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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________________________________________________ 
FORM 10-Q
(Mark One) 
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
 
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                              to                         
 
Commission File Number: 1-13991
MFA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________ 
__________________________________________________________________ 
MarylandMaryland13-3974868
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
350 Park Avenue, 20thOne Vanderbilt Ave., 48th Floor New York, New York10022
New YorkNew York10017
(Address of principal executive offices)(Zip Code)
(212) 207-6400
(Registrant’s telephone number, including area code)


Not Applicable
(Former name, former address and former fiscal year, if changed since last period)

____________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareMFANew York Stock Exchange
7.50% Series B Cumulative Redeemable
Preferred Stock, par value $0.01 per share		MFA/PBNew York Stock Exchange
6.50% Series C Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock, par value $0.01 per share		MFA/PCNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  oYes ☐ No x

396,943,263101,915,797 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 27, 2017.
July 28, 2023.



Table of Contents
MFA FINANCIAL, INC.


TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Page
PART I
FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 2017 June 30, 2023 (Unaudited) and December 31, 20162022
1
Consolidated Statements of Operations (Unaudited) for the Three and NineSix Months Ended September 30, 2017June 30, 2023 and September 30, 2016June 30, 2022
2
Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Nine Six Months Ended September 30, 2017June 30, 2023 and September 30, 2016June 30, 2022
3
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Nine Three and Six Months Ended September 30, 2017June 30, 2023 and September 30, 2016June 30, 2022
4
Consolidated Statements of Cash Flows (Unaudited) for the NineSix Months Ended September June30 2017, 2023 and September 30, 2016June 30, 2022
56
67
7
7
16
22
26
30
35
36
38
38
42
42
44
51
53
5459
8991
96
PART IIII. OTHER INFORMATION
97
97
Risk Factors
97
Item 2.
97
9897
9897
Item 5.
Other Information
98
Item 6.
Exhibits
98
Signatures
99


MFA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEET




 (In Thousands Except Per Share Amounts) September 30,
2017		 December 31,
2016
  (Unaudited)  
Assets:  
  
Mortgage-backed securities (“MBS”) and credit risk transfer (“CRT”) securities:  
  
Agency MBS, at fair value ($2,911,353 and $3,540,401 pledged as collateral, respectively) $3,019,304
 $3,738,497
Non-Agency MBS, at fair value ($2,853,891 and $4,751,419 pledged as collateral, respectively) (1)
 3,911,660
 5,684,836
CRT securities, at fair value ($530,833 and $357,488 pledged as collateral, respectively) 653,633
 404,850
Mortgage servicing rights (“MSR”) related assets ($412,674 and $226,780 pledged as collateral, respectively) 411,840
 226,780
Residential whole loans, at carrying value ($347,906 and $427,880 pledged as collateral, respectively) (2)
 639,216
 590,540
Residential whole loans, at fair value ($903,494 and $734,331 pledged as collateral, respectively) (2)
 1,103,518
 814,682
Securities obtained and pledged as collateral, at fair value 507,318
 510,767
Cash and cash equivalents 608,173
 260,112
Restricted cash 15,440
 58,463
Other assets 233,357
 194,495
Total Assets $11,103,459
 $12,484,022
     
Liabilities:    
Repurchase agreements and other advances $6,871,443
 $8,687,268
Obligation to return securities obtained as collateral, at fair value 507,318
 510,767
8% Senior Notes due 2042 (“Senior Notes”) 96,763
 96,733
Payable for unsettled MBS and residential whole loans purchases 124,006
 —
Other liabilities 246,278
 155,352
Total Liabilities $7,845,808
 $9,450,120
     
Commitments and contingencies (See Note 11) 

 

     
Stockholders’ Equity:    
Preferred stock, $.01 par value; 7.50% Series B cumulative redeemable; 8,050 shares authorized;
  8,000 shares issued and outstanding ($200,000 aggregate liquidation preference)
 $80
 $80
Common stock, $.01 par value; 886,950 shares authorized; 396,939 and 371,854 shares issued
  and outstanding, respectively
 3,969
 3,719
Additional paid-in capital, in excess of par 3,219,398
 3,029,062
Accumulated deficit (596,022) (572,641)
Accumulated other comprehensive income 630,226
 573,682
Total Stockholders’ Equity $3,257,651
 $3,033,902
Total Liabilities and Stockholders’ Equity $11,103,459
 $12,484,022

(1)
Item 5.
Includes approximately $174.4 million of Non-Agency MBS transferred to consolidated variable interest entities (“VIEs”) at December 31, 2016. Such assets can be used only to settle the obligations of each respective VIE.
Other Information
97
(2)
Item 6.
Includes approximately $131.3 million of Residential whole loans, at carrying value and $40.4 million of Residential whole loans, at fair value transferred to a consolidated VIE at September 30, 2017. Such assets can be used only to settle the obligations of the VIE.
Exhibits
97
Signatures
99



Table of Contents



MFA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
 (In Thousands Except Per Share Amounts)June 30,
2023		December 31,
2022
 (Unaudited) 
Assets: 
Residential whole loans, net ($6,500,033 and $5,727,524 held at fair value, respectively) (1)(2)
$8,139,786 $7,518,739 
Securities, at fair value (2)
594,294 333,364 
Cash and cash equivalents329,391 334,183 
Restricted cash174,005 159,898 
Other assets (2)
498,755 766,221 
Total Assets$9,736,231 $9,112,405 
Liabilities:  
Financing agreements ($4,116,746 and $3,898,744 held at fair value, respectively)
$7,568,177 $6,812,086 
Other liabilities223,285 311,470 
Total Liabilities$7,791,462 $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 par3,691,233 3,684,291 
Accumulated deficit(1,761,093)(1,717,991)
Accumulated other comprehensive income13,420 21,341 
Total Stockholders’ Equity$1,944,769 $1,988,849 
Total Liabilities and Stockholders’ Equity$9,736,231 $9,112,405 

(1)Includes approximately $4.8 billion and $4.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at June 30, 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.

1
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands, Except Per Share Amounts) 2017 2016 2017 2016
Interest Income:  
  
  
  
Agency MBS $15,533
 $18,957
 $50,014
 $64,546
Non-Agency MBS 63,252
 83,638
 212,728
 253,555
CRT securities 8,676
 3,983
 22,898
 9,897
MSR related assets 7,194
 —
 17,833
 —
Residential whole loans held at carrying value 9,026
 5,917
 26,219
 16,112
Cash and cash equivalent investments 1,452
 221
 2,854
 531
Interest Income $105,133
 $112,716
 $332,546
 $344,641
         
Interest Expense:        
Repurchase agreements and other advances $46,303
 $46,158
 $141,444
 $137,127
Senior Notes and other interest expense 2,972
 2,009
 7,202
 6,360
Interest Expense $49,275
 $48,167
 $148,646
 $143,487
         
Net Interest Income $55,858
 $64,549
 $183,900
 $201,154
         
Other-Than-Temporary Impairments:        
Total other-than-temporary impairment losses $—
 $(1,255) $(63) $(1,255)
Portion of loss recognized in/(reclassed from) other comprehensive income —
 770
 (969) 770
Net Impairment Losses Recognized in Earnings $—
 $(485) $(1,032) $(485)
         
Other Income, net:        
Net gain on residential whole loans held at fair value $18,679
 $19,639
 $48,660
 $47,729
Net gain on sales of MBS and U.S. Treasury securities 14,933
 7,083
 30,530
 26,069
Other, net (4,515) 7,179
 14,844
 9,844
Other Income, net $29,097
 $33,901
 $94,034
 $83,642
         
Operating and Other Expense:        
Compensation and benefits $10,892
 $7,078
 $26,258
 $21,507
Other general and administrative expense 4,081
 3,709
 14,060
 12,508
Loan servicing and other related operating expenses 6,177
 4,167
 14,785
 10,265
Operating and Other Expense $21,150
 $14,954
 $55,103
 $44,280
         
Net Income $63,805
 $83,011
 $221,799
 $240,031
Less Preferred Stock Dividends 3,750
 3,750
 11,250
 11,250
Net Income Available to Common Stock and Participating Securities $60,055
 $79,261
 $210,549
 $228,781
         
Earnings per Common Share - Basic and Diluted $0.15
 $0.21
 $0.54
 $0.61
         
Dividends Declared per Share of Common Stock $0.20
 $0.20
 $0.60
 $0.60
Table of Contents


MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands, Except Per Share Amounts)2023 20222023 2022
Interest Income: 
Residential whole loans$128,048 $102,354 $247,558 $201,820 
Securities, at fair value9,948 5,294 17,256 10,569 
Other interest-earning assets2,622 1,349 4,973 2,855 
Cash and cash equivalent investments3,732 324 6,768 426 
Interest Income$144,350 $109,321 $276,555 $215,670 
Interest Expense:  
Asset-backed and other collateralized financing arrangements$95,884 $52,805 $184,764 $92,170 
Other interest expense3,961 3,937 7,917 7,868 
Interest Expense$99,845 $56,742 $192,681 $100,038 
Net Interest Income$44,505 $52,579 $83,874 $115,632 
(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans$(294)$(1,817)$(281)$1,694 
Provision for Credit Losses on Other Assets— (28,579)— (28,579)
Net Interest Income after Provision for Credit Losses$44,211 $22,183 $83,593 $88,747 
Other (Loss)/Income, net:
Net loss on residential whole loans measured at fair value through earnings$(130,703)$(218,181)$(1,529)$(506,116)
Impairment and other net loss on securities and other portfolio investments(4,569)(12,046)(1,638)(15,747)
Net gain on real estate owned2,153 7,185 6,095 15,917 
Net gain on derivatives used for risk management purposes60,451 47,804 39,243 141,905 
Net gain/(loss) on securitized debt measured at fair value through earnings27,394 84,573 (24,331)148,690 
Lima One - origination, servicing and other fee income11,477 10,673 20,453 25,167 
Other, net5,496 3,544 8,668 6,220 
Other (Loss)/Income, net$(28,301)$(76,448)$46,961 $(183,964)
Operating and Other Expense:
Compensation and benefits$21,771 $19,060 $42,401 $38,616 
Other general and administrative expense11,169 10,507 21,560 19,204 
Loan servicing, financing and other related costs7,598 13,235 17,137 23,636 
Amortization of intangible assets1,300 3,300 2,600 6,600 
Operating and Other Expense$41,838 $46,102 $83,698 $88,056 
Net (Loss)/Income$(25,928)$(100,367)$46,856 $(183,273)
Less Preferred Stock Dividend Requirement$8,218 $8,219 $16,437 $16,438 
Net (Loss)/Income Available to Common Stock and Participating Securities$(34,146)$(108,586)$30,419 $(199,711)
Basic (Loss)/Earnings per Common Share$(0.34)$(1.06)$0.30 $(1.91)
Diluted (Loss)/Earnings per Common Share$(0.34)$(1.06)$0.29 $(1.91)

