What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-23 · 548 added, 479 removed, 1712 unchanged (37% of the section changed)

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Use of Special Purpose Entities and Variable Interest Entities

Acquisition of Lima One Holdings, LLC

Segment Reporting

Subsequent Events

Schedule IV - Mortgage Loans on Real Estate

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We have audited the accompanying consolidated balance sheets of MFA Financial, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income/(loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and Schedule IV – Mortgage Loans on Real Estate (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income/(loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and financial statement schedule IV – Mortgage Loans on Real Estate (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses .

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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

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, 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.

Assessment of the valuation of residential whole loans, at fair value

As discussed in Notes 2, 3 and 13 to the consolidated financial statements, the Company records certain residential whole loans at fair value on its consolidated balance sheet as a result of a fair value election made at the time of acquisition.

As of December 31, 2022, the recorded balance of the Company’s residential whole loans, at fair value was $5.7 billion.

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

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 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.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of residential whole loans, at fair value.

This included controls related to the Company’s process to evaluate property appraised values and residential whole loan valuations.

We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the Company’s internal controls specific to the assessment of the third-party developed valuation techniques and models.

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

• 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 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.

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

As discussed in Note 2 and 3 to the consolidated financial statements, the Company’s total allowance for credit losses on residential whole loans held at carrying value as of December 31, 2022 was $35.3 million (the December 31, 2022 ACL).

The Company estimated the December 31, 2022 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), Transitional 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.

These results were not discounted.

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

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

(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.

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unemployment rates and home price appreciation) are projected to equal historical averages.

The Company forecasts future economic conditions based on forecasts provided by an external preparer of economic forecasts, as well as its own knowledge of the market and its portfolio.

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

The Company forecasts future economic conditions based on forecasts provided by an external preparer of

economic forecasts, as well as its own knowledge of the market and its portfolio.

The Company may considers multiple scenarios and select 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 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.

We identified the assessment of the December 31, 2022 ACL associated with the Company’s non-QM loans and Purchased Credit Deteriorated loans as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment of the December 31, 2022 ACL for these loans due to significant measurement uncertainty.

Specifically, the assessment encompassed the evaluation of the December 31, 2022 ACL methodology, including the methods and models used to estimate the expected prepayments and default and loss severity rates and their significant assumptions.

Such significant assumptions included the economic forecast scenario and macroeconomic assumptions, the reasonable and supportable forecast periods, the composition of the publicly available data derived from the historical loss experience of certain banks, and the historical experience period.

Such significant assumptions included the reasonable and supportable forecasts, including reversion periods and macroeconomic forecast scenario, and the composition of the publicly available data derived from the historical loss experience of certain banks.

The assessment also included the evaluation of the qualitative factors and their significant assumptions.

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• potential bias in the accounting estimates.

Assessment of the valuation of residential whole loans, at fair value

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 of residential mortgage loans.

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

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.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of residential whole loans, at fair value.

We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the Company’s internal controls specific to the (1) assessment of whether the third-party aforementioned derived assumptions used to determine the fair value reflect those which a market participant would use to determine an exit price in the current market environment and (2) assessment of the third-party developed valuation techniques and models.

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

• 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

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

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Net Interest Income $ 223,576 $ 241,917 $ 164,074

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:

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 )

Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans $ 2,646 $ 44,863 $ ( 22,381 )

Provision for Credit Losses on Other Assets ( 28,579 ) — —

Net Interest Income after (Provision)/Reversal of Provision for Credit Losses $ 197,643 $ 286,780 $ 141,693

Other (Loss)/Income, net:

Net (loss)/gain on residential whole loans measured at fair value through earnings ( 866,762 ) 16,243 16,386

Net realized loss on residential whole loans held at carrying value — — ( 273,030 )

Impairment and other net (loss)/gain on securities and other portfolio investments ( 25,067 ) 74,496 ( 350,567 )

Net gain on real estate owned 25,379 22,838 5,391

Net gain/(loss) on derivatives used for risk management purposes 255,179 1,426 ( 61,249 )

Net gain/(loss) on securitized debt measured at fair value through earnings 290,639 15,027 ( 11,929 )

Lima One - origination, servicing and other fee income 46,745 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 9,297 12,473 ( 4,571 )

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

Other (Loss)/Income, net $ ( 264,590 ) $ 165,103 $ ( 679,569 )

Operating and Other Expense:

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Operating and Other Expense $ 164,634 $ 123,013 $ 141,514

Net Income/(Loss) $ 328,870 $ ( 679,390 ) $ 378,117

Net (Loss)/Income $ ( 231,581 ) $ 328,870 $ ( 679,390 )

Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ 29,796

Net Income/(Loss) Available to Common Stock and Participating Securities $ 295,995 $ ( 709,186 ) $ 363,117

Basic Earnings/(Loss) per Common Share $ 0.67 $ ( 1.57 ) $ 0.80

Diluted Earnings/(Loss) per Common Share $ 0.66 $ ( 1.57 ) $ 0.79

Net (Loss)/Income Available to Common Stock and Participating Securities $ ( 264,456 ) $ 295,995 $ ( 709,186 )

Basic (Loss)/Earnings per Common Share $ ( 2.57 ) $ 2.66 $ ( 6.28 )

Diluted (Loss)/Earnings per Common Share $ ( 2.57 ) $ 2.63 $ ( 6.28 )

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

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(In Thousands) 2022 2021 2020

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

Net (loss)/income $ ( 231,581 ) $ 328,870 $ ( 679,390 )

Other Comprehensive (Loss):

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Other Comprehensive (Loss) ( 24,237 ) ( 31,715 ) ( 292,754 )

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

Comprehensive (loss)/income before preferred stock dividends $ ( 255,818 ) $ 297,155 $ ( 972,144 )

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

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

Comprehensive (Loss)/Income Available to Common Stock and Participating Securities $ ( 288,693 ) $ 264,280 $ ( 1,001,940 )

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

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Balance at December 31, 2021 11,000 $ 110 8,000 $ 80 108,138 $ 1,082 $ 3,775,482 $ ( 1,279,484 ) $ 45,578 $ 2,542,848

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

Net loss — — — — — — — ( 231,581 ) — ( 231,581 )

Issuance of common stock, net of expenses

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Balance at December 31, 2020 11,000 $ 110 8,000 $ 80 112,929 $ 1,129 $ 3,851,517 $ ( 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 — — — — 288 3 1,829 — — 1,832

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

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

Derivative hedging instruments 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

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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 $ 80 113,092 $ 1,131 $ 3,643,734 $ ( 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 — — — — 3,448 34 7,419 — — 7,453

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— — — — — — — ( 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 $ 80 112,929 $ 1,129 $ 3,851,517 $ ( 1,405,327 ) $ 77,293 $ 2,524,802

(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.

(1) For the year ended December 31, 2022, includes approximately $ 1.0 million ( 56,690 shares) surrendered for tax purposes related to equity-based compensation awards.

For the year ended December 31, 2021, includes approximately $ 799,000 ( 53,281 shares) surrendered for tax purposes related to equity-based compensation awards.

For the year ended December 31, 2020, includes approximately $ 2.7 million ( 90,134 shares) surrendered for tax purposes related to equity-based compensation awards.

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Cash Flows From Operating Activities:

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

Net (loss)/income $ ( 231,581 ) $ 328,870 $ ( 679,390 )

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

(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 —

Net loss/(gain) on residential whole loans 866,762 ( 12,931 ) 246,419

Impairment and other net loss/(gain) on securities and other portfolio investments, net 25,067 ( 74,602 ) 350,567

Net gain on real estate owned ( 24,473 ) ( 18,772 ) ( 2,486 )

Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities, and amortization of terminated hedging instruments ( 27,314 ) ( 59,424 ) 10,949

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

Provision/(Reversal of provision) for credit losses on residential whole loans and other assets 25,933 ( 48,355 ) 22,121

Net (gain)/loss on derivatives used for risk management purposes ( 247,898 ) ( 2,095 ) 60,680

Net margin received/(paid) for derivatives used for risk management purposes 214,754 574 —

Net (gain)/loss on securitized debt measured at fair value through earnings ( 290,639 ) ( 14,391 ) 11,929

Net other non-cash losses included in net income 27,503 27,388 28,480

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

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

Decrease/(Increase) in other assets 40,077 ( 20,015 ) 39,930

(Decrease)/Increase in other liabilities ( 12,114 ) 14,046 ( 50,803 )

Net cash provided by operating activities $ 366,077 $ 120,293 $ 38,396

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Additions to leasehold improvements, furniture and fixtures ( 300 ) ( 12,048 ) ( 4,862 )

Net cash (used in)/provided by investing activities

Net cash used in investing activities

$ ( 1,126,656 ) $ ( 2,167,028 ) $ 6,383,508

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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 )

Payments made for settlements and unwinds of Swaps designated as hedges — — ( 60,022 )

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

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Proceeds from issuances of common stock 1,183 1,825 7,441

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

Payments made for the repurchase of common stock through the stock repurchase program ( 102,311 ) ( 85,591 ) ( 50,835 )

Proceeds from the issuance of warrants — — 14,041

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Net cash provided by/(used in) financing activities $ 850,213 $ 1,629,663 $ ( 5,735,049 )

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

Net increase in cash, cash equivalents and restricted cash $ 89,634 $ ( 417,072 ) $ 686,855

Cash, cash equivalents and restricted cash at beginning of period $ 404,447 $ 821,519 $ 134,664

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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 $ — $ —

Repayment of Lima One preferred stock in connection with the Lima One transaction $ — $ 22,030 $ —

Receivable for sale of unsettled residential whole loans $ 275,656 $ — $ —

Payable for purchase of unsettled Agency MBS $ 132,025 $ — $ —

Deconsolidation of securitized Agency eligible investor loans and related debt $ 490,952 $ — $ —

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

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(a) Basis of Presentation and Consolidation

On April 4, 2022, the Company effected a one-for-four reverse stock split of its issued and outstanding shares of common

stock (the “Reverse Stock Split”).

