MFA FINANCIAL, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K. GENERAL We are a specialty finance company that invests in and finances residential mortgage assets. We invest, on a leveraged basis, in residential whole loans, residential mortgage securities and other real estate assets. Through our wholly-owned subsidiary, Lima One, a leading nationwide originator and servicer of business purpose loans (or BPLs) that we acquired on July 1, 2021, we also originate and service business purpose loans for real estate investors. Our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals. We selectively invest in residential mortgage assets with a focus on credit analysis, projected prepayment rates, interest rate sensitivity and expected return. We are an internally-managed real estate investment trust. On April 4, 2022, we 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 the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split. For all periods presented, all share and per share data have been adjusted on a retroactive basis to reflect the effect of the Reverse Stock Split. At December 31, 2022, we had total assets of $9.1 billion, of which $7.5 billion, or 83%, represented residential whole loans. Our residential whole loans include primarily: (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 (or 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 (or Transitional loans), which are comprised of Residential transitional loans and Multi-family transitional 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 (or 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”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) re-performing loans on which a borrower was previously delinquent but has resumed repaying (or RPLs) and NPLs. In addition, at December 31, 2022, we had $333.4 million in investments in Securities, at fair value, including Agency MBS, MSR-related assets, CRT securities and Non-Agency MBS. Our remaining investment-related assets, which represent approximately 3% of our total assets at December 31, 2022, were primarily comprised of REO, capital contributions made to loan origination partners, other interest-earning assets, and loan-related receivables. The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets. Changes in these factors, or uncertainty in the market regarding the potential for changes in these factors, can result in significant changes in the value and/or performance of our investment portfolio. Further, our GAAP results may be impacted by market volatility, resulting in changes in market values of certain financial instruments for which changes in fair value are recorded in net income each period, including certain residential whole loans, securitized debt and Swaps. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds, the behavior of which involves various risks and uncertainties. Interest rates and conditional prepayment rates (or CPRs) (which is an annualized measure of the amount of unscheduled principal prepayments on an asset as a percentage of the asset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our financial results are impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically. With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging 42 Table of Contents instruments, if any, to increase. Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to decrease; (ii) the value of certain of our residential mortgage assets and securitized debt, to increase; (iii) coupons on our adjustable-rate assets, on a delayed basis, to lower interest rates; (iv) prepayments on our assets to increase, thereby accelerating the amortization of purchase premiums and the accretion of our purchase discounts, and accelerating the redeployment of our capital to generally lower yielding investments; and (v) the value of our derivative hedging instruments, if any, to decrease. Further, changes in credit spreads will also impact the valuation of our residential whole loans and securitized debt, which could result in volatility in GAAP earnings. In addition, our borrowing costs and credit lines are further affected by the type of collateral we pledge and general conditions in the credit market. Our investments in residential mortgage assets expose us to credit risk, meaning that we are generally subject to credit losses due to the risk of delinquency, default and foreclosure on the underlying real estate collateral. Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. With respect to investments in Purchased Performing Loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss. Further, we believe the discounted purchase prices paid on Purchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that, as we expect on most such investments, we receive less than 100% of the par value of these investments. Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their aggregate principal balance. Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance. Accretable purchase discounts on these investments are accreted to interest income. Premiums paid to purchase loans, primarily on certain of our Non-QM loans, business purpose loans and Agency eligible investor loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity. An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets. CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR reflects the conditional prepayment rate, which measures voluntary prepayments of a loan, and the conditional default rate (or CDR) measures involuntary prepayments resulting from defaults. CPRs on our residential mortgage securities and whole loans may differ significantly. For the year ended December 31, 2022, the average CPRs on certain of our loan portfolios were: 16.3% for Non-QM loans, 10.9% for Single-family rental loans, 8.5% for Purchased Credit Deteriorated loans, and 7.1% for Purchased Non-Performing loans. It is generally our business strategy to hold our residential mortgage assets as long-term investments. On at least a quarterly basis, excluding investments for which the fair value option has been elected or for which specialized loan accounting is otherwise applied, we assess our ability and intent to continue to hold each asset and, as part of this process, we monitor our investments in securities that are designated as AFS for impairment. A change in our ability and/or intent to continue to hold any of these securities that are in an unrealized loss position, or a deterioration in the underlying characteristics of these securities, could result in our recognizing future impairment charges or a loss upon the sale of any such security. Our residential mortgage investments have longer-term contractual maturities than our non-securitization related financing liabilities, and the interest rates we pay on our non-securitization related financings will typically change at a faster pace than the interest rates we earn on our investments. In order to reduce this interest rate risk exposure, we may enter into derivative instruments, which currently include Swaps. 43 Table of Contents Recent Market Conditions and Our Strategy 2022 was extremely challenging for fixed income investors, and exceptionally so for mortgage investors, including us, and was characterized by higher interest rates across the yield curve as well as wider mortgage and credit spreads. We addressed these challenges by prioritizing liquidity and active portfolio management, including increasing our use of interest rate swaps to hedge exposure to higher interest rates and using loan securitizations to generate securitized debt to replace floating rate recourse mark-to-market financing with fixed rate non-recourse, non-mark-to-market financing. These securitizations provide longer term, non-recourse, non-mark-to-market financing. While continued interest rate volatility and generally wider spreads on securitized mortgage assets pressured mortgage loan pricing, we believe that our active portfolio and risk management measures partially mitigated the impact of the interest rate environment. Subsequent to year-end, we have completed an additional three securitizations thus far in 2023 totaling $668.2 million, further reducing our use of shorter-term, recourse, mark-to-market financing. 