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

2
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(UNAUDITED)

  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands) 2017 2016 2017 2016
Net income $63,805
 $83,011
 $221,799
 $240,031
Other Comprehensive Income/(Loss):        
Unrealized (loss)/gain on Agency MBS, net
 (3,032) (6,941) (22,241) 17,857
Unrealized gain on Non-Agency MBS, net 10,020
 71,291
 93,429
 106,906
Reclassification adjustment for MBS sales included in net income (14,935) (6,829) (30,283) (26,795)
Reclassification adjustment for other-than-temporary impairments included in net income —
 (485) (1,032) (485)
Derivative hedging instrument fair value changes, net 5,791
 22,769
 16,671
 (39,803)
Other Comprehensive Income/(Loss) (2,156) 79,805
 56,544
 57,680
Comprehensive income before preferred stock dividends $61,649
 $162,816
 $278,343
 $297,711
Dividends declared on preferred stock (3,750) (3,750) (11,250) (11,250)
Comprehensive Income Available to Common Stock and Participating Securities $57,899
 $159,066
 $267,093
 $286,461
Table of Contents

MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(UNAUDITED)
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands)2023202220232022
Net income/(loss)$(25,928)$(100,367)$46,856 $(183,273)
Other Comprehensive Income/(Loss):  
Unrealized losses on securities available-for-sale(6,805)(4,937)(7,921)(9,914)
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk— — — 1,255 
Other Comprehensive (Loss)(6,805)(4,937)(7,921)(8,659)
Comprehensive income/(loss) before preferred stock dividends$(32,733)$(105,304)$38,935 $(191,932)
Dividends required on preferred stock(8,218)(8,219)(16,437)(16,438)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities$(40,951)$(113,523)$22,498 $(208,370)
 
The accompanying notes are an integral part of the consolidated financial statements.

3
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)

  Nine Months Ended September 30, 2017
(In Thousands, 
Except Per Share Amounts)
 Preferred Stock
7.50% 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    
Balance at December 31, 2016 8,000
 $80
 371,854
 $3,719
 $3,029,062
 $(572,641) $573,682
 $3,033,902
Net income —
 —
 —
 —
 —
 221,799
 —
 221,799
Issuance of common stock, net of expenses (1)
 —
 —
 25,726
 250
 190,265
 —
 —
 190,515
Repurchase of shares of common stock (1)
 —
 —
 (641) —
 (5,158) —
 —
 (5,158)
Equity based compensation expense —
 —
 —
 —
 5,209
 —
 —
 5,209
Accrued dividends attributable to stock-based awards —
 —
 —
 —
 20
 —
 —
 20
Dividends declared on common stock —
 —
 —
 —
 —
 (233,244) —
 (233,244)
Dividends declared on preferred stock —
 —
 —
 —
 —
 (11,250) —
 (11,250)
Dividends attributable to dividend equivalents —
 —
 —
 —
 —
 (686) —
 (686)
Change in unrealized gains on MBS, net —
 —
 —
 —
 —
 —
 39,873
 39,873
Derivative hedging instrument fair value changes, net —
 —
 —
 —
 —
 —
 16,671
 16,671
Balance at September 30, 2017 8,000
 $80
 396,939
 $3,969
 $3,219,398
 $(596,022) $630,226
 $3,257,651

Table of Contents
  Nine Months Ended September 30, 2016
(In Thousands, 
Except Per Share Amounts)		 Preferred Stock
7.50% 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    
Balance at December 31, 2015 8,000
 $80
 370,584
 $3,706
 $3,019,956
 $(572,332) $515,851
 $2,967,261
Net income —
 —
 —
 —
 —
 240,031
 —
 240,031
Issuance of common stock, net of expenses (1)
 —
 —
 716
 5
 936
 —
 —
 941
Repurchase of shares of common stock (1)
 —
 —
 (217) —
 (1,481) —
 —
 (1,481)
Equity based compensation expense —
 —
 —
 —
 4,140
 —
 —
 4,140
Accrued dividends attributable to stock-based awards —
 —
 —
 —
 (518) —
 —
 (518)
Dividends declared on common stock —
 —
 —
 —
 —
 (222,669) —
 (222,669)
Dividends declared on preferred stock —
 —
 —
 —
 —
 (11,250) —
 (11,250)
Dividends attributable to dividend equivalents —
 —
 —
 —
 —
 (697) —
 (697)
Change in unrealized gains on MBS, net —
 —
 —
 —
 —
 —
 97,483
 97,483
Derivative hedging instruments fair value changes, net —
 —
 —
 —
 —
 —
 (39,803) (39,803)
Balance at September 30, 2016 8,000
 $80
 371,083
 $3,711
 $3,023,033
 $(566,917) $573,531
 $3,033,438

MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Six Months Ended June 30, 2023
(In Thousands, Except Per Share Amounts)
Preferred Stock
6.50% Series C Fixed-to-Floating Rate Cumulative Redeemable - Liquidation Preference $25.00 per Share
Preferred Stock
7.50% Series B Cumulative Redeemable - Liquidation Preference $25.00 per Share
Common StockAdditional Paid-in CapitalAccumulated
 Deficit		Accumulated Other Comprehensive IncomeTotal
SharesAmountSharesAmountSharesAmount
Balance at December 31, 202211,000 $110 8,000 $80 101,802 $1,018 $3,684,291 $(1,717,991)$21,341 $1,988,849 
Net income— — — — — — — 72,784 — 72,784 
Issuance of common stock, net of expenses— — — — 168 1 17 — — 18 
Repurchase of shares of common stock (1)
— — — — (58)— (599)— — (599)
Equity based compensation expense— — — — — — 3,019 — — 3,019 
Change in accrued dividends attributable to stock-based awards— — — — — — 557 (932)— (375)
Dividends declared on common stock ($0.35 per share)— — — — — — — (35,669)— (35,669)
Dividends declared on Series B Preferred Stock ($0.46875 per share)— — — — — — — (3,750)— (3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)— — — — — — (4,469)— (4,469)
Dividends attributable to dividend equivalents— — — — — — — (86)— (86)
Change in unrealized gains on securities, net— — — — — — — — (1,116)(1,116)
Balance at March 31, 202311,000 $110 8,000 $80 101,912 $1,019 $3,687,285 $(1,690,113)$20,225 $2,018,606 
Net loss— — — — — — — (25,928)— (25,928)
Issuance of common stock, net of expenses— — — — 4 — 16 — — 16 
Repurchase of shares of common stock (1)
— — — — — — — — — — 
Equity based compensation expense— — — — — — 3,932 — — 3,932 
Change in accrued dividends attributable to stock-based awards— — — — — — — (1,044)— (1,044)
Dividends declared on common stock ($0.35 per share)— — — — — — — (35,671)— (35,671)
Dividends declared on Series B Preferred Stock ($0.46875 per share)— — — — — — — (3,750)— (3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)— — — — — — — (4,469)— (4,469)
Dividends attributable to dividend equivalents— — — — — — — (118)— (118)
Change in unrealized gains on securities, net— — — — — — — — (6,805)(6,805)
Balance at June 30, 202311,000 $110 8,000 $80 101,916 $1,019 $3,691,233 $(1,761,093)$13,420 $1,944,769 
(1)  For the ninesix months ended SeptemberJune 30, 2017 and 2016,2023 includes approximately $5.2 million (640,748$600,000 (58,505 shares) and $1.5 million (217,464 shares), respectively surrendered for tax purposes related to equity-based compensation awards.


MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
  Nine Months Ended 
 September 30,
(In Thousands) 2017 2016
Cash Flows From Operating Activities:  
  
Net income $221,799
 $240,031
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Gain on sales of MBS and U.S. Treasury securities (30,530) (26,069)
Gain on sales of real estate owned (2,844) (1,840)
Gain on liquidation of residential whole loans (7,178) —
Other-than-temporary impairment charges 1,032
 485
Accretion of purchase discounts on MBS and CRT securities, residential whole loans and MSR related assets (67,065) (64,093)
Amortization of purchase premiums on MBS and CRT securities 23,766
 27,748
Depreciation and amortization on real estate, fixed assets and other assets 1,199
 746
Equity-based compensation expense 5,369
 4,143
Unrealized gain on residential whole loans at fair value (12,499) (25,529)
Increase in other assets and other (3,827) (47,761)
Decrease in other liabilities (10,248) (9,025)
Net cash provided by operating activities $118,974
 $98,836
     
Cash Flows From Investing Activities:  
  
Principal payments on MBS, CRT securities and MSR related assets $3,387,673
 $2,581,507
Proceeds from sales of MBS and U.S. Treasury securities 222,143
 65,068
Purchases of MBS, CRT securities and MSR related assets (1,425,717) (1,398,606)
Purchases of residential whole loans and capitalized advances (391,613) (367,740)
Principal payments on residential whole loans 105,549
 70,729
Proceeds from sales of real estate owned 51,834
 21,833
Purchases of real estate owned and capital improvements (17,224) —
Redemption of Federal Home Loan Bank stock 10,422
 49,595
Additions to leasehold improvements, furniture and fixtures (596) (380)
Net cash provided by investing activities $1,942,471
 $1,022,006
     
Cash Flows From Financing Activities:  
  
Principal payments on repurchase agreements and other advances $(57,118,263) $(62,376,619)
Proceeds from borrowings under repurchase agreements and other advances 55,302,002
 61,685,547
Proceeds from issuance of securitized debt 147,847
 —
Principal payments on securitized debt (9,140) (22,057)
Payments made for securitization related costs
 (1,520) —
Payments made for margin calls and settlements on repurchase agreements and interest rate swap agreements (“Swaps”) (51,111) (179,028)
Proceeds from reverse margin calls and settlements on repurchase agreements and Swaps 66,517
 128,700
Proceeds from issuances of common stock 190,516
 941
Dividends paid on preferred stock (11,250) (11,250)
Dividends paid on common stock and dividend equivalents (228,982) (223,385)
Net cash used in financing activities $(1,713,384) $(997,151)
Net increase in cash and cash equivalents $348,061
 $123,691
Cash and cash equivalents at beginning of period $260,112
 $165,007
Cash and cash equivalents at end of period $608,173
 $288,698
     
