MFA FINANCIAL, INC. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Financial Statements and Schedule Page Report of Independent Registered Public Accounting Firm 69 Financial Statements: Consolidated Balance Sheets at December 31, 2023 and December 31, 2022 72 Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 73 Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2023, 2022 and 2021 74 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023, 2022 and 2021 75 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 77 Notes to the Consolidated Financial Statements 79 Note 1. Organization 79 Note 2. Summary of Significant Accounting Policies 79 Note 3. Residential Whole Loans 88 Note 4. Securities, at Fair Value 95 Note 5. Other Assets 100 Note 6. Financing Agreements 104 Note 7. Other Liabilities 109 Note 8. Income Taxes 109 Note 9. Commitments and Contingencies 111 Note 10. Stockholders’ Equity 112 Note 11. EPS Calculation 118 Note 12. Equity Compensation and Other Benefit Plans 118 Note 13. Fair Value of Financial Instruments 123 Note 14. Use of Special Purpose Entities and Variable Interest Entities 130 Note 15. Segment Reporting 131 Note 16. Subsequent Events 136 Schedule IV - Mortgage Loans on Real Estate 137 All other financial statement schedules are omitted because the required information is not applicable or deemed not material, or the required information is included in the consolidated financial statements and/or notes thereto. 68 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors MFA Financial, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of MFA Financial, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. 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, 2023, 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 22, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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 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, 2023, the recorded balance of the Company’s residential whole loans, at fair value was $7.5 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. 69 Table of Contents 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. GAAP • 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 (ACL) on residential whole loans held at carrying value as of December 31, 2023 was $20.5 million (the December 31, 2023 ACL). The Company estimated the December 31, 2023 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 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. unemployment rates and home price appreciation) over the same period, and (iii) estimated default and severity rates during three distinct future periods based on historical default and severity rates during periods when economic conditions similar to those forecasted were experienced. The default and severity rates were applied to the estimated amount of loans outstanding during each future period, based on contractual terms and expected prepayments. Expected prepayments are estimated based on historical experience and current and expected future economic conditions, including market interest rates. The three periods were as follows: (i) a one-year forecast of economic conditions based on U.S. unemployment rates and home price appreciation, followed by (ii) a two-year “reversion” period during which economic conditions (U.S. unemployment rates and home price appreciation) are projected to revert to historical averages on a straight line basis, followed by (iii) the remaining life of each loan, during which period economic conditions (U.S. unemployment rates and home price appreciation) are projected to equal 70 Table of Contents 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 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 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, 2023 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, 2023 ACL for these loans due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the December 31, 2023 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 composition of the publicly available data derived from the historical loss experience of certain banks. The assessment also included an evaluation of the conceptual soundness and performance of the prepayment, default and loss severity models. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. 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 the December 31, 2023 ACL estimate, including controls over the: • continued use and appropriateness of changes made to the prepayment, default and loss severity models • identification and determination of the significant assumptions used in the prepayment, default and loss severity models • performance monitoring of the prepayment, default and loss severity models • analysis of the ACL results, trends, and ratios. We evaluated the Company’s process to develop the December 31, 2023 ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company in the continued use and appropriateness of changes made to the prepayment, default and loss severity models by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices • assessing the conceptual soundness and performance testing of the prepayment, default and loss severity models by inspecting the model documentation to determine whether the models are suitable for their intended use • assessing the composition of the publicly available data derived from the historical loss experience of certain banks by comparing to specific portfolio risk characteristics We also assessed the sufficiency of the audit evidence obtained related to the December 31, 2023 ACL by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2011. New York, New York February 22, 2024 71 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Amounts) December 31, 2023 December 31, 2022 Assets: Residential whole loans, net ($ 7,511,508 and $ 5,727,524 held at fair value, respectively) (1)(2) $ 9,041,292 $ 7,518,739 Securities, at fair value (2) 746,090 333,364 Cash and cash equivalents 318,000 334,183 Restricted cash 170,211 159,898 Other assets (2) 497,097 766,221 Total Assets $ 10,772,690 $ 9,112,405 Liabilities: Financing agreements ($ 4,633,660 and $ 3,898,744 held at fair value, respectively) $ 8,536,745 $ 6,812,086 Other liabilities 336,030 311,470 Total Liabilities $ 8,872,775 $ 7,123,556 Commitments and contingencies (See Note 9) Stockholders’ Equity: Preferred stock, $ 0.01 par value; 7.5 % Series B cumulative redeemable; 8,050 shares authorized; 8,000 shares issued and outstanding ($ 200,000 aggregate liquidation preference) $ 80 $ 80 Preferred stock, $ 0.01 par value; 6.5 % Series C fixed-to-floating rate cumulative redeemable; 12,650 shares authorized; 11,000 shares issued and outstanding ($ 275,000 aggregate liquidation preference) 110 110 Common stock, $ 0.01 par value; 874,300 and 874,300 shares authorized; 101,916 and 101,802 shares issued and outstanding, respectively 1,019 1,018 Additional paid-in capital, in excess of par 3,698,767 3,684,291 Accumulated deficit ( 1,817,759 ) ( 1,717,991 ) Accumulated other comprehensive income 17,698 21,341 Total Stockholders’ Equity $ 1,899,915 $ 1,988,849 Total Liabilities and Stockholders’ Equity $ 10,772,690 $ 9,112,405 (1) Includes approximately $ 5.7 billion and $ 4.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at December 31, 2023 and December 31, 2022, respectively. Such assets can be used only to settle the obligations of each respective VIE. (2) See Note 6 for information regarding the Company’s pledged assets. The accompanying notes are an integral part of the consolidated financial statements. 72 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31, (In Thousands, Except Per Share Amounts) 2023 2022 2021 Interest Income: Residential whole loans $ 537,883 $ 441,223 $ 303,468 Securities, at fair value 42,376 28,921 56,690 Other interest-earning assets 9,027 7,437 1,800 Cash and cash equivalent investments 16,311 4,838 344 Interest Income $ 605,597 $ 482,419 $ 362,302 Interest Expense: Asset-backed and other collateralized financing arrangements $ 413,517 $ 243,083 $ 104,597 Other interest expense 15,601 15,760 15,788 Interest Expense $ 429,118 $ 258,843 $ 120,385 Net Interest Income $ 176,479 $ 223,576 $ 241,917 Reversal of Provision for Credit Losses on Residential Whole Loans $ 8,853 $ 2,646 $ 44,863 Provision for Credit Losses on Other Assets — ( 28,579 ) — Net Interest Income after Provision for Credit Losses $ 185,332 $ 197,643 $ 286,780 Other Income/(Loss), net: Net gain/(loss) on residential whole loans measured at fair value through earnings $ 89,850 $ ( 866,762 ) $ 16,243 Impairment and other net gain/(loss) on securities and other portfolio investments 6,225 ( 25,067 ) 74,496 Net gain on real estate owned 9,392 25,379 22,838 Net gain/(loss) on derivatives used for risk management purposes 3,761 255,179 1,426 Net gain/(loss) on securitized debt measured at fair value through earnings ( 99,589 ) 290,639 15,027 Lima One - origination, servicing and other fee income 43,384 46,745 22,600 Net realized loss on residential whole loans held at carrying value ( 1,240 ) — — Other, net 11,331 8,623 9,647 Other Income/(Loss), net $ 63,114 $ ( 265,264 ) $ 162,277 Operating and Other Expense: Compensation and benefits $ 85,799 $ 76,728 $ 53,817 Other general and administrative expense 44,147 35,138 28,903 Loan servicing, financing and other related costs 34,136 42,894 30,867 Amortization of intangible assets 4,200 9,200 6,600 Operating and Other Expense $ 168,282 $ 163,960 $ 120,187 Net Income/(Loss) $ 80,164 $ ( 231,581 ) $ 328,870 Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ 32,875 Net Income/(Loss) Available to Common Stock and Participating Securities $ 47,289 $ ( 264,456 ) $ 295,995 Basic Earnings/(Loss) per Common Share $ 0.46 $ ( 2.57 ) $ 2.66 Diluted Earnings/(Loss) per Common Share $ 0.46 $ ( 2.57 ) $ 2.63 The accompanying notes are an integral part of the consolidated financial statements. 73 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) For the Year Ended December 31, (In Thousands) 2023 2022 2021 Net income/(loss) $ 80,164 $ ( 231,581 ) $ 328,870 Other Comprehensive Income/(Loss): Unrealized gains/(losses) on securities available-for-sale ( 2,873 ) ( 25,492 ) ( 32,774 ) Reclassification adjustment for securities sales included in net income ( 770 ) — — Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk — 1,255 1,059 Other Comprehensive Income/(Loss) ( 3,643 ) ( 24,237 ) ( 31,715 ) Comprehensive Income/(Loss) before preferred stock dividends $ 76,521 $ ( 255,818 ) $ 297,155 Dividends required on preferred stock ( 32,875 ) ( 32,875 ) ( 32,875 ) Comprehensive Income/(Loss) Available to Common Stock and Participating Securities $ 43,646 $ ( 288,693 ) $ 264,280 The accompanying notes are an integral part of the consolidated financial statements. 74 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Year Ended December 31, 2023 (In Thousands, 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 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Shares Amount Shares Amount Shares Amount Balance at December 31, 2022 11,000 $ 110 8,000 $ 80 101,802 $ 1,018 $ 3,684,291 $ ( 1,717,991 ) $ 21,341 $ 1,988,849 Net income — — — — — — — 80,164 — 80,164 Issuance of common stock, net of expenses — — — — 172 1 ( 7 ) — — ( 6 ) Repurchase of shares of common stock (1) — — — — ( 58 ) — ( 600 ) — — ( 600 ) Equity based compensation expense — — — — — — 14,526 — — 14,526 Change in accrued dividends attributable to stock-based awards — — — — — — 557 ( 3,933 ) — ( 3,376 ) Dividends declared on common stock ($ 1.40 per share) — — — — — — — ( 142,681 ) — ( 142,681 ) Dividends declared on Series B Preferred Stock ($ 1.875 per share) — — — — — — — ( 15,000 ) — ( 15,000 ) Dividends declared on Series C Preferred Stock ($ 1.625 per share) — — — — — — — ( 17,875 ) — ( 17,875 ) Dividends attributable to dividend equivalents — — — — — — — ( 443 ) — ( 443 ) Change in unrealized losses on securities, net — — — — — — — — ( 3,643 ) ( 3,643 ) Balance at December 31, 2023 11,000 $ 110 8,000 $ 80 101,916 $ 1,019 $ 3,698,767 $ ( 1,817,759 ) $ 17,698 $ 1,899,915 For the Year Ended December 31, 2022 (In Thousands, 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 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Shares Amount Shares Amount Shares Amount 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 loss — — — — — — — ( 231,581 ) — ( 231,581 ) Issuance of common stock, net of expenses — — — — 197 1 1,097 — — 1,098 Repurchase of shares of common stock (1) — — — — ( 6,533 ) ( 65 ) ( 103,188 ) — — ( 103,253 ) Equity based compensation expense — — — — — — 11,335 — — 11,335 Change in accrued dividends attributable to stock-based awards — — — — — — ( 435 ) ( 1,997 ) — ( 2,432 ) Dividends declared on common stock ($ 1.67 per share) — — — — — — — ( 171,426 ) — ( 171,426 ) Dividends declared on Series B Preferred Stock ($ 1.875 per share) — — — — — — — ( 15,000 ) — ( 15,000 ) Dividends declared on Series C Preferred Stock ($ 1.625 per share) — — — — — — — ( 17,875 ) — ( 17,875 ) Dividends attributable to dividend equivalents — — — — — — — ( 628 ) — ( 628 ) Change in unrealized losses on securities, net — — — — — — — — ( 25,492 ) ( 25,492 ) Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk — — — — — — — — 1,255 1,255 Balance at December 31, 2022 11,000 $ 110 8,000 $ 80 101,802 $ 1,018 $ 3,684,291 $ ( 1,717,991 ) $ 21,341 $ 1,988,849 75 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the Year Ended December 31, 2021 (In Thousands, 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 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Shares Amount Shares Amount Shares Amount 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 Net income — — — — — — — 328,870 — 328,870 Issuance of common stock, net of expenses — — — — 288 3 1,829 — — 1,832 Repurchase of shares of common stock (1) — — — — ( 5,079 ) ( 50 ) ( 86,343 ) — — ( 86,393 ) Equity based compensation expense — — — — — — 9,038 — — 9,038 Change in accrued dividends attributable to stock-based awards — — — — — — ( 559 ) ( 278 ) — ( 837 ) Dividends declared on common stock ($ 1.540 per share) — — — — — — — ( 169,275 ) — ( 169,275 ) Dividends declared on Series B Preferred Stock ($ 1.875 per share) — — — — — — — ( 15,000 ) — ( 15,000 ) Dividends declared on Series C Preferred Stock ($ 1.625 per share) — — — — — — — ( 17,875 ) — ( 17,875 ) Dividends attributable to dividend equivalents — — — — — — — ( 599 ) — ( 599 ) Change in unrealized losses on securities, net — — — — — — — — ( 32,774 ) ( 32,774 ) Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk — — — — — — — — 1,059 1,059 Balance at December 31, 2021 11,000 $ 110 8,000 $ 80 108,138 $ 1,082 $ 3,775,482 $ ( 1,279,484 ) $ 45,578 $ 2,542,848 (1) For the year ended December 31, 2023, includes approximately $ 600,000 ( 58,505 shares) surrendered for tax purposes related to equity-based compensation awards. 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. The accompanying notes are an integral part of the consolidated financial statements. 76 Table of Contents MFA FINANCIAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Ended December 31, (In Thousands) 2023 2022 2021 Cash Flows From Operating Activities: Net income/(loss) $ 80,164 $ ( 231,581 ) $ 328,870 Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Net (gain)/loss on residential whole loans ( 87,379 ) 866,762 ( 12,931 ) Impairment and other net (gain)/loss on securities and other portfolio investments, net ( 7,058 ) 25,067 ( 74,602 ) Net gain on real estate owned ( 9,512 ) ( 24,473 ) ( 18,772 ) Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities ( 18,968 ) ( 27,314 ) ( 59,424 ) Provision/(reversal of provision) for credit losses on residential whole loans and other assets ( 6,845 ) 25,933 ( 48,355 ) Net (gain)/loss on derivatives used for risk management purposes 93,828 ( 247,898 ) ( 2,095 ) Net margin received/(paid) for derivatives used for risk management purposes ( 35,643 ) 214,754 574 Net (gain)/loss on securitized debt measured at fair value through earnings 86,402 ( 290,639 ) ( 14,391 ) Net other non-cash losses included in net income 31,719 31,370 31,358 (Increase)/decrease in other assets ( 80,930 ) 25,482 ( 6,475 ) Increase/(decrease) in other liabilities 62,961 ( 12,114 ) 14,046 Net cash provided by operating activities $ 108,739 $ 355,349 $ 137,803 Cash Flows From Investing Activities: Purchases and origination of residential whole loans, loan related investments and capitalized advances $ ( 2,914,915 ) $ ( 3,206,941 ) $ ( 4,516,971 ) Proceeds from sales of residential whole loans 345,656 — — Principal payments on residential whole loans and loan related investments 1,445,759 1,878,802 2,012,901 Increase in cash balances resulting from Lima One purchase transaction, net — — 6,121 Purchases of securities ( 588,915 ) — — Proceeds from sales of securities and other assets 23,294 15,660 — Principal payments on securities 35,626 53,121 157,297 Proceeds from sales of real estate owned 115,026 133,980 187,010 Other investing activities ( 11,121 ) 9,450 ( 30,896 ) Net cash used in investing activities $ ( 1,549,590 ) $ ( 1,115,928 ) $ ( 2,184,538 ) Cash Flows From Financing Activities: Principal payments on financing agreements with mark-to-market collateral provisions $ ( 2,910,832 ) $ ( 2,971,332 ) $ ( 1,822,198 ) Proceeds from borrowings under financing agreements with mark-to-market collateral provisions 3,049,030 2,631,606 3,022,279 Principal payments on other collateralized financing agreements ( 1,997,811 ) ( 2,152,143 ) ( 1,883,068 ) Proceeds from borrowings under other collateralized financing agreements 3,503,400 3,676,510 2,692,576 Payment made for other collateralized financing agreement related costs ( 12,593 ) ( 16,390 ) ( 7,145 ) Redemption of convertible senior notes and Senior Notes ( 20,228 ) — ( 100,000 ) Proceeds from issuances of common stock ( 7 ) 1,183 1,825 Payments made for the repurchase of common stock through the stock repurchase program — ( 102,311 ) ( 85,591 ) Dividends paid on preferred stock ( 32,875 ) ( 32,875 ) ( 32,875 ) Dividends paid on common stock and dividend equivalents ( 143,103 ) ( 184,035 ) ( 156,140 ) Net cash provided by financing activities $ 1,434,981 $ 850,213 $ 1,629,663 Net increase/(decrease) in cash, cash equivalents and restricted cash $ ( 5,870 ) $ 89,634 $ ( 417,072 ) Cash, cash equivalents and restricted cash at beginning of period $ 494,081 $ 404,447 $ 821,519 Cash, cash equivalents and restricted cash at end of period $ 488,211 $ 494,081 $ 404,447 Supplemental Disclosure of Cash Flow Information Interest paid $ 418,135 $ 239,185 $ 116,966 Non-cash Investing and Financing Activities: Transfer from residential whole loans to real estate owned $ 84,662 $ 82,911 $ 72,304 Transfer from other interest earning assets (commercial loans) to REO $ 22,716 $ — $ — Dividends and dividend equivalents declared and unpaid $ 35,789 $ 35,769 $ 47,751 Right-of-use lease asset and lease liability $ — $ — $ 40,893 (continued) 77 Table of Contents Repayment of Lima One preferred stock in connection with the Lima One transaction $ — $ — $ 22,030 Receivable for sale of unsettled residential whole loans $ 14,033 $ 275,656 $ — Payable for unsettled investment purchases $ 103,654 $ 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. 78 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 1. Organization MFA Financial, Inc. (the “Company”) was incorporated in Maryland on July 24, 1997 and began operations on April 10, 1998. The Company has elected to be treated as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. In order to maintain its qualification as a REIT, the Company must comply with a number of requirements under federal tax law, including that it must distribute at least 90% of its annual REIT taxable income to its stockholders. The Company has elected to treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business (see Note 8). 2. Summary of Significant Accounting Policies (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. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could differ from those estimates, which could materially impact the Company’s results of operations and its financial condition. Management has made significant estimates in several areas: impairment, valuation allowances and loss allowances on residential whole loans (see Note 3), certain securities designated as available-for-sale (“AFS”) (see Note 4) and certain 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(e) 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 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. Certain prior period amounts have been reclassified to conform to the current period presentation. 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. 