What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-22 · 213 added, 233 removed, 522 unchanged (46% of the section changed)

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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 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, 2024, we had total assets of approximately $11.4 billion, of which $8.8 billion, or 77%, 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 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.

(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 (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, with Single-family transitional loans, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) 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”) (“Agency eligible investor loans,” which are included in “Other loans”).

In addition, at December 31, 2024, we had approximately $1.5 billion or 13% of total assets invested in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets.

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Interest rates and conditional prepayment rates (or CPRs) (which is an annualized measure of the amount of unscheduled principal prepayments on an asset as a percentage of the asset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty.

Our financial results are impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.

Our financial results are also impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.

With respect to our business operations, increases in interest rates, in general, may over time cause:

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(iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments;

and (v) the value of our derivative hedging

instruments, if any, to increase.

and (v) the value of our derivative hedging instruments, if any, to increase.

Conversely, decreases in interest rates, in general, may over time cause:

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(ii) the value of certain of our residential mortgage assets and securitized debt, to increase;

(iii) coupons on our adjustable-rate assets, on a delayed basis, to lower interest rates;

(iii) coupons on

our adjustable-rate assets, on a delayed basis, to lower interest rates;

(iv) prepayments on our assets to increase, thereby accelerating the amortization of purchase premiums and the accretion of our purchase discounts, and accelerating the redeployment of our capital to generally lower yielding investments;

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Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk.

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 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.

Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance.

With respect to investments in Business purpose and Non-QM 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 Legacy RPL/NPL loans mitigate our risk of loss in the event that we receive less than 100% of the unpaid principal balance of these investments.

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

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CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general.

In particular, CPR reflects the conditional prepayment rate, which measures voluntary prepayments of a loan, and the conditional default rate (or CDR) measures involuntary prepayments resulting from defaults.

In particular, CPR presents the annualized constant rate of principal repayment in excess of scheduled principal amortization.

CPRs on our residential mortgage securities and whole loans may differ significantly.

For the year ended December 31, 2024, the average CPRs on certain of our loan portfolios were:

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.

10.4% for Non-QM loans, 8.7% for Single-family rental loans, and 8.6% for Legacy RPL/NPL loans.

In addition, for the year ended December 31, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 60.6% for our Single-family transitional loans and 24.4% for our Multifamily transitional loans.

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

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In order to reduce this interest rate risk exposure, we may enter into derivative instruments, which currently include Swaps.

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).

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.

Recent Market Conditions and Our Strategy

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.

2024 was another turbulent year with mixed results for fixed income investors, as markets continued to adjust to volatile conditions resulting from a number of challenging macroeconomic conditions, including the start of the Federal Reserve’s easing cycle, ongoing uncertainty as to the timing and extent of future rate cuts, ongoing inflationary pressures, geopolitical uncertainty both in the U.S.

and abroad, and balancing generally resilient macroeconomic data with the potential for recession.

For the year, the Bloomberg US Aggregate Index returned 1.25% - the eighth worst annual return in the nearly 50-year history of the index.

During the year, intermediate and longer-duration Treasury rates moved higher while credit spreads generally tightened.

The yield curve steepened during 2024, ending the multiyear inversion following the Federal Reserve’s decision to cut the target for the Fed Funds rate by 50 basis points on September 18, 2024, followed by further 25 basis point cuts on both November 7, 2024 and December 18, 2024.

Despite these volatile macroeconomic conditions, during the year, we were able to add $3.6 billion of our target assets.

These additions included approximately $1.5 billion of funded originations of Business purpose loans and draws on existing Transitional loans at Lima One, approximately $1.2 billion of Non-QM loans, and $932 million of Agency MBS.

During 2024 we executed eight securitizations and issued $2.1 billion of securitized debt.

We also issued $115 million of 8.875% senior unsecured notes due in February 2029 and $75.0 million of 9.00% senior unsecured notes due in August 2029, and repaid our Convertible Senior Notes which matured in June 2024.

During the year we generated GAAP earnings per share (or EPS) of $0.83 per basic common share and Distributable earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $1.57 per basic common share.

At December 31, 2024, our GAAP book value was $13.39 and our Economic book value, 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 $13.93 per common share, each representing decreases of approximately 4% as compared to December 31, 2023.

During the year we declared dividends of $1.40 per common share.

For the year, our Lima One subsidiary originated Business purpose loans with a maximum unpaid principal balance of $1.4 billion, a decline from the $2.2 billion originated in 2023.