Non-cash Investing and Financing Activities:    
Net increase/(decrease) in securities obtained as collateral/obligation to return securities obtained as collateral $131,930
 $(13,450)
Transfer from residential whole loans to real estate owned $97,388
 $69,803
Dividends and dividend equivalents declared and unpaid $79,605
 $74,556

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

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MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Six Months Ended June 30, 2022
Preferred Stock
6.50% Series C Fixed-to-Floating Rate Cumulative Redeemable - Liquidation Preference $25.00 per Share
Preferred Stock
7.50% Series B Cumulative Redeemable - Liquidation Preference $25.00 per Share
Common StockAdditional Paid-in CapitalAccumulated
 Deficit		Accumulated Other Comprehensive IncomeTotal
(In Thousands, Except Per Share Amounts)SharesAmountSharesAmountSharesAmount
Balance at December 31, 202111,000 $110 8,000 $80 108,138 $1,082 $3,775,482 $(1,279,484)$45,578 $2,542,848 
Net loss— — — — — — — (82,906)— (82,906)
Issuance of common stock, net of expenses— — — — 150 1 485 — — 486 
Repurchase of shares of common stock (1)
— — — — (3,252)(33)(55,709)— — (55,742)
Equity based compensation expense— — — — — — 2,642 — — 2,642 
Change in accrued dividends attributable to stock-based awards— — — — — — 74 (150)— (76)
Dividends declared on common stock ($0.440 per share)— — — — — — — (46,215)— (46,215)
Dividends declared on Series B Preferred Stock ($0.46875 per share)— — — — — — — (3,750)— (3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)— — — — — — — (4,469)— (4,469)
Dividends attributable to dividend equivalents— — — — — — — (141)— (141)
Change in unrealized losses on securities, net— — — — — — — — (4,977)(4,977)
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk— — — — — — — — 1,255 1,255 
Balance at March 31, 202211,000 $110 8,000 $80 105,036 $1,050 $3,722,974 $(1,417,115)$41,856 $2,348,955 
Net loss— — — — — — — (100,367)— (100,367)
Issuance of common stock, net of expenses— — — — 38 1 552 — — 553 
Repurchase of shares of common stock (1)
— — — — (3,281)(33)(47,479)— — (47,512)
Equity based compensation expense— — — — — — 3,540 — — 3,540 
Change in accrued dividends attributable to stock-based awards— — — — — — (509)(153)— (662)
Dividends declared on common stock ($0.44 per share)— — — — — — — (44,789)— (44,789)
Dividends declared on Series B Preferred Stock ($0.46875 per share)— — — — — — — (3,750)— (3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)— — — — — — — (4,469)— (4,469)
Dividends attributable to dividend equivalents— — — — — — — (174)— (174)
Change in unrealized gains on securities, net— — — — — — — — (4,937)(4,937)
Balance at June 30, 202211,000 $110 8,000 $80 101,793 $1,018 $3,679,078 $(1,570,817)$36,919 $2,146,388 

(1)  For the six months ended June 30, 2022 includes approximately $1.0 million (56,690 shares) surrendered for tax purposes related to equity-based compensation awards.

The accompanying notes are an integral part of the consolidated financial statements.
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MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
(In Thousands)20232022
Cash Flows From Operating Activities:  
Net income/(loss)$46,856 $(183,273)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities: 
Net (gain)/loss on residential whole loans1,529 500,660 
Impairment and other net (gain)/loss on securities and other portfolio investments, net1,638 15,743 
Net gain on real estate owned(6,129)(15,559)
Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities(10,336)(6,846)
Provision for credit losses on residential whole loans and other assets290 25,965 
Net loss/(gain) on derivatives used for risk management purposes5,861 (151,706)
Net loss/(gain) on securitized debt measured at fair value through earnings17,938 (147,203)
Net margin (paid)/received for derivatives used for risk management purposes30,384 102,718 
Net other non-cash losses included in net income12,291 16,406 
(Increase)/decrease in other assets(50,797)60,039 
Increase/(decrease) in other liabilities15,602 (4,570)
Net cash provided by operating activities$65,127 $212,374 
Cash Flows From Investing Activities:  
Purchases and origination of residential whole loans, loan related investments and capitalized advances$(1,340,773)$(1,964,553)
Proceeds from sales of residential whole loans262,692 — 
Principal payments on residential whole loans and loan related investments694,992 1,134,500 
Purchases of securities(383,746)— 
Proceeds from sales of securities and other assets— 369 
Principal payments on securities15,767 2,453 
Proceeds from sales of real estate owned66,175 81,442 
Other investing activities(7,323)(4,305)
Net cash used in investing activities$(692,216)$(750,094)
Cash Flows From Financing Activities: 
Principal payments on financing agreements with mark-to-market collateral provisions$(1,242,689)$(1,728,740)
Proceeds from borrowings under financing agreements with mark-to-market collateral provisions1,422,773 1,791,390 
Principal payments on other collateralized financing agreements(939,646)(1,261,737)
Proceeds from borrowings under other collateralized financing agreements1,490,568 2,099,070 
Payment made for other collateralized financing agreement related costs(6,673)(9,632)
Proceeds from issuances of common stock34 1,122 
Payments made for the repurchase of common stock through the stock repurchase program— (102,311)
Dividends paid on preferred stock(16,438)(16,438)
Dividends paid on common stock and dividend equivalents(71,525)(94,108)
Net cash provided by financing activities$636,404 $678,616 
Net increase in cash, cash equivalents and restricted cash$9,315 $140,896 
Cash, cash equivalents and restricted cash at beginning of period$494,081 $404,447 
Cash, cash equivalents and restricted cash at end of period$503,396 $545,343 
Supplemental Disclosure of Cash Flow Information 
Interest paid$188,884 $89,367 
Non-cash Investing and Financing Activities:
Transfer from residential whole loans to real estate owned$49,181 $45,217 
Dividends and dividend equivalents declared and unpaid$35,789 $44,963 
Payable for purchase of unsettled Agency MBS$30,931 $— 
The accompanying notes are an integral part of the consolidated financial statements.
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

 
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 a taxable REIT subsidiarysubsidiaries (“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 Notes 2(p) and 12)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 interim unaudited consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted according toin accordance with these SEC rules and regulations.  Management believes that the disclosures included in these interim unaudited consolidated financial statements are adequate to make the information presented not misleading.  The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022.  In the opinion of management, all normal and recurring adjustments necessary to present fairly the financial condition of the Company at SeptemberJune 30, 20172023 and results of operations for all periods presented have been made.  The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 should not be construed as indicative of the results to be expected for the full year.
 
The accompanying consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with 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, including other-than-temporaryareas: impairment, (“OTTI”)valuation allowances and loss allowances on MBS (Seeresidential 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 MBS, CRT securitiesSecurities, at fair value (see Notes 4 and MSR related assets (See Notes 3 and 15)13), income recognition and valuation of residential whole loans (See(see Notes 43 and 15)13), valuation of financing agreements (Notes 6 and 13), and valuation of derivative instruments (See(see Notes 5(b)5(d) and 15) and income recognition on certain Non-Agency MBS (defined below) purchased at a discount. (See Note 3)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. (Seeinterest (see Note 2(p))8).  Actual results could differ from those estimates.

The Company has one reportable segment as it manages its business and analyzes and reports its results of operations on the basis of one operating segment; investing, on a leveraged basis, in residential mortgage assets.

The consolidated financial statements of the Company include the accounts of all subsidiaries; allsubsidiaries. All intercompany accounts and transactions have been eliminated. In addition, the Company consolidates entities established to facilitate its loan securitization transaction as well astransactions related to the acquisition and securitization of residential whole loans. Certain prior period amounts have been reclassified to conform to the current period presentation.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(b)  MBSResidential Whole Loans (including Non-Agency MBSResidential 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 CRT Securitiesadjustable-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 has investmentsCompany’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 MBSwhole loans that are issuedsubject 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 guaranteeddisposed 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 principal and/date (which include loans purchased from third parties or interestloans 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 sell the properties (“Transitional loans” or “TL”) (also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans”), (iv) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans”), and (v) previously originated loans secured by residential real estate that is generally owner occupied (“Seasoned performing loans”). Purchased Performing Loans are initially recorded at their purchase price (or amount funded for originated loans). 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).
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
For nonaccrual loans, interest income is recorded under the cash basis method as interest payments are received. Interest accruals are resumed when the loan becomes contractually current. A loan is written off when it is no longer realizable and/or it is legally discharged. Modified loans are considered “troubled debt restructurings” if the Company grants a concession to a borrower who is experiencing financial difficulty (including the interpretation of this definition set forth in OCC Bulletin 2020-35).

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.

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 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 amortization of the difference between their cost basis and unpaid principal balance (“UPB”), subject to the Company’s nonaccrual policy.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
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 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 CRT securities that are issued by or sponsored by Fannie Mae and Freddie Mac. The coupon payments on CRT securities are paid by Fannie Mae and Freddie Macthe issuer and the principal payments received are baseddependent on the performance of loans in either a reference pool or an actual pool of previously securitized MBS.loans. As the loans in the underlying reference 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 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 definedMSRs. 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 events occur, including, for certain CRT securities, if the loanssupport in the reference pool experience delinquencies exceeding specified thresholds.form of over-collateralization. Credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the underlying MSRs be insufficient.

Designation
 
TheSecurities that the Company generally intends to hold its MBS until maturity; however,maturity, but that it may sell from time to time it may sell any of its securities as part of the overall management of its business.  As a result, all of the Company’s MBSbusiness, are designated as “available-for-sale” (“AFS”)AFS. Such securities, which include term notes backed by MSR collateral and accordingly,certain CRT securities, are carried at their fair value with unrealized gains and losses excluded from earnings (except when an OTTIallowance for loan losses is recognized, as discussed below) and reported in Accumulatedaccumulated other comprehensive income/(loss)income (“AOCI”), a component of Stockholders’ Equity.
 
Upon the sale of an AFS security, any unrealized gain or loss is reclassified out of AOCI to earnings as a realized gain or loss using the specific identification method.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
The Company has elected the fair value option for its Agency and Non-Agency MBS and certain of its CRT securities as it considers this method of accounting to more appropriately reflect the risk sharing structure of these securities. SuchThese securities are carried at their fair value with changes in fair value included in earnings for the period and reported in Other Income, net on the Company’s consolidated statements of operations.

Revenue Recognition, Premium Amortization and Discount Accretion
 
Interest income on securities is accrued based on thetheir outstanding principal balance and their contractual terms. Premiums and discounts associated with Agency MBS and Non-Agency MBS assessed as high credit quality at the time of purchase are amortized into interest income over the life of such securities using the effective yield method. Adjustments to premium amortization are made for actual prepayment activity.
 
