average Rate Weighted Average Months to Maturity (3) December 31, 2020 $ 1,301,389 $ 407,213 $ (1,682) $ 405,531 $ 575,380 2.92 % 11.92 December 31, 2019 $ 1,200,000 $ 754,132 $ (818) $ 753,314 $ 961,749 3.67 % 11.20 (1) Costs related to the repurchase agreements which include commitment, underwriting, legal, accounting and other fees are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying consolidated balance sheets and are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different. (2) Includes residential loans, at fair value of $575.4 million and $881.2 million at December 31, 2020 and 2019, respectively, and residential loans, net of $80.6 million at December 31, 2019. (3) The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity. The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 for our repurchase agreements secured by residential loans (dollar amounts in thousands): Quarter Ended Quarterly Average Balance End of Quarter Balance Maximum Balance at any Month-End December 31, 2020 $ 415,625 $ 407,213 $ 425,903 September 30, 2020 651,384 673,787 673,787 June 30, 2020 892,422 876,923 905,776 March 31, 2020 731,245 715,436 744,522 December 31, 2019 764,511 754,132 774,666 September 30, 2019 745,972 736,348 755,299 June 30, 2019 705,817 761,361 761,361 March 31, 2019 595,897 619,605 619,605 December 31, 2018 301,956 589,148 589,148 September 30, 2018 179,241 177,378 181,574 June 30, 2018 176,951 192,553 197,263 March 31, 2018 150,537 149,535 153,236 Collateralized Debt Obligations Included in our portfolio are residential loans that are pledged as collateral for CDOs issued by the Company or by Consolidated SLST. The Company had a net investment in Consolidated SLST and other residential loan securitizations of $213.7 million and $159.7 million, respectively, as of December 31, 2020. 83 Table of Contents The following table summarizes Consolidated SLST CDOs and CDOs issued by the Company's residential loan securitizations as of December 31, 2020 (dollar amounts in thousands): Outstanding Face Amount Carrying Value Weighted Average Interest Rate (1) Stated Maturity (2) Consolidated SLST (3) $ 975,017 $ 1,054,335 2.75 % 2059 Residential loan securitizations $ 557,497 $ 554,067 3.36 % 2025 - 2060 (1) Weighted average interest rate is calculated using the outstanding face amount and stated interest rate of notes issued by the securitization and not owned by the Company. (2) The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents. As a result, the actual maturity of the CDOs may occur earlier than the stated maturity. (3) The Company has elected the fair value option for CDOs issued by Consolidated SLST. 84 Table of Contents Consolidated K-Series In March 2020, in response to the market turmoil related to the COVID-19 pandemic, the Company elected to sell its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. The Consolidated K-Series were comprised of multi-family mortgage loans held in, and related debt issued by, Freddie Mac-sponsored multi-family loan K-Series securitizations of which we, or one of our SPEs, owned the first loss POs and, in certain cases, IOs and/or senior or mezzanine securities issued by these securitizations. We determined that the securitizations comprising the Consolidated K-Series were VIEs and that we were the primary beneficiary of these securitizations. Accordingly, we were required to consolidate the Consolidated K-Series’ underlying multi-family loans and related debt, income and expense in our consolidated financial statements. The sales of the first loss POs and certain mezzanine securities issued by the Consolidated K-Series, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in CDOs issued by the Consolidated K-Series. Also in March 2020, the Company transferred its remaining IOs and mezzanine and senior securities owned in the Consolidated K-Series with a fair value of approximately $237.3 million to investment securities available for sale. As of December 31, 2019, we owned 100% of the first loss POs of the Consolidated K-Series. We did not have any claims to the assets (other than those securities owned by the Company) or obligations for the liabilities of the Consolidated K-Series. Our investment in the Consolidated K-Series was limited to the multi-family CMBS comprised of first loss POs, and, in certain cases, IOs, senior or mezzanine securities, issued by these K-Series securitizations with an aggregate net carrying value of $1.1 billion as of December 31, 2019. For more information on investment securities held by the Company within the Consolidated K-Series, refer to "Investment Securities" section below. Multi-family CMBS - Consolidated K-Series Loan Characteristics: The following table details the loan characteristics of the underlying multi-family mortgage loans that backed our multi-family CMBS first loss POs as of December 31, 2019 (dollar amounts in thousands, except as noted): December 31, 2019 Current balance of loans $ 16,759,382 Number of loans 828 Weighted average original LTV 68.2 % Weighted average underwritten debt service coverage ratio 1.48x Current average loan size $ 20,241 Weighted average original loan term (in months) 125 Weighted average current remaining term (in months) 84 Weighted average loan rate 4.12 % First mortgages 