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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-24 · 146 added, 133 removed, 609 unchanged (31% of the section changed)

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We invest, on a leveraged basis, in residential whole loans, residential mortgage securities and other real estate assets.

Through our wholly-owned subsidiary, Lima One, a leading nationwide originator and servicer of business purpose loans (or BPLs) that we acquired on July 1, 2021, we also originate and service business purpose loans for real estate investors.

Through our wholly-owned subsidiary, Lima One, a leading nationwide originator and servicer of business purpose loans (or BPLs), we also originate and service business purpose loans for real estate investors.

Our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals.

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We are an internally-managed real estate investment trust.

On April 4, 2022, we effected a one-for-four reverse stock split of its issued and outstanding shares of common stock (the “Reverse Stock Split”).

On April 4, 2022, we effected a one-for-four reverse stock split of our issued and outstanding shares of common stock (or the Reverse Stock Split).

Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split.

For all periods presented, all share and per share data have been adjusted on a retroactive basis to reflect the effect of the Reverse Stock Split.

At December 31, 2022, we had total assets of $9.1 billion, of which $7.5 billion, or 83%, represented residential whole loans.

At December 31, 2023, we had total assets of approximately $10.8 billion, of which $9.0 billion, or 84%, represented residential whole loans.

Our residential whole loans include primarily:

(i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the properties (or Transitional loans), which are comprised of Residential transitional loans and Multi-family transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) re-performing loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and NPLs.

In addition, at December 31, 2022, we had $333.4 million in investments in Securities, at fair value, including Agency MBS, MSR-related assets, CRT securities and Non-Agency MBS.

(i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (or Transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and loans on which the borrower continues to be more than 60 days delinquent with respect to payment (non-performing loans or NPLs).

In addition, at December 31, 2023, we had approximately $746.1 million in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

Our remaining investment-related assets, which represent approximately 3% of our total assets at December 31, 2023, were primarily comprised of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables.

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With respect to investments in Purchased Performing Loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss.

Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that, as we expect on most such investments, we receive less than 100% of the par value of these investments.

Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that we receive less than 100% of the par value of these investments.

Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance.

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Accretable purchase discounts on these investments are accreted to interest income.

Premiums paid to purchase loans, primarily on certain of our Non-QM loans, business purpose loans and Agency eligible investor loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity.

Premiums paid to purchase loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity.

An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets.

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8.0% for Non-QM loans, 5.8% for Single-family rental loans, 6.2% for Purchased Credit Deteriorated loans, and 11.7% for Purchased Non-Performing loans.

In addition, for the year ended December 31, 2023, the repayment rate (which includes both voluntary and involuntary repayments of principal) was 38.0% for our Transitional loans.

It is generally our business strategy to hold our residential mortgage assets as long-term investments.

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Recent Market Conditions and Our Strategy

2022 was extremely challenging for fixed income investors, and exceptionally so for mortgage investors, including us, and was characterized by higher interest rates across the yield curve as well as wider mortgage and credit spreads.

We addressed these challenges by prioritizing liquidity and active portfolio management, including increasing our use of interest rate swaps to hedge exposure to higher interest rates and using loan securitizations to generate securitized debt to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing.

These securitizations provide longer term, non-recourse, non-mark-to-market financing.

While continued interest rate volatility and generally wider spreads on securitized mortgage assets pressured mortgage loan pricing, we believe that our active portfolio and risk management measures partially mitigated the impact of the interest rate environment.

Subsequent to year-end, we have completed an additional three securitizations thus far in 2023 totaling $668.2 million, further reducing our use of shorter-term, recourse, mark-to-market financing.

2023 was another challenging year for fixed income, as investors faced significant volatility as markets balanced aggressive monetary policy tightening, inflationary pressures, and increasing geopolitical uncertainty along with resilient macroeconomic data, the probability of a recession, and expectations regarding the timing of a potential monetary policy shift.

Despite these headwinds, we believe our commitment to prudent risk management and hedging and prioritization of non-mark-to-market financing allowed us to add $3.4 billion of our target assets at increasingly attractive yields.

These additions included over $2.1 billion of funded originations of business purpose loans and draws on existing Transitional loans at Lima One, approximately $880 million of Non-QM loans, and approximately $460 million of Agency MBS.

Reflecting the impact of our strategy, for the year ended December 31, 2023, the yield on our average interest-earning assets increased by nearly 100 basis points, while our effective cost of funds increased by nearly 40 basis points from the year ended December 31, 2022.

During the year we generated GAAP earnings per share (or EPS) of $0.46 per common share and Distributable Earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $1.59 per common share and declared dividends of $1.40 per common share.

During the year we executed eight securitizations, issuing $1.8 billion of securitized debt, and repurchased over $20 million of our 6.25% convertible notes due in June 2024 (or Convertible Senior Notes) at a discount to their unpaid principal balance.

Subsequent to year-end and through February 21, 2024, we repurchased an additional $39.9 million principal amount of our Convertible Senior Notes;

as of February 21, 2024, we had an aggregate principal amount of $169.7 million of our Convertible Senior Notes outstanding.

Subsequent to year-end, we issued $115 million of 8.875% senior unsecured notes due in February 2029.