The decline was in large part the result of our decision in the second quarter of 2024 to refocus our resources away from multifamily transitional lending and the resulting friction associated with redeploying our resources to the single-family transitional and single-family rental lending channels.

This decision was made in light of continued softness in multifamily housing in certain markets and several consecutive quarters of declines in origination volumes in our multifamily transitional lending.

Given the current challenging market conditions for multifamily housing, we expect to see heightened levels of delinquency and a commensurate risk of credit losses in our Business purpose loan portfolio during 2025.

As a result of the shift away from multifamily lending, as well as lower single-family real estate transaction volumes generally, we expect origination volumes to remain under pressure in the first half of 2025.

During 2024 Lima One sold $193.7 million of recently originated single-family rental loans to third parties and realized gains of $7.4 million.

We believe that these sales to third parties help to strengthen Lima One’s franchise value, create additional distribution channels to accommodate future growth, and enhance returns.

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

2024 Portfolio Activity and impact on financial results

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(In Millions) December 31, 2023 Runoff (1)

Acquisitions (2)

Acquisitions & Originations (2)

December 31, 2024 Change

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At December 31, 2024, our total recorded investment in residential whole loans and REO was $8.9 billion, or 85.3% 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 $3.0 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/(Loss), net are net losses on these loans of $89.9 million for the year ended December 31, 2023.

Of this amount, $4.3 billion are Non-QM loans, $1.4 billion are Single-family rental loans, $1.1 billion are Single-family transitional loans, $0.9 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans.

Loan acquisition activity of $2.6 billion during 2024 included $991.5 million of Single-family transitional loans (including draws), $1.2 billion of Non-QM loans, $331.7 million of Single-family rental loans and $145.0 million of Multifamily transitional loans (including draws).

During 2024, we recognized approximately $633.6 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.74%, with Single-family transitional loans generating an effective yield of 9.45%, Multifamily transitional loans generating an effective yield of 8.20%, Single-family rental loans generating an effective yield of 6.37%, Non-QM loans generating an effective yield of 5.50% and Legacy RPL/NPL loans generating an effective yield of 7.91%.

Since the second quarter of 2021 we have elected the fair value option for all loan acquisitions, and 85% our total loan portfolio is measured at fair value through earnings.

Included in earnings in Other Income/(Loss), net are net gains on these loans of $46.0 million for the year ended December 31, 2024.

At December 31, 2024 and 2023, we had REO with an aggregate carrying value of $130.9 million and $110.2 million, respectively, which is included in Other assets on our consolidated balance sheets.

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.

At December 31, 2024, we held $1.5 billion of Securities, at fair value, including $1.4 billion of Agency MBS, $54.6 million of MSR-related assets, $67.6 million of CRT securities and $22.6 million of Non-Agency MBS.

During 2024, we added $0.9 billion of Agency MBS and sold $26.9 million sales of MSR-related assets and an $8.7 million sales of a CRT security.

The net yield on our Securities, at fair value was 6.59% for 2024, compared to 7.57% for 2023.

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During 2024, we completed eight securitizations with unpaid principal balance (or UPB) of loans sold of $2.4 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 one additional securitization totaling $192.5 million, further reducing our use of shorter-term recourse, mark-to-market financing.

This included $1.1 billion of Non-QM loans, $599.0 million of Transitional loans and 669.2 million of Legacy RPL/NPL loans.

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

During 2024, 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.

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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 $13.93 as of December 31, 2024, a decrease from $14.57 as of December 31, 2023.

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

The decrease in GAAP book value during 2024 primarily reflects dividends declared on our common stock in excess of our GAAP earnings.

The decrease in Economic book value during 2024 primarily reflects dividends declared on our common stock in excess of GAAP earnings and a decrease in the fair value of our mortgage loans held at carrying value, partially offset by changes in the estimated fair value of our securities and our securitized debt at carrying value.

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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ASSET ALLOCATION

(Dollars in Millions) Purchased Performing Loans (1)

Purchased Credit Deteriorated Loans (2)

Purchased Non-Performing Loans Securities, at fair value Real Estate Owned Other,

(Dollars in Millions) Business purpose loans

Legacy RPL/NPL loans

Securities, at fair value Other, net (1)

Fair Value/Carrying Value $ 3,394 $ 4,289 $ 1,076 $ 1,538 $ 764 $ 11,061

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Securitized Debt (1,651) (3,227) (916) — (1) (5,795)

Convertible Senior Notes — — — — — (209) (209)

— — — — (184) (184)

Net Equity Allocated $ 550 $ 471 $ 115 $ 196 $ 510 $ 1,842

Debt/Net Equity Ratio (2)

6.7 x 9.5 x 2.3 x 5.1 x 0.5 x 4.5 x

(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, 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.