100 % Geographic state concentration (greater than 5.0%): California 15.9 % Texas 12.4 % Florida 6.2 % Maryland 5.8 % 85 Table of Contents Multi-Family Preferred Equity and Mezzanine Loan Investments The Company invests in preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets (referred to in this section as “Preferred Equity and Mezzanine Loans”). A preferred equity investment is an equity investment in the entity that owns the underlying property and mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. We evaluate our Preferred Equity and Mezzanine Loans for accounting treatment as loans versus equity investments. Preferred Equity and Mezzanine Loans for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate are included in multi-family loans on our consolidated balance sheets. Preferred Equity and Mezzanine Loans where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting and are included in equity investments on our consolidated balance sheets. As of December 31, 2020, one preferred equity investment was greater than 90 days delinquent. In addition, the Company's preferred equity investment in CL Gainesville Associates, LLC ("Campus Lodge") was in forbearance and was subject to a voluntary changeover, where the Company gained the power to direct its activities, resulting in the consolidation of Campus Lodge in our financial statements under GAAP. These investments collectively represent 3.6% of the total fair value of our Preferred Equity and Mezzanine Loans. During the year ended December 31, 2019, there were no impairments with respect to our Preferred Equity and Mezzanine Loans. The following tables summarize our Preferred Equity and Mezzanine Loans as of December 31, 2020 and 2019, respectively (dollar amounts in thousands): December 31, 2020 Count Fair Value (1) (2) Investment Amount (2) Weighted Average Interest or Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 45 $ 341,266 $ 340,871 11.53 % 6.4 Mezzanine loans 1 5,092 5,031 11.50 % 31.3 Preferred equity investment in Consolidated VIE (4) 1 9,434 9,939 11.77 % 7.2 Total 47 $ 355,792 $ 355,841 11.54 % 6.7 December 31, 2019 Count Carrying Amount (1) (2) Investment Amount (2) Weighted Average Interest or Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 42 $ 279,908 $ 282,064 11.39 % 7.8 Mezzanine loans 3 6,220 6,235 11.95 % 25.8 Total 45 $ 286,128 $ 288,299 11.40 % 8.2 (1) Preferred equity and mezzanine loan investments in the amounts of $163.6 million and $180.0 million are included in multi-family loans on the accompanying consolidated balance sheets as of December 31, 2020 and 2019, respectively. Preferred equity investments in the amounts of $182.8 million and $106.1 million are included in equity investments on the accompanying consolidated balance sheets as of December 31, 2020 and 2019, respectively. (2) The difference between the fair value and investment amount as of December 31, 2020 consists of any unamortized premium or discount, deferred fees or deferred expenses, and any unrealized gain or loss. The difference between the carrying amount and the investment amount as of December 31, 2019 consists of any unamortized premium or discount, deferred fees or deferred expenses. (3) Based upon investment amount and contractual interest or preferred return rate. (4) Represents the Company's preferred equity investment in Campus Lodge, a Consolidated VIE that owns a multi-family apartment community. A reconciliation of our preferred equity investment in Campus Lodge to our consolidated financial statements as of December 31, 2020 is shown below (dollar amounts in thousands): 86 Table of Contents Cash $ 452 Operating real estate, net (a) 50,532 Lease intangible, net (a) 1,388 Other assets 1,611 Total assets 53,983 Mortgage payable, net (b) 36,752 Other liabilities 1,426 Total liabilities 38,178 Non-controlling interest in Consolidated VIE 6,371 Preferred equity investment in Consolidated VIE $ 9,434 (a) Included in other assets in the accompanying consolidated balance sheets. (b) Included in other liabilities in the accompanying consolidated balance sheets. Preferred Equity and Mezzanine Loans Characteristics: Combined Loan to Value at Investment December 31, 2020 December 31, 2019 60.01% - 70.00% 16.5 % — 70.01% - 80.00% 19.0 % 23.4 % 80.01% - 90.00% 62.9 % 76.6 % 90.01% - 100.00% 1.6 % — Total 100.0 % 100.0 % 87 Table of Contents Investment Securities At December 31, 2020, our investment securities portfolio included Agency RMBS, non-Agency RMBS, CMBS and ABS, which are classified as investment securities available for sale. Our securities investments also include first loss subordinated securities and certain IOs issued by Consolidated SLST. At December 31, 2020, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 5% of our total assets. The decrease in the carrying value of our investment securities as of December 31, 2020 as compared to December 31, 2019 is due to our $2.4 billion in asset sales related, in part, to our response to the significant disruption in the financial markets caused by the COVID-19 pandemic and opportunistic dispositions, including $1.1 billion of Agency securities (including Agency RMBS issued by Consolidated SLST), $555.2 million of first loss POs and certain mezzanine securities issued by the Consolidated K-Series, $433.1 million of non-Agency RMBS and $248.7 million of CMBS. The decrease in carrying value was also due to a decline in the fair value of a number of our investment securities since December 31, 2019 as a result of the ongoing pandemic. 