MFA FINANCIAL, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our financial statements and accompanying notes included in Item 8 of this Annual Report on Form 10-K. GENERAL We are a specialty finance company that invests in and finances residential mortgage assets. We invest, on a leveraged basis, in residential whole loans, residential mortgage securities and other real estate assets. Through our wholly-owned subsidiary, Lima One, a leading nationwide originator and servicer of Business purpose loans (or BPLs), we also originate and service Business purpose loans for real estate investors. Our principal business objective is to deliver shareholder value through the generation of distributable income and through asset performance linked to residential mortgage credit fundamentals. We selectively invest in residential mortgage assets with a focus on credit analysis, projected prepayment rates, interest rate sensitivity and expected return. We are an internally-managed real estate investment trust. At December 31, 2024, we had total assets of approximately $11.4 billion, of which $8.8 billion, or 77%, represented residential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, with Single-family transitional loans, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) 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” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) 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,” which are included in “Other loans”). In addition, at December 31, 2024, we had approximately $1.5 billion or 13% of total assets invested in investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS. The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets. Changes in these factors, or uncertainty in the market regarding the potential for changes in these factors, can result in significant changes in the value and/or performance of our investment portfolio. Further, our GAAP results may be impacted by market volatility, resulting in changes in market values of certain financial instruments for which changes in fair value are recorded in net income each period, including certain residential whole loans, securitized debt and Swaps. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds, the behavior of which involves various risks and uncertainties. Interest rates and conditional prepayment rates (or CPRs) (which is an annualized measure of the amount of unscheduled principal prepayments on an asset as a percentage of the asset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our financial results are also impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically. With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to increase; (ii) the value of certain of our residential mortgage assets and securitized debt to decline; (iii) coupons on our adjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our assets to decline, thereby slowing the amortization of purchase premiums and the accretion of our purchase discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging instruments, if any, to increase. Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with our borrowings to decrease; (ii) the value of certain of our residential mortgage assets and securitized debt, to increase; (iii) coupons on 39 Table of Contents our adjustable-rate assets, on a delayed basis, to lower interest rates; (iv) prepayments on our assets to increase, thereby accelerating the amortization of purchase premiums and the accretion of our purchase discounts, and accelerating the redeployment of our capital to generally lower yielding investments; and (v) the value of our derivative hedging instruments, if any, to decrease. Further, changes in credit spreads will also impact the valuation of our residential whole loans and securitized debt, which could result in volatility in GAAP earnings. In addition, our borrowing costs and credit lines are further affected by the type of collateral we pledge and general conditions in the credit market. Our investments in residential mortgage assets expose us to credit risk, meaning that we are generally subject to credit losses due to the risk of delinquency, default and foreclosure on the underlying real estate collateral. Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. With respect to investments in Business purpose and Non-QM loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss. Further, we believe the discounted purchase prices paid on Legacy RPL/NPL loans mitigate our risk of loss in the event that we receive less than 100% of the unpaid principal balance of these investments. Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value) or when we acquire residential whole loans at a price in excess of their unpaid principal balance. Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their unpaid principal balance. Accretable purchase discounts on these investments are accreted to interest income. Premiums paid to purchase loans, are amortized against interest income over the life of the investment using the effective yield method, adjusted for actual prepayment activity. An increase in the prepayment rate, as measured by the CPR, will typically accelerate the amortization of purchase premiums, thereby reducing the interest income earned on these assets. CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR presents the annualized constant rate of principal repayment in excess of scheduled principal amortization. CPRs on our residential mortgage securities and whole loans may differ significantly. For the year ended December 31, 2024, the average CPRs on certain of our loan portfolios were: 10.4% for Non-QM loans, 8.7% for Single-family rental loans, and 8.6% for Legacy RPL/NPL loans. In addition, for the year ended December 31, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 60.6% for our Single-family transitional loans and 24.4% for our Multifamily transitional loans. It is generally our business strategy to hold our residential mortgage assets as long-term investments. On at least a quarterly basis, excluding investments for which the fair value option has been elected or for which specialized loan accounting is otherwise applied, we assess our ability and intent to continue to hold each asset and, as part of this process, we monitor our investments in securities that are designated as AFS for impairment. A change in our ability and/or intent to continue to hold any of these securities that are in an unrealized loss position, or a deterioration in the underlying characteristics of these securities, could result in our recognizing future impairment charges or a loss upon the sale of any such security. Our residential mortgage investments have longer-term contractual maturities than our non-securitization related financing liabilities, and the interest rates we pay on our non-securitization related financings will typically change at a faster pace than the interest rates we earn on our investments. In order to reduce this interest rate risk exposure, we may enter into derivative instruments, which currently include Swaps. On April 4, 2022, we effected a one-for-four reverse stock split of our issued and outstanding shares of common stock (or the Reverse Stock Split). Accordingly, all share and per share data included in the consolidated financial statements and applicable disclosures have been adjusted retroactively to reflect the impact of the Reverse Stock Split. For all periods presented, all share and per share data have been adjusted on a retroactive basis to reflect the effect of the Reverse Stock Split. 40 Table of Contents Recent Market Conditions and Our Strategy 2024 was another turbulent year with mixed results for fixed income investors, as markets continued to adjust to volatile conditions resulting from a number of challenging macroeconomic conditions, including the start of the Federal Reserve’s easing cycle, ongoing uncertainty as to the timing and extent of future rate cuts, ongoing inflationary pressures, geopolitical uncertainty both in the U.S. and abroad, and balancing generally resilient macroeconomic data with the potential for recession. For the year, the Bloomberg US Aggregate Index returned 1.25% - the eighth worst annual return in the nearly 50-year history of the index. During the year, intermediate and longer-duration Treasury rates moved higher while credit spreads generally tightened. The yield curve steepened during 2024, ending the multiyear inversion following the Federal Reserve’s decision to cut the target for the Fed Funds rate by 50 basis points on September 18, 2024, followed by further 25 basis point cuts on both November 7, 2024 and December 18, 2024. Despite these volatile macroeconomic conditions, during the year, we were able to add $3.6 billion of our target assets. These additions included approximately $1.5 billion of funded originations of Business purpose loans and draws on existing Transitional loans at Lima One, approximately $1.2 billion of Non-QM loans, and $932 million of Agency MBS. During 2024 we executed eight securitizations and issued $2.1 billion of securitized debt. We also issued $115 million of 8.875% senior unsecured notes due in February 2029 