5.2 x 8.1 x 8.4 x 6.8 x 5.0 x

(1) Includes $338.9 million of cash and cash equivalents, $262.4 million of restricted cash, $52.1 million of Other loans and $16.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

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

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Amounts presented do not reflect estimates of prepayments or scheduled amortization.

(In Thousands) Purchased

Performing Loans (1)

Purchased Credit

Deteriorated Loans (2)

Purchased Non-Performing Loans

(In Thousands) Business purpose loans (1)

Non-QM loans (2)

Legacy RPL/NPL loans (3)

Within one year $ 1,736,112 $ — $ 1,560 $ —

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(1) Excludes an allowance for credit losses of $1.8 million at December 31, 2024.

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 $2.1 million at December 31, 2024.

(3) Excludes an allowance for credit losses of $6.8 million at December 31, 2024.

The following table presents, at December 31, 2024, the dollar amount of certain of our residential whole loans, contractually maturing after one year, and indicates whether the loans have fixed interest rates or adjustable interest rates:

(In Thousands) Purchased

Performing Loans (1)(2)

Purchased Credit

Deteriorated Loans (1)(2)

Purchased Non-Performing Loans

(In Thousands) Business purpose loans (1)(2)

Non-QM loans (1)(2)

Legacy RPL/NPL loans (1)(2)

Interest rates:

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(2) Excludes an allowance for credit losses.

Our Transitional loans contain various contractual extension features, typically ranging from three to twelve months subject to certain conditions, generally including our consent.

Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms.

Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions.

At December 31, 2024, approximately 18% of our Multifamily transitional loans and 26% of our Single-family transitional loans held as of period end had been extended.

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.

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Weighted average yield (1)

5.59 % N/A (1)

5.45 % 5.59 %

Weighted average time to maturity 29.1 years 29.3 years

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Weighted average yield (1)

5.84 % N/A (1)

5.67 % 5.84 %

Weighted average time to maturity 26.8 years 27.8 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.

(1) Weighted average yield is annualized interest income divided by average amortized cost for Securities, at fair value held at December 31, 2024 and December 31, 2023.

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c) capital losses may only be recognized by us to the extent of its capital gains;

capital losses in excess of capital gains generally are carried over

by us for potential offset against future capital gains;

capital losses in excess of capital gains generally are carried over by us for potential offset against future capital gains;

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.

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Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections.

For GAAP purposes, our securitizations have been treated as on-balance sheet financing transactions.

For tax purposes, they have been characterized as both financing and sale transactions.

For GAAP purposes, our securitizations have generally been treated as on-balance sheet financing transactions.

For tax purposes, they have been characterized primarily as sale transactions.

Where a securitization has been characterized as a sale, gain or loss is recognized for tax purposes.

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Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS)

We estimate that for 2023, our net TRS taxable loss will be $24.3 million.

We estimate that for 2024, our net TRS taxable income (loss) will be $7.4 million.

Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period.

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Net Interest Income $ 202,731 $ 176,479 $ 26,252

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 for Credit Losses $ 185,332 $ 197,643 $ (12,311)

Reversal/(Provision) for Credit Losses on Residential Whole Loans $ 3,084 $ 8,853 $ (5,769)

Reversal/(Provision) for Credit Losses on Other Assets (1,135) — (1,135)

Net Interest Income after Reversal/(Provision) for Credit Losses $ 204,680 $ 185,332 $ 19,348

Other Income/(Loss), net:

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Impairment and other net gain/(loss) on securities and other portfolio investments (10,869) 6,225 (17,094)

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

Net gain/(loss) on real estate owned 3,136 9,392 (6,256)

Net gain/(loss) on derivatives used for risk management purposes 78,503 3,761 74,742

Net gain/(loss) on securitized debt measured at fair value through earnings (64,813) (99,589) 34,776

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)

Lima One mortgage banking income 32,944 43,384 (10,440)

Net realized gain/(loss) on residential whole loans held at carrying value 418 (1,240) 1,658

Other, net 115 11,331 (11,216)

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Operating and Other Expense $ 170,414 $ 168,004 $ 2,410

Income/(loss) before income taxes $ 119,694 $ 80,442 $ 39,252

Provision for/(benefit from) income taxes 443 278 165

Net Income/(Loss) $ 119,251 $ 80,164 $ 39,087

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Diluted Earnings/(Loss) per Common Share $ 0.82 $ 0.46 $ 0.36

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.