Accordingly, all share and per share data included in these consolidated financial statements

and notes thereto have been adjusted retroactively to reflect the impact of the Reverse Stock Split.

The accompanying consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S.

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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).

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 financing agreements (Notes 6 and 13), and valuation of derivative instruments (see Notes 5(d) and 13).

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 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.

The consolidated financial statements of the Company include the accounts of all subsidiaries.

All intercompany accounts and transactions have been eliminated.

In addition, the Company consolidates entities established to facilitate transactions related to the acquisition and securitization of residential whole loans completed in prior years.

In addition, the Company consolidates entities established to facilitate transactions related to the acquisition and securitization of residential whole loans.

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

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).

Lima One’s financial results are consolidated with MFA’s results from that date.

MFA FINANCIAL, INC.

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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.

Starting in the second quarter of 2021, the Company has 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.

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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.

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 the Company’s 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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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”).

(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 and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the properties (“Transitional loans” or “TL”) (also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“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).

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

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).

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

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

of management, a full recovery of income and principal becomes doubtful (i.e., such loans are placed on nonaccrual status).

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

22 unchanged sentences

The Company forecasts future economic conditions based on forecasts provided by an external preparer of economic forecasts, as well as its own knowledge of the market and its portfolio.

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 consider multiple scenarios and select the one that it believes results in the most reasonable estimate of expected losses.

The Company may apply qualitative adjustments to these results as further described in Note 3.

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, 2021.

This methodology has not changed significantly from the calculation of the allowance for credit losses in prior periods.

Purchased Credit Deteriorated Loans

The Company has elected to account for these loans as credit deteriorated as they have experienced a more-than-insignificant deterioration in credit quality since origination and were acquired at discounted prices that reflect, in part, the impaired credit history of the borrower.

The Company has elected to account for these loans as credit deteriorated as they have experienced a deterioration in credit quality since origination and prior to our purchase and were acquired at discounted prices that reflect, in part, the impaired credit history of the borrower.

Substantially all of these loans have previously experienced payment delinquencies and the amount owed may exceed the value of the property pledged as collateral.

13 unchanged sentences

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.

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 marketplace.

The Company determines the fair value of its residential whole loans held at fair value after considering portfolio valuations obtained from third-parties that specialize in providing valuations of residential mortgage loans and trading activity observed in the marketplace.

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.

17 unchanged sentences

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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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.

Other Residential Mortgage Securities

The Company has invested in residential 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 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.

5 unchanged sentences

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 .

The Company had elected the fair value option for certain of its previously held Agency MBS that it did not intend to hold to maturity.

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 its Agency and Non-Agency MBS.

These 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.

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.

2 unchanged sentences

Interest income on securities is accrued based on their outstanding principal balance and their contractual terms.

Premiums and discounts associated with Agency MBS and Non-Agency MBS assessed as high credit quality at the time of purchase are amortized into interest income over the life of such securities using the effective yield method.

Premiums and discounts associated with Non-Agency MBS assessed as high credit quality at the time of purchase are amortized into interest income over the life of such securities using the effective yield method.

Adjustments to premium amortization are made for actual prepayment activity.

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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.

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 financing agreements and/or Swaps.

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).

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

The Company had aggregate restricted cash of $ 159.9 million and $ 99.8 million at December 31, 2022 and December 31, 2021, respectively (see Notes 5(d), 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.

At December 31, 2022 and 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, and other intangible assets of $ 12.2 million and $ 21.4 million, respectively (net of amortization), primarily comprised of customer relationships, non-competition agreements (fully amortized as of June 30, 2022), trademarks and trade names, and internally developed software recognized as part of the acquisition of Lima One (see Note 5(b)).

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

Goodwill, which is not subject to amortization, and intangible assets are tested for impairment at least annually, or more frequently under certain circumstances that could reduce the fair value of the Lima One reporting unit (a component of the Lima One segment) below its carrying amount.

Through December 31, 2022, the Company had not recognized any impairment against its goodwill or intangible assets.

28 unchanged sentences

The Company periodically reviews the recoverability of these deferred costs and, in the event an impairment charge is required, such amount will be included in Operating and Other Expense on the Company’s consolidated statements of operations.

To the extent that the Company has elected the fair value option for the related debt liability, these costs are expensed at the closing of the transaction.

(j) Financing Agreements

4 unchanged sentences

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

At the maturity of a repurchase financing,

MFA FINANCIAL, INC.

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

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.

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

1 unchanged sentence

The Company also may make margin calls on counterparties when collateral values increase.

The Company’s repurchase financings collateralized by residential mortgage securities and MSR-related assets typically have terms ranging from one month to six months at inception, while the majority of our financing arrangements collateralized by residential whole loans have terms of twelve months or longer.

Should a counterparty decide not to renew a financing arrangement at maturity, the Company must either refinance elsewhere or be in a position to satisfy the obligation.

12 unchanged sentences

A dividend equivalent is a right to receive a distribution equal to the dividend distributions that would be paid on a share of the Company’s common stock.

Dividend equivalents may be granted as a separate instrument or may be a right associated with the grant of another award (e.g., an RSU) under the Company’s Equity Compensation Plan (the “Equity Plan”), and they are paid in cash or other consideration at such times and in accordance with such rules, terms and conditions, as the Compensation Committee may determine in its discretion.

Payments pursuant to dividend equivalents are generally charged to Stockholders’ Equity to the extent that the attached equity awards are expected to vest.

Compensation expense is recognized for payments made for dividend equivalents to the extent that the attached equity awards (i) do not or are not expected to vest and (ii) grantees are not required to return payments of dividends or dividend equivalents to the Company (see Notes 2(l) and 12).

Dividend equivalents may be granted as a separate instrument or may be a right associated with the grant of another award (e.g., an RSU) under the Company’s Equity Compensation Plan (the “Equity Plan”), and they are paid in cash at such times and in accordance with such rules, terms and conditions, as the Compensation Committee may determine in its discretion.

Dividend equivalent payments are generally charged to Stockholders’ Equity to the extent that the attached equity awards are expected to vest.

Compensation expense is also recognized for dividend equivalent payments to the extent that the equity awards to which such payments relate do not or are not expected to vest and the grantees to whom such payments are made are nonetheless not required to return such dividend equivalent payments to the Company (see Notes 2(l) and 12).

(l) Earnings per Common Share (“EPS”)

1 unchanged sentence

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 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

MFA FINANCIAL, INC.

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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.

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 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.

9 unchanged sentences

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.

The Company discontinued hedge accounting for the terminated Swaps as it determined that it was no longer probable that the forecasted transactions would occur.

The Company has 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.

Swaps are carried on the Company’s consolidated balance sheets at fair value, in Other assets, if their fair value is positive, or in Other liabilities, if their fair value is negative (see Notes 5(d), 6 and 13).

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.

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

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

Accordingly, TBA securities were 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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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.

(r) New Accounting Standards and Interpretations

Accounting Standards Adopted in 2022

As of December 31, 2022, there were no new accounting standards or interpretations adopted by the Company that had a material effect on its consolidated financial statements in 2022.

MFA FINANCIAL, INC.

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(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 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.

Included on the Company’s consolidated balance sheets at December 31, 2022 and 2021 are approximately $ 7.5 billion and $ 7.9 billion, respectively, of residential whole loans generally 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.

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Non-QM loans $ 987,282 $ 1,448,162 $ 2,372,548 $ 2,013,369 $ 3,359,830 $ 3,461,531

Rehabilitation loans 217,315 581,801 517,530 — 734,845 581,801

Transitional loans (1)

75,188 217,315 1,342,032 517,530 1,417,220 734,845

Single-family rental loans 210,833 331,808 1,165,741 619,415 1,376,574 951,223

7 unchanged sentences

Number of loans 7,126 9,361 16,717 14,734 23,843 24,095

(1) As of December 31, 2022 includes $ 784.9 million of loans collateralized by one-to-four family residential properties and $ 632.3 million of loans collateralized by multi-family properties.

As of December 31, 2021, includes $ 521.0 million of loans collateralized by one-to-four family residential properties and $ 213.9 million of loans collateralized by multi-family properties.

MFA FINANCIAL, INC.

6 unchanged sentences

Weighted Average Original FICO (4)

Aging by UPB 60+ Delinquency %

Past Due Days

2 unchanged sentences

Non-QM loans $ 3,352,471 $ 3,671,468 5.13 % 351 65 % 733 $ 3,520,671 $ 56,825 $ 32,253 $ 61,719 2.6 %

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

Transitional loans (1)

1,411,997 1,431,692 7.78 12 66 746 1,348,815 6,463 2,234 74,180 5.3

Single-family rental loans 1,375,297 1,485,967 5.74 324 69 737 1,442,095 8,431 7,978 27,463 2.4

9 unchanged sentences

Weighted Average Original FICO (4)

Aging by UPB 60+ Delinquency %

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 3.5 %

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

Transitional loans (1)

727,964 731,154 7.18 11 67 735 616,733 5,834 5,553 103,034 14.9

Single-family rental loans 949,772 924,498 5.46 329 70 732 898,166 2,150 695 23,487 2.6

Seasoned performing loans 101,995 111,710 2.76 162 37 722 102,047 938 481 8,244 7.8

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 4.2 %

2 unchanged sentences

Residential whole loans, total or weighted average $ 7,913,000 $ 7,905,743 4.99 % 301 11.2 %

(1) As of December 31, 2022 Transitional loans includes $ 632.3 million of loans collateralized by multi-family properties with a weighted average term to maturity of 18 months and a weighted average LTV ratio of 73 %.

