CHMI 10-K & 10-Q changes, risk factors and insider trading

The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20% (plus the 3.8% surtax on net investment income, if applicable). Dividends payable by REITs, however, are generally not eligible for the reduced rates on qualified dividend income. However, REIT dividends constitute “qualified business income” and thus a 20% deduction is available to individual taxpayers with respect to such dividends, resulting in a 29.6% maximum federal tax rate (plus the 3.8% surtax on net investment income, if applicable) for individual U.S. stockholders. Unless Congress takes action, the 20% deduction applicable to REIT dividends will expire on January 1, 2026. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our stock.

WeOn areNovember 14, 2024, we became a fully integrated, internally managed residential real estate finance company focused on acquiring, investing in and managing residential mortgage assets in the United States. States. We were incorporated in Maryland on October 31, 2012, and we commenced operations on or about October 9, 2013, following the completion of our initial public offering and a concurrent private placement. Our common stock, our Series A Preferred Stock and our Series B Preferred Stock are listed and traded on the NYSE under the symbols “CHMI”, “CHMI-PRA” and “CHMI-PRB”, respectively. As of November 14, 2024, we are a fully integrated, internally managed mortgage REIT. Prior to November 14, 2024, we were externally managed by Cherry Hill Mortgage Management, LLC, an SEC-registered investment adviser.

In December 2023, the Company initiated a preferred stock repurchase program that allows for the repurchase of up to an aggregate of $50.0 million of its shares of Preferredpreferred Stock. stock. Shares of preferred stock may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 under the Exchange Act. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The preferred stock repurchase program does not require the purchase of any minimum number of shares of preferred stock, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the year ended December 31, 2025, the Company did not repurchase any Preferred Stock pursuant to the repurchase program. During the year ended December 31, 2024, the Company repurchased 395,897 shares of its Series B Preferred Stock at a weighted average purchase price of $23.77 per share and paid aggregate brokerage commissions of approximately $11,900 on such repurchases. The difference between the consideration transferred and the carrying value of the preferred stock repurchased resulted in a gain attributable to common stockholders of $78,000 for the year ended December 30, 2024. During the year ended December 31, 2023, the Company did not repurchase any Preferred Stock pursuant to the repurchase program. Shares of preferred stock that are repurchased by the Company cease to be outstanding but remain authorized for future issuance.

TheTo the extent the Federal Reserve’sReserve actionstakes future action to ease monetary policy by reducing its federal funds rate and/or reducepurchasing thesecurities speedand at which it is decreasingincreasing its balance sheetsheet, it will generally lower interest rates across asset classes, including for Agency RMBS. Lower rates could reduce our funding costs and spur economic activity, increasing our net interest income. Higher prepayment could reduce the length of cash flows from the MSRs and accelerate the premium amortization on the RMBS portfolio. In the event that the Federal Reserve reverses course and tightens monetary policy in the future by increasing the federal funds rate and/or theselling ratesecurities ofand reducing its run off of its balance sheet, these actions could result in higher interest rates, including for Agency RMBS, and reduce economic activity in the United States, as well as decrease spreads on interest rates, which can reduce our net interest income and increase our funding costs. They may also negatively impact our results as we have certain assets and liabilities that are sensitive to changes in interest rates. In addition, lower net interest income resulting from higher rates is partially offset by lower prepayments which extends the length of cash flows from the MSRs and slows the premium amortization on the RMBS portfolio.

The value of our assets may be affected by prepayment speeds on mortgage loans. Prepayment speed is the measurement of how quickly borrowers pay down the UPBunpaid principal balance of their loans or how quickly loans are otherwise liquidated or charged off. Generally, in a declining interest rate environment, prepayment speeds tend to increase. Conversely, in an increasing interest rate environment, prepayment speeds tend to decrease. When we acquire Servicing Related Assets or RMBS, we anticipate that the underlying mortgage loans will prepay at a projected rate generating an expected cash flow (in the case of Servicing Related Assets) and yield. If we purchase assets at a premium to par value and borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on our assets may reduce the expected yield on such assets because we will have to amortize the related premium on an accelerated basis. In addition, we will have to reinvest the greater amounts of prepayments in that lower rate environment, thereby affecting future yields on our assets. If we purchase assets at a discount to par value, and borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments may reduce the expected yield on assets because we will not be able to accrete the related discount as quickly as originally anticipated.