Interest income on the Non-Agency MBS that were purchased at a discount to par value and/or are considered to be of less than high credit quality is recognized based on the security’s effective interest rate which is the security’s internal rate of return (“IRR”). The IRR is determined using management’s estimate of the projected cash flows for each security, which are based on the Company’s observation of current information and events and include assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the IRR/ interest income recognized on these securities or in the recognition of OTTIs.  (See Note 3)
Based on the projected cash flows from the Company’s Non-Agency MBS purchased at a discount to par value, a portion of the purchase discount may be designated as non-accretable purchase discount (“Credit Reserve”), which effectively mitigates the Company’s risk of loss on the mortgages collateralizing such MBS and is not expected to be accreted into interest income.  The amount designated as Credit Reserve may be adjusted over time, based on the actual performance of the security, its underlying collateral, actual and projected cash flow from such collateral, economic conditions and other factors.  If the performance of a security with a Credit Reserve is more favorable than forecasted, a portion of the amount designated as Credit Reserve may be reallocated to accretable discount and recognized into interest income over time.  Conversely, if the performance of a security with a Credit Reserve is less favorable than forecasted, the amount designated as Credit Reserve may be increased, or impairment charges and write-downs of such securities to a new cost basis could result.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Determination of Fair Value for MBS and CRT Securities
 
In determining the fair value of the Company’s MBS and CRT 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.  (Seeactivity (see Note 15)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 should cash flows generated by the related underlying MSR collateral be insufficient.
 
Impairments/OTTIAllowance 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 designates such impairments as either “temporary” or “other-than-temporary.”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 an OTTIa 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 other-than-temporarily impaired security, only the portion of the OTTIimpairment related to credit losses is recognized through chargesa 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.  Following the recognition of an OTTICredit loss allowances are subject to reversal through earnings a new cost basis is established for the security and may not be adjusted for subsequent recoveriesresulting from improvements in fair value through earnings.  However, OTTIs recognized through charges to earnings may be accreted back to the amortized cost basis of the security on a prospective basis through interest income.expected cash flows. The determination as to whether an OTTI exists and, if so, the amount ofto record (or reverse) a credit impairment recognized in earningsloss 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 the future performance and cash flow projections.  As a result, the timing and amount of OTTIslosses constitute material estimates that are susceptible to significant change.  (Seechange (see Note 3)4).


Non-Agency MBS that are assessed to be of less than high credit quality and on which impairments are recognized have experienced, or are expected to experience, credit-related adverse cash flow changes.  The Company’s estimate of cash flows for its Non-Agency MBS is based on its review of the underlying mortgage loans securing the MBS.  The Company considers information available about the past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, Fair Isaac Corporation (“FICO”) scores at loan origination, year of origination, loan-to-value ratios (“LTVs”), geographic concentrations, as well as reports by credit rating agencies, such as Moody’s Investors Services, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”) or Fitch, Inc. (collectively with Moody’s and S&P, “Rating Agencies”), general market assessments, and dialogue with market participants.  As a result, significant judgment is used in the Company’s analysis to determine the expected cash flows for its Non-Agency MBS.  In determining the OTTI related to credit losses for securities that were purchased at significant discounts to par and/or are considered to be of less than high credit quality, the Company compares the present value of the remaining cash flows expected to be collected at the purchase date (or last date previously revised) against the present value of the cash flows expected to be collected at the current financial reporting date.  The discount rate used to calculate the present value of expected future cash flows is the current yield used for income recognition purposes.  Impairment assessment for Non-Agency MBS and CRT Securities that were purchased at prices close to par and/or are otherwise considered to be of high credit quality involves comparing the present value of the remaining cash flows expected to be collected against the amortized cost of the security at the assessment date.  The discount rate used to calculate the present value of the expected future cash flows is based on the instrument’s IRR.
Balance Sheet PresentationResidential Whole Loans at Fair Value

TheCertain of the Company’s MBS and CRT Securities pledged as collateral against repurchase agreements, Federal Home Loan Bank advances and Swapsresidential whole loans are includedpresented at fair value on theits consolidated balance sheets withas 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 securities pledged disclosed parenthetically.  Purchasesmarketplace. Subsequent changes in fair value are reported in current period earnings and salespresented in Net (loss)/gain on residential whole loans measured at fair value through earnings on the Company’s consolidated statements of securitiesoperations.

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 onin other income and expense respectively in the trade date. period in which they are earned or incurred.


(c)  MSR Related AssetsSecurities, at Fair Value


Residential Mortgage Securities
The Company has invested in residential MBS that are issued or guaranteed as to principal and/or interest by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as the Government National Mortgage Association (“Ginnie Mae”) (collectively, “Agency MBS”), and residential MBS that are not guaranteed by any agency of the U.S. Government or any federally chartered corporation (“Non-Agency MBS”). In addition, the Company has investments in financial instruments whose cash flowsCRT securities that are considered to be largelyissued 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 underlying MSRs thatthe performance of loans in either directlya reference pool or indirectly act as collateral foran actual pool of loans. As the investment. These financial instruments, which are referred to as MSR related assets are discussed in more detail below. The Company’s MSR related assets pledged as collateral against repurchase agreements are includedloans in the consolidatedunderlying pool are paid, the principal balance sheets withof the amounts pledged disclosed parenthetically. Purchases and salesCRT securities is paid. As an investor in a CRT security, the Company may incur a principal loss if the performance of MSR related assets are recorded on the trade date. (See Notes 3, 6, 7 and 15)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.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017



Term Notes Backed by MSR Related Collateral

The Company has invested in term notes that are issued by special purpose vehicles (“SPV”) that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs. The Company considers payment of principal and interest on these term notes to be largely dependent on the cash flows generated by the underlying MSRs as this impacts the cash flows available to the SPV that issued the term notes. Credit risk borne by the holders of the term notes is also mitigated by structural credit support in the form of over-collateralization. Credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the underlying MSRs be insufficient.


The Company’sDesignation
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 related collateral and certain CRT securities, are reportedcarried at their fair value on the Company’s consolidated balance sheets with unrealized gains and losses excluded from earnings (except when an allowance for loan losses is recognized, as discussed below) and reported in AOCI. Interestaccumulated other comprehensive income (“AOCI”), a component of Stockholders’ Equity.
Upon the sale of an AFS security, any unrealized gain or loss is recognized on an accrual basisreclassified out of AOCI to earnings as a realized gain or loss using the specific identification method.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
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, net on the Company’s consolidated statements of operations. The

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 valuation process for such notessecurities, management considers a number of factors,observable market data points, including a comparable bond analysis performedprices 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 a third-party pricing service which involves determining a pricing spread at issuance of the term note. The pricing spread is used at each subsequent valuation date to determine an implied yield to maturity of the term note, which is then used to derive an indicative market value for the security. This indicative market value is further reviewed by the Company and may be adjusted to ensure it reflects a realistic exit price at the valuation date given the structural features of these securities. OtherMSR collateral, other factors taken into consideration include indicative values provided by repurchase agreement counterparties, estimated changes in fair value of the related underlying MSR collateral, as applicable, and the financial performance of the ultimate parent or sponsoring entity of the issuer, which has provided a guarantee that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the related underlying MSR collateral be insufficient.

Corporate LoanAllowance 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 has entered into a loan agreement with an entity that originates loans and owns the related MSRs. Under the terms of loan agreement, the Company has committed to lend $130.0 million of which approximately $101.1 million was drawn at September 30, 2017. The loan is secured by certain U.S. Government, Agency and private-label MSRs,assesses its impaired securities, as well as other unencumbered assets owned by the borrower. The term loan is recorded on the Company’s consolidated balance sheets at the drawn amount, on which interest income is recognized on an accrual basis on the Company’s consolidated statements of operations. Commitment fees received on the undrawn amount are deferred and recognized as interest income over the remaining loan term at the time of draw. At the end of the commitment period, any remaining deferred commitment fees will be recorded as Other Income on the Company’s consolidated statements of operations. The Company evaluates the recoverability of the loan on a quarterly basis by considering various factors, including the current status of the loan, changes in fair value of the MSRs that secure the loan and the recent financial performance of the borrower.

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

Residential whole loans included in the Company’s consolidated balance sheets are comprised of pools of fixed and adjustable rate residential mortgage loans acquired through consolidated trusts in secondary market transactions generally at discounted purchase prices. The accounting model utilized by the Company is determined at the time each loan package is initially acquired and is generally based on the delinquency status of the majority of the underlying borrowers in the package at acquisition. The accounting model described below under “Residential Whole Loans at Carrying Value” is typically utilized by the Company for loans where the underlying borrower has a delinquency status of less than 60 days at the acquisition date. The accounting model described below under “Residential Whole Loans at Fair Value” is typically utilized by the Company for loans where the underlying borrower has a delinquency status of 60 days or more at the acquisition date. The accounting model initially applied is not subsequently changed.

The Company’s residential whole loans pledged as collateral against repurchase agreements are included in the consolidated balance sheets with amounts pledged disclosed parenthetically.  Purchases and sales of residential whole loans are recorded on the trade date, with amounts recorded 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. Recorded amounts of residential whole loanssecurities for which the closing of the purchase transaction is yet to occur are not eligible to be pledged as collateral against any repurchase agreement financing until the closing of the purchase transaction. (See Notes 4, 6, 7, 15 and 16)

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017


Residential Whole Loans at Carrying Value

Notwithstanding that the majority of these loans are considered to be performing substantially in accordance with their current contractual terms and conditions, the Company has elected to account for these loans asa credit impaired as they were acquired at discounted prices that reflect, in part, the impaired credit history of the borrower. Substantially all of the borrowers haveloss allowance had been previously experienced payment delinquencies and the amount owed on the mortgage loan may exceed the value of the property pledged as collateral. Consequently, the Company has assessed that these loans have a higher likelihood of default than newly originated mortgage loans with 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. Such loans are initially recorded, at the purchase price with no allowance for loan losses. Subsequent to acquisition, the recorded amount reflects the original investment amount, plus accretion of interest income, less principal and interest cash flows received. These loans are presented on the Company’s consolidated balance sheets at carrying value, which reflects the recorded amount reduced by any allowance for loan losses established subsequent to acquisition.