As of December 31, 2021, Transitional loans includes $ 213.9 million of loans collateralized by multi-family properties with a weighted average term to maturity of 23 months and a weighted average LTV ratio of 80 %.

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

1 unchanged sentence

For loans acquired with servicing rights retained by the seller, interest rates included in the calculation are net of servicing fees.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

(3) 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.

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 $ 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.

For Transitional 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 Transitional loans, totaling $ 223.2 million and $ 137.3 million at December 31, 2022 and 2021, 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 70 % and 71 % at December 31, 2022 and 2021, respectively.

1 unchanged sentence

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

During 2022, Agency eligible investor loans with an unpaid principal balance of $ 337.8 million were sold, realizing losses, before the impact of economic hedging gains and the reversal of previously recognized unrealized losses of $ 72.3 million.

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 .

During 2020, $ 1.8 billion of Non-QM loans were sold, realizing losses of $ 273.0 million, and Purchased Non-Performing loans with an aggregate unpaid principal of $ 24.1 million were sold, realizing net losses of approximately $ 800,000 .

In addition, in 2022, the Agency eligible investor loan securitizations were deconsolidated from the Company’s financial statements which resulted in the de-recognition of Agency eligible investor loans with an unpaid principal balance of $ 598.0 million (see Note 14 for further discussion).

MFA FINANCIAL, INC.

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For the Year Ended December 31, 2022

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

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

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

13 unchanged sentences

For the Year Ended December 31, 2021

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

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

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

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, 2021 $ 14,545 $ 13,668 $ 2,746 $ 66 $ 32,219 $ 63,244

1 unchanged sentence

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

5 unchanged sentences

Allowance for credit losses at December 31, 2021 $ 8,289 $ 6,881 $ 1,451 $ 46 $ 22,780 $ 39,447

(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.

(1) In connection with purchased Transitional loans at carrying value, the Company had unfunded commitments of $ 8.0 million and $ 18.5 million as of December 31, 2022 and 2021, respectively, with an allowance for credit losses of $ 29,000 and $ 205,000 at December 31, 2022 and 2021, respectively.

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

1 unchanged sentence

(3) Includes $ 48.5 million and $ 57.4 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2022 and 2021, 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.

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 of 2020, primarily as a result of generally more stable markets and an ongoing

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

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

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.

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.

The Company’s estimates of expected losses that form the basis of the Allowance for Credit Losses include certain qualitative adjustments which have the effect of increasing expected loss estimates.

These qualitative adjustments 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 COVID-19 pandemic, anticipated inflation and increasing market interest rates, and heightened political uncertainty.

The Company’s estimates of credit losses reflect the Company’s expectation that the performance of its portfolio will experience higher delinquencies and defaults compared to the performance in historical periods of portfolios included in the available proxy data.

Estimates of credit losses under CECL are highly sensitive to changes in assumptions and current economic conditions have increased the difficulty of accurately forecasting future conditions.

3 unchanged sentences

During the year ended December 31, 2022, the Company recognized $ 18.8 million of interest income on loans on nonaccrual status, including $ 13.2 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.

Any required loan loss allowance would reduce the carrying value of the loan with a corresponding charge to earnings.

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

At December 31, 2022 and December 31, 2021, there were approximately $ 71.7 million and $ 107.4 million, respectively, of loans held at carrying value 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.

MFA FINANCIAL, INC.

10 unchanged sentences

Year Ended December 31, 2022 Gross write-offs $ — $ — $ — $ — $ 51 $ — $ 51

Year Ended December 31, 2021 Recoveries — — — — — — —

Year Ended December 31, 2021 Net write-offs $ — $ — $ — $ 37 $ — $ — $ 37

Rehabilitation loans

Transitional loans

LTV <= 80% (1)

2 unchanged sentences

— — — 4,594 1,971 1,699 8,264

Total Rehabilitation loans $ 12,754 $ 24,716 $ 152,388 $ 22,330 $ 5,127 $ — $ 217,315

Total Transitional loans $ — $ 1,182 $ 5,153 $ 49,409 $ 14,698 $ 4,746 $ 75,188

Year Ended December 31, 2022 Gross write-offs $ — $ — $ 92 $ 367 $ 287 $ — $ 746

Year Ended December 31, 2021 Recoveries — — — — — — —

Year Ended December 31, 2021 Net write-offs $ — $ — $ 1,329 $ 1,296 $ 123 $ — $ 2,748

Single-family rental loans

5 unchanged sentences

Year Ended December 31, 2022 Gross write-offs $ — $ — $ — $ 205 $ 68 $ — $ 273

Year Ended December 31, 2021 Recoveries — — — — — — —

Year Ended December 31, 2021 Net write-offs $ — $ — $ 56 $ 5 $ — $ — $ 61

Seasoned performing loans

5 unchanged sentences

Year Ended December 31, 2022 Gross write-offs $ — $ — $ — $ — $ — $ — $ —

Year Ended December 31, 2021 Recoveries — — — — — — —

Year Ended December 31, 2021 Net write-offs $ — $ — $ — $ — $ — $ — $ —

Purchased credit deteriorated loans

5 unchanged sentences

Year Ended December 31, 2022 Gross write-offs $ — $ — $ — $ — $ — $ 400 $ 400

Year Ended December 31, 2021 Recoveries — — — — — — —

Year Ended December 31, 2021 Net write-offs $ — $ — $ — $ — $ — $ 527 $ 527

Total LTV <= 80% (1)

3 unchanged sentences

Total residential whole loans, at carrying value $ — $ 64,140 $ 234,089 $ 636,824 $ 300,737 $ 590,739 $ 1,826,529

Total Gross write-offs $ — $ — $ 1,385 $ 1,338 $ 123 $ 527 $ 3,373

Total Recoveries — — — — — — —

Total Net write-offs $ — $ — $ 1,385 $ 1,338 $ 123 $ 527 $ 3,373

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Year Ended December 31, 2022 Total Gross write-offs $ — $ — $ 92 $ 572 $ 406 $ 400 $ 1,470

(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.

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

For certain Transitional loans, totaling $ 223.2 million at December 31, 2022, 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 70 % at December 31, 2022.

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

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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

3 unchanged sentences

Non-QM loans $ 61,812 $ 61,719 67.9 %

Rehabilitation loans 103,166 103,034 67.6 %

Transitional loans 73,266 74,180 68.1 %

Single-family rental loans 27,466 27,463 72.9 %

9 unchanged sentences

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

Rehabilitation loans 136,347 136,347 65.8 %

Transitional loans 103,166 103,034 67.6 %

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

6 unchanged sentences

For certain Rehabilitation loans, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation.

For certain Transitional loans, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation.

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.

8 unchanged sentences

Non-QM loans $ 51,359 $ 75,517 $ 136,527 $ 98,384 $ 21,431 $ — $ 149,743 $ 96,948 $ 136,527

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

Transitional loans 7,810 22,424 49,484 67,714 10,705 — 75,524 33,129 49,484

Single-family rental loans 15,314 24,863 27,722 53,661 9,306 — 68,975 34,169 27,722

5 unchanged sentences

Total Residential Whole Loans $ 112,583 $ 169,618 $ 258,764 $ 328,640 $ 133,850 $ 73,448 $ 441,223 $ 303,468 $ 332,212

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

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

Other income/(loss) (1)

493 3,561 ( 3,700 )

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

(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

1 unchanged sentence

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

At December 31, 2022, these term notes had an amortized cost of $ 86.4 million, gross unrealized gains of approximately $ 11.5 million, a weighted average yield of 14.3 % and a weighted average term to maturity of 0.8 years.

At December 31, 2021, the 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.

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.

5 unchanged sentences

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

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Agency and 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:

(i) hybrid mortgages (“Hybrids”), which have interest rates that are fixed for a specified period of time and, thereafter, generally adjust annually to an increment over a specified interest rate index;

(ii) adjustable-rate mortgages (“ARMs”), which have interest rates that reset annually or more frequently (collectively, “ARM-MBS”);

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, 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).

The Company’s MBS are comprised of Agency MBS and Non-Agency MBS.

Agency MBS are 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 Ginnie Mae.

The payment of principal and/or interest on Ginnie Mae MBS is explicitly backed by the full faith and credit of the U.S.

Since the third quarter of 2008, Fannie Mae and Freddie Mac have been under the conservatorship of the Federal Housing Finance Agency, which significantly strengthened the backing for these government-sponsored entities.

The Company sold its remaining holdings of Agency MBS during the quarter ended June 30, 2020.

Non-Agency MBS:

1 unchanged sentence

Government or any federally chartered corporation.

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 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

The following tables present certain information about the Company’s residential mortgage securities at December 31, 2021 and 2020:

The following tables present certain information about the Company’s Agency, Non-Agency and CRT securities at December 31, 2022 and 2021:

December 31, 2022

20 unchanged sentences

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

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

(3) Amounts disclosed at December 31, 2022 include CRT securities with a fair value of $ 48.6 million for which the fair value option has been elected.

Such securities had gross unrealized gains of approximately $ 131,000 and gross unrealized losses of approximately $ 1.2 million at December 31, 2022.

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 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

The following table presents information about the Company’s sales of its residential mortgage securities for the years ended December 31, 2021, 2020 and 2019.