2023 Portfolio Activity and impact on financial results

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(2) Includes draws on previously originated Transitional loans.

(3) Primarily includes the impact of transactions that resulted in the sale of previously non-securitized Agency Eligible Investor loans and deconsolidation of Agency Eligible Investor loan securitizations, changes in fair value and changes in the allowance for credit losses.

(3) Primarily includes sales, changes in fair value and changes in the allowance for credit losses.

At December 31, 2023, our total recorded investment in residential whole loans and REO was $9.2 billion, or 92.5% of our residential mortgage asset portfolio.

Of this amount, $7.9 billion are Purchased Performing Loans, $418.1 million are Purchased Credit Deteriorated Loans and $705.4 million are Purchased Non-performing Loans.

Loan acquisition activity of $3.1 billion during 2022 include d $2.0 billion of b usiness purpose loans (including draws on Transitional loans) and $1.1 billion of Non-QM loans, which were offset by portfolio run-off and asset valuation declines .

In addition, near the end of the fourth quarter, we reached an agreement to sell to a third party the majority of our holdings of Agency Eligible Investor loans that were not previously securitized and transferred to a different third party certain contractual redemption rights in connection with previously securitized Agency Eligible Investor loans, resulting in the de-consolidation of the securitization trusts that hold these loans.

As a result of these transactions, our portfolio of Agency Eligible Investor loans decreased by approximately $780 million.

Further, the debt issued to third parties by these securitizations is no longer reported on our balance sheet at December 31, 2022.

Loan acquisition activity of $3.0 billion during 2023 included $2.1 billion of business purpose loans (including draws on Transitional loans) and $879.7 million of Non-QM loans.

During 2023, we recognized approximately $537.9 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.15%, with Purchased Performing Loans generating an effective yield of 5.84%, Purchased Credit Deteriorated Loans generating an effective yield of 6.58% and Purchased Non-performing Loans generating an effective yield of 9.44%.

All of our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition.

Included in earnings in Other income, net are net losses on these loans of $866.8 million for the year ended December 31, 2022.

Included in earnings in Other Income/(Loss), net are net losses on these loans of $89.9 million for the year ended December 31, 2023.

At December 31, 2023 and 2022, we had REO with an aggregate carrying value of $110.2 million and $130.6 million, respectively, which is included in Other assets on our consolidated balance sheets.

At December 31, 2022, we held $333.4 million of Securities, at fair value, including $131.7 million of Agency MBS, $97.9 million of MSR-related assets, $79.2 million of CRT securities and $24.6 million of Non-Agency MBS securities recorded in connection with the deconsolidation of Agency Eligible Investor loan securitizations.

At December 31, 2023, we held $746.1 million of Securities, at fair value, including $559.1 million of Agency MBS, $79.9 million of MSR-related assets, $83.2 million of CRT securities and $23.8 million of Non-Agency MBS.

We opportunistically added $456.7 million of Agency MBS during 2023.

The net yield on our Securities, at fair value was 7.57% for 2023, compared to 14.67% for 2022.

The decrease in the net yield on our Securities, at fair value portfolio primarily reflects higher accretion income recognized in the prior year period due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and the redemption of a Non-Agency MBS that had been previously purchased at a discount.

For the year ended December 31, 2023, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $8.9 million.

The reversal of provision recorded in 2022 primarily reflects portfolio run-off, partially

offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in interest rates.

The total allowance for credit losses recorded on residential whole loans held at carrying value at December 31, 2023 was $20.5 million.

In addition, during the year we recorded an impairment charge in earnings of $28.6 million against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.

These investments, which were legally structured as preferred equity interests, are nonetheless accounted for by the Company as debt instruments, based on an evaluation of the Company’s rights and obligations under the terms of the agreements.

During 2022, we completed nine securitizations with unpaid principal balance (or UPB) of loans sold of $2.7 billion.

This included $1.5 billion of Non-QM loans, $707.3 million of Single-family rental loans, $336.1 million of re-performing loans and $251.5 million of Transitional loans.

During 2023, we completed eight securitizations with unpaid principal balance (or UPB) of loans sold of $2.2 billion.

This included $1.4 billion of Non-QM loans, $418.6 million of Single-family rental loans, and $376.1 million of Transitional

These securitizations provided longer term, non-recourse, non-mark-to-market financing.

Subsequent to the fourth quarter, we have completed three additional securitizations totaling $668.2 million, further reducing our use of shorter-term recourse, mark-to-market financing.

During 2022, interest rates increased and credit spreads widened further, impacting the values of the majority of our residential whole loan portfolios and associated financing liabilities and hedges, which resulted in significant mark-to-market losses in our GAAP financial results.

We continue to closely follow the actions of the Federal Reserve and the pace at which it has and is expected to further increase interest rates and the impact such rate increases would be expected to have on levels of inflation, the overall economic environment and our business.

Subsequent to the fourth quarter, we have completed one additional securitization totaling $192.5 million, further reducing our use of shorter-term recourse, mark-to-market financing.

During 2023, heightened interest rate volatility led to significant fluctuations in the fair values of our residential mortgage asset portfolio and associated financing liabilities and hedges, which drove volatility in our quarterly GAAP financial results.

