Franklin BSP Realty Trust, Inc. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying financial statements of Franklin BSP Realty Trust, Inc. the notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting the Company’s current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections of this Annual Report entitled “Risk Factors” and “Forward-Looking Statements.” Overview The Company is a Maryland corporation and has made tax elections to be treated as a REIT for U.S. federal income tax purposes since 2013. The Company, through one or more subsidiaries which are each treated as a TRS, is indirectly subject to U.S. federal, state and local income taxes. We commenced business in May 2013. We primarily originate, acquire and manage a diversified portfolio of commercial real estate debt investments secured by properties located within and outside of the United States. Commercial real estate debt investments may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. Substantially all of our business is conducted through the OP, a Delaware limited partnership. We are the sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP. The Company has no employees. We are managed by our Advisor pursuant to an Advisory Agreement, as amended on August 18, 2021 (the "Advisory Agreement"). Our Advisor manages our affairs on a day-to-day basis. The Advisor receives compensation and fees for services related to the investment and management of our assets and our operations. The Advisor, an SEC-registered investment adviser, is a credit-focused alternative asset management firm. The Advisor manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including high yield, levered loans, private / opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the Advisor’s robust platform. On February 1, 2019, Franklin Resources, Inc. and Templeton International, Inc. (collectively, “Franklin Templeton”) acquired the Advisor, which event did not impact the terms of the Advisory Agreement or result in any changes to the executive officers of the Company. The Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into CMBS securitization transactions at a profit. The Company also owns real estate which it acquires through foreclosure and deed in lieu of foreclosure, and which it purchases for investment, typically subject to triple net leases. The Company also invests in commercial real estate securities. Real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of other publicly traded real estate companies, RMBS and CDOs. The Company also owns real estate acquired by the Company through foreclosure and deed in lieu of foreclosure, and purchased for investment, typically subject to triple net leases. Impact of the Capstead Acquisition As further described in Note 18 - Merger with Capstead, on October 19, 2021, the Company completed a merger with Capstead Mortgage Corporation (“Capstead”) pursuant to which Capstead merged into a wholly-owned subsidiary of the Company, and the Company’s common stock commenced trading on the NYSE under the ticker “FBRT”. The Capstead assets acquired in the merger consist primarily of cash and residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises or by an agency of the federal government ("ARM Agency Securities"). The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of the assets acquired in the merger into its own investment strategies. The Capstead acquisition resulted in the following material impacts on our financial results for the year and quarter ended December 31, 2021: 27 • Impairment of acquired assets: Pursuant to Accounting Standards Codification Topic 805, “Business Combinations,” the Company accounted for the transaction as an asset acquisition since substantially all of the fair value of the gross assets acquired was concentrated in a group of similar identifiable assets, a portfolio of agency mortgage-backed securities. The Company measured the cost of the net identifiable assets acquired on the basis of the fair value of the consideration given, inclusive of transaction costs, which was determined to be more reliably measurable. As the cost of the acquisition exceeded the fair value of the net identifiable assets acquired, the Company allocated the difference on the basis of relative fair values to certain assets which were not carried at fair value. The amount of excess consideration, including the Company's transaction costs, was capitalized on the balance sheet as a long-lived asset at the time of acquisition. In the fourth quarter of 2021, the Company concluded the long-lived asset had no potential value to the generation of future cash flows and fully impaired the asset, recognizing an expense totaling $88.3 million in the consolidated statements of operations . • Trading losses: Since the Company does not intend to hold the ARM Agency Securities acquired in the Capstead merger for long-term investment, the assets are treated as “classified as trading” for accounting purposes. As a result, these assets are recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations. For the quarter ended December 31, 2021, the Company recognized a trading loss of $34.8 million related to these assets. As long as the Company holds a significant amount of the ARM Agency Securities acquired in the Capstead merger, the Company’s future results of operations will continue to be impacted by trading gains and losses related to this portfolio, and such impacts could be adverse and material. As of December 31, 2021, the value of the Company’s ARM Agency Securities portfolio was $4.6 billion. As of February 18, 2022, the value of the Company's ARM Agency Securities portfolio was $2.4 billion. The reduction in the value of the ARM Agency Securities portfolio from January 1, 2022 to February 18, 2022 is due in part to (i) $265 million of principal payments and (ii) $1.8 billion of sales. From January 1, 2022 to February 18, 2022, the Company experienced losses of $38 million related to the ARM Agency Securities portfolio as a result of net trading losses totaling $59.5 million related to principal paydowns, changes in market price and losses on sales of securities, net of portfolio-related derivative gains of $21.5 million. Book Value Per Share The following table calculates our book value per share as of December 31, 2021 ($ in thousands, except per share data): December 31, 2021 December 31, 2020 Stockholders' equity applicable to common stock $ 736,464 $ 798,444 Shares Common stock 43,951,382 44,494,496 Restricted stock 14,546 15,555 Total outstanding 43,965,928 44,510,051 Book value per share $ 16.75 $ 17.94 The following table calculates our fully-converted book value per share as of December 31, 2021 ($ in thousands, except per share data): December 31, 2021 December 31, 2020 Stockholders' equity applicable to convertible common stock $ 1,543,550 $ 1,007,698 Shares Common stock 43,951,382 44,494,496 Restricted stock 14,546 15,555 Series A convertible preferred stock — 12,122,088 Series C convertible preferred stock 418,880 418,880 Series D convertible preferred stock 5,370,640 — Series F convertible preferred stock 39,733,299 — Total outstanding 89,488,747 57,051,019 Fully-converted book value per share $ 17.25 $ 17.66 28 Table of Contents Critical Accounting Estimates Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting estimates are those that require the application of management’s most difficult, subjective or complex judgments on matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Set forth below is a summary of the critical accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. The Company’s significant accounting policies, including recently issued accounting pronouncements, are more fully described in Note 2 – Summary of Critical Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. Credit Losses - Estimating Credit Losses The allowance for credit losses for the Company’s financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans held for investment and unfunded loan commitments represents a lifetime estimate of expected credit losses. Factors considered by the Company when determining the allowance for credit losses reserve include loan-specific characteristics such as loan-to-value (“LTV”) ratio, vintage year, loan term, property type, occupancy and geographic location, financial performance of the borrower, expected payments of principal and interest, as well as internal or external information relating to past events, current conditions and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist for multiple financial instruments. If similar risk characteristics do not exist, the Company measures the allowance for credit losses on an individual instrument basis. The determination of whether a particular financial instrument should be included in a pool can change over time. If a financial asset’s risk characteristics change, the Company evaluates whether it is appropriate to continue to keep the financial instrument in its existing pool or evaluate it individually. In measuring the allowance for credit losses for financial instruments including our unfunded loan commitments that share similar risk characteristics, the Company primarily applies a probability of default (“PD”)/loss given default (“LGD”) model for instruments that are collectively assessed, whereby the allowance for credit losses is calculated as the product of PD, LGD and exposure at default (“EAD”). The Company’s model principally utilizes historical loss rates derived from a commercial mortgage backed securities database with historical losses from 1998 to 2020 provided by a reputable third party, forecasting the loss parameters using a scenario-based statistical approach over a reasonable and supportable forecast period of twelve months, followed by an immediate reversion to average historical losses. For financial instruments assessed on an individual basis, including when it is probable that the Company will be unable to collect the full payment of principal and interest on the instrument, the Company applies a discounted cash flow (“DCF”) methodology. For financial instruments where the borrower is experiencing financial difficulty based on the Company’s assessment at the reporting date and the repayment is expected to be provided substantially through the operation or sale of the collateral, the Company may elect to use as a practical expedient the fair value of the collateral at the reporting date when determining the allowance for credit losses. In developing the allowance for credit losses for its loans held for investment, the Company performs a comprehensive analysis of its loan portfolio and assigns risk ratings to loans that incorporate management's current judgments about their credit quality based on all known and relevant internal and external factors that may affect collectability, using similar factors as those in developing the allowance for credit losses. This methodology results in loans being segmented by risk classification into risk rating categories that are