What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-23 · 802 added, 878 removed, 1389 unchanged (55% of the section changed)

11 unchanged sentences

Residential Whole Loans

Residential Mortgage Securities and MSR-Related Assets

Securities, at Fair Value

Financing Agreements

Collateral Positions

Offsetting Assets and Liabilities

Other Liabilities

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Use of Special Purpose Entities and Variable Interest Entities

Summary of Quarterly Results of Operations (Unaudited)

Subsequent Events

Acquisition of Lima One Holdings, LLC

Schedule IV - Mortgage Loans on Real Estate

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Assessment of the allowance for credit losses on residential whole loans held at carrying value

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company adopted ASU No.

As discussed in Note 3 to the consolidated financial statements, the Company adopted ASU No.

2016-13, Financial Instruments — Credit Losses (ASC Topic 326) , as of January 1, 2020, and the Company’s total allowance for credit losses on residential whole loans held at carrying value as of December 31, 2021 was $39.4 million (the December 31, 2021 ACL).

The Company estimated the December 31, 2020 ACL using a current expected credit losses methodology for each of its loan portfolio segments which is based on relevant information about historical experience, current conditions, and reasonable and

supportable forecasts that affect the collectability of the loan balances, specific to the Company’s loan portfolio segments grouped by shared risk characteristics which include Non-Qualified Mortgages (non-QM loans), Rehabilitation loans, Single-Family Rental loans, Seasoned Performing loans, and Purchased Credit Deteriorated loans.

The Company estimated the December 31, 2021 ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances, specific to the Company’s loan portfolio segments grouped by shared risk characteristics

which include Non-Qualified Mortgages (non-QM loans), Rehabilitation loans, Single-Family Rental loans, Seasoned Performing loans, and Purchased Credit Deteriorated loans.

These expected credit losses are generally calculated based on the estimated probability of default and loss severity of loans in the portfolio, which involves projecting each loan’s expected cash flows based on their contractual terms, expected prepayments, and estimated default and loss severity rates.

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The default and loss severity rates were estimated based on the following steps:

(i) obtaining historical experience through an entire economic cycle for each loan type or, to the extent the sufficient historical loss experience for a given loan type was not available, publicly available data derived from the historical loss experience of certain banks deemed generally representative of the portfolio, (ii) obtaining historical economic data (U.S.

unemployment rates and home price appreciation) over the same period, and (iii) estimating default and loss severity rates during three distinct future periods based on historical default and loss severity rates during periods when economic conditions similar to those forecasted were experienced.

(i) obtained the Company’s historical experience through an entire economic cycle for each loan type or, to the extent the Company did not have sufficient historical loss experience for a given loan type, publicly available data derived from the historical loss experience of certain banks, which data the Company believes is generally representative of its portfolio, (ii) obtained historical economic data (U.S.

unemployment rates and home price appreciation) over the same period, and (iii) estimated default and severity rates during three distinct future periods based on historical default and severity rates during periods when economic conditions similar to those forecasted were experienced.

The default and severity rates were applied to the estimated amount of loans outstanding during each future period, based on contractual terms and expected prepayments.

Expected prepayments are estimated based on historical experience and current and expected future economic conditions, including market interest rates.

The three future periods included:

The three periods were as follows:

(i) a one-year forecast of economic conditions based on U.S.

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The Company generally considers multiple scenarios and selects the one that it believes results in the most reasonable estimate of expected losses.

The Company may apply qualitative adjustments to these expected loss estimates, which are determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios represented by available proxy data, and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods.

The Company may apply qualitative adjustments to these expected loss estimates, which are determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios represented by data available in regulatory filings of certain banks that are considered to have similar loan portfolios (available proxy data), and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods.

We identified the assessment of the December 31, 2021 ACL associated with the Company’s non-QM loans, Rehabilitation loans, and Purchased Credit Deteriorated loans as a critical audit matter.

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• development of the ACL methodology

• development of the prepayment, default and loss severity models

• continued use and appropriateness of changes made to the prepayment, default and loss severity models

• identification and determination of the significant assumptions used in the prepayment, default and loss severity models

• development of the qualitative factors, including the significant assumptions used in the measurement of the qualitative factors

• performance monitoring of the prepayment, default and loss severity models

• continued use and appropriateness of changes made to the qualitative factors, including the significant assumptions used in the measurement of the qualitative factors

• analysis of the ACL results, trends, and ratios.

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generally accepted accounting principles

• evaluating judgments made by the Company relative to the development and performance testing of the prepayment, default and loss severity models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices

• evaluating judgments made by the Company in the continued use and appropriateness of changes made to the prepayment, default and loss severity models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices

• assessing the conceptual soundness and performance testing of the prepayment, default and loss severity models by inspecting the model documentation to determine whether the models are suitable for their intended use

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As of December 31, 2021, the recorded balance of the Company’s residential whole loans, at fair value was $5.3 billion.

The Company determines the fair value of its residential whole loans held at fair value after considering valuations obtained from a third-party that specializes in providing valuations on residential mortgage loans.

The valuation approach depends on whether the loan is considered performing or non-performing at the valuation date.

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 third party derived assumptions for forecasted prepayment, default and loss given default rates.

For non-performing loans, asset liquidation cash flows are derived based on third party derived assumptions, including the property’s appraised value, estimated time to liquidate the loan, expected liquidation costs, and home price index.

Estimated cash flows for both performing and non-performing loans are discounted using yields to arrive at an exit price for the asset.

The valuation approach applied generally depends on whether the loan is considered performing or non-performing at the date the valuation is performed.

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.

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.

We identified the assessment of the valuation of residential whole loans, at fair value, as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, was involved in determining the estimate assumptions, including the forecasted prepayment, default and loss given default rates, property appraised value, estimated time to liquidate the loan, expected liquidation costs, and home price index, which are not readily observable in the market and subject to significant measurement uncertainty.

A high degree of audit effort, including specialized skills and knowledge, was involved in determining certain of the estimate assumptions, including the forecasted prepayment, default and loss given default rates, property appraised value, and discount rate, which are not readily observable in the market and subject to significant measurement uncertainty.

The evaluation of the assumptions to determine the valuation of residential whole loans, at fair value, required subjective and complex auditor judgement as the assumptions used were sensitive to variation, such that minor changes in home prices and/or credit quality of the borrower can cause significant changes in the estimate.

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We involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the methodology and assumptions used to determine the property appraised value used by the Company for a sample of residential whole loans at fair value

• evaluating that the methodology used by the Company in determining the property appraised value is in accordance with U.S.

• developing a fair value estimate for a sample of residential whole loans at fair value using the evaluated property appraised value, estimated time to liquidate the loan, expected liquidation costs, and home price index assumptions used by the Company and publicly available external market data collectively with independently developed valuation models and/or inputs and comparing the results of our estimate of fair value to the Company’s fair value estimate.

• evaluating that the methodology used by the Company in determining the property appraised value and residential whole loan fair value is in accordance with U.S.

• evaluating that the methodology and assumptions used to determine the property appraised value used by the Company for a sample of residential whole loans at fair value

• evaluating the assumptions used to determine the residential whole loan fair value used by the Company by comparing them to market research and relevant industry practices

• developing a fair value estimate for a sample of non-performing residential whole loans at fair value using the evaluated property appraised value, estimated time to liquidate the loan, expected liquidation costs, and home price index assumptions used by the Company and publicly available external market data collectively with independently developed valuation models and/or inputs and comparing the results of our estimate of fair value to the Company’s fair value estimate and

• developing an independent fair value estimate for a sample of performing residential whole loans at fair value based on independently developed valuation models and/or inputs and comparing the results of our estimate of fair value to the Company’s fair value estimate.

We have served as the Company’s auditor since 2011.

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2021 December 31,

Residential whole loans:

Residential whole loans, at carrying value ($ 2,704,646 and $ 4,847,782 pledged as collateral, respectively) (1)

$ 4,195,332 $ 6,069,370

Residential whole loans, at fair value ($ 827,001 and $ 794,684 pledged as collateral, respectively) (1)

1,216,902 1,381,583

Allowance for credit losses on residential whole loans held at carrying value ( 86,833 ) ( 3,025 )

Total residential whole loans, net 5,325,401 7,447,928

Residential mortgage securities, at fair value ($ 161,000 and $ 3,966,591 pledged as collateral, respectively)

Residential whole loans, net ($ 5,305,349 and $ 1,216,902 held at fair value, respectively) (1)(2)

$ 7,913,000 $ 5,325,401

Mortgage servicing rights (“MSR”) related assets ($ 238,999 and $ 1,217,002 pledged as collateral, respectively)

Securities, at fair value (2)

256,685 399,999

2 unchanged sentences

Other assets (2)

565,556 385,381

Total Assets $ 9,139,688 $ 6,932,300

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Total Liabilities and Stockholders’ Equity $ 9,139,688 $ 6,932,300

(1) Includes approximately $ 1.4 billion and $ 186.4 million of Residential whole loans, at carrying value and $ 382.3 million and $ 567.4 million of Residential whole loans, at fair value transferred to consolidated variable interest entities (“VIEs”) at December 31, 2020 and 2019, respectively.

(1) Includes approximately $ 3.0 billion and $ 1.8 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at December 31, 2021 and December 31, 2020, respectively.

Such assets can be used only to settle the obligations of each respective VIE.

(2) See Note 6 for information regarding the Company’s pledged assets.

The accompanying notes are an integral part of the consolidated financial statements.

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Interest Income:

Residential whole loans held at carrying value $ 258,764 $ 243,980 $ 100,921

Residential mortgage securities 54,137 274,554 322,475

MSR-related assets 35,957 52,647 28,420

Residential whole loans $ 303,468 $ 332,212 $ 358,161

Securities, at fair value 56,690 90,094 327,201

Other interest-earning assets 1,800 9,850 7,152

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Net Interest Income $ 241,917 $ 164,074 $ 363,551

Provision for credit and valuation losses on residential whole loans and other financial instruments $ ( 22,381 ) $ ( 2,569 ) $ ( 773 )

Reversal/(Provision) for credit and valuation losses on residential whole loans and other financial instruments $ 44,863 $ ( 22,381 ) $ ( 2,569 )

Net Interest Income after Provision for Credit and Valuation Losses $ 286,780 $ 141,693 $ 360,982

Other Income, net:

Impairment and other losses on securities available-for-sale and other assets $ ( 425,082 ) $ ( 180 ) $ ( 1,259 )

Net realized (loss)/gain on sales of residential mortgage securities and residential whole loans ( 188,847 ) 62,002 61,307

Net unrealized (loss)/gain on residential mortgage securities measured at fair value through earnings ( 10,486 ) 7,080 ( 36,815 )

Net gain on residential whole loans measured at fair value through earnings $ 16,736 $ 20,765 $ 44,149

Gain on investment in Lima One common equity (Note 15) 38,933 — —

Impairment and other gains and losses on securities available-for-sale and other assets 33,956 ( 425,082 ) ( 180 )

Lima One - origination, servicing and other fee income 22,600 — —

Net gain/(loss) on real estate owned 22,838 5,391 ( 5,878 )

Net realized (loss)/gain on sales of securities and residential whole loans — ( 188,847 ) 62,002

Loss on terminated swaps previously designated as hedges for accounting purposes — ( 57,034 ) —

Other, net 30,040 ( 34,762 ) 11,583

Other (Loss)/Income, net $ ( 606,121 ) $ 225,857 $ 157,975

Other Income/(Loss), net $ 165,103 $ ( 679,569 ) $ 111,676

Operating and Other Expense:

2 unchanged sentences

Loan servicing, financing and other related costs 30,867 40,372 41,893

Amortization of intangible assets 6,600 — —

Costs associated with restructuring/forbearance agreement — 44,434 —

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(In Thousands) 2021 2020 2019

Net (loss)/income $ ( 679,390 ) $ 378,117 $ 301,801

Other Comprehensive Income/(Loss):

Unrealized gains on securities available-for-sale 420,281 20,335 ( 150,642 )

Reclassification adjustment for MBS sales included in net income ( 389,127 ) ( 44,600 ) ( 51,580 )

Net income/(loss) $ 328,870 $ ( 679,390 ) $ 378,117

Other Comprehensive (Loss):

Unrealized (losses)/gains on securities available-for-sale ( 32,774 ) 420,281 20,335

Reclassification adjustment for securities sales included in net income — ( 389,127 ) ( 44,600 )

Reclassification adjustment for impairments included in net income — ( 344,269 ) ( 180 )

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Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk 1,059 ( 2,314 ) —

Reclassification adjustment for losses/(gains) related to hedging instruments included in net income 72,802 ( 2,454 ) —

Reclassification adjustment for losses related to hedging instruments included in net income — 72,802 ( 2,454 )

Other Comprehensive (Loss) ( 31,715 ) ( 292,754 ) ( 50,241 )

Comprehensive (loss)/ income before preferred stock dividends $ ( 972,144 ) $ 327,876 $ 112,865

Comprehensive income/(loss) before preferred stock dividends $ 297,155 $ ( 972,144 ) $ 327,876

Dividends required on preferred stock ( 32,875 ) ( 29,796 ) ( 15,000 )

Comprehensive (Loss)/Income Available to Common Stock and Participating Securities $ ( 1,001,940 ) $ 312,876 $ 97,865

Comprehensive Income/(Loss) Available to Common Stock and Participating Securities $ 264,280 $ ( 1,001,940 ) $ 312,876

The accompanying notes are an integral part of the consolidated financial statements.

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Balance at December 31, 2020 11,000 $ 110 8,000 $ 80 451,714 $ 4,517 $ 3,848,129 $ ( 1,405,327 ) $ 77,293 $ 2,524,802

Cumulative effect adjustment on adoption of new accounting standard ASU 2016-13

— — — — — — — ( 8,326 ) — ( 8,326 )

Net loss — — — — — — — ( 679,390 ) — ( 679,390 )

Issuance of Series C Preferred Stock, net of expenses 11,000 110 — — — — 265,942 — — 266,052

Net Income — — — — — — — 328,870 — 328,870

Issuance of common stock, net of expenses

— — — — 1,152 12 1,820 — — 1,832

Repurchase of shares of common stock, net of expenses (1)

Repurchase of shares of common stock (1)

— — — — ( 20,315 ) ( 203 ) ( 86,190 ) — — ( 86,393 )

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Dividends attributable to dividend equivalents — — — — — — — ( 599 ) — ( 599 )

Change in unrealized losses on MBS, net — — — — — — — — ( 313,115 ) ( 313,115 )

Derivative hedging instrument fair value changes and amortization, net — — — — — — — — 22,675 22,675

Warrants issued and repurchased, net — — — — — — ( 19,608 ) — — ( 19,608 )

Change in unrealized losses on securities, net — — — — — — — — ( 32,774 ) ( 32,774 )

Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk — — — — — — — — 1,059 1,059

Balance at December 31, 2021 11,000 $ 110 8,000 $ 80 432,551 $ 4,326 $ 3,772,238 $ ( 1,279,484 ) $ 45,578 $ 2,542,848

MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2020

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Except Per Share Amounts) Preferred Stock

6.5 % Series C Fixed-to-Floating Cumulative Redeemable - Liquidation Preference $ 25.00 per Share

Preferred Stock

7.5 % Series B Cumulative Redeemable - Liquidation Preference $ 25.00 per Share

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Deficit Accumulated Other Comprehensive Income Total

Shares Amount Shares Amount

Shares Amount Shares Amount Shares Amount

Balance at December 31, 2019 — $ — 8,000 $ 80 452,369 $ 4,524 $ 3,640,341 $ ( 631,040 ) $ 370,047 $ 3,383,952

Net income — — — — — 378,117 — 378,117

Cumulative effect adjustment on adoption of new accounting standard ASU 2016-13 — — — — — — — ( 8,326 ) — ( 8,326 )

Net loss — — — — — — — ( 679,390 ) — ( 679,390 )

Issuance of Series C Preferred Stock, net of expenses 11,000 110 — — — — 265,942 — — 266,052

Issuance of common stock, net of expenses — — — — 13,792 138 7,315 — — 7,453

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Equity based compensation expense — — — — — — 6,715 — — 6,715

Accrued dividends attributable to stock-based awards — — — — ( 345 ) — — ( 345 )

Change in accrued dividends attributable to stock-based awards — — — — — — 856 — — 856

Dividends declared on common stock ($ 0.125 per share)

— — — — — — — ( 56,546 ) — ( 56,546 )

Dividends declared on preferred stock ($ 1.875 per share)

Dividends declared on Series B Preferred Stock ($ 1.875 per share)

— — — — — — — ( 15,000 ) — ( 15,000 )

Dividends declared on Series C Preferred Stock ($ 1.345 per share)

— — — — — — — ( 14,796 ) — ( 14,796 )

Dividends attributable to dividend equivalents — — — — — — — ( 229 ) — ( 229 )

Change in unrealized losses on MBS, net — — — — — — — — ( 313,115 ) ( 313,115 )

Derivative hedging instruments fair value changes, net — — — — — — ( 25,796 ) ( 25,796 )

Derivative hedging instruments fair value changes and amortization, net — — — — — — — — 22,675 22,675

Warrants issued and repurchased, net — — — — — — ( 19,608 ) — — ( 19,608 )

Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk — — — — — — — — ( 2,314 ) ( 2,314 )

Balance at December 31, 2020 11,000 $ 110 8,000 $ 80 451,714 $ 4,517 $ 3,848,129 $ ( 1,405,327 ) $ 77,293 $ 2,524,802

MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2019

(In Thousands,

Except Per Share Amounts)

Preferred Stock

Except Per Share Amounts) Preferred Stock

7.5 % Series B Cumulative Redeemable - Liquidation Preference $ 25.00 per Share

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Balance at December 31, 2018 8,000 $ 80 449,787 $ 4,498 $ 3,623,275 $ ( 632,040 ) $ 420,288 $ 3,416,101

Cumulative effect adjustment on adoption of new accounting standard for revenue recognition — — — — — 295 — 295

Net income — — — — — 378,117 — 378,117

3 unchanged sentences

Equity based compensation expense — — — — 9,230 — — 9,230

Accrued dividends attributable to stock-based awards — — — — ( 261 ) — — ( 261 )

Change in accrued dividends attributable to stock-based awards — — — — ( 345 ) — — ( 345 )

Dividends declared on common stock ($ 0.80 per share)

— — — — — ( 361,033 ) — ( 361,033 )

Dividends declared on preferred stock ($ 1.875 per share)

Dividends declared on Series B Preferred Stock ($ 1.875 per share)

— — — — — ( 15,000 ) — ( 15,000 )

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Balance at December 31, 2019 8,000 $ 80 452,369 $ 4,524 $ 3,640,341 $ ( 631,040 ) $ 370,047 $ 3,383,952

(1) For the year ended December 31, 2020, includes approximately $ 2.7 million ( 360,534 shares) surrendered for tax purposes related to equity-based compensation awards.

(1) For the year ended December 31, 2021, includes approximately $ 799,000 ( 213,123 shares) surrendered for tax purposes related to equity-based compensation awards.

For the year ended December 31, 2020, includes approximately $ 2.7 million ( 360,534 shares) surrendered for tax purposes related to equity-based compensation awards.

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Cash Flows From Operating Activities:

Net (loss)/income $ ( 679,390 ) $ 378,117 $ 301,801

Net income/(loss) $ 328,870 $ ( 679,390 ) $ 378,117

Adjustments to reconcile net income to net cash provided by operating activities:

Losses/(gains) on residential whole loans and real estate owned, net 243,933 ( 79,948 ) ( 70,579 )

Gains on residential mortgage securities and MSR related assets, net ( 74,515 ) ( 69,082 ) ( 24,492 )

Impairment and other losses on securities available-for-sale and other assets 425,082 180 1,259

(Gains)/losses on residential whole loans and real estate owned, net ( 31,703 ) 243,933 ( 79,948 )

Gains on securities, net ( 1,606 ) ( 74,515 ) ( 69,082 )

Impairment and other gains and losses on securities available-for-sale and other assets ( 72,996 ) 425,082 180

Loss on terminated swaps previously designed as hedges for accounting purposes — 57,034 —

Accretion of purchase discounts on residential mortgage securities, residential whole loans and MSR-related assets ( 35,103 ) ( 70,383 ) ( 82,904 )

Amortization of purchase premiums on residential mortgage securities and residential whole loans, and amortization of terminated hedging instruments

46,052 45,216 29,270

Provision for credit and valuation losses on residential whole loans and other financial instruments 22,121 2,569 773

Net valuation and other non-cash losses included in net income 44,055 24,815 19,208

Decrease/(increase) in other assets 39,930 ( 34,262 ) ( 26,487 )

(Decrease)/increase in other liabilities ( 50,803 ) 18,553 32

Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities, and amortization of terminated hedging instruments ( 59,424 ) 10,949 ( 25,167 )

(Reversal of provision)/provision for credit and valuation losses on residential whole loans and other financial instruments ( 48,355 ) 22,121 2,569

Net other non-cash losses included in net income 10,902 44,055 24,815

(Increase)/Decrease in other assets ( 19,441 ) 39,930 ( 34,262 )

Increase/(Decrease) in other liabilities 14,046 ( 50,803 ) 18,553

Net cash provided by operating activities $ 120,293 $ 38,396 $ 215,775

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Principal payments on residential whole loans and loan related investments 2,012,901 1,825,606 1,378,529

Purchases of residential mortgage securities and MSR-related assets ( 163,748 ) ( 1,008,215 ) ( 2,604,234 )

Proceeds from sales of residential mortgage securities, MSR-related assets, and other assets 3,790,148 908,697 538,668

Principal payments on residential mortgage securities and MSR-related assets 633,194 2,098,416 2,327,817

Increase in cash balances resulting from Lima One purchase transaction, net 6,121 — —

Purchases of securities — ( 163,748 ) ( 1,008,215 )

Proceeds from sales of securities and other assets — 3,790,148 908,697

Principal payments on securities 157,297 633,194 2,098,416

Purchases of real estate owned and capital improvements ( 1,338 ) ( 10,198 ) ( 20,110 )

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Additions to leasehold improvements, furniture and fixtures ( 12,048 ) ( 4,862 ) ( 1,879 )

Net cash provided by/(used in) investing activities $ 6,383,508 $ ( 1,134,741 ) $ ( 2,157,875 )

Net cash (used in)/provided by investing activities

$ ( 2,167,028 ) $ 6,383,508 $ ( 1,134,741 )

Cash Flows From Financing Activities:

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Payment made for other collateralized financing agreement related costs ( 7,145 ) ( 1,699 ) —

Principal payment on redemption of Senior notes ( 100,000 ) — —

Proceeds from issuance of convertible senior notes — — 223,311

Payments made for settlements and unwinds of Swaps — ( 60,022 ) ( 40,029 )

Proceeds from settlements on Swaps — — 65,393

Proceeds from issuance of series C preferred stock — 275,000 —

1 unchanged sentence

Proceeds from issuances of common stock 1,825 7,441 12,325

Payments made for costs related to common stock issuances — — ( 329 )

Payments made for the repurchase of common stock through the share repurchase program ( 85,591 ) ( 50,835 ) —

3 unchanged sentences

Dividends paid on common stock and dividend equivalents ( 156,140 ) ( 113,508 ) ( 361,565 )

Net cash (used in)/provided by financing activities $ ( 5,735,049 ) $ 964,921 $ 1,634,960

Net increase/(decrease) in cash, cash equivalents and restricted cash $ 686,855 $ 45,955 $ ( 375,034 )

Net cash provided by/(used in) financing activities $ 1,629,663 $ ( 5,735,049 ) $ 964,921

Net (decrease)/increase in cash, cash equivalents and restricted cash $ ( 417,072 ) $ 686,855 $ 45,955

Cash, cash equivalents and restricted cash at beginning of period $ 821,519 $ 134,664 $ 88,709

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Non-cash Investing and Financing Activities:

Net decrease in securities obtained as collateral/obligation to return securities obtained as collateral — — ( 505,850 )

Transfer from residential whole loans to real estate owned $ 72,304 $ 96,766 $ 257,701

Dividends and dividend equivalents declared and unpaid $ 47,751 $ 34,016 $ 90,749

Payable for unsettled residential whole loan purchases — — 211,129

Right-of-use lease asset and lease liability $ 40,893 $ — $ —

Repayment of Lima One preferred stock in connection with the Lima One transaction (see Note 15) $ 22,030 $ — $ —

The accompanying notes are an integral part of the consolidated financial statements.