We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business.

Our GAAP book value per common share was $13.98 as of December 31, 2023.

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Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $14.57 as of December 31, 2023, a decrease from $15.55 as of December 31, 2022.

Decreases in GAAP and Economic book value during 2022 primarily reflect declines in the fair value of our Residential whole loan portfolios due to increased interest rates and widening spreads, partially offset by increases in the value of interest rate swaps and securitized debt.

Decreases in GAAP and Economic book value during 2023 primarily reflect dividends declared in excess of our GAAP earnings.

For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below.

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(1) Includes $3.7 billion of Non-QM loans, $2.4 billion of Transitional loans, $1.6 billion of Single-family rental loans, $68.9 million of Seasoned performing loans, and $55.8 million of Agency eligible investor loans.

At December 31, 2022, the total fair value of these loans is estimated to be approximately $6.2 billion.

(2) At December 31, 2022, the total fair value of these loans is estimated to be approximately $468.8 million.

At December 31, 2023, the total fair value of these loans is estimated to be $7.9 billion.

(2) At December 31, 2023, the total fair value of these loans is estimated to be $438.7 million.

(3) Includes $318.0 million of cash and cash equivalents, $170.2 million of restricted cash, and $19.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

(4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements and payable for unsettled transactions noted above as a multiple of net equity allocated.

(4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated.

Residential Whole Loans

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(1) Excludes an allowance for credit losses of $8.8 million at December 31, 2023.

Excluded from the table above are approximately $103.7 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of December 31, 2023.

(2) Excludes an allowance for credit losses of $11.6 million at December 31, 2023.

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Total $ 6,442,337 $ 429,319 $ 703,686

(1) Excludes an allowance for credit losses of $13.9 million at December 31, 2022.

(2) Excludes an allowance for credit losses of $21.4 million at December 31, 2022.

For additional information regarding our residential whole loan portfolios, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K.

(1) Includes loans on which borrowers have defaulted and are not making payments of principal and/or interest as of December 31, 2023.

(2) Excludes an allowance for credit losses.

For additional information regarding our residential whole loan portfolios, including information about delinquency trends, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K.

Securities, at Fair Value

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(Dollars in Thousands) December 31, 2023 December 31, 2022

MSR-Related Assets

Face/Par $ 554,300 $ 131,165

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Weighted average yield (2)

14.30 % 10.30 %

5.59 % N/A (1)

Weighted average time to maturity 29.3 years 30.0 years

CRT Securities

Term notes backed by MSR collateral

Face/Par $ 85,000 $ 105,000

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Weighted average time to maturity 1.8 years 0.8 years

Non-Agency MBS

CRT Securities

Face/Par $ 79,617 $ 80,791

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Weighted average yield (2)

Weighted average time to maturity 28.8 Years —

10.30 % 9.96 %

Weighted average time to maturity 17.9 years 19.0 years

Non-Agency MBS

Face/Par $ 28,485 $ 29,858

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Weighted average yield (2)

Weighted average time to maturity 30.0 Years —

(1) Weighted average yield is annualized interest income divided by average amortized cost.

5.84 % N/A (1)

Weighted average time to maturity 27.8 years 28.8 years

(1) These securities were acquired at the end of the reporting period and, therefore, no interest income was recorded with respect to these securities in 2022.

(2) Weighted average yield is annualized interest income divided by average amortized cost for Securities, at fair value held at December 31, 2023 and December 31, 2022.

Tax Considerations

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by us for potential offset against future capital gains;

and d) tax hedge gains and losses resulting from the termination of interest rate swaps by us generally are amortized over the remaining term of the swap.

and d) tax hedge gains and losses resulting from the termination of Swaps by us generally are amortized over the remaining term of the Swap.

Securitization

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Net Interest Income $ 176,479 $ 223,576 $ (47,097)

Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans $ 2,646 $ 44,863 $ (42,217)

Reversal of Provision for Credit Losses on Residential Whole Loans $ 8,853 $ 2,646 $ 6,207

Provision for Credit Losses on Other Assets — (28,579) 28,579

Net Interest Income after (Provision)/Reversal of Provision for Credit Losses $ 197,643 $ 286,780 $ (89,137)

Other (Loss)/Income, net:

Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243 $ (883,005)

Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496 (99,563)

Net Interest Income after Provision for Credit Losses $ 185,332 $ 197,643 $ (12,311)

Other Income/(Loss), net:

Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ (866,762) $ 956,612

Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 (25,067) 31,292

Net gain on real estate owned 9,392 25,379 (15,987)

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Lima One - origination, servicing and other fee income 43,384 46,745 (3,361)

Net realized loss on residential whole loans held at carrying value (1,240) — (1,240)

Other, net 11,331 8,623 2,708

Other (Loss)/Income, net $ (264,590) $ 165,103 $ (429,693)

Other Income/(Loss), net $ 63,114 $ (265,264) $ 328,378

Operating and Other Expense:

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Operating and Other Expense $ 168,282 $ 163,960 $ 4,322

Net (Loss)/Income $ (231,581) $ 328,870 $ (560,451)

Net Income/(Loss) $ 80,164 $ (231,581) $ 311,745

Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ —

Net (Loss)/Income Available to Common Stock and Participating Securities $ (264,456) $ 295,995 $ (560,451)

Basic (Loss)/Earnings per Common Share $ (2.57) $ 2.66 $ (5.23)

Diluted (Loss)/Earnings per Common Share $ (2.57) $ 2.63 $ (5.20)

For 2022, we had a net loss available to our common stock and participating securities of ($264.5) million, or ($2.57) per basic and diluted common share, compared to net income available to common stock and participating securities for 2021 of $296.0 million, or $2.66 per basic common share and $2.63 per diluted common share.