Under the application of this accounting model the Company may aggregate into pools loans acquired in the same fiscal quarter that are assessed as having similar risk characteristics. For each pool established, or on an individual loans basis for loans not aggregated into pools, the Company estimates at acquisition and periodically on at least a quarterly basis and determines whether any changes to the principal and interest cash flows expectedallowance 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 collected. Therequired 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 cash flows expectedinvestment’s amortized cost and its fair value at the balance sheet date.  If the Company does not expect to be collected andsell an impaired security, only the carrying amountportion of the loansimpairment related to credit losses is referredrecognized through a loss allowance charged to asearnings with the “accretable yield.” This amount is accreted as interest income over the life of the loans using an effective interest rate (level yield) methodology. Interest income recorded each period reflects the amount of accretable yieldremainder recognized and not the coupon interest payments receivedthrough AOCI on the underlying loans. The difference between contractually required principal and interest payments and the cash flows expectedCompany’s consolidated balance sheets.  Impairments recognized through other comprehensive income/(loss) (“OCI”) do not impact earnings.  Credit loss allowances are subject to be collected is referred to as the “non-accretable difference,” and includes estimates of both the effect of prepayments and expected credit losses over the life of the underlying loans.

A decreasereversal through earnings resulting from improvements in expected cash flows in subsequent periods may indicate impairmentflows. 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 pool and/or individual loan level, thus requiringtime of assessment as well as the establishmentCompany’s estimates of an allowance for loanfuture performance and cash flow projections.  As a result, the timing and amount of losses by a charge to the provision for loan losses. The allowance for loan losses represents the present value of cash flows expected at acquisition, adjusted for any increases due to changes in estimated cash flows,constitute material estimates that are subsequently no longer expectedsusceptible to be received at the relevant measurement date. A significant increase in expected cash flows in subsequent periods first reduces any previously recognized allowance for loan losses and then will result in a recalculation in the amount of accretable yield. The adjustment of accretable yield due to a significant increase in expected cash flows is accounted for prospectively as a change in estimate and results in reclassification from nonaccretable difference to accretable yield.(see Note 4).


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. GivenPrior to the significant uncertainty associated with estimatingsecond quarter of 2021, this accounting election was made primarily on Purchased Non-performing Loans. Starting in the timingsecond quarter of and amount of cash flows associated with these loans that will be collected, and that the cash flows ultimately collected may be dependent on the value of the property securing the loan,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 that accounting for these loans at fair value should result in a better reflection over timeto be more reflective of the economicexpected pattern of returns from these loans.loans under current economic conditions. The Company determines the fair value of its residential whole loans held at fair value after considering portfolio valuations obtained from a third-party who specializesthird-parties that specialize in providing valuations of residential mortgage loans and trading activity observed in the market place.marketplace. Subsequent changes in fair value are reported in current period earnings and presented in Net (loss)/gain on residential whole loans heldmeasured at fair value through earnings on the Company’s consolidated statements of operations.


Cash received reflecting coupon paymentsInterest income is recorded on residential wholethese loans held at fair value is not included in Interest Income, but ratherbased on their yield and is presented as part of interest income in Net gain on residential whole loans held at fair value on 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 Netunrealized 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 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 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 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 should cash flows generated by the underlying MSRs be 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 (“AOCI”), a component of Stockholders’ Equity.
Upon the sale of an AFS security, any unrealized gain on residential whole loans held at fair value.or loss is reclassified out of AOCI to earnings as a realized gain or loss using the specific identification method.



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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(e)  Securities Obtained and Pledged as Collateral/Obligation to Return Securities Obtained as Collateral
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, 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 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 should cash flows generated by the related underlying MSR collateral be 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 collateral under collateralized financing arrangements in connectionwell 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 its financing strategy for Non-Agency MBS.  Securities obtained as collateral in connection with these transactions are recordedthe 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 are included on the consolidated balance sheets as an asset along with a liability representing the obligation to returnfair value of the collateral obtained, at fair value.  While beneficial ownershipsecurities pledged disclosed in Note 6.  Purchases and sales of securities obtained remains withare recorded on the counterparty, the Company has the right to transfer the collateral obtained or to pledge it as part of a subsequent collateralized financing transaction.  (See Note 2(l) for Repurchase Agreements and Reverse Repurchase Agreements)trade date. 


(f)(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 repurchase agreement and/or Swapfinancing 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 SeptemberJune 30, 2017 or 2023 and December 31, 2016.  The Company’s2022. At June 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $329.4 million and $334.2 million, respectively. At June 30, 2023, the Company had $224.4 million of investments in overnight money market funds, which are not bank deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency, were $568.3 million and $208.9 million at September 30, 2017 andagency. As of December 31, 2016, respectively.  (See2022, 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 76 and 15)13).
 
(g) 
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(e) Restricted Cash
 
Restricted cash primarily represents the Company’s cash collections held by its counterparties in connection with certain of the Company’s Swapsfinancing agreements, interest rate swap agreements (“Swaps”) and/or repurchase agreementsloan servicing activities that isare not available to the Company for general corporate purposes. Restricted cash may be applied against amounts due to repurchase agreementfinancing agreements and/or Swap counterparties, or may be returned to the Company when the related collateral requirements are exceeded or at the maturity of the Swap financing agreements and/or repurchase agreement.Swaps.  The Company had aggregate restricted cash held as collateral or otherwise in connection with its Swaps and repurchase agreements of $15.4$174.0 million and $58.5$159.9 million at SeptemberJune 30, 20172023 and December 31, 2016, respectively.  (See2022, respectively (see Notes 5(b)5(d), 6 7 and 15)13).

(f) Goodwill & Intangible Assets
 
(h)  Goodwill
At SeptemberJune 30, 20172023 and December 31, 2016,2022, the Company had goodwill of $7.2$61.1 million, which represents the unamortized portion of the excess of the fair value of its common stock issuedconsideration paid over the fair value of net assets acquired in connection with its formation in 1998.the acquisition of Lima One, and other intangible assets of $9.6 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 atthat could reduce the entity level.fair value of the Lima One reporting unit (a component of the Lima One segment) below its carrying amount. Through SeptemberJune 30, 2017,2023, the Company had not recognized any impairment against its goodwill.goodwill or intangible assets. Goodwill isand intangible assets are included in Other assets on the Company’s consolidated balance sheets.


(i)(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, net on the Company’s consolidated statements of operations. (Seeoperations (see Note 5(a))5).


(j)(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 eightfifteen years at the time of purchase. The building component of real estate held-for-investment is depreciated over 27.5 years.
 

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(k)  MBS Resecuritization,(i)  Loan Securitization and Other Debt Issuance Costs
 
MBS resecuritization and loanLoan securitization related costs are costs associated with the issuance of beneficial interests by consolidated VIEs and incurred by the Company in connection with various MBS resecuritization and loan securitizationfinancing transactions completed by the Company.  Other debt issuance and related costs include costs incurred by the Company in connection with issuing Senior Notes and certain other repurchase agreement financings.  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 Senior Notes and other repurchase agreement financings,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.


(l)  Repurchase Agreements and Other Advances
Repurchase(j)  Financing Agreements


The Company finances the holdings of a significant portionmajority of its residential mortgage assets with financing agreements that include repurchase agreements.agreements and other forms of collateralized financing.  Under repurchase agreements, the Company sells securitiesassets to a lender and agrees to repurchase the same securitiesassets 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 securitiesassets as collateral to secure the borrowing, in an amount which is equal in value 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 securitiesassets 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 MBSassets 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.
 
The Company’s repurchase financings typically have terms ranging from one month to six months at inception, but may also have longer or shorter terms.  Should a counterparty decide not to renew a repurchase 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 repurchase 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 oron such collateral.  (Seecollateral (see Notes 6 7 and 15)13).
 
In addition toThe Company has elected the repurchase agreement financing arrangements discussed above, as partfair value option on certain of its financing strategy for Non-Agency MBS,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 Company has entered into contemporaneous repurchase and reverse repurchase agreements with a single counterparty.  Under a typical reverse repurchase agreement,extent the Company buys securitieschange results from a borrower for cash and agreeschange in instrument specific credit risk), as further detailed in Note 6. Financing costs, including “up front” fees paid at inception related to sell the same securities in the future for a price that is higher than the original purchase price.  The difference between the purchase price the Company originally paid and the sale price represents interest received from the borrower.  In contrast, the contemporaneous repurchase and reverse repurchase transactions effectively resulted in the Company pledging Non-Agency MBSfinancing agreements at fair value are expensed as collateral to the counterparty in connection with the repurchase agreement financing and obtaining U.S. Treasury securities as collateral from the same counterparty in connection with the reverse repurchase agreement.  No net cash was exchanged between the Company and counterparty at the inception of the transactions.  Securities obtained and pledged as collateral are recorded as an asset on the Company’s consolidated balance sheets.incurred. Interest income is recorded on the reverse repurchase agreement and interest expense is recorded based on the repurchase agreement on an accrual basis.  Bothcurrent interest rate in effect for the Company and the counterparty have the right to make daily margin calls based on changes in the value of the collateral obtained and/or pledged.  The Company’s liability to the counterparty in connection with this financing arrangement is recorded on the Company’s consolidated balance sheets and disclosed as “Obligation to return securities obtained as collateral, at fair value.”  (See Note 2(e))related agreement.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017


Federal Home Loan Bank (“FHLB”) Advances

In January 2016, the Federal Housing Finance Agency (the “FHFA”) released its final rule amending its regulation on FHLB membership, which, among other things, provided termination rules for then current captive insurance members. As a result of such regulation, the Company’s wholly-owned subsidiary, MFA Insurance, Inc. (“MFA Insurance”) was required to repay all of its outstanding FHLB advances by February 19, 2017 and its FHLB membership was terminated on such date. FHLB advances were secured financing transactions and were carried at their contractual amounts. Accrued interest payable on FHLB advances is included in Other liabilities on the Company’s consolidated balance sheet at December 31, 2016. (See Notes 6, 7 and 15)(k)  Equity-Based Compensation
 
(m)  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. For certain awards granted prior to January 1, 2017, compensation expense recognized included the impact of estimated forfeitures, with any changes in estimated forfeiture rates accounted for as a change in estimate. Upon adoption of new accounting guidance that was effective for the Company on January 1, 2017, the Company made a policy election to account for forfeitures as they occur. (See Note 2(u))
 
From 2011 through 2013, the Company granted certain restricted stock units (“RSUs”) that vested annually over a one or three-year period, provided that certain criteria were met, which were based on a formula tied to the Company’s achievement of average total stockholder return during that three-year period.  Starting in 2014, theThe Company has made annual grants of RSUsrestricted 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 stockholdershareholder return (“TSR”) during that three-year period.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 total stockholder returnTSR over a specified period constitute a “market condition” condition,”
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
which impacts the amount of compensation expense recognized for these awards.  Specifically, the uncertainty regarding the achievement of the market condition was reflected in the grant date fair valuation of the RSUs, which is recognized as compensation expense over the relevant vesting period.  The amount of compensation expense recognized is not dependent on whether the market condition was or will be achieved.