88 Table of Contents The following tables summarize our investment securities portfolio as of December 31, 2020 and 2019, respectively (dollar amounts in thousands): December 31, 2020 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Agency RMBS Agency Fixed-Rate $ 133,231 $ 138,541 $ 854 $ — $ 139,395 2.00 % 1.38 % $ — Total Agency RMBS 133,231 138,541 854 — 139,395 2.00 % 1.38 % — Non-Agency RMBS Senior 104,192 104,457 4 (1,822) 102,639 4.13 % 4.27 % — Mezzanine 191,389 188,691 4,332 (5,049) 187,974 4.19 % 4.80 % — Subordinated 48,198 48,196 170 — 48,366 4.63 % 5.33 % — IO 472,049 25,976 — (9,289) 16,687 0.44 % 5.91 % — Total Non-Agency RMBS 815,828 367,320 4,506 (16,160) 355,666 1.83 % 4.74 % — CMBS Mezzanine 106,153 101,221 5,440 (2,276) 104,385 4.24 % 4.73 % — Subordinated 6,000 6,000 — (1,080) 4,920 8.00 % 8.00 % — IO 12,245,039 75,233 2,277 (375) 77,135 0.10 % 4.53 % — Total CMBS 12,357,192 182,454 7,717 (3,731) 186,440 0.14 % 4.73 % — ABS Residuals 113 34,139 9,086 — 43,225 — 12.93 % — Total ABS 113 34,139 9,086 — 43,225 — 12.93 % — Total - AFS $ 13,306,364 $ 722,454 $ 22,163 $ (19,891) $ 724,726 0.48 % 5.35 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,651 $ 213,593 $ — $ (29,556) $ 184,037 4.66 % 4.92 % $ — IO 208,932 30,708 — (2,601) 28,107 3.50 % 8.38 % — Total - Non-Agency RMBS 465,583 244,301 — (32,157) 212,144 4.13 % 5.38 % — Total - Consolidated SLST $ 465,583 $ 244,301 $ — $ (32,157) $ 212,144 4.13 % 5.38 % $ — Total Investment Securities $ 13,771,947 $ 966,755 $ 22,163 $ (52,048) $ 936,870 0.55 % 5.35 % $ — (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. 89 Table of Contents (2) Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. December 31, 2019 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Agency RMBS Agency Fixed-Rate $ 836,223 $ 867,236 $ 7,397 $ (6,162) $ 868,471 3.38 % 2.61 % $ 746,834 Agency ARMs 53,038 55,740 13 (1,347) 54,406 3.21 % 1.68 % 41,765 Total Agency RMBS 889,261 922,976 7,410 (7,509) 922,877 3.37 % 2.55 % 788,599 Agency CMBS Senior 51,184 51,334 19 (395) 50,958 2.45 % 2.41 % 48,640 Total Agency CMBS 51,184 51,334 19 (395) 50,958 2.45 % 2.41 % 48,640 Total Agency 940,445 974,310 7,429 (7,904) 973,835 3.36 % 2.55 % 837,239 Non-Agency RMBS Senior 260,604 260,741 1,971 (13) 262,699 4.65 % 4.66 % 194,024 Mezzanine 285,760 281,743 8,713 — 290,456 5.24 % 5.59 % 179,424 Subordinated 150,961 150,888 2,518 (2) 153,404 5.64 % 5.66 % 70,390 IO 842,577 8,211 1,790 (1,246) 8,755 0.42 % 5.93 % — Total Non-Agency RMBS 1,539,902 701,583 14,992 (1,261) 715,314 2.68 % 5.26 % 443,838 CMBS Mezzanine 261,287 254,620 13,300 (143) 267,777 5.00 % 5.37 % 142,230 Total CMBS 261,287 254,620 13,300 (143) 267,777 5.00 % 5.37 % 142,230 ABS Residuals 113 49,902 — (688) 49,214 — 10.70 % — Total ABS 113 49,902 — (688) 49,214 — 10.70 % — Total - AFS $ 2,741,747 $ 1,980,415 $ 35,721 $ (9,996) $ 2,006,140 3.25 % 3.71 % $ 1,423,307 Consolidated K-Series Agency CMBS Senior $ 86,355 $ 88,784 $ — $ (425) $ 88,359 2.74 % 2.34 % $ 84,544 Total Agency CMBS 86,355 88,784 — (425) 88,359 2.74 % 2.34 % 84,544 CMBS Mezzanine 92,926 83,264 12,271 — 95,535 4.21 % 5.70 % 59,579 PO 1,375,874 654,849 169,678 — 824,527 — 13.98 % 571,403 90 Table of Contents IO 12,364,412 83,960 138 (224) 83,874 0.10 % 4.66 % 38,678 Total CMBS 13,833,212 822,073 182,087 (224) 1,003,936 0.13 % 12.10 % 669,660 Total - Consolidated K-Series $ 13,919,567 $ 910,857 $ 182,087 $ (649) $ 1,092,295 0.13 % 11.92 % $ 754,204 Consolidated SLST Agency RMBS Senior $ 25,902 $ 26,227 $ 11 $ — $ 26,238 2.83 % 2.53 % $ 24,143 Total Agency RMBS 25,902 26,227 11 — 26,238 2.83 % 2.53 % 24,143 Non-Agency RMBS Subordinated 256,093 215,034 — (275) 214,759 5.62 % 7.23 % 150,448 IO 228,437 35,592 181 — 35,773 3.60 % 8.58 % — Total Non-Agency RMBS 484,530 250,626 181 (275) 250,532 4.67 % 7.42 % 150,448 Total - Consolidated SLST $ 510,432 $ 276,853 $ 192 $ (275) $ 276,770 4.58 % 6.96 % $ 174,591 Total Investment Securities $ 17,171,746 $ 3,168,125 $ 218,000 $ (10,920) $ 3,375,205 0.69 % 6.02 % $ 2,352,102 (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. (2) Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. 91 Table of Contents Investment Securities Financing Repurchase Agreements In March 2020, in reaction to the market turmoil related to the COVID-19 pandemic, our repurchase agreement providers dramatically changed their risk tolerances, including reducing or eliminating availability to add or roll maturing repurchase agreements, increasing haircuts and reducing security valuations. In turn, this led to significant disruptions in our financing markets, negatively impacting the Company as well as the entire mortgage REIT industry. In response, the Company completely eliminated its securities repurchase agreement exposure in 2020. The Company will continue to evaluate the securities repurchase agreement market before increasing its exposure in the future. The Company has historically financed its investment securities primarily through repurchase agreements with third-party