This decrease in net income available to common stock and participating securities primarily reflects lower Other income, which declined by $429.7 million to a net loss of $264.6 million for the current year period, compared to net income of $165.1 million in the prior year period.

The decrease was primarily driven by mark-to-market losses in the current year period on our residential whole loans that are measured at fair value through earnings, partially offset by net gains on securitized debt measured at fair value through earnings as well as on derivatives used for risk management purposes.

These net losses on portfolio investments were also partially offset by higher

Origination, Servicing and Other Fee income at Lima One and net REO related gains.

In addition, Other income also includes losses of $25.1 million, primarily related to mark-to-market adjustments on an equity investment in a loan origination partner, while the prior year period includes $38.9 million of gains recorded in connection with Lima One purchase accounting and a gain of $34.0 million from the reversal of prior period impairments.

The prior year period also included a $42.2 million larger net reversal of the Provision for Credit Losses on Residential Whole Loans held at carrying value.

The reversals recorded in both the current and prior periods primarily reflect run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts.

However, the current period reversal is lower than the prior year period as the impact of lower loan balances was partially offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in market interest rates.

The larger prior year reversal reflects a greater impact of adjustments to macro-economic assumptions consistent with revised economic forecasts as the U.S economy continued to recover from the impact of the COVID-19 pandemic.

In addition, in the current year period we recorded a Provision for Credit Losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.

Finally, Operating and other expenses were $41.6 million higher during the year ended December 31, 2022, compared to the prior year period, as they primarily reflect operating expenses of Lima One, higher securitization related expenses as well as higher amortization of Intangible Assets associated with the Lima One acquisition.

We completed the acquisition of Lima One on July 1, 2021, and accordingly began consolidating Lima One’s financial results beginning on that date.

Net Income/(Loss) Available to Common Stock and Participating Securities $ 47,289 $ (264,456) $ 311,745

Basic Earnings/(Loss) per Common Share $ 0.46 $ (2.57) $ 3.03

Diluted Earnings/(Loss) per Common Share $ 0.46 $ (2.57) $ 3.03

For 2023, we had net income available to our common stock and participating securities of $47.3 million, or $0.46 per basic and diluted common share, compared to a net loss available to our common stock and participating securities for 2022 of $(264.5) million, or $(2.57) per basic and diluted common share.

This increase in net income available to common stock and participating securities primarily reflects higher Other Income/(Loss), net, of $328.4 million, primarily driven by mark-to-market gains in the current period on our residential whole loans that are measured at fair value through earnings, partially offset by lower net gains on derivatives used for risk management purposes and unrealized losses on securitized debt measured at fair value through earnings.

Net interest income for 2023 decreased by $47.1 million from 2022, primarily due to higher

funding costs associated with our financing arrangements given the impact of significantly higher interest rates over the past twelve months, partially offset by higher asset yields earned on our residential whole loans portfolio and higher amounts invested in our residential mortgage asset portfolio.

The prior year period also included a Provision for Credit Losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.

No such provision was recorded in the current year period.

The current year period also includes a $6.2 million larger net reversal of the Provision for Credit Losses on Residential Whole Loans held at carrying value.

The reversal of provision recorded in the current period primarily reflects updated modeling assumptions, as well as run-off of loans held at carrying value, partially offset by the impact of loan charge-offs.

The prior period reversal primarily reflects run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts.

Net Interest Income

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For 2023, our net interest spread and margin (including the impact of swaps) were 2.05% and 2.90%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 1.74% and 2.52%, respectively, for 2022.

Our net interest income decreased by $18.3 million, or 7.6%, to $223.6 million from $241.9 million for 2021.

For 2022, net interest income includes lower net interest income for our Securities, at fair value portfolio of approximately $29.4 million compared to 2021, primarily due to higher accretion income recognized in the prior year period due to the impact of the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and the redemption of a Non-Agency MBS that had been previously purchased at a discount and the lower average amount invested in these assets.

Net interest income also includes higher net interest income from our residential whole loan portfolio of approximately $1.3 million compared to 2021, primarily due to higher amounts invested in these assets partially offset by an increase in our average collateralized financing agreement borrowings and lower yields earned on these assets.

Further, we earned an additional $10.1 million from our investments in other interest earning assets and cash during 2022 as compared to the prior year period.

Our net interest income, which does not include the benefit of swap carry, decreased by $47.1 million, or 21.1%, to $176.5 million from $223.6 million for 2022.

For 2023, net interest income includes lower net interest income from our residential whole loan portfolio of $51.1 million compared to 2022, primarily due to higher rates paid on our financing agreement borrowings partially offset by higher asset yields and higher amounts invested in the loan portfolio.