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The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”).

In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business.

(See Note 2(n))

In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business (see Note 8).

Summary of Significant Accounting Policies

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Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could differ from those estimates, which could materially impact the Company’s results of operations and its financial condition.

Management has made significant estimates in several areas, impairment, valuation allowances and loss allowances on residential whole loans (see Note 3), mortgage-backed securities (“MBS”) (see Note 4) and Other assets (see Note 5), valuation of MBS, CRT securities and MSR-related assets (see Notes 4 and 14), income recognition and valuation of residential whole loans (see Notes 3 and 14), valuation of derivative instruments (see Notes 5(c) and 14) and income recognition on certain Non-Agency MBS (defined below) purchased at a discount (see Note 4).

In addition, estimates are used in the determination of taxable income used in the assessment of REIT compliance and contingent liabilities for related taxes, penalties and interest (see Note 2(n)).

Management has made significant estimates in several areas:

impairment, valuation allowances and loss allowances on residential whole loans (see Note 3), mortgage-backed securities (“MBS”), credit risk transfer (“CRT”) securities and mortgage servicing rights (“MSR”) related assets (collectively, “Securities, at fair value”) (see Note 4), and Other assets (see Note 5), valuation of Securities, at fair value (see Notes 4 and 13), income recognition and valuation of residential whole loans (see Notes 3 and 13), valuation of derivative instruments (see Notes 5(c) and 13) and income recognition on certain Non-Agency MBS (defined below) purchased at a discount (see Note 4).

In addition, estimates are used in the determination of taxable income used in the assessment of REIT compliance and contingent liabilities for related taxes, penalties and interest (see Note 8).

Actual results could differ from those estimates.

The Company has one reportable segment since it manages its business and analyzes and reports its results of operations on the basis of one operating segment:

The Company has one reportable segment as it manages its business and analyzes and reports its results of operations on the basis of one operating segment:

investing, on a leveraged basis, in residential mortgage assets.

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Certain prior period amounts have been reclassified to conform to the current period presentation.

(b) Residential Whole Loans (including Residential Whole Loans transferred to consolidated VIEs)

Residential whole loans included in the Company’s consolidated balance sheets are primarily comprised of pools of fixed- and adjustable-rate residential mortgage loans acquired through consolidated trusts in secondary market transactions.

The accounting model utilized by the Company is determined at the time each loan package is initially acquired and is generally based on the delinquency status of the majority of the underlying borrowers in the package at acquisition.

The accounting model described below for Purchased Credit Deteriorated Loans that are held at carrying value is typically utilized by the Company for Purchased Credit Deteriorated Loans where the underlying borrower has a delinquency status of less than 60 days at the acquisition date.

The Company also acquires Purchased Performing Loans that are typically held at carrying value, but the accounting methods for income recognition and determination and measurement of any required credit loss reserves (as discussed below) differ from those used for Purchased Credit Deteriorated Loans held at carrying value.

The accounting model described below for residential whole loans held at fair value is typically utilized by the Company for loans where the underlying borrower has a delinquency status of 60 days or more at the acquisition date.

The accounting model initially applied is not subsequently changed.

The Company’s residential whole loans pledged as collateral against financing agreements are included in the consolidated balance sheets with amounts pledged disclosed parenthetically.

Purchases and sales of residential whole loans that are subject to an extended period of due diligence that crosses a reporting date are recorded in our balance sheet at amounts

In particular, prior period disclosures have been conformed to the current period presentation of interest income from residential whole loans at fair value.

Starting in the second quarter of 2021, interest income for these loans is presented in interest income in the Company’s consolidated statements of operations.

Previously, interest income received on residential whole loans at fair value was presented in other income in the Company’s consolidated statements of operations.

On July 1, 2021, the Company completed the acquisition of Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively referred to as “Lima One”), a leading nationwide originator and servicer of business purpose loans (“BPLs”).

Lima One’s financial results are consolidated with MFA’s results from that date (see Note 15).

MFA FINANCIAL, INC.

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reflecting management’s current estimate of assets that will be acquired or disposed at the closing of the transaction.

(b) Residential Whole Loans (including Residential Whole Loans transferred to consolidated VIEs)

The accounting model utilized by the Company is determined at the time each loan package is initially acquired.

Prior to the second quarter of 2021, the fair value option was typically elected on loans that were 60 or more days delinquent at purchase (“Purchased Non-performing Loans”).

Purchased Credit Deteriorated Loans acquired prior to the second quarter of 2021, and where the underlying borrower had a delinquency status of less than 60 days at the acquisition date, are typically held at carrying value.

Purchased Performing Loans acquired prior to the second quarter of 2021 are also typically held at carrying value, but the accounting methods for income recognition and determination and measurement of any required credit loss reserves (as discussed below) differ from those used for Purchased Credit Deteriorated Loans held at carrying value.

Starting in the second quarter of 2021, the Company elected the fair value option for all loans acquired, irrespective of borrower delinquency status at acquisition.

Over time, the Company expects that election of the fair value option should serve to simplify reporting of the results of its loan investment activities as fair value accounting will be used for the majority of loans in the Company’s portfolio.

The accounting model initially applied to loan acquisitions is not permitted to be subsequently changed.

Consequently, the Company is not permitted to retroactively apply fair value accounting to loans held at carrying value acquired in periods prior to the second quarter of 2021.

The Company’s residential whole loans pledged as collateral against financing agreements are included in the consolidated balance sheets with amounts pledged disclosed in Note 6.

Purchases and sales of residential whole loans that are subject to an extended period of due diligence that crosses a reporting date are recorded in our balance sheet at amounts reflecting management’s current estimate of assets that will be acquired or disposed at the closing of the transaction.

This estimate is subject to revision at the closing of the transaction, pending the outcome of due diligence performed prior to closing.

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Interest income, credit related losses and changes in the fair value of loans held at fair value are recorded post settlement for acquired loans and until transaction settlement for sold loans (see Notes 3, 6, 13 and 14).

Residential Whole Loans at Carrying Value

Purchased Performing Loans

Acquisitions of Purchased Performing Loans to date have been primarily comprised of:

(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 who intend to rehabilitate and sell the property for a profit (“Rehabilitation loans” or “Fix and Flip loans”), (iii) 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 (iv) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”).

Purchased Performing Loans are initially recorded at their purchase price.

Interest income on Purchased Performing Loans acquired at par is accrued based on each loan’s current interest bearing balance and current interest rate, net of related servicing costs.

Interest income on such loans purchased at a premium/discount to par is recorded each period based on the contractual coupon net of any amortization of premium or accretion of discount, adjusted for actual prepayment activity.

Acquisitions of Purchased Performing Loans to date (which include loans purchased from third parties or loans originated by Lima One) have been primarily comprised of:

(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 who intend to rehabilitate and sell the property for a profit (“Rehabilitation loans” or “Fix and Flip loans”), (iii) 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”), (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”) (“Agency eligible investor loans”), and (v) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”).

Purchased Performing Loans are initially recorded at their purchase price (or amount funded for originated loans).

Interest income on Purchased Performing Loans acquired at par is accrued based on each loan’s current interest bearing balance and current interest rate.

Interest income on such loans acquired at a premium/discount to par is recorded each period based on the contractual coupon net of any amortization of premium or accretion of discount, adjusted for actual prepayment activity.

For loans acquired with related servicing rights retained by the seller, interest income is reported net of related serving costs.

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.

For Purchased Performing Loans acquired prior to the second quarter of 2021 and where the fair value option was not elected, 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.

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Income recognition is suspended, and interest accruals are reversed against income, for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful (i.e., such loans are placed on nonaccrual status).

For nonaccrual loans other than Fix and Flip loans, all payments are applied to principal under the cost recovery method.

For nonaccrual Fix and Flip loans, interest income is recorded under the cash basis method as interest payments are received.

Interest accruals are resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

For nonaccrual loans, interest income is recorded under the cash basis method as interest payments are received.

Interest accruals are resumed when the loan becomes contractually current.

A loan is written off when it is no longer realizable and/or it is legally discharged.

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The default and severity rates were

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

applied to the estimated amount of loans outstanding during each future period, based on contractual terms and expected prepayments.

The default and severity rates were applied to the estimated amount of loans outstanding during each future period, based on contractual terms and expected prepayments.

Expected prepayments are estimated based on historical experience and current and expected future economic conditions, including market interest rates.

The three future periods were as follows:

The three periods were as follows:

(i) a one-year forecast of economic conditions based on U.S.

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For certain loans where foreclosure has been deemed to be probable, loss estimates are based on whether the value of the underlying collateral is sufficient to recover the carrying value of the loan.

This methodology has not changed from the calculation of the allowance for credit losses on January 1, 2020 pursuant to the transition to Accounting Standards Update 2016-13 as described below under “New Accounting Standards and Interpretations,” other than a change in the reversion period from one year to two years to reflect the expected ongoing impact of current conditions (see Note 3).

This methodology has not changed from the calculation of the allowance for credit losses on January 1, 2021.

Purchased Credit Deteriorated Loans

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Subsequent to acquisition, the gross recorded amount for these loans reflects the initial cost basis, plus accretion of interest income, less principal and interest cash flows received.

These loans are presented on the Company’s consolidated balance sheets at carrying value, which reflects the recorded cost basis reduced by any allowance for credit losses.

Purchased Credit Deteriorated Loans acquired prior to the second quarter of 2021, or where the fair value option was not otherwise elected, are presented on the Company’s consolidated balance sheets at carrying value, which reflects the recorded cost basis reduced by any allowance for credit losses.

Interest income on such loans purchased is recorded each period based on the contractual coupon net of amortization of the difference between their cost basis and unpaid principal balance (“UPB”), subject to the Company’s nonaccrual policy.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Residential Whole Loans at Fair Value

Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at the time of acquisition.

For the majority of these loans, there is significant uncertainty associated with estimating the timing of and amount of cash flows that will be collected.

Further, the cash flows ultimately collected may be dependent on the value of the property securing the loan.

Consequently, the Company considers that accounting for these loans at fair value should result in a better reflection over time of the economic returns for the majority of these loans.

The Company determines the fair value of its residential whole loans held at fair value after considering portfolio valuations obtained from a third-party that specializes in providing valuations of residential mortgage loans and trading activity observed in the market place.

Prior to the second quarter of 2021, this accounting election was made primarily on Purchased Non-performing Loans.

Starting in the second quarter of 2021, the Company made the fair value election on all loan acquisitions, which, to date, have been comprised exclusively of Purchased Performing Loans including loans originated by Lima One since its consolidation.

The Company generally considers accounting for these loans at fair value to be more reflective of the expected pattern of returns from these loans under current economic conditions.

Subsequent changes in fair value are reported in current period earnings and presented in Net (loss)/gain on residential whole loans measured at fair value through earnings on the Company’s consolidated statements of operations.

Cash received (or accrued) representing coupon interest payments on residential whole loans held at fair value is not included in Interest Income, but rather is included in Net (loss)/gain on residential whole loans measured at fair value through earnings on the Company’s consolidated statements of operations.

Interest income is recorded on these loans based on their yield and is presented as part of interest income in the Company’s consolidated statements of operations.

Cash outflows associated with loan-related advances made by the Company on behalf of the borrower are included in the basis of the loan and are reflected in unrealized gains or losses reported each period.

Income and costs associated with originating loans on which the fair value option was elected are recorded in other income and expense respectively in the period in which they are earned or incurred.

MSR-Related Assets

The Company has investments in financial instruments whose cash flows are considered to be largely dependent on underlying MSRs that either directly or indirectly act as collateral for the investment.

These financial instruments, which are referred to as MSR-related assets, are discussed in more detail below.

The Company’s MSR-related assets pledged as collateral against repurchase agreements are included in the consolidated balance sheets with the amounts pledged disclosed in Note 6.

Purchases and sales of MSR-related assets are recorded on the trade date (see Notes 4, 6, and 13).

Term Notes Backed by MSR-Related Collateral

The Company has invested in term notes that are issued by special purpose vehicles (“SPV”) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.

The Company considers payment of principal and interest on these term notes to be largely dependent on the cash flows generated by the underlying MSRs as this impacts the cash flows available to the SPV that issued the term notes.

Credit risk borne by the holders of the term notes is also mitigated by structural credit support in the form of over-collateralization.

Credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the underlying MSRs be insufficient.

The Company’s term notes backed by MSR-related collateral are treated as “available-for-sale” (“AFS”) securities and reported at fair value on the Company’s consolidated balance sheets with unrealized gains and losses excluded from earnings and reported in Accumulated other comprehensive income/(loss) (“AOCI”), a component of Stockholders’ Equity, subject to impairment and loss allowances.

Interest income is recognized on an accrual basis on the Company’s consolidated statements of operations.

The Company’s valuation process for such notes is similar to that used for residential mortgage securities and considers a number of observable market data points, including prices obtained from pricing services, brokers and repurchase agreement counterparties, dialogue with market participants, as well as management’s observations of market activity.

Other factors taken into consideration include estimated changes in fair value of the related underlying MSR collateral, as applicable, and the financial performance of the ultimate parent or sponsoring entity of the issuer, which has provided a guarantee that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the related underlying MSR collateral be insufficient.

Corporate Loans

The Company has made or participated in loans to provide financing to entities that originate residential mortgage loans and own the related MSRs.

These corporate loans are generally secured by certain MSRs, as well as certain other unencumbered assets owned by the borrower.

MFA FINANCIAL, INC.

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Prior to the quarter ended June 30, 2020, the Company had invested in residential MBS that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S.

Corporate loans are recorded on the Company’s consolidated balance sheets at the drawn amount, on which interest income is recognized on an accrual basis on the Company’s consolidated statements of operations, subject to loss allowances.

Commitment fees received on the undrawn amount are deferred and recognized as interest income over the remaining loan term at the time of draw.

At the end of the commitment period, any remaining deferred commitment fees are recorded as Other Income on the Company’s consolidated statements of operations.

The Company evaluates the recoverability of its corporate loans on a quarterly basis considering various factors, including the current status of the loan, changes in the fair value of the MSRs that secure the loan and the recent financial performance of the borrower.

Residential Mortgage Securities

Prior to the quarter ended June 30, 2020, the Company had invested in residential mortgage-backed securities (“MBS”) that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S.

Government, such as the Government National Mortgage Association (“Ginnie Mae”) (collectively, “Agency MBS”), and residential MBS that are not guaranteed by any agency of the U.S.

Government or any federally chartered corporation (“Non-Agency MBS”).

The Company disposed of its investments in Agency MBS during 2020 and has substantially reduced its investments in Non-Agency MBS.

The Company disposed of its investments in Agency MBS during 2020 and disposed of its remaining investments in Non-Agency MBS during the second quarter of 2021.

In addition, the Company has investments in CRT securities that are issued by or sponsored by Fannie Mae and Freddie Mac.

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As an investor in a CRT security, the Company may incur a principal loss if the performance of the actual or reference pool loans results in either an actual or calculated loss that exceeds the credit enhancement of the security owned by the Company.

MBS that the Company generally intends to hold until maturity, but that it may sell from time to time as part of the overall management of its business, are designated as “available-for-sale” (“AFS”).

Such MBS are carried at their fair value with unrealized gains and losses excluded from earnings (except when an allowance for loan losses is recognized, as discussed below) and reported in Accumulated other comprehensive income/(loss) (“AOCI”), a component of Stockholders’ Equity.

Securities that the Company generally intends to hold until maturity, but that it may sell from time to time as part of the overall management of its business, are designated as AFS.

Such securities are carried at their fair value with unrealized gains and losses excluded from earnings (except when an allowance for loan losses is recognized, as discussed below) and reported in AOCI, a component of Stockholders’ Equity.

Upon the sale of an AFS security, any unrealized gain or loss is reclassified out of AOCI to earnings as a realized gain or loss using the specific identification method.

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These securities were carried at their fair value with changes in fair value included in earnings for the period and reported in Other Income, net on the Company’s consolidated statements of operations.

The Company has elected the fair value option for certain of its CRT securities as it considers this method of accounting to more appropriately reflect the risk-sharing structure of these securities.

In addition, the Company has elected the fair value option for certain of its CRT securities as it considers this method of accounting to more appropriately reflect the risk-sharing structure of these securities.

Such securities are carried at their fair value with changes in fair value included in earnings for the period and reported in Other Income, net on the Company’s consolidated statements of operations.

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Balance Sheet Presentation

The Company’s residential mortgage securities pledged as collateral against financing agreements and interest rate swap agreements (“Swaps”) are included on the consolidated balance sheets with the fair value of the securities pledged disclosed parenthetically.

Purchases and sales of securities are recorded on the trade date.

( d) MSR-Related Assets

These financial instruments, which are referred to as MSR-related assets, are discussed in more detail below.

The Company’s MSR-related assets pledged as collateral against repurchase agreements are included in the consolidated balance sheets with the amounts pledged disclosed parenthetically.

Purchases and sales of MSR-related assets are recorded on the trade date (see Notes 4, 6, 7 and 14).

Term Notes Backed by MSR-Related Collateral

Credit risk borne by the holders of the term notes is also mitigated by structural credit support in the form of over-collateralization.

The Company’s term notes backed by MSR-related collateral are treated as AFS securities and reported at fair value on the Company’s consolidated balance sheets with unrealized gains and losses excluded from earnings and reported in AOCI, subject to impairment and loss allowances.

Interest income is recognized on an accrual basis on the Company’s consolidated statements of operations.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Corporate Loans

The Company has made or participated in loans to provide financing to entities that originate residential mortgage loans and own the related MSRs.

These corporate loans are generally secured by certain MSRs, as well as certain other unencumbered assets owned by the borrower.

Commitment fees received on the undrawn amount are deferred and recognized as interest income over the remaining loan term at the time of draw.

At the end of the commitment period, any remaining deferred commitment fees are recorded as Other Income on the Company’s consolidated statements of operations.

(e) Cash and Cash Equivalents

(d) Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit with financial institutions and investments in money market funds, all of which have original maturities of three months or less.

Cash and cash equivalents may also include cash pledged as collateral to the Company by its financing counterparties as a result of reverse margin calls (i.e., margin calls made by the Company).

The Company did not hold any cash pledged by its counterparties at December 31, 2020 and 2019.

At December 31, 2020 and 2019, the Company had cash and cash equivalents of $ 814.4 million and $ 70.6 million, respectively.

The Company did not hold any cash pledged by its counterparties at December 31, 2021 and December 31, 2020.

At December 31, 2021 and December 31, 2020, the Company had cash and cash equivalents of $ 304.7 million and $ 814.4 million, respectively.

At December 31, 2021, the Company had $ 215.8 million of investments in overnight money market funds, which are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency.

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In addition, deposits in FDIC insured accounts generally exceed insured limits (see Notes 6 and 13).

(f) Restricted Cash

Restricted cash represents the Company’s cash held by its counterparties in connection with certain of the Company’s Swaps and/or financing agreements that is not available to the Company for general corporate purposes.

Restricted cash may be applied against amounts due to financing agreement and/or Swap counterparties, or may be returned to the Company when the related collateral requirements are exceeded or at the maturity of the Swap and/or financing agreements.

The Company had aggregate restricted cash held as collateral or otherwise in connection with its financing agreements and/or Swaps of $ 7.2 million and $ 64.0 million at December 31, 2020 and 2019, respectively (see Notes 5(c), 6, 7 and 14).

(e) Restricted Cash

Restricted cash primarily represents the Company’s cash collections held in connection with certain of the Company’s financing agreements, Swaps and/or loan servicing activities that are not available to the Company for general corporate purposes.

The Company had aggregate restricted cash of $ 99.8 million and $ 7.2 million at December 31, 2021 and December 31, 2020, respectively (see Notes 5(c), 6 and 13).

(f) Goodwill & Intangible Assets

At December 31, 2021, the Company had goodwill of $ 61.1 million, which represents the excess of the fair value of consideration paid over the fair value of net assets acquired in connection with the acquisition of Lima One, see Note 15, and other intangible assets of $ 21.4 million (net of amortization) primarily comprised of customer relationships, non-competition agreements, trademarks and trade names, and internally developed software recognized as part of the acquisition of Lima One.

The intangible assets are amortized over their expected useful lives, which range from one to ten years .

Goodwill, which is not subject to amortization, and intangible assets are tested for impairment at least annually, or more frequently under certain circumstances.

Through December 31, 2021, the Company had not recognized any impairment against its goodwill or intangible assets.

Goodwill and intangible assets are included in Other assets on the Company’s consolidated balance sheets.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

(g) Real Estate Owned (“REO”)

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Related rental income and expenses are recorded in Other Income, net (see Note 5).

(h) Depreciation

(h) Leases and Depreciation

The Company records its operating lease liabilities and operating lease right-of-use assets on its consolidated balance sheets.

The operating lease liabilities are equal to the present value of the remaining fixed lease payments (excluding real estate tax and operating expense escalations) discounted at the Company’s estimated incremental borrowing rate at the date of lease commencement, and the operating lease right-of-use assets are equal to the operating lease liabilities adjusted for lease incentives and initial direct costs.

As lease payments are made, the operating lease liabilities are reduced to the present value of the remaining lease payments and the operating lease right-of-use assets are reduced by the difference between the lease expense (straight-lined over the lease term) and the theoretical interest expense amount (calculated using the incremental borrowing rate at the date of lease commencement).

See Notes 5 and 9 for further discussion on leases.

Leasehold Improvements, Real estate and Other Depreciable Assets

Depreciation is computed on the straight-line method over the estimated useful life of the related assets or, in the case of leasehold improvements, over the shorter of the useful life or the lease term.

Furniture, fixtures, computers and related hardware have estimated useful lives ranging from five to eight years at the time of purchase.

Furniture, fixtures, computers and related hardware have estimated useful lives ranging from five to fifteen years at the time of purchase.

The building component of real estate held-for-investment is depreciated over 27.5 years.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

(i) Loan Securitization and Other Debt Issuance Costs

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Under its repurchase agreements and other forms of collateralized financing, the Company pledges its assets as collateral to secure the borrowing, in an amount which is equal to a specified percentage of the fair value of the pledged collateral, while the Company retains beneficial ownership of the pledged collateral.

At the maturity of a repurchase financing, unless the repurchase financing is renewed with the same counterparty, the Company is required to repay the loan including any accrued interest and concurrently receives back its pledged collateral from the lender.

At the maturity of a repurchase financing, unless the repurchase financing is renewed with the same counterparty, the Company is required to repay the loan including any

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

accrued interest and concurrently receives back its pledged collateral from the lender.

With the consent of the lender, the Company may renew a repurchase financing at the then prevailing financing terms.

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Compensation expense for equity-based awards that are subject to vesting conditions, is recognized ratably over the vesting period of such awards, based upon the fair value of such awards at the grant date.

The Company has made annual grants of restricted stock units (“RSUs”) certain of which cliff vest after a three-year period, subject only to continued employment, and others of which cliff vest after a three-year period, subject to both continued employment and the achievement of certain performance criteria based on a formula tied to the Company’s achievement of average total shareholder return during that three-year period, as well as the total shareholder return (“TSR”) of the Company relative to the TSR of a group of peer companies (over the three-year period) selected by the Compensation Committee of the

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Company’s Board of Directors (the “Compensation Committee”) at the date of grant.

The features in these awards related to the attainment of total shareholder return over a specified period constitute a “market condition”, which impacts the amount of compensation expense recognized for these awards.

The Company has made annual grants of restricted stock units (“RSUs”), certain of which cliff vest after a three-year period, subject only to continued employment, and others of which cliff vest after a three-year period, subject to both continued employment and the achievement of certain performance criteria based on a formula tied to the Company’s achievement of average total shareholder return (“TSR”) during that three-year period, as well as the TSR of the Company relative to the TSR of a group of peer companies (over the three-year period) selected by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) at the date of grant.

The features in these awards related to the attainment of TSR over a specified period constitute a “market condition,” which impacts the amount of compensation expense recognized for these awards.

Specifically, the uncertainty regarding the achievement of the market condition was reflected in the grant date fair valuation of the RSUs, which is recognized as compensation expense over the relevant vesting period.