associated with estimated probabilities of default and principal loss. Risk rating categories range from "1" to "5" with "1" representing the lowest risk of loss and "5" representing the highest risk of loss with the ratings updated quarterly. Loans are placed on nonaccrual status and considered non-performing when full payment of principal and interest is unpaid for 90 days or more or where reasonable doubt exists as to timely collection, unless the loan is both well secured and in the process of collection. Interest received on nonaccrual status loans are accounted for under the cost-recovery method, until qualifying for return to accrual. The cost recovery method will no longer apply if collection of all principal and interest is reasonably assured. A loan may be placed back on accrual status if we determine it is probable that we will collect all payments which are contractually due. 29 Table of Contents Real Estate Owned - Estimating Fair Value and Holding Period Real estate owned assets are carried at their estimated fair value at acquisition and presented net of accumulated depreciation and impairment charges. The Company allocates the purchase price of acquired real estate assets based on the fair value of the acquired land, building, furniture, fixtures and equipment. Real estate owned assets are depreciated using the straight-line method over estimated useful lives of up to 40 years for buildings and improvements and up to 15 years for furniture, fixtures and equipment. Renovations and/or replacements that improve or extend the life of the real estate owned assets are capitalized and depreciated over their estimated useful lives. Real estate owned revenue is recognized when the Company satisfies a performance obligation by transferring a promised good or service to a customer. The Company is considered to have satisfied all performance obligation at a point in time. Real estate owned assets that are probable to be sold within one year are reported as held for sale. Real estate owned assets classified as held for sale are measured at the lower of its carrying amount or fair value less cost to sell. Real estate owned assets are not depreciated or amortized while classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be accrued. Upon the disposition of a real estate owned asset, the Company calculates realized gains and losses as net proceeds received less the carrying value of the real estate owned asset. Net proceeds received are net of direct selling costs associated with the disposition of the real estate owned asset. Real Estate Securities - Estimating Fair Value On the acquisition date, all of our commercial real estate securities will be classified as available for sale and will be carried at fair value, with any unrealized gains or losses reported as a component of accumulated other comprehensive income or loss. However, we may elect to transfer these assets to trading securities, and as a result, any unrealized gains or losses on such real estate securities will be recorded as unrealized gains or losses on investments in our consolidated statements of operations. Related discounts, premiums, and acquisition expenses on investments are amortized over the life of the investment using the effective interest method. Amortization is reflected as an adjustment to interest income in the consolidated statements of operations. Credit Impairment Analysis of Real Estate Securities Commercial real estate securities for which the fair value option has not been elected will be periodically evaluated for credit impairment. AFS real estate securities which have experienced a decline in the fair value below their amortized cost basis (i.e., impairment) are evaluated each reporting period to determine whether the decline in fair value is due to credit-related factors. Any impairment that is not credit-related is recognized in other comprehensive income, while credit-related impairment is recognized as an allowance on the consolidated balance sheets with a corresponding adjustment on the consolidated statements of operations. If the Company intends to sell an impaired real estate security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in the consolidated statements of operations with a corresponding adjustment to the security’s amortized cost basis. The Company analyzes the AFS security portfolio on a periodic basis for credit losses at the individual security level using the same criteria described above for those amortized cost financial assets subject to an allowance for credit losses including but not limited to; performance of the underlying assets in the security, borrower financial resources and investment in collateral, collateral type, credit ratings, project economics and geographic location as well as national and regional economic factors. The non-credit loss component of the unrealized loss within the Company’s AFS portfolio is recognized as an adjustment to the individual security’s asset balance with an offsetting entry to other comprehensive income in the consolidated balance sheets. Commercial real estate securities for which the fair value option has been elected are not evaluated for other-than-temporary impairment as changes in fair value are recorded in our consolidated statement of operations. Real Estate Securities - Classified As Trading - Estimating Fair Value In the merger with Capstead, we acquired a portfolio of ARM Agency Securities classified as trading and recorded at fair value on the balance sheet with trading gains and losses on the paydowns and sales of these securities recorded in the Company's consolidated statements of operations. Fair values fluctuate with current and projected changes in interest rates, prepayment expectations and other factors such as market liquidity conditions and the perceived credit quality of agency securities. Judgment is required to interpret market data and develop estimated fair values, particularly in circumstances of deteriorating credit quality and market liquidity. 30 Table of Contents Results of Operations Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020 The Company conducts its business through the following segments: • The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgages, subordinate mortgages, mezzanine loans and participations in such loans. • The real estate securities business focuses on investing in and asset managing real estate securities. Historically this business has focused primarily on CMBS, unsecured REIT debt, CDO notes and other securities. As a result of the October 2021 acquisition of Capstead, the Company acquired and continues to hold a significant portfolio of Residential Mortgage Backed Securities (“RMBS”) in the form of the ARM Agency Securities. The Company intends to reinvest the cash and proceeds from dividends, interest, repayments and sales of these assets into its other segments and does not intend to continue to invest in ARM Agency Securities or RMBS in general. As of December 31, 2021, all of the real estate securities in this segment were ARM Agency Securities acquired in the Capstead acquisition. • The conduit business operated through the Company's TRS, which is focused on generating superior risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit. • The real estate owned business represents real estate acquired by the Company through foreclosure, deed in lieu of foreclosure, or purchase. In addition, as described above in “Impact of the Capstead Acquisition”, the Company's results of operations were materially impacted by the asset impairment related to the Capstead merger and trading losses and decreases in the values of the assets acquired in the transaction from acquisition date to December 31, 2021. Net Interest Income Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments. The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the years ended December 31, 2021 and 2020 (dollars in thousands): Year Ended December 31, 2021 2020 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3) Interest-earning assets: Real estate debt $ 3,156,492 $ 189,090 6.0 % $ 2,606,081 $ 165,907 6.4 % Real estate conduit 75,633 3,060 4.0 % 83,618 3,111 3.7 % Real estate securities 899,033 24,740 2.8 % 351,859 10,854 3.1 % Total $ 4,131,158 $ 216,890 5.3 % $ 3,041,558 $ 179,872 5.9 % Interest-bearing Liabilities: Repurchase agreements - commercial mortgage loans $ 477,138 $ 17,299 3.6 % $ 249,289 $ 10,908 4.4 % Other financing and loan participation- commercial mortgage loans 36,045 1,874 5.2 % 16,704 916 5.5 % Repurchase agreements - real estate securities 871,466 3,639 0.4 % 313,227 13,637 4.4 % Collateralized loan obligations 1,821,993 35,920 2.0 % 1,706,207 41,095 2.4 % Unsecured debt 35,268 2,103 6.0 % — — — % Total $ 3,241,910 $ 60,835 1.9 % $ 2,285,427 $ 66,556 2.9 % Net interest income/spread $ 156,055 3.4 % $ 113,316 3.0 % Average leverage % (4) 78.5 % 75.1 % Weighted average levered yield (5) 17.5 % 15.0 % __ ______________________ (1) Based on amortized cost for real estate debt and real estate securities and principal amount for interest-bearing liabilities. Amounts are calculated based on daily averages for the years ended December 31, 2021 and 2020, respectively. 31 Table of Contents (2) Includes the effect of amortization of premium or accretion of discount and deferred fees. The RMBS securities acquired in the Capstead merger are classified as trading and use the simple interest method to calculate interest income therefore no premium amortization is recognized on these securities. (3) Calculated as interest income or expense divided by average carrying value. (4) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (5) Calculated by dividing net interest income/spread by the average interest-earning assets less average interest-bearing liabilities. Interest income Interest income for the years ended December 31, 2021 and 2020 totaled $216.9 million and $179.9 million, respectively. As of December 31, 2021, our portfolio consisted of 165 commercial mortgage loans, one commercial mortgage loan, held for sale, measured at fair value, RMBS securities acquired in the merger with Capstead and no investments in CMBS. The main driver in the increase in interest income was due to the higher average carrying value of interest-earning assets during the year ended December 31, 2021. Interest expense Interest expense for the year ended December 31, 2021 decreased to $60.8 million compared to interest expense for the year ended December 31, 2020 of $66.6 million. The decrease in interest expense was due to a decrease in the one-month LIBOR, the benchmark index for our financing lines. Realized Gain/Loss on Commercial Mortgage Loans Held for Sale Realized gain on commercial mortgage loans held for sale, measured at fair value at the TRS for the year ended December 31, 2021 was $24.2 million compared to $15.9 million for the year ended December 31, 2020. The $8.3 million increase in realized gain was due to higher sales volumes in our conduit business segment with total proceeds of $478.3 million from the sale of fixed-rate commercial real estate loans into the CMBS securitization market during the year ended December 31, 2021 compared to transactions with total proceeds of $328.1 million for the year ended December 31, 2020. Realized Gain/Loss on Real Estate Securities Available for Sale For the year ended December 31, 2021 sales of our real estate securities, available for sale, measured at fair value resulted in a net realized loss of $1.4 million included within the consolidated statements of operations. The loss is attributable to nine CMBS securities sold during the year ended December 31, 2021. For the year ended December 31, 2020 sales of our real estate securities, available for sale, measured at fair value resulted in a net realized loss of $10.1 million included within the consolidated statements of operations. The loss was attributable to 20 CMBS securities sold during the year ended December 31, 2020 in response to the dislocations in the capital markets due to COVID-19. Unrealized Gain/Loss on Real Estate Securities Available for Sale For the year ended December 31, 2021 our real estate securities, available for sale, measured at fair value had an unrealized gain of $8.3 million included within the consolidated statements of comprehensive income. The increase in fair value of real estate securities can be attributed to the reversal of the unrealized losses on the nine CMBS sales during the year ended December 31, 2021. 