In addition, net interest income for 2023 includes lower net interest income for our Securities, at fair value portfolio of approximately $8.5 million compared to 2022, primarily due higher accretion income recognized in the prior year period due to the impact of the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and higher financing agreement borrowings in 2023, partially offset by higher amounts invested in the portfolio due to Agency MBS purchases during 2023.

Net interest income for 2023 also includes approximately $13.1 million of additional interest income from other interest earning assets and cash compared to the prior year period.

Analysis of Net Interest Income

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Convertible Senior Notes 224,768 15,601 6.94 227,097 15,760 6.94

Senior Notes — — — 1,096 120 8.31

Total interest-bearing liabilities 7,782,864 429,118 5.47 7,194,981 258,843 3.60

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Excluding this accretion, the yield reported would have been 10.73%.

(3) The net yield of 22.95% includes $20.5 million of accretion income recognized in 2021, due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020;

and $8.1 million of accretion recognized during 2021 on the redemption of a Non-Agency MBS security that was purchased at a discount.

Excluding this accretion, the yield reported would have been 11.38%.

(3) Includes average interest-earning cash, cash equivalents and restricted cash.

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Negative swap carry results when income from the receive leg is less than the expense on the pay leg.

(9) Net interest margin reflects net interest income (including net swap expense) divided by average interest-earning assets.

(8) Net interest margin reflects net interest income (including net swap income or expense) divided by average interest-earning assets.

Rate/Volume Analysis

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Securitized debt 24,025 39,396 63,421

Convertible Senior Notes and Senior Notes (28) — (28)

Convertible Senior Notes

(159) — (159)

Total net change in expense of interest-bearing liabilities $ 20,861 $ 149,414 $ 170,275

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(1) Reflects the difference between the yield on average interest-earning assets and average cost of funds (including net swap expense).

(2) Reflects annualized net interest income (including net swap expense) divided by average interest-earning assets.

(2) Reflects annualized net interest income (including net swap income or expense) divided by average interest-earning assets.

The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented:

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(2) Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt.

Cost of funding shown in the table above for the quarterly periods ended December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021 include the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps.

Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps.

While we have not elected hedge accounting treatment for Swaps, and accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above.

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For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 146 basis points for our Purchased Performing Loans, 161 basis points for our Purchased Credit Deteriorated Loans, and 89 basis points for our Purchased Non-Performing Loans.

For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 145 basis points for our Purchased Performing Loans, 206 basis points for our Purchased Credit Deteriorated Loans, and 87 basis points for our Purchased Non-Performing Loans.

For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 129 basis points for our Purchased Performing Loans, 171 basis points for our Purchased Credit Deteriorated Loans, and 77 basis points for our Purchased Non-Performing Loans.

For the quarter ended December 31, 2022, this decreased the overall funding cost by 89 basis points for our Residential whole loans, 87 basis points for our Purchased Performing Loans, 141 basis points for our Purchased Credit Deteriorated Loans, and 76 basis points for our Purchased Non-Performing Loans.

For the quarter ended September 30, 2022, this decreased the overall funding cost by 20 basis points for our Residential whole loans, 19 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 24 basis points for our Purchased Non-Performing Loans.

For the quarter ended June 30, 2022, this increased the overall funding cost by 25 basis points for our Residential whole loans, 23 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 29 basis points for our Purchased Non-Performing Loans.

For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our Purchased Non-Performing Loans.

For the quarter ended December 31, 2021, this increased the overall funding cost by 5 basis points for our Residential whole loans, 5 basis points for our Purchased Performing Loans, 9 basis points for our Purchased Credit Deteriorated Loans, and 2 basis points for our Purchased Non-Performing Loans.

The following table presents the components of the net interest spread earned on our residential mortgage securities and MSR-related assets for the quarterly periods presented:

The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented:

Securities, at fair value

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(1) Reflects annualized interest income divided by average amortized cost.

Impairment charges recorded on MSR-related assets resulted in a lower amortized cost basis which impacted the calculation of net yields in subsequent periods.

(2) For the quarter ended December 31, 2022, the net yield of 30.33% includes $7.8 million of accretion income recognized in 2022 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020.

Excluding this accretion, the yield reported would have been 11.87%.

For the quarter ended December 31, 2021, the net yield of 26.28% includes $8.1 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge during the first quarter of 2020.

Excluding this accretion, the yield reported would have been 11.37%.

For the quarter ended September 30, 2021, the net yield of 18.78% includes $4.0 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge during the first quarter of 2020.

Excluding this accretion, the yield reported would have been 11.63%.

For the quarter ended June 30, 2021, the net yield of 24.57% includes $8.4 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge recorded in the first quarter of 2020.

Excluding this accretion, the yield reported would have been 11.13%.

For the quarter ended March 31, 2021, the net yield of 22.25% includes $8.1 million of accretion income recognized on the redemption of an RPL/NPL MBS security that was previously purchased at a discount.

Excluding this accretion, the yield reported would have been 11.26%.

(3) Reflects annualized interest expense divided by average balance of repurchase agreements.

Cost of funding shown in the table above for the quarterly periods ended December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023 includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value.