financial institutions. These repurchase agreements are short-term financings that bear interest rates typically based on a spread to LIBOR and are secured by the investment securities which they finance. Upon entering into a financing transaction, our counterparties negotiate a “haircut”, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will advance to us. The size of the haircut represents the counterparty’s perceived risk associated with holding the investment securities as collateral. The haircut provides counterparties with a cushion for daily market value movements that reduce the need for margin calls or margins to be returned as normal daily changes in investment security market values occur. The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2020, 2019 and 2018 for our repurchase agreements secured by investment securities (dollar amounts in thousands): Quarter Ended Quarterly Average Balance End of Quarter Balance Maximum Balance at any Month-End December 31, 2020 $ — $ — $ — September 30, 2020 29,190 — 87,571 June 30, 2020 108,529 87,571 150,445 March 31, 2020 1,694,933 713,364 2,237,399 December 31, 2019 2,212,335 2,352,102 2,352,102 September 30, 2019 1,776,741 1,823,910 1,823,910 June 30, 2019 1,749,293 1,843,815 1,843,815 March 31, 2019 1,604,421 1,654,439 1,654,439 December 31, 2018 1,372,459 1,543,577 1,543,577 September 30, 2018 1,144,080 1,130,659 1,163,683 June 30, 2018 1,230,648 1,179,961 1,279,121 March 31, 2018 1,287,939 1,287,314 1,297,949 Non-Agency RMBS Re-Securitization In June 2020, the Company completed a re-securitization of certain non-Agency RMBS primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio. The Company received net cash proceeds of approximately $109.0 million after deducting expenses associated with the re-securitization transaction. The Company had a net investment in the re-securitization of $94.3 million as of December 31, 2020. 92 Table of Contents The following table summarizes the non-Agency RMBS re-securitization as of December 31, 2020 (dollar amounts in thousands): Outstanding Face Amount Carrying Value (1) Pass-through Rate of Notes (2) Stated Maturity Date Non-Agency RMBS re-securitization $ 15,449 $ 15,256 One-month LIBOR plus 5.25% 2025 (1) Classified as a collateralized debt obligation in the liability section of the Company's accompanying consolidated balance sheets. The re-securitization is non-recourse debt for which the Company has no obligation. (2) Represents the pass-through rate through the payment date in December 2021. Pass-through rate increases to one-month LIBOR plus 7.75% for payment dates in or after January 2022. 93 Table of Contents Equity Investments in Multi-Family and Residential Entities Multi-Family Joint Venture Equity Investments The Company's joint venture equity investment in an entity that owned a multi-family real estate asset was redeemed during the year ended December 31, 2020. We received variable distributions from this investment on a pari passu basis based upon property performance and recorded our position at fair value. The following table summarizes our multi-family joint venture equity investment as of December 31, 2019 (dollar amounts in thousands): December 31, 2019 Property Location Ownership Interest Carrying Amount The Preserve at Port Royal Venture, LLC Port Royal, SC 77% $ 18,310 Equity Investments in Entities That Invest in Residential Properties and Loans The Company has ownership interests in entities that invest in residential properties and loans. We may receive variable distributions from these investments based upon underlying asset performance and record our positions at fair value. The following table summarizes our ownership interests in entities that invest in residential properties and loans as of December 31, 2020 and 2019, respectively (dollar amounts in thousands): December 31, 2020 December 31, 2019 Strategy Ownership Interest Carrying Amount Ownership Interest Carrying Amount Morrocroft Neighborhood Stabilization Fund II, LP Single-Family Rental Properties 11% $ 13,040 11% $ 11,796 Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) Residential Loans 49% 63,290 49% 53,776 Total $ 76,330 $ 65,572 94 Table of Contents Derivative Assets and Liabilities The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs. Our derivative instruments were comprised of interest rate swaps that we used to hedge variable cash flows associated with our variable rate borrowings. We typically paid a fixed rate and received a floating rate based on one- or three- month LIBOR, on the notional amount of the interest rate swaps. The floating rate we received under our swap agreements had the effect of offsetting the repricing characteristics and cash flows of our financing arrangements. Derivative financial instruments may contain credit risk to the extent that the institutional counterparties may be unable to meet the terms of the agreements. All of the Company’s interest rate swaps were cleared through CME Group Inc. (“CME Clearing”) which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps, recognizing a realized loss of $73.1 million which was partially offset by a reversal of $29.0 million in unrealized losses, resulting in a total net loss of $44.1 million for the year ended December 31, 2020. We did not recognize any realized gains or losses during the year ended December 31, 2019. We recognized unrealized losses of $30.7 million for the year ended December 31, 2019. Unrealized gains and losses include the change in market value, period over period, generally as a result of changes in interest rates and reversals of previously recognized unrealized gains or losses upon termination. 