The Company has awarded dividend equivalents in connection with its equity-based awards.   Payments pursuant to dividend equivalents are generally charged to Stockholders’ Equity to the extent that the attached equity awards are expected to vest.  Compensation expense is recognized for payments made for dividend equivalents to the extent that the attached equity awards do not or are not expected to vest and grantees are not required to return payments of dividends or dividend equivalents to the Company.  (See Notes 2(n) and 14)
(n)(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, such as the Company’s unvested restricted stock and RSUs that have non-forfeitable rights to dividends and dividend equivalents attached to/associated with RSUs and vested stock options 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.  For the diluted EPS calculation, common equivalent shares are further adjusted for the effect of dilutive unexercised stock options and 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.  (SeeIn 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 13)11).
 
(o)(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.
 

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

(p)  U.S. Federal Income Taxes

The Company has elected to be taxed as a REIT under the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”) and the corresponding provisions of state law.  The Company expects to operate in a manner that will enable it to satisfy the various requirements to maintain its status as a REIT for federal income tax purposes. In order to maintain its status as a REIT, the Company must, among other things, distribute at least 90% of its REIT taxable income (excluding net long-term capital gains) to stockholders in the timeframe permitted by the Code.  As long as the Company maintains its status as a REIT, the Company will not be subject to regular federal income tax to the extent that it distributes 100% of its REIT taxable income (including net long-term capital gains) to its stockholders within the permitted timeframe.  Should this not occur, the Company would be subject to federal taxes at prevailing corporate tax rates on the difference between its REIT taxable income and the amounts deemed to be distributed for that tax year.  As the Company’s objective is to distribute 100% of its REIT taxable income to its stockholders within the permitted timeframe, no provision for current or deferred income taxes has been made in the accompanying consolidated financial statements.  Should the Company incur a liability for corporate income tax, such amounts would be recorded as REIT income tax expense on the Company’s consolidated statements of operations. Furthermore, if the Company fails to distribute during each calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of (i) 85% 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 a 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 TRS is subject to U.S. federal, state and local corporate income taxes. Since a portion of the Company’s business may be conducted through one or more TRS, its income earned by TRS may be subject to corporate income taxation. To maintain the Company’s REIT election, no more than 25% (or, for 2018 and subsequent taxable years, 20%) of the value of a REIT’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 a TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP. No deferred tax benefit was recorded by the Company for the nine months ended September 30, 2017 and 2016, as a valuation allowance for the full amount of the associated deferred tax asset was recognized as its recovery is not considered more likely than not.

 Based on its analysis of any potential 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 September 30, 2017, December 31, 2016, or September 30, 2016. The Company filed its 2016 tax return prior to October 16, 2017. The Company’s tax returns for tax years 2013 through 2016 are open to examination.

(q)(n)  Derivative Financial Instruments
 
The Company may use a variety of derivative instruments to economically hedge a portion of its exposure to market risks, including interest rate risk and prepayment risk. The objective of the Company’s risk management strategy is to reduce fluctuations in net book value over a range of interest rate scenarios. In particular, the Company attempts to mitigate the risk of the cost of its variable rate liabilities increasing during a period of rising interest rates. The Company’s derivative instruments are currently comprised of Swaps, which are designated as cash flow hedges against the interest rate risk associated with its borrowings.


Swaps
 
The Company documents its risk-management policies, including objectives and strategies, as they relate to its hedging activities and the relationship between the hedging instrument and the hedged liability for allhas 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.  The Company assesses, both at inception of a hedge and on a quarterly basis thereafter, whether or not the hedge is “highly effective.”
Swapstransactions are carriedrecorded in Other income, net on the Company’s consolidated statements of operations (see Note 5(d)).

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 assets, if their fair value is positive, orincome, net in Other liabilities, if their fair value is negative.  Beginning in January 2017, variation margin payments on the Company’s consolidated statements of operations.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

Swaps that have been novated to a clearing house are treated as a legal settlement of the exposure under the Swap contract. Previously such payments were treated as collateral pledged against the exposure under the Swap contract. The effect of this change is to reduce what would have otherwise been reported as fair value of the Swap. Changes in the fair value of the Company’s Swaps designated in hedging transactions are recorded in OCI provided that the hedge remains effective.  Changes in fair value for any ineffective amount of a Swap are recognized in earnings.  The Company has not recognized any change in the value of its existing Swaps designated as hedges through earnings as a result of hedge ineffectiveness.

The Company discontinues hedge accounting on a prospective basis and recognizes changes in fair value through earnings when: (i) it is determined that the derivative is no longer effective in offsetting cash flows of a hedged item (including forecasted transactions); (ii) it is no longer probable that the forecasted transaction will occur; or (iii) it is determined that designating the derivative as a hedge is no longer appropriate.

As of September 30, 2017, all of the Company’s Swaps have been novated to a central clearing house. (See Notes 5(b), 7 and 15)

(r)(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 residential whole loansfinancial assets and CRT securitiesliabilities at the time of acquisition.acquisition or issuance. Subsequent changes in the fair value of these loans and CRT securitiesfinancial instruments are generally reported in Net gain on residential whole loans held at fair value and Other income, net, respectively onin 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. (Seeirrevocable (see Notes 2(d)2(b), 2(c), 3, 4, and 15)13).


(s)(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 in prior years entered into several MBS resecuritizationfinancing transactions and during the second quarter of 2017, completed a loan securitization transaction which resulted in the Company consolidating the VIEs that were createdforming 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 wereare 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. (SeeGAAP (see Note 16)14).


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017


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.


(t)(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.

(u)(r)  New Accounting Standards and Interpretations

Accounting Standards Adopted in 2017

Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendmentsAs of this ASU require all income tax effects of awards to be recognized in the income statement when the awards vestJune 30, 2023, there were no new accounting standards or are settled. ASU 2016-09 also allows an employer to repurchase more of an employee’s shares than it could prior to adoption of this ASU for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 was effective forinterpretations adopted by the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. The Company’s adoption of ASU 2016-09 did not havethat had a significant impactmaterial effect on its consolidated financial position or financial statement disclosures.statements in 2023.





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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

3.    Residential Whole Loans
3.            ��MBS, CRT Securities
Included on the Company’s consolidated balance sheets at June 30, 2023 and MSR Related AssetsDecember 31, 2022 are approximately $8.1 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 June 30, 2023 and December 31, 2022:
Held at Carrying ValueHeld at Fair ValueTotal
(Dollars in Thousands)June 30, 2023December 31, 2022June 30, 2023December 31, 2022June 30, 2023December 31, 2022
Purchased Performing Loans:
Non-QM loans$912,826 $987,282 $2,696,293 $2,372,548 $3,609,119 $3,359,830 
Transitional loans (1)
42,427 75,188 1,705,830 1,342,032 1,748,257 1,417,220 
Single-family rental loans191,780 210,833 1,300,130 1,165,741 1,491,910 1,376,574 
Seasoned performing loans75,389 82,932 — — 75,389 82,932 
Agency eligible investor loans— — 58,068 51,094 58,068 51,094 
Total Purchased Performing Loans$1,222,422 $1,356,235 $5,760,321 $4,931,415 $6,982,743 $6,287,650 
Purchased Credit Deteriorated Loans$448,366 $470,294 $— $— $448,366 $470,294 
Allowance for Credit Losses$(31,035)$(35,314)$— $— $(31,035)$(35,314)
Purchased Non-Performing Loans$— $— $739,712 $796,109 $739,712 $796,109 
Total Residential Whole Loans$1,639,753 $1,791,215 $6,500,033 $5,727,524 $8,139,786 $7,518,739 
Number of loans6,682 7,126 18,074 16,717 24,756 23,843 
(1)As of June 30, 2023 includes $926.7 million of loans collateralized by one-to-four family residential properties and $821.5 million of 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 and $632.3 million of Transitional loans collateralized by multi-family properties.















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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023


The following table presents additional information regarding the Company’s Residential whole loans at June 30, 2023 and December 31, 2022:
June 30, 2023
Fair Value / Carrying ValueUnpaid 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 UPB60+ Delinquency %
Past Due Days
(Dollars In Thousands)Current30-5960-8990+
Purchased Performing Loans:
Non-QM loans$3,602,412 $3,917,542 5.48 %34864 %735$3,749,468 $72,290 $24,934 $70,850 2.4 %
Transitional loans (1)
1,745,417 1,759,641 8.45 1165 7441,675,104 12,749 8,188 63,600 4.1 
Single-family rental loans1,490,673 1,604,083 6.01 32168 7371,555,427 10,893 3,766 33,997 2.4 
Seasoned performing loans75,347 82,695 4.01 14729 72678,138 1,378 43 3,136 3.8 
Agency eligible investor loans58,068 70,075 3.44 33867 75769,082 — 765 228 1.4 
Total Purchased Performing Loans6,971,917 $7,434,036 6.26 %2602.8 %
Purchased Credit Deteriorated Loans$428,157 $528,843 4.75 %27262 %N/A$394,413 $45,891 $13,721 $74,818 16.7 %
Purchased Non-Performing Loans$739,712 $825,289 5.12 %27467 %N/A$448,977 $93,267 $32,569 $250,476 34.3 %
Residential whole loans, total or weighted average$8,139,786 $8,788,168 5.81 %2566.6 %

December 31, 2022
Fair Value / Carrying ValueUnpaid 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 UPB60+ Delinquency %
Past Due Days
(Dollars In Thousands)Current30-5960-8990+
Purchased Performing Loans:
Non-QM loans$3,352,471 $3,671,468 5.13 %35165 %733$3,520,671 $56,825 $32,253 $61,719 2.6 %
Transitional loans (1)
1,411,997 1,431,692 7.78 1266 7461,348,815 6,463 2,234 74,180 5.3 %
Single-family rental loans1,375,297 1,485,967 5.74 32469 7371,442,095 8,431 7,978 27,463 2.4 %
Seasoned performing loans82,884 90,843 3.31 15130 71484,514 993 937 4,399 5.9 %
Agency eligible investor loans51,094 61,816 3.44 34468 75761,816 — — — — %
Total Purchased Performing Loans6,273,743 $6,741,786 5.78 %2713.1 %
Purchased Credit Deteriorated Loans$448,887 $554,907 4.66 %27763 %N/A$403,042 $48,107 $16,270 $87,488 18.7 %
Purchased Non-Performing Loans$796,109 $884,257 5.01 %27768 %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 %2728.1 %

(1)As of June 30, 2023 Transitional loans includes $821.5 million of loans collateralized by multi-family properties with a weighted average term to maturity of 15 months and a weighted average LTV ratio of 64%. 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%.
(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.
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(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 $296.1 million and $223.2 million at June 30, 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 69% and 70% at June 30, 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.