2022 Portfolio Activity and impact on financial results At December 31, 2022, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $8.0 billion compared to $8.3 billion at December 31, 2021. The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2022: (In Millions) December 31, 2021 Runoff (1) Acquisitions (2) Other (3) December 31, 2022 Change Residential whole loans and REO $ 8,069 $ (1,910) $ 3,126 $ (1,636) $ 7,649 $ (420) Securities, at fair value 257 (52) 156 (28) 333 76 Totals $ 8,326 $ (1,962) $ 3,282 $ (1,664) $ 7,982 $ (344) (1) Primarily includes principal repayments and sales of REO. (2) Includes draws on previously originated Transitional loans. (3) Primarily includes the impact of transactions that resulted in the sale of previously non-securitized Agency Eligible Investor loans and deconsolidation of Agency Eligible Investor loan securitizations, changes in fair value and changes in the allowance for credit losses. At December 31, 2022, our total recorded investment in residential whole loans and REO was $7.6 billion, or 95.8% of our residential mortgage asset portfolio. Of this amount, $6.3 billion are Purchased Performing Loans, $448.9 million are Purchased Credit Deteriorated Loans and $796.1 million are Purchased Non-performing Loans. Loan acquisition activity of $3.1 billion during 2022 include d $2.0 billion of b usiness purpose loans (including draws on Transitional loans) and $1.1 billion of Non-QM loans, which were offset by portfolio run-off and asset valuation declines . In addition, near the end of the fourth quarter, we reached an agreement to sell to a third party the majority of our holdings of Agency Eligible Investor loans that were not previously securitized and transferred to a different third party certain contractual redemption rights in connection with previously securitized Agency Eligible Investor loans, resulting in the de-consolidation of the securitization trusts that hold these loans. As a result of these transactions, our portfolio of Agency Eligible Investor loans decreased by approximately $780 million. Further, the debt issued to third parties by these securitizations is no longer reported on our balance sheet at December 31, 2022. During 2022, we recognized approximately $441.2 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 5.19%, with Purchased Performing Loans generating an effective yield of 4.56%, Purchased Credit Deteriorated Loans generating an effective yield of 6.69% and Purchased Non-performing Loans generating an effective yield of 10.03%. All of our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition. Included in earnings in Other income, net are net losses on these loans of $866.8 million for the year ended December 31, 2022. At December 31, 2022 and 2021, we had REO with an aggregate carrying value of $130.6 million and $156.2 million, respectively, which is included in Other assets on our consolidated balance sheets. At December 31, 2022, we held $333.4 million of Securities, at fair value, including $131.7 million of Agency MBS, $97.9 million of MSR-related assets, $79.2 million of CRT securities and $24.6 million of Non-Agency MBS securities recorded in connection with the deconsolidation of Agency Eligible Investor loan securitizations. The net yield on our Securities, at fair value was 14.67% for 2022, compared to 22.95% for 2021. The decrease in the net yield on our Securities, at fair value portfolio primarily reflects higher accretion income recognized in the prior year period due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and the redemption of a Non-Agency MBS that had been previously purchased at a discount. For the year ended December 31, 2022, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $2.6 million. The reversal of provision recorded in 2022 primarily reflects portfolio run-off, partially 44 Table of Contents offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in interest rates. The total allowance for credit losses recorded on residential whole loans held at carrying value at December 31, 2022 was $35.3 million. In addition, during the year we recorded an impairment charge in earnings of $28.6 million against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero. These investments, which were legally structured as preferred equity interests, are nonetheless accounted for by the Company as debt instruments, based on an evaluation of the Company’s rights and obligations under the terms of the agreements. During 2022, we completed nine securitizations with unpaid principal balance (or UPB) of loans sold of $2.7 billion. This included $1.5 billion of Non-QM loans, $707.3 million of Single-family rental loans, $336.1 million of re-performing loans and $251.5 million of Transitional loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. Subsequent to the fourth quarter, we have completed three additional securitizations totaling $668.2 million, further reducing our use of shorter-term recourse, mark-to-market financing. During 2022, interest rates increased and credit spreads widened further, impacting the values of the majority of our residential whole loan portfolios and associated financing liabilities and hedges, which resulted in significant mark-to-market losses in our GAAP financial results. We continue to closely follow the actions of the Federal Reserve and the pace at which it has and is expected to further increase interest rates and the impact such rate increases would be expected to have on levels of inflation, the overall economic environment and our business. Our GAAP book value per common share was $14.87 as of December 31, 2022. Book value per common share decreased from $19.12 as of December 31, 2021. Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $15.55 as of December 31, 2022, a decrease from $20.58 as of December 31, 2021. Decreases in GAAP and Economic book value during 2022 primarily reflect declines in the fair value of our Residential whole loan portfolios due to increased interest rates and widening spreads, partially offset by increases in the value of interest rate swaps and securitized debt. For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below. For more information regarding market factors which impact our portfolio, see Part I, Item 1A. “Risk Factors” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K. Information About Our Assets The table below presents certain information about our asset allocation at December 31, 2022: ASSET ALLOCATION (Dollars in Millions) Purchased Performing Loans (1) Purchased Credit Deteriorated Loans (2) Purchased Non-Performing Loans Securities, at fair value Real Estate Owned Other, net (3) Total Fair Value/Carrying Value $ 6,274 $ 449 $ 796 $ 333 $ 131 $ 675 $ 8,658 Receivable/(Payable) for Unsettled Transactions 276 — — (132) — — 144 Financing Agreements with Non-mark-to-market Collateral Provisions (862) (37) (96) — (9) — (1,004) Financing Agreements with Mark-to-market Collateral Provisions (1,893) (89) (113) (112) (16) — (2,223) Securitized Debt (2,758) (249) (334) — (17) — (3,358) Convertible Senior Notes — — — — — (228) (228) Net Equity Allocated $ 1,037 $ 74 $ 253 $ 89 $ 89 $ 447 $ 1,989 Debt/Net Equity Ratio (4) 5.3 x 5.1 x 2.1 x 2.7 x 0.5 x 3.5 x (1) Includes $3.4 billion of Non-QM loans, $1.4 billion of Transitional loans, $1.4 billion of Single-family rental loans, $82.9 million of Seasoned performing loans, and $51.1 million of Agency eligible investor loans. At December 31, 2022, the total fair value of these loans is estimated to be approximately $6.2 billion. (2) At December 31, 2022, the total fair value of these loans is estimated to be approximately $468.8 million. (3) Includes $334.2 million of cash and cash equivalents, $159.9 million of restricted cash, and $28.3 million of capital contributions made to loan origination partners, as well as other assets and other liabilities. (4) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements and payable for unsettled transactions noted above as a multiple of net equity allocated. 