and $75.0 million of 9.00% senior unsecured notes due in August 2029, and repaid our Convertible Senior Notes which matured in June 2024. During the year we generated GAAP earnings per share (or EPS) of $0.83 per basic common share and Distributable earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $1.57 per basic common share. At December 31, 2024, our GAAP book value was $13.39 and our Economic book value, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $13.93 per common share, each representing decreases of approximately 4% as compared to December 31, 2023. During the year we declared dividends of $1.40 per common share. For the year, our Lima One subsidiary originated Business purpose loans with a maximum unpaid principal balance of $1.4 billion, a decline from the $2.2 billion originated in 2023. The decline was in large part the result of our decision in the second quarter of 2024 to refocus our resources away from multifamily transitional lending and the resulting friction associated with redeploying our resources to the single-family transitional and single-family rental lending channels. This decision was made in light of continued softness in multifamily housing in certain markets and several consecutive quarters of declines in origination volumes in our multifamily transitional lending. Given the current challenging market conditions for multifamily housing, we expect to see heightened levels of delinquency and a commensurate risk of credit losses in our Business purpose loan portfolio during 2025. As a result of the shift away from multifamily lending, as well as lower single-family real estate transaction volumes generally, we expect origination volumes to remain under pressure in the first half of 2025. During 2024 Lima One sold $193.7 million of recently originated single-family rental loans to third parties and realized gains of $7.4 million. We believe that these sales to third parties help to strengthen Lima One’s franchise value, create additional distribution channels to accommodate future growth, and enhance returns. For additional information regarding the calculation of Distributable earnings and Economic book value per share, including a reconciliation to GAAP Net Income and GAAP book value per share, respectively, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below. 2024 Portfolio Activity and impact on financial results At December 31, 2024, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $10.5 billion compared to $9.9 billion at December 31, 2023. The following table presents the activity for our residential mortgage asset portfolio for the year ended December 31, 2024: (In Millions) December 31, 2023 Runoff (1) Acquisitions & Originations (2) Other (3) December 31, 2024 Change Residential whole loans and REO $ 9,151 $ (2,239) $ 2,634 $ (604) $ 8,942 $ (209) Securities, at fair value 746 (83) 932 (57) 1,538 792 Totals $ 9,897 $ (2,322) $ 3,566 $ (661) $ 10,480 $ 583 (1) Primarily includes principal repayments and sales of REO. (2) Includes draws on previously originated Transitional loans. (3) Primarily includes sales, changes in fair value and changes in the allowance for credit losses. 41 Table of Contents At December 31, 2024, our total recorded investment in residential whole loans and REO was $8.9 billion, or 85.3% of our residential mortgage asset portfolio. Of this amount, $4.3 billion are Non-QM loans, $1.4 billion are Single-family rental loans, $1.1 billion are Single-family transitional loans, $0.9 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans. Loan acquisition activity of $2.6 billion during 2024 included $991.5 million of Single-family transitional loans (including draws), $1.2 billion of Non-QM loans, $331.7 million of Single-family rental loans and $145.0 million of Multifamily transitional loans (including draws). During 2024, we recognized approximately $633.6 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.74%, with Single-family transitional loans generating an effective yield of 9.45%, Multifamily transitional loans generating an effective yield of 8.20%, Single-family rental loans generating an effective yield of 6.37%, Non-QM loans generating an effective yield of 5.50% and Legacy RPL/NPL loans generating an effective yield of 7.91%. Since the second quarter of 2021 we have elected the fair value option for all loan acquisitions, and 85% our total loan portfolio is measured at fair value through earnings. Included in earnings in Other Income/(Loss), net are net gains on these loans of $46.0 million for the year ended December 31, 2024. At December 31, 2024 and 2023, we had REO with an aggregate carrying value of $130.9 million and $110.2 million, respectively, which is included in Other assets on our consolidated balance sheets. At December 31, 2024, we held $1.5 billion of Securities, at fair value, including $1.4 billion of Agency MBS, $54.6 million of MSR-related assets, $67.6 million of CRT securities and $22.6 million of Non-Agency MBS. During 2024, we added $0.9 billion of Agency MBS and sold $26.9 million sales of MSR-related assets and an $8.7 million sales of a CRT security. The net yield on our Securities, at fair value was 6.59% for 2024, compared to 7.57% for 2023. For the year ended December 31, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $3.1 million. The total allowance for credit losses recorded on residential whole loans held at carrying value at December 31, 2024 was $10.7 million. During 2024, we completed eight securitizations with unpaid principal balance (or UPB) of loans sold of $2.4 billion. This included $1.1 billion of Non-QM loans, $599.0 million of Transitional loans and 669.2 million of Legacy RPL/NPL loans. These securitizations provide longer term, non-recourse, non-mark-to-market financing. During 2024, heightened interest rate volatility led to significant fluctuations in the fair values of our residential mortgage asset portfolio and associated financing liabilities and hedges, which drove volatility in our quarterly GAAP financial results. We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business. Our GAAP book value per common share was $13.39 as of December 31, 2024. Book value per common share decreased from $13.98 as of December 31, 2023. Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $13.93 as of December 31, 2024, a decrease from $14.57 as of December 31, 2023. The decrease in GAAP book value during 2024 primarily reflects dividends declared on our common stock in excess of our GAAP earnings. The decrease in Economic book value during 2024 primarily reflects dividends declared on our common stock in excess of GAAP earnings and a decrease in the fair value of our mortgage loans held at carrying value, partially offset by changes in the estimated fair value of our securities and our securitized debt at carrying value. For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below. For more information regarding market factors which impact our portfolio, see Part I, Item 1A. “Risk Factors” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K. 42 Table of Contents Information About Our Assets The table below presents certain information about our asset allocation at December 31, 2024: ASSET ALLOCATION (Dollars in Millions) Business purpose loans Non-QM loans Legacy RPL/NPL loans Securities, at fair value Other, net (1) Total Fair Value/Carrying Value $ 3,394 $ 4,289 $ 1,076 $ 1,538 $ 764 $ 11,061 Receivable/(Payable) for Unsettled Transactions — — — (63) — (63) Financing Agreements with Non-mark-to-market Collateral Provisions (577) — — — — (577) Financing Agreements with Mark-to-market Collateral Provisions (616) (591) (45) (1,279) (69) (2,600) Securitized Debt (1,651) (3,227) (916) — (1) (5,795) Senior Notes — — — — (184) (184) Net Equity Allocated $ 550 $ 471 $ 115 $ 196 $ 510 $ 1,842 Debt/Net Equity Ratio (2) 5.2 x 8.1 x 8.4 x 6.8 x 5.0 x (1) Includes $338.9 million of cash and cash equivalents, $262.4 million of restricted cash, $52.1 million of Other loans and $16.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities. (2) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated. 43 Table of Contents Residential Whole Loans The following table presents the contractual maturities of our residential whole loan portfolios at December 31, 2024. Amounts presented do not reflect estimates of prepayments or scheduled amortization. (In Thousands) Business purpose loans (1) Non-QM loans (2) Legacy RPL/NPL loans (3) Other loans Amount due: Within one year $ 1,736,112 $ — $ 1,560 $ — After one year: Over one to five years 322,455 — 8,440 — Over five years 1,337,614 4,291,086 1,072,549 52,073 Total due after one year $ 1,660,069 $ 4,291,086 $ 1,080,989 $ 52,073 Total residential whole loans $ 3,396,181 $ 4,291,086 $ 1,082,549 $ 52,073 (1) Excludes an allowance for credit losses of $1.8 million at December 31, 2024. (2) Excludes an allowance for credit losses of $2.1 million at December 31, 2024. (3) Excludes an allowance for credit losses of $6.8 million at December 31, 2024. The following table presents, at December 31, 2024, the dollar amount of certain of our residential whole loans, contractually maturing after one year, and indicates whether the loans have fixed interest rates or adjustable interest rates: (In Thousands) Business purpose loans (1)(2) Non-QM loans (1)(2) Legacy RPL/NPL loans (1)(2) Other loans Interest rates: Fixed $ 1,312,219 $ 3,503,781 $ 885,572 $ 52,073 Adjustable 347,851 787,305 195,417 — Total $ 1,660,069 $ 4,291,086 $ 1,080,989 $ 52,073 (1) Includes loans on which borrowers have defaulted and are not making payments of principal and/or interest as of December 31, 2024. (2) Excludes an allowance for credit losses. Our Transitional loans contain various contractual extension features, typically ranging from three to twelve months subject to certain conditions, generally including our consent. Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms. Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions. At December 31, 2024, approximately 18% of our Multifamily transitional loans and 26% of our Single-family transitional loans held as of period end had been extended. For additional information regarding our residential whole loan portfolios, including information about delinquency trends, see Note 3 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. 44 Table of Contents Securities, at Fair Value The following table presents information with respect to our Securities, at fair value at December 31, 2024 and December 31, 2023: (Dollars in Thousands) December 31, 2024 December 31, 2023 Agency MBS Face/Par $ 1,403,891 $ 554,300 Fair Value 1,392,635 559,144 Amortized Cost 1,405,900 555,624 Weighted average yield (1) 5.45 % 5.59 % Weighted average time to maturity 29.1 years 29.3 years Term notes backed by MSR collateral Face/Par $ 55,000 $ 85,000 Fair Value 54,588 79,895 Amortized Cost 50,639 74,184 Weighted average yield (1) 13.95 % 16.96 % Weighted average time to maturity 0.8 years 1.8 years CRT securities Face/Par $ 64,602 $ 79,617 Fair Value 67,642 83,222 Amortized Cost 58,930 68,971 Weighted average yield (1) 9.35 % 10.30 % Weighted average time to maturity 15.0 years 17.9 years Non-Agency MBS Face/Par $ 27,206 $ 28,485 Fair Value 22,648 23,828 Amortized Cost 22,633 23,482 Weighted average yield (1) 5.67 % 5.84 % Weighted average time to maturity 26.8 years 27.8 years (1) Weighted average yield is annualized interest income divided by average amortized cost for Securities, at fair value held at December 31, 2024 and December 31, 2023. Tax Considerations Current period estimated taxable income We estimate that for 2024, our REIT taxable income was approximately $119.4 million. Key differences between GAAP net income and REIT Taxable Income Residential Whole Loans and Securities The determination of taxable income attributable to residential whole loans and securities is dependent on a number of factors, including principal payments, defaults, loss mitigation efforts and loss severities. In estimating taxable income for such investments during the year, management considers estimates of the amount of discount expected to be accreted. Such estimates require significant judgment and actual results may differ from these estimates. Potential timing differences can arise with respect to the accretion of discount and amortization of premium into income as well as the recognition of gain or loss for tax purposes as compared to GAAP. For example: a) while our REIT uses fair value accounting for GAAP in some instances, it generally is not used for purposes of determining taxable income; b) impairments generally are not recognized by us for income tax purposes until the asset is written-off or sold; c) capital losses may only be recognized by us to the extent of its capital gains; capital losses in excess of capital gains generally are carried over by us for potential offset against future capital gains; and d) tax hedge gains and losses resulting from the termination of Swaps by us generally are amortized over the remaining term of the Swap. 45 Table of Contents Securitization Generally, securitization transactions for GAAP and tax can be characterized as either sales or financings, depending on transaction type, structure and available elections. For GAAP purposes, our securitizations have generally been treated as on-balance sheet financing transactions. For tax purposes, they have been characterized primarily as sale transactions. Where a securitization has been characterized as a sale, gain or loss is recognized for tax purposes. In addition, we own or may in the future acquire interests in securitization and/or re-securitization trusts, in which several of the classes of securities are or will be issued with original issue discount (or OID). As the holder of the retained interests in the trust, for tax purposes we generally will be required to include OID in our current gross interest income over the term of the applicable securities as the OID accrues. The rate at which the OID is recognized into taxable income is calculated using a constant rate of yield to maturity, with realized losses impacting the amount of OID recognized in REIT taxable income once they are actually incurred. REIT taxable income may be recognized in excess of economic income (i.e., OID) or in advance of the corresponding cash flow from these assets, thereby affecting our dividend distribution requirement to stockholders. For securitization and/or re-securitization transactions that were treated as a sale of the underlying collateral for tax purposes, the unwinding of any such transaction will likely result in taxable income or loss. Given that securitization and re-securitization transactions are typically accounted for as financing transactions for GAAP purposes, such income or loss is not likely to be recognized for GAAP. As a result, the income recognized from securitization and re-securitization transactions may differ for tax and GAAP purposes. Whether our investments are held by our REIT or one of its Taxable REIT Subsidiaries (TRS) We estimate that for 2024, our net TRS taxable income (loss) will be $7.4 million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes. Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income. Results of Operations In this section, we discuss the results of our operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion related to our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2023, which was filed with the SEC on February 22, 2024, and is available on the SEC’s website at www.sec.gov and on our website at www.mfafinancial.com. Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 The following table summarizes the changes in our results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023. 46 Table of Contents Year Ended (In Thousands) December 31, 2024 December 31, 2023 YoY Change Interest Income: Residential whole loans $ 633,556 $ 537,883 $ 95,673 Securities, at fair value 61,110 42,376 18,734 Other interest-earning assets 7,058 9,027 (1,969) Cash and cash equivalent investments 22,241 16,311 5,930 Interest Income $ 723,965 $ 605,597 $ 118,368 Interest Expense: Asset-backed and other collateralized financing arrangements $ 500,026 $ 413,517 $ 86,509 Other interest expense 21,208 15,601 5,607 Interest Expense $ 521,234 $ 429,118 $ 92,116 Net Interest Income $ 202,731 $ 176,479 $ 26,252 Reversal/(Provision) for Credit Losses on Residential Whole Loans $ 3,084 $ 8,853 $ (5,769) Reversal/(Provision) for Credit Losses on Other Assets (1,135) — (1,135) Net Interest Income after Reversal/(Provision) for Credit Losses $ 204,680 $ 185,332 $ 19,348 Other Income/(Loss), net: Net gain/(loss) on residential whole loans measured at fair value through earnings $ 45,994 $ 89,850 $ (43,856) Impairment and other net gain/(loss) on securities and other portfolio investments (10,869) 6,225 (17,094) Net gain/(loss) on real estate owned 3,136 9,392 (6,256) Net gain/(loss) on derivatives used for risk management purposes 78,503 3,761 74,742 Net gain/(loss) on securitized debt measured at fair value through earnings (64,813) (99,589) 34,776 Lima One mortgage banking income 32,944 43,384 (10,440) Net realized gain/(loss) on residential whole loans held at carrying value 418 (1,240) 1,658 Other, net 115 11,331 (11,216) Other Income/(Loss), net $ 85,428 $ 63,114 $ 22,314 Operating and Other Expense: Compensation and benefits $ 87,654 $ 85,799 $ 1,855 Other general and administrative expense 44,254 43,869 385 Loan servicing, financing and other related costs 35,306 34,136 1,170 Amortization of intangible assets 3,200 4,200 (1,000) Operating and Other Expense $ 170,414 $ 168,004 $ 2,410 Income/(loss) before income taxes $ 119,694 $ 80,442 $ 39,252 Provision for/(benefit from) income taxes 443 278 165 Net Income/(Loss) $ 119,251 $ 80,164 $ 39,087 Less Preferred Stock Dividend Requirement $ 32,875 $ 32,875 $ — Net Income/(Loss) Available to Common Stock and Participating Securities $ 86,376 $ 47,289 $ 39,087 Basic Earnings/(Loss) per Common Share $ 0.83 $ 0.46 $ 0.37 Diluted Earnings/(Loss) per Common Share $ 0.82 $ 0.46 $ 0.36 General For 2024, we had net income available to our common stock and participating securities of $86.4 million, or $0.83 per basic common share and $0.82 per diluted common share, compared to net income available to our common stock and participating securities for 2023 of $47.3 million, or $0.46 per basic and diluted common share. This increase in net income available to common stock and participating securities primarily reflects higher Other Income/(Loss), net of $22.3 million and higher Net Interest Income after Reversal/(Provision) for Credit Losses of $19.3 million. Higher Other Income/Loss was primarily driven by mark-to-market gains in 2024 compared with losses in 2023 on derivatives used for risk management purposes and lower losses on securitized debt 47 Table of Contents measured at fair value through earnings, partially offset by lower realized losses and lower unrealized gains on our residential whole loans that are measured at fair value through earnings, realized losses on the unwind of derivatives used for risk management purposes, mark-to-market losses in 2024 compared with gains in 2023 on fair value option securities and lower Lima One mortgage banking income. Net interest income for 2024 increased by $26.3 million from 2023, primarily due to higher asset yields and average balances on our residential whole loan portfolio and lower average balances of Residential whole loan financing agreements, partially offset by an increase in average balances and financing rates for our securitized debt and higher rates on senior notes issued to replace the maturing convertible senior notes. 