79 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (b) Residential Whole Loans (including Residential Whole Loans transferred to consolidated VIEs) Residential whole loans included in the Company’s consolidated balance sheets are primarily comprised of pools of fixed- and adjustable-rate residential mortgage loans acquired through consolidated trusts in secondary market transactions or originated by Lima One. The accounting model utilized by the Company is determined at the time each loan package is initially acquired. Prior to the second quarter of 2021, the Company typically elected the fair value option on loans that were 60 or more days delinquent at purchase (“Purchased Non-performing Loans”). Purchased Credit Deteriorated Loans (i.e., mortgage loans in which the underlying borrower had a delinquency status of less than 60 days at the acquisition date) acquired prior to the second quarter of 2021 are typically held at carrying value. Purchased Performing Loans (as described below) 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 began to elect the fair value option for all loans acquired, irrespective of borrower delinquency status at acquisition. The accounting model initially applied to loan acquisitions is not permitted to be subsequently changed. Consequently, the Company is not permitted to retroactively apply fair value accounting to loans held at carrying value acquired in periods prior to the second quarter of 2021. The Company’s residential whole loans pledged as collateral against financing agreements are included in the consolidated balance sheets with amounts pledged disclosed in Note 6. Purchases and sales of residential whole loans that are subject to an extended period of due diligence that crosses a reporting date are recorded in 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. Residential whole loans purchased under flow arrangements with loan origination partners are generally recorded at the transaction settlement date. Recorded amounts of residential whole loans for which the closing of the purchase transaction is yet to occur are not eligible to be pledged as collateral against any financing agreement until the closing of the purchase transaction. Interest income, credit related losses and changes in the fair value of loans held at fair value are recorded post settlement for acquired loans and until transaction settlement for sold loans (see Notes 3, 6, 13 and 14). Purchased Performing Loans 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 and multi-family properties made to non-occupant borrowers that intend to rehabilitate and refinance or sell the properties (“Transitional loans”) (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). Interest income on Purchased Performing Loans acquired at par is accrued based on each loan’s current interest bearing balance and current interest rate. Interest income on such loans acquired at a premium/discount to par is recorded each period based on the contractual coupon net of any amortization of premium or accretion of discount, adjusted for actual prepayment activity. For loans acquired with related servicing rights retained by the seller, interest income is reported net of related serving costs. For Purchased Performing Loans acquired prior to the second quarter of 2021 for which the fair value option was not elected, an allowance for credit losses is recorded at acquisition, and maintained on an ongoing basis, for all losses expected over the life of the respective loan. Any required credit loss allowance would reduce the net carrying value of the loan with a corresponding charge to earnings, and may increase or decrease over time. 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 on which payments become 90 days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful (i.e., such loans are placed on nonaccrual status). For nonaccrual loans, interest income is recorded under the cash basis method as interest payments are received. Interest 80 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 accruals are resumed when the loan becomes contractually current. A loan is written off when it is no longer realizable and/or it is legally discharged. Charge-offs to the allowance for loan losses occur when losses are confirmed through the receipt of cash or other consideration from the completion of a sale; when a modification or restructuring takes place in which we grant a concession to a borrower or agree to a discount in full or partial satisfaction of the loan; when we take ownership and control of the underlying collateral in full satisfaction of the loan; when loans are reclassified as other investments; or when significant collection efforts have ceased and it is highly likely that a loss has been realized. The aggregate allowance for credit losses is equal to the sum of the losses expected over the life of each respective loan. Expected 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. The results were not discounted. 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. unemployment rates and home price appreciation) over the same period, and (iii) estimated default and severity rates during three distinct future periods based on historical default and severity rates during periods when economic conditions similar to those forecasted were experienced. The default and severity rates were applied to the estimated amount of loans outstanding during each future period, based on contractual terms and expected prepayments. Expected prepayments are estimated based on historical experience and current and expected future economic conditions, including market interest rates. The three periods were as follows: (i) a one-year forecast of economic conditions based on U.S. unemployment rates and home price appreciation, followed by (ii) a two-year “reversion” period during which economic conditions (U.S. unemployment rates and home price appreciation) are projected to revert to historical averages on a straight line basis, followed by (iii) the remaining life of each loan, during which period economic conditions (U.S. unemployment rates and home price appreciation) are projected to equal historical averages. In addition, a liability is established (and recorded in Other Liabilities) each period using a similar methodology for committed but undrawn loan amounts. 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 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 significantly from the calculation of the allowance for credit losses in prior periods, although certain modeling factors have been refined over time and the proxy data utilized has, in some cases, been updated to better align with actual and expected loss experiences. Purchased Credit Deteriorated Loans 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. Consequently, these loans generally have a higher likelihood of default than newly originated mortgage loans with loan-to-value ratios (“LTVs”) of 80 % or less to creditworthy borrowers. The Company believes that amounts paid to acquire these loans represent fair market value at the date of acquisition. Loans considered credit deteriorated are initially recorded at their purchase price on a net basis, after establishing an initial allowance for credit losses (their initial cost basis is equal to their purchase price plus the initial allowance for credit losses). Subsequent to acquisition, the gross recorded amount for these loans reflects the initial cost basis, plus accretion/amortization of interest income, less principal and interest cash flows received. Purchased Credit Deteriorated Loans acquired prior to the second quarter of 2021, or where the fair value option was not otherwise elected, are presented on the Company’s consolidated balance sheets at carrying value, which reflects the recorded cost basis reduced by any allowance for credit losses. Interest income on such loans purchased is recorded each period based on the contractual coupon net of accretion/amortization of the difference between their cost basis and unpaid principal balance (“UPB”), subject to the Company’s nonaccrual policy. 81 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Loans Held-for-Sale For loans for which the fair value option was not elected, once a decision has been made to sell loans previously classified as held for investment, such loans are considered held-for-sale and are carried at the lower of cost or fair value. Residential Whole Loans at Fair Value Certain of the Company’s residential whole loans are presented at fair value on its consolidated balance sheets as a result of a fair value election made at the time of acquisition. Prior to the second quarter of 2021, this accounting election was made primarily on Purchased Non-performing Loans. Starting in the second quarter of 2021, the Company made the fair value election on all loan acquisitions, which, to date, have been comprised exclusively of Purchased Performing Loans including loans originated by Lima One since its consolidation. The Company generally considers accounting for these loans at fair value to be more reflective of the expected pattern of returns from these loans under current economic conditions. 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. Interest income is recorded on these loans based on their yield and is presented as part of interest income in the Company’s consolidated statements of operations. Cash outflows associated with loan-related advances made by the Company on behalf of the borrower are included in the basis of the loan and are reflected in unrealized gains or losses reported each period. Income and costs associated with originating loans on which the fair value option was elected are recorded in other income and expense, respectively, in the period in which they are earned or incurred. (c) Securities, at Fair Value Residential Mortgage Securities The Company has invested in residential mortgage-backed securities (“MBS”) that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as the Government National Mortgage Association (“Ginnie Mae”) (collectively, “Agency MBS”), and residential MBS that are not guaranteed by any agency of the U.S. Government or any federally chartered corporation (“Non-Agency MBS”). In addition, the Company has investments in credit risk transfer (“CRT”) securities that are issued by or sponsored by Fannie Mae and Freddie Mac. The coupon payments on CRT securities are paid by the issuer and the principal payments received are dependent on the performance of loans in either a reference pool or an actual pool of loans. As the loans in the underlying pool are paid, the principal balance of the CRT securities is paid. As an investor in a CRT security, the Company may incur a principal loss if the performance of the actual or reference pool loans results in either an actual or calculated loss that exceeds the credit enhancement of the security owned by the Company. Term Notes Backed by Mortgage Servicing Rights (“MSR”) Collateral The Company has invested in term notes that are issued by special purpose vehicles (“SPV”) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs. The Company considers payment of principal and interest on these term notes to be largely dependent on the cash flows generated by the underlying MSRs as this impacts the cash flows available to the SPV that issued the term notes. Credit risk borne by the holders of the term notes is also mitigated by structural credit support in the form of over-collateralization. Credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes if cash flows generated by the underlying MSRs are insufficient. Designation Securities that the Company generally intends to hold until maturity, but that it may sell from time to time as part of the overall management of its business, are designated as AFS. Such securities, which include term notes backed by MSR collateral and certain CRT securities, are carried at their fair value with unrealized gains and losses excluded from earnings (except when an allowance for loan losses is recognized, as discussed below) and reported in accumulated other comprehensive income/(loss) (“AOCI”), a component of Stockholders’ Equity. 82 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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 has elected the fair value option for its Agency and Non-Agency MBS and certain of its CRT securities. These securities are carried at their fair value with changes in fair value included in earnings for the period and reported in Other Income/(Loss), net on the Company’s consolidated statements of operations. Revenue Recognition, Premium Amortization and Discount Accretion Interest income on securities is accrued based on their outstanding principal balance and their contractual terms. Premiums and discounts associated with 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. Determination of Fair Value for Securities In determining the fair value of the Company’s residential mortgage securities, management considers a number of observable market data points, including prices obtained from pricing services, brokers and repurchase agreement counterparties, dialogue with market participants, as well as management’s observations of market activity (see Note 13). For term notes backed by MSR collateral, 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 if cash flows generated by the related underlying MSR collateral are insufficient. Allowance for credit losses When the fair value of an AFS security is less than its amortized cost at the balance sheet date, the security is considered impaired. The Company assesses its impaired securities, as well as securities for which a credit loss allowance had been previously recorded, on at least a quarterly basis and determines whether any changes to the allowance for credit losses are required. If the Company intends to sell an impaired security, or it is more likely than not that it will be required to sell the impaired security before its anticipated recovery, then the Company must recognize a write-down through charges to earnings equal to the entire difference between the investment’s amortized cost and its fair value at the balance sheet date. If the Company does not expect to sell an impaired security, only the portion of the impairment related to credit losses is recognized through a loss allowance charged to earnings with the remainder recognized through AOCI on the Company’s consolidated balance sheets. Impairments recognized through other comprehensive income/(loss) (“OCI”) do not impact earnings. Credit loss allowances are subject to reversal through earnings resulting from improvements in expected cash flows. The determination as to whether to record (or reverse) a credit loss allowance is subjective, as such determinations are based on factual information available at the time of assessment as well as the Company’s estimates of future performance and cash flow projections. As a result, the timing and amount of losses constitute material estimates that are susceptible to significant change (see Note 4). Balance Sheet Presentation The Company’s securities pledged as collateral against financing agreements and interest rate swap agreements (“Swaps”) are included on the consolidated balance sheets with the fair value of the securities pledged disclosed in Notes 6 and 5, respectively. Purchases and sales of securities are recorded on the trade date. (d) Cash and Cash Equivalents Cash and cash equivalents include cash on deposit with financial institutions and investments in money market funds, all of which have original maturities of three months or less. Cash and cash equivalents may also include cash pledged as collateral to the Company by its financing counterparties as a result of reverse margin calls (i.e., margin calls made by the Company). The Company did not hold any cash pledged by its counterparties at December 31, 2023 and December 31, 2022. At December 31, 2023 and December 31, 2022, the Company had cash and cash equivalents of $ 318.0 million and $ 334.2 million, respectively. At December 31, 2023, the Company had $ 151.3 million of investments in overnight money market 83 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 funds, which are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency. As of December 31, 2022, the Company had $ 267.1 million worth of investments in overnight money market funds. In addition, deposits in FDIC insured accounts generally exceed insured limits (see Notes 6 and 13). (e) Restricted Cash Restricted cash primarily represents the Company’s cash collections held in connection with certain of the Company’s financing agreements, Swaps and/or loan servicing activities that are not available to the Company for general corporate purposes. 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 $ 170.2 million and $ 159.9 million at December 31, 2023 and December 31, 2022, respectively (see Notes 5(e), 6 and 13). (f) Goodwill & Intangible Assets At December 31, 2023 and December 31, 2022, 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 $ 8.0 million and $ 12.2 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, 2023, the Company had not recognized any impairment against its goodwill or intangible assets. Goodwill and intangible assets are included in Other assets on the Company’s consolidated balance sheets. (g) Real Estate Owned (“REO”) REO represents real estate acquired by the Company, including through foreclosure, deed in lieu of foreclosure, or purchased in connection with the acquisition of residential whole loans. REO acquired through foreclosure or deed in lieu of foreclosure is initially recorded at fair value less estimated selling costs. REO acquired in connection with the acquisition of residential whole loans is initially recorded at its purchase price. Subsequent to acquisition, REO is reported, at each reporting date, at the lower of the current carrying amount or fair value less estimated selling costs and for presentation purposes is included in Other assets on the Company’s consolidated balance sheets. Changes in fair value that result in an adjustment to the reported amount of an REO property that has a fair value at or below its carrying amount are reported in Other Income/(Loss), net on the Company’s consolidated statements of operations (see Note 5). (h) Leases and Depreciation Leases The Company records its operating lease liabilities and operating lease right-of-use assets on its consolidated balance sheets. The operating lease liabilities are equal to the present value of the remaining fixed lease payments (excluding real estate tax and operating expense escalations) discounted at the Company’s estimated incremental borrowing rate at the date of lease commencement, and the operating lease right-of-use assets are equal to the operating lease liabilities adjusted for lease incentives and initial direct costs. As lease payments are made, the operating lease liabilities are reduced to the present value of the remaining lease payments and the operating lease right-of-use assets are reduced by the difference between the lease expense (straight-lined over the lease term) and the theoretical interest expense amount (calculated using the incremental borrowing rate at the date of lease commencement). See Notes 5 and 9 for further discussion on leases. Leasehold Improvements, Real estate and Other Depreciable Assets Depreciation is computed on the straight-line method over the estimated useful life of the related assets or, in the case of leasehold improvements, over the shorter of the useful life or the lease term. Furniture, fixtures, computers and related hardware have estimated useful lives ranging from five to fifteen years at the time of purchase. 84 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (i) Loan Securitization and Other Debt Issuance Costs Loan securitization related costs are costs associated with the issuance of beneficial interests by consolidated VIEs and incurred by the Company in connection with various financing transactions completed by the Company. These costs may include underwriting, rating agency, legal, accounting and other fees. Such costs, which reflect deferred charges (unless the debt is recorded at fair value, as discussed below), are included on the Company’s consolidated balance sheets as a direct deduction from the corresponding debt liability. These deferred charges are amortized as an adjustment to interest expense using the effective interest method. For certain financing agreements, such costs are amortized over the shorter of the period to the expected or stated legal maturity of the debt instruments. 