45 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2022. Amounts presented do not reflect estimates of prepayments or scheduled amortization. (In Thousands) Purchased Performing Loans (1) Purchased Credit Deteriorated Loans (2) Purchased Non-Performing Loans Amount due: Within one year $ 717,134 $ 986 $ 2,780 After one year: Over one to five years 762,676 2,939 3,745 Over five years 4,807,840 466,369 789,584 Total due after one year $ 5,570,516 $ 469,308 $ 793,329 Total residential whole loans $ 6,287,650 $ 470,294 $ 796,109 (1) Excludes an allowance for credit losses of $13.9 million at December 31, 2022. (2) Excludes an allowance for credit losses of $21.4 million at December 31, 2022. The following table presents, at December 31, 2022, the dollar amount of certain of our residential whole loans, contractually maturing after one year, and indicates whether the loans have fixed interest rates or adjustable interest rates: (In Thousands) Purchased Performing Loans (1) Purchased Credit Deteriorated Loans (2) Purchased Non-Performing Loans Interest rates: Fixed $ 4,302,316 $ 397,939 $ 642,840 Adjustable 1,268,200 71,369 150,489 Total $ 5,570,516 $ 469,308 $ 793,329 (1) Excludes an allowance for credit losses of $13.9 million at December 31, 2022. (2) Excludes an allowance for credit losses of $21.4 million at December 31, 2022. For additional information regarding our residential whole loan portfolios, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 46 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2022 and December 31, 2021: (Dollars in Thousands) December 31, 2022 December 31, 2021 MSR-Related Assets Face/Par $ 105,000 $ 154,350 Fair Value 97,898 153,771 Amortized Cost 86,399 121,376 Weighted average yield (1) 14.30 % 10.30 % Weighted average time to maturity 0.8 years 1.7 years CRT Securities Face/Par $ 80,791 $ 99,999 Fair Value 79,214 102,914 Amortized Cost 70,438 86,643 Weighted average yield (1) 9.96 % 10.52 % Weighted average time to maturity 19.0 Years 18.5 years Non-Agency MBS Face/Par 29,858 $ — Fair Value 24,552 — Amortized Cost 24,552 — Weighted average yield (2) N/A — % Weighted average time to maturity 28.8 Years — Agency MBS Face/Par $ 131,165 $ — Fair Value 131,700 — Amortized Cost 132,025 — Weighted average yield (2) N/A — % Weighted average time to maturity 30.0 Years — (1) Weighted average yield is annualized interest income divided by average amortized cost. (2) These securities were acquired at the end of the reporting period and, therefore, no interest income was recorded with respect to these securities in 2022. Tax Considerations Current period estimated taxable income We estimate that for 2022, our REIT taxable income was approximately $28.3 million. Key differences between GAAP net income and REIT Taxable Income Residential Whole Loans and Securities The determination of taxable income attributable to residential whole loans and securities is dependent on a number of factors, including principal payments, defaults, loss mitigation efforts and loss severities. In estimating taxable income for such investments during the year, management considers estimates of the amount of discount expected to be accreted. Such estimates require significant judgment and actual results may differ from these estimates. Potential timing differences can arise with respect to the accretion of discount and amortization of premium into income as well as the recognition of gain or loss for tax purposes as compared to GAAP. For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over 47 Table of Contents by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of interest rate swaps by us generally are amortized over the remaining term of the swap. Securitization Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections. For GAAP purposes, our securitizations have been treated as on-balance sheet financing transactions. For tax purposes, they have been characterized as both financing and sale transactions. Where a securitization has been characterized as a sale, gain or loss is recognized for tax purposes. In addition, we own or may in the future acquire interests in securitization and/or re-securitization trusts, in which several of the classes of securities are or will be issued with original issue discount (or OID). As the holder of the retained interests in the trust, for tax purposes we generally will be required to include OID in our current gross interest income over the term of the applicable securities as the OID accrues. The rate at which the OID is recognized into taxable income is calculated using a constant rate of yield to maturity, with realized losses impacting the amount of OID recognized in REIT taxable income once they are actually incurred. REIT taxable income may be recognized in excess of economic income (i.e., OID) or in advance of the corresponding cash flow from these assets, thereby affecting our dividend distribution requirement to stockholders. For securitization and/or re-securitization transactions that were treated as a sale of the underlying collateral for tax purposes, the unwinding of any such transaction will likely result in taxable income or loss. Given that securitization and re-securitization transactions are typically accounted for as financing transactions for GAAP purposes, such income or loss is not likely to be recognized for GAAP. As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2022, our net TRS taxable loss will be $171.5 million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes. Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. 48 Table of Contents Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion related to our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2021, which was filed with the SEC on February 23, 2022, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com. Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 The following table summarizes the changes in our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. 49 Table of Contents Year Ended (In Thousands) December 31, 2022 December 31, 2021 YoY Change Interest Income: Residential whole loans $ 441,223 $ 303,468 $ 137,755 Securities, at fair value 28,921 56,690 (27,769) Other interest-earning assets 7,437 1,800 5,637 Cash and cash equivalent investments 4,838 344 4,494 Interest Income $ 482,419 $ 362,302 $ 120,117 Interest Expense: Asset-backed and other collateralized financing arrangements $ 243,083 $ 104,597 $ 138,486 Other interest expense 15,760 15,788 (28) Interest Expense $ 258,843 $ 120,385 $ 138,458 Net Interest Income $ 223,576 $ 241,917 $ (18,341) Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans $ 2,646 $ 44,863 $ (42,217) Provision for Credit Losses on Other Assets (28,579) — (28,579) Net Interest Income after (Provision)/Reversal of Provision for Credit Losses $ 197,643 $ 286,780 $ (89,137) Other (Loss)/Income, net: Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243 $ (883,005) Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496 (99,563) Net gain on real estate owned 25,379 22,838 2,541 Net gain/(loss) on derivatives used for risk management purposes 255,179 1,426 253,753 Net gain/(loss) on securitized debt measured at fair value through earnings 290,639 15,027 275,612 Lima One - origination, servicing and other fee income 46,745 22,600 24,145 Other, net $ 9,297 $ 12,473 $ (3,176) Other (Loss)/Income, net $ (264,590) $ 165,103 $ (429,693) Operating and Other Expense: Compensation and benefits $ 76,728 $ 53,817 $ 22,911 Other general and administrative expense 35,812 31,729 4,083 Loan servicing, financing and other related costs 42,894 30,867 12,027 Amortization of intangible assets 9,200 6,600 2,600 Operating and Other Expense $ 164,634 $ 123,013 $ 41,621 Net (Loss)/Income $ (231,581) $ 328,870 $ (560,451) Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ — Net (Loss)/Income Available to Common Stock and Participating Securities $ (264,456) $ 295,995 $ (560,451) Basic (Loss)/Earnings per Common Share $ (2.57) $ 2.66 $ (5.23) Diluted (Loss)/Earnings per Common Share $ (2.57) $ 2.63 $ (5.20) General For 2022, we had a net loss available to our common stock and participating securities of ($264.5) million, or ($2.57) per basic and diluted common share, compared to net income available to common stock and participating securities for 2021 of $296.0 million, or $2.66 per basic common share and $2.63 per diluted common share. This decrease in net income available to common stock and participating securities primarily reflects lower Other income, which declined by $429.7 million to a net loss of $264.6 million for the current year period, compared to net income of $165.1 million in the prior year period. The decrease was primarily driven by mark-to-market losses in the current year period on our residential whole loans that are measured at fair value through earnings, partially offset by net gains on securitized debt measured at fair value through earnings as well as on derivatives used for risk management purposes. These net losses on portfolio investments were also partially offset by higher 50 Table of Contents Origination, Servicing and Other Fee income at Lima One and net REO related gains. In addition, Other income also includes losses of $25.1 million, primarily related to mark-to-market adjustments on an equity investment in a loan origination partner, while the prior year period includes $38.9 million of gains recorded in connection with Lima One purchase accounting and a gain of $34.0 million from the reversal