We attempt to reduce the exposure of our MSRs to voluntary prepayments through the structuring of recapture agreements with Aurora’s subservicers. Under these agreements, the subservicer attempts to refinance specified mortgage loans. The subservicer sells the new mortgage loan to the applicable Agency, transfers the related MSR to Aurora and then subservices the new mortgage loan on behalf of Aurora. See “Item 8. Consolidated Financial Statements and Supplementary Data—Note 7. Transactions with Related Parties” for information regarding Aurora’s recapture agreements.

We have elected the fair value option to record our investments in MSRs in order to provide users of our consolidated financial statements with better information regarding the effects of prepayment risk and other market factors on the MSRs. Under this election, we record a valuation adjustment on our investments in MSRs on a quarterly basis to recognize the changes in fair value of our MSRs in net income as described below. Although transactions in MSRs are observable in the marketplace, the valuation includes unobservable market data inputs (prepayment speeds, delinquency levels, costs to service and discount rates). The change in fair value of MSRs is recorded within “Unrealized gain (loss) on investments in Servicing Related Assets” on the consolidated statements of income (loss). Fair value is generally determined by discounting the expected future cash flows using discount rates that incorporate the market risks and liquidity premium specific to the MSRs and, therefore, may differ from their effective yields. In determining the valuation of MSRs, management uses internally developed pricing models that are based on certain unobservable market-based inputs. The Company classifies these valuations as Level 3 in the fair value hierarchy. For additional information on our fair value methodology, see “Item 8. Consolidated Financial Statements and Supplementary Data—Note 9. Fair Value.”

We finance the acquisition of our RMBS for our portfolio through repurchase transactions under master repurchase agreements. Repurchase transactions are treated as collateralized financing financing transactions and are carried at their contractual amounts as specified in the respective transactions. Accrued interest payable is included in “Accrued expenses and other liabilities” on the consolidated balance sheets. Securities financed through repurchase transactions remain on our consolidated balance sheet as an asset and cash received from the purchaser is recorded on our consolidated balance sheetsheets as a liability. Interest paid in accordance with repurchase transactions is recorded in interest expense on the consolidated statements of income (loss).

Interest income for the year ended December 31, 20242025 was $55.8$61.1 million as compared to $50.0$55.8 million for the year ended December 31, 2023.2024. The $5.8$5.3 million increase in interest income for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 was due to purchases of new securities, an increase in price premium amortization as well as replacing lower yielding securities with higher yielding securities coupled with portfolio positioning.securities.

Interest expense for the year ended December 31, 20242025 was $55.7$49.8 million as compared to $51.6$55.8 million for the year ended December 31, 2023.2024. The $4.1$6.0 million increasedecrease in interest expense for the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024 was primarily due to a risedecrease in repurchasefinancing obligations.rates combined with a decrease in notes payable.

Servicing costs for the year ended December 31, 20242025 were $12.4$9.3 million as compared to $11.2$12.4 million for the year ended December 31, 2023.2024. The $1.2$3.1 million increasedecrease in servicing costs for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 was primarily due to changes in the portfolio and a one-time loan level adjustmentsadjustment as well as de-boarding fees related to the MSR sale.sale during the year ended December 31, 2024.

Realized gain on investments in MSRs for the year ended December 31, 20242025 was approximately $504,000$0 as compared to $0$0.5 million for the year ended December 31, 2023.2024. The increasedecrease of $504,000 $0.5 million in realized gain on MSRs was because no MSRs were sold during the year ended December 31, 2023.2025.

Realized gain on derivatives for the year ended December 31, 20242025 was $21.3$7.0 million as compared to $33.8$21.3 million for the year ended December 31, 2023.2024. The $12.5$14.3 million decrease in realized gain on derivatives for the year ended December 31, 20242025 as compared to December 31, 20232024 was substantially comprised of a decrease of $13.4 million in interest income on interest rate swaps and an increase of $24.7$5.5 million in losses on interest rate swaps, offset by a decrease of $1.8 million in losses on TBAs and a decrease of $1.4 million in interest income on interest rate swaps, offset by a decrease of $9.2 million in losses on interest rate swaps and a decrease of $4.3$2.8 million in losses on U.S. Treasury futures.futures due to changes in interest rates as well as composition of derivatives.