For 2024, we had net income available to our common stock and participating securities of $86.4 million, or $0.83 per basic common share and $0.82 per diluted common share, compared to net income available to our common stock and participating securities for 2023 of $47.3 million, or $0.46 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 $22.3 million and higher Net Interest Income after Reversal/(Provision) for Credit Losses of $19.3 million.

Higher Other Income/Loss was primarily driven by mark-to-market gains in 2024 compared with losses in 2023 on derivatives used for risk management purposes and lower losses on securitized debt

measured at fair value through earnings, partially offset by lower realized losses and lower unrealized gains on our residential whole loans that are measured at fair value through earnings, realized losses on the unwind of derivatives used for risk management purposes, mark-to-market losses in 2024 compared with gains in 2023 on fair value option securities and lower Lima One mortgage banking income.

Net interest income for 2024 increased by $26.3 million from 2023, primarily due to higher asset yields and average balances on our residential whole loan portfolio and lower average balances of Residential whole loan financing agreements, partially offset by an increase in average balances and financing rates for our securitized debt and higher rates on senior notes issued to replace the maturing convertible senior notes.

2024 also includes a $5.8 million lower net reversal of the Provision for Credit Losses on Residential Whole Loans held at carrying value and a Provision for Credit Losses on Other Assets of $1.1 million.

Net Interest Income

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For 2024, our net interest spread and margin (including the impact of swaps) were 2.10% and 2.91%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.05% and 2.90%, respectively, for 2023.

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.

Our net interest income, which does not include the benefit of swap carry, increased by $26.3 million, or 14.9%, to $202.7 million from $176.5 million for 2023.

For 2024, net interest income includes higher net interest income from our residential whole loan portfolio of $27.2 million compared to 2023, primarily due to higher asset yields and higher amounts invested in the loan portfolio, partially offset by an increase in average balance and financing rates for our securitized debt.

In addition, net interest income for 2024 includes higher net interest income for our Securities, at fair value portfolio of approximately $0.9 million compared to 2023, primarily due higher amounts invested in the securities portfolio, partially offset by an increase in average balance of financing agreements for our securities.

Net interest income for 2024 also includes approximately $4.0 million of additional interest income from cash and other interest earning assets compared to 2023.

Analysis of Net Interest Income

The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2024 and 2023 .

Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the daily average balance of the related liabilities, for the periods shown.

The yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates.

Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the average balance of the related liabilities, for the periods shown.

The yields and costs may include premium amortization and discount accretion which are considered adjustments to interest income or expense.

For the Year Ended December 31,

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Interest-bearing liabilities:

Collateralized financing agreements (4)

$ 3,389,774 $ 246,598 7.18 % $ 3,511,565 $ 139,585 3.98 %

Securitized debt (3)

$ 5,220,172 $ 251,582 4.82 % $ 4,168,322 $ 166,919 4.00 %

Collateralized financing agreements (4)

3,490,693 248,444 7.00 3,389,774 246,598 7.18

Convertible Senior Notes 80,985 5,540 6.84 224,768 15,601 6.94

8.875% Senior Notes 107,914 10,603 9.83 — — —

9.00% Senior Notes 51,121 5,065 9.91 — — —

Total interest-bearing liabilities 8,950,885 521,234 5.78 7,782,864 429,118 5.47

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(1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.

For GAAP reporting purposes, purchases and sales are reported on the trade date.

For GAAP reporting purposes, securities purchases and sales are reported on the trade date.

Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.

(2) The net yield of 14.67% 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 10.73%.

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

(3) Includes both securitized debt, at carrying value and securitized debt, at fair value.

(4) Collateralized financing agreements include the following:

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For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K.

(5) Includes both securitized debt, at carrying value and securitized debt, at fair value.

(5) Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds.

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Other interest-earning assets (5,381) 3,412 (1,969)

Total net change in income of interest-earning assets $ 45,575 $ 77,603 $ 123,178

Total net change in income from interest-earning assets $ 64,785 $ 53,583 $ 118,368

Interest-bearing liabilities:

Securitized debt $ 46,714 $ 37,949 $ 84,663

Residential whole loan financing agreements (18,090) 1,800 (16,290)

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REO financing agreements 260 82 342

Securitized debt 24,025 39,396 63,421

Convertible Senior Notes (10,061) — (10,061)

(159) — (159)

8.875% Senior Notes 10,603 — 10,603

9.00% Senior Notes 5,065 — 5,065

Total net change in expense of interest-bearing liabilities $ 53,652 $ 38,464 $ 92,116

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March 31, 2023 1.74 2.64

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

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

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

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December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023

Purchased Performing Loans

Business Purpose Loans

Net Yield (1)

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Net Interest Spread 2.14 % 2.26 % 2.19 % 1.99 % 1.93 % 1.87 % 1.87 % 1.81 %

Purchased Credit Deteriorated Loans

Net Yield (1)

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Net Interest Spread 1.87 % 2.00 % 1.94 % 1.95 % 1.72 % 1.88 % 1.62 % 1.59 %

Purchased Non-Performing Loans

Legacy RPL/NPL Loans

Net Yield (1)

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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.