95 Table of Contents Debt The Company’s debt as of December 31, 2020 included Convertible Notes and subordinated debentures. Convertible Notes As of December 31, 2020, the Company had $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes (the "Convertible Notes") outstanding, due on January 15, 2022. The Convertible Notes were issued at a discount with a total cost to the Company of approximately 8.24%. Subordinated Debentures As of December 31, 2020, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 4.07% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of our consolidated balance sheets. 96 Table of Contents Balance Sheet Analysis - Company ’ s Stockholders’ Equity The Company’s stockholders’ equity at December 31, 2020 was $2.3 billion and included $1.0 million of accumulated OCI. The accumulated OCI at December 31, 2020 consisted primarily of $2.0 million in net unrealized gains related to our CMBS partially offset by $1.0 million in net unrealized losses related to our non-Agency RMBS. The Company's stockholders’ equity at December 31, 2019 was $2.2 billion and included $25.1 million of accumulated OCI. The accumulated OCI at December 31, 2019 consisted primarily of $12.6 million in net unrealized gains related to our CMBS and $12.5 million in net unrealized gains related to our non-Agency RMBS. 97 Table of Contents Liquidity and Capital Resources General Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs. Generally, our investments and assets generate liquidity on an ongoing basis through principal and interest payments, prepayments, net earnings retained prior to payment of dividends and distributions from equity investments. In addition, we may generate liquidity through the sale of assets from our investment portfolio. As discussed throughout this Annual Report on Form 10-K, the COVID-19 pandemic-driven disruptions in the real estate, mortgage and financial markets have negatively affected and may negatively affect our liquidity in the future. In March 2020, we observed a mark-down of a portion of our assets by the counterparties to our repurchase agreements, resulting in us having to pay cash or additional securities to counterparties to satisfy margin calls that were well beyond historical norms. To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, on March 23, 2020, we notified our repurchase agreement counterparties that we did not expect to fund the existing and anticipated future margin calls under our repurchase agreements and commenced discussions with our counterparties with regard to entering into forbearance agreements. In response to these conditions, we have focused on improving liquidity and long-term capital preservation by taking the actions described below. Starting March 23, 2020 and through the period ended June 30, 2020, we sold a total of $2.1 billion in assets, including the sale of 100% of our Agency securities portfolio held at that time, all of our first loss multi-family POs and a portion of our non-Agency RMBS, CMBS and residential loan portfolios for proceeds of $1.1 billion, $555.2 million, $168.8 million, $138.1 million and $93.8 million, respectively. By April 7, 2020, we were again current with our repurchase payment obligations and no longer in a position to need forbearance agreements from our repurchase agreement counterparties. During the third and fourth quarters of 2020, we selectively disposed of non-Agency RMBS and CMBS for total proceeds of $375.0 million. Moreover, during the second, third and fourth quarters of 2020, we completed three securitization transactions generating net proceeds to us of $649.4 million. We used the proceeds from these sales and securitization transactions to pay down our repurchase agreement financing, reducing our portfolio leverage to 0.2 times as of December 31, 2020. At December 31, 2020, we had $293.2 million of cash and cash equivalents, $827.7 million of unencumbered securities (including the securities we own in Consolidated SLST), $515.5 million of unencumbered residential loans and $346.4 million of unencumbered preferred equity investment s in and mezzanine loans to owners of multi-family properties. Both of our residential and multi-family asset management teams have been active in responding to the government assistance programs instituted in response to the impacts of the COVID-19 pandemic providing relief to residential and multi-family loan borrowers. We have endeavored to work with any of our borrowers or operating partners that require relief because of the pandemic. As of December 31, 2020, approximately 2% of our residential loan portfolio had an active COVID-19 assistance plan. We have a long history of dealing with distressed borrowers and currently do not expect these levels of forbearance to have a material impact on our liquidity. In our multi-family portfolio, one loan is delinquent in making