Unrealized lossgain on RMBS measured at fair value through earnings for the year ended December 31, 20242025 was $19.4$35.6 million as compared to a gainloss of $9.8$19.4 million for the year ended December 31, 2023.2024. The increase of $29.2$55.0 million in unrealized lossgain on RMBS measured at fair value through earnings was due to a risedrop in interest rates during the year.period combined with spread tightening.

Unrealized gainloss on derivatives for the year ended December 31, 20242025 was $9.8$39.8 million as compared to a lossgain of $43.1$9.8 million for the year ended December 31, 2023.2024. The $52.9$49.6 million decrease increase in unrealized loss on derivatives for the year ended December 31, 20242025 as compared to December 31, 20232024 was primarily due to changes in interest rates and the composition of our derivatives relative to the prior year.

Unrealized loss on our investments in Servicing Related Assets for the year ended December 31, 20242025 was $7.2$18.8 million as compared to $25.9$7.2 million for the year ended December 31, 2023. 2024. The $18.7 $11.6 million decreaseincrease in unrealized loss on our investments in Servicing Related Assets for December 31, 20242025 as compared to December 31, 20232024 was primarily due to changes in valuation inputs or assumptions.assumptions and paydown of underlying loans.

General and administrative expense for the year ended December 31, 20242025 was $10.7$7.7 million as compared to $6.4$10.7 million for the year ended December 31, 2023.2024. The $4.3$3.0 million increase decrease in general and administrative expense for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 was primarily due to ana increasedecrease in professional fees relatingrelated to the Internalization.

Compensation and benefits expense for the year ended December 31, 20242025 was $1.6$6.5 million as compared to $466,000$1.6 million for the year ended December 31, 2023.2024. The $1.1$4.9 million increase in compensation and benefits expense for the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 was because, effective as of November 14, 2024, the Company started operating as an internally managed Company.

Our GAAP equity changes as the values of our RMBS are marked to market each quarter, among other factors. The primary causes of mark to market changes are changes in interest rates and nominal spreads. spreads.During the year ended December 31, 2025, a drop in interest rates caused a net unrealized gain on our available-for-sale RMBS. During the year ended December 31, 2024, a rise in interest rates caused a net unrealized loss on our available-for-sale RMBS. During the year ended December 31, 2023, tightening of credit spreads and an interest rate rally in the 5-year U.S. Treasury rate caused a net unrealized gain on our available-for-sale RMBS, which was chiefly driven by the interest and mortgage rate rally that occurred in the fourth quarter of the year and positioning of securities. Unrealized gain (loss) on available-for-sale RMBS is recorded in accumulated other comprehensive income (loss).

EAD for the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, decreasedincreased by approximately $6.3$3.7 million or $0.30 per average common share. Approximately $3.9 million of this or $0.13$0.06 per average common share wasdue dueprimarily to internalizationa costs.decrease Thein Internalization remainingexpenses varianceas waswell primarilyas duea to changesdecrease in interestborrowing rates.costs offset by an increase in common share count resulting from issuances under the Common Stock ATM program.

Our primary uses of funds are the payment of interest, managementcompensation fees,and benefits, outstanding commitments, other operating expenses, investments in new or replacement assets, margin calls and the repayment of borrowings, as well as dividends. Although we continue to maintain a higher level of unrestricted cash than prior to the pandemic, we expect to invest more of that unrestricted cash in our targeted assets if normalization of the economy continues. We may also use capital resources to repurchase additional shares of common stock under our stock repurchase program when we believe such repurchases are appropriate and/or the stock is trading at a significant discount to net asset value. We seek to maintain adequate cash reserves and other sources of available liquidity to meet any margin calls resulting from decreases in value related to a reasonably possible (in the opinion of management) change in interest rates.

As of December 31, 2024,2025, we had repurchase agreements with 35multiple counterparties and approximately $1,077.3$1,137.2 million of outstanding repurchase agreement borrowings from 1216 of those counterparties, which were used to finance RMBS. As of December 31, 2024,2025, our exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity. Under these agreements, which are uncommitted facilities, we sell a security to a counterparty and concurrently agree to repurchase the same security at a later date at the same price that we initially sold the security plus the interest charged. The sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut.” The weighted average haircut on our repurchase debt at December 31, 20242025 was approximately 4.4%. During the term of the repurchase transaction, which can be as short as a few days, the counterparty holds the security and posts margin as collateral. The counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the transaction. If this value declines by more than a de minimis threshold, the counterparty requires us to post additional collateral (or “margin”) in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents. Furthermore, we are, from time to time, a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments.