For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 142 basis points for our Purchased Performing Loans, 143 basis points for our Purchased Credit Deteriorated Loans, and 102 basis points for our Purchased Non-Performing Loans.

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, 2024, this decreased the overall funding cost by 101 basis points for our Residential whole loans, 80 basis points for our Business purpose loans, 136 basis points for our Non-QM loans, and 19 basis points for our Legacy RPL/NPL loans.

For the quarter ended September 30, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans.

For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans.

For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 99 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans.

For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 105 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 112 basis points for our Legacy RPL/NPL loans.

For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 113 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 111 basis points for our Legacy RPL/NPL loans.

For the quarter ended June 30, 2023, this increased the overall funding cost by 144 basis points for our Residential whole loans, 110 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 126 basis points for our Legacy RPL/NPL loans.

For the quarter ended March 31, 2023, this increased the overall funding cost by 127 basis points for our Residential whole loans, 100 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans.

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

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Quarter Ended Net Yield (1)

Cost of Funding (2)

Net Interest Rate Spread

December 31, 2024 6.05 % 3.34 % 2.71 %

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

(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%.

(2) 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.

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 that is allocated to the financing of our Securities, at fair value.

For the quarter ended December 31, 2024, this decreased the overall funding cost by 168 basis points.

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For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 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.

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.

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 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.

Interest income on our residential whole loans for 2024 increased by $95.7 million, or 17.8%, to $633.6 million compared to $537.9 million for 2023.

This increase primarily reflects an increase in the yield to 6.74% for 2024 from 6.15% for 2023 and a $0.7 billion increase in the average balance of this portfolio to $9.4 billion for 2024 from $8.7 billion for 2023.

Interest income on our Securities, at fair value portfolio for 2024 increased $18.7 million to $61.1 million from $42.4 million for 2023.

This increase primarily reflects an increase in the average amortized cost of the portfolio of $368.5 million due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 6.59% for 2024, compared to 7.57% for 2023.

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.

Interest Expense

Our interest expense for 2024 increased by $92.1 million, or 21.5%, to $521.2 million, from $429.1 million for 2023.

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

This increase primarily reflects the higher overall average balances and financing rates of our securitized debt, higher average balances for securities repurchase agreements and $10.6 million and $5.1 million of interest expense related to our 8.875% Senior Notes issued in January 2024 and 9.00% Senior Notes that were issued in April 2024, respectively.

These increases were partially offset by the impact of lower average balances for residential whole loan financing agreements and lower interest expense for convertible senior notes as these notes matured in June 2024 and were repaid in full.

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

For 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $3.1 million compared to a reversal of provision of $8.9 million for 2023.

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.

The reversal of provision recorded in 2024 primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions.

The prior period reversal 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.

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.

For 2024, we recorded a provision for credit losses on Other Assets of $1.1 million, related to an uncollectible receivable from an unrelated third-party servicer.

No such provision was recorded for 2023.

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Impairment and other net gain/(loss) on securities and other portfolio investments (10,869) 6,225

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

Net gain/(loss) on real estate owned 3,136 9,392

Net gain/(loss) on derivatives used for risk management purposes 78,503 3,761

Net gain/(loss) on securitized debt measured at fair value through earnings (64,813) (99,589)

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) —

Lima One mortgage banking income 32,944 43,384

Net realized gain/(loss) on residential whole loans held at carrying value 418 (1,240)

Other, net 115 11,331

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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.

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 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.

Operating and other expenses are composed of compensation and benefits, other general and administrative, loan servicing and other related operating expenses and amortization of Lima One intangible assets.

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One origination related commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses.

Compensation and benefits expense increased $1.9 million to $87.7 million for 2024, compared to $85.8 million for 2023 primarily driven by separation, retirement, and severance related costs, partially offset by reduction in origination related commission expenses and lower stock-based compensation expense.

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

Other general and administrative expenses increased by $0.4 million to $44.3 million for 2024 compared to $43.9 million for 2023, primarily as a result of accelerated depreciation of a software asset at Lima One, higher costs associated with IT infrastructure at our corporate offices and tax related accounting fees, partially offset by lower depreciation at our corporate offices, and lower professional fees and miscellaneous expenses at Lima One.

Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities.

These expenses increased compared to 2023 by approximately $1.2 million, or 3.4%, primarily due to higher non-recoverable advances and upfront costs on securitization.

Selected Financial Ratios

The following table presents information regarding certain of our financial ratios at or for the dates presented:

At or for the Quarter Ended Return on

Average Total

Stockholders’

Total Average

Stockholders’

Equity to Total

Average Assets (4)

At or for the Quarter Ended Return on Average Total Assets (1)

Return on Average Total Stockholders’ Equity (2)

Dividend Payout Ratio (3)

Total Average Stockholders’ Equity to Total Average Assets (4)

Leverage Multiple (5) Recourse Leverage Multiple (6)

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(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.

For the quarters ended September 30, 2023, and June 30, 2023, 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 September 30, 2023, and June 30, 2023, 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 and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity.

(6) Represents the sum of our borrowings under financing agreements (excluding securitized debt 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.

Realized gains and losses arising from loans sold to third-parties by Lima One shortly after the origination of such loans are included in Distributable earnings.

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.

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

During the third quarter of 2024, the Company changed the determination of Distributable earnings to exclude depreciation, for consistency with the reporting of similar non-cash expenses;

this change has been reflected in all periods presented.

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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Residential whole loans and securities at carrying value — (7,324) (2,668) (418) 332 — — —

332 — — — — — — —

Interest rate swaps (46,632) 84,629 10,237 (23,182) 97,400 (9,433) (37,018) 40,747

Securitized debt held at fair value (47,267) 71,475 7,597 20,169 108,693 (40,229) (30,908) 48,846

Investments in loan origination partners 254 722 872 — 8,526 2,031 39,162 780

Other portfolio investments

(94) 1,503 1,484 — 254 722 872 —

Expense items:

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Securitization-related transaction costs 5,252 3,485 3,009 1,340 2,702 3,217 2,071 4,602

Depreciation 938 2,604 822 889 869 841 704 1,866

Total adjustments 43,246 (1,247) 12,776 22,130 (30,958) 106,698 75,354 (31,724)

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Weighted average common shares for basic earnings per share

103,675 103,647 103,446 103,175 102,266 102,255 102,186 102,155

Selected Financial Ratios (using Distributable earnings)

The following table presents information regarding certain of our financial ratios at or for the dates presented:

At or for the Quarter Ended Return on

Average Total

Stockholders’

Dividend Payout

At or for the Quarter Ended Return on Average Total Assets (1)

Return on Average Total Stockholders’ Equity (2)

Dividend Payout Ratio (3)

December 31, 2024 1.72 % 10.49 % 0.90

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

Segment Reporting (using Distributable earnings)

The following tables present our non-GAAP Distributable earnings by segment for the periods below:

(Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total

Year Ended December 31, 2023

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:

Residential whole loans held at fair value (69,486) (20,363) — (89,849)

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

Securitized debt held at fair value 56,032 30,370 — 86,402

Investments in loan origination partners — — 1,848 1,848

Expense items:

Amortization of intangible assets — 4,200 — 4,200

Equity based compensation — 521 14,513 15,034

Securitization-related transaction costs 145 — 12,447 12,592

Total adjustments $ 48,467 $ 37,815 $ 28,808 $ 115,090

Distributable earnings $ 178,738 $ 71,268 $ (87,627) $ 162,379

(Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total

Year Ended December 31, 2022

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

Unrealized and realized gains and losses on:

Residential whole loans held at fair value 730,028 136,734 — 866,762

Securities held at fair value 3,227 — — 3,227

Interest rate swaps (174,424) (34,288) — (208,712)

Securitized debt held at fair value (232,194) (60,764) — (292,958)

Investments in loan origination partners — — 50,499 50,499

Expense items:

Amortization of intangible assets — 9,200 — 9,200

Equity based compensation — 164 11,174 11,338

Securitization-related transaction costs — — 16,390 16,390

Total adjustments $ 326,637 $ 51,046 $ 78,063 $ 455,746

Distributable earnings $ 237,724 $ 41,381 $ (88,442) $ 190,663

Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share

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For performing loans, estimates of fair value are derived using a discounted cash flow approach, where estimates of cash flows are determined from the scheduled payments, adjusted using forecasted prepayment, default and loss given default rates.

For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and estimated home price levels.

For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and

estimated home price levels.

Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset.