its distributions to us and one loan is in a forbearance arrangement with us. These loans represent 3.6% of our total preferred equity and mezzanine loan investment portfolio. Although we did not see a significant increase in forbearance and delinquency rates in our portfolio during the year ended December 31, 2020, we would expect delinquencies, defaults and requests for forbearance arrangements to rise should savings, incomes and revenues of borrowers, operating partners and other businesses become further constrained from the ongoing impacts of the COVID-19 pandemic. We cannot assure you that any increase in or prolonged period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will not adversely affect our net interest income, the fair value of our assets or our liquidity. We historically have endeavored to fund our investments and operations through a balanced and diverse funding mix, including proceeds from the issuance of common and preferred equity and debt securities, short-term and longer-term repurchase agreements and CDOs. The type and terms of financing used by us depends on the asset being financed and the financing available at the time of the financing. As discussed above, as a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets, we have recently placed and expect in the future to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations and other term financings, that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. To this end, we have completed five non-mark-to-market financings since June 2020, including two non-mark-to-market repurchase agreement financings with new and existing counterparties. 98 Table of Contents Based on current market conditions, our current investment portfolio, new investment initiatives, leverage ratio and available and future possible financing arrangements, we believe our existing cash balances, funds available under our various financing arrangements and cash flows from operations will meet our liquidity requirements for at least the next 12 months. We have explored and will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing, or the size, timing or terms thereof. Cash Flows and Liquidity for the Year Ended December 31, 2020 During the year ended December 31, 2020, net cash, cash equivalents and restricted cash increased by $182.9 million. Cash Flows from Operating Activities We generated net cash flows from operating activities of $110.8 million during the year ended December 31, 2020. Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments and derivatives. Cash Flows from Investing Activities During the year ended December 31, 2020, our net cash flows provided by investing activities were $2.1 billion, primarily as a result of sales of Agency RMBS and Agency CMBS, including securities issued by Consolidated SLST and the Consolidated K-Series, sales of non-Agency RMBS and CMBS, sales of first loss POs and certain mezzanine securities issued by the Consolidated K-Series and sales of residential loans compounded by principal repayments and refinancing of residential loans and principal paydowns or repayments of investment securities and equity, preferred equity and mezzanine loan investments. These sales and repayments were partially offset by purchases of residential loans, RMBS, CMBS, and funding of preferred equity investments during the period, reflecting our continued focus on single-family residential and multi-family investment strategies. Although we generally intend to hold our assets as long-term investments, we may sell certain of these assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives or to adapt to market conditions, as was the case in March 2020. We cannot predict the timing and impact of future sales of assets, if any. Because a portion of our assets are financed through repurchase agreements or CDOs, a portion of the proceeds from any sales of or principal repayments on our assets may be used to repay balances under these financing sources. Accordingly, all or a significant portion of cash flows from principal repayments received on multi-family loans held in the Consolidated K-Series, principal repayments received from residential loans and proceeds from sales or principal paydowns received from investment securities available for sale were used to repay CDOs issued by the respective Consolidated VIEs or repurchase agreements (included as cash used in financing activities). As presented in the “Supplemental Disclosure - Non-Cash Investment Activities” subsection of our consolidated statements of cash flows, during the year ended December 31, 2020, we de-consolidated certain multi-family securitization trusts which represent significant non-cash transactions that were not included in cash flows provided by investing activities. Cash Flows from Financing Activities During the year ended December 31, 2020, our cash flows used in financing activities were $2.0 billion. The main uses of cash flows with respect to financing activities were primarily payments made on repurchase agreements partially offset by net proceeds from various issuances of our common stock and CDOs. Liquidity – Financing Arrangements 99 Table of Contents As of December 31, 2020, we had no amounts outstanding under short-term repurchase agreements