32 Table of Contents Trading Gain/Loss For the year ended December 31, 2021 we had a realized trading loss of $34.8 million included within the consolidated statements of operations. The loss is attributable to $20.9 million of losses due to change in market values of the ARM Agency Securities and $14.0 million of losses due to mortgage prepayments, net of $0.1 million in realized gains on sales of securities. Expenses from operations Expenses from operations for the years ended December 31, 2021 and 2020 were made up of the following (dollars in thousands): Year Ended December 31, 2021 2020 Asset management and subordinated performance fee $ 28,110 $ 15,178 Acquisition expenses 1,203 696 Administrative services expenses 7,658 13,120 Impairment of acquired assets 88,282 — Professional fees 11,650 10,964 Real estate owned operating expenses — 3,653 Depreciation and amortization 2,107 2,233 Other expenses 3,946 3,312 Total expenses from operations $ 142,956 $ 49,156 The increase in our expenses from operations was primarily related to impairment of acquired assets and higher asset management and subordinated performance fees. The increase in impairment of acquired assets and asset management and subordinated performance fees were all due to the merger with Capstead during the year ended December 31, 2021. Refer to “Impact of the Capstead Acquisition” above for a discussion of the impairment of acquired assets. The decrease in administrative services expenses was primarily driven by a greater amount of originations during the year and therefore higher acquisition fees paid to our Advisor, which reduced the administrative services expenses for the year ended December 31, 2021, compared to the year ended December 31, 2020. The decrease of $3.7 million in real estate owned operating expenses was due to the sale of an owned office property during the year ended December 31, 2020 and the fact our remaining owned property, an industrial property, is leased on a triple-net basis. Comparison of the Three Months Ended December 31, 2021 to the Three Months Ended September 30, 2021 Net Interest Income Net interest income is generated on our interest-earning assets less related interest-bearing liabilities and is recorded as part of our real estate debt, real estate securities and TRS segments. 33 Table of Contents The following table presents the average balance of interest-earning assets less related interest-bearing liabilities, associated interest income and expense and corresponding yield earned and incurred for the three months ended December 31, 2021 and September 30, 2021 (dollars in thousands): Three Months Ended December 31, 2021 September 30, 2021 Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3)(4) Average Carrying Value (1) Interest Income / Expense (2) WA Yield / Financing Cost (3)(4) Interest-earning assets: Real estate debt $ 3,631,346 $ 53,145 5.9 % $ 3,118,201 $ 47,166 6.1 % Real estate conduit 36,447 497 5.5 % 61,157 581 3.8 % Real estate securities 3,482,245 24,279 2.8 % — — N/A Total $ 7,150,038 $ 77,921 4.4 % $ 3,179,358 $ 47,747 6.0 % Interest-bearing Liabilities: Repurchase agreements - commercial mortgage loans $ 959,729 $ 9,069 3.8 % $ 331,871 $ 3,095 3.7 % Other financing and loan participation- commercial mortgage loans 37,770 386 4.1 % 49,145 350 2.8 % Repurchase agreements - real estate securities 3,233,599 1,361 0.2 % 46,527 148 1.3 % Collateralized loan obligations 1,714,736 11,922 2.8 % 1,906,402 8,395 1.8 % Unsecured debt 101,064 2,103 8.3 % — — — % Total $ 6,046,898 $ 24,841 1.6 % $ 2,333,945 $ 11,988 2.1 % Net interest income/spread $ 53,080 2.8 % $ 35,759 3.9 % Average leverage % (5) 84.6 % 73.4 % Weighted average levered yield (6) 19.2 % 16.9 % __ ______________________ (1) Based on amortized cost for real estate debt and real estate securities and principal amount for interest-bearing liabilities. Amounts are calculated based on daily averages for the three months ended December 31, 2021 and September 30, 2021, respectively. (2) Includes the effect of amortization of premium or accretion of discount and deferred fees. The RMBS securities acquired in the Capstead merger are classified as trading and use the simple interest method to calculate interest income therefore no premium amortization is recognized on these securities. (3) Calculated as interest income or expense divided by average carrying value. (4) Annualized. (5) Calculated by dividing total average interest-bearing liabilities by total average interest-earning assets. (6) Calculated by dividing net interest income/spread by the average interest-earning assets less average interest-bearing liabilities. Interest income Interest income for the three months ended December 31, 2021 and September 30, 2021 totaled $77.9 million and $47.7 million, respectively. As of December 31, 2021, our portfolio consisted of 165 commercial mortgage loans, one commercial mortgage loan, held for sale, measured at fair value, RMBS securities acquired in the merger with Capstead and no investments in CMBS. The main driver in the increase in interest income was due to the higher average carrying value of interest-earning assets during the three months ended December 31, 2021, directly related to the merger with Capstead. Interest expense Interest expense for the three months ended December 31, 2021 increased to $24.8 million compared to interest expense for the three months ended September 30, 2021 of $12.0 million. The increase in interest expense was due to the increase of $627.9 million in repurchase agreements on commercial mortgage loans and an increase of $3,187.1 million in repurchase agreements on real estate securities during the three months ended December 31, 2021, compared to the three months ended September 30, 2021. 34 Table of Contents Realized Gain/Loss on Commercial Mortgage Loans Held for Sale Realized gain on commercial mortgage loans held for sale, measured at fair value at the TRS for the three months ended December 31, 2021 was $2.0 million compared to $9.1 million for the three months ended September 30, 2021. The $7.1 million decrease in realized gain was due to the fact that there had been one sale of fixed-rate commercial real estate loans into the CMBS securitization market during the three months ended December 31, 2021 compared to two sales during the three months ended September 30, 2021. Proceeds from sale were $67.1 million for the three months ended December 31, 2021 compared to $154.0 million for the three months ended September 30, 2021. Trading Gain/Loss For the three months ended December 31, 2021 we had a realized trading loss of $34.8 million included within the consolidated statements of operations. The loss is attributable to $20.9 million of losses due to change in market values of the ARM Agency Securities and $14.0 million of losses due to mortgage prepayments, net of $0.1 million in realized gains on sales of securities. Expenses from operations Expenses from operations for the three months ended December 31, 2021 and September 30, 2021 were made up of the following (dollars in thousands): Three Months Ended December 31, 2021 September 31, 2021 Asset management and subordinated performance fee $ 8,428 $ 8,265 Acquisition expenses 191 690 Administrative services expenses (1,874) 2,980 Impairment of acquired assets 88,282 — Professional fees 4,388 2,488 Depreciation and amortization 1,295 — Other expenses 1,831 709 Total expenses from operations $ 102,541 $ 15,132 The increase in our expenses from operations was primarily related to impairment of acquired assets and higher asset management and subordinated performance fees. The increase in impairment of acquired assets and asset management and subordinated performance fees were all due to the merger with Capstead during the three months ended December 31, 2021. Refer to “Impact of the Capstead Acquisition” above for a discussion of the impairment of acquired assets. The decrease in administrative services expenses was primarily driven by the year-end adjustment to such expenses during the three months ended December 31, 2021, compared to the three months ended September 30, 2021. The increase in depreciation and amortization expense was due to $1.3 million of expenses incurred on one real estate owned assets during the three months ended December 31, 2021, compared to no such expenses incurred during the three months ended September 30, 2021. 