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Residential whole loans, at carrying value experienced net fair value changes of $20.4 million, $34.6 million and $223.7 million during the years ended December 31, 2024, 2023, and 2022, respectively.

Allowance for Credit Losses on Residential Whole Loans

An allowance for credit losses is recorded at acquisition, and maintained on an ongoing basis, for all losses expected over the life of the respective loan.

Any required credit loss allowance would reduce the net carrying value of the loan with a corresponding charge to earnings, and may increase or decrease over time.

Significant judgments are required in determining any allowance for credit loss, including assumptions regarding the loan cash flows expected to be collected, including related economic forecasts, the value of the underlying collateral and our ability to collect on any other forms of security, such as a personal guaranty provided either by the borrower or an affiliate of the borrower.

Allowances for credit losses on our residential whole loans, at carrying value recorded at December 31, 2023, 2022, and 2021 were $20.5 million, $35.3 million and $39.4 million, respectively.

For further discussion of the allowance for credit losses during these periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for Credit Losses on Residential Whole Loans Held at Carrying Value.”

Recent Accounting Standards to Be Adopted in Future Periods

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).

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

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (or ASU 2024-03).

The amendments in ASU 2024-03 primarily require entities to disclose additional details regarding certain expenses on both an annual and interim basis.

ASU 2024-03 is effective for public business entities for fiscal years beginning after December 15, 2026.

Early adoption is permitted.

We do not expect that the adoption of ASU 2024-03 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, 2024, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement.

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.

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.

The Company did not issue any shares pursuant to its DRSPP during 2024.

In January 2024, we completed the issuance of $115.0 million in aggregate principal amount of its 8.875% Senior Notes in an underwritten public offering.

The 8.875% Senior Notes are our senior unsecured obligations and bear interest at a rate equal to 8.875% per year, payable in cash quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, beginning on May 15, 2024, and are expected to mature on February 15, 2029, unless earlier redeemed.

We may redeem the 8.875% Senior Notes in whole or in part at any time at our option on or after February 15, 2026, at a redemption price equal to 100% of the outstanding principal amount of the 8.875% Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

The total net proceeds to us from the offering of the 8.875% Senior Notes, after deducting the underwriter’s discount and commissions and offering expenses, were approximately $110.6 million.

The 8.875% Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 9.83%.

On February 29, 2024, we entered into a distribution agreement pursuant to which we may offer and sell shares of our common stock having an aggregate gross sales price of up to $300 million, from time to time, through various sales agents in transactions deemed to be “at-the-market” offerings under federal securities laws (or the ATM Program).

During 2024, we did not sell any shares of common stock through the ATM Program.

At December 31, 2024, $300 million remained available under the distribution agreement.

On February 29, 2024, we announced our Board had authorized a new $200 million stock repurchase program with respect to our common stock, which will be in effect through the end of 2025.

The new stock repurchase program supersedes the prior stock repurchase program in its entirety.

Refer to Part II, Item 5 for further information about the stock repurchase program.

During 2024, we did not repurchase any shares of our common stock through the stock repurchase program.

At December 31, 2024, $200.0 million remained available under the current Board authorization for the purchase of common stock under our stock repurchase program.

In April 2024, we completed the issuance of $75.0 million in aggregate principal amount of its 9.00% Senior Notes in an underwritten public offering.

The 9.00% Senior Notes are our senior unsecured obligations and bear interest at a rate equal to 9.00% per year, payable in cash quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, beginning on August 15, 2024, and are expected to mature on August 15, 2029, unless earlier redeemed.

We may redeem the 9.00% Senior Notes in whole or in part at any time at our option on or after August 15, 2026, at a redemption price equal to 100% of the outstanding principal amount of the 9.00% Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

The total net proceeds to us from the offering of the 9.00% Senior Notes, after deducting the underwriter’s discount and commissions and offering expenses, were approximately $72.0 million.

The 9.00% Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 9.94%.

In February 2023, our Board authorized a repurchase program for its Convertible Senior Notes pursuant to which it could have repurchased up to $100 million of our Convertible Senior Notes.

During the three months ended March 31, 2024, we repurchased $39.9 million principal amount of our Convertible Senior Notes for $39.8 million and recorded a loss of $0.1 million to Other Income/(Loss), net on the consolidated statement of operations.

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 $0.1 million to Other Income/(Loss), net on the consolidated statement of operations.

During the three months ended June 30, 2024, the Convertible Senior Notes matured and we repaid the amount in full.

Financing Agreements

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Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts (or the percentage amount by which the collateral value is contractually required to exceed the loan amount), purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction and cross default and setoff provisions.

Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance.

Other non-repurchase

agreement financing arrangements also contain provisions governing collateral maintenance.

At December 31, 2024, we had unused financing capacity of approximately $3.8 billion across our financing arrangements for all collateral types.

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For additional information regarding our various types of financing arrangements, including those with non-mark-to-market terms and the haircuts for those agreements with mark-to-market collateral provisions, see Note 6 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K.

At December 31, 2023, we had a total of $3.9 billion of residential whole loans and securities and $19.0 million of restricted cash pledged to our financing counterparties.

At December 31, 2024, we had a total of $1.8 billion of residential whole loans, $1.4 billion of securities and $17.0 million of restricted cash pledged to our financing counterparties, excluding securitized debt.

We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements.

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Quarter Ended (1)

Balance End of Period

Balance Maximum

Balance at Any

Month-End Quarterly

Balance End of Period

Balance Maximum

Balance at Any

Quarterly Average Balance

End of Period Balance

Maximum Balance at Any Month-End

Quarterly Average Balance

End of Period Balance

Maximum Balance at Any Month-End

(In Thousands)

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March 31, 2023 3,145,555 3,042,802 3,189,587 3,680,042 3,830,309 3,838,654

December 31, 2021 3,313,641 3,501,839 3,501,839 2,302,990 2,650,473 2,650,473

September 30, 2021 2,516,940 3,278,941 3,278,941 2,008,639 2,045,729 2,137,773

June 30, 2021 2,063,852 2,156,598 2,156,598 1,778,909 2,046,381 2,046,381

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, 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.

(1) The information presented in the table above excludes Senior notes (Note 6).

Cash Flows and Liquidity for the Year Ended December 31, 2024

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.

Our cash, cash equivalents and restricted cash increased by $113.1 million during 2024, reflecting:

$424.6 million used in our investing activities, $337.6 million provided by our financing activities and $200.1 million provided by our operating activities.

At December 31, 2024, our debt-to-equity multiple was 5.0 times compared to 4.5 times at December 31, 2023.

Our recourse leverage multiple at December 31, 2023 was 1.7 times compared to 1.8 times at December 31, 2022.

At December 31, 2023, we had borrowings under asset-backed financing agreements of $3.6 billion, of which $2.9 billion were secured by residential whole loans, $622.6 million were secured by securities and $25.2 million were secured by REO.

Our recourse leverage multiple at December 31, 2024 and December 31, 2023 was 1.7 times.

At December 31, 2024, we had borrowings under asset-backed financing agreements of $3.2 billion, of which $1.9 billion were secured by residential whole loans, $1.3 billion were secured by securities and $25.4 million were secured by REO.

In addition, at December 31, 2024, we had securitized debt of $5.8 billion in connection with our loan securitization transactions.

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During 2024, $0.4 billion was used in our investing activities.

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 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.

We utilized $2.7 billion for acquisitions and origination of residential whole loans, loan related investments and capitalized advances.

During 2024, we received $2.2 billion of principal payments on residential whole loans and loan related investments, $654.1 million of proceeds from the sale of residential whole loans, and $86.1 million of proceeds on sales of REO.

In addition, during 2024, we utilized $869.1 million for acquisitions of securities and received cash proceeds of $45.6 million from sales of securities and other assets and $84.0 million from principal payments on our securities.

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

Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required.

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and (iii) the market value of our Swaps.

Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional assets and/or cash.

Margin calls and reverse margin calls are satisfied when we pledge or receive additional collateral in the form of additional assets and/or cash.

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 for Margin

Cash and Securities Received for Reverse

Collateral Pledged for Margin Activity

Cash and Securities Received for Reverse Margin

Net Assets Received/(Pledged) for Margin Activity

For the Quarter Ended (1)

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

Fair Value of Securities Pledged

Aggregate Assets Pledged for Margin

(In Thousands)

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March 31, 2024 17,379 3,358 20,737 16,514 (4,223)

December 31, 2023 10,616 4,085 14,701 23,060 8,359

September 30, 2023 35,690 4,363 40,053 34,846 (5,207)

June 30, 2023 5,982 2,909 8,891 5,328 (3,563)

March 31, 2023 676 2,965 3,641 6,529 2,888

(1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.

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On December 11, 2024, we declared our fourth quarter 2024 dividend on our common stock of $0.35 per share;

on January 31, 2024, we paid this dividend, which totaled approximately $35.8 million, including dividend equivalents of approximately $119,000.

on January 31, 2025, we paid this dividend, which totaled approximately $36.0 million, including dividend equivalents of approximately $0.3 million.

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