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 The Company finances the majority of its residential mortgage assets with financing agreements that include securitized debt, repurchase agreements and other forms of collateralized financing. Under repurchase agreements, the Company sells assets to a lender and agrees to repurchase the same assets in the future for a price that is higher than the original sale price. The difference between the sale price that the Company receives and the repurchase price that the Company pays represents interest paid to the lender. Although legally structured as sale and repurchase transactions, the Company accounts for repurchase agreements as secured borrowings. Under its repurchase agreements and other forms of collateralized financing, the Company pledges its assets as collateral to secure the borrowing, in an amount which is equal to a specified percentage of the fair value of the pledged collateral, while the Company retains beneficial ownership of the pledged collateral. At the maturity of a repurchase financing, unless the repurchase financing is renewed with the same counterparty, the Company is required to repay the loan including any accrued interest and concurrently receives back its pledged collateral from the lender. With the consent of the lender, the Company may renew a repurchase financing at the then prevailing financing terms. Margin calls, whereby a lender requires that the Company pledge additional assets or cash as collateral to secure borrowings under its repurchase financing with such lender, are routinely experienced by the Company when the value of the assets pledged as collateral declines as a result of principal amortization and prepayments or due to changes in market interest rates, spreads or other market conditions. The Company also may make margin calls on counterparties when collateral values increase. 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. If, during the term of a financing, a lender should default on its obligation, the Company might experience difficulty recovering its pledged assets which could result in an unsecured claim against the lender for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged by the Company to such lender, including accrued interest receivable on such collateral (see Notes 6 and 13). The Company has elected the fair value option on certain of its financing agreements. These agreements are reported at their fair value, with changes in fair value being recorded in earnings each period (or other comprehensive income, to the extent the change results from a change in instrument specific credit risk), as further detailed in Note 6. Interest expense on such financing agreements is recorded based on the current stated interest rate and outstanding principal balance in effect for the related agreement. (k) Equity-Based Compensation Compensation expense for equity-based awards that are subject to vesting conditions, is recognized ratably over the vesting period of such awards, based upon the fair value of such awards at the grant date. The Company has made annual grants of restricted stock units (“RSUs”) under the Company’s Equity Compensation Plan (the “Equity Plan”), certain of which cliff vest after a three-year period, subject only to continued employment, and others of which cliff vest after a three-year period, subject to both continued employment and the achievement of certain performance criteria based on a formula tied to the Company’s achievement of average total shareholder return (“TSR”) during that three-year period, as well as the TSR of the Company relative to the TSR of a group of peer companies (over the three-year period) selected by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) at the date of grant. The features in these awards related to the attainment of TSR over a specified period constitute a “market condition,” which impacts the amount of compensation expense recognized for these awards. Specifically, the uncertainty regarding the 85 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 achievement of the market condition was reflected in the grant date fair valuation of the RSUs, which is recognized as compensation expense over the relevant vesting period. The amount of compensation expense recognized is not dependent on whether the market condition was or will be achieved. (l) Earnings per Common Share (“EPS”) Basic EPS is computed using the two-class method, which includes the weighted-average number of shares of common stock outstanding during the period and an estimate of other securities that participate in dividends, if any, to arrive at total common equivalent shares. 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. In calculating basic EPS, no adjustment is made to income available to common stockholders for forfeitable dividends or dividend equivalents. 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, using the treasury stock method. Under the treasury stock method, common equivalent shares are calculated assuming that all dilutive common stock equivalents are exercised and the proceeds, along with future compensation expenses associated with such instruments (if any), are used to repurchase shares of the Company’s outstanding common stock at the average market price during the reported period. In addition, the Company’s 6.25 % Convertible Senior Notes due 2024 (the “Convertible Senior Notes”) are included in the calculation of diluted EPS if the assumed conversion into common shares is dilutive, using the “if-converted” method. This calculation involves adding back the periodic interest expense associated with the Convertible Senior Notes to the numerator and by adding the shares that would be issued in an assumed conversion (regardless of whether the conversion option is in or out of the money) to the denominator for the purposes of calculating diluted EPS (see Note 11). (m) Comprehensive Income/(Loss) The Company’s comprehensive income/(loss) available to common stock and participating securities includes net income, the change in net unrealized gains/(losses) on its AFS securities and derivative hedging instruments (to the extent that such changes are not recorded in earnings), adjusted by realized net gains/(losses) reclassified out of AOCI for sold AFS securities and terminated hedging relationships, as well as the portion of unrealized gains/(losses) on its financing agreements held at fair value related to instrument-specific credit risk, and is reduced by dividends declared on the Company’s preferred stock and issuance costs of redeemed preferred stock. (n) Derivative Financial Instruments The Company may use derivative instruments to economically hedge a portion of its exposure to market risks, including interest rate risk and prepayment risk. The objective of the Company’s risk management strategy is to reduce fluctuations in net book value over a range of interest rate scenarios. Swaps The Company has entered into Swaps that are 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/(Loss), net on the Company’s consolidated statements of operations. To Be Announced (“TBA”) Securities During 2021 and 2022, the Company 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 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/(Loss), net in the Company’s consolidated statements of operations. 86 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (o) Fair Value Measurements and the Fair Value Option for Financial Assets and Financial Liabilities The Company’s presentation of fair value for its financial assets and liabilities is determined within a framework that stipulates that the fair value of a financial asset or liability is an exchange price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. This definition of fair value focuses on exit price and prioritizes the use of market-based inputs over entity-specific inputs when determining fair value. In addition, the framework for measuring fair value establishes a three-level hierarchy for fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. In addition to the financial instruments that it is required to report at fair value, the Company has elected the fair value option for certain of its financial assets and liabilities at the time of acquisition or issuance. Subsequent changes in the fair value of these financial instruments are generally reported in Other Income/(Loss), net, in the Company’s consolidated statements of operations. A decision to elect the fair value option for an eligible financial instrument, which may be made on an instrument by instrument basis, is irrevocable (see Notes 2(b), 2(c), 3, 4, and 13). (p) Variable Interest Entities An entity is referred to as a VIE if it meets at least one of the following criteria: (i) the entity has equity that is insufficient to permit the entity to finance its activities without the additional subordinated financial support of other parties; or (ii) as a group, the holders of the equity investment at risk lack (a) the power to direct the activities of an entity that most significantly impact the entity’s economic performance; (b) the obligation to absorb the expected losses; or (c) the right to receive the expected residual returns; or (iii) the holders of the equity investment at risk have disproportional voting rights and the entity’s activities are conducted on behalf of the investor that has disproportionately few voting rights. The Company consolidates a VIE when it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. The Company has entered into several financing transactions which resulted in the Company forming entities to facilitate these transactions. In determining the accounting treatment to be applied to these transactions, the Company concluded that the entities used to facilitate these transactions are VIEs and that they should be consolidated. If the Company had determined that consolidation was not required, it would have then assessed whether the transfers of the underlying assets would qualify as sales or should be accounted for as secured financings under GAAP (see Note 14). The Company also includes on its consolidated balance sheets certain financial assets and liabilities that are acquired/issued by trusts and/or other special purpose entities that have been evaluated as being required to be consolidated by the Company under the applicable accounting guidance. The Company has an investment in a VIE, in which it is not considered to be the primary beneficiary and therefore is not consolidated, but is considered an equity method investment. The VIE owns a newly constructed industrial property as further described in Note 5. (q) Offering Costs Related to Issuance and Redemption of Preferred Stock Offering costs related to the issuance of preferred stock are recorded as a reduction in Additional paid-in capital, a component of Stockholders’ Equity, at the time such preferred stock is issued. On redemption of preferred stock, any excess of the fair value of the consideration transferred to the holders of the preferred stock over the carrying amount of the preferred stock in the Company’s consolidated balance sheets is included in the determination of Net Income Available to Common Stock and Participating Securities in the calculation of EPS. 87 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 ( r ) Contingencies Lima One has reached agreement, or is in the process of reaching agreement, on certain state and local governmental incentives, in connection with its agreement to lease new office space for its headquarters in Greenville, SC based on certain anticipated capital expenditures and anticipated job creation. These incentives are generally recognized when there is reasonable assurance that the incentive will be received and that the Company will comply with the conditions specified in the related agreement. These incentives have commitment terms of up to ten years and may be subject to clawback if the commitments are not fulfilled. No material amounts related to any incentives have been recognized through December 31, 2023. (s) New Accounting Standards and Interpretations As of December 31, 2023, there were no new accounting standards or interpretations adopted by the Company that had a material effect on its consolidated financial statements in 2023. 3. Residential Whole Loans Included on the Company’s consolidated balance sheets at December 31, 2023 and 2022 are approximately $ 9.0 billion and $ 7.5 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. Starting in the second quarter of 2021, the Company elected the fair value option for all loan acquisitions, including loans originated by Lima One subsequent to its acquisition by the Company. Prior to the second quarter of 2021, the fair value option was typically elected only for Purchased Non-performing Loans. The following table presents the components of the Company’s Residential whole loans, and the accounting model designated at December 31, 2023 and 2022: Held at Carrying Value Held at Fair Value Total (Dollars in Thousands) December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Purchased Performing Loans: Non-QM loans $ 843,884 $ 987,282 $ 2,961,693 $ 2,372,548 $ 3,805,577 $ 3,359,830 Transitional loans (1) 35,467 75,188 2,326,029 1,342,032 2,361,496 1,417,220 Single-family rental loans (2) 172,213 210,833 1,462,583 1,165,741 1,634,796 1,376,574 Seasoned performing loans 68,945 82,932 — — 68,945 82,932 Agency eligible investor loans — — 55,779 51,094 55,779 51,094 Total Purchased Performing Loans $ 1,120,509 $ 1,356,235 $ 6,806,084 $ 4,931,415 $ 7,926,593 $ 6,287,650 Purchased Credit Deteriorated Loans $ 429,726 $ 470,294 $ — $ — $ 429,726 $ 470,294 Allowance for Credit Losses $ ( 20,451 ) $ ( 35,314 ) $ — $ — $ ( 20,451 ) $ ( 35,314 ) Purchased Non-Performing Loans $ — $ — $ 705,424 $ 796,109 $ 705,424 $ 796,109 Total Residential Whole Loans $ 1,529,784 $ 1,791,215 $ 7,511,508 $ 5,727,524 $ 9,041,292 $ 7,518,739 Number of loans 6,326 7,126 19,075 16,717 25,401 23,843 (1) As of December 31, 2023 includes $ 1.2 billion of loans collateralized by one-to-four family residential properties, including $ 471.1 million of loans collateralized by new construction projects at origination, and $ 1.2 billion of Transitional loans collateralized by multi-family properties. As of December 31, 2022, includes $ 784.9 million of loans collateralized by one-to-four family residential properties, including $ 283.1 million of loans collateralized by new construction projects at origination, and $ 632.3 million of Transitional loans collateralized by multi-family properties. (2) As of December 31, 2023, includes held-for-sale loans with a carrying value of $ 13.6 million. For the 12 months ended December 31, 2023, the Company recorded a $ 1.2 million loss on these loans resulting from adjusting their carrying value to the lower of cost or fair value. 88 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following table presents additional information regarding the Company’s Residential whole loans at December 31, 2023 and 2022: December 31, 2023 Fair Value / Carrying Value Unpaid Principal Balance (“UPB”) Weighted Average Coupon (2) Weighted Average Term to Maturity (Months) Weighted Average LTV Ratio (3) Weighted Average Original FICO (4) Aging by UPB 60+ Delinquency % Past Due Days (Dollars In Thousands) Current 30-59 60-89 90+ Purchased Performing Loans: Non-QM loans (5) $ 3,700,052 $ 3,934,798 5.78 % 344 65 % 735 $ 3,732,327 $ 98,017 $ 29,587 $ 74,867 2.7 % Transitional loans (1) 2,358,909 2,368,121 9.22 10 64 747 2,187,161 61,024 26,618 93,318 5.1 Single-family rental loans 1,630,442 1,729,923 6.30 320 70 738 1,636,810 12,543 12,314 68,256 4.7 Seasoned performing loans 68,924 75,715 4.58 143 28 725 72,126 1,045 235 2,309 3.4 Agency eligible investor loans 55,779 66,830 3.44 332 66 758 65,094 1,508 — 228 0.3 Total Purchased Performing Loans $ 7,814,106 $ 8,175,387 6.86 % 240 3.8 % Purchased Credit Deteriorated Loans $ 418,109 $ 506,828 4.83 % 267 59 % N/A $ 379,970 $ 44,731 $ 12,814 $ 69,313 16.2 % Purchased Non-Performing Loans $ 705,424 $ 772,737 5.21 % 270 62 % N/A $ 444,491 $ 96,464 $ 31,560 $ 200,222 30.0 % Residential whole loans, total or weighted average $ 8,937,639 $ 9,454,952 6.04 % 234 6.6 % December 31, 2022 Fair Value / Carrying Value Unpaid Principal Balance (“UPB”) Weighted Average Coupon (2) Weighted Average Term to Maturity (Months) Weighted Average LTV Ratio (3) Weighted Average Original FICO (4) Aging by UPB 60+ Delinquency % Past Due Days (Dollars In Thousands) Current 30-59 60-89 90+ Purchased Performing Loans: 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 % 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 Seasoned performing loans 82,884 90,843 3.31 151 30 714 84,514 993 937 4,399 5.9 Agency eligible investor loans 51,094 61,816 3.44 344 68 757 61,816 — — — — Total Purchased Performing Loans $ 6,273,743 $ 6,741,786 5.78 % 271 3.1 % Purchased Credit Deteriorated Loans $ 448,887 $ 554,907 4.66 % 277 63 % N/A $ 403,042 $ 48,107 $ 16,270 $ 87,488 18.7 % Purchased Non-Performing Loans $ 796,109 $ 884,257 5.01 % 277 68 % N/A $ 444,045 $ 89,623 $ 40,554 $ 310,035 39.6 % Residential whole loans, total or weighted average $ 7,518,739 $ 8,180,950 5.64 % 272 8.1 % (1) As of December 31, 2023 Transitional loans includes $ 1.2 billion of loans collateralized by multi-family properties with a weighted average term to maturity of 14 months and a weighted average LTV ratio of 63 %. 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 64 %. 89 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (2) Weighted average is calculated based on the interest bearing principal balance of each loan within the related category. For loans acquired with servicing rights released by the seller, interest rates included in the calculation do not reflect loan servicing fees. For loans acquired with servicing rights retained by the seller, interest rates included in the calculation are net of servicing fees. (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 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 $ 551.3 million and $ 223.2 million at December 31, 2023 and December 31, 2022, respectively, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 68 % and 70 % at December 31, 2023 and December 31, 2022, respectively. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful. 60+ LTV has been calculated on a consistent basis. (4) Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available. (5) Excluded from the table above are approximately $ 103.7 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of December 31, 2023. 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. In addition, during 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. During 2023, Non-QM loans with an unpaid principal balance of $ 101.2 million were sold, realizing losses, before the impact of economic hedging gains and the reversal of previously recognized unrealized losses, of $ 26.4 million. 