Overview of the Company

We are a specialty finance company that invests in and finances residential mortgage assets. 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. We selectively invest in residential mortgage assets with a focus on credit analysis, projected prepayment rates, interest rate sensitivity and expected return.

At March 31, 2025, we had total assets of approximately $11.5 billion, of which $8.8 billion, or 76%, represented residential whole loans. Our residential whole loan portfolio includes primarily non-qualified mortgage loans, short-term business purpose loans collateralized by residential properties, and loans on investor properties that conform to the standards for purchase by government-sponsored enterprises. We also had approximately $1.8 billion or 16% of total assets invested in securities, including Agency mortgage-backed securities, term notes backed by mortgage servicing rights, credit risk transfer securities, and non-Agency mortgage-backed securities.

Financial Performance

For the first quarter of 2025, we had net income available to our common stock and participating securities of $33.0 million, or $0.32 per basic common share and $0.31 per diluted common share. This compares to a net loss available to common stock and participating securities of $(2.3) million, or $(0.02) per basic and diluted common share, for the fourth quarter of 2024.

Our net interest income increased by $6.7 million to $57.5 million for the first quarter of 2025, compared to $50.8 million for the fourth quarter of 2024. This increase was primarily due to higher net interest income from our residential whole loan portfolio and our securities portfolio, partially offset by lower interest income from cash and other interest-earning assets.

Our net interest spread and margin (including the impact of swaps) were 1.84% and 2.63%, respectively, for the first quarter of 2025, compared to 1.99% and 2.76%, respectively, for the fourth quarter of 2024.

For the three months ended March 31, 2025, we recorded a provision for credit losses on residential whole loans held at carrying value of $0.1 million, compared to a provision for credit losses of $0.4 million for the fourth quarter of 2024.

Other Income/(Loss), net was $24.5 million for the first quarter of 2025, compared to $(7.1) million for the fourth quarter of 2024. The increase was primarily due to higher net gains on residential whole loans measured at fair value through earnings and higher net gains on securities and other portfolio investments, partially offset by higher net losses on derivatives and securitized debt.

Strengths and Weaknesses

One of the key strengths of our business is the diversification of our residential mortgage asset portfolio, which includes a mix of residential whole loans, securities, and other real estate-related investments. This diversification helps to mitigate risk and provides opportunities for generating distributable income.

Another strength is our focus on credit analysis and underwriting standards, particularly for our business purpose and non-qualified mortgage loans. We believe our emphasis on sound underwriting and low loan-to-value ratios at origination helps to mitigate the risk of credit losses on these investments.

A potential weakness is our exposure to interest rate risk, as changes in interest rates can affect our net interest income and the fair value of our assets and liabilities. To manage this risk, we use derivative instruments, such as interest rate swaps, to hedge against future interest rate increases on our financing transactions.

Another potential weakness is our reliance on short-term financing arrangements, such as repurchase agreements, which can be subject to margin calls and reduced availability during periods of market volatility. We seek to maintain a diversified funding strategy and adequate liquidity to address this risk.

Outlook and Future Prospects

Looking ahead, we remain focused on selectively investing in residential mortgage assets that we believe will generate attractive risk-adjusted returns for our shareholders. We will continue to closely monitor market conditions, interest rates, and the performance of our investment portfolio to identify opportunities and manage risks.

One area of potential growth is our business purpose lending subsidiary, Lima One, which originates and services business purpose loans for real estate investors. During the first quarter of 2025, Lima One originated $213 million in business purpose loans, and we believe this platform provides a valuable source of originations to support the growth of our overall residential mortgage asset portfolio.

However, we also face potential headwinds, such as the ongoing uncertainty around government policies and regulations in the mortgage and housing finance sectors. Changes in these areas could impact the types of assets we can acquire, the costs of these assets, and our overall business operations.

Overall, we believe our diversified investment strategy, disciplined underwriting approach, and focus on risk management position us well to navigate the challenges and capitalize on the opportunities in the residential mortgage market in the years ahead.