35 Table of Contents Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019 See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 11, 2021, for a discussion of the comparison of the year ended December 31, 2020 to the year ended December 31, 2019. Portfolio As of December 31, 2021 and 2020, our portfolio consisted of 165 and 130 commercial mortgage loans, respectively, excluding commercial mortgage loans accounted for under the fair value option. The commercial mortgage loans held for investment as of December 31, 2021 and December 31, 2020 had a total carrying value, net of allowance for credit losses, of $4,211.1 million and $2,693.8 million, respectively. As of December 31, 2021 and 2020 the Company's total commercial mortgage loans, held for sale, measured at fair value comprised of one loan with total fair value of $34.7 million and three loans with total fair value of $67.6 million, respectively. As of December 31, 2021, we had no real estate securities, available for sale, compared to real estate securities, available for sale, at fair value comprised of nine CMBS investments with total fair value of $171.1 million, as of December 31, 2020. As of December 31, 2021 and December 31, 2020, our other real estate investments, measured at fair value, were comprised one investment with a total fair value of $2.1 million and $2.5 million, respectively. As of December 31, 2021 and December 31, 2020, our real estate owned portfolio comprised one industrial property and one office property, respectively with carrying values of $90.0 million and $26.5 million, respectively. As of December 31, 2021, we had two loans with unpaid contractual principal balance for a total carrying value of $114.0 million, one with interest past due for greater than 90 days and the other which is current. We did not take any asset specific reserves for these loans. As of December 31, 2020, we had one loan with unpaid contractual principal balance and carrying value of $57.1 million that had interest past due for greater than 90 days. As of December 31, 2021 and 2020, our commercial mortgage loans, excluding commercial mortgage loans accounted for under the fair value option, had a weighted average coupon of 4.3% and 5.5%, and a weighted average remaining life of 2.1 years and 1.7 years, respectively. As of December 31, 2020, our CMBS investments had a weighted average coupon of 2.2%, and a weighted average remaining life of 12.8 years. 36 Table of Contents The following charts summarize our commercial mortgage loans, held for investment, by coupon rate type, collateral type and geographical region as of December 31, 2021 and 2020: 37 Table of Contents 38 Table of Contents An investments region classification is defined according to the below map based on the location of investments secured property. 39 Table of Contents The following charts show the par value by contractual maturity year for the investments in our portfolio as of December 31, 2021 and 2020: 40 Table of Contents The following table shows selected data from our commercial mortgage loans, held for investment in our portfolio as of December 31, 2021 (dollars in thousands): Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 1 Hospitality $4,858 1 month LIBOR + 4.00% 5.00% 77.0% Senior Debt 2 Hospitality 57,075 1 month LIBOR + 5.19% 6.19% 51.8% Senior Debt 3 Multifamily 26,568 1 month LIBOR + 4.50% 5.50% 22.4% Senior Debt 4 Hospitality 22,150 1 month LIBOR + 6.00% 6.50% 48.1% Senior Debt 5 Office 6,901 1 month LIBOR + 5.15% 6.60% 56.4% Senior Debt 6 Multifamily 36,822 1 month LIBOR + 3.00% 3.80% 63.7% Senior Debt 7 Multifamily 37,025 1 month LIBOR + 3.00% 4.50% 83.6% Senior Debt 8 Hospitality 22,355 1 month LIBOR + 3.50% 4.80% 68.8% Senior Debt 9 Office 20,685 1 month LIBOR + 3.75% 5.80% 70.0% Senior Debt 10 Office 15,722 1 month LIBOR + 3.40% 5.30% 67.5% Senior Debt 11 Retail 29,500 6.50% 6.50% 68.5% Senior Debt 12 Multifamily 27,488 1 month LIBOR + 3.35% 5.25% 73.0% Senior Debt 13 Hospitality 8,285 1 month LIBOR + 4.85% 6.75% 62.5% Senior Debt 14 Office 7,125 1 month LIBOR + 3.90% 5.95% 67.6% Senior Debt 15 Hospitality 13,972 1 month LIBOR + 4.47% 6.72% 44.8% Senior Debt 16 Retail 11,924 1 month LIBOR + 3.95% 6.45% 61.2% Senior Debt 17 Office 42,631 1 month LIBOR + 3.50% 5.75% 71.0% Senior Debt 18 Retail 8,203 1 month LIBOR + 8.00% 8.10% 51.6% Senior Debt 19 Hospitality 10,580 1 month LIBOR + 4.50% 6.75% 68.7% Senior Debt 20 Hospitality 19,900 1 month LIBOR + 4.15% 6.50% 61.8% Senior Debt 21 Office 39,650 1 month LIBOR + 4.01% 6.26% 68.2% Senior Debt 22 Hospitality 20,930 1 month LIBOR + 3.75% 6.10% 62.6% Senior Debt 23 Hospitality 13,000 1 month LIBOR + 2.94% 5.44% 56.4% Senior Debt 24 Hospitality 4,987 1 month LIBOR + 4.25% 6.50% 47.7% Senior Debt 25 Hospitality 12,750 1 month LIBOR + 4.45% 6.85% 62.9% Senior Debt 26 Hospitality 10,845 1 month LIBOR + 4.50% 6.85% 64.0% Senior Debt 27 Retail 9,400 1 month LIBOR + 4.20% 6.30% 77.1% Senior Debt 28 Hospitality 34,053 1 month LIBOR + 3.99% 5.74% 31.0% Senior Debt 29 Industrial 56,933 1 month LIBOR + 3.75% 5.50% 59.7% Senior Debt 30 Office 21,825 1 month LIBOR + 3.50% 5.40% 70.9% Senior Debt 31 Hospitality 7,100 1 month LIBOR + 4.00% 5.75% 70.3% Senior Debt 32 Multifamily 15,342 1 month LIBOR + 2.75% 4.25% 71.7% Senior Debt 33 Multifamily 27,650 1 month LIBOR + 3.15% 4.95% 71.6% Senior Debt 34 Multifamily 27,094 1 month LIBOR + 2.70% 2.80% 76.0% Senior Debt 35 Multifamily 9,016 1 month LIBOR + 3.95% 5.00% 75.3% Senior Debt 36 Multifamily 25,000 1 month LIBOR + 3.30% 4.75% 75.5% Senior Debt 37 Office 25,802 1 month LIBOR + 4.35% 6.05% 64.9% Senior Debt 38 Multifamily 15,150 1 month LIBOR + 3.10% 4.50% 63.7% Senior Debt 39 Office 58,714 1 month LIBOR + 3.70% 5.00% 65.7% Senior Debt 40 Multifamily 11,739 1 month LIBOR + 3.15% 4.75% 72.4% Senior Debt 41 Office 28,083 1 month LIBOR + 2.70% 2.80% 71.4% Senior Debt 42 Manufactured Housing 1,359 5.50% 5.50% 62.8% Senior Debt 43 Multifamily 7,060 1 month LIBOR + 4.75% 5.75% 62.6% Senior Debt 44 Industrial 17,038 1 month LIBOR + 6.25% 7.00% 61.0% Senior Debt 45 Multifamily 4,300 1 month LIBOR + 5.50% 6.50% 87.4% Senior Debt 46 Manufactured Housing 7,680 1 month LIBOR + 4.50% 5.00% 66.7% 41 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 47 Mixed Use 30,465 1 month LIBOR + 5.15% 6.15% 67.0% Senior Debt 48 Hospitality 27,000 1 month LIBOR + 6.50% 6.85% 62.7% Senior Debt 49 Multifamily 50,000 1 month LIBOR + 6.69% 7.44% 80.0% Senior Debt 50 Self Storage 29,895 1 month LIBOR + 5.00% 5.25% 58.8% Senior Debt 51 Multifamily 14,183 1 month LIBOR + 4.75% 5.25% 70.0% Senior Debt 52 Manufactured Housing 3,400 1 month LIBOR + 5.00% 5.25% 58.6% Senior Debt 53 Multifamily 27,550 1 month LIBOR + 5.75% 6.00% 69.8% Senior Debt 54 Manufactured Housing 5,020 1 month LIBOR + 5.25% 5.35% 65.9% Senior Debt 55 Office 18,603 1 month LIBOR + 4.50% 5.25% 47.9% Senior Debt 56 Office 67,651 5.15% 5.15% 52.5% Senior Debt 57 Office 30,900 1 month LIBOR + 5.20% 5.45% 66.0% Senior Debt 58 Self Storage 11,600 1 month LIBOR + 4.76% 5.01% 66.6% Senior Debt 59 Manufactured Housing 5,000 1 month LIBOR + 5.90% 6.50% 58.8% Senior Debt 60 Office 12,750 1 month LIBOR + 5.00% 5.25% 67.8% Senior Debt 61 Multifamily 43,320 1 month LIBOR + 4.35% 4.60% 73.2% Senior Debt 62 Multifamily 37,674 1 month LIBOR + 4.45% 4.70% 66.5% Senior Debt 63 Multifamily 8,763 1 month LIBOR + 5.50% 5.75% 73.7% Senior Debt 64 Retail 11,963 1 month LIBOR + 4.87% 5.12% 75.0% Senior Debt 65 Multifamily 5,730 1 month LIBOR + 5.00% 5.25% 73.5% Senior Debt 66 Multifamily 18,800 1 month LIBOR + 4.00% 4.10% 79.7% Senior Debt 67 Industrial 14,985 1 month LIBOR + 4.50% 4.75% 66.3% Senior Debt 68 Office 11,981 1 month LIBOR + 5.50% 5.75% 68.8% Senior Debt 69 Multifamily 11,820 1 month LIBOR + 4.55% 4.75% 73.0% Senior Debt 70 Multifamily 21,000 1 month LIBOR + 4.60% 4.75% 66.7% Senior Debt 71 Office 26,000 1 month LIBOR + 5.00% 5.25% 63.9% Senior Debt 72 Multifamily 54,500 1 month LIBOR + 3.80% 4.05% 77.0% Senior Debt 73 Multifamily 11,672 1 month LIBOR + 3.50% 3.65% 60.1% Senior Debt 74 Multifamily 21,000 1 month LIBOR + 4.95% 5.05% 84.2% Senior Debt 75 Office 43,751 1 month LIBOR + 3.94% 4.14% 53.9% Senior Debt 76 (3) Multifamily — 1 month LIBOR + 7.25% 7.50% —% Senior Debt 77 Multifamily 5,400 1 month LIBOR + 5.25% 5.50% 83.1% Senior Debt 78 Hospitality 23,000 1 month LIBOR + 5.79% 5.99% 57.2% Senior Debt 79 Multifamily 32,856 1 month LIBOR + 6.75% 7.00% 78.2% Senior Debt 80 Multifamily 12,325 1 month LIBOR + 4.50% 4.65% 83.3% Senior Debt 81 Multifamily 6,300 1 month LIBOR + 5.35% 5.60% 84.0% Senior Debt 82 Multifamily 31,023 1 month LIBOR + 3.00% 3.10% 74.3% Senior Debt 83 Multifamily 11,936 1 month LIBOR + 4.25% 4.55% 76.4% Senior Debt 84 Multifamily 5,575 1 month LIBOR + 4.50% 4.75% 83.6% Senior Debt 85 Multifamily 53,178 1 month LIBOR + 3.00% 3.25% 71.6% Senior Debt 86 Multifamily 14,045 1 month LIBOR + 3.39% 3.54% 70.6% Senior Debt 87 Multifamily 8,301 1 month LIBOR + 3.80% 3.95% 69.9% Senior Debt 88 Multifamily 13,582 1 month LIBOR + 4.50% 4.75% 76.7% Senior Debt 89 Multifamily 18,277 1 month LIBOR + 5.25% 5.50% 67.0% Senior Debt 90 Multifamily 17,985 1 month LIBOR + 3.60% 3.75% 70.8% Senior Debt 91 Multifamily 41,823 1 month LIBOR + 2.95% 3.10% 71.6% Senior Debt 92 Hospitality 25,785 1 month LIBOR + 5.60% 5.85% 61.0% Senior Debt 93 Mixed Use 32,500 1 month LIBOR + 3.70% 4.20% 69.7% Senior Debt 94 Multifamily 12,688 1 month LIBOR + 3.75% 3.90% 63.2% 42 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 95 Multifamily 70,620 1 month LIBOR + 2.95% 3.10% 72.6% Senior Debt 96 Multifamily 20,321 1 month LIBOR + 3.35% 3.50% 67.7% Senior Debt 97 Multifamily 28,318 1 month LIBOR + 2.95% 3.10% 70.4% Senior Debt 98 Multifamily 34,998 1 month LIBOR + 2.95% 3.10% 71.7% Senior Debt 99 Multifamily 32,557 1 month LIBOR + 2.95% 3.10% 72.2% Senior Debt 100 Hospitality 25,771 1 month LIBOR + 9.00% 9.25% 74.2% Senior Debt 101 Self Storage 15,000 1 month LIBOR + 4.26% 4.51% 74.6% Senior Debt 102 Multifamily 24,248 1 month LIBOR + 3.25% 3.35% 70.8% Senior Debt 103 Office 6,800 1 month LIBOR + 5.25% 5.50% 67.3% Senior Debt 104 Multifamily 12,792 1 month LIBOR + 6.50% 7.00% —% Senior Debt 105 Multifamily 10,391 1 month LIBOR + 3.15% 3.25% 75.6% Senior Debt 106 Hospitality 17,449 1 month LIBOR + 5.35% 5.75% 56.8% Senior Debt 107 Hospitality 28,000 1 month LIBOR + 6.25% 6.50% 59.2% Senior Debt 108 Multifamily 31,900 1 month LIBOR + 3.15% 3.25% 73.0% Senior Debt 109 Multifamily 37,260 1 month LIBOR + 3.40% 3.55% 75.6% Senior Debt 110 (4) Multifamily — 1 month LIBOR + 8.00% 8.25% —% Senior Debt 111 Multifamily 29,500 1 month LIBOR + 2.88% 2.98% 68.0% Senior Debt 112 Multifamily 10,050 1 month LIBOR + 4.50% 4.65% 77.3% Senior Debt 113 Multifamily 13,259 1 month LIBOR + 3.75% 3.85% 76.9% Senior Debt 114 Multifamily 29,250 1 month LIBOR + 3.00% 3.10% 73.5% Senior Debt 115 Multifamily 34,077 1 month LIBOR + 3.15% 3.25% 71.0% Senior Debt 116 Multifamily 42,850 1 month LIBOR + 3.40% 3.50% 79.9% Senior Debt 117 Multifamily 35,020 1 month LIBOR + 3.64% 3.74% 66.0% Senior Debt 118 Multifamily 8,500 1 month LIBOR + 3.75% 4.00% 79.4% Senior Debt 119 Multifamily 14,200 1 month LIBOR + 3.15% 3.25% 79.8% Senior Debt 120 Multifamily 13,350 1 month LIBOR + 3.75% 3.85% 64.2% Senior Debt 121 Multifamily 66,650 1 month LIBOR + 3.25% 3.35% 77.1% Senior Debt 122 Multifamily 18,750 1 month LIBOR + 2.95% 3.05% 72.1% Senior Debt 123 Multifamily 9,099 1 month LIBOR + 3.75% 3.95% 70.0% Senior Debt 124 Multifamily 26,160 1 month LIBOR + 3.20% 3.30% 77.3% Senior Debt 125 Hospitality 17,370 1 month LIBOR + 5.25% 5.35% 61.0% Senior Debt 126 Hospitality 16,500 1 month LIBOR + 7.10% 7.20% 73.0% Senior Debt 127 Multifamily 13,168 1 month LIBOR + 3.40% 3.50% 78.2% Senior Debt 128 Multifamily 88,500 1 month LIBOR + 2.75% 2.85% 50.3% Senior Debt 129 Multifamily 56,150 1 month LIBOR + 3.10% 3.20% 78.9% Senior Debt 130 Multifamily 36,750 1 month LIBOR + 2.90% 3.00% 72.2% Senior Debt 131 Multifamily 52,192 1 month LIBOR + 3.10% 3.20% 67.2% Senior Debt 132 Multifamily 37,100 1 month LIBOR + 2.90% 3.00% 72.0% Senior Debt 133 Multifamily 60,267 1 month LIBOR + 2.85% 2.95% 70.6% Senior Debt 134 