2024 also includes a $5.8 million lower net reversal of the Provision for Credit Losses on Residential Whole Loans held at carrying value and a Provision for Credit Losses on Other Assets of $1.1 million. Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid. Our net interest income varies primarily as a result of changes in interest rates, the slope of the yield curve (i.e., the differential between long-term and short-term interest rates), borrowing costs (i.e., our interest expense), the level of loan delinquencies, which may result in changes in the amount of non-accrual loans, and prepayment speeds on our investments. Interest rates and CPRs (which measure the amount of unscheduled principal prepayment on a bond or loan as a percentage of its unpaid balance) vary according to the type of investment, conditions in the financial markets and other factors, none of which can be predicted with any certainty. The changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “Interest Income” and “Interest Expense.” For 2024, our net interest spread and margin (including the impact of swaps) were 2.10% and 2.91%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.05% and 2.90%, respectively, for 2023. Our net interest income, which does not include the benefit of swap carry, increased by $26.3 million, or 14.9%, to $202.7 million from $176.5 million for 2023. For 2024, net interest income includes higher net interest income from our residential whole loan portfolio of $27.2 million compared to 2023, primarily due to higher asset yields and higher amounts invested in the loan portfolio, partially offset by an increase in average balance and financing rates for our securitized debt. In addition, net interest income for 2024 includes higher net interest income for our Securities, at fair value portfolio of approximately $0.9 million compared to 2023, primarily due higher amounts invested in the securities portfolio, partially offset by an increase in average balance of financing agreements for our securities. Net interest income for 2024 also includes approximately $4.0 million of additional interest income from cash and other interest earning assets compared to 2023. 48 Table of Contents Analysis of Net Interest Income The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the years ended December 31, 2024 and 2023 . Average yields are derived by dividing interest income by the average amortized cost of the related assets, and average costs are derived by dividing interest expense by the average balance of the related liabilities, for the periods shown. The yields and costs may include premium amortization and discount accretion which are considered adjustments to interest income or expense. For the Year Ended December 31, 2024 2023 Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost (Dollars in Thousands) Assets: Interest-earning assets (1) : Residential whole loans $ 9,404,477 $ 633,556 6.74 % $ 8,740,248 $ 537,883 6.15 % Securities, at fair value 927,927 61,110 6.59 559,434 42,376 7.57 Cash and cash equivalents (2) 540,408 22,241 4.12 465,481 16,311 3.50 Other interest-earning assets 35,941 7,058 19.64 68,959 9,027 13.09 Total interest-earning assets 10,908,753 723,965 6.64 9,834,122 605,597 6.16 Liabilities: Interest-bearing liabilities: Securitized debt (3) $ 5,220,172 $ 251,582 4.82 % $ 4,168,322 $ 166,919 4.00 % Collateralized financing agreements (4) 3,490,693 248,444 7.00 3,389,774 246,598 7.18 Convertible Senior Notes 80,985 5,540 6.84 224,768 15,601 6.94 8.875% Senior Notes 107,914 10,603 9.83 — — — 9.00% Senior Notes 51,121 5,065 9.91 — — — Total interest-bearing liabilities 8,950,885 521,234 5.78 7,782,864 429,118 5.47 Net interest income/net interest rate spread (5) 202,731 0.86 176,479 0.69 Impact of net swap carry (6) 112,771 1.24 107,154 1.36 Net interest rate spread (including the impact of Swaps) $ 315,502 2.10 % $ 283,633 2.05 % Net interest-earning assets/net interest margin (7) $ 1,957,868 2.91 % $ 2,051,258 2.90 % (1) Yields presented throughout this Annual Report on Form 10-K are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses. For GAAP reporting purposes, securities purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date. (2) Includes average interest-earning cash, cash equivalents and restricted cash. (3) Includes both securitized debt, at carrying value and securitized debt, at fair value. (4) Collateralized financing agreements include the following: mark-to-market asset based financing and non-mark-to-market asset based financing. For additional information, see Note 6, included under Item 8 of this Annual Report on Form 10-K. (5) Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds. (6) Reflects the impact of positive or negative swap carry. Positive swap carry results when income from the receive leg of a swap is greater than the expense on the pay leg. Negative swap carry results when income from the receive leg is less than the expense on the pay leg. (7) Net interest margin reflects net interest income (including net swap income or expense) divided by average interest-earning assets. 49 Table of Contents Rate/Volume Analysis The following table presents the extent to which changes in interest rates (yield/cost) and changes in the volume (average balance) of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) the changes attributable to changes in volume (changes in average balance multiplied by prior rate); (ii) the changes attributable to changes in rate (changes in rate multiplied by prior average balance); and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately, based on absolute values, to the changes due to rate and volume. Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Increase/(Decrease) due to Total Net Change in Interest Income/Expense (In Thousands) Volume Rate Interest-earning assets: Residential whole loans $ 42,289 $ 53,384 $ 95,673 Securities, at fair value 25,054 (6,320) 18,734 Cash and cash equivalents 2,823 3,107 5,930 Other interest-earning assets (5,381) 3,412 (1,969) Total net change in income from interest-earning assets $ 64,785 $ 53,583 $ 118,368 Interest-bearing liabilities: Securitized debt $ 46,714 $ 37,949 $ 84,663 Residential whole loan financing agreements (18,090) 1,800 (16,290) Securities, at fair value repurchase agreements 19,161 (1,367) 17,794 REO financing agreements 260 82 342 Convertible Senior Notes (10,061) — (10,061) 8.875% Senior Notes 10,603 — 10,603 9.00% Senior Notes 5,065 — 5,065 Total net change in expense of interest-bearing liabilities $ 53,652 $ 38,464 $ 92,116 Net change in net interest income $ 11,133 $ 15,119 $ 26,252 The following table presents certain quarterly information regarding our net interest spread and net interest margin for the quarterly periods presented: Total Interest-Earning Assets and Interest- Bearing Liabilities Quarter Ended Net Interest Spread (1) Net Interest Margin (2) December 31, 2024 1.99 % 2.76 % September 30, 2024 2.18 3.00 June 30, 2024 2.16 3.01 March 31, 2024 2.06 2.88 December 31, 2023 2.13 2.96 September 30, 2023 2.17 3.02 June 30, 2023 2.14 2.99 March 31, 2023 1.74 2.64 (1) Reflects the difference between the yield on average interest-earning assets and average cost of funds (including net swap income or expense). (2) Reflects annualized net interest income (including net swap income or expense) divided by average interest-earning assets. 