For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points.

For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points.

For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points.

For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points.

Periods prior to the quarter ended March 31, 2023 were not impacted as there was no allocation of net swap carry to the financing of our Securities, at fair value for those periods.

Interest Income

Interest income on our residential whole loans increased by $96.7 million, or 21.9%, for 2023, to $537.9 million compared to $441.2 million for 2022.

This increase primarily reflects a $2.7 billion increase in the average balance of this portfolio to $8.5 billion for 2022 from $5.8 billion for 2021, partially offset by an decrease in the yield to 5.19% for 2022 from 5.26% for 2021.

Interest income on our securities portfolio decreased $27.8 million to $28.9 million for 2022 from $56.7 million for 2021.

This decrease primarily reflects a decrease in the net yield to 14.67% for 2022, compared to 22.95% for 2021 and a decrease in the average amortized cost of the portfolio of $49.8 million.

This increase primarily reflects an increase in the yield to 6.15% for 2023 from 5.19% for 2022 and a $233.5 million increase in the average balance of this portfolio to $8.7 billion for 2023 from $8.5 billion for 2022.

Interest income on our Securities, at fair value portfolio increased $13.5 million to $42.4 million for 2023 from $28.9 million for 2022.

This increase primarily reflects an increase in the average amortized cost of the portfolio of $362.2 million due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 7.57% for 2023, compared to 14.67% for 2022.

The decrease in the net yield on our securities portfolio primarily reflects higher accretion income recognized in 2022 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020.

and the redemption of a Non-Agency MBS that had been previously purchased at a discount.

Interest Expense

Our interest expense for 2023 increased by $170.3 million, or 65.8%, to $429.1 million, from $258.8 million for 2022.

This increase primarily reflects an increase in our average collateralized financing agreement borrowings to finance our residential mortgage asset portfolio and an increase in financing rates on our financing agreements.

This increase primarily reflects an increase in financing rates on our financing agreements and higher overall average balances of our financing agreements.

Provision for Credit Losses on Residential Whole Loans Held at Carrying Value

For 2023, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $8.9 million compared to a reversal of provision of $2.6 million for 2022.

The reversals recorded in both the current and prior

periods primarily reflect run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts.

The current period reversal reflects lower loan balances, partially offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in market interest rates.

With respect to our residential whole loans held at carrying value, CECL requires that reserves for credit losses are estimated at the reporting date based on expected cash flows over the life of the loan or financial instrument, including anticipated prepayments and reasonable and supportable forecasts of future economic conditions.

The reversal of provision recorded in the current period primarily reflects updated modeling assumptions, as well as the run-off of loans held at carrying value, partially offset by the impact of loan charge-offs.

The prior period reversal primarily reflects run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts.

Provision for Credit Losses on Other Assets

For 2022, we recorded a provision for credit losses on Other Assets of $28.6 million reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero.

Other (Loss)/Income, net

For 2022, Other Loss, net was $264.6 million compared to Other Income, net of $165.1 million for 2021.

No such provision was recorded for 2023.

Other Income/(Loss), net

For 2023, Other Income/(Loss), net was $63.1 million, compared to an Other Income/(Loss), net of $(265.3) million for 2022.

The components of Other (Loss)/Income, net for 2023 and 2022 are summarized in the table below:

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(In Thousands) 2023 2022

Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243

Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496

Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ (866,762)

Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 (25,067)

Net gain on real estate owned 9,392 25,379

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Lima One - origination, servicing and other fee income 43,384 46,745

Net realized loss on residential whole loans held at carrying value (1,240) —

Other, net 11,331 8,623

Other (Loss)/Income, net $ (264,590) $ 165,103

Other Income/(Loss), net $ 63,114 $ (265,264)

Operating and Other Expense

During 2023, we had compensation and benefits and other general and administrative expenses of $129.9 million, compared to $111.9 million for 2022.

Compensation and benefits expense increased $22.9 million to $76.7 million for 2022, compared to $53.8 million for 2021 primarily reflecting the impact of including Lima One compensation expense in our financial results, higher salary expense and an increase in long-term incentive compensation partially offset by a reduction in annual bonus compensation for the current period.

Our other general and administrative expenses increased by $4.1 million to $35.8 million for 2022 compared to $31.7 million for 2021, primarily reflecting the impact of including Lima One expenses in our financial results, increased information technology costs, higher professional services costs, and higher office lease costs associated with our corporate headquarters, partially offset by lower costs associated with deferred compensation to Directors in the current year period, which were impacted by changes in our stock price.

The prior period also included higher expense for corporate income taxes related to activity in our taxable REIT subsidiaries and costs associated with terminating certain financing facilities that were replaced with securitization financing, which did not re-occur this period.

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, taxes, and miscellaneous expenses.

Compensation and benefits expense increased $9.1 million to $85.8 million for 2023, compared to $76.7 million for 2022 primarily reflecting higher expenses for salaries, payroll taxes, and benefits related to increased headcount at Lima One and the acceleration of certain stock-based compensation expenses for retirement eligible employees, partially offset by lower sales commission expense at Lima One.