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

(4) Amounts disclosed at December 31, 2022 include Non-Agency MBS with a fair value of $ 24.6 million for which the fair value option has been elected.

Such securities had no gross unrealized gains and no gross unrealized losses at December 31, 2022.

(5) Amounts disclosed at December 31, 2022 include Agency MBS with a fair value of $ 131.7 million for which the fair value option has been elected.

Such securities had no gross unrealized gains and gross unrealized losses of approximately $ 325,000 at December 31, 2022 .

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Impairment and other net (loss)/gain on securities and other portfolio investment s

The following table present the components of Impairment and other net (loss)/gain on securities and other portfolio investments for the years ended December 31, 2022, 2021 and 2020, which is presented in Other income in the consolidated statements of operations:

For the Year Ended December 31,

(In Thousands) 2022 2021 2020

Net unrealized (loss)/gain on securities $ ( 3,230 ) $ 1,607 $ ( 10,486 )

Net realized gain from the sale of securities 84 — 90,408

Impairment of securities — — ( 344,269 )

Total Impairment and other net (loss)/gain on securities $ ( 3,146 ) $ 1,607 $ ( 264,347 )

Net unrealized loss on other portfolio investments $ ( 21,921 ) $ — $ —

Net realized loss on other portfolio investments — — ( 5,407 )

Reversal of impairment/(Impairment) other portfolio investments (1)

— 33,956 ( 80,813 )

Gain on investment in Lima One common equity — 38,933 —

Total Impairment and other net (loss)/gain on securities and other portfolio investments $ ( 25,067 ) $ 74,496 $ ( 350,567 )

(1) Includes impairment in 2020 and 2021 related to a preferred equity investment in a loan originator, which was restructured in December 2021 and subsequently assessed as debt for accounting purposes.

Accordingly, subsequent impairments on this investment recorded in 2022 are reflected as “Provision for Credit Losses on Other Assets” in the Company’s consolidated statement of operations.

The following table presents information about the Company’s sales of its securities for the years ended December 31, 2022, 2021 and 2020.

The Company has no continuing involvement with any of the sold securities.

5 unchanged sentences

CRT securities 15,660 84 — — 243,025 ( 27,011 )

MSR-related assets — — — — 711,698 28,711

Total $ 15,660 $ 84 $ — $ — $ 3,774,556 $ 90,408

1 unchanged sentence

There were no gross unrealized losses on the Company’s AFS securities at December 31, 2022.

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.

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 years ended December 31, 2022 and 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.

2 unchanged sentences

DECEMBER 31, 2022

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

For the Year Ended December 31,

(Dollars In Thousands) 2021 2020

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

Current provision:

Securities with no prior loss allowance

Securities with a prior loss allowance

Write-offs, including allowance related to securities the Company intended to sell — ( 344,269 )

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

Impact of AFS Securities on AOCI

9 unchanged sentences

Balance at end of period $ 21,341 $ 46,833 $ 79,607

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

Interest Income on Securities, at Fair Value

2 unchanged sentences

(In Thousands) 2022 2021 2020

Coupon interest $ — $ 14,038 $ 82,446

Effective yield adjustment (1)

— ( 5,186 ) ( 26,545 )

Interest income $ — $ 8,852 $ 55,901

Legacy Non-Agency MBS

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

Effective yield adjustment (2)(3)

670 10,565 59,622

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

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

Effective yield adjustment (1)(4)

8,136 560 338

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

CRT securities

Residential Mortgage Securities

Coupon interest $ 4,793 $ 4,076 $ 47,686

11 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 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.

(3) Includes accretion income recognized due to the impact of redemptions of certain securities that had been previously purchased at a discount of $ 8.8 million during the year ended December 31, 2021.

(4) Includes $ 7.8 million and $ 20.5 million of accretion income recognized during the years ended December 31, 2022 and 2021, respectively, 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.

3 unchanged sentences

(In Thousands) December 31, 2022 December 31, 2021

Receivable for sale of unsettled residential whole loans $ 275,656 $ —

130,605 156,223

1 unchanged sentence

Intangibles, net (2)

12,200 21,400

Capital contributions made to loan origination partners 28,308 71,673

3 unchanged sentences

Lease Right-of-Use Asset (3)

39,459 39,370

Other 62,786 73,910

Total Other Assets $ 766,221 $ 565,556

(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.

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

(2) Net of aggregate accumulated amortization of $ 15.8 million and $ 6.6 million as of December 31, 2022 and 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).

17 unchanged sentences

Number of properties 388 553

(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.

(1) Includes a net loss recorded on transfer of approximately $ 1.2 million and $ 700,000 , respectively, for the years ended December 31, 2022 and 2021.

(2) During the year ended December 31, 2022, the Company sold 416 REO properties for consideration of $ 133.8 million, realizing net gains of approximately $ 28.7 million.

4 unchanged sentences

DECEMBER 31, 2022

( b ) Capital Contributions Made to Loan Origination Partners

The Company has made investments in several loan originators as part of its strategy to be a reliable source of capital to select partners from whom it sources residential mortgage loans through both flow arrangements and bulk purchases.

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

$ 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.

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.

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 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.

( b ) Goodwill and Intangible Assets

On July 1, 2021, the Company completed the acquisition of Lima One (see Note 15).

In connection with the acquisition of Lima One, the Company identified and recorded goodwill of $ 61.1 million and finite-lived intangible assets totaling $ 28.0 million.

The amortization period for each of the finite lived intangible assets and the activity for the years ended December 31, 2022 and 2021 is summarized in the table below:

(Dollars in Thousands) Acquisition Date July 1, 2021 Amortization

December 31, 2021 Carrying Value at December 31, 2021 Amortization

December 31, 2022 Carrying Value at

December 31, 2022 Amortization Period (Years) (1)

Trademarks / Trade Names $ 4,000 $ ( 200 ) $ 3,800 $ ( 400 ) $ 3,400 10

Customer Relationships 16,000 ( 4,000 ) 12,000 ( 6,000 ) 6,000 4

Internally Developed Software 4,000 ( 400 ) 3,600 ( 800 ) 2,800 5

Non-Compete Agreements 4,000 ( 2,000 ) 2,000 ( 2,000 ) — 1

Total Identified Intangibles $ 28,000 $ ( 6,600 ) $ 21,400 $ ( 9,200 ) $ 12,200

(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 attritio n .

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

( c ) Capital Contributions Made to Loan Origination Partners

The Company has made investments in several loan originators as part of its strategy to be a reliable source of capital to select partners from whom the Company sources residential mortgage loans through both flow arrangements and bulk purchases.

At December 31, 2022, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $ 28.3 million, including $ 3.7 million of common equity (including partnership interests) and $ 24.6 million of preferred equity.

During the year ended December 31, 2022, the Company recorded an impairment charge in earnings of $ 28.6 million against the carrying value of its investment in one loan origination partner, bringing the net carrying value of this investment to zero as of June 30, 2022.

This impairment charge was recorded in Provision for credit losses on other assets in the consolidated statement of operations.

Further, for the year ended December 31, 2022, the Company recorded a valuation adjustment of $ 21.9 million against its investment in a loan origination partner that is accounted for at fair value through earnings.

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.

During the year ended December 31, 2020, the Company recorded impairment charges of $ 65.3 million on investments in certain loan origination partners following an evaluation of the anticipated impact of COVID-19 on economic conditions for the short to medium term.

This activity was recorded in Other income in the consolidated statements of operations.

For certain of the Company’s investments, the interests acquired to date by the Company generally do not have a readily determinable fair value.

Consequently, the Company accounts for these interests (including any acquired options and warrants) in loan originators initially at cost.

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

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 (see Note 15).

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

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2022

(d) Derivative Instruments

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

Restricted Cash $ 14,446 $ —

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.

Pursuant to these arrangements, the Company agreed to pay a fixed rate of interest and receive a variable interest rate, generally based on the Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap.

At December 31, 2022, none of the Company’s Swaps were 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 those transactions to be effective hedges in the then prevailing interest rate environment, the Company unwound all of its then approximately $ 4.1 billion of Swap hedging transactions late in the first quarter of 2020 in order to recover previously posted margin.

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.

At December 31, 2022 and 2021, the Company had restricted cash pledged as collateral against its Swap contracts of $ 60.8 million and $ 14.4 million, respectively.

At December 31, 2022, the Company had Swaps with an aggregate notional amount of $ 3.2 billion and an average maturity of approximately 42 months with a maximum term of approximately 78 months.

The following table presents information about the Company’s Swaps at December 31, 2022 and 2021:

14 unchanged sentences

Over 48 months to 60 months 1,075,000 1.86 4.30 450,000 1.12 0.05

Over 60 months to 72 months — — — — — —

Over 72 months to 84 months 310,000 2.95 4.30 — — —

Total Swaps $ 3,160,010 1.69 % 4.30 % $ 900,010 1.01 % 0.05 %

(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 annually based on SOFR.

(2) Reflects the benchmark variable rate due from the counterparty at the date presented, which rate adjusts daily based on SOFR.

TBA Securities

In order to economically hedge the risks arising from the investments in Agency eligible investor loans, the Company entered into short positions in certain TBA securities.

The Company did not have any open short positions in TBA securities at December 31, 2022.

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 assets/liabilities on the Company’s consolidated balance sheets.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2022

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:

December 31, 2021

(Dollars in Thousands) Notional Amount Settlement Date

UMBS 2.5 $ 180,000 January 13, 2022

UMBS 2.0 $ 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 on the Company’s consolidated statements of operations.