Multifamily 30,600 1 month LIBOR + 2.65% 2.75% 59.1% Senior Debt 135 Multifamily 30,650 1 month LIBOR + 3.25% 3.35% 80.0% Senior Debt 136 Multifamily 62,850 1 month LIBOR + 3.35% 3.45% 78.0% Senior Debt 137 Multifamily 42,474 1 month LIBOR + 3.00% 3.10% 74.8% Senior Debt 138 Multifamily 46,080 1 month LIBOR + 2.75% 2.85% 68.1% Senior Debt 139 Multifamily 28,880 1 month LIBOR + 2.90% 3.00% 74.2% Senior Debt 140 Manufactured Housing 6,700 1 month LIBOR + 4.50% 4.60% 77.9% Senior Debt 141 Multifamily 58,680 1 month LIBOR + 3.45% 3.55% 74.8% Senior Debt 142 Multifamily 26,600 1 month LIBOR + 2.90% 3.00% 72.1% 43 Table of Contents Loan Type Property Type Par Value Interest Rate (1) Effective Yield (5) Loan to Value (2) Senior Debt 143 Multifamily 12,478 1 month LIBOR + 3.20% 3.30% 62.4% Senior Debt 144 Multifamily 35,996 1 month LIBOR + 3.00% 3.10% 73.3% Senior Debt 145 Multifamily 32,250 1 month LIBOR + 3.20% 3.30% 74.5% Senior Debt 146 Multifamily 38,631 1 month LIBOR + 2.90% 3.00% 71.7% Senior Debt 147 Multifamily 64,281 1 month LIBOR + 2.88% 2.98% 74.8% Senior Debt 148 Multifamily 62,003 1 month LIBOR + 2.88% 2.98% 75.5% Senior Debt 149 Multifamily 16,570 1 month SOFR + 3.50% 3.55% 71.7% Senior Debt 150 Multifamily 56,930 1 month LIBOR + 2.75% 2.85% 73.9% Senior Debt 151 Multifamily 65,000 1 month SOFR + 5.14% 5.19% 74.7% Senior Debt 152 Multifamily 22,240 1 month SOFR + 2.96% 3.01% 79.4% Senior Debt 153 Multifamily 25,573 1 month SOFR + 2.96% 3.01% 72.9% Senior Debt 154 Multifamily 31,678 1 month SOFR + 3.20% 3.25% 74.2% Senior Debt 155 Multifamily 78,050 1 month SOFR + 3.45% 3.50% 78.8% Senior Debt 156 Multifamily 77,870 1 month LIBOR + 3.21% 3.31% 76.1% Senior Debt 157 Multifamily 24,000 1 month SOFR + 3.11% 3.16% 72.7% Senior Debt 158 Retail 31,000 1 month SOFR + 3.29% 3.34% 42.5% Senior Debt 159 Multifamily 47,444 1 month SOFR + 2.86% 2.91% 68.2% Senior Debt 160 Multifamily 36,824 1 month SOFR + 2.86% 2.91% 69.7% Senior Debt 161 Hospitality 17,169 5.99% 5.99% 52.9% Mezzanine Loan 1 Multifamily 6,500 1 month LIBOR + 10.25% 11.00% 90.4% Mezzanine Loan 2 Multifamily 3,000 1 month LIBOR + 9.20% 10.00% 62.2% Mezzanine Loan 3 Multifamily 10,000 1 month SOFR + 15.29% 15.34% 86.2% Mezzanine Loan 4 Retail 3,000 1 month SOFR + 12.00% 12.05% 46.6% $4,242,962 4.33% _______________________ (1) Our floating rate loan agreements contain the contractual obligation for the borrower to maintain an interest rate cap to protect against rising interest rates. In a simple interest rate cap, the borrower pays a premium for a notional principal amount based on a capped interest rate (the “cap rate”). When the floating rate exceeds the cap rate, the borrower receives a payment from the cap counterparty equal to the difference between the floating rate and the cap rate on the same notional principal amount for a specified period of time. When interest rates rise, the value of an interest rate cap will increase, thereby reducing the borrower's exposure to rising interest rates. (2) Loan to value percentage is from metrics at origination. (3) The total commitment of this loan is $31.5 million, however none was funded as of December 31, 2021. (4) The total commitment of this loan is $38.0 million, however none was funded as of December 31, 2021. (5) Effective yield is calculated as the spread of the loan plus the higher of any applicable index or index floor. The following table shows selected data from our commercial mortgage loans, held for sale, measured at fair value as of December 31, 2021 (dollars in thousands): Loan Type Property Type Par Value Interest Rate Effective Yield Loan to Value (1) TRS Senior Debt 1 Office $34,250 3.60% 3.60% 63.2% $34,250 3.60% ________________________ (1) Loan to value percentage is from metrics at origination. We had no real estate securities, available for sale, measured at fair value as of December 31, 2021. The following table shows selected data from our other real estate investments, measured at fair value as of December 31, 2021 (dollars in thousands): Type Property Type Par Value Preferred Return Preferred Equity 1 Retail $2,074 12.5% $2,074 44 Table of Contents The following table shows selected data from our real estate owned assets in our portfolio as of December 31, 2021 (dollars in thousands): Type Property Type Carrying Value Real Estate Owned 1 Industrial $90,048 $90,048 The following is a summary of the Company's RMBS, all of which were ARM Agency Securities, classified by collateral type and interest rate characteristics as of December 31, 2021 (dollars in thousands): Type Carrying Amount Average Yield (1) Agency Securities: Fannie Mae/Freddie Mac ARMs $ 4,246,803 0.02% Ginnie Mae ARMs 320,068 0.03% $ 4,566,871 0.02% ________________________ (1) Average yield is presented for the year then ended, and is based on the cash component of interest income expressed as a percentage on average cost basis (the “cash yield”). During 2021, the Company sold trading securities using the specific identification method for proceeds totaling $1.9 billion recognizing $0.1 million in net realized gains. Subsequent to year end, until February 18, 2022, the Company sold trading securities using the same method for proceeds totaling $1.8 billion recognizing $12 million in net realized losses. The Company did not own any trading securities during 2020. As of February 18, 2022, the current market value of the Company's RMBS portfolio was $2.4 billion. Liquidity and Capital Resources Overview Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures, including payments of principal and interest and contractually-obligated fundings on our loans; (ii) other essential expenditures, including operating and administrative expenses and dividends paid in accordance with REIT distribution requirements; and (iii) opportunistic expenditures, including new loans. Our contractually obligated expenditures primarily consist of payment obligations under the debt financing arrangements which are set forth in the table below under “Contractual Obligations and Commitments” and which are each described in more detail below under “Repurchase Agreements, Commercial Mortgage Loans”, “Other financing and loan participation - Commercial Mortgage Loans”, “Mortgage Note Payable”, “Unsecured Debt”, “Repurchase Agreements - Real Estate Securities”, and “Repurchase Agreements - Real Estate Securities Classified As Trading.” We expect to use operating cash flow, new or refinanced debt (including collateral loan and debt obligation securitizations) and equity financing as a source of capital. Since we intend to continue to qualify as a REIT for federal income tax purposes, we will be required to annually distribute to our stockholders at least 90% of our REIT taxable income and we intend to distribute 100% of REIT taxable income. This will reduce the amount of operating cash flow available to fund our operations and growth initiatives after the payment of these distributions. The board of directors currently intends to operate at a leverage level of between one to three times book value of equity. We have used and may in the future use various forms of incurring indebtedness, including through repurchase agreements, credit facilities, securitizations, public and private, secured and unsecured debt issuances by us or our subsidiaries. We have generally relied on repurchase agreements to provide short-term debt financing for our commercial mortgage loans and utilized collateral loan and debt obligation securitizations for long-term match-funded financing. With respect to equity, we may in the future issue common stock and/or preferred stock, including through an at-the-market offering program. We may also sell certain assets in our portfolio and reinvest the proceeds in assets with more attractive risk-adjusted returns. For example, we intend to reinvest the cash and proceeds from dividends, interest, repayments and sales of the assets acquired in the Capstead merger into our primary investment strategies. As discussed in detail in Note 9 – Stock Transactions to the accompanying consolidated financial statements included in this Annual Report on Form 10-K , in October 2021 we closed our merger with Capstead. We intend to transition the equity invested in the assets we acquired from Capstead into our traditional investment strategies, including the origination of commercial real estate mortgages. Specifically, we intend to reinvest any dividend, interest and principal paid on such assets, and proceeds from the sale of such assets, into our current investment strategies. Until we fully transition this equity into our business, we expect that proceeds received from the sale of Capstead assets will be a significant source of capital. 45 Table of Contents We believe that our anticipated available operating cash flows, proceeds from sales of assets and debt and equity financing sources will be adequate to fund our short and long-term anticipated uses of capital. Collateralized Loan Obligations During 2021, the Company raised $1.3 billion of capital through the issuance of BSPRT 2021-FL6 Issuer, Ltd. and BSPRT 2021-FL7 Issuer, Ltd. Additionally, as of December 31, 2021, the Company had $46 million reinvestment capital available across all outstanding collateralized loan obligations. Repurchase Agreements, Commercial Mortgage Loans As of December 31, 2021, the Company has repurchase facilities with JPMorgan Chase Bank, National Association (the "JPM Repo Facility"), Barclays Bank PLC (the "Barclays Revolver Facility" and the "Barclays Repo Facility"), Wells Fargo Bank, National Association (the "WF Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, USB Repo Facility, WF Repo Facility, Barclays Revolver Facility, and Barclays Repo Facility, the "Repo Facilities"). The Repo Facilities are financing sources through which the Company may pledge one or more mortgage loans to the financing entity in exchange for funds typically at an advance rate of between 65% to 80% of the principal amount of the mortgage loan being pledged. The Company expects to use the advances from these Repo Facilities to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein. The Repo Facilities generally provide that in the event of a decrease in the value of our collateral, the lenders can demand additional collateral. Should the value of our collateral decrease as a result of deteriorating credit quality, resulting margin calls may cause an adverse change in our liquidity position. The details of our Repo Facilities at December 31, 2021 and December 31, 2020 are as follows (dollars in thousands): As of December 31, 2021 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Term Maturity JPM Repo Facility $ 400,000 $ 136,470 $ 5,178 2.13 % 10/6/2022 CS Repo Facility (2) 300,000 137,364 3,446 2.43 % 9/30/2022 WF Repo Facility (3) 450,000 186,734 2,090 1.64 % 11/21/2023 Barclays Revolver Facility (4) 250,000 166,700 1,976 6.12 % 9/20/2023 Barclays Repo Facility (5) 500,000 392,332 4,057 1.76 % 3/14/2025 Total $ 1,900,000 $ 1,019,600 $ 16,747 __________________________ (1) For the year ended December 31, 2021. Includes amortization of deferred financing costs. (2) On August 12, 2021, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to September 30, 2022. Additionally, on November 3, 2021 the committed financing amount was amended from $200 million to $300 million with the option to increase to $400 million at the Company's discretion. (3) On October 15, 2021 the committed financing amount was increased from $175 million to $275 million. There are three more one-year extension options available at the Company's discretion. (4) On September 8, 2021, the Company amended the maturity date to September 20, 2023. On December 1, 2021 the committed financing amount was increased from $100 million to $250 million. The Company may increase the total commitment amount by an amount between $100 million and $150 million for three month intervals, on an unlimited basis prior to maturity. (5) On December 3, 2021 the Company amended the maturity date to March 14, 2025 and the committed financing amount was increased from $300 million to $500 million. There are two one-year extension options available at the Company's discretion. 