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In applying the two-class method, earnings are allocated to both shares of common stock and estimated securities that participate in dividends based on their respective weighted-average shares outstanding for the period.

For the diluted EPS calculation, common equivalent shares are further adjusted for the effect of RSUs outstanding that are unvested and have dividends that are subject to forfeiture, and for the effect of outstanding warrants, using the treasury stock method.

Under the treasury stock method, common equivalent shares are calculated assuming that all dilutive common stock equivalents are exercised and the proceeds, along with future compensation expenses associated with such instruments (if any), are used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period.

In addition, the Company’s Convertible Senior Notes are included in the calculation of diluted EPS if the assumed conversion into common shares is dilutive, using the “if-converted” method.

This involves adding back the periodic interest expense associated with the Convertible Senior Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS (see Note 12).

(m) Comprehensive Income/(Loss)

The Company’s comprehensive income/(loss) available to common stock and participating securities includes net income, the change in net unrealized gains/(losses) on its AFS securities and derivative hedging instruments (to the extent that such changes are not recorded in earnings), adjusted by realized net gains/(losses) reclassified out of AOCI for sold AFS securities and terminated hedging relationships, as well as the portion of unrealized gains/(losses) on its financing agreements held at fair value related to instrument-specific credit risk, and is reduced by dividends declared on the Company’s preferred stock and issuance costs of redeemed preferred stock.

For the diluted EPS calculation, common equivalent shares are further adjusted for the effect of RSUs outstanding that are unvested and have dividends that are subject to forfeiture, and

MFA FINANCIAL, INC.

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Federal Income Taxes

The Company has elected to be taxed as a REIT under the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”), and the corresponding provisions of state law.

The Company expects to operate in a manner that will enable it to satisfy the various requirements to maintain its status as a REIT for federal income tax purposes.

In order to maintain its status as a REIT, the Company must, among other things, distribute at least 90% of its REIT taxable income (excluding net long-term capital gains) to stockholders in the timeframe permitted by the Code.

As long as the Company maintains its status as a REIT, the Company will not be subject to regular federal income tax to the extent that it distributes 100 % of its REIT taxable income (including net long-term capital gains) to its stockholders within the permitted timeframe.

Should this not occur, the Company would be subject to federal taxes at prevailing corporate tax rates on the difference between its REIT taxable income and the amounts deemed to be distributed for that tax year.

As the Company’s objective is to distribute 100% of its REIT taxable income to its stockholders within the permitted timeframe, no provision for current or deferred income taxes has been made in the accompanying consolidated financial statements.

Should the Company incur a liability for corporate income tax, such amounts would be recorded as REIT income tax expense on the Company’s consolidated statements of operations.

Furthermore, if the Company fails to distribute during each calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for such year, and (iii) any undistributed taxable income from prior periods, the Company would be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed.

To the extent that the Company incurs interest, penalties or related excise taxes in connection with its tax obligations, including as a result of its assessment of uncertain tax positions, such amounts will be included in Operating and Other Expense on the Company’s consolidated statements of operations.

In addition, the Company has elected to treat certain of its subsidiaries as TRS.

In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.

Generally, a domestic TRS is subject to U.S.

federal, state and local corporate income taxes.

Since a portion of the Company’s business is conducted through one or more TRS, the net taxable income earned by its domestic TRS, if any, is subject to corporate income taxation.

To maintain the Company’s REIT election, no more than 20% of the value of the Company’s assets at the end of each calendar quarter may consist of stock or securities in TRS.

For purposes of the determination of U.

federal and state income taxes, the Company’s subsidiaries that elected to be treated as TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP.

No net deferred tax benefit was recorded by the Company in 2020 or 2019, related to the net taxable losses in the TRS, since a valuation allowance for the full amount of the associated deferred tax asset of approximately $ 74.1 million was recognized as its recovery is not considered more likely than not.

The related net operating loss carryforwards generated prior to 2018 will begin to expire in 2034;

those generated in 2020, 2019, and 2018 can be carried back to each of the five taxable years preceding the taxable year of such loss and thereafter can be carried forward and do not expire.

Based on its analysis of any potentially uncertain tax positions, the Company concluded that it does not have any material uncertain tax positions that meet the relevant recognition or measurement criteria as of December 31, 2020, 2019 or 2018.

As of the date of this filing, the Company’s tax returns for tax years 2017 through 2019 are open to examination.

(o) Derivative Financial Instruments

for the effect of outstanding warrants, using the treasury stock method.

In addition, the Company’s 6.25 % Convertible Senior Notes due 2024 (the “Convertible Senior Notes”) are included in the calculation of diluted EPS if the assumed conversion into common shares is dilutive, using the “if-converted” method.

This calculation involves adding back the periodic interest expense associated with the Convertible Senior Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS (see Note 11).

(m) Comprehensive Income/(Loss)

(n) Derivative Financial Instruments

The Company may use a variety of derivative instruments to economically hedge a portion of its exposure to market risks, including interest rate risk and prepayment risk.

The objective of the Company’s risk management strategy is to reduce fluctuations in net book value over a range of interest rate scenarios.

In particular, the Company attempts to mitigate the risk of the cost of its variable rate liabilities increasing during a period of rising interest rates.

The Company’s derivative instruments have generally been comprised of Swaps, the majority of which were designated as cash flow hedges against the interest rate risk associated with its borrowings.

The Company documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities and the relationship between the hedging instrument and the hedged liability for all Swaps designated as hedging transactions.

The Company assesses, both at the inception of a hedge and on a quarterly basis thereafter, whether or not the hedge is “highly effective.”

Historically, the Company’s derivative instruments have generally been comprised of Swaps, the majority of which were designated as cash flow hedges against the interest rate risk associated with its borrowings.

The Company documented its risk-management policies, including objectives and strategies, for its hedging activities and the relationship between the hedging instrument and the hedged liability for all Swaps designated as hedging transactions.

The Company assessed, both at the inception of a hedge and on a quarterly basis thereafter, whether or not the hedge was “highly effective.”

During the first quarter of 2020, in response to the turmoil in the financial markets resulting from COVID-19, and given that management no longer considered these transactions to be effective hedges in the then prevailing interest rate environment, the Company terminated all of its then existing Swaps.

Prior to their termination, Swaps were carried on the Company’s consolidated balance sheets at fair value, in Other assets, if their fair value was positive, or in Other liabilities, if their fair value was negative.

Changes in the fair value of the Company’s Swaps previously designated in hedging transactions were recorded in OCI provided that the hedge remained effective.

Periodic payments accrued in connection with Swaps designated as hedges were included in interest expense and treated as an operating cash flow.

The Company discontinued hedge accounting for the terminated Swaps as it determined that it was no longer probable that the forecasted transactions would occur (see Notes 5(c), 6 and 13).

During the fourth quarter of 2021, the Company entered into Swaps that were not designated as hedges for accounting purposes.

Changes in the fair value of the Company’s Swaps not designated in hedging transactions are recorded in Other income, net on the Company’s consolidated statements of operations.

To Be Announced (“TBA”) Securities

The Company has entered into transactions to take short positions in TBA securities in connection with the management of interest rate and other market risks associated with purchases of Agency eligible investor loans.

As the Company does not intend to physically settle its transactions in TBA securities, they are required to be accounted for as derivative financial instruments.

The Company does not apply hedge accounting to its TBA securities.

Accordingly, TBA securities are recorded on the Company’s balance sheets at fair value, with realized and unrealized changes in fair value each period recorded in Other income, net in the Company’s consolidated statements of operations.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

During the first quarter of 2020, the Company terminated all of its Swaps.

Changes in the fair value of the Company’s Swaps previously designated in hedging transactions are recorded in OCI provided that the hedge remains effective.

Periodic payments accrued in connection with Swaps designated as hedges are included in interest expense and are treated as an operating cash flow.

The Company discontinues hedge accounting on a prospective basis and recognizes changes in fair value through earnings when:

(i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions);

(ii) it is no longer probable that the forecasted transaction will occur;

or (iii) it is determined that designating the derivative as a hedge is no longer appropriate (see Notes 5(c), 7 and 14).

Changes in the fair value of the Company’s Swaps not designated in hedging transactions are recorded in Other income, net on the Company’s consolidated statements of operations.

(p) Fair Value Measurements and the Fair Value Option for Financial Assets and Financial Liabilities

(o) Fair Value Measurements and the Fair Value Option for Financial Assets and Financial Liabilities

The Company’s presentation of fair value for its financial assets and liabilities is determined within a framework that stipulates that the fair value of a financial asset or liability is an exchange price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability.

5 unchanged sentences

A decision to elect the fair value option for an eligible financial instrument, which may be made on an instrument by instrument basis, is irrevocable (see Notes 2(b), 2(c), 3, 4, and 13).

(q) Variable Interest Entities

(p) Variable Interest Entities

An entity is referred to as a VIE if it meets at least one of the following criteria:

10 unchanged sentences

The Company also includes on its consolidated balance sheets certain financial assets and liabilities that are acquired/issued by trusts and/or other special purpose entities that have been evaluated as being required to be consolidated by the Company under the applicable accounting guidance.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

(r) Offering Costs Related to Issuance and Redemption of Preferred Stock

(q) Offering Costs Related to Issuance and Redemption of Preferred Stock

Offering costs related to the issuance of preferred stock are recorded as a reduction in Additional paid-in capital, a component of Stockholders’ Equity, at the time such preferred stock is issued.

On redemption of preferred stock, any excess of the fair value of the consideration transferred to the holders of the preferred stock over the carrying amount of the preferred stock in the Company’s consolidated balance sheets is included in the determination of Net Income Available to Common Stock and Participating Securities in the calculation of EPS.

(s) New Accounting Standards and Interpretations

Accounting Standards Adopted in 2020

Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which has subsequently been amended by ASUs 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, 2019-05, Financial Instruments - Credit Losses (Topic 326):

Targeted Transition Relief, 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, 2020-02 Financial Instruments-Credit Losses (Topic 326)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date (SEC Update), and 2020-03 Codification Improvements to Financial Instruments.

The amendments in ASU 2016-13 require entities to measure all expected credit losses (rather than incurred losses) for financial assets held at the reporting date, based on historical experience, current conditions and reasonable and supportable forecasts.

ASU 2016-13 also requires enhanced financial statement disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.

The amendments in this ASU were required to be applied by recording a cumulative-effect adjustment to equity as of the beginning of the first reporting period in which the guidance is effective.

A prospective transition approach is required for debt securities for which an other than temporary impairment had been recognized before the effective date.

The Company adopted the new ASU on January 1, 2020.

The impact of adoption was that the allowance for credit losses on Purchased Performing Loans increased by approximately $ 8.3 million.

This transition adjustment was recorded as an increase in the Company’s allowance for credit losses and an adjustment to decrease retained earnings as of the adoption date.

In addition, for Purchased Credit Deteriorated Loans, the carrying value of the portfolio was adjusted on transition by $ 62.6 million to include an estimate of the allowance for credit losses as required by the new standard.

For financial statement reporting purposes, this adjusted carrying value is presented net of the estimated allowance for credit losses.

Consequently, the adjustments recorded on transition for Purchased Credit Deteriorated Loans do not result in any adjustment to retained earnings as of the adoption date.

The Company does not consider these transition adjustments to be material to its financial position or previously reported GAAP or economic book value.

Under ASU 2016-13, credit losses for available-for-sale debt securities are measured in a manner similar to prior GAAP.

However, the amendments in this ASU require that credit losses be recorded through an allowance for credit losses, which will allow subsequent reversals in credit loss estimates to be recognized in current income.

In addition, the allowance on available-for-sale debt securities will be limited to the extent that the fair value is less than the amortized cost.

Under prior GAAP, credit impairment losses were generally required to be recorded as “other than temporary” impairment, which directly reduced the carrying amount of impaired securities, and was recorded in earnings and was not reversed if expected cash flows subsequently recovered.

Under the new guidance, credit impairments on such securities (other than those related to expected sales) are recorded as an allowance for credit losses that is also recorded in earnings, but the allowance can be reversed through earnings in a subsequent period if expected cash flows subsequently recover.

Transition to the new available-for-sale debt securities guidance did not result in a change to our retained earnings.

Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which has subsequently been amended by ASU 2021-01, Reference Rate Reform (Topic 848):

The amendments in this ASU provide temporary optional expedients to ease the financial reporting burden of the expected transition from the London Interbank Offered Rate (“LIBOR”) to an alternative reference rate such as the Secured

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

Overnight Financing Rate (“SOFR”).

The amendments in the ASU are elective and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The amendments in ASU 2020-04 were effective for all entities as of March 12, 2020 and will generally no longer be available to apply after December 31, 2022.

The Company adopted this ASU as of the effective date and will utilize the optional expedients to the extent that they apply to the Company.

(r) New Accounting Standards and Interpretations

Accounting Standards Adopted in 2021

ASU 2020-06 Early Adoption

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (or ASU 2020-06).

ASU 2020-06 was issued in order to reduce the complexity associated with recording financial instruments with characteristics of both liabilities and equity by eliminating certain accounting models associated with such instruments and enhancing disclosure requirements.

The Company early adopted ASU 2020-06 in the first quarter of 2021 and it did not have a material impact on the Company’s accounting or disclosures.

Residential Whole Loans

Included on the Company’s consolidated balance sheets as of December 31, 2020 and 2019 are approximately $ 5.3 billion and $ 7.4 billion, respectively, of residential whole loans arising from the Company’s interests in certain trusts established to acquire the loans and certain entities established in connection with its loan securitization transactions.

Included on the Company’s consolidated balance sheets at December 31, 2021 and 2020 are approximately $ 7.9 billion and $ 5.3 billion, respectively, of residential whole loans arising from the Company’s interests in certain trusts established to acquire the loans and certain entities established in connection with its loan securitization transactions.

The Company has assessed that these entities are required to be consolidated for financial reporting purposes.

Residential Whole Loans, at Carrying Value

The following table presents the components of the Company’s Residential whole loans, at carrying value at December 31, 2020 and 2019:

(Dollars In Thousands) December 31, 2020 December 31, 2019

Starting in the second quarter of 2021, the Company elected the fair value option for all loan acquisitions, including loans originated by Lima One subsequent to its acquisition by the Company.

Prior to the second quarter of 2021, the fair value option was typically elected only for Purchased Non-performing Loans.

The following table presents the components of the Company’s Residential whole loans, and the accounting model designated at December 31, 2021 and 2020:

Held at Carrying Value Held at Fair Value Total

(Dollars in Thousands) December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Purchased Performing Loans:

3 unchanged sentences

Seasoned performing loans 102,041 136,264 — — 102,041 136,264

Agency eligible investor loans — — 1,082,765 — 1,082,765 —

Total Purchased Performing Loans $ 2,099,326 $ 3,521,624 $ 4,233,079 $ — $ 6,332,405 $ 3,521,624

Purchased Credit Deteriorated Loans $ 547,772 $ 673,708 $ — $ — $ 547,772 $ 673,708

673,708 698,717

Total Residential whole loans, at carrying value $ 4,195,332 $ 6,069,370

Allowance for credit losses on residential whole loans held at carrying value ( 86,833 ) ( 3,025 )

Total Residential whole loans at carrying value, net $ 4,108,499 $ 6,066,345

Allowance for Credit Losses $ ( 39,447 ) $ ( 86,833 ) $ — $ — $ ( 39,447 ) $ ( 86,833 )

Purchased Non-Performing Loans $ — $ — $ 1,072,270 $ 1,216,902 $ 1,072,270 $ 1,216,902

Total Residential Whole Loans $ 2,607,651 $ 4,108,499 $ 5,305,349 $ 1,216,902 $ 7,913,000 $ 5,325,401

Number of loans 9,361 13,112 14,734 5,622 24,095 18,734

(1) The amortized cost basis of Purchased Credit Deteriorated Loans was increased by $ 62.6 million on January 1, 2020 in connection with the adoption of ASU 2016-13.

The following table presents the components of interest income on the Company’s Residential whole loans, at carrying value for the years ended December 31, 2020, 2019 and 2018:

For the Year Ended December 31,

(In Thousands) 2020 2019 2018

Purchased Performing Loans:

Non-QM loans $ 136,527 $ 116,282 $ 31,036

Rehabilitation loans 49,484 54,419 15,975

Single-family rental loans 27,722 17,742 3,315

Seasoned performing loans 8,793 12,191 5,818

Total Purchased Performing Loans 222,526 200,634 56,144

Purchased Credit Deteriorated Loans 36,238 43,346 44,777

Total Residential whole loans, at carrying value $ 258,764 $ 243,980 $ 100,921

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

The following table presents additional information regarding the Company’s Residential whole loans, at carrying value at December 31, 2020:

The following table presents additional information regarding the Company’s Residential whole loans at December 31, 2021 and 2020:

December 31, 2021

Carrying Value Amortized Cost Basis Unpaid Principal Balance (“UPB”) Weighted Average Coupon (1)

Fair Value / Carrying Value Unpaid Principal Balance (“UPB”) Weighted Average Coupon (1)

Weighted Average Term to Maturity (Months) Weighted Average LTV Ratio (2)

Weighted Average Original FICO (3)

Aging by Amortized Cost Basis

Past Due Days

2 unchanged sentences

Non-QM loans $ 3,453,242 $ 3,361,164 5.07 % 355 66 % 731 $ 3,165,964 $ 77,581 $ 22,864 $ 94,755

$ 2,336,117 $ 2,357,185 $ 2,294,086 5.84 % 351 64 % 712 $ 2,099,134 $ 73,163 $ 36,501 $ 148,387

Rehabilitation loans 727,964 731,154 7.18 11 67 735 616,733 5,834 5,553 103,034

563,430 581,801 581,801 7.29 3 63 719 390,706 29,315 25,433 136,347

Single-family rental loans 949,772 924,498 5.46 329 70 732 898,166 2,150 695 23,487

442,456 446,374 442,208 6.32 324 70 730 415,386 6,652 3,948 20,388

Seasoned performing loans 101,995 111,710 2.76 162 37 722 102,047 938 481 8,244

136,157 136,264 149,004 3.30 171 40 723 124,877 2,186 1,170 8,031

Purchased Credit Deteriorated Loans (4)(5)

630,339 673,708 782,319 4.46 287 76 N/A N/M N/M N/M 119,621

Residential whole loans, at carrying value, total or weighted average $ 4,108,499 $ 4,195,332 $ 4,249,418 5.77 % 282

Agency eligible investor loans 1,082,765 1,060,486 3.40 354 62 767 1,039,257 21,229 — —

Total Purchased Performing Loans $ 6,315,738 $ 6,189,012 5.05 % 307

Purchased Credit Deteriorated Loans $ 524,992 $ 643,187 4.55 % 283 69 % N/A $ 456,924 $ 50,048 $ 18,736 $ 117,479

Purchased Non-Performing Loans $ 1,072,270 $ 1,073,544 4.87 % 283 73 % N/A $ 492,481 $ 87,041 $ 40,876 $ 453,146

Residential whole loans, total or weighted average $ 7,913,000 $ 7,905,743 4.99 % 301

December 31, 2020

Carrying Value Amortized Cost Basis Unpaid Principal Balance (“UPB”) Weighted Average Coupon (1)

Fair Value / Carrying Value Unpaid Principal Balance (“UPB”) Weighted Average Coupon (1)

Weighted Average Term to Maturity (Months) Weighted Average LTV Ratio (2)

2 unchanged sentences

(Dollars In Thousands) Current 30-59 60-89 90+

Performing Loans:

Purchased Performing Loans:

Non-QM loans $ 2,336,117 $ 2,294,086 5.84 % 351 64 % 712 $ 2,042,405 $ 71,303 $ 35,697 $ 144,681

$ 3,706,857 $ 3,707,245 $ 3,592,701 5.96 % 368 67 % 716 $ 3,492,533 $ 59,963 $ 19,605 $ 20,600

Rehabilitation loans 563,430 581,801 7.29 3 63 719 390,706 29,315 25,433 136,347

1,023,766 1,026,097 1,026,097 7.30 8 64 717 868,281 67,747 27,437 62,632

Single-family rental loans 442,456 442,208 6.32 324 70 730 411,377 6,691 3,907 20,233

460,679 460,741 457,146 6.29 324 70 734 432,936 15,948 2,047 6,215

Seasoned performing loans 136,157 149,004 3.30 171 40 723 136,778 2,248 1,155 8,823

176,569 176,569 192,151 4.24 181 46 723 187,683 2,164 430 1,874

Purchased Credit Impaired Loans (5)

698,474 698,718 873,326 4.46 294 81 N/A N/M N/M N/M 108,998

Residential whole loans, at carrying value, total or weighted average

$ 6,066,345 $ 6,069,370 $ 6,141,421 5.96 % 288

Total Purchased Performing Loans $ 3,478,160 $ 3,467,099 6.04 % 281

Purchased Credit Deteriorated Loans $ 630,339 $ 782,319 4.46 % 287 76 N/A $ 544,803 $ 65,791 $ 26,697 $ 145,028

Purchased Non-Performing Loans $ 1,216,902 $ 1,282,093 4.87 % 290 80 N/A $ 497,299 $ 104,993 $ 54,180 $ 625,621

Residential whole loans, total or weighted average $ 5,325,401 $ 5,531,511 5.54 % 284

(1) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category.

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For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available.

For certain Rehabilitation loans, totaling $ 189.9 million and $ 269.2 million at December 31, 2020 and December 31, 2019, respectively, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation.

The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68 % and 69 % at December 31, 2020 and December 31, 2019, respectively.

For certain Rehabilitation loans, totaling $ 137.3 million and $ 189.9 million at December 31, 2021 and 2020, respectively, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation.

The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 71 % and 69 % at December 31, 2021 and 2020, respectively.

Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

(3) Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available.

(4) At December 31, 2020 and December 31, 2019 the difference between the Carrying Value and Amortized Cost Basis represents the related allowance for credit losses.

(5) Purchased Credit Deteriorated Loans tend to be characterized by varying performance of the underlying borrowers over time, including loans where multiple months of payments are received in a period to bring the loan to current status, followed by months where no payments are received.

Accordingly, delinquency information is presented for loans that are more than 90 days past due that are considered to be seriously delinquent.

No Residential whole loans were sold during 2021.

During the year ended December 31, 2020, $ 1.8 billion of Non-QM loans were sold, realizing losses of $ 273.0 million.

During the year ended December 31, 2020, Purchased Non-performing loans with an aggregate unpaid principal balance of $ 24.1 million were sold, realizing net losses of approximately $ 800,000 .

MFA FINANCIAL, INC.

7 unchanged sentences

Allowance for credit losses at December 31, 2020 $ 21,068 $ 18,371 $ 3,918 $ 107 $ 43,369 $ 86,833

Transition adjustment on adoption of ASU 2016-13 (4)

6,904 517 754 19 62,361 70,555

Current provision ( 6,523 ) ( 3,700 ) ( 1,172 ) ( 41 ) ( 10,936 ) ( 22,372 )

Write-offs — ( 1,003 ) — — ( 214 ) ( 1,217 )

Valuation adjustment on loans held for sale 70,181 — — — — 70,181

Allowance for credit and valuation losses at March 31, 2020 $ 103,831 $ 35,633 $ 7,431 $ 249 $ 70,867 $ 218,011

Allowance for credit losses at March 31, 2021 $ 14,545 $ 13,668 $ 2,746 $ 66 $ 32,219 $ 63,244

Current provision/(reversal) ( 2,416 ) ( 1,809 ) ( 386 ) ( 9 ) ( 3,963 ) ( 8,583 )

Write-offs ( 37 ) ( 255 ) — — ( 108 ) ( 400 )

Valuation adjustment on loans held for sale ( 70,181 ) — — — — ( 70,181 )

Allowance for credit losses at June 30, 2021 $ 12,092 $ 11,604 $ 2,360 $ 57 $ 28,148 $ 54,261

6 unchanged sentences

For the Year Ended December 31, 2020

(Dollars In Thousands) Non-QM Loans Rehabilitation Loans Single-family Rental Loans Seasoned Performing Loans Purchased Credit Deteriorated Loans Totals

(Dollars In Thousands) Non-QM Loans Rehabilitation Loans (1)(2)

Single-family Rental Loans Seasoned Performing Loans Purchased Credit Deteriorated Loans (3)

Allowance for credit losses at December 31, 2019 $ 388 $ 2,331 $ 62 $ — $ 244 $ 3,025

Transition adjustment on adoption of ASU 2016-13 (4)

6,904 517 754 19 62,361 70,555

Current provision 26,358 33,213 6,615 230 8,481 74,897

Write-offs — ( 428 ) — — ( 219 ) ( 647 )

Allowance for credit losses at March 31, 2019 $ — $ 500 $ — $ — $ 1,151 $ 1,651

Current provision — — — — 385 385

Valuation adjustment on loans held for sale 70,181 — — — — 70,181

Allowance for credit and valuation losses at March 31, 2020 $ 103,831 $ 35,633 $ 7,431 $ 249 $ 70,867 $ 218,011

Current provision/(reversal) ( 2,297 ) ( 5,213 ) ( 500 ) ( 25 ) ( 2,579 ) ( 10,614 )

Write-offs — ( 420 ) — — ( 207 ) ( 627 )

Valuation adjustment on loans held for sale ( 70,181 ) — — — — ( 70,181 )

Allowance for credit losses at June 30, 2020 $ 31,353 $ 30,000 $ 6,931 $ 224 $ 68,081 $ 136,589

Current provision — — — — 347 347

Current provision/(reversal) ( 4,568 ) ( 7,140 ) ( 1,906 ) ( 74 ) ( 16,374 ) ( 30,062 )

Write-offs ( 32 ) ( 227 ) — — ( 22 ) ( 281 )

3 unchanged sentences

Allowance for credit losses at December 31, 2020 $ 21,068 $ 18,371 $ 3,918 $ 107 $ 43,369 $ 86,833

(1) In connection with purchased Rehabilitation loans, the Company had unfunded commitments of $ 60.6 million, with an allowance for credit losses of $ 1.2 million at December 31, 2020.