These short-term borrowings were used to finance certain of our investments in RMBS. The RMBS repurchase agreements are guaranteed by the Company. The weighted average difference between the market value of the assets and the face amount of available financing for the RMBS repurchase agreements, or the haircut, was 4.4% as of December 31, 20242025 and 4.3% December 31, 2023.2024. The following tables provide additional information regarding borrowings under our repurchase agreements (dollars in thousands):

Freddie Mac MSR Revolver. In July 2018, the Company, Aurora and QRS V (collectively with Aurora and the Company, the “Borrowers”) entered into a $25.0 million revolving credit facility (the “Freddie Mac MSR Revolver”) pursuant to which Aurora pledged all of its existing and future MSRs on loans owned or securitized by Freddie Mac. On April 2, 2019, Aurora and QRS V entered into an amendment that increased the maximum amount of the Freddie Mac MSR Revolver to $100.0 million. In JulyJune 2024,2025, the Borrowers entered into an amendment that extended the revolving period for an additional 364 days with the Borrowers’ option for two renewals for similar terms followed by a one-year term out feature with a 24-month amortization schedule. Amounts borrowed bear interest at a weighted average borrowing rate of 8.1%.7.1%. At December 31, 20242025 and December 31, 2023,2024, approximately $56.5 $55.5 million and $64.5$56.5 million, respectively, was outstanding under the Freddie Mac MSR Revolver.

Fannie Mae MSR Revolving Facility. In October 2021, Aurora and QRS III entered into the Fannie Mae MSR Revolving Facility, pursuant to which Aurora and QRS III pledged their respective rights in all existing and future MSRs for loans owned or securitized by Fannie Mae to secure borrowings outstanding from time to time. The original maximum credit amount outstanding at any one time under the Fannie Mae MSR Revolving Facility iswas $150.0 million. The revolving period is 24 months which may be extended by agreement with the lender. In October 2023, Aurora and QRS III entered into an amendment to the Fannie Mae MSR Revolving Facility that extended the revolving period for an additional 24 months. In October 2025, Aurora and QRS III entered into an amendment to the Fannie Mae MSR which (i) extended the revolving period by an additional 24 months, and (ii) reduced the credit amount to $100 million, with the option for Aurora and QRS III to increase the maximum credit to $150 million at any time during the extended 24-month revolving period. The revolving period may be further extended by a period of 1-year by agreement with the lender. Amounts borrowed bear interest at a weighted average borrowing rate of 7.9%.7.0%. At the end of the revolving period, the outstanding amount will be converted to a three-year term loan that will bear interest at a rate calculated at a spread over the rate for one-year interest rate swaps. The Company has guaranteed repayment of all indebtedness under the Fannie Mae MSR Revolving Facility. At December 31, 20242025 and December 31, 2023,2024, approximately $95.6 $90.8 million and $106.0$95.6 million, respectively, was outstanding under the Fannie Mae MSR Revolving Facility.

Our operating activities provided cash of approximately $19.1 million and used cash of approximately $4.7 million and provided cash of approximately $40.7 million for the years ended December 31, 20242025 and December 31, 2023, 2024, respectively. Our investing activities used cash of approximately $141.3$66.7 million and $104.1$141.3 million for the years ended December 31, 20242025 and December 31, 2023,2024, respectively. The cash used by our investing activities during the years ended December 31, 20242025 and December 31, 20232024 primarily resulted from RMBS purchases offset by RMBS sales and principal paydowns of RMBS.RMBS and payments for settlements of derivatives.

We make distributions based on a number of factors, including an estimate of taxable earnings. Dividends distributed and taxable income will typically differ from GAAP earnings due to items such as fair value adjustments, differences in premium amortization and discount accretion, and nondeductible general and administrative expenses. Our common dividend per share may be substantially different than our taxable earnings and GAAP earnings per share. Our GAAP loss per diluted share for the year ended December 31, 2025 was $0.09 and our GAAP income per diluted share for the year ended December 31, 2024 was $0.07 and our GAAP loss per diluted share for the year ended December 31, 2023 was $1.70.$0.07.

Our contractual obligations as of December 31, 20242025 and December 31, 20232024 included repurchase agreements, borrowings under our MSR financing arrangements, our Management Agreement with our Manager, and our subservicing agreements.