46 Table of Contents As of December 31, 2020 Repurchase Facility Committed Financing Amount Outstanding Interest Expense (1) Ending Weighted Average Interest Rate Term Maturity JPM Repo Facility (2) $ 300,000 $ 113,884 $ 5,020 2.54 % 10/6/2022 USB Repo Facility (3) 100,000 5,775 599 2.40 6/15/2021 CS Repo Facility (4) 200,000 106,971 3,539 2.84 % 8/19/2021 WF Repo Facility (5) 175,000 27,150 1,041 2.50 % 11/21/2021 Barclays Revolver Facility (6) 100,000 — 387 N/A 9/20/2021 Barclays Facility (7) 300,000 22,560 1,046 2.51 % 3/15/2022 Total $ 1,175,000 $ 276,340 $ 11,632 _______________________ (1) For the year ended December 31, 2020. Includes amortization of deferred financing costs. (2) On October 6, 2020 the maturity date was amended to October 6, 2022. (3) On June 9, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to June 15, 2021. (4) On August 28, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to August 19, 2021. Additionally, in 2020 the committed financing amount was downsized from $300 million to $200 million. (5) On November 17, 2020, the Company exercised the extension option upon the satisfaction of certain conditions, and extended the term maturity to November 21, 2021. There are two more one-year extension options available at the Company's discretion. (6) There is one one-year extension option available at the Company's discretion. (7) Includes two one-year extensions at the Company's option. Other financing and loan participation - Commercial Mortgage Loans On March 23, 2020, the Company transferred $15.2 million of its interest in a term loan to Sterling National Bank ("SNB") via a participation agreement. During 2020, the Company's outstanding loan increased resultant of future fundings, leading to an increase in amount outstanding via the participation agreement. The Company incurred $0.9 million of interest expense on SNB for the year ended December 31, 2021. As of December 31, 2021 and December 31, 2020 the outstanding participation balance was $37.9 million and $31.4 million, respectively. The loan matures on February 9, 2023. Mortgage Note Payable On October 15, 2019, the Company obtained a commercial mortgage loan for $29.2 million related to the real estate owned portfolio. The Company incurred $0.9 million of interest expense for the twelve months ended December 31, 2021. As of December 31, 2021 the loan has been assumed by the purchaser of the underlying asset and is no longer held by the Company (see Note 5 - Real Estate Owned). On September 17, 2021, the Company, in connection with the consolidating joint venture (as discussed in Note 5 - Real Estate Owned), originated a $112.7 million mortgage note payable, of which $88.7 million is eliminated in consolidation (see Note 5 - Real Estate Owned). As of December 31, 2021 the Company incurred $0.2 million of interest expense, of which $0.2 million is eliminated in consolidation, for the twelve months ended December 31, 2021. The remaining mortgage note payable of $24 million is included in the consolidated balance sheets under the caption Mortgage note payable. As of December 31, 2021 , the loan accrued interest at an annual rate of 3.1% and matures on October 9, 2024. 47 Table of Contents Unsecured Debt In the merger with Capstead we acquired 30-year junior subordinated notes issued in 2005 and 2006 and maturing in 2035 and 2036, with a total face amount of $100.0 million. Note balances net of deferred issuance costs, and related weighted average interest rates as of the indicated dates (calculated including issuance cost amortization and adjusted for the effects of related derivatives held as cash flow hedges) were as follows (dollars in thousands): December 31, 2021 December 31, 2020 Borrowings Outstanding Average Rate Borrowings Outstanding Average Rate Junior subordinated notes maturing in: October 2035 ($35,000 face amount) $ 34,470 7.86 % $ — — % December 2035 ($40,000 face amount) 39,474 7.63 % — — % September 2036 ($25,000 face amount) 24,650 7.67 % — — % $ 98,594 7.72 % $ — — % The notes are currently redeemable, in whole or in part, without penalty, at the Company’s option. Interest paid on unsecured debt, including related derivative cash flows, totaled $0.6 million for the twelve months ended December 31, 2021. Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $2.0 million of interest expense on the lending agreement with SBL for the twelve months ended December 31, 2021. As of December 31, 2021 the outstanding balance was $50.0 million. Repurchase Agreements - Real Estate Securities The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary. Below is a summary of the Company's MRAs as of December 31, 2021 and 2020 (dollars in thousands): Weighted Average Counterparty Amount Outstanding Accrued Interest Collateral Pledged (1) Interest Rate Days to Maturity As of December 31, 2021 JP Morgan Securities LLC $ 19,025 $ 261 $ 24,087 1.14 % 10 Wells Fargo Securities, LLC — — — N/A N/A Goldman Sachs International — 37 — N/A N/A Barclays Capital Inc. 15,286 526 19,131 1.21 % 14 Credit Suisse AG — — — N/A N/A Citigroup Global Markets, Inc. — 81 — N/A N/A Total/Weighted Average $ 34,311 $ 905 $ 43,218 1.17 % 12 As of December 31, 2020 JP Morgan Securities LLC $ 33,791 $ 1,668 $ 43,612 1.75 % 31 Wells Fargo Securities, LLC — 1,057 — N/A N/A Goldman Sachs International 22,440 455 30,794 1.68 % 16 Barclays Capital Inc. 76,809 2,102 97,244 1.71 % 33 Credit Suisse AG — 905 — N/A N/A Citigroup Global Markets, Inc. 53,788 2,532 71,723 — 29 Total/Weighted Average $ 186,828 $ 8,719 $ 243,373 1.71 % 33 ________________________ (1) Includes $43.2 million and $72.2 million of CLO notes, held by the Company, which is eliminated within the Real estate securities, at fair value line of the consolidated balance sheets as of as of December 31, 2021 and December 31, 2020, respectively. 48 Table of Contents Repurchase Agreements - Real Estate Securities Classified As Trading As a result of the Capstead merger which closed on October 19, 2021, the Company acquired a significant portfolio of residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises or by an agency of the federal government which the Company accounts for as real estate securities classified as trading. The Company pledges its real estate securities classified as trading as collateral for repurchase agreements with commercial banks and other financial institutions. Repurchase arrangements entered into by the Company involve the sale and a simultaneous agreement to repurchase the transferred assets at a future date and are accounted for as financings. The Company maintains the beneficial interest in the specific securities pledged during the term of each repurchase arrangement and receives the related principal and interest payments. The terms and conditions of repurchase agreements are negotiated on a transaction-by-transaction basis when each such agreement is initiated or renewed. The amount borrowed is generally equal to the fair value of the securities pledged, as determined by the lending counterparty, less an agreed-upon discount, referred to as a “haircut.” Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings. Interest may be paid monthly or at the termination of an agreement at which time the Company may enter into a new agreement at prevailing haircuts and rates with the same lending counterparty or repay that counterparty and negotiate financing with a different lending counterparty. None of the Company’s lending counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing agreements. In response to declines in fair value of pledged securities due to changes in market conditions or the publishing of monthly security pay-down factors, lending counterparties typically require the Company to post additional securities as collateral, pay down borrowings or fund cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements. These actions are referred to as margin calls. Conversely, in response to increases in fair value of pledged securities, the Company routinely margin calls its lending counterparties in order to have previously pledged collateral returned. Repurchase agreements (and related pledged collateral, including accrued interest receivable), classified by collateral type and remaining maturities, and related weighted average borrowing rates as of the indicated dates were as follows (dollars in thousands): Collateral Type Collateral Carrying Amount Accrued Interest Receivable Borrowings Outstanding Average Borrowing Rates December 31, 2021 Repurchase arrangements secured by Agency securities with maturities of 30 days or less $ 4,327,020 $ 8,908 $ 4,144,473 0.13 % $ 4,327,020 $ 8,908 $ 4,144,473 0.13 % December 31, 2020 Repurchase arrangements secured by Agency securities with maturities of 30 days or less $ — $ — $ — — % $ — $ — $ — — % As of December 31, 2021, the Company’s repurchase agreements collateralized by RMBS totaled $4.14 billion with 13 counterparties at average rates of 0.13%, before the effects of currently-paying interest rate swap agreements. Average repurchase agreements outstanding were $3.97 billion in 2021. Average repurchase agreements outstanding differed from respective year-end balances during the indicated periods primarily due to changes in portfolio levels and differences in the timing of portfolio acquisitions relative to portfolio runoff and asset sales. Interest paid on repurchase agreements, including related Derivative cash flows, totaled $1.24 million during the twelve months ended December 31, 2021. The Company finances its residential mortgage investments primarily by borrowing under repurchase arrangements, the terms and conditions of which are negotiated on a transaction-by-transaction basis, when each such agreement is initiated or renewed. Future agreements are dependent upon the willingness of lenders to participate in the financing of mortgage investments, lender collateral requirements and the lenders’ determination of the fair value of the investments pledged as collateral, which fluctuates with changes in interest rates and liquidity conditions within the commercial banking and mortgage finance industries. None of our repurchase agreement counterparties are obligated to renew or otherwise enter into new agreements at the conclusion of existing borrowings. Repurchase agreements averaged $3.97 billion during 2021 and ended the year at $4.14 billion, all maturing within 90 days. Average repurchase agreements can differ from period-end balances for a number of reasons including portfolio growth or contraction, as well as differences in the timing of portfolio acquisitions relative to portfolio runoff. 