(1) In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $ 18.5 million and $ 73.2 million as of December 31, 2021 and 2020, respectively, with an allowance for credit losses of $ 205,000 and $ 1.2 million at December 31, 2021 and 2020, respectively.

Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7).

(2) Includes $ 161.8 million of loans that were assessed for credit losses based on a collateral dependent methodology.

(3) Includes $ 70.3 million of loans that were assessed for credit losses based on a collateral dependent methodology.

(2) Includes $ 87.0 million and $ 143.4 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2021 and 2020, respectively.

(3) Includes $ 57.4 million and $ 72.7 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2021 and 2020, respectively.

(4) Of the $ 70.6 million of reserves recorded on adoption of ASU 2016-13, $ 8.3 million was recorded as an adjustment to stockholders’ equity and $ 62.4 million was recorded as a “gross up” of the amortized cost basis of Purchased Credit Deteriorated Loans.

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DECEMBER 31, 2021

The Company adopted ASU 2016-13 (“CECL”) on January 1, 2020 (see Note 2).

The Company adopted the accounting standard addressing the measurement of credit losses on financial instruments (“CECL”) on January 1, 2020.

The anticipated impact of the COVID-19 pandemic on expected economic conditions, including forecasted unemployment, home price appreciation, and prepayment rates, for the short to medium term resulted in significantly increased estimates of credit losses recorded under CECL for the first quarter of 2020 for residential whole loans held at carrying value.

Since the end of the first quarter, primarily as a result of generally more stable markets and an ongoing economic recovery, the Company has made subsequent revisions to certain macro-economic assumptions, including its estimates related to future rates of unemployment, and has made adjustments to the quantitative model outputs for relevant qualitative factors.

The net impact of these assumption revisions and qualitative adjustments has resulted in a reversal of a portion of the allowance for loan loss since the end of the first quarter.

The qualitative adjustments, which have the effect of increasing expected loss estimates, were determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios represented by available proxy data, and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods.

Such differences include uncertainty with respect to the ongoing impact of the pandemic, the speed of vaccine deployment and time taken for a significant portion of society to be vaccinated, the extent and timing of government stimulus efforts and heightened political uncertainty.

Since the end of the first quarter of 2020, primarily as a result of generally more stable markets and an ongoing economic recovery, the Company has made subsequent revisions to certain macroeconomic assumptions, including its estimates related to future rates of unemployment and home price appreciation, and has made adjustments to the quantitative model outputs for relevant qualitative factors.

The net impact of these assumption revisions and qualitative adjustments, as well as reductions in balances subject to CECL, has resulted in a reversal of a portion of the allowance for loan loss since the end of the first quarter of 2020.

The qualitative adjustments, which have the effect of increasing expected loss estimates, were determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios represented by data available in regulatory filings of certain banks that are considered to have similar loan portfolios (available proxy data), and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods.

Such differences include uncertainty with respect to the ongoing impact of the pandemic, the speed of vaccine deployment and time period for a significant portion of society to be vaccinated, the extent and timing of government stimulus efforts and heightened political uncertainty.

The Company’s estimates of credit losses reflect the Company’s expectation that full recovery to pre-pandemic economic conditions will take an extended period, resulting in increased delinquencies and defaults during this period compared to historical periods.

1 unchanged sentence

The amortized cost basis of Purchased Performing Loans on nonaccrual status as of December 31, 2021 and December 31, 2020 was $ 240.2 million and $ 373.3 million, respectively.

The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of December 31, 2020 was $ 151.4 million.

Because Purchase Credit Deteriorated Loans were previously accounted for in pools, there were no such loans on nonaccrual status as of December 31, 2019.

No interest income was recognized from loans on nonaccrual status during the year ended December 31, 2020.

At December 31, 2020, there were approximately $ 130.7 million of loans on nonaccrual status that did not have an associated allowance for credit losses, because they were determined to be collateral dependent and the estimated fair value of the related collateral exceeded the carrying value of each loan.

The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of December 31, 2021 and December 31, 2020 was $ 108.9 million and $ 151.4 million, respectively.

The fair value of Purchased Non-performing Loans on nonaccrual status as of December 31, 2021 and December 31, 2020 was $ 588.1 million and $ 730.9 million, respectively.

During the year ended December 31, 2021, the Company recognized $ 21.2 million of interest income on loans on nonaccrual status, including $ 15.5 million on its portfolio of loans which were non-performing at acquisition.

At December 31, 2021 and December 31, 2020, there were approximately $ 107.4 million and $ 130.7 million, respectively, of loans on nonaccrual status that did not have an associated allowance for credit losses because they were determined to be collateral dependent and the estimated fair value of the related collateral exceeded the carrying value of each loan, respectively.

In periods prior to the adoption of CECL, an allowance for loan losses was recorded when, based on current information and events, it was probable that the Company would be unable to collect all amounts due under the existing contractual terms of the loan agreement.

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DECEMBER 31, 2021

The following tables present certain additional credit-related information regarding our residential whole loans:

The following table presents certain additional credit-related information regarding our Residential whole loans, at Carrying Value:

Amortized Cost Basis by Origination Year and LTV Bands

60 unchanged sentences

Certain low value loans secured by vacant lots are categorized as LTV > 80%.

The following table presents certain information regarding the LTVs of the Company’s Residential whole loans that are 90 days or more delinquent:

The following tables present certain information regarding the LTVs of the Company’s Residential whole loans that are 90 days or more delinquent:

December 31, 2021

(Dollars In Thousands) Carrying Value / Fair Value UPB LTV (1)

Purchased Performing Loans

Non-QM loans $ 96,473 $ 94,755 64.6 %

Rehabilitation loans 103,166 103,034 67.6 %

Single-family rental loans 23,524 23,487 73.4 %

Seasoned performing loans 7,740 8,244 45.6 %

Agency eligible investor loans — — — %

Total Purchased Performing Loans $ 230,903 $ 229,520

Purchased Credit Deteriorated Loans $ 95,899 $ 117,479 79.1 %

Purchased Non-Performing Loans $ 454,443 $ 453,146 80.2 %

Total Residential whole loans $ 781,245 $ 800,145

December 31, 2020

(Dollars In Thousands) Carrying Value / Fair Value UPB LTV (1)

Purchased Performing Loans

Non-QM loans $ 148,387 $ 144,681 65.9 %

2 unchanged sentences

Seasoned performing loans 8,031 8,823 55.1 %

Residential whole loans, at fair value $ 571,729 $ 625,621 86.8 %

Agency eligible investor loans — — — %

Total Purchased Performing Loans $ 313,153 $ 310,084

Purchased Credit Deteriorated Loans $ 119,621 $ 145,028 86.7 %

Purchased Non-Performing Loans $ 571,729 $ 625,621 86.8 %

Total Residential whole loans $ 1,004,503 $ 1,080,733

(1) LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value of the collateral securing the related loan as of the most recent date available, which may be the origination date.

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Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

Residential Whole Loans at Fair Value

Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at the time of acquisition.

Subsequent changes in fair value are reported in current period earnings and presented in Net gain on residential whole loans measured at fair value through earnings on the Company’s consolidated statements of operations.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

The following table presents information regarding the Company’s residential whole loans held at fair value at December 31, 2020 and 2019:

(Dollars in Thousands)

December 31, 2020 December 31, 2019

Less than 60 Days Past Due:

Outstanding principal balance

$ 602,292 $ 666,026

Aggregate fair value

$ 595,521 $ 641,616

Weighted Average LTV Ratio (1)

72.57 % 76.69 %

Number of loans

60 Days to 89 Days Past Due:

Outstanding principal balance

$ 54,180 $ 58,160

Aggregate fair value

$ 49,652 $ 53,485

Weighted Average LTV Ratio (1)

82.11 % 79.48 %

Number of loans

90 Days or More Past Due:

Outstanding principal balance $ 625,621 $ 767,320

Aggregate fair value $ 571,729 $ 686,482

Weighted Average LTV Ratio (1)

86.78 % 89.69 %

Number of loans 2,326 2,983

Total Residential whole loans, at fair value $ 1,216,902 $ 1,381,583

(1) LTV represents the ratio of the total unpaid principal balance of the loan, to the estimated value of the collateral securing the related loan.

Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful.

The following table presents the components of Net gain on residential whole loans measured at fair value through earnings for the years ended December 31, 2020, 2019 and 2018:

The following tables present the components of interest income on the Company’s Residential whole loans for the years ended December 31, 2021, 2020 and 2019:

Held at Carrying Value Held at Fair Value Total

For the Year Ended December 31, For the Year Ended December 31, For the Year Ended December 31,

(In Thousands) 2021 2020 2019 2021 2020 2019 2021 2020 2019

Purchased Performing Loans:

Non-QM loans $ 75,517 $ 136,527 $ 116,282 $ 21,431 $ — $ — $ 96,948 $ 136,527 $ 116,282

Rehabilitation loans 22,424 49,484 54,419 10,705 — — 33,129 49,484 54,419

Single-family rental loans 24,863 27,722 17,742 9,306 — — 34,169 27,722 17,742

Seasoned performing loans 6,684 8,793 12,191 — — — 6,684 8,793 12,191

Agency eligible investor loans — — — 11,667 — — 11,667 — —

Total Purchased Performing Loans $ 129,488 $ 222,526 $ 200,634 $ 53,109 $ — $ — $ 182,597 $ 222,526 $ 200,634

Purchased Credit Deteriorated Loans $ 40,130 $ 36,238 $ 43,346 $ — $ — $ — $ 40,130 $ 36,238 $ 43,346

Purchased Non-Performing Loans $ — $ — $ — $ 80,741 $ 73,448 $ 114,181 $ 80,741 $ 73,448 $ 114,181

Total Residential Whole Loans $ 169,618 $ 258,764 $ 243,980 $ 133,850 $ 73,448 $ 114,181 $ 303,468 $ 332,212 $ 358,161

The following table presents the components of Net gain/(loss) on residential whole loans measured at fair value through earnings for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31,

(In Thousands) 2021 2020 2019

Coupon payments, realized gains, and other income received (1)

$ 72,700 $ 91,438 $ 81,602

Net unrealized gains $ 16,243 $ 17,204 $ 47,849

Net gain on transfers to REO

Other income/(loss) (1)

493 3,561 ( 3,700 )

Total $ 16,736 $ 20,765 $ 44,149

(1) Primarily includes gains on liquidation of non-performing loans, including the recovery of delinquent interest payments, recurring coupon interest payments received on mortgage loans that are contractually current, and cash payments received from private mortgage insurance on liquidated loans.

During the year ended December 31, 2020, loans at fair value with an aggregate unpaid principal balance of $ 24.1 million were sold, realizing net losses of $ 0.8 million.

(1) Primarily includes cash payments received from private mortgage insurance on liquidated loans and losses on liquidations of non-performing loans.

Securities, at Fair Value

MSR-Related Assets

Term Notes Backed by MSR-Related Collateral

At December 31, 2021 and 2020, the Company had $ 153.8 million and $ 239.0 million, respectively, of term notes issued by SPVs that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.

Payment of principal and interest on these term notes is considered to be largely dependent on cash flows generated by the underlying MSRs, as this impacts the cash flows available to the SPV that issued the term notes.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

Residential Mortgage Securities and MSR-Related Assets

At December 31, 2021, these term notes had an amortized cost of $ 121.4 million, gross unrealized gains of approximately $ 32.4 million, a weighted average yield of 10.3 % and a weighted average term to maturity of 1.7 years.

At December 31, 2020, the term notes had an amortized cost of $ 184.9 million, gross unrealized gains of approximately $ 54.0 million, a weighted average yield of 12.3 % and a weighted average term to maturity of 8.7 years.

During the year ended December 31, 2020, the Company sold certain term notes for $ 711.7 million, realizing gains of $ 28.7 million.

During the three months ended March 31, 2020, the Company recognized an impairment loss related to its term notes of $ 280.8 million based on its intent to sell, or the likelihood it will be required to sell, such notes.

CRT Securities

CRT securities are debt obligations issued by or sponsored by Fannie Mae and Freddie Mac.

The coupon payments on CRT securities are paid by the issuer and the principal payments received are dependent on the performance of loans in either a reference pool or an actual pool of loans.

The Company assesses the credit risk associated with its investments in CRT securities by assessing the current and expected future performance of the associated loan pool.

The Company pledges a portion of its CRT securities as collateral against its borrowings under repurchase agreements (see Note 6).

Agency and Non-Agency MBS

MBS investments held during the year ended December 31, 2020 or in prior periods included Agency MBS and Non-Agency MBS which include MBS issued prior to 2008 (“Legacy Non-Agency MBS”).

MBS investments held during the year ended December 31, 2020 and in prior periods included Agency MBS and Non-Agency MBS which include MBS issued prior to 2008 (“Legacy Non-Agency MBS”).

These MBS are secured by:

2 unchanged sentences

and (iii) 15 and 30 year fixed-rate mortgages for Agency MBS and, for Non-Agency MBS, 30-year and longer-term fixed rate mortgages.

In addition, the Company’s MBS are also comprised of MBS backed by securitized re-performing/non-performing loans (“RPL/NPL MBS”), where the cash flows of the bond may not reflect the contractual cash flows of the underlying collateral.

The Company’s RPL/NPL MBS are generally structured with a contractual coupon step-up feature where the coupon increases from 300 - 400 basis points at 36 - 48 months from issuance or sooner.

In addition, until the second quarter of 2021 the Company’s MBS were also comprised of MBS backed by securitized re-performing/non-performing loans (“RPL/NPL MBS”), where the cash flows of the bond may not reflect the contractual cash flows of the underlying collateral.

The Company’s RPL/NPL MBS were generally structured with a contractual coupon step-up feature where the coupon increases from 300 - 400 basis points at 36 - 48 months from issuance or sooner.

The Company pledges a significant portion of its MBS as collateral against its borrowings under repurchase agreements (see Note 6).

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Credit risk associated with Non-Agency MBS is regularly assessed as new information regarding the underlying collateral becomes available and based on updated estimates of cash flows generated by the underlying collateral.

During the quarter ended June 30, 2020, the Company had sold substantially all of its holdings of Legacy Non-Agency MBS and substantially reduced its holdings of other Non-Agency MBS.

The Company sold its remaining Legacy Non-Agency MBS during the quarter ended September 30, 2020.

CRT Securities

CRT securities are debt obligations issued by or sponsored by Fannie Mae and Freddie Mac.

The coupon payments on CRT securities are paid by the issuer and the principal payments received are dependent on the performance of loans in either a reference pool or an actual pool of loans.

The Company assesses the credit risk associated with its investments in CRT securities by assessing the current and expected future performance of the associated loan pool.

The Company pledges a portion of its CRT securities as collateral against its borrowings under repurchase agreements (see Note 7).

During 2020, the Company sold all of its holdings of Legacy Non-Agency MBS and substantially reduced its holdings of other Non-Agency MBS.

Due to issuer redemptions, remaining holdings of Non-Agency MBS were reduced to zero as of June 30, 2021.

MFA FINANCIAL, INC.

9 unchanged sentences

Gross Amortized

Gain/(Loss) Fair Value

Non-Agency MBS (2)(3)(4)

$ 57,847 $ — $ ( 8,136 ) $ ( 669 ) $ 49,042 $ 8,585 $ ( 861 ) $ 7,724 $ 56,766

CRT securities (5)

104,031 3,022 ( 70 ) ( 20,768 ) 86,215 18,341 ( 322 ) 18,019 104,234

Gain/(Loss) Fair

Total residential mortgage securities (2)(3)(4)

$ 99,999 $ 7,466 $ ( 55 ) $ ( 20,768 ) $ 86,642 $ 16,282 $ ( 10 ) $ 16,272 $ 102,914

December 31, 2020

6 unchanged sentences

Gain/(Loss) Fair Value

Fannie Mae $ 1,119,708 $ 43,249 $ ( 22 ) $ — $ 1,162,935 $ 9,799 $ ( 14,741 ) $ ( 4,942 ) $ 1,157,993

Freddie Mac 480,879 19,468 — — 500,961 5,475 ( 3,968 ) 1,507 502,468

Ginnie Mae 3,996 73 — — 4,069 52 — 52 4,121

Total Agency MBS 1,604,583 62,790 ( 22 ) — 1,667,965 15,326 ( 18,709 ) ( 3,383 ) 1,664,582

Non-Agency MBS:

Expected to Recover Par (2)(3)

722,477 — ( 16,661 ) — 705,816 19,861 ( 9 ) 19,852 725,668

Expected to Recover Less than Par (2)

1,472,826 — ( 73,956 ) ( 436,598 ) 962,272 375,598 ( 9 ) 375,589 1,337,861

Total Non-Agency MBS (4)

2,195,303 — ( 90,617 ) ( 436,598 ) 1,668,088 395,459 ( 18 ) 395,441 2,063,529

Total MBS 3,799,886 62,790 ( 90,639 ) ( 436,598 ) 3,336,053 410,785 ( 18,727 ) 392,058 3,728,111

CRT securities (5)

244,932 4,318 ( 55 ) — 249,195 6,304 ( 91 ) 6,213 255,408

Total residential mortgage securities (2)(3)(4)(5)

$ 161,878 $ 3,022 $ ( 8,206 ) $ ( 21,437 ) $ 135,257 $ 26,926 $ ( 1,183 ) $ 25,743 $ 161,000

(1) Discount designated as Credit Reserve is generally not expected to be accreted into interest income.

(2) Based on management ’ s current estimates of future principal cash flows expected to be received.

(3) Includes RPL/NPL MBS, which at December 31, 2020 had a $ 55.0 million Principal/Current face, $ 46.9 million amortized cost and $ 53.9 million fair value.

At December 31, 2019, RPL/NPL MBS had a $ 632.3 million Principal/Current face, $ 631.8 million amortized cost and $ 635.0 million fair value.

(4) At December 31, 2020 and 2019, the Company expected to recover approximately 99 % and 80 % of the then-current face amount of Non-Agency MBS, respectively.

(3) At December 31, 2020, the Company expected to recover approximately 99 % of the then-current face amount of Non-Agency MBS.

(4) Amounts disclosed at December 31, 2021 includes CRT securities with a fair value of $ 67.5 million for which the fair value option has been elected.

Such securities had $ 551,000 gross unrealized gains and gross unrealized losses of approximately $ 322,000 at December 31, 2020.

Amounts disclosed at December 31, 2019 includes CRT securities with a fair value of $ 255.4 million for which the fair value option had been elected.

Such securities had gross unrealized gains of approximately $ 6.3 million and gross unrealized losses of approximately $ 91,000 at December 31, 2019.

(6) Includes principal payments receivable of $ 614,000 at December 31, 2019, which is not included in the Principal/Current Face.

(7) Amounts disclosed at December 31, 2019 include Agency MBS with a fair value of $ 280.3 million, for which the fair value option has been elected.

Such securities had $ 4.5 million unrealized gains and no gross unrealized losses at December 31, 2019, respectively.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Such securities had $ 1.8 million gross unrealized gains and gross unrealized losses of approximately $ 10,000 at December 31, 2021.

Amounts disclosed at December 31, 2020 includes CRT securities with a fair value of $ 66.2 million for which the fair value option has been elected.

Such securities had gross unrealized gains of approximately $ 551,000 and gross unrealized losses of approximately $ 322,000 at December 31, 2020.

(5) Includes RPL/NPL MBS, which at December 31, 2020 had a $ 55.0 million Principal/Current face, $ 46.9 million amortized cost and $ 53.9 million fair value.

Sales of Residential Mortgage Securities

9 unchanged sentences

Unrealized Losses on Residential Mortgage Securities

The following table presents information about the Company’s residential mortgage securities that were in an unrealized loss position at December 31, 2020, with respect to which no allowance for credit losses has been recorded:

Unrealized Loss Position For:

Less than 12 Months 12 Months or more Total

(Dollars in Thousands) Fair

Value Unrealized Losses Number of

Securities Fair

Value Unrealized Losses Number of

Securities Fair

Value Unrealized Losses

Non-Agency MBS (1)

$ 41,139 $ 861 4 $ — $ — — $ 41,139 $ 861

CRT securities (2)

62,252 322 8 — — — 62,252 322

Total residential mortgage securities $ 103,391 $ 1,183 12 $ — $ — — $ 103,391 $ 1,183

(1) Based on management’s current estimates of future principal cash flows expected to be received.

(2) Amounts disclosed at December 31, 2020 include CRT securities with a fair value of $ 62.2 million for which the fair value option has been elected.

Such securities had unrealized losses of $ 322,000 at December 31, 2020 .

Gross unrealized losses on the Company’s Non-Agency MBS were $ 861,000 at December 31, 2020.

Based upon the most recent evaluation, the Company does not consider these unrealized losses to require an allowance for credit losses and does not believe that these unrealized losses are credit related, but are rather a reflection of current market yields and/or marketplace bid-ask spreads.

The Company has reviewed its Non-Agency MBS that are in an unrealized loss position to identify those securities that require an allowance for credit losses based on an assessment of changes in expected cash flows for such securities, which considers recent bond performance and, where possible, expected future performance of the underlying collateral.

The Company did no t recognize an allowance for credit losses (or other than temporary impairment in prior year periods) through earnings related to its MBS for the years ended December 31, 2020 and 2019.

However, during the three months ended March 31, 2020, the Company recognized an aggregate impairment loss related to its MBS of $ 63.5 million based on its intent to sell, or the likelihood it will be required to sell, certain securities at such time.

There were no gross unrealized losses on the Company’s AFS securities at December 31, 2021.

The Company did not recognize an allowance for credit losses (or other than temporary impairment in prior year periods) through earnings related to its MBS for the year ended December 31, 2021.

During the three months ended March 31, 2020, the Company recognized an aggregate impairment loss related to its MBS of $ 63.5 million based on its intent to sell, or the likelihood it will be required to sell, certain securities at such time.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

MSR-Related Assets

(a) Term Notes Backed by MSR-Related Collateral

At December 31, 2020 and 2019, the Company had $ 239.0 million and $ 1.2 billion, respectively, of term notes issued by SPVs that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs.

At December 31, 2020, these term notes had an amortized cost of $ 184.9 million, gross unrealized gains of approximately $ 54.0 million, a weighted average yield of 12.3 % and a weighted average term to maturity of 9.2 years.

During the year ended December 31, 2020, the Company sold certain term notes for $ 711.7 million, realizing gains of $ 28.7 million, respectively.

At December 31, 2019, these term notes had an amortized cost of $ 1.2 billion, gross unrealized gains of $ 5.2 million, a weighted average yield of 4.75 % and a weighted average term to maturity of 5.3 years.