As of December 31, 2024,2025, Aurora had four subservicing agreements in place,place. one of which is with Freedom Mortgage. Following the sale of the Ginnie Mae MSRs to Freedom Mortgage in June 2020, Freedom Mortgage continued to subservice certain loans that had been purchased from Ginnie Mae pools due to delinquency or default. Freedom Mortgage ceased subservicing these loans during 2021 because these loans and any related advance claims had been rehabilitated or liquidated. One of the other subservicingThe agreements is with RoundPoint Mortgage Servicing Corporation (“RoundPoint”). Freedom Mortgage acquired RoundPoint and it became a wholly-owned subsidiary of Freedom Mortgage in August 2020. On September 30, 2023, RoundPoint ceased being a wholly owned subsidiary of Freedom Mortgage when it was acquired by an unaffiliated entity, Matrix Financial Services Corporation. The agreementseach have varyingtwo-year initial terms (three years, for Freedom Mortgage, and two years for the other three sub-servicers) and are subject to automatic renewal for additional terms equal to the applicable initial term unless either party chooses not to renew. Each agreement may be terminated without cause by either party by giving notice as specified in the agreement. If an agreement is not renewed by the Company or terminated by the Company without cause, de-boarding fees will be due to the subservicer. Under each agreement, the subservicer agrees to service the applicable mortgage loans in accordance with applicable law and the requirements of the applicable Agency and the Company pays customary fees to the applicable subservicer for specified services. All expiring agreements to date have been automatically renewed for the extended terms.

Substantially all of our assets and liabilities are financial in nature. As a result, interest rates and other factors affect our performance more so than inflation, although inflation inflation rates can often have a meaningful influence over the direction of interest rates. As discussed above under “—Effects of Federal Reserve Policy on the Company”, since September 2025, the Federal Reserve has been reducingreduced its federal funds rate target by 75 basis points to a range of 3.50% to 3.75% due to slowing job growth and otherwiseincreased easingunemployment. To the extent the Federal Reserve decides to further ease monetary policypolicy, based on improved inflation data. The Federal Reserve’sits actions may decrease interest rates across asset classes and our interest expense and, thereby, increase our interest income. If the Federal Reserve decides to tighten monetary policy in the future,however, it may increase our interest expense, which expense may not be fully offset by any resulting increase in our interest income. Furthermore, our financial statements are prepared in accordance with GAAP and our distributions are determined by our board of directors primarily based on our REIT taxable income, and, in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

We conduct substantially all of our operations and own substantially all of our assets through our Operating Partnership. We are the sole general partner of our Operating Partnership. As of MarchJune 31,30, 2026, we owned 98.5% of our Operating Partnership. Our Operating Partnership, in turn, owns all of the outstanding common stock of CHMI Sub-REIT, Inc. (the “Sub-REIT”). The Sub-REIT has elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2020.

Pursuant to the Company’s Common Stock ATM Program, the Company may offer and sell through one or more sales agents, up to $150.0 million in shares of its common stock at prices prices prevailing at the time, subject to volume and other regulatory limitations. As of MarchJune 31,30, 2026, approximately $34.6 million was remaining pursuant to the Common Stock ATM Program. During the three-monththree periodand six-month periods ended MarchJune 31,30, 2026, the Company did not issue or sell any shares pursuant to the Common Stock ATM Program. During the year ended December 31, 2025, the Company issued and sold 4,909,053 shares of common stock under the Common Stock ATM Program. The shares were sold at a a weighted average price of $3.00 per share for aggregate gross proceeds of approximately $14.7 million before fees of approximately $293,000.

In September 2019, the Company initiated a share repurchase program that allows for the repurchase of up to an aggregate of $10.0 million of its common stock. As of MarchJune 31,30, 2026, approximately $4.7 million was remaining under the share repurchase program. Shares may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act, or by any combination of such methods. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The share repurchase program does not require the purchase of any minimum number of shares, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the three-monththree periodand six-month periods ended MarchJune 31,30, 2026 2026 and the year ended December 31, 2025, the Company did not repurchase any common stock pursuant to the repurchase program.