49 Table of Contents To help mitigate exposure to rising short-term interest rates, we economically hedge the portfolio of repurchase agreements using derivatives supplemented with longer-maturity repurchase agreements when available at attractive rates and terms. At year-end, we held $3.6 billion notional amount of portfolio financing-related interest rate swap agreements with contract expirations occurring at various dates through the Second quarter 2024 and a weighted average expiration of 18 months. At December 31, 2021, we expect to have no net cash obligations related to repurchase agreement-related interest rate swap agreements after considering the variable-rate payments owed to us under the agreements’ terms based on market interest rate expectations as of year-end. Repurchase Agreements The following tables summarize our Repurchase Agreements, Commercial Mortgage Loans, Trading Securities and our MRAs for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 respectively: As of December 31, 2021 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 152,925 $ 287,462 $ 550,156 $ 1,019,600 $ 340,485 $ 282,891 $ 331,871 $ 959,729 Repurchase Agreements, Real Estate Securities $ 88,272 $ 46,510 $ 46,531 $ 34,311 $ 123,322 $ 57,301 $ 46,527 $ 37,735 Repurchase Agreements, Real Estate Securities Classified As Trading $ — $ — $ — $ 4,144,473 $ — $ — $ — $ 4,266,556 As of December 31, 2020 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 234,524 $ 226,224 $ 183,033 $ 276,340 $ 282,282 $ 238,280 $ 197,632 $ 279,187 Repurchase Agreements, Real Estate Securities $ 496,880 $ 335,256 $ 177,541 $ 186,828 $ 412,809 $ 351,202 $ 316,229 $ 183,632 As of December 31, 2019 Amount Outstanding Average Outstanding Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Repurchase Agreements, Commercial Mortgage Loans $ 370,889 $ 132,870 $ 111,937 $ 252,543 $ 357,850 $ 337,970 $ 132,126 $ 214,812 Repurchase Agreements, Real Estate Securities $ 22,078 $ 85,022 $ 244,308 $ 394,359 $ 52,711 $ 84,179 $ 181,198 $ 324,545 The use of our repurchase facilities is dependent upon a number of factors including but not limited to: origination volume, loan repayments and prepayments, our use of other financing sources such as collateralized loan obligations, our liquidity needs and types of loan assets and underlying collateral that we hold. During the twelve months ended December 31, 2021 the maximum monthly average outstanding balance was $5.84 billion , of which $0.68 billion was related to repurchase agreements on our commercial mortgage loans and $0.04 billion for repurchase agreements on our real estate securities and $5.12 billion for repurchase agreements on our real estate securities held for trading. During the twelve months ended December 31, 2020 the maximum monthly average outstanding balance was $721.0 million, of which $268.2 million was related to repurchase agreements on our commercial mortgage loans and $452.8 million for repurchase agreements on our real estate securities. During the twelve months ended December 31, 2019, the maximum monthly average outstanding balance was $612.0 million, at the end of November 30, 2019, of which $266.6 million was related to repurchase agreements on our commercial mortgage loans and $345.4 million for repurchase agreements on our real estate securities. 50 Table of Contents Cash Flows Cash Flows for the Year Ended December 31, 2021 Net cash provided by operating activities for the year ended December 31, 2021 was $146.5 million. Cash inflows were primarily driven by net income of $25.7 million, net proceeds of $33.4 million related to originations and sales of commercial mortgage loans, measured at fair value and a non-cash adjustment of $34.8 million related to trading losses on real estate securities. Net cash provided by investing activities for the year ended December 31, 2021 was $1,068.7 million. Cash inflows were primarily driven by proceeds from principal repayments of $1,225.6 million received on commercial mortgage loans, held for investment, proceeds received from the sale/repayment of real estate securities of $2,059.4 million, $541.3 million received from principal collateral on mortgage investments and cash acquired of $174.1 million related to the merger with Capstead. Inflows were partially offset by the origination and acquisition of $2,881.9 million of commercial mortgage loans. Net cash used in financing activities for the year ended December 31, 2021 was $1,139.2 million. Cash outflows were primarily driven by net payment on CMBS repurchase agreements of $2,429.3 million, $68.0 million in cash distributions to stockholders and $11.4 million of stock repurchases. Outflows were offset by $6.5 million of proceeds received from borrowing on other financing and loan participation for commercial mortgage loans, $23.9 million from borrowing on mortgage note payable and net proceeds of $743.3 million and $540.3 million received from repurchase agreements on commercial mortgage loans and CLOs, respectively. Cash Flows for the Year Ended December 31, 2020 Net cash provided by operating activities for the year ended December 31, 2020 was $115.3 million. Cash inflows were primarily driven by net income of $54.7 million and net proceeds of $44.7 million related to originations of and proceeds from sales of commercial mortgage loans, measured at fair value. Net cash provided by investing activities for the year ended December 31, 2020 was $240.7 million. Cash inflows were primarily driven by proceeds from principal repayments of $1,228.2 million received on commercial mortgage loans, held for investment, proceeds received from the sale/repayment of real estate securities of $346.2 million, $77.2 million of proceeds received from the sale of commercial mortgage loans, held for sale and $22.5 million of proceeds received from sale of real estate owned assets. Inflows were partially offset by the origination and acquisition of $1,281.2 million of commercial mortgage loans and the purchase of real estate securities of $148.6 million. Net cash used in financing activities for the year ended December 31, 2020 was $373.0 million. Cash outflows were primarily driven by repayments on CLOs of $182.7 million, net payment on CMBS repurchase agreements of $207.5 million, $49.8 million in cash distributions to stockholders and $10.3 million of stock repurchases. Outflows were offset by $31.4 million of proceeds received from borrowing on other financing and loan participation for commercial mortgage loans, $11.7 million from borrowing on mortgage note payable and net proceeds of $23.8 million received from repurchase agreements on commercial mortgage loans. Election as a REIT We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2013. As a REIT, if we meet certain organizational and operational requirements and distribute at least 90% of our "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to our stockholders in a year, we will not be subject to U.S. federal income tax to the extent of the income that we distribute. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and U.S. federal income and excise taxes on our undistributed income. 51 Table of Contents Contractual Obligations and Commitments Our contractual obligations, excluding interest obligations (as amounts are not fixed or determinable), as of December 31, 2021 are summarized as follows (dollars in thousands): Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Unfunded loan commitments (1) $ — $ 149,724 $ 308,381 $ — $ 458,105 Repurchase agreements - commercial mortgage loans 627,268 — 392,332 — 1,019,600 Repurchase agreements - real estate securities 4,178,784 — — — 4,178,784 CLOs (2) — — — 2,179,514 2,179,514 Mortgage Note Payable — — — 23,998 23,998 Unsecured debt — — — 150,000 150,000 Other financing and loan participation - commercial mortgage loans — 37,903 — — 37,903 Total $ 4,806,052 $ 187,627 $ 700,713 $ 2,353,512 $ 8,047,904 ________________________ (1) The allocation of our unfunded loan commitments is based on the earlier of the commitment expiration date or the loan maturity date. (2) Excludes $320.6 million of CLO notes, held by the Company, which are eliminated within the collateralized loan obligation line of the consolidated balance sheets as of December 31, 2021. In addition to its cash requirements, the Company pays a quarterly dividend and has an existing share repurchase authorization. As of December 31, 2021, the Company’s quarterly cash dividend was $0.355 per share of common stock (which was paid on an as-converted basis on the Company’s shares of Series C convertible preferred stock ("Series C Preferred Stock"), Series D convertible preferred stock ("Series D Preferred Stock") and Series F convertible preferred stock ("Series F Preferred Stock")), and $0.46875 per share on the Company’s shares of 7.50% Series E Cumulative Redeemable Preferred Stock ("Series E Preferred Stock"). The payment of future dividends is subject to declaration by the Board of Directors. The Company’s Board of Directors also has authorized a $65.0 million share repurchase program, that will be operative following the conclusion of the $35.0 million open market share purchase program the Advisor agreed to implement in connection with the Company’s merger with Capstead. The authorization does not obligate the Company to acquire any specific number of shares. Related Party Arrangements Benefit Street Partners L.L.C. Amended Advisory Agreement Refer to “Note 11 - Related Party Transactions and Arrangements” for a summary of the Company’s Advisory Agreement with the Advisor and amounts paid to the Advisor pursuant to the Advisory Agreement for the years ended December 31, 2021 and December 31, 2020. The Nominating and Corporate Governance Committee (the “Committee”) of the Company's board of directors, which consists solely of the Company’s independent directors, negotiated, approved and recommended that the board of directors approve, the amended Advisory Agreement. The Committee engaged independent legal counsel to assist the Committee in negotiating the amended Advisory Agreement. Pursuant to the amended Advisory Agreement, the Advisor provides the daily management for the Company and the Operating Partnership, including an investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the board of directors. The initial term of the amended Advisory Agreement was three-years and was automatically renewed for an additional one-year period on January 19, 2022 and will continue to automatically renew for additional one-year periods unless either party elects not to renew. The Company may terminate the amended Advisory Agreement for a Cause Event (as defined in the amended Advisory Agreement) without payment of a termination fee. Following the expiration of a term, and upon 180 days’ prior written notice, the Company may, without cause, elect not to renew the amended Advisory Agreement upon the determination by two-thirds of the Company’s independent directors that (i) there has been unsatisfactory performance by the Advisor or (ii) that the asset management fee and annual subordinated performance fee payable to the Advisor are not fair, subject to certain conditions. In such case, the Company shall be obligated to pay a termination fee. During the term of the amended Advisory Agreement, the Advisor shall not, directly or indirectly, manage or advise another REIT that is engaged in the business of the Company in any geographical region in which the Company has a significant investment, or provide any services related to fixed-rate conduit lending to any other person, subject to certain conditions. 