(b) Corporate Loans

The Company has made or participated in loans to provide financing to entities that originate residential mortgage loans and own the related MSRs.

These corporate loans are secured by MSRs, as well as certain other unencumbered assets owned by the borrower.

The Company has participated in a loan where it committed to lend $ 32.6 million of which no amount was drawn at December 31, 2020.

The facility expires in August 2021.

During the remaining commitment period, the Company receives a commitment fee between 0.25 % and 1.0 % based on the undrawn amount of the loan.

The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential mortgage securities and MSR-related assets:

7 unchanged sentences

Allowance for credit losses at end of period $ — $ —

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Impact of AFS Securities on AOCI

4 unchanged sentences

Unrealized gain on AFS securities at beginning of period $ 79,607 $ 392,722 $ 417,167

Unrealized (loss)/gain on Agency MBS, net ( 161 ) 21,844 ( 17,891 )

Unrealized gain/(loss) on Non-Agency MBS, net 367,469 ( 6,682 ) ( 131,939 )

Unrealized gain/(loss) on MSR term notes, net

52,973 5,173 ( 812 )

Unrealized (losses)/gains on securities available-for-sale ( 32,774 ) 420,281 20,335

Reclassification adjustment for MBS sales included in net income — ( 389,127 ) ( 44,600 )

( 389,127 ) ( 44,600 ) ( 51,580 )

Reclassification adjustment for impairment included in net income — ( 344,269 ) ( 180 )

4 unchanged sentences

DECEMBER 31, 2021

Interest Income on Residential Mortgage Securities and MSR-Related Assets

The following table presents the components of interest income on the Company’s residential mortgage securities and MSR-related assets for the years ended December 31, 2020, 2019 and 2018:

Interest Income on Securities, at Fair Value

The following table presents the components of interest income on the Company’s Securities, at fair value for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31,

1 unchanged sentence

Coupon interest $ — $ 14,038 $ 82,446

$ 14,038 $ 82,446 $ 88,233

Effective yield adjustment (1)

1 unchanged sentence

Interest income $ — $ 8,852 $ 55,901

$ 8,852 $ 55,901 $ 62,303

Legacy Non-Agency MBS

Coupon interest $ 14 $ 18,263 $ 87,024

$ 18,263 $ 87,024 $ 109,714

Effective yield adjustment (2)(3)

1 unchanged sentence

Interest income $ 684 $ 28,828 $ 146,646

$ 28,828 $ 146,646 $ 179,023

Coupon interest $ 373 $ 8,376 $ 53,086

$ 8,376 $ 53,086 $ 46,339

Effective yield adjustment (1)(4)

1 unchanged sentence

Interest income $ 8,509 $ 8,936 $ 53,424

$ 8,936 $ 53,424 $ 47,773

CRT securities

Coupon interest $ 3,690 $ 7,010 $ 20,532

$ 7,010 $ 20,532 $ 30,628

Effective yield adjustment (2)

1 unchanged sentence

Interest income $ 8,149 $ 7,521 $ 18,583

$ 7,521 $ 18,583 $ 33,376

MSR-related assets

Coupon interest $ 7,462 $ 25,970 $ 52,644

$ 25,970 $ 52,644 $ 27,174

Effective yield adjustment (1)(2)(5)

1 unchanged sentence

Interest income $ 39,348 $ 35,957 $ 52,647

$ 35,957 $ 52,647 $ 28,420

(1) Includes amortization of premium paid net of accretion of purchase discount.

2 unchanged sentences

The net yield may be based on management’s estimates of the amount and timing of future cash flows or in the instrument’s contractual cash flows, depending on the relevant accounting standards.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously been purchased at a discount of $ 14.5 million and $ 2.7 million during the years ended December 31, 2019 and 2018, respectively.

(4) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously been purchased at a discount of $ 329,000 and $ 1.4 million during the years ended December 31, 2019 and 2018, respectively.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of $ 670,000 and $ 14.5 million during the years ended December 31, 2021 and 2019, respectively.

(4) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of $ 8.1 million and $ 329,000 during the years ended December 31, 2021 and 2019, respectively.

(5) Includes $ 20.5 million of accretion income recognized during the year ended December 31, 2021 due to the impact of the redemption at par of MSR-related assets that had been held at amortized cost basis below par due to an impairment charge recorded in the first quarter of 2020.

MFA FINANCIAL, INC.

4 unchanged sentences

$ 156,223 $ 249,699

Goodwill 61,076 —

Intangibles, net (2)

Capital contributions made to loan origination partners 71,673 47,148

1 unchanged sentence

Interest receivable 50,191 38,850

Other MBS and loan related receivables 16,682 44,648

Other loan related receivables 34,191 16,682

Lease Right-of-Use Asset (3)

Other 73,910 32,244

1 unchanged sentence

(1) Includes $ 11.3 million and $ 61.8 million of REO that is held-for-investment at December 31, 2021 and 2020.

(2) Net of aggregate accumulated amortization of $ 6.6 million as of December 31, 2021.

(3) An estimated incremental borrowing rate of 7.5 % was used in connection with the Company’s primary operating lease (see Notes 2 and 9).

(a) Real Estate Owned

12 unchanged sentences

Purchases and capital improvements, net 2,458 10,198

Disposals (2)

Disposals and other (2)

( 163,466 ) ( 256,354 )

1 unchanged sentence

Number of properties 553 946

(1) Includes net gain recorded on transfer of approximately $ 5.1 million and $ 19.8 million, respectively, for the years ended December 31, 2020 and 2019.

(1) Includes a net loss recorded on transfer of approximately $ 700,000 and a net gain recorded on transfer of approximately $ 5.1 million, respectively, for the years ended December 31, 2021 and 2020.

(2) During the year ended December 31, 2021, the Company sold 647 REO properties for consideration of $ 187.9 million, realizing net gains of approximately $ 23.5 million.

7 unchanged sentences

To date, such contributions of capital include the following investments (based on their carrying value prior to any impairments):

$ 30.4 million of common equity and $ 82.1 million of preferred equity.

$ 23.2 million of common equity (including partnership interests) and $ 78.9 million of preferred equity.

In addition, for certain partners, options or warrants may have also been acquired that provide the Company the ability to increase the level of its investment if certain conditions are met.

At the end of each reporting period, or earlier if circumstances warrant, the Company evaluates whether the nature of its interests and other involvement with the investee entity requires the Company to apply equity method accounting or consolidate the results of the investee entity with the Company’s financial results.

To date, the nature of the Company’s interests and/or involvement with investee companies has not resulted in consolidation.

On July 1, 2021, the Company completed the acquisition of certain ownership interests in Lima One, which resulted in the Company owning all of Lima One’s outstanding ownership interests.

Accordingly, the Company consolidated Lima One’s financial results beginning on that date.

In addition, in connection with the purchase accounting for the acquisition, the Company was required to revalue its investments in Lima One common equity, resulting in a $ 38.9 million gain, which was recorded in Other Income in the Company’s consolidated statements of operations (Refer to Note 15 for further details).

Further, to the extent that the nature of the Company’s interests has resulted in the need for the Company to apply equity method accounting, the impact of such accounting on the Company’s results for periods subsequent to that in which the Company was determined to have significant influence over the investee company was not material for any period.

As the interests acquired to date by the Company generally do not have a readily determinable fair value, the Company accounts for its non-equity method interests (including any acquired options and warrants) in loan originators initially at cost.

With respect to investments in entities that the Company does not either consolidate or apply equity method accounting, as the interests acquired to date by the Company generally do not have a readily determinable fair value, the Company accounts for these interests (including any acquired options and warrants) in loan originators initially at cost.

The carrying value of these investments will be adjusted if it is determined that an impairment has occurred or if there has been a subsequent observable transaction in either the investee company’s equity securities or a similar security that provides evidence to support an adjustment to the carrying value.

Following an evaluation of the anticipated impact of the COVID-19 pandemic on economic conditions for the short to medium term, the Company recorded impairment charges of $ 65.3 million on investments in certain loan origination partners during the year ended December 31, 2020, which was included in “Impairment and other losses on securities available-for-sale and other assets” on the consolidated statements of operations.

At December 31, 2020, approximately $ 738.4 million of the Company’s Residential whole loans, at carrying value were serviced by entities in which the Company has an investment.

Following an evaluation of the anticipated impact of COVID-19 on economic conditions for the short to medium term, the Company recorded impairment charges of $ 65.3 million on investments in certain loan origination partners during the year ended December 31, 2020, which was included in “Impairment and other gains and losses on securities available-for-sale and other assets” on the consolidated statements of operations.

During the year ended December 31, 2021, the Company reversed $ 10.0 million of previously recorded impairment as two of the Company’s preferred equity investments were repaid in full.

In addition, the Company recorded a gain of $ 24.0 million related to a preferred equity investment that had been previously impaired and that was required to be revalued during the period, as the investee company completed a capital transaction with an unrelated third party.

These gains were recorded in Other Income in the consolidated statements of operations.

The Company did no t record any impairment charges to earnings on investments in loan origination partners during the year ended December 31, 2021.

MFA FINANCIAL, INC.

2 unchanged sentences

The Company’s derivative instruments have been generally comprised of Swaps, the majority of which were designated as cash flow hedges against the interest rate risk associated with certain borrowings.

In addition, in connection with managing risks associated with purchases of longer duration Agency MBS, the Company has also entered into Swaps that are not designated as hedges for accounting purposes.

In response to the turmoil in the financial markets resulting from the COVID-19 pandemic experienced during the three months ended March 31, 2020, the Company unwound all of its approximately $ 4.1 billion of Swap hedging transactions late in the first quarter in order to recover previously posted margin.

Gains or losses associated with these Swap hedging transactions are required to be transferred from AOCI to earnings over the original term of the Swap, if the underlying hedged item or transactions are assessed as probable of occurring.

After the closing of several new financing transactions late in the quarter ended June 30, 2020, the Company evaluated its anticipated future financing requirements.

The Company concluded that it was no longer probable that certain previously used financing strategies, including those that primarily utilized repurchase agreements with funding costs that reset on a monthly basis, would be used by the Company on an ongoing basis, as this financing strategy had been essentially replaced by the new financing transactions.

Consequently, during the year ended December 31, 2020, the Company concluded that it was appropriate to transfer from AOCI to earnings approximately $ 57.0 million of losses on Swaps that had previously been designated as hedges for accounting purposes, because the hedged transactions were no longer considered probable to occur.

This amount is included in Other income, net on the Company’s consolidated statements of operations.

At December 31, 2020, there are no remaining losses included in AOCI on Swaps previously designated as hedges for accounting purposes.

The following table presents the fair value of the Company’s derivative instruments at December 31, 2020 and 2019:

Derivative Instrument (1)

Designation Notional Amount Fair Value Notional Amount Fair Value

(In Thousands)

Hedging $ — $ — $ 2,942,000 $ —

Non-Hedging $ — $ — $ 230,000 $ —

(1) Represents Swaps executed bilaterally with a counterparty in the over-the-counter market but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties.

The Company’s derivative instruments include Swaps, which are used to economically hedge the interest rate risk associated with certain borrowings.

Pursuant to these arrangements, the Company agreed to pay a fixed rate of interest and receive a variable interest rate, generally based on Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap.

At December 31, 2021, none of the Company’s Swaps are designated as hedges for accounting purposes.

In response to the turmoil in the financial markets resulting from COVID-19 experienced during the three months ended March 31, 2020, and given that management no longer considered these transactions to be effective hedges in the then prevailing interest rate environment, the Company unwound all of its approximately $ 4.1 billion of Swap hedging transactions late in the first quarter of 2020 in order to recover previously posted margin.

The following table presents the assets pledged as collateral against the Company’s Swap contracts at December 31, 2021 and 2020:

(In Thousands) 2021 2020

Agency MBS, at fair value $ — $ 2,241

Restricted Cash $ 14,446 $ —

Total assets pledged against Swaps $ — $ 19,018

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

At December 31, 2021, the Company had Swaps with an aggregate notional amount of $ 900.0 million and extended approximately 48 months on average with a maximum term of approximately 60 months.

The following table presents information about the Company’s Swaps at December 31, 2021 and 2020:

9 unchanged sentences

(Dollars in Thousands)

Over 3 months to 6 months — — — 200,000 2.05 1.70

Within 30 days to 12 months $ — — % — % $ — — % — %

Over 12 months to 24 months — — — — — —

4 unchanged sentences

(1) Each maturity category reflects contractual amortization and/or maturity of notional amounts.

(2) Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts monthly or quarterly based on one-month or three-month LIBOR, respectively.

(2) Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts annually based on SOFR.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The following table presents the net impact of the Company’s derivative hedging instruments on its net interest expense and the weighted average interest rate paid and received for such Swaps for the years ended December 31, 2021, 2020 and 2019:

4 unchanged sentences

Weighted average Swap rate received — % 1.63 % 2.24 %

During the year ended December 31, 2020, the Company recorded net losses on Swaps not designated in hedging relationships of approximately $ 4.3 million, which included $ 9.4 million of losses realized on the unwind of certain Swaps.

During the year ended December 31, 2019, the Company recorded net losses on Swaps not designated in hedging relationships of $ 16.5 million, which included $ 17.7 million of losses realized on the unwind of certain Swaps.

During the year ended December 31, 2018, the Company recorded net losses on Swaps not designated in hedging relationships of $ 9.6 million.

During the year ended December 31, 2021, the Company recorded net losses on Swaps not designated in hedging relationships of approximately $ 598,000 .

During the years ended December 31, 2020 and 2019, the Company recorded net losses on Swaps not designated in hedging relationships of $ 4.3 million and $ 16.5 million, which included $ 9.4 million and $ 17.7 million, respectively, of losses realized on the unwind of certain Swaps.

These amounts are included in Other income, net on the Company’s consolidated statements of operations.

5 unchanged sentences

Balance at beginning of period $ — $ ( 22,675 ) $ 3,121

Net (loss)/gain on Swaps ( 50,127 ) ( 23,342 ) 14,545

Net loss on Swaps — ( 50,127 ) ( 23,342 )

Reclassification adjustment for losses/gains related to hedging instruments included in net income — 72,802 ( 2,454 )

Balance at end of period $ — $ — $ ( 22,675 )

TBA Securities

In order to economically hedge the risks arising from the investments in Agency eligible investor loans, the Company has entered into short positions in certain TBA securities.

The table below summarizes open short positions in TBA securities as of December 31, 2021, which had an aggregate value of $( 1.3 ) million and were included in Other liabilities on the Company’s consolidated balance sheets.

(Dollars in Thousands) Notional Amount Settlement Date

FNCL 2.5 1/22 $ 180,000 January 13, 2022

FNCL 2 1/21 $ 130,000 January 13, 2022

TBA short positions are subject to margining requirements which serve to mitigate counterparty credit risk associated with these transactions.

Open TBA positions are measured at fair value each reporting date, with realized and unrealized changes in the fair value of these positions recorded in Other income, net in our consolidated statements of operations.

For the year ended December 31, 2021, the Company recorded realized and unrealized changes in fair value on TBA short positions of $ 2.0 million.

No TBA short positions had been entered into in the prior periods presented.

MFA FINANCIAL, INC.

2 unchanged sentences

Financing Agreements

The following tables present the components of the Company’s Financing agreements at December 31, 2020 and December 31, 2019:

The following tables present the components of the Company’s Financing agreements at December 31, 2021 and 2020:

December 31, 2021

1 unchanged sentence

Financing agreements, at fair value

Agreements with non-mark-to-market collateral provisions $ 1,156,899 $ 1,156,899 $ 1,159,213

Agreements with mark-to-market collateral provisions $ 1,322,362 $ 1,322,362 $ 1,322,362

Agreements with non-mark-to-market collateral provisions 627,026 627,026 628,280

Securitized debt 1,304,912 1,318,593 1,316,131

Total Financing agreements, at fair value $ 3,254,300 $ 3,267,981 $ 3,266,773

Other financing agreements

Financing agreements, at carrying value

Securitized debt $ 1,340,583 $ 1,334,342

Agreements with mark-to-market collateral provisions 1,240,510 1,239,937

Agreements with non-mark-to-market collateral provisions 311,977 311,260

Convertible senior notes 230,000 226,470

Senior notes 100,000 100,000

Total Financing agreements, at carrying value $ 3,123,070 $ 3,112,009

Total Financing agreements $ 6,377,370 $ 6,378,782

(1) Financing agreements at fair value are reported at estimated fair value each period as a result of the Company’s fair value option election.

Other financing arrangements are reported at their carrying value (amortized cost basis) as the fair value option was not elected on these liabilities.

Consequently, Total Financing agreements as presented reflects a summation of balances reported at fair value and carrying value.

Set out below is information about the Company’s Financing agreements that existed as of December 31, 2019.

During the second quarter of 2020, outstanding repurchase agreement transactions at that time were renegotiated as part of a reinstatement agreement that was entered into by the Company.

The Company elected to account for these reinstated transactions under the fair value option from the time these repurchase agreements were reinstated.

Accordingly, as of December 31, 2020, such liabilities are reported as Financing agreements at fair value.

December 31, 2020

(In Thousands) Unpaid Principal Balance Carrying Value

Repurchase agreements $ 9,140,944 $ 9,139,821

(In Thousands) Unpaid Principal Balance Amortized Cost Balance Fair Value/Carrying Value (1)

Financing agreements, at fair value

Agreements with non-mark-to-market collateral provisions $ 1,156,899 $ 1,156,899 $ 1,159,213

Agreements with mark-to-market collateral provisions 1,338,077 1,338,077 1,338,077

Securitized debt 866,203 857,553 869,482

Total Financing agreements, at fair value $ 3,361,179 $ 3,352,529 $ 3,366,772

Financing agreements, at carrying value

Securitized debt $ 648,300 $ 645,027

Convertible senior notes 230,000 225,177

1 unchanged sentence

Total Financing agreements, at carrying value $ 978,300 $ 970,204

(a) Financing Agreements, at Fair Value

During the second quarter of 2020, the Company entered into a $ 500 million senior secured credit agreement.

In addition, in conjunction with its exit from forbearance arrangements, the Company entered into several new asset backed financing arrangements and renegotiated financing arrangements for certain assets with existing lenders, which together resulted in the Company essentially refinancing the majority of its investment portfolio.

The Company elected the fair value option on these financing arrangements, primarily to simplify the accounting associated with costs incurred to establish the new facilities or renegotiate existing facilities.

The Company considers that the most relevant feature that distinguishes between the various asset backed financing arrangements is how the financing arrangement is collateralized, including the ability of the lender to make margin calls on the

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Company based on changes in value of the underlying collateral securing the financing.

Accordingly, further details are provided below regarding assets that are financed with agreements that have non-mark-to-market collateral provisions and assets that are financed with agreements that have mark-to-market collateral provisions.

Agreements with non-mark-to-market collateral provisions

The Company and certain of its subsidiaries entered into a non-mark-to-market term loan facility with certain lenders with an initial borrowing capacity of $ 1.65 billion.

The Company’s borrowing subsidiaries have pledged, as collateral security for the facility, certain of their residential whole loans (excluding Rehabilitation loans), as well as the equity in subsidiaries that own the loans.

The facility has an initial term of two years , which may be extended for up to an additional three years , subject to certain conditions, including the payment of an extension fee and provided that no events of default have occurred.

For the initial two year term, the financing cost for the facility will be calculated at a spread over the lender’s financing cost, which, depending on the lender, is expected to be based either on three-month LIBOR, or an index that it expected over time to be closely correlated to changes in three-month LIBOR.

At December 31, 2020, the amount financed under this facility was approximately $ 886.1 million.

In addition, the Company also entered into non-mark-to-market financing facilities on Rehabilitation loans.

Under these facilities, Rehabilitation loans, as well as the equity in subsidiaries that own the loans, are pledged as collateral.

The facilities have a two year term and the financing cost is calculated at a spread over three-month LIBOR.

At December 31, 2020, the amount financed under these facilities was approximately $ 273.1 million.

The following table presents information with respect to the Company’s financing agreements with non-mark-to-market collateral provisions and associated assets pledged as collateral at December 31, 2020 and December 31, 2019:

(Dollars in Thousands) December 31,

2020 December 31,

Non-mark-to-market financing secured by residential whole loans at carrying value $ 906,466 $ —

Fair value of residential whole loans at carrying value pledged as collateral under financing agreements $ 1,500,100 $ —

Weighted average haircut on residential whole loans at carrying value 38.62 % — %

Non-mark-to-market financing secured by residential whole loans at fair value $ 252,747 $ —

Fair value of residential whole loans at fair value pledged as collateral under financing agreements $ 430,183 $ —

Weighted average haircut on residential whole loans at fair value 42.26 % — %

Agreements with mark-to-market collateral provisions

In addition to entering into the financing arrangements discussed above, the Company also entered into a reinstatement agreement with certain lending counterparties that facilitated its exit from the forbearance arrangements that the Company had previously entered into.

In connection with the reinstatement agreement, terms of its prior financing arrangements on certain residential whole loans, residential mortgage securities, and MSR-related assets were renegotiated and those arrangements were reinstated on a go-forward basis.

These financing arrangements continue to contain mark-to-market provisions that permit the lending counterparties to make margin calls on the Company should the value of the pledged collateral decline.

The Company is also permitted to recover previously posted margin payments, should values of the pledged collateral subsequently increase.

These facilities generally have a maturity ranging from one to three months and can be renewed at the discretion of the lending counterparty at financing costs reflecting prevailing market pricing.

At December 31, 2020, the amount financed under these agreements was approximately $ 1.3 billion.

Total Financing agreements $ 4,339,479 $ 4,336,976

(1) Financing agreements at fair value are reported at estimated fair value each period as a result of the Company’s fair value option election.

Other financing arrangements are reported at their carrying value (amortized cost basis) as the fair value option was not elected on these liabilities.

Consequently, Total Financing agreements as presented reflects a summation of balances reported at fair and carrying value.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

The following table presents information with respect to the Company’s financing agreements with mark-to-market collateral provisions and associated assets pledged as collateral at December 31, 2020 and December 31, 2019:

(Dollars in Thousands) December 31,

1 unchanged sentence

Mark-to-market financing agreements secured by residential whole loans $ 2,391,602 $ 1,113,553

$ 1,124,162 $ 4,743,094

Fair value of residential whole loans pledged as collateral under financing agreements (1)

2 unchanged sentences

25.27 % 34.17 %

Mark-to-market financing agreement borrowings secured by Agency MBS

$ — $ 1,557,675

Fair value of Agency MBS pledged as collateral under financing agreements

$ — $ 1,656,373

Weighted average haircut on Agency MBS (3)

Mark-to-market financing agreement borrowings secured by Legacy Non-Agency MBS $ 1,282 $ 1,121,802

Fair value of Legacy Non-Agency MBS pledged as collateral under financing agreements

$ 2,821 $ 1,420,797

Weighted average haircut on Legacy Non-Agency MBS (3)

50.00 % 20.27 %

Mark-to-market financing agreement borrowings secured by RPL/NPL MBS $ 32,950 $ 495,091

Fair value of RPL/NPL MBS pledged as collateral under financing agreements

$ 53,946 $ 635,005

Weighted average haircut on RPL/NPL MBS (3)

38.75 % 21.52 %

Mark-to-market financing agreements secured by CRT securities

$ 54,883 $ 203,569

Fair value of CRT securities pledged as collateral under financing agreements $ 104,234 $ 252,175

Weighted average haircut on CRT securities (3)

Mark-to-market financing agreements secured by securities at fair value $ 159,148 $ 213,915

Securities at fair value pledged as collateral under financing agreements $ 256,685 $ 399,999

Weighted average haircut on securities at fair value (2)

37.00 % 41.16 %

Mark-to-market financing agreements secured by MSR-related assets $ 124,800 $ 962,515

Fair value of MSR-related assets pledged as collateral under financing agreements $ 238,999 $ 1,217,002

Weighted average haircut on MSR-related assets (3)

Mark-to-market financing agreements secured by real estate owned $ 11,549 $ 10,609

Fair value of real estate owned pledged as collateral under financing agreements $ 34,606 $ 22,525

Weighted average haircut on real estate owned (2)

58.46 % 55.56 %

Mark-to-market financing agreements secured by other interest-earning assets $ — $ 57,198

Fair value of other interest-earning assets pledged as collateral under financing agreements $ — $ 61,708

Weighted average haircut on other interest-earning assets (3)

(1) Excludes $ 0 and $ 1.1 million of unamortized debt issuance costs at December 31, 2020 and December 31, 2019, respectively.