Impact of Derivative Instruments on Earnings

The following table present the components of Net gain/(loss) on derivatives used for risk management purposes for the years ended December 31, 2022, 2021 and 2020, which is presented in Other income in the consolidated statements of operations:

For the Year Ended December 31,

(Dollars in Thousands) 2021 2020 2019

Interest expense attributable to Swaps $ — $ ( 3,359 ) $ 927

Weighted average Swap rate paid — % 2.06 % 2.28 %

Weighted average Swap rate received — % 1.63 % 2.24 %

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.

(In Thousands) 2022 2021 2020

Income on swap variable receive leg $ 52,395 $ 34 $ 933

Expense on swap fixed pay leg ( 42,353 ) ( 703 ) ( 1,503 )

Unrealized mark-to-market gain 208,712 70 5,708

Net price alignment expense on margin collateral received ( 2,761 ) — —

Loss on unwind of swaps not designated as hedges for accounting purposes — — ( 9,353 )

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

Net gain on TBA short positions 39,186 2,025 —

Total Net gain/(loss) on derivatives used for risk management purposes

$ 255,179 $ 1,426 $ ( 61,249 )

Impact of Derivative Hedging Instruments on AOCI

7 unchanged sentences

Balance at end of period $ — $ — $ —

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.

4 unchanged sentences

December 31, 2022

(In Thousands) Unpaid Principal Balance Amortized Cost Balance Fair Value/Carrying Value (1)

Financing agreements, at fair value

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

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

Total Financing agreements, at carrying value $ 3,123,070 $ 3,112,009

(In Thousands) Collateral Unpaid Principal Balance Fair Value/Carrying Value (1)

Weighted Average Cost of Funding (2)

Weighted Average Term to Maturity (Months)

Agreements with mark-to-market collateral provisions Residential Whole Loans and REO $ 2,111,647 $ 2,111,396 3.63 % 6.9

Agreements with mark-to-market collateral provisions Securities 111,651 111,651 3.34 % 1.5

Total Agreements with mark-to-market collateral provisions 2,223,298 2,223,047 3.62 %

Agreements with non-mark-to-market collateral provisions Residential Whole Loans and REO 1,004,260 1,003,604 5.00 % 16.8

Securitized debt Residential Whole Loans 3,586,397 3,357,590 2.99 % See Note 14

Convertible senior notes Unsecured 229,989 227,845 6.94 % See below

Total Financing agreements (2)

$ 7,043,944 $ 6,812,086 3.46 %

December 31, 2021

(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

Senior notes 100,000 100,000

Total Financing agreements, at carrying value $ 978,300 $ 970,204

(In Thousands) Collateral Unpaid Principal Balance Fair Value/Carrying Value (1)

Weighted Average Cost of Funding (2)

Weighted Average Term to Maturity (Months)

Agreements with mark-to-market collateral provisions Residential Whole Loans and REO $ 2,403,724 $ 2,403,151 2.15 % 6.6

Agreements with mark-to-market collateral provisions Securities 159,148 159,148 1.78 % 1.4

Total Agreements with mark-to-market collateral provisions 2,562,872 2,562,299 2.11 %

Agreements with non-mark-to-market collateral provisions Residential Whole Loans and REO 939,003 939,540 3.57 % 9.8

Securitized debt Residential Whole Loans 2,645,495 2,650,473 1.94 % See Note 14

Convertible senior notes Unsecured 230,000 226,470 6.94 % See below

Total Financing agreements (2)

(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.

$ 6,377,370 $ 6,378,782 2.58 %

(1) The Company has both financing agreements held at fair value and financings agreements held at their carrying value (amortized cost basis).

Financing agreements held at fair value are reported at estimated fair value each period as a result of the Company’s fair value option election.

The fair value option was not elected for financing agreements held at carrying value.

Consequently, total financing agreements as presented reflects a summation of balances reported at fair and carrying value.

At December 31, 2022, the Company had $ 884.5 million of agreements with mark-to-market collateral provisions held at fair value, $ 578.9 million of agreements with non-mark-to-market collateral provisions held at fair value, and $ 2.4 billion of securitized debt held at fair value, with amortized cost bases of $ 884.5 million, $ 578.9 million, and, $ 2.6 billion respectively.

At December 31, 2021, the Company had the $ 1.3 billion of agreements with mark-to-market collateral provisions held at fair value, $ 628.3 million of agreements with non-mark-to-market collateral provisions held at fair value, and $ 1.3 billion of securitized debt held at fair value, with amortized cost bases of $ 1.3 billion, $ 627.0 million, and $ 1.3 billion, respectively.

(2) Weighted average cost of funding reflects year-to-date interest expense divided by average balance for the financing agreements.

The cost of funding for the total financing agreements includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on the Company’s Swaps.

For the year ended December 31, 2022, this decreased the overall funding cost by 14 basis points, and for the year ended December 31, 2021, this increased the overall funding cost by two basis points.

The Company does not allocate the impact of the net carry by type of financing agreement.

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

The following table presents maturities with respect to the Company’s financing agreements with mark-to-market and non-mark-to-market collateral provisions:

As of December 31, 2022

Unpaid Principal Balance, Maturing In

(In Thousands) Collateral 0-3 Months (1)

3-6 Months (1)

6-12 Months Greater than 12 Months (2)

Agreements with mark-to-market collateral provisions Residential Whole Loans $ 828,804 $ 53,247 $ 939,434 $ 290,162 $ 2,111,647

Agreements with mark-to-market collateral provisions Securities 111,651 — — — 111,651

Total Agreements with mark-to-market collateral provisions 940,455 53,247 939,434 290,162 2,223,298

Agreements with non-mark-to-market collateral provisions Residential Whole Loans 9,268 184,576 415,041 395,375 1,004,260

(1) $ 304.1 million of the mark-to-market agreements ($ 250.9 million and $ 53.2 million included in the 0-3 and 3-6 months categories, respectively) can be terminated by either party.

(2) $ 290.2 million of the mark-to-market agreements (included in the greater than 12 months category) have a one year extension option to September 2024.

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, 2022 and 2021:

3 unchanged sentences

Fair value of residential whole loans pledged as collateral under financing agreements $ 2,632,489 $ 3,301,288

$ 3,301,288 $ 1,798,813

Weighted average haircut on residential whole loans (1)

8 unchanged sentences

48.07 % 58.46 %

(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.

(1) Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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, 2022 and 2021:

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December 31, 2022 December 31, 2021

Amortized Cost Basis Weighted Average Interest Rate Amortized Cost Basis Weighted Average Interest Rate

Unpaid Principal Balance Weighted Average Interest Rate Unpaid Principal Balance Weighted Average Interest Rate

Time Until Interest Rate Reset

5 unchanged sentences

Total financing agreements $ 3,227,558 6.58 % $ 3,501,875 2.38 %

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

(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 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 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.

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 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

Securitized debt represents third-party liabilities of consolidated VIEs and excludes liabilities of the VIEs acquired by the Company that are eliminated in consolidation.

The third-party beneficial interest holders in the VIEs have no recourse to the general credit of the Company.

The weighted average fixed rate on the securitized debt was 1.58 % at December 31, 2021 (see Notes 9 and 14 for further discussion).

(a) Other Information on Financing Agreements

Convertible Senior Notes

2 unchanged sentences

The Convertible Senior Notes bear interest at a fixed rate of 6.25 % per year, paid semiannually on June 15 and December 15 of each year commencing December 15, 2019 and will mature on June 15, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms.

The Convertible Senior Notes are convertible at the option of the holders at any time until the close of business on the business day immediately preceding the maturity date into shares of the Company’s common stock based on an initial conversion rate of 125.7387 shares of the Company’s common stock for each $ 1,000 principal amount of the Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $ 7.95 per share of common stock.

The Convertible Senior Notes are convertible at the option of the holders at any time until the close of business on the business day immediately preceding the maturity date into shares of the Company’s common stock based on a conversion rate of 31.4346 shares (which reflects an adjustment resulting from the Company’s Reverse Stock Split) of the Company’s common stock for each $ 1,000 principal amount of the Convertible Senior Notes, which is equivalent to a conversion price of approximately $ 31.81 per share of common stock.

The Convertible Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 6.94 %.

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.

During the year ended December 31, 2022, $ 11,000 of convertible senior notes were converted into 345 shares of the Company’s common stock.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2022

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.

The Convertible Senior Notes are the Company’s senior unsecured obligations and are (i) 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 (ii) equal in right of payment to the Company’s existing and future senior unsecured obligations, if any.

On April 11, 2012, the Company issued $ 100.0 million in aggregate principal amount of its Senior Notes in an underwritten public offering.

3 unchanged sentences

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.

On June 26, 2020, the Company entered into a $ 500 million senior secured term loan facility (the “Term Loan Facility”).

The outstanding balance of the Term Loan Facility was repaid and the Term Loan Facility was terminated prior to December 31, 2020.

8 unchanged sentences

(Dollars in Thousands)

Credit Suisse BBB+/Baa1/A- $ 557,688 1 21.9 %

Barclays Bank (3)

1 unchanged sentence

Wells Fargo A+/Aa2/AA- 234,826 1 11.8

Credit Suisse BBB-/Baa2/BBB 192,129 1 9.7

(1) As rated at December 31, 2022 by S&P, Moody’s and Fitch, Inc., respectively.

31 unchanged sentences

The Company pledges securities or cash as collateral to its counterparties in relation to certain of its financing arrangements.

In addition, the Company receives securities or cash as collateral pursuant to financing provided under reverse repurchase agreements.

The Company exchanges collateral with its counterparties based on changes in the fair value, notional amount and term of the associated financing arrangements and Swap contracts, as applicable.

1 unchanged sentence

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.