of prior period impairments. The prior year period also included a $42.2 million larger net reversal of the Provision for Credit Losses on Residential Whole Loans held at carrying value. The reversals recorded in both the current and prior periods primarily reflect run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts. However, the current period reversal is lower than the prior year period as the impact of lower loan balances was partially offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in market interest rates. The larger prior year reversal reflects a greater impact of adjustments to macro-economic assumptions consistent with revised economic forecasts as the U.S economy continued to recover from the impact of the COVID-19 pandemic. In addition, in the current year period we recorded a Provision for Credit Losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero. Finally, Operating and other expenses were $41.6 million higher during the year ended December 31, 2022, compared to the prior year period, as they primarily reflect operating expenses of Lima One, higher securitization related expenses as well as higher amortization of Intangible Assets associated with the Lima One acquisition. We completed the acquisition of Lima One on July 1, 2021, and accordingly began consolidating Lima One’s financial results beginning on that date. Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds on our investments. Interest rates and CPRs (which measure the amount of unscheduled principal prepayment on a bond or loan as a percentage of its unpaid balance) vary according to the type of investment, conditions in the financial markets and other factors, none of which can be predicted with any certainty. The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2022, our net interest spread and margin (including the impact of swaps) were 1.74% and 2.52%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.79% and 3.57%, respectively, for 2021. Our net interest income decreased by $18.3 million, or 7.6%, to $223.6 million from $241.9 million for 2021. For 2022, net interest income includes lower net interest income for our Securities, at fair value portfolio of approximately $29.4 million compared to 2021, primarily due to higher accretion income recognized in the prior year period due to the impact of the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020 and the redemption of a Non-Agency MBS that had been previously purchased at a discount and the lower average amount invested in these assets. Net interest income also includes higher net interest income from our residential whole loan portfolio of approximately $1.3 million compared to 2021, primarily due to higher amounts invested in these assets partially offset by an increase in our average collateralized financing agreement borrowings and lower yields earned on these assets. Further, we earned an additional $10.1 million from our investments in other interest earning assets and cash during 2022 as compared to the prior year period. 51 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2022 and 2021 . Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the daily average balance of the related liabilities, for the periods shown. The yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates. For the Year Ended December 31, 2022 2021 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 8,506,728 $ 441,223 5.19 % $ 5,767,655 $ 303,468 5.26 % Securities, at fair value (2)(3) 197,188 28,921 14.67 246,978 56,690 22.95 Cash and cash equivalents (4) 507,798 4,838 0.95 715,529 344 0.05 Other interest-earning assets 63,254 7,437 11.76 20,100 1,800 8.96 Total interest-earning assets 9,274,968 482,419 5.20 6,750,262 362,302 5.37 Liabilities: Interest-bearing liabilities: Collateralized financing agreements (5) $ 3,511,565 $ 139,585 3.98 % $ 2,565,064 $ 67,766 2.64 % Securitized debt (6) 3,456,319 103,498 2.99 1,902,913 36,831 1.94 Convertible Senior Notes 227,097 15,760 6.94 225,768 15,668 6.94 Senior Notes — — — 1,096 120 8.31 Total interest-bearing liabilities 7,194,981 258,843 3.60 4,694,841 120,385 2.56 Net interest income/net interest rate spread (7) 223,576 1.60 241,917 2.81 Impact of net swap carry (8) 10,042 0.14 (669) (0.02) Net interest rate spread (including the impact of Swaps) $ 233,618 1.74 % $ 241,248 2.79 % Net interest-earning assets/net interest margin (9) $ 2,079,987 2.52 % $ 2,055,421 3.57 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses. For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date. (2) The net yield of 14.67% includes $7.8 million of accretion income recognized in 2022 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020. Excluding this accretion, the yield reported would have been 10.73%. (3) The net yield of 22.95% includes $20.5 million of accretion income recognized in 2021, due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020; and $8.1 million of accretion recognized during 2021 on the redemption of a Non-Agency MBS security that was purchased at a discount. Excluding this accretion, the yield reported would have been 11.38%. (4) Includes average interest-earning cash, cash equivalents and restricted cash. (5) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K. (6) Includes both Securitized debt, at carrying value and Securitized debt, at fair value. (7) Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds. (8) Reflects the impact of positive or negative swap carry. Positive swap carry results when income from the receive leg of a swap is greater than the expense on the pay leg. Negative swap carry results when income from the receive leg is less than the expense on the pay leg. (9) Net interest margin reflects net interest income (including net swap expense) divided by average interest-earning assets. 52 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) the changes attributable to changes in volume (changes in average balance multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior average balance); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately, based on absolute values, to the changes due to rate and volume. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Increase/(Decrease) due to Total Net Change in Interest Income/Expense (In Thousands) Volume Rate Interest-earning assets: Residential whole loans $ 141,854 $ (4,099) $ 137,755 Securities, at fair value (9,954) (17,815) (27,769) Cash and cash equivalents (133) 4,627 4,494 Other interest-earning assets 4,921 716 5,637 Total net change in income of interest-earning assets $ 136,688 $ (16,571) $ 120,117 Interest-bearing liabilities: Residential whole loan financing agreements $ 32,384 $ 37,243 $ 69,627 Securities, at fair value repurchase agreements (766) 2,407 1,641 REO financing agreements 185 366 551 Securitized debt 40,088 26,579 66,667 Convertible Senior Notes and Senior Notes (28) — (28) Total net change in expense of interest-bearing liabilities $ 71,863 $ 66,595 $ 138,458 Net change in net interest income $ 64,825 $ (83,166) $ (18,341) The following table presents certain quarterly information regarding our net interest spread and net interest margin for the quarterly periods presented: Total Interest-Earning Assets and Interest- Bearing Liabilities Quarter Ended Net Interest Spread (1) Net Interest Margin (2) December 31, 2022 2.21 % 3.04 % September 30, 2022 1.64 2.43 June 30, 2022 1.37 2.13 March 31, 2022 1.96 2.63 December 31, 2021 2.93 3.56 September 30, 2021 2.98 3.70 June 30, 2021 3.02 3.86 March 31, 2021 2.31 3.29 (1) Reflects the difference between the yield on average interest-earning assets and average cost of funds (including net swap expense). (2) Reflects annualized net interest income (including net swap expense) divided by average interest-earning assets. 