(2) At December 31, 2020 and December 31, 2019, includes RPL/NPL MBS with an aggregate fair value of $ 141.9 million and $ 238.8 million, respectively, obtained in connection with the Company’s loan securitization transactions that are eliminated in consolidation.

(1) At December 31, 2020, includes Non-Agency MBS with an aggregate fair value of $ 141.9 million obtained in connection with the Company’s loan securitization transactions that are eliminated in consolidation.

(2) Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount.

In addition, the Company had cash pledged as collateral in connection with its financing agreements of $ 7.2 million and $ 25.2 million at December 31, 2020 and December 31, 2019, respectively.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands) December 31,

2021 December 31,

The following table presents repricing information (excluding the impact of associated derivative hedging instruments, if any) about the Company’s financing agreements that have non-mark-to-market collateral provisions as well as those that have mark-to-market collateral provisions, at December 31, 2020 and December 31, 2019:

Non-mark-to-market financing secured by residential whole loans $ 928,055 $ 1,156,125

Fair value of residential whole loans pledged as collateral under financing agreements $ 1,420,283 $ 1,930,283

Weighted average haircut on residential whole loans 29.98 % 39.46 %

Non-mark-to-market financing secured by real estate owned $ 11,485 $ 3,088

Fair value of real estate owned pledged as collateral under financing agreements $ 29,894 $ 7,441

Weighted average haircut on real estate owned 61.28 % 59.73 %

In addition, the Company had aggregate restricted cash held in connection with its financing agreements of $ 10.2 million and $ 7.2 million at December 31, 2021 and 2020, respectively.

December 31, 2021 December 31, 2020

7 unchanged sentences

Total financing agreements $ 3,501,876 2.38 % $ 2,494,976 3.16 %

Less debt issuance costs — 1,123

Total financing agreements less debt

issuance costs $ 2,494,976 $ 9,139,821

The Company had financing agreements, including repurchase agreements and other forms of secured financing with 7 and 28 counterparties at December 31, 2020 and December 31, 2019, respectively.

The following table presents information with respect to each counterparty under financing agreements for which the Company had greater than 5 % of stockholders’ equity at risk in the aggregate at December 31, 2020:

December 31, 2020

Average Months

to Repricing for

Repurchase Agreements Percent of

Stockholders’ Equity

(Dollars in Thousands)

Barclays Bank BBB/Aa3/A $ 505,580 1 20.0 %

Credit Suisse BBB+/Baa1/A- 438,336 1 17.4

Wells Fargo A+/Aa2/AA- 337,769 1 13.4

Goldman Sachs (3)

BBB+/A2/A 187,122 0 7.4

BBB+/N/A/BBB+ 133,286 1 5.3

(1) As rated at December 31, 2020 by S&P, Moody’s and Fitch, Inc., respectively.

The counterparty rating presented is the lowest published for these entities.

(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through financing agreements, including interest payable, and (b) the cash and the fair value of the securities pledged by the Company as collateral, including accrued interest receivable on such securities.

(3) Includes $ 25.4 million at risk with Goldman Sachs and $ 161.7 million at risk with Goldman Sachs Bank USA.

(4) Includes amounts at risk with various Athene affiliates that collectively exceed 5 % of stockholders’ equity.

Senior Secured Term Loan Facility

On June 26,2020, the Company entered into a $ 500 million senior secured term loan facility (the “Term Loan Facility”) with certain funds, accounts and/or clients managed by affiliates of Apollo Global Management, Inc.

and affiliates of Athene Holding Ltd.

The outstanding balance of the Term Loan Facility was repaid and the Term Loan Facility was terminated prior to December 31, 2020.

(b) Other Financing Agreements

These arrangements were either entered into prior to the Company experiencing financial difficulties related to the COVID-19 pandemic, or, in the case of the Company’s recent securitizations, after the Company’s exit from forbearance, and

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

were not subject to the forbearance arrangements that were entered into by the Company or any negotiations related to the Company’s exit from those arrangements.

Additional information regarding the Company’s Other financing arrangements as of December 31, 2020, is included below:

(a) Financing Agreements

In conjunction with its exit from forbearance arrangements in the second quarter of 2020, the Company entered into several asset backed financing arrangements and renegotiated financing arrangements for certain assets with existing lenders.

The Company considers the most relevant feature that distinguishes between the various asset backed financing arrangements is how the financing arrangement is collateralized, including the ability of the lender to make margin calls on the Company based on changes in value of the underlying collateral securing the financing.

Agreements with mark-to-market collateral provisions

The Company has entered into financing arrangements which contain mark-to-market provisions that permit the lending counterparties to make margin calls on the Company should the value of the pledged collateral decline.

The Company is also permitted to recover previously posted margin payments, should values of the pledged collateral subsequently increase.

These facilities generally reset on a monthly or quarterly basis and can be renewed at the discretion of the lending counterparty at financing costs reflecting prevailing market pricing.

Agreements with non-mark-to-market collateral provisions

The Company has also entered into financing arrangements which do not contain mark-to-market provisions.

The Company has generally pledged, as collateral security for these facilities, certain of its residential whole loans, as well as the equity in subsidiaries that own the loans.

These facilities have maturities ranging from 5 to 45 months and $ 559.8 million of the facilities contain extension options, with maximum extensions ranging from 16 to 42 months, subject to certain conditions, in some cases including the payment of an extension fee and provided that no events of default have occurred.

The financing cost for these facilities is generally calculated at a spread over prevailing short term market interest rates, which generally reset monthly.

Securitized Debt

9 unchanged sentences

The Company does not have the right to redeem the Convertible Senior Notes prior to maturity, except to the extent necessary to preserve its status as a REIT, in which case the Company may redeem the Convertible Senior Notes, in whole or in part, at a redemption price equal to the principal amount redeemed plus accrued and unpaid interest.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The Convertible Senior Notes are the Company’s senior unsecured obligations and are effectively junior to all of the Company’s secured indebtedness, which includes the Company’s repurchase agreements and other financing arrangements, to the extent of the value of the collateral securing such indebtedness and equal in right of payment to the Company’s existing and future senior unsecured obligations, including the Senior Notes.

On April 11, 2012, the Company issued $ 100.0 million in aggregate principal amount of its Senior Notes in an underwritten public offering.

The Senior Notes bear interest at a fixed rate of 8.00 % per year.

The Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 8.31 %.

On January 6, 2021, the Company redeemed all of its outstanding Senior Notes (see Note 17).

Collateral Positions

On January 6, 2021, the Company redeemed all of its outstanding Senior Notes.

The Senior Notes bore interest at a fixed rate of 8.00 % per year, paid quarterly in arrears on January 15, April 15, July 15 and October 15.

The Senior Notes had an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 8.31 %.

Senior Secured Term Loan Facility

On June 26, 2020, the Company entered into a $ 500 million senior secured term loan facility (the “Term Loan Facility”) with certain funds, accounts and/or clients managed by affiliates of Apollo Global Management, Inc.

and affiliates of Athene Holding Ltd.

The outstanding balance of the Term Loan Facility was repaid and the Term Loan Facility was terminated prior to December 31, 2020.

(b) Counterparties

The Company had financing agreements, including repurchase agreements and other forms of secured financing, with 14 and 7 counterparties at December 31, 2021 and 2020, respectively.

December 31, 2021

Average Months

to Repricing for

Repurchase Agreements Percent of

Stockholders’ Equity

(Dollars in Thousands)

Credit Suisse BBB+/Baa1/A- $ 557,688 1 21.9 %

Barclays Bank (3)

BBB/Aa3/A 535,524 1 21.1

Wells Fargo A+/Aa2/AA- 251,079 1 9.9

(1) As rated at December 31, 2021 by S&P, Moody’s and Fitch, Inc., respectively.

The counterparty rating presented is the lowest published rating for these entities.

(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through financing agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such assets.

(3) Includes amounts at risk with various affiliates of Athene Holding, Ltd., held via participation in a loan syndication administered by Barclays Bank.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The following tables present the Company’s assets (based on carrying value) pledged as collateral for its various financing arrangements as of December 31, 2021 and 2020:

December 31, 2021

Financing Agreements

(In Thousands) Non-Mark-to-Market (1)

Mark-to-Market (1)

Securitized Total

Residential whole loans, at carrying value $ 693,982 $ 459,349 $ 1,476,588 $ 2,629,919

Residential whole loans, at fair value 706,377 2,810,865 1,525,114 5,042,356

Securities, at fair value — 256,685 — 256,685

Other assets:

REO 25,692 29,374 35,379 90,445

Total $ 1,426,051 $ 3,556,273 $ 3,037,081 $ 8,019,405

December 31, 2020

Financing Agreements

(In Thousands) Non-Mark-to-Market (1)

Mark-to-Market (1)

Securitized Total

Residential whole loans, at carrying value $ 1,497,281 $ 1,207,364 $ 1,436,316 $ 4,140,961

Residential whole loans, at fair value 430,183 396,817 382,349 1,209,349

Securities, at fair value — 399,999 — 399,999

Other assets:

REO — — 49,477 49,477

Total $ 1,927,464 $ 2,004,180 $ 1,868,142 $ 5,799,786

(1) An aggregate of $ 25.7 million and $ 24.6 million of accrued interest on those assets pledged against non-mark-to-market and mark-to-market financings agreements had also been pledged as of December 31, 2021 and 2020, respectively.

The Company pledges securities or cash as collateral to its counterparties in relation to certain of its financing arrangements.

3 unchanged sentences

When the Company’s pledged collateral exceeds the required margin, the Company may initiate a reverse margin call, at which time the counterparty may either return the excess collateral or provide collateral to the Company in the form of cash or equivalent securities.

The Company’s assets pledged as collateral are also described in Notes 2(e) - Restricted Cash and 5(c) - Derivative Instruments.

Certain of the Company’s financing arrangements and derivative transactions are governed by underlying agreements that generally provide for a right of setoff in the event of default or in the event of a bankruptcy of either party to the transaction.

In the Company’s consolidated balance sheets, all balances associated with repurchase agreements are presented on a gross basis.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

The Company’s assets pledged as collateral are described in Notes 2(f) - Restricted Cash, 5(c) - Derivative Instruments and 6 - Financing Agreements.

The total fair value of assets pledged as collateral with respect to the Company’s borrowings under its financing arrangements and/or derivative hedging instruments was $ 4.1 billion and $ 11.3 billion at December 31, 2020 and December 31, 2019, respectively.

An aggregate of $ 24.6 million and $ 57.2 million of accrued interest on those assets had also been pledged as of December 31, 2020 and December 31, 2019, respectively.

Offsetting Assets and Liabilities

In the Company’s consolidated balance sheets, all balances associated with repurchase agreements are presented on a gross basis.

The fair value of financial instruments pledged against the Company’s financing arrangements was $ 4.1 billion and $ 11.2 billion at December 31, 2020 and December 31, 2019, respectively.

The fair value of financial instruments pledged against the Company’s Swaps was $ 0 and $ 2.2 million at December 31, 2020 and December 31, 2019, respectively.

In addition, cash that has been pledged as collateral against financing arrangements and Swaps is reported as Restricted cash on the Company’s consolidated balance sheets (see Notes 2(f), 5(c) and 6).

Other Liabilities

2 unchanged sentences

Dividends and dividend equivalents payable $ 47,751 $ 34,016

Lease liability 44,977 636

Accrued interest payable 9,621 11,116

1 unchanged sentence

Total Other Liabilities $ 218,058 $ 70,522

Commitments and Contingencies

(a) Lease Commitments

The Company pays monthly rent pursuant to three office leases.

In November 2018, the Company amended the lease for its corporate headquarters in New York, New York, under the same terms and conditions, to extend the expiration date for the lease by up to one year, through June 30, 2021, with a mutual option to terminate on or after February 15, 2021.

For the year ended December 31, 2020, the Company recorded an expense of approximately $ 2.9 million in connection with the lease for its current corporate headquarters.

In addition, in November 2018, the Company executed a lease agreement on new office space in New York, New York.

The Company plans to relocate its corporate headquarters to this new office space upon the substantial completion of the building.

The lease term specified in the agreement is fifteen years with an option to renew for an additional five years .

The Company’s current estimate of annual lease rental expense under the new lease, excluding escalation charges which at this point are unknown, is approximately $ 4.6 million.

The Company currently expects to relocate to the space in the first fiscal quarter of 2021, but this timing, as well as when it is required to begin making payments and recognize rental and other expenses under the new lease, is dependent on when the space is actually available for use.

The Company has elected to be taxed as a REIT under the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”), and the corresponding provisions of state law.

The Company expects to operate in a manner that will enable it to satisfy the various requirements to maintain its status as a REIT for federal income tax purposes.

As long as the Company maintains its status as a REIT, the Company will not be subject to regular federal income tax at the REIT level to the extent that it distributes 100% of its REIT taxable income (including net long-term capital gains) to its stockholders within the permitted timeframe.

The Company’s objective is to distribute 100 % of its REIT taxable income to its stockholders within the permitted timeframe.

If the Company fails to distribute during each calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for such year, and (iii) any undistributed taxable income from prior periods, the Company would be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed.

In addition, the Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”).

In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.

Generally, a domestic TRS is subject to U.S.

federal, state and local corporate income taxes.

Given that a portion of the Company’s business is conducted through one or more TRS, the net taxable income earned by its domestic TRS, if any, is subject to corporate income taxation.

To maintain the Company’s REIT election, no more than 20% of the value of the Company’s assets at the end of each calendar quarter may consist of stock or securities in TRS.

For purposes of the determination of U.S.

As of the date of this filing, the Company’s tax returns for tax years 2018 through 2021 are open to examination.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

The Company recognized lease expense of $ 3.0 million, $ 2.7 million and $ 2.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, which is included in Other general and administrative expense within the consolidated statements of operations.

The tax effects of temporary differences that give rise to significant portions of net deferred tax assets (“DTAs”) recorded at the Company’s domestic TRS entities at December 31, 2021 and 2020 are presented in the following table:

(In Thousands) December 31, 2021 December 31, 2020

Deferred tax assets (DTAs):

Net operating loss and tax credit carryforwards $ 35,796 $ 37,338

Unrealized mark-to-market, impairments and loss provisions 3,753 15,203

Other realized / unrealized treatment differences 12,131 21,600

Total deferred tax assets 51,680 74,141

valuation allowance ( 51,680 ) ( 74,141 )

Net deferred tax assets $ — $ —

Realization of the Company’s DTAs at December 31, 2021 is dependent on several factors, including generating sufficient taxable income prior to the expiration of net operating loss (“NOL”) carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards.

The Company determines the extent to which realization of the deferred assets is not expected to be more likely than not and establishes a valuation allowance accordingly.

No net deferred tax benefit was recorded by the Company for the years ended December 31, 2021 and 2020, related to the net taxable losses in TRS entities, since a valuation allowance for the full amount of the associated deferred tax asset of approximately $ 51.7 million and $ 74.1 million at the ends of those periods, respectively, was recognized as its recovery was not considered more likely than not.

The related NOL carryforwards generated prior to 2018 will begin to expire in 2037;

those generated in 2018 and later can be carried forward indefinitely, until fully utilized.

The Company’s estimate of net DTAs could change in future periods to the extent that actual or revised estimates of future taxable income change from current expectations.

At December 31, 2021, the Company’s federal NOL carryforward was $ 142.1 million, which may be carried forward indefinitely.

If certain substantial changes in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwards that can be utilized.

The income tax provision (benefit) is included in Other general and administrative expense in the Company’s consolidated statements of operations.

The following table summarizes the Company’s income tax provision (benefit) primarily recorded at the Company’s domestic TRS entities for the years ended December 31, 2021, 2020, and 2019:

For the Year Ended

(In Thousands) December 31, 2021 December 31, 2020 December 31, 2019

Current provision (benefit)

Federal $ 2,025 $ 1,403 $ 3

State 644 598 496

Total current provision (benefit) 2,669 2,001 499

Deferred provision (benefit)

Federal — — —

Total deferred provision (benefit) — — —

Total provision (benefit) $ 2,669 $ 2,001 $ 499

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The following is a reconciliation of the statutory federal tax rate to the Company’s effective tax rate at December 31, 2021, 2020, and 2019:

For the Year Ended

December 31, 2021 December 31, 2020 December 31, 2019

Federal statutory rate 21.0 % 21.0 % 21.0 %

Non-taxable REIT income (dividends paid deduction) ( 4.6 ) % 0.1 % ( 20.3 ) %

Other differences in taxable income (loss) from GAAP ( 4.7 ) % ( 14.4 ) % ( 3.0 ) %

State and local taxes — % — % — %

Change in valuation allowance on DTAs ( 11.1 ) % ( 6.9 ) % 2.3 %

Effective tax rate 0.6 % ( 0.2 ) % — %

Commitments and Contingencies

(a) Lease Commitments

The Company’s primary lease commitments relate to its corporate headquarters.

In April 2021, the Company relocated its corporate headquarters, terminating its prior lease on April 30, 2021.

For the year ended December 31, 2021, the Company recorded aggregate lease expense of approximately $ 4.0 million in connection with these two leases.

The term specified in the current lease is approximately fifteen years with an option to renew for an additional five years .

In addition, the Company has a lease through February 2025 for its Lima One offices located in Greenville, South Carolina.

The Company recognized lease expense of $ 3.0 million and $ 2.7 million for the years ended December 31, 2020 and 2019, respectively, which is included in Other general and administrative expense within the consolidated statements of operations.

At December 31, 2021, the contractual minimum rental payments (exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes) were as follows:

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(In Thousands)

(1) Table excludes amounts related to the lease agreement for new office space discussed above as the Company is not contractually obligated to make rental payments until fourteen months after a temporary certificate of occupancy is delivered to the landlord, which is currently expected to occur on or before March 2021.

Thereafter 49,604

Total $ 74,853

(b) Representations and Warranties in Connection with Loan Securitization Transactions

In connection with the loan securitization transactions entered into by the Company, the Company has the obligation under certain circumstances to repurchase assets previously transferred to securitization vehicles upon breach of certain representations and warranties.

As of December 31, 2020, the Company had no reserve established for repurchases of loans and was not aware of any material unsettled repurchase claims that would require the establishment of such a reserve (see Note 15).

The Company has participated in loans to provide financing to entities that originate loans and own MSRs, as well as certain other unencumbered assets owned by the borrower.

At December 31, 2020, the Company’s commitment to lend is $ 32.6 million of which no amount was drawn at December 31, 2020 (see Note 4).

(d) Rehabilitation Loan Commitments

In connection with the loan securitization and sale transactions entered into by the Company, the Company has the obligation under certain circumstances to repurchase assets previously transferred to securitization vehicles, or otherwise sold, upon breach of certain representations and warranties.

As of December 31, 2021, the Company was not aware of any material unsettled repurchase claims that would require a reserve (see Note 14).

At December 31, 2021, the Company had unfunded commitments of $ 285.8 million in connection with its purchased Rehabilitation loans (see Note 3).

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Stockholders’ Equity

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The Series B Preferred Stock is redeemable at $ 25.00 per share plus accrued and unpaid dividends (whether or not authorized or declared) exclusively at the Company’s option.

The Series B Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive).

The Series B Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive).

Under such circumstances, the Series B Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board of Directors (the “Board”), until all unpaid dividends have been paid or declared and set apart for payment.

7 unchanged sentences

August 26, 2021 September 8, 2021 September 30, 2021 0.46875

July 1, 2020 July 15, 2020 July 31, 2020 0.93750

2019 November 15, 2019 December 2, 2019 December 31, 2019 $ 0.46875

August 9, 2019 August 30, 2019 September 30, 2019 0.46875

May 24, 2021 June 7, 2021 June 30, 2021 0.46875

2 unchanged sentences

August 12, 2020 September 8, 2020 September 30, 2020 0.46875

July 1, 2020 July 15, 2020 July 31, 2020 0.93750

2019 November 15, 2019 December 2, 2019 December 31, 2019 $ 0.46875

August 9, 2019 August 30, 2019 September 30, 2019 0.46875

May 20, 2019 June 3, 2019 June 28, 2019 0.46875

February 15, 2019 March 4, 2019 March 29, 2019 0.46875

Issuance of 6.50 % Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”)

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

6.50 % Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”)

On February 28, 2020, the Company amended its charter through the filing of articles supplementary to reclassify 12,650,000 shares of the Company’s authorized but unissued common stock as shares of the Company’s Series C Preferred Stock.

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The total net proceeds the Company received from the offering were approximately $ 266.0 million, after deducting offering expenses and the underwriting discount.

The Company’s Series C Preferred Stock is entitled to receive dividends (i) from and including the original issue date to, but excluding, March 31, 2025, at a fixed rate of 6.50 % per year on the $ 25.00 liquidation preference and (ii) from and including March 31, 2025, at a floating rate equal to three-month LIBOR plus a spread of 5.345 % per year of the $ 25.00 per share liquidation preference before the Company’s common stock is paid any dividends, and is senior to the Company’s common stock with respect to distributions upon liquidation, dissolution or winding up.

The Company’s Series C Preferred Stock is entitled to receive dividends (i) from and including the original issue date to, but excluding, March 31, 2025, at a fixed rate of 6.50 % per year on the $ 25.00 liquidation preference and (ii) from and including March 31, 2025, at a floating rate equal to three-month London Interbank Offered Rate (“LIBOR”) plus a spread of 5.345 % per year of the $ 25.00 per share liquidation preference before the Company’s common stock is paid any dividends, and is senior to the Company’s common stock with respect to distributions upon liquidation, dissolution or winding up.

Dividends on the Series C Preferred Stock are payable quarterly in arrears on or about March 31, June 30, September 30 and December 31 of each year.

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On or after March 31, 2025, the Company may, at its option, subject to certain procedural requirements, redeem any or all of the shares of the Series C Preferred Stock for cash at a redemption price of $ 25.00 per share, plus any accrued and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

The Series C Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive).

9 unchanged sentences

August 26, 2021 September 8, 2021 September 30, 2021 0.40625

May 24, 2021 June 7, 2021 June 30, 2021 0.40625

February 19, 2021 March 5, 2021 March 31, 2021 0.40625

2020 November 18, 2020 December 4, 2020 December 31, 2020 $ 0.40625

August 12, 2020 September 8, 2020 September 30, 2020 0.40625

July 1, 2020 July 15, 2020 July 31, 2020 0.53264

5 unchanged sentences

The quarterly cash dividend of $ 0.20 per share on the Company's common stock had been declared on March 11, 2020, and was to be paid on April 30, 2020, to all stockholders of record as of the close of business March 31, 2020.

On August 6, 2020, the Company declared a regular cash dividend of $ 0.05 per share of common stock.

This dividend was paid on October 30, 2020, to stockholders of record on September 30, 2020.

On December 17, 2020, the Company declared a regular cash dividend of $ 0.075 per share of common stock.

This dividend was paid on January 29, 2021, to stockholders of record on December 30, 2020.

At December 31, 2020, the Company had accrued dividends and dividend equivalents payable of $ 34.0 million related to the common stock dividend declared on December 17, 2020.

The following table presents cash dividends declared by the Company on its common stock from January 1, 2019 through December 31, 2021:

2 unchanged sentences

2021 December 14, 2021 December 31, 2021 January 31, 2022 $ 0.110 (1)

September 15, 2021 September 30, 2021 October 29, 2021 0.100

June 15, 2021 June 30, 2021 July 30, 2021 0.100

March 12, 2021 March 31, 2021 April 30, 2021 0.075

2020 December 17, 2020 December 30, 2020 January 29, 2021 $ 0.075 (2)

August 6, 2020 September 30, 2020 October 30, 2020 0.050

3 unchanged sentences

March 6, 2019 March 29, 2019 April 30, 2019 0.200

2018 December 12, 2018 December 28, 2018 January 31, 2019 $ 0.20

September 13, 2018 October 1, 2018 October 31, 2018 0.20

June 7, 2018 June 29, 2018 July 31, 2018 0.20

March 7, 2018 March 29, 2018 April 30, 2018 0.20

(1) At December 31, 2020, we had accrued dividends and dividend equivalents payable of $ 34.0 million related to the common stock dividend declared on December 17, 2020.