The Company’s assets pledged as collateral are also described in Notes 2(e) - Restricted Cash and 5(d) - 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.

6 unchanged sentences

(In Thousands) December 31, 2022 December 31, 2021

Payable for purchase of unsettled Agency MBS $ 132,026 $ —

Dividends and dividend equivalents payable 35,769 47,751

35 unchanged sentences

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.

No net deferred tax benefit was recorded by the Company for the years ended December 31, 2022 and 2021, related to the net taxable losses in TRS entities, since a valuation allowance for the full amount of the associated deferred tax asset at the ends of those periods 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;

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(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.

The Company’s primary lease commitment relates to its corporate headquarters.

For the year ended December 31, 2022, the Company recorded an expense of approximately $ 5.0 million in connection with this lease.

The original term specified in this lease is approximately fifteen years with a termination date of December 2036 and an option to renew for an additional five years .

The Company recognized total lease expense of $ 6.5 million, $ 4.0 million and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively, which is included in Other general and administrative expense on the Company’s consolidated statements of operations.

At December 31, 2022, the contractual minimum rental payments (exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes) were as follows:

3 unchanged sentences

Total $ 73,217

(b) Representations and Warranties in Connection with Loan Securitization Transactions

(b) Representations and Warranties in Connection with Loan Securitization and Other Loan Sale Transactions

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, 2022, 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).

At December 31, 2022, the Company had unfunded commitments of $ 553.4 million in connection with its purchased Transitional loans (see Note 3).

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2022

(d) Agency MBS Purchase Commitments

At December 31, 2022, the Company had commitments to purchase Agency MBS for $ 132.0 million.

Agency MBS are included in Securities, at fair value on the Company’s consolidated balance sheets, with a liability for the purchase amount included in Other liabilities.

Stockholders’ Equity

19 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

February 19, 2021 March 5, 2021 March 31, 2021 0.46875

2020 November 18, 2020 December 4, 2020 December 31, 2020 $ 0.46875

August 12, 2020 September 8, 2020 September 30, 2020 0.46875

July 1, 2020 July 15, 2020 July 31, 2020 0.93750

MFA FINANCIAL, INC.

6 unchanged sentences

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.

Pursuant to the terms of the Series C Preferred Stock, upon the expected discontinuation of the publication of three-month LIBOR in June 2023, a calculation agent will be appointed to select an industry accepted substitute or successor base rate to the three-month LIBOR rate.

The calculation agent may also implement changes to the business day convention, the definition of business day, the dividend determination date, the interest rate spread and the method for obtaining the substitute or successor base rate, in a manner that is consistent with industry accepted practices.

In March 2022, Congress enacted a federal statute that provides a safe harbor for those, like the calculation agent, that are contractually responsible for determining LIBOR replacements under certain circumstances, which the Company expects will apply to the Series C Preferred Stock.

The Federal Reserve is required to promulgate rules under this statute which, once final, the Company expects will affect the selection of an industry accepted substitute or successor base rate under the terms of the Series C Preferred Stock.

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.

5 unchanged sentences

In addition, certain material and adverse changes to the terms of the Series C Preferred Stock cannot be made without the affirmative vote of holders of at least 66 2/3% of the outstanding shares of Series C Preferred Stock.

Pursuant to the now-terminated forbearance agreements that the Company had previously entered into, the Company was prohibited from paying dividends on its Series C Preferred Stock during the forbearance period.

Pursuant to the now-terminated forbearance agreements that the Company had previously entered into in the second quarter of 2020, the Company was prohibited from paying dividends on its Series C Preferred Stock during the forbearance period.

On July 1, 2020, the Company announced that it had reinstated the payment of dividends on its Series C Preferred Stock and declared a preferred stock dividend of $ 0.53264 per share, payable on July 31, 2020 to the Series C Preferred stockholders of record as of July 15, 2020.

Upon payment of this dividend, the Company paid in full all accumulated but previously unpaid dividends on its Series C Preferred Stock.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The following table presents cash dividends declared by the Company on its Series C Preferred Stock from January 1, 2020 through December 31, 2022:

7 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

3 unchanged sentences

(b) Dividends on Common Stock

As discussed above, on March 25, 2020, the Company revoked its previously announced first quarter 2020 quarterly cash dividends on each of the Company's common stock and Series B Preferred Stock.

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.

The following table presents cash dividends declared by the Company on its common stock from January 1, 2020 through December 31, 2022:

6 unchanged sentences

2021 December 14, 2021 December 31, 2021 January 31, 2022 $ 0.440 (3)(4)

August 6, 2020 September 30, 2020 October 30, 2020 0.050

2019 December 12, 2019 December 30, 2019 January 31, 2020 $ 0.200 (3)

September 15, 2021 September 30, 2021 October 29, 2021 0.400 (3)

June 12, 2019 July 1, 2019 July 31, 2019 0.200

June 15, 2021 June 30, 2021 July 30, 2021 0.400 (3)

March 12, 2021 March 31, 2021 April 30, 2021 0.300 (3)

2020 December 17, 2020 December 30, 2020 January 29, 2021 $ 0.300 (5)(6)

August 6, 2020 September 30, 2020 October 30, 2020 0.200 (5)

(1) At December 31, 2022, the Company had accrued dividends and dividend equivalents payable of $ 35.8 million related to the common stock dividend declared on December 14, 2022.

This dividend will be considered taxable income to the recipient in 2022.

This dividend will be subject to taxation in 2023 for the recipient.

For more information see the Company’s 2022 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.

(2) The $ 0.44 per share dividend declared on March 11, 2022, has been adjusted to reflect the Reverse Stock Split;

the amount actually paid in respect of such dividend was $ 0.11 per share, which was based on the pre-split number of shares held by stockholders at the record date for such dividend (March 22, 2022).

(3) The $ 0.44 , $ 0.40 , $ 0.40 and $ 0.30 per share dividend amounts for the three months ended December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively, have been adjusted to reflect the Company’s one-for-four reverse stock split effected on April 4, 2022;

the dividends actually paid in respect of such dividends were $ 0.11 , $ 0.10 , $ 0.10 and $ 0.075 per share, respectively, which were based on the pre-split number of shares held by stockholders at the record dates for such dividends (December 31, 2021, September 30, 2021, June 30, 2021, and March 31, 2021, respectively).

(4) 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 was considered taxable income to the recipient in 2022.

For more information see our 2020 Dividend Tax Information on our website.

For more information see the Company’s 2021 Dividend Tax Information on its website

(5) The $ 0.30 and $ .20 per share dividend amounts for the three months ended December 31, 2020 and September 30, 2020, respectively, have been adjusted to reflect the Company’s one-for-four reverse stock split effected on April 4, 2022;

the dividends actually paid in respect of such dividends were $ 0.075 and $ 0.05 per share, respectively, which were based on the pre-split number of shares held by stockholders at the record dates for such dividends (December 30, 2020 and September 30, 2020, respectively).

(6) 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 2019 Dividend Tax Information on our website.

For more information see the Company’s 2020 Dividend Tax Information on its website.

In general, the Company’s common stock dividends have been characterized as ordinary income to its stockholders for income tax purposes.

However, a portion of the Company’s common stock dividends may, from time to time, be characterized as capital gains or return of capital.

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 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.

For the year ended December 31, 2022, the portion of the Company’s common stock dividends paid during the year deemed to be a return of capital was $ 1.76 per share of common stock.

For the year ended December 31, 2021, the portion of the Company’s common stock dividends paid during the year deemed to be a return of capital was $ 1.0512 per share of common stock.

For the year ended December 31, 2020, the portion of the Company’s common stock dividends paid during the year deemed to be a return of capital was $ 0.20 per share of common stock.

MFA FINANCIAL, INC.

1 unchanged sentence

DECEMBER 31, 2022

On September 27, 2022, 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 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, registered an aggregate of 2.0 million shares of common stock.

At December 31, 2022, approximately 2.0 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.

During the years ended December 31, 2022, 2021 and 2020, the Company issued 80,027 , 107,925 and 58,909 shares of common stock through the DRSPP, raising net proceeds of approximately $ 1.2 million, $ 1.9 million and $ 1.0 million, respectively.

1 unchanged sentence

( 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 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 .

On August 16, 2019, the Company entered into a three-year distribution agreement under the terms of which the Company had the ability to offer and sell shares of its common stock having an aggregate gross sales price of up to $ 400.0 million, from time to time, through various sales agents, pursuant to an at-the-market equity offering program (the “ATM Program”).

During the years ended December 31, 2022, 2021 and 2020, the Company did no t sell any shares of common stock through the ATM Program, and the ATM Program expired in August 2022.

(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.

On March 11, 2022, 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 2023.

The Board’s authorization superseded and replaced the authorization under prior stock repurchase program that had been adopted in November 2020, which also authorized the Company to repurchase up to $ 250 million.

The stock repurchase program does not require the purchase of any minimum number of shares.

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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.

During the years ended December 31, 2022, 2021 and 2020, the Company repurchased 6,476,746 , 5,025,374 and 3,521,420 shares of its common stock through the stock repurchase program at an average cost of $ 15.80 , $ 17.04 and $ 14.44 per share and a total cost of approximately $ 102.1 million, $ 85.6 million and $ 50.8 million, net of fees and commissions paid to the sales agent of approximately $ 161,000 , $ 201,000 and $ 141,000 , respectively.

In addition, as discussed further below, during the year ended December 31, 2020 the Company repurchased 4,398,394 , warrants for $ 33.7 million that were included in the stock repurchase program.

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.

As of December 31, 2022, the Company was permitted to purchase an additional $ 202.5 million of its common stock under the stock repurchase program.