53 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 Purchased Performing Loans Net Yield (1) 5.04 % 4.75 % 4.20 % 4.18 % 4.12 % 4.56 % 4.45 % 4.41 % Cost of Funding (2) 3.70 % 3.60 % 3.28 % 2.74 % 2.24 % 2.14 % 2.09 % 2.46 % Net Interest Spread 1.34 % 1.15 % 0.92 % 1.44 % 1.88 % 2.42 % 2.36 % 1.95 % Purchased Credit Deteriorated Loans Net Yield (1) 6.59 % 6.49 % 6.85 % 6.79 % 7.15 % 7.08 % 7.17 % 5.00 % Cost of Funding (2) 2.13 % 2.72 % 3.17 % 2.88 % 2.32 % 2.18 % 2.39 % 2.86 % Net Interest Spread 4.46 % 3.77 % 3.68 % 3.91 % 4.83 % 4.90 % 4.78 % 2.14 % Purchased Non-Performing Loans Net Yield (1) 11.15 % 9.84 % 9.40 % 9.82 % 9.83 % 8.81 % 7.98 % 7.13 % Cost of Funding (2) 3.01 % 2.86 % 3.34 % 3.09 % 2.53 % 2.43 % 2.71 % 3.41 % Net Interest Spread 8.14 % 6.98 % 6.06 % 6.73 % 7.30 % 6.38 % 5.27 % 3.72 % Total Residential Whole Loans Net Yield (1) 5.62 % 5.30 % 4.85 % 4.94 % 5.08 % 5.52 % 5.48 % 5.03 % Cost of Funding (2) 3.56 % 3.49 % 3.28 % 2.79 % 2.28 % 2.20 % 2.25 % 2.70 % Net Interest Spread 2.06 % 1.81 % 1.57 % 2.15 % 2.80 % 3.32 % 3.23 % 2.33 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans. Excludes servicing costs. (2) Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above for the quarterly periods ended December 31, 2022, September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021 include the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps, and accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended December 31, 2022, this decreased the overall funding cost by 89 basis points for our Residential whole loans, 87 basis points for our Purchased Performing Loans, 141 basis points for our Purchased Credit Deteriorated Loans, and 76 basis points for our Purchased Non-Performing Loans. For the quarter ended September 30, 2022, this decreased the overall funding cost by 20 basis points for our Residential whole loans, 19 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 24 basis points for our Purchased Non-Performing Loans. For the quarter ended June 30, 2022, this increased the overall funding cost by 25 basis points for our Residential whole loans, 23 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 29 basis points for our Purchased Non-Performing Loans. For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our Purchased Non-Performing Loans. For the quarter ended December 31, 2021, this increased the overall funding cost by 5 basis points for our Residential whole loans, 5 basis points for our Purchased Performing Loans, 9 basis points for our Purchased Credit Deteriorated Loans, and 2 basis points for our Purchased Non-Performing Loans. 54 Table of Contents The following table presents the components of the net interest spread earned on our residential mortgage securities and MSR-related assets for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1)(2) Cost of Funding (3) Net Interest Rate Spread December 31, 2022 30.33 % 5.47 % 24.86 % September 30, 2022 11.06 3.94 7.12 June 30, 2022 10.09 2.54 7.55 March 31, 2022 10.13 1.72 8.41 December 31, 2021 26.28 1.50 24.78 September 30, 2021 18.78 1.61 17.17 June 30, 2021 24.57 1.81 22.76 March 31, 2021 22.25 2.02 20.23 (1) Reflects annualized interest income divided by average amortized cost. Impairment charges recorded on MSR-related assets resulted in a lower amortized cost basis which impacted the calculation of net yields in subsequent periods. (2) For the quarter ended December 31, 2022, the net yield of 30.33% includes $7.8 million of accretion income recognized in 2022 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020. Excluding this accretion, the yield reported would have been 11.87%. For the quarter ended December 31, 2021, the net yield of 26.28% includes $8.1 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge during the first quarter of 2020. Excluding this accretion, the yield reported would have been 11.37%. For the quarter ended September 30, 2021, the net yield of 18.78% includes $4.0 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge during the first quarter of 2020. Excluding this accretion, the yield reported would have been 11.63%. For the quarter ended June 30, 2021, the net yield of 24.57% includes $8.4 million of accretion income recognized on the redemption at par of an MSR-related asset that had been held at amortized cost basis below par due to an impairment charge recorded in the first quarter of 2020. Excluding this accretion, the yield reported would have been 11.13%. For the quarter ended March 31, 2021, the net yield of 22.25% includes $8.1 million of accretion income recognized on the redemption of an RPL/NPL MBS security that was previously purchased at a discount. Excluding this accretion, the yield reported would have been 11.26%. (3) Reflects annualized interest expense divided by average balance of repurchase agreements. Interest Income Interest income on our residential whole loans increased by $137.8 million, or 45.4%, for 2022, to $441.2 million compared to $303.5 million for 2021. This increase primarily reflects a $2.7 billion increase in the average balance of this portfolio to $8.5 billion for 2022 from $5.8 billion for 2021, partially offset by an decrease in the yield to 5.19% for 2022 from 5.26% for 2021. Interest income on our securities portfolio decreased $27.8 million to $28.9 million for 2022 from $56.7 million for 2021. This decrease primarily reflects a decrease in the net yield to 14.67% for 2022, compared to 22.95% for 2021 and a decrease in the average amortized cost of the portfolio of $49.8 million. The decrease in the net yield on our securities portfolio primarily reflects higher accretion income recognized in 2021 due to the redemption of MSR-related assets that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020; and the redemption of a Non-Agency MBS that had been previously purchased at a discount. Interest Expense Our interest expense for 2022 increased by $138.5 million, or 115.0%, to $258.8 million, from $120.4 million for 2021. This increase primarily reflects an increase in our average collateralized financing agreement borrowings to finance our residential mortgage asset portfolio and an increase in financing rates on our financing agreements. Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2022, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $2.6 million compared to a reversal of provision of $44.9 million for 2021. The reversals recorded in both the current and prior 55 Table of Contents periods primarily reflect run-off of loans held at carrying value and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts. The current period reversal reflects lower loan balances, partially offset by adjustments to lower future estimates of prepayment speeds given recent and expected future increases in market interest rates. The larger prior year reversal reflects a greater impact of adjustments to macro-economic assumptions consistent with revised economic forecasts as the U.S economy continued to recover from the impact of the COVID-19 pandemic. With respect to our residential whole loans held at carrying value, CECL requires that reserves for credit losses are estimated at the reporting date based on expected cash flows over the life of the loan or financial instrument, including anticipated prepayments and reasonable and supportable forecasts of future economic conditions. Provision for Credit Losses on Other Assets For 2022, we recorded a provision for credit losses on Other Assets of $28.6 million reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net carrying value of this investment to zero. Other (Loss)/Income, net For 2022, Other Loss, net was $264.6 million compared to Other Income, net of $165.1 million for 2021. The components of Other (Loss)/Income, net for 2022 and 2021 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2022 2021 Net (loss)/gain on residential whole loans measured at fair value through earnings $ (866,762) $ 16,243 Impairment and other net (loss)/gain on securities and other portfolio investments (25,067) 74,496 Net gain on real estate owned 25,379 22,838 Net gain/(loss) on derivatives used for risk management purposes 255,179 1,426 Net gain/(loss) on securitized debt measured at fair value through earnings 290,639 15,027 Lima One - origination, servicing and other fee income 46,745 22,600 Other, net 9,297 12,473 Other (Loss)/Income, net $ (264,590) $ 165,103 Operating and Other Expense During 2022, we had compensation and benefits and other general and administrative expenses of $112.5 million, compared to $85.5 million for 2021. Compensation and benefits expense increased $22.9 million to $76.7 million for 2022, compared to $53.8 million for 2021 primarily reflecting the impact of including Lima One compensation expense in our financial results, higher salary expense and an increase in long-term incentive compensation partially offset by a reduction in annual bonus compensation for the current period. Our other general and administrative expenses increased by $4.1 million to $35.8 million for 2022 compared to $31.7 million for 2021, primarily reflecting the impact of including Lima One expenses in our financial results, increased information technology costs, higher professional services costs, and higher office lease costs associated with our corporate headquarters, partially offset by lower costs associated with deferred compensation to Directors in the current year period, which were impacted by changes in our stock price. The prior period also included higher expense for corporate income taxes related to activity in our taxable REIT subsidiaries and costs associated with terminating certain financing facilities that were replaced with securitization financing, which did not re-occur this period. Operating and Other Expense during 2022 also includes $42.9 million of loan servicing and other related operating expenses related to our residential whole loan activities. These expenses increased compared to 2021 by approximately $12.0 million, or 39.0%, primarily due to higher expenses recognized related to loan securitization activities and higher diligence and other costs associated with acquiring loans, partially offset by lower servicing fees and non-recoverable advances on our REO and Purchased Credit Deteriorated loans. In addition, Other expenses for 2022 and 2021 also includes $9.2 million and $6.6 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition. 