During the three months ended December 31, 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 Non-Agency MBSthe reversal of previously recognized unrealized losses of $72.3 million. In addition, in the fourth quarter of 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. No Residential whole loans were sold during the six months ended June 30, 2023 and 2022.


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:
Six Months Ended June 30, 2023
(Dollars In Thousands)Non-QM Loans
Transitional Loans (1)(2)
Single-family Rental LoansSeasoned 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 

Six Months Ended June 30, 2022
(Dollars In Thousands)Non-QM Loans
Transitional Loans (1)(2)
Single-family Rental LoansSeasoned 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/(reversal)(909)(1,460)(122)(1)(975)(3,467)
Write-offs(51)(219)(27)— (226)(523)
Allowance for credit 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 

(1)In connection with Transitional loans at carrying value, the Company had unfunded commitments of $6.0 million and $10.1 million as of June 30, 2023 and 2022, respectively, with an allowance for credit losses of $44,000 and $110,000 at June 30, 2023 and 2022, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7).
(2)Includes $35.2 million and $71.9 million of loans that were assessed for credit losses based on a collateral dependent methodology as of June 30, 2023 and 2022, respectively.
(3)Includes $55.5 million and $63.8 million of loans that were assessed for credit losses based on a collateral dependent methodology as of June 30, 2023 and 2022, respectively.

The Company’s MBS are comprisedestimates of Agency MBS and Non-Agency MBS whichexpected losses that form the basis of the Allowance for Credit Losses include MBS issued prior to 2008 (“Legacy Non-Agency MBS”). These MBS are secured by:  (i) hybrid mortgages (“Hybrids”),certain qualitative adjustments which have the effect of increasing expected loss estimates. These qualitative adjustments were determined based on a variety of factors, including differences between the Company’s loan portfolio and the loan portfolios
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
represented by data available in regulatory filings of certain banks that are considered to have similar loan portfolios (available proxy data), and differences between current (and expected future) market conditions in comparison to market conditions that occurred in historical periods. Such differences include uncertainty with respect to 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 will experience higher delinquencies and defaults compared to the performance in historical periods of portfolios included in the available proxy data. Estimates of credit losses under 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 June 30, 2023 and December 31, 2022 was $192.9 million and $195.1 million, respectively. The amortized cost basis of Purchased Credit Deteriorated Loans on nonaccrual status as of June 30, 2023 and December 31, 2022 was $71.8 million and $80.5 million, respectively. The fair value of Purchased Non-performing Loans on nonaccrual status as of June 30, 2023 and December 31, 2022 was $354.1 million and $413.1 million, respectively. During the three and six months ended June 30, 2023, the Company recognized $3.8 million and $7.4 million of interest income on loans on nonaccrual status, including $2.7 million and $5.3 million, respectively, on its portfolio of loans which were non-performing at acquisition. At June 30, 2023 and December 31, 2022, there were approximately $57.8 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 three months ended June 30, 2023, the Company granted two loan modifications in its carrying value loan portfolio which gave borrowers term extensions. The average increase in weighted average life was 13 months. As of June 30, 2023, the carrying value of these loans was approximately $165,000. As of June 30, 2023, these loans were both current.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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)20232022202120202019PriorTotal
Non-QM loans
LTV <= 80% (1)
$— $— $45,509 $176,737 $428,804 $237,126 $888,176 
LTV > 80% (1)
— — 1,401 12,770 4,499 5,980 24,650 
Total Non-QM loans$— $— $46,910 $189,507 $433,303 $243,106 $912,826 
Six Months Ended June 30, 2023 Gross write-offs$— $— $— $71 $25 $110 $206 
Transitional loans
LTV <= 80% (1)
$— $— $729 $3,915 $24,475 $10,118 $39,237 
LTV > 80% (1)
— — — — 3,190 — 3,190 
Total Transitional loans$— $— $729 $3,915 $27,665 $10,118 $42,427 
Six Months Ended June 30, 2023 Gross write-offs$— $— $— $47 $2,560 $1,181 $3,788 
Single-family rental loans
LTV <= 80% (1)
$— $— $12,685 $22,232 $109,019 $45,948 $189,884 
LTV > 80% (1)
— — — — 1,811 85 1,896 
Total Single family rental loans$— $— $12,685 $22,232 $110,830 $46,033 $191,780 
Six Months Ended June 30, 2023 Gross write-offs$— $— $— $— $451 $— $451 
Seasoned performing loans
LTV <= 80% (1)
$— $— $— $— $— $72,915 $72,915 
LTV > 80% (1)
— — — — — 2,474 2,474 
Total Seasoned performing loans$— $— $— $— $— $75,389 $75,389 
Six Months Ended June 30, 2023 Gross write-offs$— $— $— $— $— $— $— 
Purchased credit deteriorated loans
LTV <= 80% (1)
$— $— $— $— $— $365,515 $365,515 
LTV > 80% (1)
— — — — — 82,851 82,851 
Total Purchased credit deteriorated loans$— $— $— $— $— $448,366 $448,366 
Six Months Ended June 30, 2023 Gross write-offs$— $— $— $— $— $414 $414 
Total LTV <= 80% (1)
$— $— $58,923 $202,884 $562,298 $731,622 $1,555,727 
Total LTV > 80% (1)
— — 1,401 12,770 9,500 91,390 115,061 
Total residential whole loans, at carrying value$— $— $60,324 $215,654 $571,798 $823,012 $1,670,788 
Six Months Ended June 30, 2023 Total Gross write-offs$— $— $— $118 $3,036 $1,705 $4,859 

(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 $296.1 million at June 30, 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 69% at June 30, 2023. Certain low value loans secured by vacant lots are categorized as LTV > 80%.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
The following tables present certain information regarding the LTVs of the Company’s Residential whole loans that are fixed60 days or more delinquent:

June 30, 2023
(Dollars In Thousands)Carrying Value / Fair ValueUPB
LTV (1)
Purchased Performing Loans
Non-QM loans$93,842 $95,784 66.3 %
Transitional loans68,110 71,788 67.2 %
Single-family rental loans36,540 37,763 71.9 %
Seasoned performing loans3,185 3,179 37.5 %
Agency eligible investor loans836 993 73.0 %
Total Purchased Performing Loans$202,513 $209,507 
Purchased Credit Deteriorated Loans$70,727 $88,539 72.6 %
Purchased Non-Performing Loans$266,954 $283,045 76.3 %
Total Residential Whole Loans$540,194 $581,091 

December 31, 2022
(Dollars In Thousands)Carrying Value / Fair ValueUPB
LTV (1)
Purchased Performing Loans
Non-QM loans$93,508 $93,972 66.7 %
Transitional loans75,449 76,415 68.1 %
Single-family rental loans34,653 35,441 72.1 %
Seasoned performing loans5,049 5,336 41.7 %
Agency eligible investor loans— — — %
Total Purchased Performing Loans$208,659 $211,164 
Purchased Credit Deteriorated Loans$83,172 $103,758 72.5 %
Purchased Non-Performing Loans$330,810 $350,589 75.6 %
Total Residential Whole Loans$622,641 $665,511 

(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 a specified periodwhich the LTV ratio is not meaningful.







21
Table of time and, thereafter, generally adjust annually to an increment over a specifiedContents
MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
The following tables present the components of interest rate index; (ii) adjustable-rate mortgages (“ARMs”); (iii) mortgages that have interest rates that reset more frequently (collectively, “ARM-MBS”); and (iv) 15 year and longer-term fixed rate mortgages. In addition,income on the Company’s MBS are also comprised of MBS backed by securitized re-performing/non-performingResidential whole loans (“RPL/NPL MBS”), wherefor the cash flows of the bond may not reflect the contractual cash flows of the underlying collateral. The Company’s RPL/NPLthree and six months ended June 30, 2023 and 2022:
Held at Carrying ValueHeld at Fair ValueTotal
Three Months Ended
June 30,		Three Months Ended
June 30,		Three Months Ended
June 30,
 (In Thousands)202320222023202220232022
Purchased Performing Loans:
Non-QM loans$11,646 $12,255 $33,872 $22,257 $45,518 $34,512 
Transitional loans518 1,271 32,103 13,917 32,621 15,188 
Single-family rental loans2,880 3,783 20,261 12,630 23,141 16,413 
Seasoned performing loans1,127 1,155 — — 1,127 1,155 
Agency eligible investor loans— — 518 7,604 518 7,604 
Total Purchased Performing Loans$16,171 $18,464 $86,754 $56,408 $102,925 $74,872 
Purchased Credit Deteriorated Loans$8,087 $8,672 $— $— $8,087 $8,672 
Purchased Non-Performing Loans$— $— $17,036 $18,810 $17,036 $18,810 
Total Residential Whole Loans$24,258 $27,136 $103,790 $75,218 $128,048 $102,354 
Held at Carrying ValueHeld at Fair ValueTotal
Six Months Ended
June 30,		Six Months Ended
June 30,		Six Months Ended
June 30,
 (In Thousands)202320222023202220232022
Purchased Performing Loans:
Non-QM loans$24,320 $25,395 $65,287 $42,068 $89,607 $67,463 
Transitional loans1,138 4,837 59,709 25,210 60,847 30,047 
Single-family rental loans5,859 8,476 38,596 21,263 44,455 29,739 
Seasoned performing loans2,216 2,165 — — 2,216 2,165 
Agency eligible investor loans— — 3,375 15,189 3,375 15,189 
Total Purchased Performing Loans$33,533 $40,873 $166,967 $103,730 $200,500 $144,603 
Purchased Credit Deteriorated Loans$15,225 $17,681 $— $— $15,225 $17,681 
Purchased Non-Performing Loans$— $— $31,832 $39,536 $31,832 $39,536 
Total Residential Whole Loans$48,758 $58,554 $198,799 $143,266 $247,557 $201,820 


4.Securities, at Fair Value

Agency MBS are structured with a contractual coupon step-up feature where the coupon increases up to 300 basis points at 36 months from issuance or sooner. The Company pledges a significant portion of its MBS as collateral against its borrowings under repurchase agreements and Swaps.  (See Note 7)

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.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
The payment of principal and/or interest on Ginnie Mae MBS is explicitly backed by the full faith and credit of the U.S. Government.  Since the third quarter of 2008, Fannie Mae and Freddie Mac have been under the conservatorship of the Federal Housing Finance Agency, which significantly strengthened the backing for these government-sponsored entities.
Non-Agency MBS (including Non-Agency MBS transferred to consolidated VIEs):  The Company’s 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.  Credit risk associated with Non-Agency MBS is regularly assessed as newfollowing table presents certain information regarding the underlying collateral becomes availablecomposition of our Agency MBS portfolio as of June 30, 2023:

June 30, 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$77,662 100.2 %98.0 %$76,147 36.0 %
5.50% Coupon290,178 100.4 99.7 289,196 58.6 
6.00% Coupon30,629 100.8 101.0 30,948 0— 
  Total$398,469 100.4 %99.5 %$396,291 48.0 %
(1) Reflects the average of the 1 month CPR for the number of months the security was held during the most recent 3 month period.