Our other general and administrative expenses increased by $9.0 million to $44.1 million for 2023 compared to $35.1 million for 2022, primarily reflecting higher costs associated with deferred compensation to Directors in the current period, which were impacted by changes in our stock price, higher depreciation and other costs in the current period primarily related to furniture and fixtures and IT infrastructure at our corporate offices and higher tax provisions, partially offset by lower tax compliance professional fees and lower insurance costs.

Operating and Other Expense during 2023 also includes $34.1 million of loan servicing and other related operating expenses related to our residential whole loan activities.

These expenses increased compared to 2021 by approximately $12.0 million, or 39.0%, primarily due to higher expenses recognized related to loan securitization activities and higher diligence and other costs associated with acquiring loans, partially offset by lower servicing fees and non-recoverable advances on our REO and Purchased Credit Deteriorated loans.

These expenses decreased compared to 2022 by approximately $8.8 million, or 20.4%, primarily due to lower expenses recognized related to loan securitization activities, lower diligence and other costs associated with acquiring loans, lower servicing fees, and lower expenses on our REO portfolio.

In addition, Other expenses for 2023 and 2022 also includes $4.2 million and $9.2 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition.

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March 31, 2022 (0.89) (3.33) — 26.63 3.1 1.9

(1) Reflects annualized net income available to common stock and participating securities divided by average total assets.

For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income available to common stock and participating securities divided by average total assets.

(1) Reflects annualized net income divided by average total assets.

For the quarters ended September 30, 2023, June 30, 2023, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total assets.

(2) Reflects annualized net income divided by average total stockholders’ equity.

For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity.

(3) Reflects dividends declared per share of common stock divided by earnings per share.

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(5) Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity.

(6) Represents the sum of our borrowings under financing agreements (excluding securitized debt) and payable for unsettled purchases divided by stockholders’ equity.

(6) Represents the sum of our borrowings under financing agreements (excluding securitized and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.

Reconciliation of GAAP and Non-GAAP Financial Measures

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Distributable earnings is determined by adjusting GAAP net income/(loss) by removing certain unrealized gains and losses, primarily on residential mortgage investments, associated debt, and hedges that are, in each case, accounted for at fair value through earnings, certain realized gains and losses, as well as certain non-cash expenses and securitization-related transaction costs.

The transaction costs are primarily comprised of costs only incurred at the time of execution of our securitizations and include costs such as underwriting fees, legal fees, diligence fees, bank fees and other similar transaction related expenses.

These costs are all incurred prior to or at the execution of our securitizations and do not recur.

Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from distributable earnings.

Management believes that the adjustments made to GAAP earnings result in the removal of (i) income or expenses that are not reflective of the longer term performance of our investment portfolio, (ii) certain non-cash expenses, and (iii) expense items required to be recognized solely due to the election of the fair value option on certain related residential mortgage assets and associated liabilities.

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Distributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The following table provides a reconciliation of our GAAP net (loss)/income used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below:

The following table provides a reconciliation of our GAAP net income/(loss) used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below:

Quarter Ended

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Securities held at fair value (21,371) 13,439 3,698 (2,931) 383 (1,549) 1,459 2,934

Residential whole loans and securities at carrying value

332 — — — — — — —

Interest rate swaps 97,400 (9,433) (37,018) 40,747 12,725 (108,917) (31,767) (80,753)

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Distributable earnings $ 49,700 $ 41,200 $ 40,504 $ 30,975 $ 49,351 $ 28,193 $ 47,166 $ 65,953

GAAP (loss)/earnings per basic common share $ (0.02) $ (0.62) $ (1.06) $ (0.86) $ 0.33 $ 1.12 $ 0.53 $ 0.68

GAAP earnings/(loss) per basic common share

$ 0.80 $ (0.64) $ (0.34) $ 0.63 $ (0.02) $ (0.62) $ (1.06) $ (0.86)

Distributable earnings per basic common share $ 0.49 $ 0.40 $ 0.40 $ 0.30 $ 0.48 $ 0.28 $ 0.46 $ 0.62

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Year Ended December 31, 2023

GAAP Net loss used in the calculation of basic EPS $ (88,913) $ (9,665) $ (166,505) $ (265,083)

GAAP Net income/(loss) used in the calculation of basic EPS

$ 130,271 $ 33,453 $ (116,435) $ 47,289

Unrealized and realized gains and losses on:

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Securities held at fair value (7,165) — — (7,165)

Residential whole loans and securities at carrying value

Interest rate swaps 68,609 23,087 — 91,696

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Number of shares of common stock outstanding 101.9 101.9 101.9 101.9 101.8 101.8 101.8 105.0

(1) Economic book value per common share for periods prior to December 31, 2021 have been restated to include the impact of fair value changes in securitized debt held at carrying value.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Recent Accounting Standards to Be Adopted in Future Periods

We are not aware of any recent accounting standards to be adopted in future periods that we expect would materially impact us.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (or ASU 2023-07).

The amendments in ASU 2023-07 primarily require entities to disclose certain significant segment expenses and other segment items on both an annual and interim basis.

ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We do not expect that the adoption of ASU 2023-07 will have a significant impact on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (or ASU 2023-09).

The amendments in ASU 2023-09 primarily require entities to disclose more details about their income tax rate, expense and payments.