52 Table of Contents Advisory Agreement Fees and Reimbursements Pursuant to the Advisory Agreement, the Company is or was required to make the following payments and reimbursements to the Advisor: • The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company's executive officers. • The Company pays the Advisor, or its affiliates, a monthly asset management fee equal to one-twelfth of 1.5% of stockholders' equity as calculated pursuant to the Advisory Agreement. • The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of total return to stockholders, payable monthly in arrears, such that for any year in which total return on stockholders’ capital exceeds 6.0% per annum, the Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to the Advisor exceed 10.0% of the aggregate total return for such year. • The Company reimburses the Advisor for insourced expenses incurred by the Advisor on the Company's behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5% of the principal amount funded by the Company to originate or acquire commercial mortgage loans and up to 0.5% of the anticipated net equity funded by the Company to acquire real estate securities investments. Investment in Common and Preferred Stock Refer to Note 9 - Stock Transactions for a description of the Company’s private placements. Officers of the Company and other employees of the Advisor and its affiliates (“Manager Investors”), as well as members of the Company's board of directors, have acquired common stock and Series A Convertible Preferred Stock (“Series A Preferred Stock”) in these private placements on substantially the same terms applying to purchases by third party accredited investors unaffiliated with the Company or the Advisor. On October 19, 2021, each share of Series A Preferred Stock converted into 299.2 shares of common stock, pursuant to the terms of the Articles Supplementary for the Series A Preferred Stock, and no shares of Series A Preferred Stock were outstanding as of December 31, 2021. The Manager Investors have agreed with the Advisor not to sell or otherwise transfer the securities purchased in the private placement without the consent of the Advisor, prior to 180 days after the listing of the Company’s common stock on the NYSE. The board of directors and the Nominating and Corporate Governance Committee of the board of directors each reviewed and unanimously approved the Company’s issuance of shares to the Manager Investors and the terms of the offering. Lending Agreement with Stockholder Pursuant to a lending and security agreement with Security Benefit Life Insurance Company ("SBL"), which was entered into in February 2020 and amended in March and August 2020, the Company may borrow up to $100.0 million at a rate of one-month LIBOR + 4.5%. The facility has a maturity of February 10, 2023 and is secured by a pledge of equity interests in certain of the Company’s subsidiaries. The Company incurred $2.0 million and $0.2 million of interest expense on the lending agreement with SBL for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 there was a $50.0 million outstanding balance under the lending agreement. SBL also holds 17,950 of the Company’s outstanding shares of Series D Preferred Stock. SBL acquired these shares in March 2021: 14,950 shares were acquired in exchange for an equivalent number of shares of Series A Preferred Stock and 3,000 shares of Series D Preferred Stock were purchased at the liquidation preference of $15.0 million (net of accrued and unpaid dividends on the exchanged Series A Preferred Stock) in the same transaction. Acquisitions In August 2021 the Company and an investment fund managed by the Advisor entered into a joint venture agreement and formed a joint venture entity, Jeffersonville Member, LLC (the "Jeffersonville JV") to acquire a $139.5 million triple net lease property in Jeffersonville, GA. The Company has a 79% interest in the Jeffersonville JV, while the affiliated fund has a 21% interest. The Company invested a total of $109.8 million, made up of $88.7 million in debt and $21.1 million in equity, representing 79% of the ownership interest in the Jeffersonville JV. The affiliated fund made up the remaining $29.8 million composed of a $24.0 million mortgage note payable and $5.7 million in equity. The Company has control of Jeffersonville JV with 79% ownership and, therefore, consolidates Jeffersonville JV on its consolidated balance sheet. The Company's $88.7 million mortgage note payable to Jeffersonville JV is eliminated in consolidation (see Note 7 - Debt). 53 Table of Contents The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the years ended December 31, 2021, 2020 and 2019 and the associated amounts payable as of December 31, 2021 and 2020 (dollars in thousands). See Note 11 - Related Party Transactions and Arrangements for further detail. Year Ended December 31, Payable as of December 31, 2021 2020 2019 2021 2020 Acquisition expenses (1) $ 1,203 $ 696 $ 900 $ — $ — Administrative services expenses 7,658 13,120 16,363 — 2,940 Asset management and subordinated performance fee 28,110 15,178 16,226 15,595 4,773 Other related party expenses (2)(3) 355 703 1,610 1,943 1,812 Total related party fees and reimbursements $ 37,326 $ 29,697 $ 35,099 $ 17,538 $ 9,525 ______________________ (1) Total acquisition fees and expenses paid during the years ended December 31, 2021, 2020 and 2019 were $15 million, $7.1 million and $8.4 million respectively, of which $13.8 million, $6.4 million and $7.5 million were capitalized within the commercial mortgage loans, held for investment line of the consolidated balance sheets for the years ended December 31, 2021, 2020 and 2019. (2) These are related to reimbursable costs incurred for the increase in loan origination activities and are included in Other expenses in the Company's consolidated statements of operations. (3) The related party payable includes $1.9 million and $1.8 million, respectively, of payments made by the Advisor to third party vendors on behalf of the Company. The amounts payable as of December 31, 2021 and 2020 in the table above are included in Due to affiliates on the Company's consolidated balance sheets. Off Balance Sheet Arrangements We currently have no off balance sheet arrangements as of December 31, 2021 and through the date of the filing of this Form 10-K. Non-GAAP Financial Measures Distributable Earnings Beginning in the third quarter of 2021 to more appropriately reflect the principal purpose of the measure, "modified funds from operations ("MFFO")" or "funds from operations ("FFO")" was relabeled "Distributable Earnings", a non-GAAP financial measure. Distributable Earnings is a non-GAAP measure, which we define as GAAP net income (loss), adjusted for (i) non-cash CLO amortization acceleration and amortization over our expected useful life of our CLOs, (ii) unrealized gains and losses on loans, derivatives and ARMs, including CECL reserves and impairments, (iii) non-cash equity compensation expense, (iv) depreciation and amortization, (v) non-cash incentive fee accruals, (vi) certain other non-cash items, and (vii) impairments of acquisition assets related to the Capstead merger. We believe that Distributable Earnings provides meaningful information to consider in addition to our GAAP results. We believe Distributable Earnings is a useful financial metric for existing and potential future holders of our common stock as historically, overtime, Distributable Earnings has been an indicator of our dividends per share. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments, and therefore we believe our dividends are one of the principal reasons stockholders may invest in our common stock. Further, Distributable Earnings helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations and is one of the performance metrics we consider when declaring our dividends. Distributable Earnings does not represent net income (loss) and should not be considered as an alternative to GAAP net income (loss). Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies and thus may not be comparable to the Distributable Earnings reported by other companies. 54 Table of Contents The following table provides a reconciliation of GAAP net income to Distributable Earnings for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 (dollars in thousands): Year Ended December 31, 2021 2020 2019 GAAP Net Income: $ 25,702 $ 54,746 $ 83,924 Adjustments: CLO amortization acceleration (1) 250 264 (2,881) Unrealized (gain)/loss on financial instruments (2) (1,049) 1,102 (2,081) Unrealized gain/(loss) reversal - ARMs 13,867 — 1,989 Impairment of acquired assets 88,282 — — Incentive fees 9,846 — — Depreciation and amortization 2,107 2,234 507 Increase/(decrease) in provision for credit losses (5,192) 13,296 — Impairment losses on real estate owned assets — 398 — Distributable earnings $ 133,813 $ 72,040 $ 81,458 Average Equity $ 1,146,009 $ 974,184 $ 946,801 7.5% Cumulative Redeemable Preferred Stock, Series E Dividend $ 4,842 $ — $ — GAAP Common ROE 1.8 % 5.6 % 8.9 % Distributable Earnings ROE 11.3 % 7.4 % 8.6 % GAAP Net Income Per Share, Fully Converted $ 0.33 $ 0.96 $ 1.59 Distributable Earnings Per Share, Fully Converted $ 2.02 $ 1.27 $ 1.54 (1) Adjusted for non-cash CLO amortization acceleration to effectively amortize issuance costs of our CLOs over the expected lifetime of the CLOs. We assume our CLOs will be outstanding for four years and amortized the financing costs over four years in our distributable earnings as compared to effective yield methodology in our GAAP earnings. (2) Adjusted for unrealized gains and losses on loans and derivatives.