(1) At December 31, 2021, the Company had accrued dividends and dividend equivalents payable of $ 47.8 million related to the common stock dividend declared on December 14, 2021.

This dividend will be considered taxable income to the recipient in 2022.

For more information see the Company’s 2021 Dividend Tax Information on its website.

(2) At December 31, 2020, we had accrued dividends and dividend equivalents payable of $ 34.0 million related to the common stock dividend declared on December 17, 2020.

This dividend was considered taxable income to the recipient in 2021.

For more information see our 2020 Dividend Tax Information on our website.

(3) At December 31, 2019, we had accrued dividends and dividend equivalents payable of $ 90.7 million related to the common stock dividend declared on December 12, 2019.

This dividend was considered taxable income to the recipient in 2019.

For more information see our 2019 Dividend Tax Information on our website.

In general, the Company’s common stock dividends have been characterized as ordinary income to its stockholders for income tax purposes.

1 unchanged sentence

For the year ended December 31, 2021, the portion of the Company’s common stock dividends that was deemed to be a return of capital was $ 0.2628 per share of common stock.

For the years ended December 31, 2019 and 2018, the portions of the Company’s common stock dividends that were deemed to be capital gains were $ 0.1672 and $ 0.1290 per share of common stock, respectively.

For the year ended December 31, 2020, the portion of the Company’s common stock dividends that was deemed to be a return of capital was $ 0.05 per share of common stock.

For the year ended December 31, 2019, the portion of the Company’s common stock dividends that were deemed to be capital gains were $ 0.1672 per share of common stock.

On October 15, 2019, the Company filed a shelf registration statement on Form S-3 with the SEC under the Securities Act of 1933, as amended (the “Securities Act”), for the purpose of registering additional common stock for sale through its DRSPP.

Pursuant to Rule 462(e) under the Securities Act, this shelf registration statement became effective automatically upon filing with the SEC and, when combined with the unused portion of the Company’s previous DRSPP shelf registration statements, registered an aggregate of 9.0 million shares of common stock.

The Company’s DRSPP is designed to provide existing stockholders and new investors with a convenient and economical way to purchase shares of common stock through the automatic reinvestment of dividends and/or optional cash investments.

At December 31, 2021, approximately 8.3 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

The Company did not issue any common stock through public offerings during the years ended December 31, 2020 and 2019.

The table below presents information with respect to shares of the Company’s common stock issued through public offerings during the year ended December 31, 2018.

Share Issue Date Shares Issued Gross Proceeds Per Share Gross Proceeds

(In Thousands, Except Per Share Amounts)

August 7, 2018 50,875 (1) $ 7.78 $ 395,807 (1)

(1) Includes approximately 875,000 shares issued on September 5, 2018 pursuant to the exercise of the underwriters’ option to purchase additional shares.

The Company incurred approximately $ 6.4 million of underwriting discounts and related expenses in connection with this equity offering.

(d) Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (“DRSPP”)

On October 15, 2019, the Company filed a shelf registration statement on Form S-3 with the SEC under the Securities Act of 1933, as amended (the “1933 Act”), for the purpose of registering additional common stock for sale through its DRSPP.

Pursuant to Rule 462(e) under the 1933 Act, this shelf registration statement became effective automatically upon filing with the SEC and, when combined with the unused portion of the Company’s previous DRSPP shelf registration statements, registered an aggregate of 9.0 million shares of common stock.

At December 31, 2020, approximately 8.7 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.

During the years ended December 31, 2021, 2020 and 2019, the Company issued 431,699 , 235,635 and 322,888 shares of common stock through the DRSPP, raising net proceeds of approximately $ 1.9 million, $ 1.0 million and $ 2.4 million, respectively.

From the inception of the DRSPP in September 2003 through December 31, 2021, the Company issued 35,046,102 shares pursuant to the DRSPP, raising net proceeds of $ 289.5 million.

( e) At-the-Market Offering Program

On August 16, 2019 the Company entered into a distribution agreement under the terms of which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $ 400.0 million (the “ATM Shares”), from time to time, through various sales agents, pursuant to an at-the-market equity offering program (the “ATM Program”).

Sales of the ATM Shares, if any, may be made in negotiated transactions or by transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415 under the 1933 Act, including sales made directly on the New York Stock Exchange (“NYSE”) or sales made to or through a market maker other than an exchange.

( d) At-the-Market Offering Program

On August 16, 2019 the Company entered into a three-year distribution agreement under the terms of which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $ 400.0 million (the “ATM Shares”), from time to time, through various sales agents, pursuant to an at-the-market equity offering program (the “ATM Program”).

Sales of the ATM Shares, if any, may be made in negotiated transactions or by transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange (“NYSE”) or sales made to or through a market maker other than an exchange.

The sales agents are entitled to compensation of up to two percent of the gross sales price per share for any shares of common stock sold under the distribution agreement.

During the year ended December 31, 2020, the Company did no t sell any shares of common stock through the ATM Program.

During the years ended December 31, 2021 and 2020, the Company did no t sell any shares of common stock through the ATM Program.

At December 31, 2021, approximately $ 390.0 million remained outstanding for future offerings under this program.

During the year ended December 31, 2019, the Company sold 1,357,526 shares of common stock through the ATM Program at a weighted average price of $ 7.40 , raising proceeds of approximately $ 9.9 million, net of fees and commissions paid to sales agents of approximately $ 100,000 .

(f) Stock Repurchase Program

On November 2, 2020, the Company’s Board of Directors authorized a share repurchase program under which the Company may repurchase up to $ 250 million of its common stock through the end of 2022.

The Board’s authorization replaces the authorization under the Company’s existing stock repurchase program that was adopted in December 2013, which authorized the Company to repurchase up to 10 million shares of common stock and under which approximately 6.6 million shares remained available for repurchase.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

(e) Stock Repurchase Program

On November 2, 2020, the Company’s Board authorized a stock repurchase program under which the Company may repurchase up to $ 250 million of its common stock through the end of 2022.

The Board’s authorization replaces the authorization under the Company’s existing stock repurchase program that was adopted in December 2013, which authorized the Company to repurchase up to 10.0 million shares of common stock and under which approximately 6.6 million remained available for repurchase.

The stock repurchase program does not require the purchase of any minimum number of shares.

The timing and extent to which the Company repurchases its shares 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.

Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws.

During the year ended December 31, 2020, the Company repurchased 14,085,678 shares of its common stock through the stock repurchase program at an average cost of $ 3.61 per share and a total cost of approximately $ 50.8 million, net of fees and commissions paid to the sales agent of approximately $ 141,000 .

Acquisitions under the stock repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws (including, in the Company’s discretion, through the use of one or more plans adopted under Rule 10b5-1 promulgated under the Exchange Act of 1934, as amended (the “Exchange Act”)).

During the years ended December 31, 2021 and 2020, the Company repurchased 20,101,494 and 14,085,678 shares of its common stock through the stock repurchase program at an average cost of $ 4.26 and $ 3.61 per share and a total cost of approximately $ 85.6 million and $ 50.8 million, net of fees and commissions paid to the sales agent of approximately $ 201,000 and $ 141,000 , respectively.

In addition, as discussed further below, during the year ended December 31, 2020 the Company repurchased 17,593,576 , warrants for $ 33.7 million that were included in the stock repurchase program.

At December 31, 2020, approximately $ 165.7 million remained outstanding for future repurchases under the repurchase program.

The Company did no t repurchase any shares of its common stock during the years ended December 31, 2019 and 2018.

As of December 31, 2021, the Company was permitted to purchase an additional $ 80.3 million of its common stock.

The Company did no t repurchase any shares of its common stock during the year ended December 31, 2019.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

On June 15, 2020, the Company entered into an Investment Agreement with Apollo and Athene (together the “Purchasers”), under which the Company agreed to issue to the Purchasers warrants (the “Warrants”) to purchase, in the aggregate, 37,039,106 shares (subject to adjustment in accordance with their terms) of the Company’s common stock.

2 unchanged sentences

The amount allocated to the warrants was recorded in Additional paid-in capital on the Company’s consolidated balance sheets.

During the fourth quarter, the Company repurchased, for $ 33.7 million, approximately 48 % of the Warrants that were issued to the Purchasers.

The remaining Warrants were exercised by the Purchasers later in the fourth quarter, resulting in the Company issuing approximately 12.3 million shares of common stock and receiving $ 6.5 million in cash.

(h) Accumulated Other Comprehensive Income/(Loss)

The following table presents changes in the balances of each component of the Company’s AOCI for the years ended December 31, 2020, 2019 and 2018:

During the fourth quarter of 2020, the Company repurchased, for $ 33.7 million, approximately 48 % of the Warrants that were issued to the Purchasers.

The remaining Warrants were exercised by the Purchasers later in the fourth quarter of 2020, resulting in the Company issuing approximately 12.3 million shares of common stock and receiving $ 6.5 million in cash.

(g) Accumulated Other Comprehensive Income/(Loss)

The following tables present changes in the balances of each component of the Company’s AOCI for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31, 2021

2020 2019 2018

(In Thousands) Net Unrealized

2 unchanged sentences

on Swaps Net Unrealized Gain/(Loss) on Financing Agreements (1)

Balance at beginning of period $ 79,607 $ — $ ( 2,314 ) $ 77,293

OCI before reclassifications ( 32,774 ) — 1,059 ( 31,715 )

Amounts reclassified from AOCI (2)

Net OCI during the period (3)

( 32,774 ) — 1,059 ( 31,715 )

Balance at end of period $ 46,833 $ — $ ( 1,255 ) $ 45,578

For the Year Ended December 31, 2020

(In Thousands) Net Unrealized

Gain/(Loss) on

AFS Securities Net

on Swaps Total

on Swaps Net Unrealized Gain/(Loss) on Financing Agreements (1)

Balance at beginning of period $ 392,722 $ ( 22,675 ) $ — $ 370,047

OCI before reclassifications 420,281 ( 50,127 ) ( 2,314 ) 367,840

Amounts reclassified from AOCI (2)

( 733,396 ) 72,802 — ( 660,594 )

Net OCI during the period (3)

( 313,115 ) 22,675 ( 2,314 ) ( 292,754 )

Balance at end of period $ 79,607 $ — $ ( 2,314 ) $ 77,293

For the Year Ended December 31, 2019

(In Thousands) Net Unrealized

Gain/(Loss) on

2 unchanged sentences

Balance at beginning of period $ 417,167 $ 3,121 $ 420,288

$ 392,722 $ ( 22,675 ) $ — $ 370,047 $ 417,167 $ 3,121 $ 420,288 $ 620,648 $ ( 11,424 ) $ 609,224

OCI before reclassifications 20,335 ( 23,342 ) ( 3,007 )

420,281 ( 50,127 ) ( 2,314 ) 367,840 20,335 ( 23,342 ) ( 3,007 ) ( 150,642 ) 14,545 ( 136,097 )

Amounts reclassified from

Amounts reclassified from AOCI (2)

( 44,780 ) ( 2,454 ) ( 47,234 )

Net OCI during period (2)

Net OCI during the period (3)

( 24,445 ) ( 25,796 ) ( 50,241 )

Balance at end of period $ 392,722 $ ( 22,675 ) $ 370,047

(1) Net Unrealized Gain/(Loss) on Financing Agreements at Fair Value due to changes in instrument-specific credit risk.

(2) See separate table below for details about these reclassifications.

(3) For further information regarding changes in OCI, see the Company’s consolidated statements of comprehensive income/(loss).

(3) Net Unrealized Gain/(Loss) on Financing Agreements at Fair Value due to changes in instrument-specific credit risk.

MFA FINANCIAL, INC.

8 unchanged sentences

AFS Securities:

Realized gain on sale of securities

$ ( 389,127 ) $ ( 44,600 ) $ ( 51,580 ) Net realized (loss)/gain on sales of residential mortgage securities and residential whole loans

Realized gain on sale of securities $ — $ ( 389,127 ) $ ( 44,600 ) Net realized (loss)/gain on sales of securities and residential whole loans

Impairment recognized in earnings — ( 344,269 ) ( 180 ) Other, net

1 unchanged sentence

Swaps designated as cash flow hedges:

Reclassification adjustment for losses related to hedging instruments included in net income 72,802 ( 2,454 ) — Other, net

Amortization of de-designated hedging instruments — 72,802 ( 2,454 ) Other, net

Total Swaps designated as cash flow hedges $ — $ 72,802 $ ( 2,454 )

1 unchanged sentence

EPS Calculation

The following table presents a reconciliation of the (loss)/earnings and shares used in calculating basic and diluted (loss)/EPS for the years ended December 31, 2020, 2019 and 2018:

The following table presents a reconciliation of the earnings/(loss) and shares used in calculating basic and diluted earnings/(loss) per share for the years ended December 31, 2021, 2020 and 2019:

For the Year Ended December 31,

(In Thousands, Except Per Share Amounts) 2021 2020 2019

Basic (Loss)/Earnings per Share:

Net (loss)/income to common stockholders $ ( 679,390 ) $ 378,117 $ 301,801

Basic Earnings/(Loss) per Share:

Net income/(loss) to common stockholders $ 328,870 $ ( 679,390 ) $ 378,117

Dividends declared on preferred stock ( 32,875 ) ( 29,796 ) ( 15,000 )

Dividends, dividend equivalents and undistributed earnings allocated to participating securities ( 1,044 ) ( 229 ) ( 1,087 )

Net (loss)/income to common stockholders - basic $ ( 709,415 ) $ 362,030 $ 285,858

Net income/(loss) to common stockholders - basic $ 294,951 $ ( 709,415 ) $ 362,030

Basic weighted average common shares outstanding 442,816 452,033 450,972

Basic (Loss)/Earnings per Share $ ( 1.57 ) $ 0.80 $ 0.68

Diluted (Loss)/Earnings per Share:

Net (loss)/income to common stockholders - basic $ ( 709,415 ) $ 362,030 $ 285,858

Basic Earnings/(Loss) per Share $ 0.67 $ ( 1.57 ) $ 0.80

Diluted Earnings/(Loss) per Share:

Net income/(loss) to common stockholders - basic $ 294,951 $ ( 709,415 ) $ 362,030

Dividends, dividend equivalents and undistributed earnings allocated to participating securities 1,044 — —

Interest expense on Convertible Senior Notes 15,668 — 8,965

Net (loss)/income to common stockholders - diluted $ ( 709,415 ) $ 370,995 $ 285,858

Net income/(loss) to common stockholders - diluted $ 311,663 $ ( 709,415 ) $ 370,995

Basic weighted average common shares outstanding 442,816 452,033 450,972

Unvested and vested restricted stock units 2,130 — —

Effect of assumed conversion of Convertible Senior Notes to common shares 28,920 — 16,797

1 unchanged sentence

473,866 452,033 467,769

Diluted (Loss)/Earnings per Share $ ( 1.57 ) $ 0.79 $ 0.68

(1) At December 31, 2020, the Company had approximately 2.3 million equity instruments outstanding that were not included in the calculation of diluted EPS for the year ended December 31, 2020, as their inclusion would have been anti-dilutive.

These equity instruments reflect RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $ 6.56 and may have a dilutive impact on future EPS.

Diluted Earnings/(Loss) per Share $ 0.66 $ ( 1.57 ) $ 0.79

(1) At December 31, 2021, the Company had approximately 7.4 million equity instruments outstanding that were included in the calculation of diluted EPS for the year ended December 31, 2021.

These equity instruments reflect RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $ 4.31 .

These equity instruments may continue to have a dilutive impact on future EPS.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

During the year ended December 31, 2020, the Convertible Senior Notes were determined to be anti-dilutive and were not included in the calculation of diluted EPS under the “if-converted” method.

During the year ended December 31, 2021, the Convertible Senior Notes were determined to be dilutive and were included in the calculation of diluted EPS under the “if-converted” method.

Under this method, the periodic interest expense for dilutive notes is added back to the numerator and the weighted average number of shares that the notes are entitled to (if converted, regardless of whether the conversion option is in or out of the money) is included in the denominator for the purpose of calculating diluted EPS.

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Although the Equity Plan permits the Company to issue RSUs that can settle in cash, all of the Company’s outstanding RSUs as of December 31, 2021 are designated to be settled in shares of the Company’s common stock.

All RSUs outstanding at December 31, 2020 may be entitled to receive dividend equivalent payments depending on the terms and conditions of the award either in cash at the time dividends are paid by the Company, or for certain performance-based RSU awards, as a grant of stock at the time such awards are settled.

All RSUs outstanding at December 31, 2021 may be entitled to receive dividend equivalent payments depending on the terms and conditions of the award either in cash at the time dividends are paid by the Company, or for certain time-based and performance-based RSU awards, as a grant of stock at the time such awards are settled.

At December 31, 2021 and 2020, the Company had unrecognized compensation expense of $ 12.3 million and $ 6.8 million, respectively, related to RSUs.

16 unchanged sentences

RSUs vested but not settled at end of year 1,142,900 $ 5.22 451,000 $ 6.97 1,593,900 $ 5.72

1,160,416 $ 5.37 409,000 $ 6.91 1,569,416 $ 5.77

RSUs unvested at end of year 1,705,650 $ 4.94 3,171,694 $ 3.90 4,877,344 $ 4.27

11 unchanged sentences

RSUs vested but not settled at end of year 1,160,416 $ 5.37 409,000 $ 6.91 1,569,416 $ 5.77

809,681 $ 7.70 441,250 $ 6.48 1,250,931 $ 7.27

RSUs unvested at end of year 669,039 $ 7.61 1,214,174 $ 6.04 1,883,213 $ 6.60

11 unchanged sentences

RSUs vested but not settled at end of year 809,681 $ 7.70 441,250 $ 6.48 1,250,931 $ 7.27

708,946 $ 7.47 290,000 $ 4.81 998,946 $ 6.70

RSUs unvested at end of year 570,000 $ 7.50 860,000 $ 6.94 1,430,000 $ 7.16

(1) The weighted average grant date fair value of these awards require the Company to estimate certain valuation inputs.

In determining the fair value for 1,204,713 of these awards granted in 2020, the Company applied:

(i) a weighted average volatility estimate of approximately 14 %, which was determined considering historic volatility in the price of the Company’s and its peer group companies’ common stock over the three-year period prior to the grant date and the implied volatility of certain exchange-traded options on the Company’s and peer group companies’ common stock at the grant date;

and (ii) a weighted average risk-free rate of 1.36 % based on the continuously compounded constant maturity treasury rate corresponding to a maturity commensurate with the expected vesting term of the awards.

The weighted average grant date fair value for the remaining 452,585 and 44,922 awards with a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 2.32 and $ 2.56 , respectively.

There are no post vesting conditions on these awards.

In determining the fair value for 2,485,124 and 1,224,507 of these awards granted in 2021, the Company applied:

(i) a weighted average volatility estimate of approximately 48 % and 54 %, which was determined considering historic volatility in the price of the Company’s and its peer group companies common stock over the three and 2.5 -year period prior to the grant date and the implied volatility of certain exchange-traded options on the Company’s and peer group companies’ common stock at the grant date;

and (ii) a weighted average risk-free rate of 0.17 % and 0.36 % based on the continuously compounded constant maturity treasury rate corresponding to a maturity commensurate with the expected vesting term of the awards, respectively.

The weighted average grant date fair value for the remaining 215,958 awards with

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 4.70 .

All of the 2,408,520 RSUs with market and service conditions granted in 2021 are subject to a one-year post-vesting holding requirement.

There are no post vesting conditions on the 1,517,069 RSUs with service conditions granted in 2021.

(2) The weighted average grant date fair value of these awards require the Company to estimate certain valuation inputs.

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The weighted average grant date fair value for the remaining 160,025 awards with a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 7.28 .

There are no post vesting conditions on these awards.

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Restricted Stock

At December 31, 2020 and 2019, the Company did no t have any unvested shares of restricted common stock outstanding.

The total fair value of restricted shares vested during the years ended December 31, 2020, 2019 and 2018 was approximately $ 131,000 , $ 3.2 million and $ 3.0 million, respectively.

At December 31, 2021 and 2020, the Company did no t have any unvested shares of restricted common stock outstanding, and no restricted shares vested during the year ended December 31, 2021.

The total fair value of restricted shares vested during the years ended December 31, 2020 and 2019 was approximately $ 131,000 and $ 3.2 million, respectively.

The following table presents information with respect to the Company’s restricted stock for the years ended December 31, 2021, 2020 and 2019:

9 unchanged sentences

— $ — — $ — — $ —

79,545 1.65 412,185 7.83 450,193 6.74

Granted — — 79,545 1.65 412,185 7.83

— — ( 79,545 ) 1.65 ( 412,185 ) 7.83

7 unchanged sentences

Payments made on the Company’s outstanding dividend equivalent rights are generally charged to Stockholders’ Equity when common stock dividends are declared to the extent that such equivalents are expected to vest.

The Company made dividend equivalent payments associated with RSU awards of approximately $ 367,000 , $ 1,049,000 , and $ 907,000 during the years ended December 31, 2020, 2019 and 2018, respectively.

The Company made dividend equivalent payments associated with RSU awards of approximately $ 566,000 , $ 367,000 , and $ 1.0 million during the years ended December 31, 2021, 2020 and 2019, respectively.

In addition, no dividend equivalents rights awarded as separate instruments were granted during the years ended December 31, 2021, 2020 and 2019.

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Total $ 537 $ ( 911 ) $ 663

The Company did not distribute cash to the participants of the Deferred Plans during the year ended December 31, 2021.

The Company distributed cash of $ 769,400 and $ 568,900 to the participants of the Deferred Plans during the years ended December 31, 2020 and 2019, respectively.

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(1) Represents the cumulative amounts that were deferred by participants through December 31, 2021 and 2020, which had not been distributed through such respective date.

The Company sponsors a tax-qualified employee savings plan (the “Savings Plan”) in accordance with Section 401(k) of the Code.

Subject to certain restrictions, all of the Company’s employees are eligible to make tax-deferred contributions to the

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

Savings Plan subject to limitations under applicable law.

The Company sponsors a tax-qualified employee savings plan (the “Savings Plan”) in accordance with Section 401(k) of the Code.

Subject to certain restrictions, all of the Company’s employees are eligible to make tax-deferred contributions to the Savings Plan subject to limitations under applicable law.

Participant’s accounts are self-directed and the Company bears the costs of administering the Savings Plan.

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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.

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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The Company’s residential whole loans held at fair value are classified as Level 3 in the fair value hierarchy.

Residential Mortgage Securities

The Company determined the fair value of its Agency MBS based upon prices obtained from third-party pricing services, which are indicative of market activity, and repurchase agreement counterparties.

For Agency MBS, the valuation methodology of the Company’s third-party pricing services incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs.

The methodology also considers the underlying characteristics of each security, which are also observable inputs, including:

collateral vintage, coupon, maturity date, loan age, reset date, collateral type, periodic and life cap, geography, and prepayment speeds.

Management analyzes pricing data received from third-party pricing services and compares it to other indications of fair value including data received from repurchase agreement counterparties and its own observations of trading activity observed in the marketplace.

The Company’s Agency MBS were classified as Level 2 in the fair value hierarchy.

During the quarter ended June 30, 2020, the Company sold its remaining holdings of Agency MBS.

Securities, at Fair Value

Term Notes Backed by MSR-Related Collateral

The Company’s valuation process for term notes backed by MSR-related collateral is similar to that used for other residential mortgage securities and considers a number of observable market data points, including prices obtained from pricing services, brokers and repurchase agreement counterparties, dialogue with market participants, as well as management’s observations of market activity.

Other factors taken into consideration include estimated changes in fair value of the related underlying MSR collateral and, as applicable, the financial performance of the ultimate parent or sponsoring entity of the issuer, which has provided a guarantee that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the related underlying MSR collateral be insufficient.

Based on its evaluation of the

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

In determining the fair value of the Company’s Non-Agency MBS and CRT securities, management considers a number of observable market data points, including prices obtained from pricing services and brokers as well as dialogue with market participants.

observability of the data used in its fair value estimation process, these assets are classified as Level 2 in the fair value hierarchy.