90 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Allowance for Credit Losses The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential Whole Loans, at Carrying Value: For the Year Ended December 31, 2023 (Dollars In Thousands) Non-QM Loans Transitional Loans (1)(2) Single-family Rental Loans (4) Seasoned Performing Loans Purchased Credit Deteriorated Loans (3) Totals Allowance for credit losses at December 31, 2022 $ 7,359 $ 5,223 $ 1,277 $ 48 $ 21,407 $ 35,314 Current provision/(reversal) ( 214 ) 406 514 ( 2 ) ( 389 ) 315 Write-offs — ( 2,003 ) ( 451 ) — ( 113 ) ( 2,567 ) Allowance for credit losses at March 31, 2023 $ 7,145 $ 3,626 $ 1,340 $ 46 $ 20,905 $ 33,062 Current provision/(reversal) ( 233 ) 999 ( 103 ) ( 4 ) ( 394 ) 265 Write-offs ( 206 ) ( 1,785 ) — — ( 301 ) ( 2,292 ) Allowance for credit losses at June 30, 2023 $ 6,706 $ 2,840 $ 1,237 $ 42 $ 20,210 $ 31,035 Current provision/(reversal) ( 2,627 ) 559 329 ( 14 ) 501 ( 1,252 ) Write-offs — ( 881 ) ( 235 ) — ( 110 ) ( 1,226 ) Allowance for credit losses at September 30, 2023 $ 4,079 $ 2,518 $ 1,331 $ 28 $ 20,601 $ 28,557 Current provision/(reversal) ( 2,208 ) 230 3,123 ( 7 ) ( 8,975 ) ( 7,838 ) Write-offs — ( 161 ) ( 99 ) — ( 9 ) ( 269 ) Allowance for credit losses at December 31, 2023 $ 1,871 $ 2,587 $ 4,354 $ 21 $ 11,617 $ 20,451 For the Year Ended December 31, 2022 (Dollars In Thousands) Non-QM Loans Transitional Loans (1)(2) Single-family Rental Loans Seasoned Performing Loans Purchased Credit Deteriorated Loans (3) Totals Allowance for credit losses at December 31, 2021 $ 8,289 $ 6,881 $ 1,451 $ 46 $ 22,780 $ 39,447 Current provision ( 909 ) ( 1,460 ) ( 122 ) ( 1 ) ( 975 ) ( 3,467 ) Write-offs ( 51 ) ( 219 ) ( 27 ) — ( 226 ) ( 523 ) Allowance for credit and valuation losses at March 31, 2022 $ 7,329 $ 5,202 $ 1,302 $ 45 $ 21,579 $ 35,457 Current provision/(reversal) ( 199 ) ( 23 ) 174 1 1,877 1,830 Write-offs — ( 118 ) ( 184 ) — ( 58 ) ( 360 ) Allowance for credit losses at June 30, 2022 $ 7,130 $ 5,061 $ 1,292 $ 46 $ 23,398 $ 36,927 Current provision/(reversal) ( 242 ) 583 83 3 120 547 Write-offs — ( 114 ) ( 61 ) — ( 107 ) ( 282 ) Allowance for credit losses at September 30, 2022 $ 6,888 $ 5,530 $ 1,314 $ 49 $ 23,411 $ 37,192 Current provision/(reversal) 471 ( 13 ) ( 37 ) ( 1 ) ( 1,996 ) ( 1,576 ) Write-offs — ( 294 ) — — ( 8 ) ( 302 ) Allowance for credit losses at December 31, 2022 $ 7,359 $ 5,223 $ 1,277 $ 48 $ 21,407 $ 35,314 (1) In connection with Transitional loans at carrying value, the Company had unfunded commitments of $ 2.5 million and $ 8.0 million as of December 31, 2023 and 2022, respectively, with an allowance for credit losses of $ 0 and $ 29,000 at December 31, 2023 and 2022, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7). (2) Includes $ 26.3 million and $ 56.1 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2023 and 2022, respectively. (3) Includes $ 53.0 million and $ 48.5 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2023 and 2022, respectively. (4) Includes $ 10.6 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2023. Prior to December 31, 2023, the Company’s estimates of expected losses that form the basis of the Allowance for Credit Losses included certain qualitative adjustments which had 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 91 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 market conditions that occurred in historical periods. Such differences included uncertainty with respect to any residual 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 may experience higher delinquencies and defaults compared to the performance in historical periods of portfolios included in the available proxy data. During 2023, the Company eliminated its qualitative adjustment and made updates to certain of its modeling assumptions which, in addition to a reduction in loan balances subject to allowances, caused a reduction in the overall allowance. Estimates of credit losses under credit losses on financial instruments (“ CECL”) are highly sensitive to changes in assumptions and current economic conditions have increased the difficulty of accurately forecasting future conditions. The amortized cost basis of Purchased Performing Loans on nonaccrual status as of December 31, 2023 and December 31, 2022 was $ 266.9 million and $ 195.1 million, respectively. The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of December 31, 2023 and December 31, 2022 was $ 66.5 million and $ 80.5 million, respectively. The fair value of Purchased Non-performing Loans on nonaccrual status as of December 31, 2023 and December 31, 2022 was $ 315.4 million and $ 413.1 million, respectively. During the year ended December 31, 2023, the Company recognized $ 14.9 million of interest income on loans on nonaccrual status, including $ 9.8 million on its portfolio of loans which were non-performing at acquisition. At December 31, 2023 and December 31, 2022, there were approximately $ 51.6 million and $ 71.7 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. During the year ended December 31, 2023, the Company granted four loan modifications in its carrying value loan portfolio which gave borrowers term extensions. The average increase in weighted average life was 23 months. As of December 31, 2023, the carrying value of these loans were approximately $ 563,000 . As of December 31, 2023, one of these modifications was delinquent for more than 90 days and three were current. 92 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following table presents certain additional credit-related information regarding our Residential whole loans, at Carrying Value: Amortized Cost Basis by Origination Year and LTV Bands (Dollars In Thousands) 2023 2022 2021 2020 2019 Prior Total Non-QM loans LTV <= 80% (1) $ — $ — $ 43,610 $ 167,368 $ 395,894 $ 217,863 $ 824,735 LTV > 80% (1) — — 1,391 10,420 3,960 3,377 19,148 Total Non-QM loans $ — $ — $ 45,001 $ 177,788 $ 399,854 $ 221,240 $ 843,883 Year Ended December 31, 2023 Gross write-offs $ — $ — $ — $ 71 $ 25 $ 110 $ 206 Transitional loans LTV <= 80% (1) $ — $ — $ 504 $ 3,915 $ 21,086 $ 7,782 $ 33,287 LTV > 80% (1) — — — — 2,180 — 2,180 Total Transitional loans $ — $ — $ 504 $ 3,915 $ 23,266 $ 7,782 $ 35,467 Year Ended December 31, 2023 Gross write-offs $ — $ — $ 14 $ 47 $ 3,130 $ 1,639 $ 4,830 Single-family rental loans LTV <= 80% (1) $ — $ — $ 11,234 $ 20,043 $ 91,040 $ 36,530 $ 158,847 LTV > 80% (1) — — — 296 12,343 727 13,366 Total Single-family rental loans $ — $ — $ 11,234 $ 20,339 $ 103,383 $ 37,257 $ 172,213 Year Ended December 31, 2023 Gross write-offs $ — $ — $ — $ 160 $ 624 $ — $ 784 Seasoned performing loans LTV <= 80% (1) $ — $ — $ — $ — $ — $ 66,563 $ 66,563 LTV > 80% (1) — — — — — 2,382 2,382 Total Seasoned performing loans $ — $ — $ — $ — $ — $ 68,945 $ 68,945 Year Ended December 31, 2023 Gross write-offs $ — $ — $ — $ — $ — $ — $ — Purchased credit deteriorated loans LTV <= 80% (1) $ — $ — $ — $ — $ — $ 367,748 $ 367,748 LTV > 80% (1) — — — — — 61,978 61,978 Total Purchased credit deteriorated loans $ — $ — $ — $ — $ — $ 429,726 $ 429,726 Year Ended December 31, 2023 Gross write-offs $ — $ — $ — $ — $ — $ 534 $ 534 Total LTV <= 80% (1) $ — $ — $ 55,348 $ 191,326 $ 508,020 $ 696,486 $ 1,451,180 Total LTV > 80% (1) — — 1,391 10,716 18,483 68,464 99,054 Total residential whole loans, at carrying value $ — $ — $ 56,739 $ 202,042 $ 526,503 $ 764,950 $ 1,550,234 Year Ended December 31, 2023 Total Gross write-offs $ — $ — $ 14 $ 278 $ 3,779 $ 2,283 $ 6,354 (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 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 $ 551.3 million at December 31, 2023, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting is 68 % at December 31, 2023. Certain low value loans secured by vacant lots are categorized as LTV > 80%. 93 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following tables present certain information regarding the LTVs of the Company’s Residential whole loans that are 60 days or more delinquent: December 31, 2023 (Dollars In Thousands) Carrying Value / Fair Value UPB LTV (1) Purchased Performing Loans Non-QM loans $ 102,252 $ 104,454 63.9 % Transitional loans 113,772 119,936 65.1 % Single-family rental loans 65,659 80,570 109.1 % Seasoned performing loans 2,520 2,544 33.6 % Agency eligible investor loans 188 228 73.4 % Total Purchased Performing Loans $ 284,391 $ 307,732 Purchased Credit Deteriorated Loans $ 66,089 $ 82,127 64.3 % Purchased Non-Performing Loans $ 222,319 $ 231,782 70.7 % Total Residential Whole Loans $ 572,799 $ 621,641 December 31, 2022 (Dollars In Thousands) Carrying Value / Fair Value UPB LTV (1) Purchased Performing Loans Non-QM loans $ 61,812 $ 61,719 67.9 % Transitional loans 73,266 74,180 68.1 % Single-family rental loans 27,466 27,463 72.9 % Seasoned performing loans 4,127 4,399 42.2 % Agency eligible investor loans — — — % Total Purchased Performing Loans $ 166,671 $ 167,761 Purchased Credit Deteriorated Loans $ 69,402 $ 87,488 74.8 % Purchased Non-Performing Loans $ 296,697 $ 310,035 76.9 % Total Residential Whole Loans $ 532,770 $ 565,284 (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 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, 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. 94 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following tables present the components of interest income on the Company’s Residential whole loans for the years ended December 31, 2023, 2022 and 2021: Held at Carrying Value Held at Fair Value Total For the Year Ended December 31, For the Year Ended December 31, For the Year Ended December 31, (In Thousands) 2023 2022 2021 2023 2022 2021 2023 2022 2021 Purchased Performing Loans: Non-QM loans $ 47,471 $ 51,359 $ 75,517 $ 145,856 $ 98,384 $ 21,431 $ 193,327 $ 149,743 $ 96,948 Transitional loans 1,346 7,810 22,424 148,083 67,714 10,705 149,429 75,524 33,129 Single-family rental loans 11,167 15,314 24,863 82,974 53,661 9,306 94,141 68,975 34,169 Seasoned performing loans 4,504 4,673 6,684 — — — 4,504 4,673 6,684 Agency eligible investor loans — — — 4,372 30,361 11,667 4,372 30,361 11,667 Total Purchased Performing Loans $ 64,488 $ 79,156 $ 129,488 $ 381,285 $ 250,120 $ 53,109 $ 445,773 $ 329,276 $ 182,597 Purchased Credit Deteriorated Loans $ 29,646 $ 33,427 $ 40,130 $ — $ — $ — $ 29,646 $ 33,427 $ 40,130 Purchased Non-Performing Loans $ — $ — $ — $ 62,464 $ 78,520 $ 80,741 $ 62,464 $ 78,520 $ 80,741 Total Residential Whole Loans $ 94,134 $ 112,583 $ 169,618 $ 443,749 $ 328,640 $ 133,850 $ 537,883 $ 441,223 $ 303,468 4. Securities, at Fair Value 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 following table presents certain information regarding the composition of our Agency MBS portfolio as of December 31, 2023 : December 31, 2023 (Dollars in Thousands) Current Face Weighted Average Purchase Price Weighted Average Market Price Fair Value Weighted Average Loan Age (Months) CPR (1) 30-Year Fixed Rate: 5.00 % Coupon $ 76,360 100.2 % 99.1 % $ 75,650 9 2.4 % 5.50 % Coupon 277,885 100.4 100.7 279,851 11 5.2 6.00 % Coupon 177,842 100.0 101.7 180,841 7 4.2 6.50 % Coupon 22,213 100.1 102.7 22,802 4 1.4 Total $ 554,300 100.3 % 100.9 % $ 559,144 9 4.3 % (1) Reflects the average of the one month CPR for the number of months the security was held during the most recent three month period. 95 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Term Notes Backed by MSR Collateral At December 31, 2023 and 2022, the Company had $ 79.9 million and $ 97.9 million, respectively, of term notes issued by SPVs that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs. Payment of principal and interest on these term notes is considered to be largely dependent on cash flows generated by the underlying MSRs, as this impacts the cash flows available to the SPV that issued the term notes. At December 31, 2023, these term notes had an amortized cost of $ 74.2 million, gross unrealized gains of approximately $ 5.7 million, a weighted average yield of 17 % and a weighted average term to maturity of 1.84 years. At December 31, 2022, the 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. The issuer of the notes had a one -time option to extend the maturity of the notes for an additional two years , subject to satisfaction of certain conditions, which was exercised in October 2023. The coupon stepped up by 0.75 % at the time of the extension. CRT Securities CRT securities are debt obligations issued by or sponsored by Fannie Mae and Freddie Mac. The coupon payments on CRT securities are paid by the issuer and the principal payments received are dependent on the performance of loans in either a reference pool or an actual pool of loans. At December 31, 2023 and December 31, 2022, the Company had $ 83.2 million and $ 79.2 million, respectively, of CRT securities. As an investor in a CRT security, the Company may incur a principal loss if the performance of the actual or reference pool loans results in either an actual or calculated loss that exceeds the credit enhancement of the security owned by the Company. The Company assesses the credit risk associated with its investments in CRT securities by assessing the current and expected future performance of the associated loan pool. The Company pledges a portion of its CRT securities as collateral against its borrowings under repurchase agreements (see Note 6). Non-Agency MBS Non-Agency MBS are primarily secured by pools of residential mortgages, which are not guaranteed by an agency of the U.S. Government or any federally chartered corporation. At December 31, 2023, and December 31, 2022, the Company had $ 23.8 million and $ 24.6 million, respectively, of Non-Agency MBS. These securities were acquired on the de-consolidation of certain trusts that held previously securitized Agency Eligible investor loans. 96 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following tables present certain information about the Company’s Agency MBS and other Securities, at December 31, 2023 and 2022: December 31, 2023 (In Thousands) Principal/ Current Face Purchase Premiums Accretable Purchase Discounts Discount Designated as Credit Reserve (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Gain/(Loss) Fair Value Agency MBS $ 554,300 $ 1,824 $ ( 500 ) $ — $ 555,624 $ 4,355 $ ( 835 ) $ 3,520 $ 559,144 Other Securities (2)(3)(4) 193,102 19,686 ( 5,637 ) ( 40,514 ) 166,637 20,437 ( 128 ) 20,309 186,946 Total residential mortgage securities (2)(3)(4) $ 747,402 $ 21,510 $ ( 6,137 ) $ ( 40,514 ) $ 722,261 $ 24,792 $ ( 963 ) $ 23,829 $ 746,090 December 31, 2022 (In Thousands) Principal/ Current Face Purchase Premiums Accretable Purchase Discounts Discount Designated as Credit Reserve (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Gain/(Loss) Fair Value Agency MBS $ 131,165 $ 860 $ — $ — $ 132,025 $ — $ ( 325 ) $ ( 325 ) $ 131,700 Other Securities (2)(3)(4) 215,649 18,344 ( 6,272 ) ( 46,332 ) 181,389 21,473 ( 1,198 ) 20,275 201,664 Total residential mortgage securities (2)(3)(4) $ 346,814 $ 19,204 $ ( 6,272 ) $ ( 46,332 ) $ 313,414 $ 21,473 $ ( 1,523 ) $ 19,950 $ 333,364 (1) Discount designated as Credit Reserve is generally not expected to be accreted into interest income. (2) Based on management ’ s current estimates of future principal cash flows expected to be received. (3) Amounts disclosed at December 31, 2023 include CRT securities with a fair value of $ 51.2 million for which the fair value option has been elected. Such securities had approximately $ 2.3 million gross unrealized gains and no gross unrealized losses at December 31, 2023. Amounts disclosed at December 31, 2022 includes 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. (4) Amounts disclosed at December 31, 2023 include Non-Agency MBS with a fair value of $ 23.8 million for which the fair value option has been elected. Such securities had $ 474,000 gross unrealized gains and $ 128,000 gross unrealized losses at December 31, 2023. 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. Sales of Residential Mortgage Securities During the year ended December 31, 2023, the Company sold MSR securities for approximately $ 18.2 million, realizing gains of $ 908,000 . During the year ended December 31, 2022, the Company sold CRT securities for approximately $ 15.7 million, realizing gains of $ 84,000 . The Company did not sell any of its residential mortgage securities during the year ended December 31, 2021. 97 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Impairment and other net gain/(loss) on securities and other portfolio investment s The following table present the components of Impairment and other net gain/(loss) on securities and other portfolio investments for the years ended December 31, 2023, 2022 and 2021, which is presented in Other Income/(Loss), net in the consolidated statements of operations: For the Year Ended December 31, (In Thousands) 2023 2022 2021 Net unrealized gain/(loss) on securities $ 7,341 $ ( 3,230 ) $ 1,607 Net realized gain from the sale of securities 908 84 — Total Impairment and other net gain/(loss) on securities $ 8,249 $ ( 3,146 ) $ 1,607 Net unrealized gain/(loss) on other portfolio investments $ 6,180 $ ( 21,921 ) $ — Net realized loss on other portfolio investments ( 5,869 ) — — Reversal of impairment/(impairment) other portfolio investments (1) ( 2,335 ) — 33,956 Gain on investment in Lima One common equity — — 38,933 Total Impairment and other net gain/(loss) on securities and other portfolio investments $ 6,225 $ ( 25,067 ) $ 74,496 (1) Includes impairment in 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. Unrealized Losses on Residential Mortgage Securities There were no gross unrealized losses on the Company’s AFS securities at December 31, 2023. The Company did not recognize an allowance for credit losses through earnings related to its MBS for the years ended December 31, 2023, 2022 and 2021. Impact of AFS Securities on AOCI The following table presents the impact of the Company’s AFS securities on its AOCI for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, (In Thousands) 2023 2022 2021 AOCI from AFS securities: Unrealized gain on AFS securities at beginning of period $ 21,341 $ 46,833 $ 79,607 Unrealized gains/(losses) on securities available-for-sale ( 2,873 ) ( 25,492 ) ( 32,774 ) Reclassification adjustment for MBS sales included in net income ( 770 ) — — Change in AOCI from AFS securities ( 3,643 ) ( 25,492 ) ( 32,774 ) Balance at end of period $ 17,698 $ 21,341 $ 46,833 98 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Interest Income on Securities, at Fair Value The following table presents the components of interest income on the Company’s Securities, at fair value for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, (In Thousands) 2023 2022 2021 Agency MBS Coupon interest $ 20,676 $ — $ — Effective yield adjustment (1)(2) ( 146 ) — — Interest income $ 20,529 $ — $ — Other MBS Coupon interest $ 8,128 $ 4,793 $ 4,076 Effective yield adjustment (1)(2)(3) 191 3,143 13,265 Interest income $ 8,319 $ 7,936 $ 17,341 Term notes backed by MSR collateral Coupon interest $ 8,423 $ 6,610 $ 7,462 Effective yield adjustment (2)(4) $ 5,104 $ 14,374 $ 31,887 Interest income $ 13,527 $ 20,984 $ 39,349 (1) Includes amortization of premium paid net of accretion of purchase discount. Interest income is recorded at an effective yield, which reflects net premium amortization/accretion based on actual prepayment activity. (2) The effective yield adjustment is the difference between the net income calculated using the net yield less the current coupon yield. 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 $ 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. 99 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 5. Other Assets The following table presents the components of the Company’s Other assets at December 31, 2023 and 2022: (In Thousands) December 31, 2023 December 31, 2022 Receivable for sale of unsettled residential whole loans $ — $ 275,656 REO 110,174 130,605 Commercial REO 22,717 — Goodwill 61,076 61,076 Intangibles, net (1) 8,000 12,200 Capital contributions made to loan origination partners 19,780 28,308 Commercial loans 51,426 61,510 Interest receivable 98,924 68,704 Other loan related receivables 24,084 23,463 Lease Right-of-Use Asset (2) 37,819 39,459 Other 63,097 65,240 Total Other Assets $ 497,097 $ 766,221 (1) Net of aggregate accumulated amortization of $ 20.0 million and $ 15.8 million as of December 31, 2023 and 2022, respectively. (2) An estimated incremental borrowing rate of 7.5 % was used in connection with the Company’s primary operating lease (see Notes 2 and 9). (a) Real Estate Owned and Commercial REO At December 31, 2023, the Company had 300 REO properties with an aggregate carrying value of $ 110.2 million. At December 31, 2022, the Company had 388 REO properties with an aggregate carrying value of $ 130.6 million. At December 31, 2023, $ 110.1 million of residential real estate property was held by the Company that was acquired either through a completed foreclosure proceeding or from completion of a deed-in-lieu of foreclosure or similar legal agreement. In addition, formal foreclosure proceedings were in process with respect to $ 89.1 million of residential whole loans held at carrying value and $ 264.5 million of residential whole loans held at fair value at December 31, 2023. The following table presents the activity in the Company’s REO for the years ended December 31, 2023 and 2022: For the Year Ended December 31, (Dollars In Thousands) 2023 2022 Balance at beginning of period $ 130,605 $ 156,223 Adjustments to record at lower of cost or fair value ( 4,867 ) ( 4,255 ) Transfer from residential whole loans (1) 84,662 82,911 Purchases and capital improvements, net 421 978 Disposals and other (2) ( 100,647 ) ( 105,252 ) Balance at end of period $ 110,174 $ 130,605 Number of properties 300 388 (1) Includes a net loss recorded on transfer of approximately $ 400,000 and $ 1.2 million, respectively, for the years ended December 31, 2023 and December 31, 2022. (2) During the year ended December 31, 2023, the Company sold 342 REO properties for consideration of $ 114.3 million, realizing net gains of approximately $ 14.4 million. 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. These amounts are included in Other Income/(Loss), net on the Company’s consolidated statements of operations. 