on our investment securities. These repurchase agreements are typically secured by certain of our investment securities and bear interest rates that have historically moved in close relationship to LIBOR. Any financings under these repurchase agreements are based on the fair value of the assets that serve as collateral under these agreements. Interest rate changes and increased prepayment activity can have a negative impact on the valuation of these securities, reducing the amount we can borrow under these agreements. Moreover, our repurchase agreements allow the counterparties to determine a new market value of the collateral to reflect current market conditions and because these lines of financing are not committed, the counterparty can effectively call the loan at any time. Market value of the collateral represents the price of such collateral obtained from generally recognized sources or the most recent closing bid quotation from such source plus accrued income. If a counterparty determines that the value of the collateral has decreased, the counterparty may initiate a margin call and require us to either post additional collateral to cover such decrease or repay a portion of the outstanding amount financed in cash, on minimal notice, and repurchase may be accelerated upon an event of default under the repurchase agreements. Moreover, in the event an existing counterparty elected to not renew the outstanding balance at its maturity into a new repurchase agreement, we would be required to repay the outstanding balance with cash or proceeds received from a new counterparty or to surrender the securities that serve as collateral for the outstanding balance, or any combination thereof. If we were unable to secure financing from a new counterparty and had to surrender the collateral, we would expect to incur a loss. In addition, in the event one of our repurchase agreement counterparties defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” At December 31, 2020, we had longer-term repurchase agreements with terms of up to two years with three third-party financial institutions that are secured by certain of our residential loans and that function similar to our short-term repurchase agreements. The financings under two of these repurchase agreements are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. In the third and fourth quarters of 2020, we entered into or amended agreements with new and existing counterparties that are secured by certain of our residential loans and are not subject to margin calls in the event the market value of the collateral declines. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Residential Loans Financing—Repurchase Agreements" for further information. During the terms of the repurchase agreements secured by residential loans, proceeds from the residential loans will be applied to pay any price differential, if applicable, and to reduce the aggregate repurchase price of the collateral. The repurchase agreements secured by residential loans contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. As of December 31, 2020, we had an aggregate amount at risk under our residential loan repurchase agreements of approximately $168.2 million, which represents the difference between the carrying value of the loans pledged and the outstanding balance of our repurchase agreements. Significant margin calls have had, and could in the future have, a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders. See “Liquidity and Capital Resources – General” above. At December 31, 2020, the Company had $138.0 million aggregate principal amount of Convertible Notes outstanding. The Convertible Notes were issued at 96% of the principal amount, bear interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and are expected to mature on January 15, 2022, unless earlier converted or repurchased. The Company does not have the right to redeem the Convertible Notes prior to maturity and no sinking fund is provided for the Convertible Notes. Holders of the Convertible Notes are permitted to convert their Convertible Notes into shares of the Company’s common stock at any time prior to the close of business on the business day immediately preceding January 15, 2022. The conversion rate for the Convertible Notes, which is subject to adjustment upon the occurrence of certain specified events, initially equals 142.7144 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is equivalent to a conversion price of approximately $7.01 per share of the Company’s common stock, based on a $1,000 principal amount of the Convertible Notes. At December 31, 2020, we also had other longer-term debt, including Consolidated SLST CDOs outstanding of $1.1 billion (which represent obligations of Consolidated SLST) and other CDOs outstanding of $569.3 million. These CDOs are collateralized by residential loans and non-Agency RMBS. As of December 31, 2020, our total leverage ratio, which represents our total outstanding repurchase agreement financing, subordinated debentures and Convertible Notes divided by our total stockholders' equity, was approximately 0.3 to 1. Our overall leverage ratio does not include debt associated with CDOs or other non-recourse debt to the Company. As of December 31, 2020, our leverage ratio on our shorter-term financings, which represents our outstanding repurchase agreement financing divided by our total stockholders’ equity, was approximately 0.2 to 1. We monitor all at risk or short-term financings to enable us to respond to market disruptions as they arise. 