Other Residential Mortgage Securities (including short positions in TBA securities)

In determining the fair value of the Company’s other residential mortgage securities, management considers a number of observable market data points, including prices obtained from pricing services and brokers as well as dialogue with market participants.

Valuations of TBA securities positions are based on executed levels for positions entered into and subsequently rolled forward, as well as prices obtained from pricing services for outstanding positions at each reporting date.

These valuations are assessed for reasonableness by considering market TBA levels observed via Bloomberg for the same coupon and term to maturity.

In valuing Non-Agency MBS, the Company understands that pricing services use observable inputs that include, in addition to trading activity observed in the marketplace, loan delinquency data, credit enhancement levels and vintage, which are taken into account to assign pricing factors such as spread and prepayment assumptions.

For tranches of Legacy Non-Agency MBS that are cross-collateralized, performance of all collateral groups involved in the tranche are considered.

The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available.

The Company’s Legacy Non-Agency MBS, RPL/NPL MBS and CRT securities are valued using various market data points as described above, which management considers directly or indirectly observable parameters.

The Company’s residential mortgage securities are valued using various market data points as described above, which management considers directly or indirectly observable parameters.

Accordingly, these securities are classified as Level 2 in the fair value hierarchy.

As of December 31, 2020, the Company has sold substantially all of its holdings of Legacy Non-Agency MBS and substantially reduced its holdings of other Non-Agency MBS and CRT securities.

Term Notes Backed by MSR-Related Collateral

The Company’s valuation process for term notes backed by MSR-related collateral is similar to that used for residential mortgage securities and considers a number of observable market data points, including prices obtained from pricing services, brokers and repurchase agreement counterparties, dialogue with market participants, as well as management’s observations of market activity.

Based on its evaluation of the observability of the data used in its fair value estimation process, these assets are classified as Level 2 in the fair value hierarchy.

As previously disclosed, in response to the turmoil in the financial markets resulting from the COVID-19 pandemic experienced during the three months ended March 31, 2020, the Company unwound all of its Swap hedging transactions late in the first quarter in order to recover previously posted margin.

Prior to their termination, valuations provided by the central clearing house were used for purposes of determining the fair value of the Company’s Swaps.

Such valuations obtained were tested with internally developed models that applied readily observable market parameters.

Swaps were classified as Level 2 in the fair value hierarchy.

Financing Agreements, at Fair Value

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The Company’s financing agreements with non-mark-to-market collateral provisions held at fair value are classified as Level 3 in the fair value hierarchy.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

Securitized Debt

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Accordingly, the Company’s securitized debt is classified as Level 2 in the fair value hierarchy.

Variation margin payments on the Company’s Swaps are treated as a legal settlement of the exposure under the related Swap contract, the effect of which reduces what would have otherwise been reported as the fair value of the Swap, generally to zero.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Changes to the valuation methodologies used with respect to the Company’s financial instruments are reviewed by management to ensure any such changes result in appropriate exit price valuations.

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Residential whole loans, at fair value $ — $ 1,082,765 $ 4,222,584 $ 5,305,349

Non-Agency MBS — 56,766 — 56,766

CRT securities — 104,234 — 104,234

Term notes backed by MSR-related collateral — 238,999 — 238,999

Securities, at fair value — 256,685 — 256,685

Total assets carried at fair value $ — $ 1,339,450 $ 4,222,584 $ 5,562,034

6 unchanged sentences

Residential whole loans, at fair value $ — $ — $ 1,216,902 $ 1,216,902

Non-Agency MBS

— 2,063,529 — 2,063,529

Agency MBS — 1,664,582 — 1,664,582

CRT securities — 255,408 — 255,408

Term notes backed by MSR-related collateral — 1,157,463 — 1,157,463

Securities, at fair value — 399,999 — 399,999

Total assets carried at fair value $ — $ 399,999 $ 1,216,902 $ 1,616,901

$ — $ 5,140,982 $ 1,381,583 $ 6,522,565

Agreements with non-mark-to-market collateral provisions $ — $ — $ 1,159,213 $ 1,159,213

Agreements with mark-to-market collateral provisions — 213,915 1,124,162 1,338,077

Securitized debt — 869,482 — 869,482

Total liabilities carried at fair value $ — $ 1,083,397 $ 2,283,375 $ 3,366,772

MFA FINANCIAL, INC.

7 unchanged sentences

Balance at beginning of period $ 1,216,902 $ 1,381,583

Purchases (1)

Purchases and originations 4,367,423 —

Draws 53,599 —

Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings 16,243 17,204

2 unchanged sentences

Transfer to REO ( 51,005 ) ( 70,622 )

Balance at end of period $ 1,216,902 $ 1,381,583

(1) Included in the activity presented for the year ended December 31, 2019 is an adjustment of $ 70.6 million for loans the Company committed to purchase during the year ended December 31, 2018, but for which the closing of the purchase transaction occurred during the three months ended March 31, 2019.

The adjustment was required following the finalization of due diligence performed prior to the closing of the purchase transaction and resulted in a downward revision to the prior estimate of the loan purchase amount.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

The following table presents additional information for the years ended December 31, 2020 and 2019 about the Company’s investments in term notes backed by MSR-related collateral, which were classified as Level 3 prior to September 30, 2019 and measured at fair value on a recurring basis:

Term Notes Backed by MSR-Related Collateral

Year Ended December 31,

(In Thousands) 2020 2019

Balance at beginning of period $ — $ 538,499

Purchases — 573,137

Collection of principal — ( 12,897 )

Changes in unrealized gains — 5,391

Transfer to Level 2 (1)

( 1,082,765 ) —

Balance at end of period $ 4,222,584 $ 1,216,902

(1) The Company determined that the market inputs used in valuing its Agency eligible investor loans were sufficiently observable to be classified as Level 2 in the current reporting period.

$ 654.7 million of these loans were valued based on the observable prices of the related securitized debt.

The following table presents additional information for the year ended December 31, 2021 about the Company’s financing agreements with non-mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

4 unchanged sentences

Transfer from Level 2 — 2,036,597

Issuances — —

Payment of principal ( 529,874 ) ( 879,698 )

Changes in unrealized losses 2,314

Change in unrealized (gains)/losses ( 1,059 ) 2,314

Balance at end of period $ 628,280 $ 1,159,213

7 unchanged sentences

Payment of principal ( 1,077,065 ) ( 520,752 )

Changes in unrealized losses —

Balance at end of period $ 1,322,362 $ 1,124,162

At June 30, 2020, the Company’s financing agreements with non-mark-to-market collateral provisions and the Company’s financing agreements with mark-to-market collateral provisions had just been issued and were therefore classified as Level 2 since their values were based on market transactions.

However, market information for similar financings was not available at December 31, 2020 and the Company valued these financing instruments based on unobservable inputs.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

since their values were based on market transactions.

However, market information for similar financings was not available at December 31, 2021 and the Company valued these financing instruments based on unobservable inputs.

Fair Value Methodology for Level 3 Financial Instruments

4 unchanged sentences

Valuation Technique Unobservable Input Weighted Average (2)

Residential whole loans, at fair value

$ 789,576 Discounted cash flow

Discount rate 3.9 % 3.3 - 8.0 %

Purchased Non-Performing Loans $ 720,766 Discounted cash flow Discount rate 3.6 % 1.5 - 9.8 %

Prepayment rate 14.4 % 0.0 - 44.0 %

3 unchanged sentences

Annual change in home prices 9.7 % 4.5 - 21.9 %

3.6 % 0.0 - 6.5 %

Liquidation timeline (in years)

1.8 0.8 - 4.8

Liquidation timeline

(in years) 1.7 0.1 - 4.5

Current value of underlying properties (3)

4 unchanged sentences

Valuation Technique Unobservable Input Weighted Average (2)

Residential whole loans, at fair value

$ 829,842 Discounted cash flow

Discount rate 4.2 % 3.8 - 8.0 %

Purchased Non-Performing Loans $ 789,576 Discounted cash flow Discount rate 3.9 % 3.3 - 8.0 %

Prepayment rate 4.8 % 0.0 - 9.9 %

3 unchanged sentences

Annual change in home prices 3.6 % 0.0 - 6.5 %

3.7 % 2.4 - 8.0 %

Liquidation timeline (in years) 1.8 0.8 - 4.8

1.8 0.1 - 4.5

Current value of underlying properties (3)

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DECEMBER 31, 2021

December 31, 2021

(Dollars in Thousands) Fair Value Valuation Technique Unobservable Input Weighted Average (1)

Purchased Performing Loans $ 3,143,928 Discounted cash flow Discount rate 3.9 % 1.4 - 25.9 %

Prepayment rate 19.0 % 0.0 - 47.2 %

Default rate 0.2 % 0.0 - 17.8 %

Loss severity 8.4 % 0.0 - 10.0 %

$ 7,948 Liquidation model Discount rate 7.0 % 7.0 - 7.0 %

Annual change in home prices 6.5 % 0.0 - 14.8 %

Liquidation timeline

2.0 0.8 - 4.2

Current value of underlying properties $ 691 $ 60 -$ 1,750

Total $ 3,151,876

(1) Amounts are weighted based on the fair value of the underlying loan.

Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in the fair value of residential whole loans.

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In practice, changes in valuation assumptions may not occur in isolation and the changes in any particular assumption may result in changes in other assumptions, which could offset or amplify the impact on the overall valuation.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The following table presents the carrying values and estimated fair values of the Company’s financial instruments at December 31, 2021 and 2020:

5 unchanged sentences

Financial Assets:

Residential whole loans, at carrying value 3 $ 4,108,499 $ 4,282,401 $ 6,069,370 $ 6,248,745

Residential whole loans, at fair value 3 1,216,902 1,216,902 1,381,583 1,381,583

Non-Agency MBS 2 56,766 56,766 2,063,529 2,063,529

Agency MBS 2 — — 1,664,582 1,664,582

CRT securities 2 104,234 104,234 255,408 255,408

MSR-related assets (1)

2 and 3 238,999 238,999 1,217,002 1,217,002

Residential whole loans 3 $ 6,830,235 $ 6,983,686 $ 5,325,401 $ 5,499,303

Residential whole loans 2 1,082,765 1,082,765 — —

Securities, at fair value 2 256,685 256,685 399,999 399,999

Cash and cash equivalents 1 304,696 304,696 814,354 814,354

9 unchanged sentences

1 — — 100,000 100,031

(1) Includes $ 59.5 million of MSR-related assets that are measured at fair value on a non-recurring basis that were classified as Level 3 in the fair value hierarchy at December 31, 2019.

(1) Carrying value of securitized debt, Convertible Senior Notes, Senior Notes and certain repurchase agreements is net of associated debt issuance costs.

5 unchanged sentences

The Company classifies fair value measurements of REO as Level 3 in the fair value hierarchy.

In addition, on July 1, 2021, in connection with the Lima One transaction (see Note 15), the Company revalued its previously existing investments in Lima One and recorded a gain of $ 38.9 million.

In connection with the Lima One transaction, all of Lima One’s assets and liabilities were recorded at their estimated fair value.

MFA FINANCIAL, INC.

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A Special Purpose Entity (“SPE”) is an entity designed to fulfill a specific limited need of the company that organized it.

SPEs are often used to facilitate transactions that involve securitizing financial assets or resecuritizing previously securitized financial assets.

SPEs are often used to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets.

The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying financial assets on improved terms.

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The Company has entered into several financing transactions that resulted in the Company consolidating as VIEs the SPEs that were created to facilitate these transactions.

See Note 2(q) for a discussion of the accounting policies applied to the consolidation of VIEs and transfers of financial assets in connection with financing transactions.

See Note 2(p) for a discussion of the accounting policies applied to the consolidation of VIEs and transfers of financial assets in connection with financing transactions.

The Company has engaged in loan securitizations primarily for the purpose of obtaining improved overall financing terms as well as non-recourse financing on a portion of its residential whole loan portfolio.

13 unchanged sentences

Cash received $ 3,682,082 $ 1,853,408

(1) Net of $ 3.2 million and $ 2.9 million of deferred financing costs at December 31, 2020 and December 31, 2019, respectively.

(2) At December 31, 2020 and December 31, 2019, $ 568.7 million and $ 493.2 million, respectively, of Senior Bonds sold in securitization transactions contained a contractual coupon step-up feature whereby the coupon increases by either 100 or 300 basis points or more at 36 months from issuance if the bond is not redeemed before such date.

(1) Net of $ 6.8 million and $ 3.2 million of deferred financing costs at December 31, 2021 and 2020, respectively.

(2) At December 31, 2021 and 2020, $ 329.0 million and $ 568.7 million, respectively, of Senior Bonds sold in securitization transactions contained a contractual coupon step-up feature whereby the coupon increases by either 100 or 300 basis points or more at 36 months from issuance if the bond is not redeemed before such date.

(3) Provides credit support to the Senior Bonds sold to third-party investors in the securitization transactions.

During the year ended December 31, 2020, the Company issued Senior Bonds with a current face of $ 1.3 billion to third-party investors for proceeds of $ 1.3 billion before offering costs and accrued interest.

A portion of the Senior Bonds issued by the Company during the year ended December 31, 2020 are presented at fair value on its consolidated balance sheets as a result of a fair value election made at the time of issuance.

As of December 31, 2020 and 2019, as a result of the transactions described above, securitized loans with a carrying value of approximately $ 1.4 billion and $ 186.4 million are included in “Residential whole loans, at carrying value,” securitized loans with a fair value of approximately $ 382.3 million and $ 567.4 million are included in “Residential whole loans, at fair value,” and REO with a carrying value of approximately $ 49.5 million and $ 137.8 million are included in “Other assets” on the

During the years ended December 31, 2021 and 2020, the Company issued Senior Bonds with a current face of $ 2.4 billion and $ 1.3 billion to third-party investors for proceeds of $ 2.4 billion and $ 1.3 billion, respectively, before offering costs and accrued interest.

The Senior Bonds issued by the Company during the years ended December 31, 2021 and 2020 are included in “Financing agreements, at carrying value” and “Financing agreements, at fair value” on the Company’s consolidated balance sheets (see Note 6).

As of December 31, 2021 and 2020, as a result of the transactions described above, securitized loans of approximately $ 3.0 billion and $ 1.8 billion are included in “Residential whole loans” and REO with a carrying value of approximately $ 35.4 million and $ 49.5 million are included in “Other assets” on the Company’s consolidated balance sheets, respectively.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2021

Company’s consolidated balance sheets, respectively.

As of December 31, 2020 and 2019, the aggregate carrying value of Senior Bonds issued by consolidated VIEs was $ 1.5 billion and $ 571.0 million, respectively.

These Senior Bonds are disclosed as “Securitized debt” and are included in Other liabilities on the Company’s consolidated balance sheets.

December 31, 2021 and 2020, the aggregate carrying value of Senior Bonds issued by consolidated VIEs was $ 2.7 billion and $ 1.5 billion, respectively.

These Senior Bonds are disclosed as “Securitized debt” and are included in Financing agreements on the Company’s consolidated balance sheets.

The holders of the securitized debt have no recourse to the general credit of the Company, but the Company does have the obligation, under certain circumstances, to repurchase assets from the VIE upon the breach of certain representations and warranties with respect to the residential whole loans sold to the VIE.

1 unchanged sentence

The Company concluded that the entities created to facilitate the loan securitization transactions are VIEs.

The Company then completed an analysis of whether each VIE created to facilitate the securitization transactions should be consolidated by the Company, based on consideration of its involvement in each VIE, including the design and purpose of the SPE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of each VIE.

The Company completed an analysis of whether each VIE created to facilitate the securitization transactions should be consolidated by the Company, based on consideration of its involvement in each VIE, including the design and purpose of the SPE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of each VIE.

In determining whether the Company would be considered the primary beneficiary, the following factors were assessed:

3 unchanged sentences

Residential Whole Loans and REO (including Residential Whole Loans and REO transferred to consolidated VIEs)

Included on the Company’s consolidated balance sheets as of December 31, 2020 and 2019 are a total of $ 5.3 billion and $ 7.4 billion, respectively, of residential whole loans, of which approximately $ 4.1 billion and $ 6.1 billion, respectively, are reported at carrying value and $ 1.2 billion and $ 1.4 billion, respectively, are reported at fair value.

These assets, and certain of the Company’s REO assets, are directly owned by certain trusts established by the Company to acquire the loans and entities established in connection with the Company’s loan securitization transactions.

Included on the Company’s consolidated balance sheets as of December 31, 2021 and 2020 are a total of $ 7.9 billion and $ 5.3 billion, respectively, of residential whole loans.

These assets, excluding certain loans originated and held by Lima One, and certain of the Company’s REO assets, are directly owned by certain trusts established by the Company to acquire the loans and entities established in connection with the Company’s loan securitization transactions.

The Company has assessed that these entities are required to be consolidated (see Notes 3 and 5(a)).

Acquisition of Lima One Holdings, LLC

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

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

Summary of Quarterly Results of Operations (Unaudited)

2020 Quarter Ended

(In Thousands, Except per Share Amounts) March 31 June 30 September 30 December 31

Interest income $ 145,460 $ 87,368 $ 66,080 $ 60,476

Interest expense ( 83,759 ) ( 87,991 ) ( 55,964 ) ( 41,044 )

Net interest income 61,701 ( 623 ) 10,116 19,432

(Provision)/Reversal for credit and valuation losses on residential whole loans and other financial instruments ( 150,711 ) 85,377 27,244 15,709

Net Interest Income after Provision for Credit and Valuation Losses ( 89,010 ) 84,754 37,360 35,141

Net gain on residential whole loans measured at fair value through earnings ( 52,760 ) 20,320 76,871 49,782

Net realized gain on sales of residential mortgage securities and residential whole loans ( 238,380 ) 49,485 48 —

Other income ( 499,623 ) 6,552 292 ( 18,708 )

Operating and other expense ( 29,222 ) ( 64,533 ) ( 27,361 ) ( 20,398 )

Net income ( 908,995 ) 96,578 87,210 45,817

Preferred stock dividends ( 5,215 ) ( 8,144 ) ( 8,219 ) ( 8,218 )

Net (loss)/ income available to common stock and participating securities $ ( 914,210 ) $ 88,434 $ 78,991 $ 37,599

(Loss)/Earnings per Common Share - Basic $ ( 2.02 ) $ 0.19 $ 0.17 $ 0.08

(Loss)/Earnings per Common Share - Diluted $ ( 2.02 ) $ 0.19 $ 0.17 $ 0.08

2019 Quarter Ended

(In Thousands, Except per Share Amounts) March 31 June 30 September 30 December 31

Interest income $ 140,952 $ 144,935 $ 142,721 $ 153,118

Interest expense ( 79,026 ) ( 85,044 ) ( 85,823 ) ( 82,463 )

Net interest income 61,926 59,891 56,898 70,655

Provision for credit and valuation losses on residential whole loans and other financial instruments ( 805 ) ( 385 ) ( 347 ) ( 1,032 )

Net Interest Income after Provision for Credit and Valuation Losses 61,121 59,506 56,551 69,623

Net gain on residential whole loans measured at fair value through earnings 25,267 51,473 40,175 41,415

Net realized gain on sales of residential mortgage securities and residential whole loans 24,609 7,710 17,708 11,975

Other income 1,293 ( 2,321 ) 4,546 2,007

Operating and other expense ( 23,433 ) ( 23,328 ) ( 23,381 ) ( 24,399 )

Net income 88,857 93,040 95,599 100,621

Preferred stock dividends ( 3,750 ) ( 3,750 ) ( 3,750 ) ( 3,750 )

Net income available to common stock and participating securities $ 85,107 $ 89,290 $ 91,849 $ 96,871

Earnings per Common Share - Basic and Diluted $ 0.19 $ 0.20 $ 0.20 $ 0.21

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.

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 amortization period for each of the finite lived intangible assets and the activity for the year ended December 31, 2021 is summarized in the table below:

(Dollars in Thousands) Acquisition Date July 1, 2021 Amortization Period Ended December 31, 2021 Carrying Value at December 31, 2021 Amortization Period (Years) (1)

Trademarks / Trade Names $ 4,000 $ ( 200 ) $ 3,800 10

Customer Relationships 16,000 ( 4,000 ) 12,000 4

Internally Developed Software 4,000 ( 400 ) 3,600 5

Non-Compete Agreements 4,000 ( 2,000 ) 2,000 1

Total Identified Intangibles $ 28,000 $ ( 6,600 ) $ 21,400

(1) Amortization is calculated on a straight-line basis over the amortization period, except for Customer Relationships, where amortization is calculated based on expected levels of customer attrition.

MFA FINANCIAL, INC.

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DECEMBER 31, 2021

Subsequent Events

Redemption of Senior Notes

On January 6, 2021, the Company redeemed all of the outstanding $ 100 million aggregate principal amount of 8.00 % Senior Notes Due 2042.

The Senior Notes were redeemed at a price equal to 100 % of the principal amount of the Senior Notes, or $ 25 per $ 25 principal amount of Senior Notes, plus unpaid interest, if any, accrued thereon to, but excluding, the redemption date.

In connection with this redemption, the Company recorded in its fourth quarter interest expense a non-cash charge of approximately $ 3.1 million representing remaining unamortized deferred expenses incurred when the Senior Notes were originally issued in 2012.

Securitization of Business Purpose Rental Loans

Subsequent to the end of the fourth quarter, the Company completed a securitization solely consisting of $ 217.5 million of Business Purpose Rental Loans, generating approximately $ 48.4 million of additional liquidity.

As the weighted average coupon of the bonds sold was approximately 1.06 %, this transaction is expected to lower the funding rate of the underlying assets by more than 150 basis points.

No pro-forma financial information showing the impact of the transaction as if it had occurred on January 1, 2020 is being presented as such pro forma information would not be materially different from the Company’s previously reported net revenues or net income and would not be indicative of its future consolidated results of operations.

Based on the assets held by Lima One at the closing of the transaction and Lima One’s mortgage banking activity subsequent to the closing of the transaction, Lima One contributed approximately $ 51.5 million of net interest income and other revenue, and $ 27.4 million of net income to the Company’s consolidated statements of operations for the year ended December 31, 2021.

The Company continues to implement plans to optimize the financing and capital needed to support Lima One’s business activities.

Execution of these plans may impact, among other things, the amount and timing of recording transactions on subsidiary entities within the MFA group, the amount of capital allocated to Lima One and the revenues and expenses generated by Lima One in the future.

Consequently, the results recorded on Lima One’s stand-alone financial statements in future periods may differ materially from the current period.

Schedule IV - Mortgage Loans on Real Estate

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(Dollars in Thousands)

Residential Whole Loans, at Carrying Value

Residential Whole Loans

Original loan balance $0 - $149,999

1 unchanged sentence

3/15/2010-7/1/2061

Original loan balance $150,000 - $299,999 4,341 0.00 % - 13.49 %

$ 601,637 $ 80,808

832,365 73,749

Original loan balance $150,000 - $299,999

1 unchanged sentence

3/10/2013-1/1/2062

Original loan balance greater than $449,999 2,760 0.88 % - 11.25 %

1,534,048 183,576

2,348,654 286,120

13,112 $ 4,195,332 (1) $ 455,112

Residential Whole Loans, at Fair Value

Original loan balance $300,000 - $449,999

1 unchanged sentence

12/1/2018-5/1/2062

Original loan balance $150,000 - $299,999 1,909 1.95 % - 11.53 %

1,408,772 173,855

355,854 167,303

Original loan balance $300,000 - $449,999 1,000 0.00 % - 10.75 %

5/1/2020-2/1/2060

313,588 165,901

Original loan balance greater than $449,999

8 unchanged sentences

For the Year Ended December 31, 2021

(In Thousands) Residential Whole Loans, at Carrying Value Residential Whole Loans, at Fair Value

(In Thousands) Residential Whole Loans

Beginning Balance $ 5,325,401

1 unchanged sentence

Purchases $ 4,591,645

Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings N/A 17,204

Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings 16,243

Deductions during period:

Repayments $ ( 1,999,022 )

Premium amortization/discount accretion, net ( 11,590 ) N/A

Provision for loan loss ( 21,447 ) N/A

Premium amortization/discount accretion, net 14,273

Provision for loan loss 47,386

Loan sales and repurchases ( 7,310 )

3 unchanged sentences

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 8. Financial Statements and Supplementary Data