100 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Commercial REO The Company received a 75 % interest in an entity which owns a newly constructed industrial property as part of the negotiated settlement of a delinquent commercial mortgage loan. The entity was determined to be a VIE but the Company was not determined to be the primary beneficiary; as a result, the investment in the entity is considered an equity method investment. At the time the Company received this interest, it was valued at $ 22.7 million and the Company recorded a $ 0.3 million gain over the carrying value of the commercial loan. The entity accounts for this commercial REO similarly to the manner in which the Company accounts for its residential REO. The entity does not own any other significant assets or carry any significant liabilities and the property is currently vacant and considered held for sale. ( b ) Goodwill and Intangible Assets On July 1, 2021, the Company completed the acquisition of Lima One. 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, 2023, 2022 and 2021 is summarized in the table below: (Dollars in Thousands) Acquisition Date July 1, 2021 Amortization Year Ended December 31, 2021 Amortization Year Ended December 31, 2022 Amortization Year Ended December 31, 2023 Carrying Value at December 31, 2023 Amortization Period (Years) (1) Trademarks / Trade Names $ 4,000 $ ( 200 ) $ ( 400 ) $ ( 400 ) $ 3,000 10 Customer Relationships 16,000 ( 4,000 ) ( 6,000 ) ( 3,000 ) 3,000 4 Internally Developed Software 4,000 ( 400 ) ( 800 ) ( 800 ) 2,000 5 Non-Compete Agreements 4,000 ( 2,000 ) ( 2,000 ) — — 1 Total Identified Intangibles $ 28,000 $ ( 6,600 ) $ ( 9,200 ) $ ( 4,200 ) $ 8,000 (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 . ( 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, 2023, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $ 19.8 million, including $ 4.7 million of common equity (including partnership interests) and $ 15.1 million of preferred equity. During the year ended December 31, 2023, the Company recorded an impairment charge in earnings of $ 2.3 million against the carrying value of its investment in one loan origination partner. In 2023, the Company sold a preferred equity interest in one loan origination partner, which was recorded at $ 6.6 million, and recorded a gain of $ 0.1 million. 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. The Company did not record any impairment charges to earnings on investments in loan origination partners during the year ended December 31, 2021. For certain of the Company’s investments, the interests acquired to date by the Company generally do not have a readily 101 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 determinable fair value. Consequently, 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. 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. 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 (see Note 15). Accordingly, the Company consolidated Lima One’s financial results beginning on that date. ( d) Commercial Mortgage Loans The Company owns a portfolio of participations in commercial mortgage bridge loans, which are accounted for at fair value under the fair value option, and are classified as Level 3 fair value measurements in the fair value hierarchy. The participations range from 49 % to 75 % of the total UPB of the related loans; the remaining interest in each loan was retained by the originator of such loan. The commercial mortgage loans are predominantly collateralized by multi-family properties; the collateral also includes one senior living property, one parking, and one office property. The commercial mortgage loans are generally first liens and bear variable interest rates. The Company received an interest in one of the underlying properties in the fourth quarter of 2023, as further described above under “Commercial REO.” The following table presents certain additional information about the Company’s commercial mortgage loans as of December 31, 2023 and December 31, 2022: (In Thousands) Fair Value / Carrying Value UPB Weighted Average Coupon Weighted Average Term to Maturity (Months) UPB 60+ Days Delinquent Commercial Mortgage Loans - December 31, 2023 $ 51,426 $ 51,602 13.18 % 2 $ 3,521 Commercial Mortgage Loans - December 31, 2022 $ 61,510 $ 61,510 11.54 % 10 $ — (e) Derivative Instruments Swaps 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 the Secured Overnight Financing Rate (“SOFR”), on the notional amount of the Swap. At December 31, 2023, none of the Company’s Swaps were designated as hedges for accounting purposes. 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. The following table presents the assets pledged as collateral against the Company’s Swaps at December 31, 2023, and December 31, 2022: (In Thousands) December 31, 2023 December 31, 2022 Agency MBS, at fair value $ 41,179 $ — Restricted Cash 22,880 60,764 102 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 At December 31, 2023, the Company had Swaps with an aggregate notional amount of $ 3.3 billion and an average maturity of approximately 38 months with a maximum term of approximately 119 months. The following table presents information about the Company’s Swaps at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Maturity (1) Notional Amount Weighted Average Fixed-Pay Interest Rate Weighted Average Variable Interest Rate (2) Notional Amount Weighted Average Fixed-Pay Interest Rate Weighted Average Variable Interest Rate (2) (Dollars in Thousands) Within 30 days $ — — % — % $ — — % — % Over 30 days to 3 months 100,000 1.49 5.38 — — — Over 3 months to 6 months — — — — — — Over 6 months to 12 months 450,010 0.90 5.38 — — — Over 12 months to 24 months 675,000 1.52 5.38 550,010 1.01 4.30 Over 24 months to 36 months 450,000 1.12 5.38 775,000 1.75 4.30 Over 36 months to 48 months 975,000 1.73 5.38 450,000 1.12 4.30 Over 48 months to 60 months 24,600 4.28 5.38 1,075,000 1.86 4.30 Over 60 months to 72 months 310,000 2.95 5.38 — — — Over 72 months to 84 months — — — 310,000 2.95 4.30 Over 84 months 292,650 4.32 5.38 — — — Total Swaps $ 3,277,260 1.85 % 5.38 % $ 3,160,010 1.69 % 4.30 % (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. This rate adjusts daily based on SOFR. 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, 2023, 2022 and 2021, which is presented in Other Income/(Loss), net in the consolidated statements of operations: For the Year Ended December 31, (In Thousands) 2023 2022 2021 Income on swap variable receive leg $ 158,554 $ 52,395 $ 34 Expense on swap fixed pay leg ( 51,400 ) ( 42,353 ) ( 703 ) Unrealized mark-to-market gain/(loss) ( 91,696 ) 208,712 70 Net price alignment expense on margin collateral received ( 11,697 ) ( 2,762 ) — Net gain on TBA short positions — 39,187 2,025 Total Net gain/(loss) on derivatives used for risk management purposes $ 3,761 $ 255,179 $ 1,426 103 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 6. Financing Agreements The following tables present the components of, and certain information with respect to, the Company’s Financing agreements at December 31, 2023 and 2022: December 31, 2023 (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 $ 1,738,543 $ 1,737,651 7.23 % 11.8 Agreements with mark-to-market collateral provisions Securities 622,603 622,603 5.75 % 0.2 Total Agreements with mark-to-market collateral provisions 2,361,146 2,360,254 6.93 % Agreements with non-mark-to-market collateral provisions Residential Whole Loans and REO 1,217,671 1,216,697 7.71 % 20.6 Securitized debt Residential Whole Loans 4,894,746 4,750,805 4.00 % See Note 14 Convertible senior notes Unsecured 209,589 208,989 6.94 % 5.5 Impact of net Swap carry ( 1.36 ) % Total Financing agreements (2) $ 8,683,152 $ 8,536,745 4.11 % December 31, 2022 (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 % 17.5 Impact of net Swap carry ( 0.14 ) % Total Financing agreements (2) $ 7,043,944 $ 6,812,086 3.46 % (1) The Company has both financing agreements held at fair value and financing 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, 2023, the Company had $ 178.9 million of agreements with mark-to-market collateral provisions held at fair value, $ 469.4 million of agreements with non-mark-to-market collateral provisions held at fair value, and $ 4.0 billion of securitized debt held at fair value, with amortized cost bases of $ 178.9 million, $ 469.4 million, and, $ 4.1 billion respectively. 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. (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, 2023, this decreased the overall funding cost by 136 basis points, and for the year ended December 31, 2022, this decreased the overall funding cost by 14 basis points. The Company does not allocate the impact of the net carry by type of financing agreement. 104 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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, 2023 Unpaid Principal Balance, Maturing In (In Thousands) Collateral 0-3 Months (1) 3-6 Months 6-12 Months Greater than 12 Months (2) Total Agreements with mark-to-market collateral provisions Residential Whole Loans $ 601,102 $ 58,561 $ 564,772 $ 514,108 $ 1,738,543 Agreements with mark-to-market collateral provisions Securities 622,603 — — — 622,603 Total Agreements with mark-to-market collateral provisions 1,223,705 58,561 564,772 514,108 2,361,146 Agreements with non-mark-to-market collateral provisions Residential Whole Loans 36,341 10,151 44,342 1,126,837 1,217,671 (1) $ 945.8 million of the mark-to-market agreements (included in the 0-3 months category) can be terminated by either party. (2) Amounts presented are based on the assumed exercise of the Company’s unilateral option to extend by one year the maturity of an agreement with mark-to-market collateral provisions with $ 335.2 million outstanding. The longest maturity date is approximately 33 months. 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, 2023 and 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Mark-to-market financing agreements secured by residential whole loans $ 1,712,489 $ 2,095,002 Fair value of residential whole loans pledged as collateral under financing agreements $ 2,204,239 $ 2,632,489 Weighted average haircut on residential whole loans (1) 20.90 % 18.33 % Mark-to-market financing agreements secured by securities at fair value $ 622,603 $ 111,651 Securities at fair value pledged as collateral under financing agreements $ 689,818 $ 177,111 Weighted average haircut on securities at fair value (1) 8.07 % 37.43 % Mark-to-market financing agreements secured by real estate owned $ 25,163 $ 16,394 Fair value of real estate owned pledged as collateral under financing agreements $ 50,365 $ 33,367 Weighted average haircut on real estate owned (1) 49.39 % 48.07 % (1) Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount. 105 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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, 2023 and 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Non-mark-to-market financing secured by residential whole loans $ 1,216,697 $ 994,494 Fair value of residential whole loans pledged as collateral under financing agreements $ 1,510,146 $ 1,301,685 Weighted average haircut on residential whole loans 17.65 % 21.43 % Non-mark-to-market financing secured by real estate owned $ — $ 9,109 Fair value of real estate owned pledged as collateral under financing agreements $ — $ 22,902 Weighted average haircut on real estate owned — % 60.23 % In addition, the Company had aggregate restricted cash held in connection with its financing agreements of $ 19.0 million and $ 16.0 million at December 31, 2023 and 2022, respectively. The following table presents repricing information (excluding the impact of associated derivative hedging instruments, if any) about the Company’s financing agreements that have non-mark-to-market collateral provisions as well as those that have mark-to-market collateral provisions, at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Amortized Cost Basis Weighted Average Interest Rate Amortized Cost Basis Weighted Average Interest Rate Time Until Interest Rate Reset (Dollars in Thousands) Within 30 days $ 3,578,816 7.36 % $ 3,060,111 6.60 % Over 30 days to 3 months — — 167,447 6.19 Over 3 months to 12 months — — — — Over 12 months — — — — Total financing agreements $ 3,578,816 7.37 % $ 3,227,558 6.58 % (a) Other Information on Financing Agreements Convertible Senior Notes On June 3, 2019, the Company issued $ 230.0 million in aggregate principal amount of its Convertible Senior Notes in an underwritten public offering, including an additional $ 30.0 million issued pursuant to the exercise of the underwriters’ option to purchase additional Convertible Senior Notes. The total net proceeds the Company received from the offering were approximately $ 223.3 million, after deducting offering expenses and the underwriting discount. 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 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. In February 2023, the Company’s Board authorized a repurchase program for its Convertible Senior Notes pursuant to which it may repurchase up to $ 100 million of its 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 the Company may 106 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 repurchase its 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. During the year ended December 31, 2023, the Company repurchased $ 20.4 million principal amount of the Convertible Senior Notes for $ 20.2 million and recorded a gain of $ 89,000 to Other Income/(Loss), net on the consolidated statement of operations. At December 31, 2023, the aggregate principal amount of the Company’s Convertible Senior Notes outstanding was $ 209.6 million. 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. (b) Counterparties The Company had financing agreements, including repurchase agreements and other forms of secured financing, with 14 and 12 counterparties at December 31, 2023 and 2022, respectively. The following table presents information with respect to each counterparty under financing agreements for which the Company had greater than 5 % of stockholders’ equity at risk in the aggregate at December 31, 2023: December 31, 2023 Amount at Risk (1) Weighted Average Months to Repricing for Repurchase Agreements Percent of Stockholders’ Equity Counterparty (Dollars in Thousands) Wells Fargo $ 283,820 1 14.9 % Barclays 168,512 1 8.9 Churchill 152,409 1 8.0 (1) The amount at risk reflects the difference between (a) the amount loaned to the Company through financing agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such assets. 107 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (c) Pledged Collateral The following tables present the Company’s assets (based on carrying value) pledged as collateral for its various financing arrangements as of December 31, 2023 and 2022: December 31, 2023 Financing Agreements (In Thousands) Non-Mark-to-Market (1) Mark-to-Market (1) Securitized Total Assets: Residential whole loans, at carrying value $ 55,056 $ 318,762 $ 1,170,268 $ 1,544,086 Residential whole loans, at fair value 1,458,848 1,414,912 4,526,461 7,400,221 Securities, at fair value — 689,818 — 689,818 Other assets: REO — 43,295 33,334 76,629 Total $ 1,513,904 $ 2,466,787 $ 5,730,063 $ 9,710,754 December 31, 2022 Financing Agreements (In Thousands) Non-Mark-to-Market (1) Mark-to-Market (1) Securitized Total Assets: Residential whole loans, at carrying value $ 215,993 $ 284,683 $ 1,314,104 $ 1,814,780 Residential whole loans, at fair value 1,095,556 2,164,158 2,720,757 5,980,471 Securities, at fair value — 177,111 — 177,111 Other assets: REO 19,837 28,490 36,486 84,813 Total $ 1,331,386 $ 2,654,442 $ 4,071,347 $ 8,057,175 (1) An aggregate of $ 36.4 million and $ 30.9 million of accrued interest on those assets pledged against non-mark-to-market and mark-to-market financings agreements had also been pledged as of December 31, 2023 and 2022, respectively. The Company pledges securities or cash as collateral to its counterparties in relation to certain of its financing arrangements. The Company exchanges collateral with its counterparties based on changes in the fair value, notional amount and term of the associated financing arrangements and Swaps, as applicable. In connection with these margining practices, either the Company or its counterparty may be required to pledge cash or securities as collateral. 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(e) - Derivative Instruments. Certain of the Company’s financing arrangements and derivative transactions are governed by underlying agreements that generally provide for a right of setoff in the event of default or in the event of a bankruptcy of either party to the transaction. In the Company’s consolidated balance sheets, all balances associated with repurchase agreements are presented on a gross basis. 108 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 7 . Other Liabilities The following table presents the components of the Company’s Other liabilities at December 31, 2023 and 2022: (In Thousands) December 31, 2023 December 31, 2022 Payable for unsettled investment purchases $ 103,654 $ 132,026 Dividends and dividend equivalents payable 35,789 35,769 Lease liability 43,576 45,314 Accrued interest payable 30,834 23,040 Accrued expenses and other 122,177 75,321 Total Other Liabilities $ 336,030 $ 311,470 8. Income Taxes The Company has elected to be taxed as a REIT under the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”), and the corresponding provisions of state law. The Company expects to operate in a manner that will enable it to satisfy the various requirements to maintain its status as a REIT for federal income tax purposes. In order to maintain its status as a REIT, the Company must, among other things, distribute at least 90% of its REIT taxable income (excluding net long-term capital gains) to stockholders in the timeframe permitted by the Code. As long as the Company maintains its status as a REIT, the Company will not be subject to regular federal income tax at the REIT level to the extent that it distributes 100% of its REIT taxable income (including net long-term capital gains) to its stockholders within the permitted timeframe. Should this not occur, the Company would be subject to federal taxes at prevailing corporate tax rates on the difference between its REIT taxable income and the amounts deemed to be distributed for that tax year. The Company’s objective is to distribute 100 % of its REIT taxable income to its stockholders within the permitted timeframe. If the Company fails to distribute during each calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for such year, and (iii) any undistributed taxable income from prior periods, the Company would be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. To the extent that the Company incurs interest, penalties or related excise taxes in connection with its tax obligations, including as a result of its assessment of uncertain tax positions, such amounts will be included in Operating and Other Expense on the Company’s consolidated statements of operations. In addition, the Company has elected to treat certain of its subsidiaries as TRS. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. Generally, a domestic TRS is subject to U.S. federal, state and local corporate income taxes. Given that a portion of the Company’s business is conducted through one or more TRS, the net taxable income earned by its domestic TRS, if any, is subject to corporate income taxation. To maintain the Company’s REIT election, no more than 20% of the value of the Company’s assets at the end of each calendar quarter may consist of stock or securities in TRS. For purposes of the determination of U.S. federal and state income taxes, the Company’s subsidiaries that elected to be treated as TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP. Based on its analysis of any potentially uncertain tax positions, the Company concluded that it does not have any material uncertain tax positions that meet the relevant recognition or measurement criteria as of December 31, 2023 or 2022. As of the date of this filing, the Company’s tax returns for tax years 2020 through 2022 are open to examination. 