In December 2023, the Company initiated a preferred stock repurchase program that allows for the repurchase of up to an aggregate of $50.0 million of its shares of preferred stock. Shares of preferred stock may be repurchased from time to time through privately negotiated transactions or open market transactions, pursuant to a trading plan in accordance with Rules 10b5-1 under the Exchange Act. The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. The preferred stock repurchase program does not require the purchase of any minimum number of shares of preferred stock, and, subject to SEC rules, purchases may be commenced or suspended at any time without prior notice. During the three-monththree periodand six-month periods ended MarchJune 31,30, 2026 and the year ended December 31, 2025, the Company did not repurchase any Preferred Preferred Stock pursuant to the repurchase program. Shares of preferred stock that are repurchased by the Company cease to be outstanding but remain authorized for future issuance.

Since September 2025, the Federal Reserve has reduced its federal funds rate target by a cumulative 75 basis points to a range of 3.50% to 3.75%3.75%. dueDuring tothe slowingfirst jobhalf growthof and2026, increased unemployment. Even though inflation remains above its 2 percent target, the Federal ReserveOpen hasMarket determinedCommittee thatmaintained a target range at 3.50% to 3.75%, citing continued moderation in evaluatinginflation, itsa dualsofter mandatelabor market, and uncertainty regarding the downsideeconomic risks to employment have risen.outlook.

As ofEffective December 1, 2025, the Federal Reserve has also ceased reducing its balance sheet. Since 2022, the Federal Reserve had been allowing a set amount of Treasury securities and Agency RMBS on its balance sheet to roll off each month without reinvestment. Prior to December 1, 2025, the Federal Reserve’s monthly redemption cap on U.S. Treasury Securities was $5 billion and its redemption cap on agency debt/MBS was $35 billion with excess principal payments reinvested in U.S. Treasury securities.

To the extent the Federal Reserve takes future action to ease monetary policy by reducing its federal funds rate and/or purchasing securities and increasing its balance sheet, it it will generally lower interest rates across asset classes, including for Agency RMBS. Lower rates could reduce our funding costs and spur economic activity, increasing our net interest income. Higher prepayment could reduce the length of cash flows from the MSRs and accelerate the premium amortization on the RMBS portfolio. In the event that the Federal Reserve reverses course and tightens monetary policy in the future by increasing the federal funds rate and/or selling securities and reducing its balance sheet, these actions could result in higher interest rates, including for Agency RMBS, and reduce economic activity in the United States, as well as decrease spreads on interest rates, which can reduce our net interest income and increase our funding costs. They may also negatively impact our results as we have certain assets and liabilities that are sensitive to changes in interest rates. In addition, lower net interest income resulting from higher rates is partially offset by lower prepayments which extends the length of cash flows from the MSRs and slows the premium amortization on the RMBS portfolio.

Interest income for the three-month period ended MarchJune 31,30, 2026 was $15.9$14.7 million as compared to $14.8$15.9 million for the three-month period ended March 31, 2025.2026. The increase decrease of $1.1$1.2 million in interest income was due to purchasesthe sale of new securities asand wellan asincrease replacingin lowerprice yieldingpremium securities with higher yielding securities.amortization.

Interest expense for the three-month period ended MarchJune 31,30, 2026 was $11.4$10.0 million as compared to $12.6$11.4 million for the three-month period ended March 31, 2025.2026. The decrease of $1.2$1.4 million in interest expense was due to a decreasechanges in financingthe rates.Company’s leverage.

Servicing fee income for the three-month period ended MarchJune 31,30, 2026 was $10.2$9.7 million as compared to $11.0$10.2 million for the three-month period ended March 31, 2025.2026. The decrease of $0.8$0.5 million in servicing fee income was due to changes in the size of the portfolio.

Servicing costs for the three-monthsix-month period ended MarchJune 31,30, 2026 were $2.3$4.6 million as compared to $2.5$4.5 million for the three-monthsix-month period ended MarchJune 31,30, 2025. The decrease of $0.2 million in servicing costschange was due to changes in the size of the portfolio. nominal.

Realized loss on RMBS for the three-month period ended MarchJune 31,30, 2026 was $0approximately $1.0 million as compared to $4.0 million$0 for the three-month period ended March 31, 2025.2026. The decrease increase of $4.0$1.0 million in realized loss on RMBS was becausedue noto the timing and volume of RMBS securities were sold during the three-month period ended March 31, 2026.sales.

