Segment Reporting

12 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

At December 31, 2022, the Company’s reportable segments include (i) mortgage-related assets and (ii) Lima One. The Corporate column in the table below primarily consists of corporate cash and related interest income, investments in loan originators and related economics, general and administrative expenses not directly attributable to Lima One, interest expense on unsecured convertible senior notes (Note 6), securitization issuance costs, and preferred stock dividends.

The following tables summarize segment financial information, which in total reconciles to the same data for the Company as a whole. The Company is not presenting comparable segment statements of operations for the year ended December 31, 2020, because the Company did not consolidate Lima One during those periods:

(Dollars in Thousands)	Mortgage-Related Assets		Lima One		Corporate		Total
Year Ended December 31, 2022
Interest Income	$	364,761	$	113,134	$	4,524	$	482,419
Interest Expense	176,725		66,358		15,760		258,843
Net Interest Income/(Expense)	$	188,036	$	46,776	$	(11,236)	$	223,576
Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans	2,842		(196)		—		2,646
Provision for Credit Losses on Other Assets	—		—		(28,579)		(28,579)
Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses	$	190,878	$	46,580	$	(39,815)	$	197,643
Net loss on residential whole loans measured at fair value through earnings	$	(730,028)	$	(136,734)	$	—	$	(866,762)
Impairment and other net loss on securities and other portfolio investments	(3,146)		—		(21,921)		(25,067)
Net gain on real estate owned	25,348		31		—		25,379
Net gain on derivatives used for risk management purposes	217,961		37,218		—		255,179
Net gain on securitized debt measured at fair value through earnings	231,176		59,463		—		290,639
Lima One - origination, servicing and other fee income	—		46,745		—		46,745
Other, net	4,282		537		4,478		9,297
Total Other (Loss)/Income, net	$	(254,407)	$	7,260	$	(17,443)	$	(264,590)
General and administrative expenses (including compensation)	$	—	$	53,185	$	59,355	$	112,540
Loan servicing, financing, and other related costs	25,384		1,120		16,390		42,894
Amortization of intangible assets	—		9,200		—		9,200
Net Loss	$	(88,913)	$	(9,665)	$	(133,003)	$	(231,581)
Less Preferred Stock Dividend Requirement	$	—	$	—	$	32,875	$	32,875
Net Loss Available to Common Stock and Participating Securities	$	(88,913)	$	(9,665)	$	(165,878)	$	(264,456)

(Dollars in Thousands)	Mortgage-Related Assets		Lima One		Corporate		Total
Year Ended December 31, 2021
Interest Income	$	347,863	$	14,249	$	190	$	362,302
Interest Expense	99,905		4,691		15,789		120,385
Net Interest Income/(Expense)	$	247,958	$	9,558	$	(15,599)	$	241,917
Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans	$	44,981	$	(118)	$	—	$	44,863
Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses	$	292,939	$	9,440	$	(15,599)	$	286,780
Net (loss)/gain on residential whole loans measured at fair value through earnings	$	(2,719)	$	18,962	$	—	$	16,243
Impairment and other net gain on securities and other portfolio investments	1,607		—		72,889		74,496
Net gain on real estate owned	22,760		78		—		22,838
Net gain/(loss) on derivatives used for risk management purposes	1,457		(31)		—		1,426
Net gain on securitized debt measured at fair value through earnings	14,594		433		—		15,027
Lima One - origination, servicing and other fee income	—		22,600		—		22,600
Other, net	759		128		11,586		12,473
Total Other Income, net	$	38,458	$	42,170	$	84,475	$	165,103
General and administrative expenses (including compensation)	$	—	$	24,140	$	61,406	$	85,546
Loan servicing, financing, and other related costs	25,250		436		5,181		30,867
Amortization of intangible assets	—		6,600		—		6,600
Net Income	$	306,147	$	20,434	$	2,289	$	328,870
Less Preferred Stock Dividend Requirement	$	—	$	—	$	32,875	$	32,875
Net Income/(Loss) Available to Common Stock and Participating Securities	$	306,147	$	20,434	$	(30,586)	$	295,995

(Dollars in Thousands)	Mortgage-Related Assets		Lima One		Corporate		Total
December 31, 2022
Total Assets	$	6,065,557	$	2,618,695	$	428,153	$	9,112,405
December 31, 2021
Total Assets	$	7,567,084	$	1,200,737	$	371,867	$	9,139,688