109 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The tax effects of temporary differences that give rise to significant portions of net deferred tax assets (“DTAs”) recorded at the Company’s domestic TRS entities at December 31, 2023 and 2022 are presented in the following table: (In Thousands) December 31, 2023 December 31, 2022 Deferred tax assets (DTAs): Net operating loss and tax credit carryforwards $ 91,113 $ 97,655 Unrealized mark-to-market, impairments and loss provisions 16,170 12,609 Other realized / unrealized treatment differences ( 34,923 ) ( 28,620 ) Total deferred tax assets 72,360 81,644 Less: valuation allowance ( 72,360 ) ( 81,644 ) Net deferred tax assets $ — $ — Realization of the Company’s DTAs at December 31, 2023 is dependent on several factors, including generating sufficient taxable income prior to the expiration of net operating loss (“NOL”) carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. The Company determines the extent to which realization of the deferred assets is not expected to be more likely than not and establishes a valuation allowance accordingly. No net deferred tax benefit was recorded by the Company for the years ended December 31, 2023 and 2022, 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; those generated in 2018 and later can be carried forward indefinitely, until fully utilized. The Company’s estimate of net DTAs could change in future periods to the extent that actual or revised estimates of future taxable income change from current expectations. At December 31, 2023, the Company’s federal NOL carryforward from prior years was $ 332.2 million, which may be carried forward indefinitely. If certain substantial changes in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwards that can be utilized. The income tax provision (benefit) is included in Other general and administrative expense in the Company’s consolidated statements of operations. The following table summarizes the Company’s income tax provision/(benefit) primarily recorded at the Company’s domestic TRS entities for the years ended December 31, 2023, 2022, and 2021: For the Year Ended (In Thousands) December 31, 2023 December 31, 2022 December 31, 2021 Current provision/(benefit) Federal $ ( 21 ) $ ( 1,309 ) $ 2,025 State — 263 644 Total current provision/(benefit) ( 21 ) ( 1,046 ) 2,669 Deferred provision/(benefit) Federal 251 166 — State 48 29 — Total deferred provision/(benefit) 299 195 — Total provision/(benefit) $ 278 $ ( 851 ) $ 2,669 110 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following is a reconciliation of the statutory federal tax rate to the Company’s effective tax rate at December 31, 2023, 2022, and 2021: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Federal statutory rate 21.0 % 21.0 % 21.0 % Non-taxable REIT income (dividends paid deduction) ( 34.9 ) % 2.6 % ( 4.6 ) % Other differences in taxable income/(loss) from GAAP 23.7 % ( 13.0 ) % ( 4.7 ) % State and local taxes — % — % — % Change in valuation allowance on DTAs ( 9.5 ) % ( 10.1 ) % ( 11.1 ) % Effective tax rate 0.3 % 0.5 % 0.6 % 9. Commitments and Contingencies (a) Lease Commitments The Company’s primary lease commitment relates to its corporate headquarters. For the year ended December 31, 2023, the Company recorded an expense of approximately $ 5.2 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 $ 6.7 million, $ 6.5 million and $ 4.0 million for the years ended December 31, 2023, 2022 and 2021, respectively, which is included in Other general and administrative expense on the Company’s consolidated statements of operations. At December 31, 2023, the contractual minimum rental payments (exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes) for the Company’s lease commitments were as follows: Year Ended December 31, Minimum Rental Payments (In Thousands) 2024 $ 6,068 2025 5,212 2026 4,839 2027 5,119 2028 5,055 Thereafter 41,944 Total $ 68,237 Present Value Discount ( 24,661 ) Total Lease Liability (Note 7) $ 43,576 Additionally, in June 2023, Lima One executed a lease agreement on new office space in Greenville, South Carolina for a thirteen-year term. The Company expects the average annual lease rental expense to be approximately $ 3.0 million. Lima One currently expects to relocate to the space in the first fiscal quarter of 2025. Further, Lima One has the ability to terminate the lease agreement if vertical construction of the building is not started by April 2024. (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, 2023, the Company was not aware of any material unsettled repurchase claims that would require a reserve (see Note 14). 111 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (c) Loan Commitments At December 31, 2023, the Company had unfunded commitments of $ 585.8 million in connection with its Transitional loans (see Note 3). From time to time, Lima One makes short-term commitments to originate mortgage loans; such commitments were not significant at December 31, 2023. 10. Stockholders’ Equity ( a ) Preferred Stock 7.50 % Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”) On April 15, 2013, the Company completed the issuance of 8.0 million shares of its Series B Preferred Stock with a par value of $ 0.01 per share, and a liquidation preference of $ 25.00 per share plus accrued and unpaid dividends, in an underwritten public offering. The Company’s Series B Preferred Stock is entitled to receive a dividend at a rate of 7.50 % per year on the $ 25.00 liquidation preference before the Company’s common stock is paid any dividends and is senior to the Company’s common stock with respect to distributions upon liquidation, dissolution or winding up. Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about March 31, June 30, September 30 and December 31 of each year. The Series B Preferred Stock is redeemable at $ 25.00 per share plus accrued and unpaid dividends (whether or not authorized or declared), exclusively at the Company’s option. The Series B Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive). Under such circumstances, the Series B Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board of Directors (the “Board”), until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of the Series B Preferred Stock cannot be made without the affirmative vote of holders of at least 66 2/3% of the outstanding shares of Series B Preferred Stock. The following table presents cash dividends declared by the Company on its Series B Preferred Stock from January 1, 2021 through December 31, 2023: Year Declaration Date Record Date Payment Date Dividend Per Share 2023 November 21, 2023 December 4, 2023 December 29, 2023 $ 0.46875 August 17, 2023 September 5, 2023 September 29, 2023 0.46875 May 22, 2023 June 5, 2023 June 30, 2023 0.46875 February 21, 2023 March 6, 2023 March 31, 2023 0.46875 2022 November 18, 2022 December 5, 2022 December 30, 2022 $ 0.46875 August 22, 2022 September 6, 2022 September 30, 2022 0.46875 May 18, 2022 June 1, 2022 June 30, 2022 0.46875 February 17, 2022 March 1, 2022 March 31, 2022 0.46875 2021 November 16, 2021 December 1, 2021 December 31, 2021 $ 0.46875 August 26, 2021 September 8, 2021 September 30, 2021 0.46875 May 24, 2021 June 7, 2021 June 30, 2021 0.46875 February 19, 2021 March 5, 2021 March 31, 2021 0.46875 112 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 6.50 % Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) On February 28, 2020, the Company amended its charter through the filing of articles supplementary to reclassify 12,650,000 shares of the Company’s authorized but unissued common stock as shares of the Company’s Series C Preferred Stock. On March 2, 2020, the Company completed the issuance of 11.0 million shares of its Series C Preferred Stock with a par value of $ 0.01 per share, and a liquidation preference of $ 25.00 per share plus accrued and unpaid dividends, in an underwritten public offering. The total net proceeds the Company received from the offering were approximately $ 266.0 million, after deducting offering expenses and the underwriting discount. The Company’s Series C Preferred Stock is entitled to receive dividends (i) from and including the original issue date to, but excluding, March 31, 2025, at a fixed rate of 6.50 % per year on the $ 25.00 liquidation preference and (ii) from and including March 31, 2025, at a floating rate equal to three-month 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. In light of the discontinuance of the publication of three-month LIBOR after June 2023, and pursuant to the terms of the Series C Preferred Stock, the Company will, prior to March 31, 2025, appoint a calculation agent 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. Although the Company has not yet appointed a calculation agent and a substitute or successor base rate has not yet been selected, the Company expects that three-month SOFR will be the substitute or successor base rate to three-month LIBOR. 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. The Series C Preferred Stock is not redeemable by the Company prior to March 31, 2025, except under circumstances where it is necessary to preserve the Company’s qualification as a REIT for U.S. federal income tax purposes and upon the occurrence of certain specified change in control transactions. On or after March 31, 2025, the Company may, at its option, subject to certain procedural requirements, redeem any or all of the shares of the Series C Preferred Stock for cash at a redemption price of $ 25.00 per share, plus any accrued and unpaid dividends thereon (whether or not authorized or declared) to, but excluding, the redemption date. The Series C Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive). Under such circumstances, the Series C Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board, until all unpaid dividends have been paid or declared and set apart for payment. 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. 113 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following table presents cash dividends declared by the Company on its Series C Preferred Stock from January 1, 2021 through December 31, 2023: Year Declaration Date Record Date Payment Date Dividend Per Share 2023 November 21, 2023 December 4, 2023 December 29, 2023 $ 0.40625 August 17, 2023 September 5, 2023 September 29, 2023 0.40625 May 22, 2023 June 5, 2023 June 30, 2023 0.40625 February 21, 2023 March 6, 2023 March 31, 2023 0.40625 2022 November 18, 2022 December 5, 2022 December 30, 2022 $ 0.40625 August 22, 2022 September 6, 2022 September 30, 2022 0.40625 May 18, 2022 June 1, 2022 June 30, 2022 0.40625 February 17, 2022 March 1, 2022 March 31, 2022 0.40625 2021 November 16, 2021 December 1, 2021 December 31, 2021 $ 0.40625 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 114 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (b) Dividends on Common Stock The following table presents cash dividends declared by the Company on its common stock from January 1, 2021 through December 31, 2023: Year Declaration Date Record Date Payment Date Dividend Per Share 2023 December 13, 2023 December 29, 2023 January 31, 2024 $ 0.350 (1) September 20, 2023 October 2, 2023 October 31, 2023 0.350 June 15, 2023 June 30, 2023 July 31, 2023 0.350 March 10, 2023 March 31, 2023 April 28, 2023 0.350 2022 December 14, 2022 December 30, 2022 January 31, 2023 $ 0.350 (2) September 13, 2022 September 30, 2022 October 31, 2022 0.440 June 15, 2022 June 30, 2022 July 29, 2022 0.440 March 11, 2022 March 22, 2022 April 29, 2022 0.440 (3) 2021 December 14, 2021 December 31, 2021 January 31, 2022 $ 0.440 (4)(5) September 15, 2021 September 30, 2021 October 29, 2021 0.400 (4) June 15, 2021 June 30, 2021 July 30, 2021 0.400 (4) March 12, 2021 March 31, 2021 April 30, 2021 0.300 (4) (1) At December 31, 2023, the Company had accrued dividends and dividend equivalents payable of $ 35.8 million related to the common stock dividend declared on December 13, 2023. This dividend will be treated as a dividend paid in 2024 to the extent of the Company’s earnings and profits in 2024. (2) 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. A portion of this dividend was considered taxable income to the recipient in 2023. For more information see the Company’s 2023 Dividend Tax Information on its website. (3) 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). (4) 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). (5) 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. A portion of this dividend was considered taxable income to the recipient in 2022. For more information see the Company’s 2022 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, 2023, the portion of the Company’s common stock dividends paid during the year deemed to be a return of capital was $ 0.4108 per share of common stock. 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. 115 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (c) Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (“DRSPP”) 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. 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, 2023, 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, 2023, 2022 and 2021, the Company issued 6,666 , 80,027 and 107,925 shares of common stock through the DRSPP, raising net proceeds of approximately $ 74,000 , $ 1.2 million and $ 1.9 million, respectively. From the inception of the DRSPP in September 2003 through December 31, 2023, the Company issued 8,848,219 shares pursuant to the DRSPP, raising net proceeds of $ 290.8 million. (d) Stock Repurchase Program On March 11, 2022, the Company’s Board authorized a stock repurchase program under which the Company could repurchase up to $ 250 million of its common stock through the end of 2023. The Board’s authorization superseded and replaced the authorization under a 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. The timing and extent to which the Company repurchases its shares will depend upon, among other things, market conditions, share price, liquidity, regulatory requirements and other factors, and repurchases may be commenced or suspended at any time without prior notice. Acquisitions under the 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”)). The Company did not repurchase any shares of its common stock during the year ended December 31, 2023. During the years ended December 31, 2022 and 2021, the Company repurchased 6,476,746 and 5,025,374 shares of its common stock through the stock repurchase program at an average cost of $ 15.80 and $ 17.04 per share and a total cost of approximately $ 102.1 million and $ 85.6 million, net of fees and commissions paid to the sales agent of approximately $ 161,000 and $ 201,000 , respectively. Upon expiration of the repurchase authorization on December 31, 2023, approximately $ 202.5 million remained unused under the stock repurchase program. 116 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (e) Accumulated Other Comprehensive Income/(Loss) The following tables present changes in the balances of each component of the Company’s AOCI for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, 2023 (In Thousands) Net Unrealized Gain/(Loss) on AFS Securities Net Unrealized Gain/(Loss) on Financing Agreements (1) Total AOCI Balance at beginning of period $ 21,341 $ — $ 21,341 OCI before reclassifications ( 2,873 ) — ( 2,873 ) Amounts reclassified from AOCI ( 770 ) — ( 770 ) Net OCI during the period (2) ( 3,643 ) — ( 3,643 ) Balance at end of period $ 17,698 $ — $ 17,698 For the Year Ended December 31, 2022 (In Thousands) Net Unrealized Gain/(Loss) on AFS Securities Net Unrealized Gain/(Loss) on Financing Agreements (1) Total AOCI Balance at beginning of period $ 46,833 $ ( 1,255 ) $ 45,578 OCI before reclassifications ( 25,492 ) 1,255 ( 24,237 ) Amounts reclassified from AOCI — — — Net OCI during the period (2) ( 25,492 ) 1,255 ( 24,237 ) Balance at end of period $ 21,341 $ — $ 21,341 For the Year Ended December 31, 2021 (In Thousands) Net Unrealized Gain/(Loss) on AFS Securities Net Unrealized Gain/(Loss) on Financing Agreements (1) Total AOCI Balance at beginning of period $ 79,607 $ ( 2,314 ) $ 77,293 OCI before reclassifications ( 32,774 ) 1,059 ( 31,715 ) Amounts reclassified from AOCI — — — Net OCI during the period (2) ( 32,774 ) 1,059 ( 31,715 ) Balance at end of period $ 46,833 $ ( 1,255 ) $ 45,578 (1) Net Unrealized Gain/(Loss) on Financing Agreements at Fair Value due to changes in instrument-specific credit risk. (2) For further information regarding changes in OCI, see the Company’s consolidated statements of comprehensive income/(loss). 117 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 11. 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, 2023, 2022 and 2021: For the Year Ended December 31, (In Thousands, Except Per Share Amounts) 2023 2022 2021 Basic Earnings/(Loss) per Share: Net income/(loss) to common stockholders $ 80,164 $ ( 231,581 ) $ 328,870 Dividends declared on preferred stock ( 32,875 ) ( 32,875 ) ( 32,875 ) Dividends, dividend equivalents and undistributed earnings allocated to participating securities — ( 627 ) ( 1,044 ) Net income/(loss) to common stockholders - basic $ 47,289 $ ( 265,083 ) $ 294,951 Basic weighted average common shares outstanding 102,215 103,153 110,704 Basic Earnings/(Loss) per Share $ 0.46 $ ( 2.57 ) $ 2.66 Diluted Earnings/(Loss) per Share: Net income/(loss) to common stockholders - basic $ 47,289 $ ( 265,083 ) $ 294,951 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 $ 47,289 $ ( 265,083 ) $ 311,663 Basic weighted average common shares outstanding 102,215 103,153 110,704 Unvested and vested restricted stock units 1,363 — 757 Effect of assumed conversion of Convertible Senior Notes to common shares — — 7,230 Diluted weighted average common shares outstanding (1) 103,578 103,153 118,691 Diluted Earnings/(Loss) per Share $ 0.46 $ ( 2.57 ) $ 2.63 (1) At December 31, 2023, the Company had approximately 3.8 million equity instruments outstanding that were included in the calculation of diluted EPS for the year ended December 31, 2023. These equity instruments reflect RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $ 11.89 . These equity instruments may continue to have a dilutive impact on future EPS. During the year ended December 31, 2023, 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. 12. Equity Compensation and Other Benefit Plans (a) Equity Compensation Plan In accordance with the terms of the Company’s Equity Plan, which was approved by the Company’s stockholders on June 6, 2023 (and which amended and restated the Company’s 2020 Equity Compensation Plan), directors, officers and employees of the Company and any of its subsidiaries and other persons expected to provide significant services for the Company and any of its subsidiaries are eligible to receive grants of stock options (“Options”), restricted stock, RSUs, dividend equivalent rights and other stock-based awards under the Equity Plan. Subject to certain exceptions, stock-based awards relating to a maximum of 8.5 million shares of common stock may be granted under the Equity Plan; forfeitures and/or awards that expire unexercised do not count toward this limit. At December 31, 2023, approximately 5.3 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 118 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Company’s common stock. Unless previously terminated by the Board, awards may be granted under the Equity Plan until June 6, 2033. Restricted Stock Units Under the terms of the Equity Plan, RSUs are instruments that provide the holder with the right to receive, subject to the satisfaction of conditions set by the Compensation Committee at the time of grant, a payment of a specified value, which may be a share of the Company’s common stock, the fair market value of a share of the Company’s common stock, or such fair market value to the extent in excess of an established base value, on the applicable settlement date. Although the Equity Plan permits the Company to issue RSUs that can settle in cash, all of the Company’s outstanding RSUs as of December 31, 2023 are designated to be settled in shares of the Company’s common stock. All holders of RSUs outstanding at December 31, 2023 may be entitled to receive dividend equivalent payments depending on the terms and conditions of the award either in cash at the time dividends are paid by the Company or at the time settlement of the RSU award, or for performance-based RSU awards, as a grant of stock at the time such awards are settled. At December 31, 2023 and 2022, the Company had unrecognized compensation expense of $ 9.2 million and $ 11.2 million, respectively, related to RSUs. The unrecognized compensation expense at December 31, 2023 is expected to be recognized over a weighted average period of 1.5 years. 