56 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2022 (0.02) % 1.32 % — 21.59 % 3.5 1.8 September 30, 2022 (0.66) (2.57) — 22.53 3.6 1.7 June 30, 2022 (1.14) (4.35) — 24.33 3.3 1.8 March 31, 2022 (0.97) (3.33) — 26.63 3.1 1.9 December 31, 2021 1.67 6.84 1.38 30.00 2.5 1.5 September 30, 2021 6.64 20.48 0.36 34.55 2.2 1.4 June 30, 2021 3.46 10.57 0.77 37.28 1.8 1.0 March 31, 2021 4.55 13.54 0.44 37.21 1.6 1.0 (1) Reflects annualized net income available to common stock and participating securities divided by average total assets. For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income available to common stock and participating securities divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity. For the quarters ended December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by earnings per share. The ratio has not been calculated for periods where earnings per share is negative as the calculations are not meaningful. (4) Reflects total average stockholders’ equity divided by total average assets. (5) Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity. (6) Represents the sum of our borrowings under financing agreements (excluding securitized debt) and payable for unsettled purchases divided by stockholders’ equity. Reconciliation of GAAP and Non-GAAP Financial Measures Reconciliation of GAAP Net Income to non-GAAP Distributable Earnings “Distributable earnings” is a non-GAAP financial measure of our operating performance, within the meaning of Regulation G and Item 10(e) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Distributable earnings is determined by adjusting GAAP net income/(loss) by removing certain unrealized gains and losses, primarily on residential mortgage investments, associated debt, and hedges that are, in each case, accounted for at fair value through earnings, certain realized gains and losses, as well as certain non-cash expenses and securitization-related transaction costs. Management believes that the adjustments made to GAAP earnings result in the removal of (i) income or expenses that are not reflective of the longer term performance of our investment portfolio, (ii) certain non-cash expenses, and (iii) expense items required to be recognized solely due to the election of the fair value option on certain related residential mortgage assets and associated liabilities. Distributable earnings is one of the factors that our Board of Directors considers when evaluating distributions to our shareholders. Accordingly, we believe that the adjustments to compute Distributable earnings specified below provide investors and analysts with additional information to evaluate our financial results. Distributable earnings should be used in conjunction with results presented in accordance with GAAP. Distributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 57 Table of Contents The following table provides a reconciliation of our GAAP net (loss)/income used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 GAAP Net income/(loss) used in the calculation of basic EPS $ (1,647) $ (63,410) $ (108,760) $ (91,266) $ 35,734 $ 123,858 $ 58,290 $ 77,029 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 68,828 291,818 218,181 287,935 42,564 (20,494) (6,226) (32,088) Securities held at fair value 383 (1,549) 1,459 2,934 364 (494) (1,374) (100) Interest rate swaps 12,725 (108,917) (31,767) (80,753) (71) — — — Securitized debt held at fair value (44,988) (100,767) (84,348) (62,855) (6,137) (857) 232 (7,629) Investments in loan origination partners 8,526 2,031 39,162 780 (23,956) (48,933) — — Expense items: Amortization of intangible assets 1,300 1,300 3,300 3,300 3,300 3,300 — — Equity based compensation 2,480 2,673 3,540 2,645 2,306 2,306 2,744 1,688 Securitization-related transaction costs 1,744 5,014 6,399 3,233 5,178 — — 2 Total adjustments 50,998 91,603 155,926 157,219 23,548 (65,172) (4,624) (38,127) Distributable earnings $ 49,351 $ 28,193 $ 47,166 $ 65,953 $ 59,282 $ 58,686 $ 53,666 $ 38,902 GAAP (loss)/earnings per basic common share $ (0.02) $ (0.62) $ (1.06) $ (0.86) $ 0.33 $ 1.12 $ 0.53 $ 0.68 Distributable earnings per basic common share $ 0.48 $ 0.28 $ 0.46 $ 0.62 $ 0.54 $ 0.53 $ 0.49 $ 0.34 Weighted average common shares for basic earnings per share 101,800 101,795 102,515 106,568 109,468 110,222 110,383 112,784 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2022 2.10 % 11.34 % 0.73 September 30, 2022 1.19 6.79 1.57 June 30, 2022 1.99 9.60 0.96 March 31, 2022 2.82 11.90 0.71 December 31, 2021 2.76 10.46 0.81 September 30, 2021 3.13 10.34 0.75 June 30, 2021 3.17 9.80 0.82 March 31, 2021 2.29 7.46 0.88 (1) Reflects annualized Distributable earnings divided by average total assets. (2) Reflects annualized Distributable earnings before preferred dividends divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by Distributable earnings per share. 58 Table of Contents Segment Reporting (using Distributable earnings) The following tables present our non-GAAP Distributable earnings by segment for the periods below: (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year ended December 31, 2022 GAAP Net loss used in the calculation of basic EPS $ (88,913) $ (9,665) $ (166,505) $ (265,083) Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 730,028 136,734 — 866,762 Securities held at fair value 3,227 — — 3,227 Interest rate swaps (174,424) (34,288) — (208,712) Securitized debt held at fair value (232,194) (60,764) — (292,958) Investments in loan origination partners — — 50,499 50,499 Expense items: Amortization of intangible assets — 9,200 — 9,200 Equity based compensation — 164 11,174 11,338 Securitization-related transaction costs — — 16,390 16,390 Total adjustments $ 326,637 $ 51,046 $ 78,063 $ 455,746 Distributable earnings $ 237,724 $ 41,381 $ (88,442) $ 190,663 (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year ended December 31, 2021 GAAP Net income/(loss) used in the calculation of basic EPS $ 306,147 $ 20,434 $ (31,630) $ 294,951 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 2,718 (18,962) — (16,244) Securities held at fair value (1,604) — — (1,604) Interest rate swaps (51) (20) — (71) Securitized debt held at fair value (13,958) (433) — (14,391) Investments in loan origination partners — — (72,889) (72,889) Expense items: Amortization of intangible assets — 6,600 — 6,600 Equity based compensation — 71 8,973 9,044 Securitization-related transaction costs — — 5,180 5,180 Total adjustments $ (12,895) $ (12,744) $ (58,736) $ (84,375) Distributable earnings $ 293,252 $ 7,690 $ (90,366) $ 210,576 59 Table of Contents Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share “Economic book value” is a non-GAAP financial measure of our financial position. To calculate our Economic book value, our portfolios of Residential whole loans and securitized debt held at carrying value are adjusted to their fair value, rather than the carrying value that is required to be reported under the GAAP accounting model applied to these financial instruments. These adjustments are also reflected in the table below in our end of period stockholders’ equity. Management considers that Economic book value provides investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for all of our investment activities, irrespective of the accounting model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for Stockholders’ Equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 GAAP Total Stockholders’ Equity $ 1,988.8 $ 2,033.9 $ 2,146.4 $ 2,349.0 $ 2,542.8 $ 2,601.1 $ 2,526.5 $ 2,542.3 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,513.8 1,558.9 1,671.4 1,874.0 2,067.8 2,126.1 2,051.5 2,067.3 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (70.2) (58.2) 9.5 54.0 153.5 198.8 206.2 203.0 Fair value adjustment to Securitized debt, at carrying value (1) 139.7 109.6 75.4 47.7 4.3 (8.0) (8.9) (3.6) Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) (1) $ 1,583.3 $ 1,610.3 $ 1,756.3 $ 1,975.7 $ 2,225.6 $ 2,316.9 $ 2,248.8 $ 2,266.7 GAAP book value per common share $ 14.87 $ 15.31 $ 16.42 $ 17.84 $ 19.12 $ 19.29 $ 18.62 $ 18.54 Economic book value per common share (1) $ 15.55 $ 15.82 $ 17.25 $ 18.81 $ 20.58 $ 21.02 $ 20.41 $ 20.32 Number of shares of common stock outstanding 101.8 101.8 101.8 105.0 108.1 110.2 110.2 111.5 (1) Economic book value per common share for periods prior to December 31, 2021 have been restated to include the impact of fair value changes in securitized debt held at carrying value. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries. The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements, giving due consideration to materiality. Actual results could differ from these estimates. Our accounting policies are described in Note 2 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. Management believes the policies which more significantly rely on estimates and judgments to be as follows: 60 Table of Contents Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy. The following describes the valuation methodologies used for our financial instrument investments categorized as level 3 in the valuation hierarchy, which require the most significant estimates and judgments to be made. We determine the fair value of our residential whole loans 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. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield. The estimation of cash flows used in pricing models is inherently subjective and imprecise. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value. See “Quantitative and Qualitative Disclosures about Market Risk” for further information about the sensitivity of our investment portfolio to changes in market factors, particularly market interest rates. See Note 13 to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K for information regarding the assumptions used in valuing our residential whole loans. Residential whole loans, at fair value are recorded on our consolidated balance sheets at fair value and changes in their fair value are recorded through earnings. We held $5.7 billion and $5.3 billion of residential whole loans, at fair value, at December 31, 2022 and 2021, respectively, which represented 62.9% and 58.0% of our total assets at those dates, respectively. Residential whole loans, at fair value recorded valuation changes of ($866.8) million, $16.2 million and $16.4 million during the years ended December 31, 2022, 2021, and 2020, respectively. With respect to Residential whole loans, at carrying value, the fair value for these loans is disclosed in the footnotes to the consolidated financial statements and changes in their fair value do not impact earnings. We held $1.8 billion and $2.6 billion of residential whole loans, at carrying value, at December 31, 2022 and 2021, respectively, which represented 19.7% and 28.5% of our total assets at those dates, respectively. Residential whole loans, at carrying value experienced net fair value changes of ($223.7) million, ($20.4) million and ($8.5) million during the years ended December 31, 2022, 2021, and 2020, respectively. Allowance for Credit Losses on Residential Whole Loans An allowance for credit losses is recorded at acquisition, and maintained on an ongoing basis, for all losses expected over the life of the respective loan. Any required credit loss allowance would reduce the net carrying value of the loan with a corresponding charge to earnings, and may increase or decrease over time. Significant judgments are required in determining any allowance for credit loss, including assumptions regarding the loan cash flows expected to be collected, including related economic forecasts, the value of the underlying collateral and our ability to collect on any other forms of security, such as a personal guaranty provided either by the borrower or an affiliate of the borrower. Allowances for credit losses on our residential whole loans, at carrying value recorded at December 31, 2022, 2021, and 2020 were $35.3 million, $39.4 million and $86.8 million, respectively. For further discussion of the allowance for credit losses during these periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Provision for Credit Losses on Residential Whole Loans Held at Carrying Value.” Recent Accounting Standards to Be Adopted in Future Periods We are not aware of any recent accounting standards to be adopted in future periods that we expect would materially impact us. 61 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash generally consist of borrowings under repurchase agreements and other collateralized financings, payments of principal and interest we receive on our investment portfolio, cash generated from our operating results and, to the extent such transactions are entered into, proceeds from capital market and structured financing transactions. Our most significant uses of cash are generally to pay principal and interest on our financing transactions, to purchase and originate residential mortgage assets, to make dividend payments on our capital stock, to fund our operations, to meet margin calls and to make other investments that we consider appropriate. We seek to employ a diverse capital raising strategy under which we may issue capital stock and other types of securities. To the extent we raise additional funds through capital market transactions, we currently anticipate using the net proceeds from such transactions to acquire additional residential mortgage-related assets, consistent with our investment policy, and for working capital, which may include, among other things, the repayment of our financing transactions. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2022, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement. During 2022, we issued 80,027 shares of common stock through our DRSPP, raising net proceeds of approximately $1.2 million. During 2022, we repurchased 6,476,746 shares of our common stock through the stock repurchase program at an average cost of $15.80 per share and a total cost of approximately $102.1 million, net of fees and commissions paid to the sales agents of approximately $161,000. As of December 31, 2022, we were permitted to purchase an additional $202.5 million of our common stock under the stock repurchase program. In February 2023, our Board authorized a repurchase program for our 6.25% Convertible Senior Notes due 2024 (or the Convertible Senior Notes) under which we may repurchase up to $100 million of our Convertible Senior Notes. The convertible notes repurchase program does not require the purchase of any minimum amount of Convertible Senior Notes. The timing and extent to which we repurchase our Convertible Senior Notes will depend upon, among other things, market conditions, share price, liquidity, regulatory requirements and other factors, and repurchases may be commenced or suspended at any time without prior notice. Financing agreements Our borrowings under financing agreements include a combination of shorter term and longer arrangements. Certain of these arrangements are collateralized directly by our residential mortgage investments or otherwise have recourse to us, while securitized debt financing is non-recourse financing. Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing. As of December 31, 2022, we had $2.2 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $4.6 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions. Repurchase agreements and other forms of collateralized financing are uncommitted and renewable at the discretion of our lenders and, as such, our lenders could determine to reduce or terminate our access to future borrowings at virtually any time. The terms of the repurchase transaction borrowings under our master repurchase agreements, as such terms relate to repayment, margin requirements and the segregation of all securities that are the subject of repurchase transactions, generally conform to the terms contained in the standard master repurchase agreement published by the Securities Industry and Financial Markets Association (or SIFMA) or the global master repurchase agreement published by SIFMA and the International Capital Market Association. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts (or the percentage amount by which the collateral value is contractually required to exceed the loan amount), purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction and cross default and setoff provisions. Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2022, we had unused financing capacity of approximately $1.2 billion across our financing arrangements for all collateral types. Margin calls are typically determined by our counterparties based on their assessment of changes in the fair value of the underlying collateral and in accordance with the agreed upon haircuts specified in the transaction confirmation with the counterparty. We address margin call requests in accordance with the required terms specified in the applicable agreement and such requests are typically satisfied by posting additional cash or collateral on the same business day. We review margin calls 62 Table of Contents made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination. When we believe that a margin call is unnecessary because our assessment of collateral value differs from the counterparty valuation, we typically hold discussions with the counterparty and are able to resolve the matter. If this is not successful, we will look to resolve the dispute based on the remedies available to us under the terms of the repurchase agreement, which in some instances may include the engagement of a third-party to review collateral valuations. For certain other agreements that do not include such provisions, we could resolve the matter by substituting collateral as permitted in accordance with the agreement or otherwise request the counterparty to return the collateral in exchange for cash to unwind the financing. For additional information regarding our various types of financing arrangements, including those with non-mark-to-market terms and the haircuts for those agreements with mark-to-market collateral provisions, see Note 6 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. At December 31, 2022, we had a total of $3.9 billion of residential whole loans and securities and $16.0 million of restricted cash pledged to our financing counterparties. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements. When the value of our residential mortgage assets pledged as collateral experiences rapid decreases, margin calls under our financing arrangements could materially increase, causing an adverse change in our liquidity position. Additionally, if one or more of our financing counterparties choose not to provide ongoing funding, our ability to finance our long-maturity assets would decline or otherwise become available on possibly less advantageous terms. Further, when liquidity tightens, our counterparties to our short term arrangements with mark-to-market collateral provisions may increase their required collateral cushion (or margin) requirements on new financings, including financings that we roll with the same counterparty, thereby reducing our ability to use leverage. Access to financing may also be negatively impacted by ongoing volatility in financial markets, thereby potentially adversely impacting our current or future lenders’ ability or willingness to provide us with financing. In addition, there is no assurance that favorable market conditions will exist to permit us to consummate additional securitization transactions if we determine to seek that form of financing. Our ability to meet future margin calls will be affected by our ability to use cash or obtain financing from unpledged collateral, the amount of which can vary based on the market value of such collateral, our cash position and margin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs. (See “Interest Rate Risk” included under Item 7A. of this Annual Report on Form 10-K and our Consolidated Statements of Cash Flows, included under Item 8 of this Annual Report on Form 10-K.) 63 Table of Contents The table below presents certain information about our borrowings under asset-backed financing agreements and securitized debt: Asset-backed Financing Agreements Securitized Debt Quarter Ended (1) Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End (In Thousands) December 31, 2022 $ 3,147,303 $ 3,226,651 $ 3,226,651 $ 3,842,757 $ 3,357,590 $ 3,855,013 September 30, 2022 3,351,046 3,229,640 3,411,200 3,643,872 3,832,311 3,832,311 June 30, 2022 3,638,476 3,530,510 3,761,049 3,170,406 3,374,716 3,374,716 March 31, 2022 3,920,895 3,942,343 4,138,377 2,555,241 2,859,061 2,859,061 December 31, 2021 3,313,641 3,501,839 3,501,839 2,302,990 2,650,473 2,650,473 September 30, 2021 2,516,940 3,278,941 3,278,941 2,008,639 2,045,729 2,137,773 June 30, 2021 2,063,852 2,156,598 2,156,598 1,778,909 2,046,381 2,046,381 March 31, 2021 2,632,791 2,221,570 2,443,149 1,535,995 1,548,920 1,602,148 December 31, 2020 2,833,649 2,497,290 2,823,306 1,202,292 1,514,509 1,514,509 September 30, 2020 3,511,453 3,217,678 3,613,968 610,120 837,683 837,683 June 30, 2020 4,736,610 3,692,845 5,024,926 538,245 516,102 541,698 March 31, 2020 9,233,808 7,768,180 9,486,555 558,007 533,733 594,458 (1) The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in June 2019 and $100.0 million of Senior Notes issued in April 2012. Subsequent to the end of the third quarter of 2020, we repaid in full the outstanding principal balance of the senior secured term loan facility. During the first quarter of 2021, we redeemed all of our outstanding Senior Notes. Cash Flows and Liquidity for the Year Ended December 31, 2022 Our cash, cash equivalents and restricted cash increased by $89.6 million during 2022, reflecting: $1.1 billion used in our investing activities, $850.2 million provided by our financing activities and $366.1 million provided by our operating activities. At December 31, 2022, our debt-to-equity multiple was 3.5 times compared to 2.5 times at December 31, 2021. Our recourse leverage multiple at December 31, 2022 was 1.8 times compared to 1.5 times at December 31, 2021. At December 31, 2022, we had borrowings under asset-backed financing agreements of $3.2 billion, of which $3.1 billion were secured by residential whole loans, $111.7 million were secured by securities and $25.5 million were secured by REO. In addition, at December 31, 2022, we had securitized debt of $3.4 billion in connection with our loan securitization transactions. At December 31, 2021, we had borrowings under asset-backed financing agreements of $3.5 billion, of which $3.3 billion were secured by residential whole loans, $159.1 million were secured by securities and $23.0 million were secured by REO. In addition, at December 31, 2021, we had securitized debt of $2.7 billion in connection with our loan securitization transactions. During 2022, $1.1 billion was used in our investing activities. We utilized $3.2 billion for acquisitions of residential whole loans, loan related investments and capitalized advances. During 2022, we received $1.9 billion of principal payments on residential whole loans and loan related investments and $134.0 million of proceeds on sales of REO. In addition, during 2022, we received cash of $53.1 million from proceeds from sales and prepayments and scheduled amortization on our securities. In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls/reverse margin calls from our counterparties and make margin calls to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required. The value of securities pledged as collateral fluctuates reflecting changes in: (i) the face (or par) value of our assets; (ii) market interest rates and/or other market conditions; and (iii) the market value of our Swaps. Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional assets and/or cash. 64 Table of Contents The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged to Meet Margin Calls Cash and Securities Received for Reverse Margin Calls Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged For Margin Calls (In Thousands) December 31, 2022 $ — $ 12,121 $ 12,121 $ 13,629 $ 1,508 September 30, 2022 — 4,784 4,784 12,291 7,507 June 30, 2022 — 18,985 18,985 — (18,985) March 31, 2022 — 40,834 40,834 346 (40,488) (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract. We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2022. During 2022, we paid $184.0 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock. On December 14, 2022, we declared our fourth quarter 2021 dividend on our common stock of $0.35 per share; on January 31, 2023, we paid this dividend, which totaled approximately $35.8 million, including dividend equivalents of approximately $138,000.