50 Table of Contents The following table presents the components of the net interest spread earned on our Residential whole loans for the quarterly periods presented: Quarter Ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Business Purpose Loans Net Yield (1) 7.73 % 7.91 % 7.99 % 7.66 % 7.48 % 7.21 % 6.88 % 6.62 % Cost of Funding (2) 5.59 % 5.65 % 5.80 % 5.67 % 5.55 % 5.34 % 5.01 % 4.81 % Net Interest Spread 2.14 % 2.26 % 2.19 % 1.99 % 1.93 % 1.87 % 1.87 % 1.81 % Non-QM Loans Net Yield (1) 5.63 % 5.47 % 5.49 % 5.39 % 5.06 % 5.10 % 4.69 % 4.64 % Cost of Funding (2) 3.76 % 3.47 % 3.55 % 3.44 % 3.34 % 3.22 % 3.07 % 3.05 % Net Interest Spread 1.87 % 2.00 % 1.94 % 1.95 % 1.72 % 1.88 % 1.62 % 1.59 % Legacy RPL/NPL Loans Net Yield (1) 7.52 % 7.75 % 8.72 % 7.62 % 8.25 % 8.23 % 8.69 % 7.39 % Cost of Funding (2) 4.04 % 4.08 % 3.70 % 3.44 % 3.28 % 3.21 % 2.96 % 3.06 % Net Interest Spread 3.48 % 3.67 % 5.02 % 4.18 % 4.97 % 5.02 % 5.73 % 4.33 % Total Residential Whole Loans Net Yield (1) 6.65 % 6.74 % 6.92 % 6.63 % 6.47 % 6.34 % 6.10 % 5.68 % Cost of Funding (2) 4.50 % 4.45 % 4.54 % 4.43 % 4.29 % 4.10 % 3.83 % 3.82 % Net Interest Spread 2.15 % 2.29 % 2.38 % 2.20 % 2.18 % 2.24 % 2.27 % 1.86 % (1) Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans. Excludes servicing costs. (2) Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps, and accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended December 31, 2024, this decreased the overall funding cost by 101 basis points for our Residential whole loans, 80 basis points for our Business purpose loans, 136 basis points for our Non-QM loans, and 19 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 99 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 105 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 112 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 113 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 111 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2023, this increased the overall funding cost by 144 basis points for our Residential whole loans, 110 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 126 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2023, this increased the overall funding cost by 127 basis points for our Residential whole loans, 100 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. 51 Table of Contents The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented: Securities, at fair value Quarter Ended Net Yield (1) Cost of Funding (2) Net Interest Rate Spread December 31, 2024 6.05 % 3.34 % 2.71 % September 30, 2024 6.48 3.94 2.54 June 30, 2024 7.03 3.84 3.19 March 31, 2024 7.24 4.00 3.24 December 31, 2023 7.20 3.75 3.45 September 30, 2023 7.38 3.92 3.46 June 30, 2023 7.67 4.29 3.38 March 31, 2023 8.76 4.52 4.24 (1) Reflects annualized interest income divided by average amortized cost. (2) Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the quarter ended December 31, 2024, this decreased the overall funding cost by 168 basis points. For the quarter ended September 30, 2024, this decreased the overall funding cost by 171 basis points. For the quarter ended June 30, 2024, this decreased the overall funding cost by 190 basis points. For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points. For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points. For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points. For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points. Interest Income Interest income on our residential whole loans for 2024 increased by $95.7 million, or 17.8%, to $633.6 million compared to $537.9 million for 2023. This increase primarily reflects an increase in the yield to 6.74% for 2024 from 6.15% for 2023 and a $0.7 billion increase in the average balance of this portfolio to $9.4 billion for 2024 from $8.7 billion for 2023. Interest income on our Securities, at fair value portfolio for 2024 increased $18.7 million to $61.1 million from $42.4 million for 2023. This increase primarily reflects an increase in the average amortized cost of the portfolio of $368.5 million due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 6.59% for 2024, compared to 7.57% for 2023. Interest Expense Our interest expense for 2024 increased by $92.1 million, or 21.5%, to $521.2 million, from $429.1 million for 2023. This increase primarily reflects the higher overall average balances and financing rates of our securitized debt, higher average balances for securities repurchase agreements and $10.6 million and $5.1 million of interest expense related to our 8.875% Senior Notes issued in January 2024 and 9.00% Senior Notes that were issued in April 2024, respectively. These increases were partially offset by the impact of lower average balances for residential whole loan financing agreements and lower interest expense for convertible senior notes as these notes matured in June 2024 and were repaid in full. Provision for Credit Losses on Residential Whole Loans Held at Carrying Value For 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $3.1 million compared to a reversal of provision of $8.9 million for 2023. The reversal of provision recorded in 2024 primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions. The prior period reversal primarily reflects updated modeling assumptions, as well as the run-off of loans held at carrying value, partially offset by the impact of loan charge-offs. Provision for Credit Losses on Other Assets For 2024, we recorded a provision for credit losses on Other Assets of $1.1 million, related to an uncollectible receivable from an unrelated third-party servicer. No such provision was recorded for 2023. 52 Table of Contents Other Income/(Loss), net For 2024, Other Income/(Loss), net was $85.4 million, compared to an Other Income/(Loss), net of $63.1 million for 2023. The components of Other (Loss)/Income, net for 2024 and 2023 are summarized in the table below: For the Year Ended December 31, (In Thousands) 2024 2023 Net gain/(loss) on residential whole loans measured at fair value through earnings $ 45,994 $ 89,850 Impairment and other net gain/(loss) on securities and other portfolio investments (10,869) 6,225 Net gain/(loss) on real estate owned 3,136 9,392 Net gain/(loss) on derivatives used for risk management purposes 78,503 3,761 Net gain/(loss) on securitized debt measured at fair value through earnings (64,813) (99,589) Lima One mortgage banking income 32,944 43,384 Net realized gain/(loss) on residential whole loans held at carrying value 418 (1,240) Other, net 115 11,331 Other Income/(Loss), net $ 85,428 $ 63,114 Operating and Other Expense Operating and other expenses are composed of compensation and benefits, other general and administrative, loan servicing and other related operating expenses and amortization of Lima One intangible assets. Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One origination related commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased $1.9 million to $87.7 million for 2024, compared to $85.8 million for 2023 primarily driven by separation, retirement, and severance related costs, partially offset by reduction in origination related commission expenses and lower stock-based compensation expense. Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses increased by $0.4 million to $44.3 million for 2024 compared to $43.9 million for 2023, primarily as a result of accelerated depreciation of a software asset at Lima One, higher costs associated with IT infrastructure at our corporate offices and tax related accounting fees, partially offset by lower depreciation at our corporate offices, and lower professional fees and miscellaneous expenses at Lima One. Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities. These expenses increased compared to 2023 by approximately $1.2 million, or 3.4%, primarily due to higher non-recoverable advances and upfront costs on securitization. 53 Table of Contents Selected Financial Ratios The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) Total Average Stockholders’ Equity to Total Average Assets (4) Leverage Multiple (5) Recourse Leverage Multiple (6) December 31, 2024 0.21 % 1.26 % — 16.41 % 5.0 1.7 September 30, 2024 1.74 10.17 0.92 17.10 4.8 1.8 June 30, 2024 1.52 8.85 1.09 17.14 4.7 1.7 March 31, 2024 0.85 4.69 2.50 18.23 4.6 1.8 December 31, 2023 3.46 19.04 0.44 18.16 4.5 1.7 September 30, 2023 (0.56) (2.96) — 19.10 4.3 2.0 June 30, 2023 (0.27) (1.31) — 20.99 3.9 1.9 March 31, 2023 3.14 14.40 0.56 21.81 3.5 1.6 (1) Reflects annualized net income divided by average total assets. For the quarters ended September 30, 2023, and June 30, 2023, the amounts calculated reflect the quarterly net income divided by average total assets. (2) Reflects annualized net income divided by average total stockholders’ equity. For the quarters ended September 30, 2023, and June 30, 2023, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by earnings per share. The ratio has not been calculated for periods where earnings per share is negative as the calculations are not meaningful. (4) Reflects total average stockholders’ equity divided by total average assets. (5) Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity. (6) Represents the sum of our borrowings under financing agreements (excluding securitized debt and other non-recourse debt) and payable for unsettled purchases divided by stockholders’ equity. Reconciliation of GAAP and Non-GAAP Financial Measures Reconciliation of GAAP Net Income to non-GAAP Distributable Earnings “Distributable earnings” is a non-GAAP financial measure of our operating performance, within the meaning of Regulation G and Item 10(e) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Distributable earnings is determined by adjusting GAAP net income/(loss) by removing certain unrealized gains and losses, primarily on residential mortgage investments, associated debt, and hedges that are, in each case, accounted for at fair value through earnings, certain realized gains and losses, as well as certain non-cash expenses and securitization-related transaction costs. Realized gains and losses arising from loans sold to third-parties by Lima One shortly after the origination of such loans are included in Distributable earnings. The transaction costs are primarily comprised of costs only incurred at the time of execution of our securitizations and include costs such as underwriting fees, legal fees, diligence fees, bank fees and other similar transaction related expenses. These costs are all incurred prior to or at the execution of our securitizations and do not recur. Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from distributable earnings. During the third quarter of 2024, the Company changed the determination of Distributable earnings to exclude depreciation, for consistency with the reporting of similar non-cash expenses; this change has been reflected in all periods presented. Management believes that the adjustments made to GAAP earnings result in the removal of (i) income or expenses that are not reflective of the longer term performance of our investment portfolio, (ii) certain non-cash expenses, and (iii) expense items required to be recognized solely due to the election of the fair value option on certain related residential mortgage assets and associated liabilities. Distributable earnings is one of the factors that our Board of Directors considers when evaluating distributions to our shareholders. Accordingly, we believe that the adjustments to compute Distributable earnings specified below provide investors and analysts with additional information to evaluate our financial results. Distributable earnings should be used in conjunction with results presented in accordance with GAAP. Distributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. 54 Table of Contents The following table provides a reconciliation of our GAAP net income/(loss) used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below: Quarter Ended (In Thousands, Except Per Share Amounts) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 GAAP Net income/(loss) used in the calculation of basic EPS $ (2,396) $ 39,870 $ 33,614 $ 14,827 $ 81,527 $ (64,657) $ (34,146) $ 64,565 Adjustments: Unrealized and realized gains and losses on: Residential whole loans held at fair value 102,339 (143,416) (16,430) 11,513 (224,272) 132,894 130,703 (129,174) Securities held at fair value 26,273 (17,107) 4,026 4,776 (21,371) 13,439 3,698 (2,931) Residential whole loans and securities at carrying value — (7,324) (2,668) (418) 332 — — — Interest rate swaps (46,632) 84,629 10,237 (23,182) 97,400 (9,433) (37,018) 40,747 Securitized debt held at fair value (47,267) 71,475 7,597 20,169 108,693 (40,229) (30,908) 48,846 Other portfolio investments (94) 1,503 1,484 — 254 722 872 — Expense items: Amortization of intangible assets 800 800 800 800 800 800 1,300 1,300 Equity based compensation 1,637 2,104 3,899 6,243 3,635 4,447 3,932 3,020 Securitization-related transaction costs 5,252 3,485 3,009 1,340 2,702 3,217 2,071 4,602 Depreciation 938 2,604 822 889 869 841 704 1,866 Total adjustments 43,246 (1,247) 12,776 22,130 (30,958) 106,698 75,354 (31,724) Distributable earnings $ 40,850 $ 38,623 $ 46,390 $ 36,957 $ 50,569 $ 42,041 $ 41,208 $ 32,841 GAAP earnings/(loss) per basic common share $ (0.02) $ 0.38 $ 0.32 $ 0.14 $ 0.80 $ (0.64) $ (0.34) $ 0.63 Distributable earnings per basic common share $ 0.39 $ 0.37 $ 0.45 $ 0.36 $ 0.49 $ 0.41 $ 0.40 $ 0.32 Weighted average common shares for basic earnings per share 103,675 103,647 103,446 103,175 102,266 102,255 102,186 102,155 Selected Financial Ratios (using Distributable earnings) The following table presents information regarding certain of our financial ratios at or for the dates presented: At or for the Quarter Ended Return on Average Total Assets (1) Return on Average Total Stockholders’ Equity (2) Dividend Payout Ratio (3) December 31, 2024 1.72 % 10.49 % 0.90 September 30, 2024 1.69 9.89 0.95 June 30, 2024 1.98 11.53 0.78 March 31, 2024 1.66 9.12 0.97 December 31, 2023 2.27 12.47 0.70 September 30, 2023 2.01 10.53 0.85 June 30, 2023 2.09 9.95 0.88 March 31, 2023 1.66 9.12 1.09 (1) Reflects annualized Distributable earnings divided by average total assets. (2) Reflects annualized Distributable earnings before preferred dividends divided by average total stockholders’ equity. (3) Reflects dividends declared per share of common stock divided by Distributable earnings per share. 55 Table of Contents Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share “Economic book value” is a non-GAAP financial measure of our financial position. To calculate our Economic book value, our portfolios of Residential whole loans and securitized debt held at carrying value are adjusted to their fair value, rather than the carrying value that is required to be reported under the GAAP accounting model applied to these financial instruments. These adjustments are also reflected in the table below in our end of period stockholders’ equity. Management considers that Economic book value provides investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for all of our investment activities, irrespective of the accounting model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for Stockholders’ Equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. The following table provides a reconciliation of our GAAP book value per common share to our non-GAAP Economic book value per common share as of the quarterly periods below: Quarter Ended: (In Millions, Except Per Share Amounts) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 GAAP Total Stockholders’ Equity $ 1,841.8 $ 1,880.5 $ 1,883.2 $ 1,884.2 $ 1,899.9 $ 1,848.5 $ 1,944.8 $ 2,018.6 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share 1,366.8 1,405.5 1,408.2 1,409.2 1,424.9 1,373.5 1,469.8 1,543.6 Adjustments: Fair value adjustment to Residential whole loans, at carrying value (15.3) 6.7 (26.8) (35.4) (35.6) (85.3) (58.3) (33.9) Fair value adjustment to Securitized debt, at carrying value 70.3 64.3 82.3 88.4 95.6 122.5 129.8 122.4 Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) $ 1,421.8 $ 1,476.5 $ 1,463.7 $ 1,462.2 $ 1,484.9 $ 1,410.7 $ 1,541.3 $ 1,632.1 GAAP book value per common share $ 13.39 $ 13.77 $ 13.80 $ 13.80 $ 13.98 $ 13.48 $ 14.42 $ 15.15 Economic book value per common share $ 13.93 $ 14.46 $ 14.34 $ 14.32 $ 14.57 $ 13.84 $ 15.12 $ 16.02 Number of shares of common stock outstanding 102.1 102.1 102.1 102.1 101.9 101.9 101.9 101.9 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our consolidated financial statements include the accounts of all of our subsidiaries. The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements, giving due consideration to materiality. Actual results could differ from these estimates. Our accounting policies are described in Note 2 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. Management believes the policies which more significantly rely on estimates and judgments to be as follows: Fair Value Measurements - Residential Whole Loans GAAP requires the categorization of fair value measurements into three broad levels that form a hierarchy. The following describes the valuation methodologies used for our financial instrument investments categorized as level 3 in the valuation hierarchy, which require the most significant estimates and judgments to be made. We determine the fair value of our residential whole loans after considering valuations obtained from third-parties that specialize in providing valuations of residential mortgage loans. The valuation approach applied generally depends on whether the loan is considered performing or non-performing at the date the valuation is performed. For performing loans, estimates of fair value are derived using a discounted cash flow approach, where estimates of cash flows are determined from the scheduled payments, adjusted using forecasted prepayment, default and loss given default rates. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, the estimated value of the collateral, expected costs and 56 Table of Contents estimated home price levels. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield. The estimation of cash flows used in pricing models is inherently subjective and imprecise. Changes in market conditions, as well as changes in the assumptions or methodology used to determine fair value, could result in a significant increase or decrease in fair value. See “Quantitative and Qualitative Disclosures about Market Risk” for further information about the sensitivity of our investment portfolio to changes in market factors, particularly market interest rates. See Note 13 to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K for information regarding the assumptions used in valuing our residential whole loans. Residential whole loans, at fair value are recorded on our consolidated balance sheets at fair value and changes in their fair value are recorded through earnings. We held $7.5 billion and $7.5 billion of residential whole loans, at fair value, at December 31, 2024 and 2023, respectively, which represented 65.8% and 69.7% of our total assets at those dates, respectively. Residential whole loans, at fair value recorded valuation changes of $46.0 million, $89.9 million and $866.8 million during the years ended December 31, 2024, 2023, and 2022, respectively. With respect to Residential whole loans, at carrying value, the fair value for these loans is disclosed in the footnotes to the consolidated financial statements and changes in their fair value do not impact earnings. We held $1.3 billion and $1.5 billion of residential whole loans, at carrying value, at December 31, 2024 and 2023, respectively, which represented 11.4% and 14.2% of our total assets at those dates, respectively. Residential whole loans, at carrying value experienced net fair value changes of $20.4 million, $34.6 million and $223.7 million during the years ended December 31, 2024, 2023, and 2022, respectively. Recent Accounting Standards to Be Adopted in Future Periods In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (or ASU 2023-09). The amendments in ASU 2023-09 primarily require entities to disclose more details about their income tax rate, expense and payments. ASU 2023-09 is effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. We do not expect that the adoption of ASU 2023-09 will have a significant impact on our financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (or ASU 2024-03). The amendments in ASU 2024-03 primarily require entities to disclose additional details regarding certain expenses on both an annual and interim basis. ASU 2024-03 is effective for public business entities for fiscal years beginning after December 15, 2026. Early adoption is permitted. We do not expect that the adoption of ASU 2024-03 will have a significant impact on our financial statement disclosures. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash generally consist of borrowings under repurchase agreements and other collateralized financings, payments of principal and interest we receive on our investment portfolio, cash generated from our operating results and, to the extent such transactions are entered into, proceeds from capital market and structured financing transactions. Our most significant uses of cash are generally to pay principal and interest on our financing transactions, to purchase and originate residential mortgage assets, to make dividend payments on our capital stock, to fund our operations, to meet margin calls and to make other investments that we consider appropriate. We seek to employ a diverse capital raising strategy under which we may issue capital stock and other types of securities. To the extent we raise additional funds through capital market transactions, we currently anticipate using the net proceeds from such transactions to acquire additional residential mortgage-related assets, consistent with our investment policy, and for working capital, which may include, among other things, the repayment of our financing transactions. There can be no assurance, however, that we will be able to access the capital markets at any particular time or on any particular terms. We have available for issuance an unlimited amount (subject to the terms and limitations of our charter) of common stock, preferred stock, depository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our universal shelf registration statement and, at December 31, 2024, we had approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPP shelf registration statement. The Company did not issue any shares pursuant to its DRSPP during 2024. 57 Table of Contents In January 2024, we completed the issuance of $115.0 million in aggregate principal amount of its 8.875% Senior Notes in an underwritten public offering. The 8.875% Senior Notes are our senior unsecured obligations 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. We may redeem the 8.875% Senior Notes in whole or in part at any time at our 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 us from the offering of the 8.875% Senior Notes, after deducting the underwriter’s discount and commissions and offering expenses, were approximately $110.6 million. The 8.875% Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 9.83%. On February 29, 2024, we entered into a distribution agreement pursuant to which we may offer and sell shares of our common stock having an aggregate gross sales price of up to $300 million, from time to time, through various sales agents in transactions deemed to be “at-the-market” offerings under federal securities laws (or the ATM Program). During 2024, we did not sell any shares of common stock through the ATM Program. At December 31, 2024, $300 million remained available under the distribution agreement. On February 29, 2024, we announced our Board had authorized a new $200 million stock repurchase program with respect to our common stock, which will be in effect through the end of 2025. The new stock repurchase program supersedes the prior stock repurchase program in its entirety. Refer to Part II, Item 5 for further information about the stock repurchase program. During 2024, we did not repurchase any shares of our common stock through the stock repurchase program. At December 31, 2024, $200.0 million remained available under the current Board authorization for the purchase of common stock under our stock repurchase program. In April 2024, we completed the issuance of $75.0 million in aggregate principal amount of its 9.00% Senior Notes in an underwritten public offering. The 9.00% Senior Notes are our senior unsecured obligations and bear interest at a rate equal to 9.00% per year, payable in cash quarterly in arrears on February 15, May 15, August 15, and November 15 of each year, beginning on August 15, 2024, and are expected to mature on August 15, 2029, unless earlier redeemed. We may redeem the 9.00% Senior Notes in whole or in part at any time at our option on or after August 15, 2026, at a redemption price equal to 100% of the outstanding principal amount of the 9.00% Senior Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. The total net proceeds to us from the offering of the 9.00% Senior Notes, after deducting the underwriter’s discount and commissions and offering expenses, were approximately $72.0 million. The 9.00% Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 9.94%. In February 2023, our Board authorized a repurchase program for its Convertible Senior Notes pursuant to which it could have repurchased up to $100 million of our Convertible Senior Notes. During the three months ended March 31, 2024, we repurchased $39.9 million principal amount of our Convertible Senior Notes for $39.8 million and recorded a loss of $0.1 million to Other Income/(Loss), net on the consolidated statement of operations. During the year ended December 31, 2023, we repurchased $20.4 million principal amount of the Convertible Senior Notes for $20.2 million and recorded a gain of $0.1 million to Other Income/(Loss), net on the consolidated statement of operations. During the three months ended June 30, 2024, the Convertible Senior Notes matured and we repaid the amount in full. Financing Agreements Our borrowings under financing agreements include a combination of shorter term and longer arrangements. Certain of these arrangements are collateralized directly by our residential mortgage investments or otherwise have recourse to us, while securitized debt financing is non-recourse financing. Further, certain of our financing agreements contain terms that allow the lender to make margin calls on us based on changes in the value of the underlying collateral securing the borrowing. As of December 31, 2024, we had $2.6 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $6.5 billion of total unpaid principal balance related to asset-backed financing agreements that do not include mark-to-market collateral provisions. Repurchase agreements and other forms of collateralized financing are uncommitted and renewable at the discretion of our lenders and, as such, our lenders could determine to reduce or terminate our access to future borrowings at virtually any time. The terms of the repurchase transaction borrowings under our master repurchase agreements, as such terms relate to repayment, margin requirements and the segregation of all securities that are the subject of repurchase transactions, generally conform to the terms contained in the standard master repurchase agreement published by the Securities Industry and Financial Markets Association (or SIFMA) or the global master repurchase agreement published by SIFMA and the International Capital Market Association. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions, which differ by lender, may include changes to the margin maintenance requirements, required haircuts (or the percentage amount by which the collateral value is contractually required to exceed the loan amount), purchase price maintenance requirements, requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction and cross default and setoff provisions. Other non-repurchase 58 Table of Contents agreement financing arrangements also contain provisions governing collateral maintenance. At December 31, 2024, we had unused financing capacity of approximately $3.8 billion across our financing arrangements for all collateral types. Margin calls are typically determined by our counterparties based on their assessment of changes in the fair value of the underlying collateral and in accordance with the agreed upon haircuts specified in the transaction confirmation with the counterparty. We address margin call requests in accordance with the required terms specified in the applicable agreement and such requests are typically satisfied by posting additional cash or collateral on the same business day. We review margin calls made by counterparties and assess them for reasonableness by comparing the counterparty valuation against our valuation determination. When we believe that a margin call is unnecessary because our assessment of collateral value differs from the counterparty valuation, we typically hold discussions with the counterparty and attempt to resolve the matter. If this is not successful, we will look to resolve the dispute based on the remedies available to us under the terms of the repurchase agreement, which in some instances may include the engagement of a third-party to review collateral valuations. For certain other agreements that do not include such provisions, we could resolve the matter by substituting collateral as permitted in accordance with the agreement or otherwise request the counterparty to return the collateral in exchange for cash to unwind the financing. For additional information regarding our various types of financing arrangements, including those with non-mark-to-market terms and the haircuts for those agreements with mark-to-market collateral provisions, see Note 6 to the consolidated financial statements, included under Item 8 of this Annual Report on Form 10-K. At December 31, 2024, we had a total of $1.8 billion of residential whole loans, $1.4 billion of securities and $17.0 million of restricted cash pledged to our financing counterparties, excluding securitized debt. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements. When the value of our residential mortgage assets pledged as collateral experiences rapid decreases, margin calls under our financing arrangements could materially increase, causing an adverse change in our liquidity position. Additionally, if one or more of our financing counterparties choose not to provide ongoing funding, our ability to finance our long-maturity assets would decline or otherwise become available on possibly less advantageous terms. Further, when liquidity tightens, our counterparties to our short term arrangements with mark-to-market collateral provisions may increase their required collateral cushion (or margin) requirements on new financings, including financings that we roll with the same counterparty, thereby reducing our ability to use leverage. Access to financing may also be negatively impacted by ongoing volatility in financial markets, thereby potentially adversely impacting our current or future lenders’ ability or willingness to provide us with financing. In addition, there is no assurance that favorable market conditions will exist to permit us to consummate additional securitization transactions if we determine to seek that form of financing. Our ability to meet future margin calls will be affected by our ability to use cash or obtain financing from unpledged collateral, the amount of which can vary based on the market value of such collateral, our cash position and margin requirements. Our cash position fluctuates based on the timing of our operating, investing and financing activities and is managed based on our anticipated cash needs. (See “Interest Rate Risk” included under Item 7A. of this Annual Report on Form 10-K and our Consolidated Statements of Cash Flows, included under Item 8 of this Annual Report on Form 10-K.) The table below presents certain information about our borrowings under asset-backed financing agreements and securitized debt: Asset-backed Financing Agreements Securitized Debt Quarter Ended (1) Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End Quarterly Average Balance End of Period Balance Maximum Balance at Any Month-End (In Thousands) December 31, 2024 $ 3,321,754 $ 3,176,824 $ 3,455,758 $ 5,586,928 $ 5,794,977 $ 5,794,977 September 30, 2024 3,441,493 3,450,136 3,450,136 5,257,841 5,288,997 5,288,997 June 30, 2024 3,556,701 3,660,342 3,660,342 5,029,703 5,047,613 5,078,946 March 31, 2024 3,645,218 3,611,212 3,686,018 4,792,515 4,794,400 4,812,304 December 31, 2023 3,682,792 3,576,952 3,717,477 4,438,548 4,750,805 4,750,805 September 30, 2023 3,574,547 3,486,440 3,766,848 4,014,161 4,332,936 4,332,936 June 30, 2023 3,148,269 3,370,327 3,370,327 3,924,422 3,969,274 4,043,482 March 31, 2023 3,145,555 3,042,802 3,189,587 3,680,042 3,830,309 3,838,654 (1) The information presented in the table above excludes Senior notes (Note 6). Cash Flows and Liquidity for the Year Ended December 31, 2024 Our cash, cash equivalents and restricted cash increased by $113.1 million during 2024, reflecting: $424.6 million used in our investing activities, $337.6 million provided by our financing activities and $200.1 million provided by our operating activities. 59 Table of Contents At December 31, 2024, our debt-to-equity multiple was 5.0 times compared to 4.5 times at December 31, 2023. Our recourse leverage multiple at December 31, 2024 and December 31, 2023 was 1.7 times. At December 31, 2024, we had borrowings under asset-backed financing agreements of $3.2 billion, of which $1.9 billion were secured by residential whole loans, $1.3 billion were secured by securities and $25.4 million were secured by REO. In addition, at December 31, 2024, we had securitized debt of $5.8 billion in connection with our loan securitization transactions. At December 31, 2023, we had borrowings under asset-backed financing agreements of $3.6 billion, of which $2.9 billion were secured by residential whole loans, $622.6 million were secured by securities and $25.2 million were secured by REO. In addition, at December 31, 2023, we had securitized debt of $4.8 billion in connection with our loan securitization transactions. During 2024, $0.4 billion was used in our investing activities. We utilized $2.7 billion for acquisitions and origination of residential whole loans, loan related investments and capitalized advances. During 2024, we received $2.2 billion of principal payments on residential whole loans and loan related investments, $654.1 million of proceeds from the sale of residential whole loans, and $86.1 million of proceeds on sales of REO. In addition, during 2024, we utilized $869.1 million for acquisitions of securities and received cash proceeds of $45.6 million from sales of securities and other assets and $84.0 million from principal payments on our securities. In connection with our repurchase agreement financings and Swaps, we routinely receive margin calls from our counterparties and make margin calls (“reverse margin calls”) to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required. The value of securities pledged as collateral fluctuates reflecting changes in: (i) the face (or par) value of our assets; (ii) market interest rates and/or other market conditions; and (iii) the market value of our Swaps. Margin calls and reverse margin calls are satisfied when we pledge or receive additional collateral in the form of additional assets and/or cash. The table below summarizes our margin activity with respect to our repurchase agreement financings and derivative hedging instruments for the quarterly periods presented: Collateral Pledged for Margin Activity Cash and Securities Received for Reverse Margin Net Assets Received/(Pledged) for Margin Activity For the Quarter Ended (1) Fair Value of Securities Pledged Cash Pledged Aggregate Assets Pledged for Margin (In Thousands) December 31, 2024 $ 30,607 $ 30,806 $ 61,413 $ 36,992 $ (24,421) September 30, 2024 7,368 7,076 14,444 15,361 917 June 30, 2024 — 6,795 6,795 17,348 10,553 March 31, 2024 17,379 3,358 20,737 16,514 (4,223) December 31, 2023 10,616 4,085 14,701 23,060 8,359 September 30, 2023 35,690 4,363 40,053 34,846 (5,207) June 30, 2023 5,982 2,909 8,891 5,328 (3,563) March 31, 2023 676 2,965 3,641 6,529 2,888 (1) Excludes variation margin payments on our cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract. We are subject to various financial covenants under our financing agreements, which include minimum liquidity and net worth requirements, net worth decline limitations and maximum debt-to-equity ratios. We were in compliance with all financial covenants as of December 31, 2024. During 2024, we paid $143.9 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $32.9 million on our preferred stock. On December 11, 2024, we declared our fourth quarter 2024 dividend on our common stock of $0.35 per share; on January 31, 2025, we paid this dividend, which totaled approximately $36.0 million, including dividend equivalents of approximately $0.3 million. 60 Table of Contents