Realized lossgain on derivatives for the three-month period ended MarchJune 31,30, 2026 was approximately $70$12.1 thousandmillion as compared to $1.9a million$70 thousand realized loss on derivatives for the three-month period ended DecemberMarch 31, 2025.2026. The decrease increase of $1.8$12.2 million in realized lossgain on derivatives was substantially comprised of aan decreaseincrease of $0.4$8.1 million in lossesgains on TBAsTBAs, andan a decreaseincrease of $2.1$2.6 million in lossesgain on U.S. Treasury futuresfutures, offset by and an increase of $1.6 million in losses of $0.1 milliongain on Eris SOFR swap futures andoffset by a decrease of $0.6$69 millionthousand in interest rate swaps periodic interest income due to changes in interest rates as well as the composition of derivatives.

Realized lossgain on derivatives for the three-monthsix-month period ended MarchJune 31,30, 2026 was approximately $70$12.1 thousandmillion as compared to a realized gain on derivatives of $4.6$19.5 million for the three-month six-month period ended MarchJune 31, 30, 2025. The decrease of $4.7$7.4 million in realized gain on derivatives was substantially comprised of ana increasedecrease of $3.0$5.3 million in lossesgains on TBAs, ana increase in losses on Eris SOFR swap futures of $0.1 million, and a decrease of $2.7$1.2 million in gains on U.S. Treasury futures, and a decrease of $3.5 million in interest rate swaps periodic interest income offset by a decrease of $1.1 million in losses on U.S. Treasury futures due to changes in interest rates as well as the composition of derivatives.derivatives offset by an increase of $1.2 million in gains on interest rate swaps and an increase of $1.4 million in gains on Eris SOFR swap futures.

Unrealized loss on RMBS measured at fair value through earnings for the three-month period ended MarchJune 31,30, 2026 was $12.4$0.9 million as compared to an unrealized gain on RMBS measured at fair value through earnings of $14.8$12.4 million for the three-month period ended March 31, 2025.2026. The decrease of $27.2$11.5 million in unrealized gainloss on RMBS measured at fair value through earnings was duea toresult anof increasechanges in interest rates andcombined nominal with spread widening during the quarter.tightening.

Unrealized gainloss on derivatives for the three-month period ended March 31,June 30, 2026 was approximately $6.1$9.3 million as compared to an unrealized loss on derivativesgain of $22.7$6.1 million for the three-month period ended March 31, 2025.2026. The increase$15.4 of $28.8unfavorable million in unrealized gain on derivativeschange was primarily due to changes in interest rates and the composition of our derivatives relative to the prior period.

Unrealized loss on our investments in Servicing Related Assets for the three-month period ended MarchJune 31,30, 2026 was approximately $1.4$2.4 million as compared to $6.3$1.4 million for the three-month period ended March 31, 2025.2026. The decrease of $4.9$1.0 million in unrealized loss on our investments in Servicing Related Assets was primarily due to changes in valuation inputs or assumptions and paydown of underlying loans.

General and administrative expense was $1.7$2.1 million for the three-month period ended MarchJune 31,30, 2026 as compared to $2.1$1.7 million for the three-month period ended March 31, 2025. 2026. The decreaseincrease of $0.4 million in general and administrative expense was due to an decreaseincrease in professional fees. Merger related costs were $0.2 million for the three months ended June 30, 2026. These costs were incurred in connection with the proposed merger with MITT and primarily consisted of legal fees.

Compensation and benefits expense for the three-month period ended MarchJune 31,30, 2026 was $1.6$1.9 million as compared to $1.7$1.6 million for the three-month period ended March 31, 2025. 2026. The changeincrease of $0.3 million in compensation and benefits was nominal.due to the implementation of the 2026 Executive Plan.

Net Income (Loss) Allocated to Noncontrolling Interests in Operating Partnership

Net income (loss) allocated to noncontrolling interests in the Operating Partnership, which are LTIP-OP Units owned by our directors, officers and employees of the Company and by certain individuals who provided services to us through the Manager prior to the Internalization, represented approximately 1.4%, 1.7%1.5% and 1.9% 1.4% of net income for the three-month periods ended MarchJune 31,30, 2026, December 31, 20252026 and March 31, 2026, respectively and 1.4% and 1.8% of net income (loss) for the six month periods ended June 30, 2026 and June 30, 2025 respectively.