ASU 2023-09 is effective for public business entities for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We do not expect that the adoption of ASU 2023-09 will have a significant impact on our financial statement disclosures.

LIQUIDITY AND CAPITAL RESOURCES

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We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2023, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.

During 2022, we issued 80,027 shares of common stock through our DRSPP, raising net proceeds of approximately $1.2 million.

During 2023, we issued 6,666 shares of common stock through our DRSPP, raising net proceeds of approximately $74,000.

We did not repurchase any shares of our common stock through the stock repurchase program during the year ended December 31, 2023.

During 2022, we repurchased 6,476,746 shares of our common stock through the stock repurchase program at an average cost of $15.80 per share and a total cost of approximately $102.1 million, net of fees and commissions paid to the sales agents of approximately $161,000.

As of December 31, 2022, we were permitted to purchase an additional $202.5 million of our common stock under the stock repurchase program.

In February 2023, our Board authorized a repurchase program for our 6.25% Convertible Senior Notes due 2024 (or the Convertible Senior Notes) under which we may repurchase up to $100 million of our Convertible Senior Notes.

Upon expiration of the repurchase authorization on December 31, 2023, approximately $202.5 million remained unused under our stock repurchase program.

In February 2023, our Board authorized a repurchase program for our Convertible Senior Notes pursuant to which we may repurchase up to $100 million of our Convertible Senior Notes.

The convertible notes repurchase program does not require the purchase of any minimum amount of Convertible Senior Notes.

The timing and extent to which we repurchase our Convertible Senior Notes will depend upon, among other things, market conditions, share price, liquidity, regulatory requirements and other factors, and repurchases may be commenced or suspended at any time without prior notice.

During the year ended December 31, 2023, we repurchased $20.4 million principal amount of the Convertible Senior Notes for $20.2 million and recorded a gain of $89,000 to Other Income/(Loss), net on the consolidated statement of operations.

At December 31, 2023, the aggregate principal amount of the our Convertible Senior Notes outstanding was $209.6 million.

Subsequent to December 31, 2023 and through February 21, 2024, we repurchased an additional $39.9 million principal amount of the Convertible Senior Notes for $39.8 million and recorded a loss of $63,000;

as of February 21, 2024, the aggregate amount of our Convertible Senior Notes outstanding was $169.7 million.

Financing Agreements

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We address margin call requests in accordance with the required terms specified in the applicable agreement and such requests are typically satisfied by posting additional cash or collateral on the same business day.

We review margin calls

made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination.

When we believe that a margin call is unnecessary because our assessment of collateral value differs from the counterparty valuation, we typically hold discussions with the counterparty and are able to resolve the matter.

We review margin calls made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination.

If this is not successful, we will look to resolve the dispute based on the remedies available to us under the terms of the repurchase agreement, which in some instances may include the engagement of a third-party to review collateral valuations.

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March 31, 2021 2,632,791 2,221,570 2,443,149 1,535,995 1,548,920 1,602,148

(1) The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in June 2019 and $100.0 million of Senior Notes issued in April 2012.

Subsequent to the end of the third quarter of 2020, we repaid in full the outstanding principal balance of the senior secured term loan facility.

(1) The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in June 2019, of which the aggregate principal amount outstanding was $209.6 million at December 31, 2023, and $100.0 million of Senior Notes issued in April 2012.

During the first quarter of 2021, we redeemed all of our outstanding Senior Notes.

Cash Flows and Liquidity for the Year Ended December 31, 2023

Our cash, cash equivalents and restricted cash increased by $89.6 million during 2022, reflecting:

$1.1 billion used in our investing activities, $850.2 million provided by our financing activities and $366.1 million provided by our operating activities.

Our cash, cash equivalents and restricted cash decreased by $5.9 million during 2023, reflecting:

$1.5 billion used in our investing activities, $1.4 billion provided by our financing activities and $108.7 million provided by our operating activities.

At December 31, 2023, our debt-to-equity multiple was 4.5 times compared to 3.5 times at December 31, 2022.

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During 2023, $1.5 billion was used in our investing activities.

We utilized $3.2 billion for acquisitions of residential whole loans, loan related investments and capitalized advances.

We utilized $2.9 billion for acquisitions and origination of residential whole loans, loan related investments and capitalized advances and $588.9 million for acquisition of securities.

During 2023, we received $1.4 billion of principal payments on residential whole loans and loan related investments and $115.0 million of proceeds on sales of REO.

In addition, during 2022, we received cash of $53.1 million from proceeds from sales and prepayments and scheduled amortization on our securities.

In addition, during 2023, we received cash proceeds of $35.6 million from principal payments on our securities.

In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls/reverse margin calls from our counterparties and make margin calls to our counterparties.

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The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented:

Collateral Pledged to Meet Margin Calls Cash and Securities Received for Reverse

Margin Calls Net Assets Received/(Pledged) for Margin Activity

Collateral Pledged for Margin

Cash and Securities Received for Reverse

Net Assets Received/(Pledged) for Margin Activity

For the Quarter Ended (1)

Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged For Margin Calls

Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged for Margin

(In Thousands)

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

What changed 10-K

Item 7. Management’s Discussion and Analysis