119 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following table presents information with respect to the Company’s RSUs during the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, 2023 RSUs With Service Condition Weighted Average Grant Date Fair Value Per Share RSUs With Market and Service Conditions Weighted Average Grant Date Fair Value Per Share Total RSUs Total Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of year: 921,308 $ 18.63 1,138,495 $ 15.76 2,059,803 $ 17.04 Granted (1) 610,680 10.32 997,383 7.95 1,608,063 8.85 Settled ( 146,440 ) 27.90 ( 190,800 ) 21.98 ( 337,240 ) 24.55 Cancelled/forfeited ( 65,489 ) 13.44 ( 77,236 ) 10.72 ( 142,725 ) 11.97 Outstanding at end of year 1,320,059 $ 14.01 1,867,842 $ 11.16 3,187,901 $ 12.34 RSUs vested but not settled at end of year 635,595 $ 15.63 560,114 $ 13.61 1,195,709 $ 14.68 RSUs unvested at end of year 684,464 $ 12.52 1,307,728 $ 10.11 1,992,192 $ 10.94 For the Year Ended December 31, 2022 RSUs With Service Condition Weighted Average Grant Date Fair Value Per Share RSUs With Market and Service Conditions Weighted Average Grant Date Fair Value Per Share Total RSUs Total Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of year: 712,160 $ 20.22 905,708 $ 17.14 1,617,868 $ 18.50 Granted (2) 296,379 17.19 381,397 16.04 677,776 16.54 Settled ( 66,125 ) 29.56 ( 112,752 ) 27.86 ( 178,877 ) 28.49 Cancelled/forfeited ( 21,106 ) 17.63 ( 35,858 ) 15.56 ( 56,964 ) 16.33 Outstanding at end of year 921,308 $ 18.63 1,138,495 $ 15.76 2,059,803 $ 17.04 RSUs vested but not settled at end of year 394,996 $ 20.67 190,800 $ 21.98 585,796 $ 21.10 RSUs unvested at end of year 526,312 $ 17.10 947,695 $ 14.51 1,474,007 $ 15.43 For the Year Ended December 31, 2021 RSUs With Service Condition Weighted Average Grant Date Fair Value Per Share RSUs With Market and Service Conditions Weighted Average Grant Date Fair Value Per Share Total RSUs Total Weighted Average Grant Date Fair Value Per Share Outstanding at beginning of year: 457,376 $ 24.76 405,806 $ 25.03 863,182 $ 24.89 Granted (3) 379,281 16.63 602,156 13.60 981,437 14.77 Settled ( 124,497 ) 25.98 ( 102,254 ) 27.62 ( 226,751 ) 26.72 Outstanding at end of year 712,160 $ 20.22 905,708 $ 17.14 1,617,868 $ 18.50 RSUs vested but not settled at end of year 285,734 $ 20.89 112,752 $ 27.86 398,486 $ 22.86 RSUs unvested at end of year 426,426 $ 19.77 792,956 $ 15.62 1,219,382 $ 17.07 (1) The weighted average grant date fair value of these awards require the Company to estimate certain valuation inputs. In determining the fair value for 1,517,675 of these awards granted in 2023, the Company applied: (i) a weighted average volatility estimate of approximately 56 %, 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 4.12 % based on the continuously compounded constant maturity treasury rate corresponding to a maturity commensurate with the expected vesting term of 120 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 the awards, respectively. The weighted average grant date fair value for the remaining 90,388 awards with a service condition only was estimated based on the closing price of the Company’s common stock at the grant date of $ 11.23 . All of the 997,383 RSUs granted in 2023, 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. To account for the estimated loss of value due to this holding restriction, a discount for lack of marketability is applied after the payout value is determined. There is no post vesting holding requirement on the 610,680 RSUs granted in 2023 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 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 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 based on the closing price of the Company’s common stock at the grant date of $ 13.67 . All of the 381,397 RSUs with market and service conditions granted in 2022 are subject to a one-year post-vesting holding requirement. To account for the estimated loss of value due to this holding restriction, a discount for lack of marketability is applied after the payout value is determined. 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. (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 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-year 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. 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. To account for the estimated loss of value due to this holding restriction, a discount for lack of marketability is applied after the payout value is determined. There are no post vesting conditions on the 379,281 RSUs with service conditions granted in 2021. Restricted Stock At December 31, 2023, 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, 2023 and 2022, respectively. Dividend Equivalents 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 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 awards of approximately $ 463,000 , $ 659,000 , and $ 566,000 during the years ended December 31, 2023, 2022 and 2021, respectively. In addition, no dividend equivalents rights awarded as separate instruments were granted during the years ended December 31, 2023, 2022 and 2021. Expense Recognized for Equity-Based Compensation Instruments The following table presents the Company’s expenses related to its equity-based compensation instruments for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, (In Thousands) 2023 2022 2021 RSUs $ 15,035 $ 11,338 $ 9,043 Restricted shares of common stock — — — Total $ 15,035 $ 11,338 $ 9,043 121 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (b) Deferred Compensation Plans The Company administers deferred compensation plans for its senior officers and non-employee directors (collectively, the “Deferred Plans”), pursuant to which participants may elect to defer up to 100 % of certain cash compensation. The Deferred Plans are designed to align participants’ interests with those of the Company’s stockholders. Amounts deferred under the Deferred Plans are considered to be converted into “stock units” of the Company. Stock units do not represent stock of the Company, but rather are a liability of the Company that changes in value as would equivalent shares of the Company’s common stock. Deferred compensation liabilities are settled in cash at the termination of the deferral period, based on the value of the stock units at that time. The Deferred Plans are non-qualified plans under the Employee Retirement Income Security Act of 1974 and, as such, are not funded. Prior to the time that the deferred accounts are settled, participants are unsecured creditors of the Company. The Company’s liability for stock units in the Deferred Plans is based on the market price of the Company’s common stock at the measurement date. The following table presents the Company’s expenses related to its Deferred Plans for the years ended December 31, 2023, 2022 and 2021: For the Year Ended December 31, (In Thousands) 2023 2022 2021 Non-employee directors $ 586 $ ( 1,133 ) $ 537 Total $ 586 $ ( 1,133 ) $ 537 The Company distributed cash of approximately $ 374,000 and $ 53,000 to the participants of the Deferred Plans during the years ended December 31, 2023 and 2022, respectively. The Company did not distribute cash to the participants of the Deferred Plans during the year ended December 31, 2021. The following table presents the aggregate amount of income deferred by participants of the Deferred Plans through December 31, 2023 and 2022 that had not been distributed and the Company’s associated liability for such deferrals at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 (In Thousands) Undistributed Income Deferred (1) Liability Under Deferred Plans Undistributed Income Deferred (1) Liability Under Deferred Plans Non-employee directors $ 2,611 $ 2,404 $ 2,923 $ 1,953 Total $ 2,611 $ 2,404 $ 2,923 $ 1,953 (1) Represents the cumulative amounts that were deferred by participants through December 31, 2023 and 2022, which had not been distributed through such respective date. (c) Savings Plan The Company sponsors a tax-qualified employee savings plan (the “Savings Plan”) in accordance with Section 401(k) of the Code. Subject to certain restrictions, all of the Company’s employees are eligible to make tax-deferred contributions to the Savings Plan subject to limitations under applicable law. Participant’s accounts are self-directed and the Company bears the costs of administering the Savings Plan. The Company matches 100 % of the first 3 % of eligible compensation deferred by employees and 50 % of the next 2 %, subject to a maximum as provided by the Code. 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, 2023, 2022 and 2021, the Company recognized expenses for matching contributions of $ 1.3 million, $ 1.3 million and $ 697,000 , respectively. 122 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 13. Fair Value of Financial Instruments GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of valuation hierarchy are defined as follows: Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 — Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement. 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. Residential Whole Loans, at Fair Value 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. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield. 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 Residential Mortgage Securities In determining the fair value of the Company’s other residential mortgage securities, management considers a number of observable market data points, including prices obtained from pricing services and brokers as well as dialogue with market participants. Valuations of TBA securities positions are based on executed levels for positions entered into and subsequently rolled forward, as well as prices obtained from pricing services for outstanding positions at each reporting date. These valuations are assessed for reasonableness by considering market TBA levels observed via Bloomberg for the same coupon and term to maturity. In valuing Non-Agency MBS, the Company understands that pricing services use observable inputs that include, in addition to trading activity observed in the marketplace, loan delinquency data, credit enhancement levels and vintage, which are taken into account to assign pricing factors such as spread and prepayment assumptions. The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available. The Company’s residential mortgage securities are valued using various market data points as described above, which management considers directly or indirectly observable parameters. Accordingly, these securities are classified as Level 2 in the fair value hierarchy. 123 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Term Notes Backed by MSR Collateral The Company’s valuation process for term notes backed by MSR collateral is similar to that used for residential mortgage securities and considers a number of observable market data points, including prices obtained from pricing services, brokers and repurchase agreement counterparties, dialogue with market participants, as well as management’s observations of market activity. 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 if cash flows generated by the related underlying MSR collateral are insufficient. 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. Financing Agreements, at Fair Value Agreements with mark-to-market collateral provisions These agreements are secured and subject to margin calls and their base interest rates reset frequently to market based rates. As a result, no credit valuation adjustment is required, and the primary factor in determining their fair value is the credit spread paid over the base rate, which is a non-observable input as it is determined based on negotiations with the counterparty. The Company’s financing agreements with mark-to-market collateral provisions held at fair value are classified as Level 2 in the fair value hierarchy if the credit spreads used to price the instrument reset frequently, which is typically the case with shorter term repurchase agreement contracts collateralized by securities. Financing agreements with mark-to-market collateral provisions that are typically longer term and are collateralized by residential whole loans where the credit spread paid over the base rate on the instrument is not reset frequently are classified as Level 3 in the fair value hierarchy. Agreements with non-mark-to-market collateral provisions These agreements are secured, but not subject to margin calls based on changes in the fair value of the financed residential whole loans. Such agreements may experience changes in advance rates or collateral eligibility as a result of factors such as changes in the delinquency status of the financed residential whole loans. As a result, a credit valuation adjustment would only be required if there were a significant decrease in collateral value, and the primary factor in determining their fair value is the credit spread paid over the base rate, which is a non-observable input as it is determined based on negotiations with the counterparty. The Company’s financing agreements with non-mark-to-market collateral provisions held at fair value are classified as Level 3 in the fair value hierarchy. Securitized Debt In determining the fair value of securitized debt, management considers a number of observable market data points, including prices obtained from pricing services and brokers as well as dialogue with market participants, consistent with the valuation methodology for residential mortgage securities. Accordingly, the Company’s securitized debt is classified as Level 2 in the fair value hierarchy. Swaps 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. 124 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 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. The Company will refine its valuation methodologies as markets and products develop and pricing methodologies evolve. The methods described above may produce fair value estimates that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those used by market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced. 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. The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of December 31, 2023 and 2022, on the consolidated balance sheets by the valuation hierarchy, as previously described: Fair Value at December 31, 2023 (In Thousands) Level 1 Level 2 Level 3 Total Assets: Residential whole loans, at fair value $ — $ 55,779 $ 7,455,729 $ 7,511,508 Securities, at fair value — 746,090 — 746,090 Total assets carried at fair value $ — $ 801,869 $ 7,455,729 $ 8,257,598 Liabilities: Agreements with non-mark-to-market collateral provisions $ — $ — $ 469,424 $ 469,424 Agreements with mark-to-market collateral provisions — — 178,864 178,864 Securitized debt — 3,985,372 — 3,985,372 Total liabilities carried at fair value $ — $ 3,985,372 $ 648,288 $ 4,633,660 Fair Value at December 31, 2022 (In Thousands) Level 1 Level 2 Level 3 Total Assets: Residential whole loans, at fair value $ — $ 51,094 $ 5,676,430 $ 5,727,524 Securities, at fair value — 333,364 — 333,364 Total assets carried at fair value $ — $ 384,458 $ 5,676,430 $ 6,060,888 Liabilities: Agreements with non-mark-to-market collateral provisions $ — $ — $ 578,879 $ 578,879 Agreements with mark-to-market collateral provisions — — 884,495 884,495 Securitized debt — 2,435,370 — 2,435,370 Total liabilities carried at fair value $ — $ 2,435,370 $ 1,463,374 $ 3,898,744 125 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents additional information for the years ended December 31, 2023 and 2022 about the Company’s Residential whole loans, at fair value, which are classified as Level 3 and measured at fair value on a recurring basis: Residential Whole Loans, at Fair Value For the Year Ended December 31, (In Thousands) 2023 2022 Balance at beginning of period $ 5,676,430 $ 4,222,584 Purchases and originations 2,411,724 2,749,275 Draws 574,839 361,035 Changes in fair value recorded in Net gain/(loss) on residential whole loans measured at fair value through earnings 114,478 ( 668,899 ) Repayments ( 1,162,471 ) ( 925,773 ) Loan sales and repurchases ( 108,657 ) ( 10,496 ) Transfer to REO ( 50,614 ) ( 51,296 ) Balance at end of period $ 7,455,729 $ 5,676,430 The following table presents additional information for the years ended December 31, 2023 and 2022 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 Year Ended December 31, (In Thousands) 2023 2022 Balance at beginning of period $ 578,879 $ 628,280 Issuances 508,510 554,823 Payment of principal ( 617,965 ) ( 602,969 ) Change in unrealized losses — ( 1,255 ) Balance at end of period $ 469,424 $ 578,879 The following table presents additional information for the years ended December 31, 2023 and 2022 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 Year Ended December 31, (In Thousands) 2023 2022 Balance at beginning of period $ 884,495 $ 1,322,362 Issuances 192,560 1,153,555 Payment of principal ( 898,191 ) ( 1,591,422 ) Balance at end of period $ 178,864 $ 884,495 126 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 Fair Value Methodology for Level 3 Financial Instruments Residential Whole Loans, at Fair Value The following tables present a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Company’s residential whole loans held at fair value for which it has utilized Level 3 inputs to determine fair value as of December 31, 2023 and 2022: December 31, 2023 (Dollars in Thousands) Fair Value (1) Valuation Technique Unobservable Input Weighted Average (2) Range Purchased Non-Performing Loans $ 537,528 Discounted cash flow Discount rate 6.8 % 6.2 - 10.2 % Prepayment rate 9.7 % 0.0 - 38.9 % Default rate 2.1 % 0.0 - 39.5 % Loss severity 9.7 % 0.0 - 100.0 % $ 167,324 Liquidation model Discount rate 8.0 % 8.0 - 8.0 % Annual change in home prices 4.6 % ( 0.4 )- 12.7 % Liquidation timeline (in years) 2.1 0.1 - 4.5 Current value of underlying properties (3) $ 831 $ 24 -$ 4,720 Total $ 704,852 December 31, 2022 (Dollars in Thousands) Fair Value (1) Valuation Technique Unobservable Input Weighted Average (2) Range Purchased Non-Performing Loans $ 546,675 Discounted cash flow Discount rate 7.0 % 6.3 - 10.0 % Prepayment rate 8.9 % 0.0 - 33.5 % Default rate 3.7 % 0.0 - 52.4 % Loss severity 11.3 % 0.0 - 100.0 % $ 249,219 Liquidation model Discount rate 7.8 % 7.8 - 7.8 % Annual change in home prices 6.9 % ( 5.4 )- 59.7 % Liquidation timeline (in years) 1.9 0.1 - 4.5 Current value of underlying properties (3) $ 743 $ 28 -$ 4,000 Total $ 795,894 (1) Excludes approximately $ 572,000 and $ 215,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at December 31, 2023 and 2022, respectively. (2) Amounts are weighted based on the fair value of the underlying loan. (3) The simple average value of the properties underlying residential whole loans held at fair value valued via a liquidation model was approximately $ 494,000 and $ 457,000 as of December 31, 2023 and 2022, respectively. 127 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 December 31, 2023 (Dollars in Thousands) Fair Value (1) Valuation Technique Unobservable Input Weighted Average (2) Range Purchased Performing Loans $ 6,522,457 Discounted cash flow Discount rate 8.0 % 6.5 - 29.2 % Prepayment rate 10.1 % 0.0 - 46.4 % Default rate 0.5 % 0.0 - 27.3 % Loss severity 10.9 % 0.0 - 99.0 % $ 124,194 Liquidation model Discount rate 8.0 % 8.0 - 8.0 % Annual change in home prices 2.6 % 0.0 - 10.1 % Liquidation timeline (in years) 1.6 0.8 - 3.9 Current value of underlying properties $ 1,580 $ 35 -$ 5,500 Total $ 6,646,651 December 31, 2022 (Dollars in Thousands) Fair Value Valuation Technique Unobservable Input Weighted Average (1) Range Purchased Performing Loans $ 4,857,587 Discounted cash flow Discount rate 7.6 % 5.6 - 22.7 % Prepayment rate 7.9 % 0.0 - 44.8 % Default rate 0.8 % 0.0 - 19.4 % Loss severity 7.3 % 0.0 - 100.0 % $ 22,734 Liquidation model Discount rate 7.8 % 7.8 %- 7.8 % Annual change in home prices 3.2 % ( 1.0 )%- 10.7 % Liquidation timeline (in years) 1.9 0.8 - 4.2 Current value of underlying properties $ 1,319 $ 50 -$ 2,850 Total $ 4,880,321 (1) Excluded from the table above are approximately $ 103.7 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of December 31, 2023. (2) Amounts are weighted based on the fair value of the underlying loan. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in the fair value of residential whole loans. Loans valued using a discounted cash flow model are most sensitive to changes in the discount rate assumption, while loans valued using the liquidation model technique are most sensitive to changes in the current value of the underlying properties and the liquidation timeline. Increases in discount rates, default rates, loss severities, or liquidation timelines, either in isolation or collectively, would generally result in a lower fair value measurement, whereas increases in the current or expected value of the underlying properties, in isolation, would result in a higher fair value measurement. In practice, changes in valuation assumptions may not occur in isolation and the changes in any particular assumption may result in changes in other assumptions, which could offset or amplify the impact on the overall valuation. 