Our GAAP equity changes as the values of our RMBS are marked to market each quarter, among other factors. The primary causes of mark to market changes are changes in interest rates and nominal spreads. During the three-month period ended MarchJune 31,30, 2026, ana increasesmall unrealized gain on our available-for-sale RMBS was a result of changes in interest rates combined with the sale of securities. During the three-month period ended March 31, 2026 and the six-month period ended June 30, 2026, a rise in interest rates combined with marginal widening of nominal spread wideningspreads caused a net unrealized loss on our available-for-sale RMBS. During the three-monthsix-month periodsperiod ended June December 31, 2025 and March 31,30, 2025, a drop in interest rates and nominal spread tightening caused a net unrealized gain on our available-for-sale RMBS. Unrealized gain (loss) on available-for-sale RMBS is recorded in accumulated other comprehensive income (loss).

Earnings available for distribution (“EAD”) is a non-GAAP financial measure that we define as GAAP net income (loss), excluding realized gain (loss) on RMBS, unrealized gain (loss) on RMBS measured at fair value through earnings, realized and unrealized gain (loss) on derivatives, realized gain (loss) on acquired assets, realized and unrealized gain (loss) on investments in MSRs (net of any estimated MSR amortization), credit loss and impairment on other assets, transaction related expense and any tax expense (benefit) on realized and unrealized gain (loss) on MSRs.MSRs and other non-EAD income (loss) items. MSR amortization refers to the portion of the change in fair value of the MSR that is primarily due to the realization of cashflows, runoff resulting from prepayments and an adjustment for any gain or loss on the capital used to purchase the MSR. EAD also includes interest rate swap periodic interest income (expense) and drop income on TBA dollar roll transactions, which are included in “Realized gain (loss) on derivatives, net” on the consolidated statements of income (loss). EAD attributable to common stockholders is adjusted to exclude outstanding LTIP-OP Units in our Operating Partnership and dividends paid on our preferred stock.

EAD for the three-month period ended MarchJune 31,30, 2026 as compared to the three-month period ended March 31, 20252026 decreasedincreased by approximately $0.1$0.3 million, or $0.03$0.01 per average common share primarily due to aan decreaseincrease in swap periodic interestdrop income on TBA dollar rolls offset by an increase in netgeneral interestand income.administrative expenses.

Aurora’s MSR portfolio of Fannie Mae and Freddie Mac MSRs have an aggregate UPB of approximately $15.6$15.2 billion as of MarchJune 31,30, 2026.

As of MarchJune 31,30, 2026, we had repurchase agreements with multiple counterparties and approximately $1,121.7$1,008.7 million of outstanding repurchase agreement borrowings from 17 18 of those counterparties, which were used to finance RMBS. As of MarchJune 31,30, 2026, our exposure (defined as the amount of cash and securities pledged as collateral, less the borrowing under the repurchase agreement) to any of the counterparties under the repurchase agreements did not exceed five percent of the Company’s equity. Under these agreements, which are uncommitted facilities, we sell a security to a counterparty and concurrently agree to repurchase the same security at a later date at the same price that we initially sold the security plus the interest charged. The sale price represents financing proceeds and the difference between the sale and repurchase prices represents interest on the financing. The price at which the security is sold generally represents the market value of the security less a discount or “haircut.” The weighted average haircut on our repurchase debt at MarchJune 31,30, 2026 was approximately 4.4%.4.5%. During the term of the repurchase transaction, which can be as short as a few days, the counterparty holds the security and posts margin as collateral. The counterparty monitors and calculates what it estimates to be the value of the collateral during the term of the transaction. If this value declines by more than a de minimis threshold, the counterparty requires us to post additional collateral (or “margin”) in order to maintain the initial haircut on the collateral. This margin is typically required to be posted in the form of cash and cash equivalents. Furthermore, we are, from time to time, a party to derivative agreements or financing arrangements that may be subject to margin calls based on the value of such instruments.

The decrease in the Company’s borrowings under its repurchase agreements as of MarchJune 31,30, 2026 as compared to December 31, 2025 was primarily due to the decrease in principalsale of the RMBS, a large portion of which are financed through repurchase agreements.

These short-term borrowings were used to finance certain of our investments in RMBS. The RMBS repurchase agreements are guaranteed by the Company. The weighted average difference between the market value of the assets and the face amount of available financing for the RMBS repurchase agreements, or the haircut, was 4.5% as of June 30, 2026 and 4.4% as of March 31, 2026 and December 31, 2025. The following tables provide additional information regarding borrowings under our repurchase agreements (dollars in thousands):

The amount of collateral as of MarchJune 31,30, 2026 and December 31, 2025, including cash, was $1,171.7$1,056.3 million and $1,192.6 million, respectively.