MFA FINANCIAL, INC.

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Amounts reclassified from AOCI (2)

( 733,396 ) 72,802 — ( 660,594 )

Net OCI during the period (3)

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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

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AFS Securities:

Realized gain on sale of securities $ — $ ( 389,127 ) $ ( 44,600 ) Net realized (loss)/gain on sales of securities and residential whole loans

Realized gain on sale of securities $ — $ — $ ( 389,127 ) Net realized (loss)/gain on sale of securities and residential whole loans

Impairment recognized in earnings — — ( 344,269 ) Other, net

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EPS Calculation

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:

The following table presents a reconciliation of the (loss)/earnings and shares used in calculating basic and diluted (loss)/earnings per share for the years ended December 31, 2022, 2021 and 2020:

For the Year Ended December 31,

(In Thousands, Except Per Share Amounts) 2022 2021 2020

Basic Earnings/(Loss) per Share:

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

Basic (Loss)/Earnings per Share:

Net (loss)/income to common stockholders $ ( 231,581 ) $ 328,870 $ ( 679,390 )

Dividends declared on preferred stock ( 32,875 ) ( 32,875 ) ( 29,796 )

Dividends, dividend equivalents and undistributed earnings allocated to participating securities ( 627 ) ( 1,044 ) ( 229 )

Net income/(loss) to common stockholders - basic $ 294,951 $ ( 709,415 ) $ 362,030

Net (loss)/income to common stockholders - basic $ ( 265,083 ) $ 294,951 $ ( 709,415 )

Basic weighted average common shares outstanding 103,153 110,704 113,008

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

Basic (Loss)/Earnings per Share $ ( 2.57 ) $ 2.66 $ ( 6.28 )

Diluted (Loss)/Earnings per Share:

Net (loss)/income to common stockholders - basic $ ( 265,083 ) $ 294,951 $ ( 709,415 )

Dividends, dividend equivalents and undistributed earnings allocated to participating securities — 1,044 —

Interest expense on Convertible Senior Notes — 15,668 —

Net income/(loss) to common stockholders - diluted $ 311,663 $ ( 709,415 ) $ 370,995

Net (loss)/income to common stockholders - diluted $ ( 265,083 ) $ 311,663 $ ( 709,415 )

Basic weighted average common shares outstanding 103,153 110,704 113,008

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103,153 118,691 113,008

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.

Diluted (Loss)/Earnings per Share $ ( 2.57 ) $ 2.63 $ ( 6.28 )

(1) At December 31, 2022, the Company had approximately 1.7 million equity instruments outstanding that were excluded in the calculation of diluted EPS for the year ended December 31, 2022.

These equity instruments reflect RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $ 16.86 .

These equity instruments may continue to have a dilutive impact on future EPS.

These equity instruments may have a dilutive impact on future EPS.

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

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.

During the year ended December 31, 2022, the Convertible Senior Notes were determined to be anti-dilutive and were excluded from 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) are included in the denominator for the purpose of calculating diluted EPS.

The Convertible Senior Notes may have a dilutive impact on future EPS.

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At December 31, 2022, approximately 2.1 million shares of common stock remained available for grant in connection with stock-based awards under the Equity Plan.

A participant may generally not receive stock-based awards in excess of 2.0 million shares of common stock in any one year and no award may be granted to any person who, assuming exercise of all Options and payment of all awards held by such person, would own or be deemed to own more than 9.8 % of the outstanding shares of the Company’s common stock.

A participant may generally not receive stock-based awards in excess of 500,000 shares of common stock in any one year and no award may be granted to any person who, assuming exercise of all Options and payment of all awards held by such person, would own or be deemed to own more than 9.8 % of the outstanding shares of the Company’s common stock.

Unless previously terminated by the Board, awards may be granted under the Equity Plan until June 10, 2030.

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(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 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

In determining the fair value for 603,525 of these awards granted in 2022, the Company applied:

(i) a weighted average volatility estimate of approximately 50 %, 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 1.04 % 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 74,251 awards with a service condition only was estimated

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 4.70 .

based on the closing price of the Company’s common stock at the grant date of $ 13.67 .

All of the 381,397 RSUs granted in 2022, the vesting of which is subject to both market and service conditions, are also subject to a one-year post-vesting holding requirement prior to settlement.

There is no post vesting holding requirement on the 296,379 RSUs granted in 2022 the vesting of which is subject to a service condition only.

(2) The weighted average grant date fair value of these awards require the Company to estimate certain valuation inputs.

In determining the fair value for 621,312 and 306,134 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;

The weighted average grant date fair value for the remaining 53,991 awards with a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 18.80 .

All of the 602,156 RSUs with market and service conditions granted in 2021 are subject to a one-year post-vesting holding requirement.

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There are no post vesting conditions on these awards.

(3) The weighted average grant date fair value of these awards require the Company to estimate certain valuation inputs.

In determining the fair value for 752,500 of these awards granted in 2019, the Company applied:

(i) a weighted average volatility estimate of approximately 15 %, 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 2.47 % 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 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.

Restricted Stock

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.

At December 31, 2022 and 2021, the Company did no t have any unvested shares of restricted common stock outstanding, and no restricted shares vested during the years ended December 31, 2022 and 2021, respectively.

The total fair value of restricted shares vested during the year ended December 31, 2020.

was approximately $ 131,000 .

The following table presents information with respect to the Company’s restricted stock for the years ended December 31, 2022, 2021 and 2020:

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A dividend equivalent is a right to receive a distribution equal to the dividend distributions that would be paid on a share of the Company’s common stock.

Dividend equivalents may be granted as a separate instrument or may be a right associated with the grant of another award (e.g., an RSU) under the Equity Plan, and they are paid in cash or other consideration at such times and in accordance with such rules, as the Compensation Committee of the Board shall determine in its discretion.

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 $ 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.

Dividend equivalents may be granted as a separate instrument or may be a right associated with the grant of another award (e.g., an RSU) under the Equity Plan, and they are paid typically in cash or other consideration at such times and in accordance with such rules, as the Compensation Committee of the Board shall determine in its discretion.

Dividend equivalent payments 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

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

awards of approximately $ 659,000 , $ 566,000 , and $ 367,000 during the years ended December 31, 2022, 2021 and 2020, respectively.

In addition, no dividend equivalents rights awarded as separate instruments were granted during the years ended December 31, 2022, 2021 and 2020.

Expense Recognized for Equity-Based Compensation Instruments

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Total $ ( 1,133 ) $ 537 $ ( 911 )

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The Company distributed cash of approximately $ 53,000 to the participants of the Deferred Plans during the year ended December 31, 2022.

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.

The Company distributed cash of $ 769,400 to the participants of the Deferred Plans during the year ended December 31, 2020.

The following table presents the aggregate amount of income deferred by participants of the Deferred Plans through December 31, 2022 and 2021 that had not been distributed and the Company’s associated liability for such deferrals at December 31, 2022 and 2021:

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(1) Represents the cumulative amounts that were deferred by participants through December 31, 2022 and 2021, which had not been distributed through such respective date.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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The Company has elected to operate the Savings Plan under the applicable safe harbor provisions of the Code, whereby among other things, the Company must make contributions for all participating employees and all matches contributed by the Company immediately vest 100 %.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized expenses for matching contributions of $ 697,100 , $ 480,000 and $ 503,500 , respectively.

For the years ended December 31, 2022, 2021 and 2020, the Company recognized expenses for matching contributions of $ 1.3 million, $ 697,000 and $ 480,000 , respectively.

Fair Value of Financial Instruments

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The following describes the valuation methodologies used for the Company’s financial instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Residential Whole Loans, at Fair Value

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

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The Company’s residential whole loans held at fair value are classified as Level 3 in the fair value hierarchy;

however, the Company determined that the market inputs used in valuing its Agency eligible investor loans were sufficiently observable to be classified as Level 2.

Securities, at Fair Value

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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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

observability of the data used in its fair value estimation process, these assets are classified as Level 2 in the fair value hierarchy.

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.

Other Residential Mortgage Securities (including short positions in TBA securities)

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Accordingly, these securities are classified as Level 2 in the fair value hierarchy.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Financing Agreements, at Fair Value

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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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The Company reviews the classification of its financial instruments within the fair value hierarchy on a quarterly basis, and management may conclude that its financial instruments should be reclassified to a different level in the future.

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2022 and 2021, on the consolidated balance sheets by the valuation hierarchy, as previously described:

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Balance at end of period $ 5,676,430 $ 4,222,584

(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:

(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 beginning in 2021.

The following table presents additional information for the years ended December 31, 2022 and 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:

Agreements with Non-mark-to-market Collateral Provisions

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Balance at beginning of period $ 628,280 $ 1,159,213

Transfer from Level 2 — 2,036,597

Issuances 554,823 —

Payment of principal ( 602,969 ) ( 529,874 )

Change in unrealized (gains)/losses ( 1,059 ) 2,314

Change in unrealized gains ( 1,255 ) ( 1,059 )

Balance at end of period $ 578,879 $ 628,280

The following table presents additional information for the year ended December 31, 2021 about the Company’s financing agreements with mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

The following table presents additional information for the years ended December 31, 2022 and 2021 about the Company’s financing agreements with mark-to-market collateral provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

Agreements with Mark-to-market Collateral Provisions

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Balance at beginning of period $ 1,322,362 $ 1,124,162

Transfer from Level 2 — 1,386,592

Issuances 1,153,555 1,275,265

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Balance at end of period $ 884,495 $ 1,322,362

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

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

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

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Total $ 4,880,321

December 31, 2021

(Dollars in Thousands) Fair Value Valuation Technique Unobservable Input Weighted Average (1)

Purchased Performing Loans $ 3,142,366 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 % — %- 14.8 %

Liquidation timeline

2.0 0.8 - 4.2

Current value of underlying properties $ 691 $ 60 -$ 1,750

Total $ 3,150,314

(1) Amounts are weighted based on the fair value of the underlying loan.