Lima One Segment

On July 1, 2021, the Company completed the acquisition from affiliates of Magnetar Capital of their ownership interests in Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively, “Lima One”), a leading originator and servicer of business purpose loans. In connection with this transaction, the Company also acquired from certain members of management of Lima One their ownership interests in Lima One Holdings, LLC. With the completion of these transactions (collectively, “the transaction”), the Company acquired the remaining approximately 57% of the common equity interests of Lima One that it did not previously own, for cash consideration of $57.3 million and $4.7 million of restricted stock unit awards issued to certain members of the Lima One management team. As a result of these transactions, the Company gained control of 100% of the ownership interests in Lima One and was required to consolidate its financial results from that date.

The transaction is accounted for under the purchase method of accounting. Under purchase accounting, the purchase

consideration to acquire Lima One is defined as the cash paid to acquire the approximately 57% of the common equity interests not previously owned and the estimated fair value of the previously owned approximately 43% common equity interest. Further, under purchase accounting, the Company was required to revalue the previously owned common equity interest to fair value. At the time of the revaluation, the previously owned common equity interest had a carrying value of $5.6 million (net of a $21.0 million impairment charge that was recorded in the first quarter of 2020). Consequently, the revaluation resulted in the Company recording a gain of $38.9 million that is presented in Other income in the Company’s consolidated statement of operations for the year ended December 31, 2021. Accordingly, under the purchase method of accounting, the purchase consideration allocated was $101.7 million. The restricted stock awards issued are not included in the purchase consideration as it was determined that they should be accounted for as compensation expense for post-combination services.

Additionally, concurrent with the closing of the transaction, the Company injected additional capital that facilitated the repayment by Lima One of $47.4 million of outstanding preferred equity interests, of which $22.0 million were held by the Company prior to closing. As the Company had previously recorded an impairment write-down on its investment in Lima One’s preferred equity that was repaid in connection with the transaction, the Company recorded a gain of $5.0 million to reflect the reversal of this impairment charge. This gain was recorded in Other Income in the consolidated statements of operations for the year ended December 31, 2021. Further, the Company paid a total of $428,000 of acquisition related expenses, which were recorded in Operating and Other Expenses in the consolidated statements of operations for the year ended December 31, 2021.

The Company performed an allocation of the purchase consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available at the acquisition date. The excess of the purchase consideration over the net assets acquired of $61.1 million was allocated to goodwill. The goodwill is attributed to further access and expansion into business purpose loan markets as well as access to an experienced management team and workforce that are expected to continue to provide services to the business. In addition, the Company identified and recorded finite-lived intangible assets totaling $28.0 million (Note 5).

The purchase price allocations are summarized in the table below:

Purchase Price Allocation
(In Thousands)
Acquisition Date	July 1, 2021
Purchase Price:
Cash	$	57,255
Equity method investment at fair value	44,465
Total consideration	$	101,720
Allocated to:
Business purpose residential loans, at fair value	$	170,220
Cash and cash equivalents	16,531
Restricted cash	91,394
Other assets	37,107
Goodwill	61,076
Intangible assets	28,000
Total assets acquired	$	404,328
Short term debt, net	$	(170,908)
Accrued expenses and other liabilities	(84,324)
Total liabilities assumed	$	(255,232)
Preferred equity repaid at closing	(47,376)
Total net assets acquired	$	101,720

The Lima One segment includes the stand-alone mortgage origination and servicing business of Lima One, including related goodwill, intangible assets, and direct expenses, plus Lima One-related residential whole loans and REO (defined as both those owned by Lima One on the acquisition date and those originated by Lima One since the acquisition date) and the economics related thereto (including any related taxes and the economics of associated financing and hedging instruments), all as recorded under GAAP. Associated financing economics are equal to the results of direct financings of Lima One-related residential whole loans and REO plus allocations of the results of financings which include Lima One related residential whole loans and REO as part of their collateral, based on the relative carrying values of the financed assets. Associated hedging economics are equal to allocations of the Company’s overall hedging results based on the relative estimated duration of each asset class hedged and the relative fair values of assets within each asset class.

Mortgage-Related Assets Segment

This segment is comprised of the remainder of the Company’s investments (including any related taxes and the economics of associated financing and hedging instruments).