100 Table of Contents Liquidity – Hedging and Other Factors Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, swaptions, TBAs or other futures contracts to hedge interest rate and market value risk associated with our investments in Agency RMBS. With respect to interest rate swaps, futures contracts and TBAs, initial margin deposits, which can be comprised of either cash or securities, will be made upon entering into these contracts. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of these contracts at the end of each day’s trading. We may be required to satisfy variable margin payments periodically, depending upon whether unrealized gains or losses are incurred. In addition, because delivery of TBAs extend beyond the typical settlement dates for most non-derivative investments, these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and thereby are more vulnerable to increasing amounts at risk with the applicable counterparties. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps and currently do not have any hedges in place. For additional information regarding the Company’s derivative instruments and hedging activities for the periods covered by this report, including the fair values and notional amounts of these instruments and realized and unrealized gains and losses relating to these instruments, please see Note 8 to our consolidated financial statements included in this report. Also, please see Item 7A. Quantitative and Qualitative Disclosures about Market Risk, under the caption, “Fair Value Risk”, for a tabular presentation of the sensitivity of the fair value and net duration changes of the Company’s portfolio across various changes in interest rates, which takes into account the Company’s hedging activities. Liquidity — Securities Offerings In addition to the financing arrangements described above under the caption “Liquidity—Financing Arrangements,” we also rely on follow-on equity offerings of common and preferred stock, and may utilize from time to time debt securities offerings, as a source of both short-term and long-term liquidity. We also may generate liquidity through the sale of shares of our common stock or preferred stock in “at-the-market” equity offering programs pursuant to equity distribution agreements, as well as through the sale of shares of our common stock pursuant to our Dividend Reinvestment Plan (“DRIP”). Our DRIP provides for the issuance of up to $20,000,000 of shares of our common stock. The following table details the Company's public offerings of common stock during the year ended December 31, 2020 (dollar amounts in thousands): Offering Type Shares Issued Net Proceeds (1) Public offerings of common stock in January and February 2020 85,100,000 $ 511,924 (1) Proceeds are net of underwriting discounts and commissions and offering expenses, as applicable. Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 15 to our consolidated financial statements included in this report. Our Board of Directors will continue to evaluate our dividend policy each quarter and will make adjustments as necessary, based on our earnings and financial condition, capital requirements, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and such other factors as our Board of Directors deems relevant. Our dividend policy does not constitute an obligation to pay dividends. We intend to make distributions to our stockholders to comply with the various requirements to maintain our REIT status and to minimize or avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the REIT distribution requirements and to minimize or avoid corporate income tax and the nondeductible excise tax. 101 Table of Contents Inflation Substantially all our assets and liabilities are financial in nature and are sensitive to interest rate and other related factors to a greater degree than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements and corresponding notes thereto have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering inflation. 102 Table of Contents Contractual Obligations and Commitments The Company had the following contractual obligations at December 31, 2020 (dollar amounts in thousands): Less than 1 year 1 to 3 years 4 to 5 years More than 5 years Total Operating leases $ 1,710 $ 3,453 $ 3,152 $ 5,095 $ 13,410 Repurchase agreements (1) 366,489 52,437 — — 418,926 Subordinated debentures (1) 1,860 3,720 3,726 62,709 72,015 Convertible notes (1) 8,625 142,313 — — 150,938 Employment agreements 900 — — — 900 Total contractual obligations (2) $ 379,584 $ 201,923 $ 6,878 $ 67,804 $ 656,189 (1) Amounts include projected interest payments during the period. Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2020. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans and non-Agency RMBS held in securitization trusts. See Note 11 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. 103 Table of Contents Off-Balance Sheet Arrangements We did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. 104 Table of Contents