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Residential whole loans (1)

2 51,094 51,094 1,082,765 1,082,765

Securities, at fair value 2 333,364 333,364 256,685 256,685

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Convertible senior notes 2 227,845 211,015 226,470 239,292

Senior notes (3)

1 — — 100,000 100,031

(1) At December 31, 2021, $ 654.7 million of Agency eligible investor loans were valued based on the observable prices of related securitized debt.

(2) Carrying value of securitized debt, Convertible Senior Notes, Senior Notes and certain repurchase agreements is net of associated debt issuance costs.

(3) Includes securitized debt that is carried at amortized cost basis and fair value.

(3) On January 6, 2021, the Company redeemed all of its outstanding Senior Notes (see Note 6).

Other Assets Measured at Fair Value on a Nonrecurring Basis

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(1) Net of $ 2.9 million and $ 6.8 million of deferred financing costs at December 31, 2022 and 2021, 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.

(2) At December 31, 2022 and 2021, $ 1.9 billion and $ 329.0 million, respectively, of Senior Bonds sold in securitization transactions contained a contractual coupon step-up feature whereby the coupon increases by either 100 , 200 or 300 basis points or more at defined dates ranging from 30 months, up to 48 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 years ended December 31, 2022 and 2021, the Company issued Senior Bonds with a current face of $ 2.3 billion and $ 2.4 billion to third-party investors for proceeds of $ 2.2 billion and $ 2.4 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).

The Senior Bonds issued by the Company during the years ended December 31, 2022 and 2021 are included in “Financing agreements, at fair value” (at carrying value) on the Company’s consolidated balance sheets (see Note 6).

As of December 31, 2022 and 2021, as a result of the transactions described above, securitized loans of approximately $ 4.0 billion and $ 3.0 billion are included in “Residential whole loans” and REO with a carrying value of approximately $ 36.5 million and $ 35.4 million are included in “Other assets” on the Company’s consolidated balance sheets, respectively.

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The Company has assessed that these entities are required to be consolidated (see Notes 3 and 5(a)).

Acquisition of Lima One Holdings, LLC

In addition, as a result of the sale of certain redemption rights in 2022, the SPE’s that held previously securitized Agency eligible investor loans were deconsolidated from the Company’s financial statements, as the Company concluded that it was no longer the primary beneficiary of those SPE’s.

This resulted in the de-recognition of Agency eligible investor loans with an unpaid principal balance of $ 598.0 million and of securitized debt with an unpaid principal balance of $ 567.2 million.

All of the loans and debt were held at fair value.

Accordingly, no significant additional gains or losses were recorded on de-recognition.

Segment Reporting

At December 31, 2022, the Company’s reportable segments include (i) mortgage-related assets and (ii) Lima One.

The Corporate column in the table below primarily consists of corporate cash and related interest income, investments in loan originators and related economics, general and administrative expenses not directly attributable to Lima One, interest expense on unsecured convertible senior notes (Note 6), securitization issuance costs, and preferred stock dividends.

The following tables summarize segment financial information, which in total reconciles to the same data for the Company as a whole.

The Company is not presenting comparable segment statements of operations for the year ended December 31, 2020, because the Company did not consolidate Lima One during those periods:

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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

Year Ended December 31, 2022

Interest Income $ 364,761 $ 113,134 $ 4,524 $ 482,419

Interest Expense 176,725 66,358 15,760 258,843

Net Interest Income/(Expense) $ 188,036 $ 46,776 $ ( 11,236 ) $ 223,576

Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans 2,842 ( 196 ) — 2,646

Provision for Credit Losses on Other Assets — — ( 28,579 ) ( 28,579 )

Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses $ 190,878 $ 46,580 $ ( 39,815 ) $ 197,643

Net loss on residential whole loans measured at fair value through earnings $ ( 730,028 ) $ ( 136,734 ) $ — $ ( 866,762 )

Impairment and other net loss on securities and other portfolio investments ( 3,146 ) — ( 21,921 ) ( 25,067 )

Net gain on real estate owned 25,348 31 — 25,379

Net gain on derivatives used for risk management purposes 217,961 37,218 — 255,179

Net gain on securitized debt measured at fair value through earnings 231,176 59,463 — 290,639

Lima One - origination, servicing and other fee income — 46,745 — 46,745

Other, net 4,282 537 4,478 9,297

Total Other (Loss)/Income, net $ ( 254,407 ) $ 7,260 $ ( 17,443 ) $ ( 264,590 )

General and administrative expenses (including compensation) $ — $ 53,185 $ 59,355 $ 112,540

Loan servicing, financing, and other related costs 25,384 1,120 16,390 42,894

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

Net Loss $ ( 88,913 ) $ ( 9,665 ) $ ( 133,003 ) $ ( 231,581 )

Less Preferred Stock Dividend Requirement $ — $ — $ 32,875 $ 32,875

Net Loss Available to Common Stock and Participating Securities $ ( 88,913 ) $ ( 9,665 ) $ ( 165,878 ) $ ( 264,456 )

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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

Year Ended December 31, 2021

Interest Income $ 347,863 $ 14,249 $ 190 $ 362,302

Interest Expense 99,905 4,691 15,789 120,385

Net Interest Income/(Expense) $ 247,958 $ 9,558 $ ( 15,599 ) $ 241,917

Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans $ 44,981 $ ( 118 ) $ — $ 44,863

Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses $ 292,939 $ 9,440 $ ( 15,599 ) $ 286,780

Net (loss)/gain on residential whole loans measured at fair value through earnings $ ( 2,719 ) $ 18,962 $ — $ 16,243

Impairment and other net gain on securities and other portfolio investments 1,607 — 72,889 74,496

Net gain on real estate owned 22,760 78 — 22,838

Net gain/(loss) on derivatives used for risk management purposes 1,457 ( 31 ) — 1,426

Net gain on securitized debt measured at fair value through earnings 14,594 433 — 15,027

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

Other, net 759 128 11,586 12,473

Total Other Income, net $ 38,458 $ 42,170 $ 84,475 $ 165,103

General and administrative expenses (including compensation) $ — $ 24,140 $ 61,406 $ 85,546

Loan servicing, financing, and other related costs 25,250 436 5,181 30,867

Amortization of intangible assets — 6,600 — 6,600

Net Income $ 306,147 $ 20,434 $ 2,289 $ 328,870

Less Preferred Stock Dividend Requirement $ — $ — $ 32,875 $ 32,875

Net Income/(Loss) Available to Common Stock and Participating Securities $ 306,147 $ 20,434 $ ( 30,586 ) $ 295,995

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

December 31, 2022

Total Assets $ 6,065,557 $ 2,618,695 $ 428,153 $ 9,112,405

December 31, 2021

Total Assets $ 7,567,084 $ 1,200,737 $ 371,867 $ 9,139,688

Lima One Segment

On July 1, 2021, the Company completed the acquisition from affiliates of Magnetar Capital of their ownership interests in Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively, “Lima One”), a leading originator and servicer of business purpose loans.

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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.

Under purchase accounting, the purchase

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

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.

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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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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.

As the Company had previously recorded an impairment write-down on its investment in Lima One’s preferred equity that was repaid in connection with the transaction, the Company recorded a gain of $ 5.0 million to reflect the reversal of this impairment charge.

This gain was recorded in Other Income in the consolidated statements of operations for the year ended December 31, 2021.

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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.

In addition, the Company identified and recorded finite-lived intangible assets totaling $ 28.0 million (Note 5).

The purchase price allocations are summarized in the table below:

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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

MFA FINANCIAL, INC.

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DECEMBER 31, 2022

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.

The Lima One segment includes the stand-alone mortgage origination and servicing business of Lima One, including related goodwill, intangible assets, and direct expenses, plus Lima One-related residential whole loans and REO (defined as both those owned by Lima One on the acquisition date and those originated by Lima One since the acquisition date) and the economics related thereto (including any related taxes and the economics of associated financing and hedging instruments), all as recorded under GAAP.

Associated financing economics are equal to the results of direct financings of Lima One-related residential whole loans and REO plus allocations of the results of financings which include Lima One related residential whole loans and REO as part of their collateral, based on the relative carrying values of the financed assets.

Associated hedging economics are equal to allocations of the Company’s overall hedging results based on the relative estimated duration of each asset class hedged and the relative fair values of assets within each asset class.

Mortgage-Related Assets Segment

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

MFA FINANCIAL, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022

Subsequent Events

Subsequent to quarter end, the Company completed three additional loan securitizations with an aggregate UPB of loans sold of $ 668.2 million.

This included $ 313.7 million of Non-QM loans, $ 203.9 million of Single Family Rental loans and $ 150.6 million of Transitional loans.

Schedule IV - Mortgage Loans on Real Estate

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Purchases $ 3,126,424

Changes in fair value recorded in Net gain on residential whole loans measured at fair value through earnings 16,243

Premium amortization/discount accretion, net 9,798

Reversal of provision for loan loss 4,133

Deductions during period:

Repayments $ ( 1,814,509 )

Premium amortization/discount accretion, net 14,273

Provision for loan loss 47,386

Loan sales and repurchases ( 973,283 )

Changes in fair value recorded in Net gain/(loss) on residential whole loans measured at fair value through earnings ( 676,076 )

Transfer to REO ( 70,748 )

2 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