128 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following table presents the carrying values and estimated fair values of the Company’s financial instruments at December 31, 2023 and 2022: December 31, 2023 December 31, 2023 December 31, 2022 Level in Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (In Thousands) Financial Assets: Residential whole loans 3 $ 8,985,513 $ 8,949,859 $ 7,467,645 $ 7,397,421 Residential whole loans 2 55,779 55,779 51,094 51,094 Securities, at fair value 2 746,090 746,090 333,364 333,364 Cash and cash equivalents 1 318,000 318,000 334,183 334,183 Restricted cash 1 170,211 170,211 159,898 159,898 Financial Liabilities (1) : Financing agreements with non-mark-to-market collateral provisions 3 1,216,697 1,217,671 1,003,604 1,004,260 Financing agreements with mark-to-market collateral provisions 3 1,737,652 1,738,543 2,111,396 2,111,647 Financing agreements with mark-to-market collateral provisions 2 622,603 622,603 111,651 111,651 Securitized debt 2 4,750,805 4,655,195 3,357,590 3,217,905 Convertible senior notes 2 208,989 209,065 227,845 211,015 (1) Carrying value of securitized debt, Convertible Senior Notes, and certain repurchase agreements is net of associated debt issuance costs. Other Assets Measured at Fair Value on a Nonrecurring Basis The Company holds REO at the lower of the current carrying amount or fair value less estimated selling costs. During the years ended December 31, 2023 and 2022, the Company recorded REO with an aggregate estimated fair value, less estimated cost to sell, of $ 84.7 million and $ 82.9 million, respectively, at the time of foreclosure. In addition, at December 31, 2023, the Company held one property which is considered Commercial REO (see Note 5) which is accounted for similarly and had an estimated fair value, less estimated cost to sell, of $ 34.2 million at the time of foreclosure, of which the Company’s 75 % interest was $ 25.7 million. The Company classifies fair value measurements of REO as Level 3 in the fair value hierarchy. The Company determined to sell certain residential whole loans in the fourth quarter of 2023. At the time this determination was made, certain of the loans were marked to fair value as their fair value at that time was lower than their carrying value. The aggregate value of these loans at the time of determination was $ 13.6 million and a loss of $ 1.2 million was recorded. These loans were classified as Level 3 in the fair value hierarchy. In addition, on July 1, 2021, in connection with the Lima One transaction (see Note 15), the Company revalued its previously existing investments in Lima One and recorded a gain of $ 38.9 million. In connection with the Lima One transaction, all of Lima One’s assets and liabilities were recorded at their estimated fair value. 129 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 14. Use of Special Purpose Entities and Variable Interest Entities A Special Purpose Entity (“SPE”) is an entity designed to fulfill a specific limited need of the company that organized it. SPEs are often used to facilitate transactions that involve securitizing financial assets or re-securitizing previously securitized financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying financial assets on improved terms. Securitization involves transferring assets to a SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt or equity instruments. Investors in a SPE usually have recourse only to the assets in the SPE and, depending on the overall structure of the transaction, may benefit from various forms of credit enhancement such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of credit or other form of liquidity agreement that is designed with the objective of ensuring that investors receive principal and/or interest cash flow on the investment in accordance with the terms of their investment agreement. The Company has entered into several financing transactions that resulted in the Company consolidating as VIEs the SPEs that were created to facilitate these transactions. See Note 2(p) for a discussion of the accounting policies applied to the consolidation of VIEs and transfers of financial assets in connection with financing transactions. The Company has engaged in loan securitizations primarily for the purpose of obtaining improved overall financing terms as well as non-recourse financing on a portion of its residential whole loan portfolio. Notwithstanding the Company’s participation in these transactions, the risks facing the Company are largely unchanged as the Company remains economically exposed to the first loss position on the underlying assets transferred to the VIEs. Loan Securitization Transactions The following table summarizes the key details of the Company’s consolidated loan securitization transactions currently outstanding as of December 31, 2023 and 2022: (Dollars in Thousands) December 31, 2023 December 31, 2022 Aggregate unpaid principal balance of residential whole loans sold $ 8,241,053 $ 6,079,749 Face amount of Senior Bonds issued by the VIE and purchased by third-party investors $ 7,152,213 $ 5,333,090 Outstanding amount of Senior Bonds, at carrying value $ 765,433 (1) $ 922,220 (1) Outstanding amount of Senior Bonds, at fair value $ 3,985,372 $ 2,435,370 Outstanding amount of Senior Bonds, total $ 4,750,805 $ 3,357,590 Weighted average fixed rate for Senior Bonds issued 4.51 % (2) 3.38 % (2) Weighted average contractual maturity of Senior Bonds 36 years (2) 38 years (2) Face amount of Senior Support Certificates received by the Company (3) $ 1,047,297 $ 715,640 Cash received $ 7,089,575 $ 5,286,305 (1) Net of $ 1.5 million and $ 2.9 million of deferred financing costs at December 31, 2023 and 2022, respectively. (2) At December 31, 2023 and 2022, $ 3.4 billion and $ 1.9 billion, respectively, of Senior Bonds sold in securitization transactions contained a contractual coupon step-up feature whereby the coupon increases by either 100 , 150 , 200 or 300 basis points or more at defined dates ranging from 24 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, 2023 and 2022, the Company issued Senior Bonds with a current face of $ 1.8 billion and $ 2.3 billion to third-party investors for proceeds of $ 1.8 billion and $ 2.2 billion, respectively, before offering costs and accrued interest. The Senior Bonds issued by the Company during the years ended December 31, 2023 and 2022 are included in Financing agreements on the Company’s consolidated balance sheets (see Note 6). As of December 31, 2023 and 2022, as a result of the transactions described above, securitized loans of approximately $ 5.7 billion and $ 4.0 billion are included in Residential whole loans and REO with a carrying value of approximately $ 33.3 million and $ 36.5 million are included in Other assets on the Company’s consolidated balance sheets, respectively. As of December 31, 2023 and 2022, the aggregate carrying value of Senior Bonds issued by consolidated VIEs was $ 4.8 billion and 130 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 $ 3.4 billion, respectively. These Senior Bonds are disclosed as Securitized debt and are included in Financing agreements on the Company’s consolidated balance sheets. The holders of the securitized debt have no recourse to the general credit of the Company, but the Company does have the obligation, under certain circumstances, to repurchase assets from the VIE upon the breach of certain representations and warranties with respect to the residential whole loans sold to the VIE. In the absence of such a breach, the Company has no obligation to provide any other explicit or implicit support to any VIE. The Company concluded that the entities created to facilitate the loan securitization transactions are VIEs. The Company completed an analysis of whether each VIE created to facilitate the securitization transactions should be consolidated by the Company, based on consideration of its involvement in each VIE, including the design and purpose of the SPE, and whether its involvement reflected a controlling financial interest that resulted in the Company being deemed the primary beneficiary of each VIE. In determining whether the Company would be considered the primary beneficiary, the following factors were assessed: • whether the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE; and • whether the Company has a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. Based on its evaluation of the factors discussed above, including maintaining certain rights in each entity including rights to direct loss mitigation activities and its involvement in the purpose and design of the entity, the Company determined that it was required to consolidate each VIE created to facilitate the loan securitization transactions. The Company also invests in securities issued by SPEs that may be VIEs. The Company is not the primary beneficiary of these SPEs, because it does not have the power to direct the activities that most significantly impact their economic performance, and therefore does not consolidate them. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns, and it does not provide any liquidity arrangements, guarantees or other commitments to these entities. For more information on the Company’s investments in securities, see Note 4. Residential Whole Loans and REO (including Residential Whole Loans and REO transferred to consolidated VIEs) Included on the Company’s consolidated balance sheets as of December 31, 2023 and 2022 are a total of $ 9.0 billion and $ 7.5 billion, respectively, of residential whole loans. These assets, excluding certain loans originated and held by Lima One, and certain of the Company’s REO assets, are directly owned by certain trusts established by the Company to acquire the loans and entities established in connection with the Company’s loan securitization transactions. The Company has assessed that these entities are required to be consolidated (see Notes 3 and 5(a)). 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. 15. Segment Reporting At December 31, 2023, 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 (see Note 6), securitization issuance costs, and preferred stock dividends. 131 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 The following tables summarize segment financial information, which in total reconciles to the same data for the Company as a whole: (Dollars in Thousands) Mortgage-Related Assets Lima One Corporate Total Year Ended December 31, 2023 Interest Income $ 364,081 $ 228,825 $ 12,691 $ 605,597 Interest Expense 249,458 164,059 15,601 429,118 Net Interest Income/(Expense) $ 114,623 $ 64,766 $ ( 2,910 ) $ 176,479 Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans 8,539 314 — 8,853 Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses $ 123,162 $ 65,080 $ ( 2,910 ) $ 185,332 Net gain on residential whole loans measured at fair value through earnings $ 69,486 $ 20,364 $ — $ 89,850 Impairment and other net gain/(loss) on securities and other portfolio investments 8,073 — ( 1,848 ) 6,225 Net gain on real estate owned 9,274 118 — 9,392 Net gain on derivatives used for risk management purposes 839 2,922 — 3,761 Net loss on securitized debt measured at fair value through earnings ( 66,969 ) ( 32,620 ) — ( 99,589 ) Lima One - origination, servicing and other fee income — 43,384 — 43,384 Net realized loss on residential whole loans held at carrying value ( 1,240 ) — — ( 1,240 ) Other, net 7,960 2,284 1,087 11,331 Total Other Income/(Loss), net $ 27,423 $ 36,452 $ ( 761 ) $ 63,114 Compensation and benefits $ — $ 44,827 $ 40,972 $ 85,799 General and administrative expenses 214 17,537 26,396 44,147 Loan servicing, financing, and other related costs 20,100 1,515 12,521 34,136 Amortization of intangible assets — 4,200 — 4,200 Net Income/(Loss) $ 130,271 $ 33,453 $ ( 83,560 ) $ 80,164 Less Preferred Stock Dividend Requirement $ — $ — $ 32,875 $ 32,875 Net Income/(Loss) Available to Common Stock and Participating Securities $ 130,271 $ 33,453 $ ( 116,435 ) $ 47,289 132 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (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 gain/(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/(loss) 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 3,804 8,623 Total Other Income/(Loss), net $ ( 254,407 ) $ 7,260 $ ( 18,117 ) $ ( 265,264 ) Compensation and benefits $ — $ 39,241 $ 37,487 $ 76,728 General and administrative expenses — 13,944 21,194 35,138 Loan servicing, financing, and other related costs 25,384 1,120 16,390 42,894 Amortization of intangible assets — 9,200 — 9,200 Net Income/(Loss) $ ( 88,913 ) $ ( 9,665 ) $ ( 133,003 ) $ ( 231,581 ) Less Preferred Stock Dividend Requirement $ — $ — $ 32,875 $ 32,875 Net Income/(Loss) Available to Common Stock and Participating Securities $ ( 88,913 ) $ ( 9,665 ) $ ( 165,878 ) $ ( 264,456 ) 133 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 (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 gain/(loss) 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 8,760 9,647 Total Other Income/(Loss), net $ 38,458 $ 42,170 $ 81,649 $ 162,277 Compensation and benefits $ — $ 18,130 $ 35,687 $ 53,817 General and administrative expenses — 6,010 22,893 28,903 Loan servicing, financing, and other related costs 25,250 436 5,181 30,867 Amortization of intangible assets — 6,600 — 6,600 Net Income/(Loss) $ 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, 2023 Total Assets $ 6,370,237 $ 4,000,932 $ 401,521 $ 10,772,690 December 31, 2022 Total Assets $ 6,065,557 $ 2,618,695 $ 428,153 $ 9,112,405 Lima One Segment On July 1, 2021, the Company completed the acquisition from affiliates of Magnetar Capital of their ownership interests in Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively, “Lima One”), a leading originator and servicer of business purpose loans. In connection with this transaction, the Company also acquired from certain members of management of Lima One their ownership interests in Lima One Holdings, LLC. With the completion of these transactions (collectively, “the transaction”), the Company acquired the remaining approximately 57 % of the common equity interests of Lima One that it did not previously own, for cash consideration of $ 57.3 million and $ 4.7 million of restricted stock unit awards issued to certain members of the Lima One management team. As a result of these transactions, the Company gained control of 100 % of the ownership interests in Lima One and was required to consolidate its financial results from that date. The transaction was accounted for under the purchase method of accounting. Under purchase accounting, the purchase 134 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 consideration to acquire Lima One is defined as the cash paid to acquire the approximately 57 % of the common equity interests not previously owned and the estimated fair value of the previously owned approximately 43 % common equity interest. Further, under purchase accounting, the Company was required to revalue the previously owned common equity interest to fair value. At the time of the revaluation, the previously owned common equity interest had a carrying value of $ 5.6 million (net of a $ 21.0 million impairment charge that was recorded in the first quarter of 2020). Consequently, the revaluation resulted in the Company recording a gain of $ 38.9 million that is presented in Other Income/(Loss), net in the Company’s consolidated statement of operations for the year ended December 31, 2021. Accordingly, under the purchase method of accounting, the purchase consideration allocated was $ 101.7 million. The restricted stock awards issued are not included in the purchase consideration as it was determined that they should be accounted for as compensation expense for post-combination services. Additionally, concurrent with the closing of the transaction, the Company injected additional capital that facilitated the repayment by Lima One of $ 47.4 million of outstanding preferred equity interests, of which $ 22.0 million were held by the Company prior to closing. As the Company had previously recorded an impairment write-down on its investment in Lima One’s preferred equity that was repaid in connection with the transaction, the Company recorded a gain of $ 5.0 million to reflect the reversal of this impairment charge. This gain was recorded in Other Income/(Loss), net in the consolidated statements of operations for the year ended December 31, 2021. Further, the Company paid a total of $ 428,000 of acquisition related expenses, which were recorded in Operating and Other Expenses in the consolidated statements of operations for the year ended December 31, 2021. The Company performed an allocation of the purchase consideration and recorded the underlying assets acquired (including certain identified intangible assets) and liabilities assumed based on their estimated fair values using the information available at the acquisition date. The excess of the purchase consideration over the net assets acquired of $ 61.1 million was allocated to goodwill. The goodwill is attributed to further access and expansion into business purpose loan markets as well as access to an experienced management team and workforce that are expected to continue to provide services to the business. In addition, the Company identified and recorded finite-lived intangible assets totaling $ 28.0 million (see Note 5). 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). 135 Table of Contents MFA FINANCIAL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 16. Subsequent Events Securitization of Business Purpose Loans Subsequent to quarter end, the Company completed one additional loan securitization with an aggregate UPB of Transitional loans sold of $ 192.5 million. Issuance of 8.875 % Senior Notes due 2029 (“ 8.875 % Senior Notes”) On January 11, 2024, the Company completed the issuance of $ 115.0 million in aggregate principal amount of its 8.875 % Senior Notes in an underwritten public offering, including $ 15.0 million issued pursuant to the exercise of the underwriters’ option to purchase additional 8.875 % Senior Notes. The 8.875 % Senior Notes are senior unsecured obligations of the Company and bear interest at a rate equal to 8.875 % per year, payable in cash quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, beginning on May 15, 2024, and are expected to mature on February 15, 2029, unless earlier redeemed. The Company may redeem the 8.875 % Senior Notes in whole or in part at any time at the Company’s option on or after February 15, 2026, at a redemption price equal to 100 % of the outstanding principal amount of the 8.875 % Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. The total net proceeds to the Company from the offering of the 8.875 % Senior Notes, after deducting the underwriter’s discount and commissions and estimated offering expenses, were approximately $ 110.7 million. 136 Table of Contents Schedule IV - Mortgage Loans on Real Estate December 31, 2023 Asset Type Number Interest Rate Maturity Date Range Balance Sheet Reported Amount Principal Amount of Loans Subject to Delinquent Principal or Interest (Dollars in Thousands) Residential Whole Loans Original loan balance $ 0 - $ 149,999 7,596 0.00 % - 16.00 % 7/26/2016-4/1/2062 $ 663,042 $ 45,934 Original loan balance $ 150,000 - $ 299,999 8,130 0.00 % - 14.65 % 3/10/2013-11/1/2063 1,474,946 105,669 Original loan balance $ 300,000 - $ 449,999 3,840 0.00 % - 13.88 % 12/1/2018-1/1/2066 1,151,268 90,826 Original loan balance greater than $ 449,999 5,835 0.70 % - 15.00 % 12/1/2018-9/1/2071 5,668,833 266,084 25,401 $ 8,958,089 (1)(2) $ 508,513 (1) Excludes an allowance for loan losses of $ 20.5 million at December 31, 2023. Also excludes approximately $ 103.7 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of December 31, 2023. (2) The federal income tax basis is approximately $ 4.2 billion. Reconciliation of Balance Sheet Reported Amounts of Mortgage Loans on Real Estate The following table summarizes the changes in the carrying amounts of residential whole loans during the year ended December 31, 2023: For the Year Ended December 31, 2023 (In Thousands) Residential Whole Loans Beginning Balance $ 7,518,739 Additions during period: Purchases $ 2,986,617 Premium amortization/discount accretion, net 13,819 Reversal of provision for loan loss 14,863 Changes in fair value recorded in gain/(loss) on loans recorded at fair value 114,065 Deductions during period: Repayments $ ( 1,437,711 ) Loan sales and repurchases ( 94,624 ) Impairment on carrying value loans ( 1,240 ) Transfer to REO ( 73,236 ) Ending Balance $ 9,041,292 137 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.