Term Notes Backed by MSR Collateral

At June 30, 2023 and basedDecember 31, 2022, the Company had $91.2 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 updated estimates ofthese term notes is considered to be largely dependent on cash flows generated by the underlying collateral.MSRs, as this impacts the cash flows available to the SPV that issued the term notes.

At June 30, 2023, these term notes had an amortized cost of $89.0 million, gross unrealized gains of $2.9 million and gross unrealized losses of $688,000, a weighted average yield of 16.2% and a weighted average term to maturity of 0.3 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 has a one-time option to extend the maturity of the notes for an additional two years, subject to satisfaction of certain conditions. If the notes are extended, the issuer would also be subject to a step-up fee that would increase the return on the notes.

CRT Securities


CRT securities are debt obligations issued by or sponsored by Fannie Mae and Freddie Mac. While theThe coupon payments on CRT securities are paid by Fannie Mae or Freddie Mac on a monthly basis, the payment ofissuer and the principal ispayments received are dependent on the performance of loans in either a reference pool or an actual pool of MBS securitized by Fannie Mae or Freddie Mac. As principal on loans inloans. At June 30, 2023 and December 31, 2022, the reference pool are paid, principal payments on the securities are madeCompany had $82.5 million and the principal balances$79.2 million, respectively, of the securities are reduced. Consequently, CRT securities mirror the payment and prepayment behavior of the mortgage loans in the reference pool.securities. As an investor in a CRT security, the Company may incur a principal loss if certain defined credit events occur, including, for certain CRT securities, if the loans inperformance of the actual or reference pool experience delinquencies exceeding specified thresholds.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 referenceloan pool. The Company pledges a significant portion of its CRT securities as collateral against its borrowings under repurchase agreements.  (Seeagreements (see Note 7)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 June 30, 2023, and December 31, 2022, the Company had $24.3 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.

17
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

The following tables present certain information about the Company’s Agency MBS and CRT securitiesother Securities, at SeptemberJune 30, 20172023 and December 31, 2016:2022:
 
SeptemberJune 30, 20172023
(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$398,469 $1,723 $(67)$— $400,125 $64 $(3,898)$(3,834)$396,291 
Other Securities (2)(3)(4)
214,358 20,815 (5,934)(46,330)182,909 15,864 (770)15,094 198,003 
Total residential mortgage securities (2)(3)(4)
$612,827 $22,538 $(6,001)$(46,330)$583,034 $15,928 $(4,668)$11,260 $594,294 
(In Thousands) 
Principal/ Current
Face
 
Purchase
Premiums
 
Accretable
Purchase
Discounts
 
Discount
Designated
as Credit Reserve and 
OTTI (1)
 
Amortized
Cost (2)
 Fair Value 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gain/(Loss)
Agency MBS:  
  
  
  
  
  
  
  
  
Fannie Mae $2,310,368
 $87,658
 $(41) $—
 $2,397,985
 $2,404,220
 $27,518
 $(21,283) $6,235
Freddie Mac 593,502
 22,884
 —
 —
 617,450
 608,349
 2,510
 (11,611) (9,101)
Ginnie Mae 6,532
 118
 —
 —
 6,650
 6,735
 85
 —
 85
Total Agency MBS 2,910,402
 110,660
 (41) —
 3,022,085
 3,019,304
 30,113
 (32,894) (2,781)
Non-Agency MBS:                  
Expected to Recover Par (3)(4)
 1,390,412
 51
 (24,594) —
 1,365,869
 1,393,982
 28,352
 (239) 28,113
Expected to Recover Less than Par (3)
 2,710,690
 —
 (220,199) (593,134) 1,897,357
 2,517,678
 620,472
 (151) 620,321
Total Non-Agency MBS (5)
 4,101,102
 51
 (244,793) (593,134) 3,263,226
 3,911,660
 648,824
 (390) 648,434
Total MBS 7,011,504
 110,711
 (244,834) (593,134) 6,285,311
 6,930,964
 678,937
 (33,284) 645,653
CRT securities (6)
 608,146
 8,474
 (3,961) —
 612,659
 653,633
 42,919
 (1,945) 40,974
Total MBS and CRT securities $7,619,650
 $119,185
 $(248,795) $(593,134) $6,897,970
 $7,584,597
 $721,856
 $(35,229) $686,627


December 31, 2016
2022
(In Thousands) 
Principal/ Current
Face
 
Purchase
Premiums
 
Accretable
Purchase
Discounts
 
Discount
Designated
as Credit Reserve and 
OTTI (1)
 
Amortized
Cost (2)
 Fair Value 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gain/(Loss)
Agency MBS:  
  
  
  
  
  
  
  
  
Fannie Mae $2,879,807
 $108,310
 $(51) $—
 $2,988,066
 $3,014,464
 $45,706
 $(19,308) $26,398
Freddie Mac 693,945
 26,736
 —
 —
 723,285
 716,209
 4,809
 (11,885) (7,076)
Ginnie Mae 7,550
 136
 —
 —
 7,686
 7,824
 138
 —
 138
Total Agency MBS 3,581,302
 135,182
 (51) —
 3,719,037
 3,738,497
 50,653
 (31,193) 19,460
Non-Agency MBS:                  
Expected to Recover Par (3)(4)
 2,706,418
 57
 (24,273) —
 2,682,202
 2,706,311
 26,477
 (2,368) 24,109
Expected to Recover Less than Par (3)
 3,359,200
 —
 (253,918) (694,241) 2,411,041
 2,978,525
 570,318
 (2,834) 567,484
Total Non-Agency MBS (5)
 6,065,618
 57
 (278,191) (694,241) 5,093,243
 5,684,836
 596,795
 (5,202) 591,593
Total MBS 9,646,920
 135,239
 (278,242) (694,241) 8,812,280
 9,423,333
 647,448
 (36,395) 611,053
CRT securities (6)
 384,993
 3,312
 (5,557) —
 382,748
 404,850
 22,105
 (3) 22,102
Total MBS and CRT securities $10,031,913
 $138,551
 $(283,799) $(694,241) $9,195,028
 $9,828,183
 $669,553
 $(36,398) $633,155
(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 and amounts related to OTTI are generally not expected to be accreted into interest income.  Amounts disclosed at September 30, 2017 reflect Credit Reserve of $578.3 million and OTTI of $14.8 million.  Amounts disclosed at December 31, 2016 reflect Credit Reserve of $675.6 million and OTTI of $18.6 million.
(2)Includes principal payments receivable of $1.1 million and $2.6 million at September 30, 2017 and December 31, 2016, respectively, which are not included in the Principal/Current Face.
(3)
Based on management’s current estimates of future principal cash flows expected to be received.
(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 June 30, 2023 includes CRT securities with a fair value of $50.9 million for which the fair value option has been elected. Such securities had approximately $1.5 million gross unrealized gains and no gross unrealized losses at June 30, 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 June 30, 2023 include Non-Agency MBS with a fair value of $24.3 million for which the fair value option had been elected. Such securities had approximately $275,000 gross unrealized gains and $82,000 gross unrealized losses at June 30, 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
(4)
Includes RPL/NPL MBS, which at September 30, 2017 had a $1.2 billion Principal/Current face, $1.2 billion amortized cost and $1.2 billion fair value. At December 31, 2016, RPL/NPL MBS had a $2.5 billion Principal/Current face, $2.5 billion amortized cost and $2.5 billionfair value.
(5)At September 30, 2017 and December 31, 2016, the Company expected to recover approximately 86% and 89%, respectively, of the then-current face amount of Non-Agency MBS.
(6)Amounts disclosed at September 30, 2017 includes CRT securities with a fair value of $518.1 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $28.9 million and gross unrealized losses of approximately $1.9 million at September 30, 2017. Amounts disclosed at December 31, 2016 includes CRT securities with a fair value of $271.2 million for which the fair value option has been elected. Such securities had gross unrealized gains of approximately $12.7 million and gross unrealized losses of approximately $3,000 at December 31, 2016.
 

During the six months ended June 30, 2023, the Company did not sell any of its residential mortgage securities. During the six months ended June 30, 2022, the Company sold a CRT security for approximately $369,000, realizing a gain of $13,000.


Unrealized Losses on Residential Mortgage Securities

Gross unrealized losses on the Company’s AFS securities at June 30, 2023 were $688,000. The Company has no plans to dispose of any securities that were in an unrealized loss position and has determined that such losses are not indicative of impairment for the securities.
There were no allowances for credit losses recorded with respect to the Company’s AFS securities for any of the periods presented. The Company did not recognize an allowance for credit losses through earnings related to its AFS securities for the three and six months ended June 30, 2023 and 2022.
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023




Unrealized Losses on MBS and CRT Securities

The following table presents information about the Company’s MBS and CRT securities that were in an unrealized loss position at September 30, 2017:
Unrealized Loss Position For:
  Less than 12 Months 12 Months or more Total
 Fair Value Unrealized Losses Number of SecuritiesFair Value Unrealized Losses Number of SecuritiesFair Value Unrealized Losses
(Dollars in Thousands)
Agency MBS:  
  
  
  
  
  
  
  
Fannie Mae $349,961
 $2,420
 92
 $859,887
 $18,863
 180
 $1,209,848
 $21,283
Freddie Mac 62,110
 519
 16
 399,874
 11,092
 98
 461,984
 11,611
Total Agency MBS 412,071
 2,939
 108
 1,259,761
 29,955
 278
 1,671,832
 32,894
Non-Agency MBS:  
  
  
  
  
  
  
  
Expected to Recover Par (1)
 —
 —
 —
 13,013
 239
 9
 13,013
 239
Expected to Recover Less than Par (1)
 6,412
 48
 3
 7,329
 103
 1
 13,741
 151
Total Non-Agency MBS 6,412
 48
 3
 20,342
 342
 10
 26,754
 390
Total MBS 418,483
 2,987
 111
 1,280,103
 30,297
 288
 1,698,586
 33,284
CRT securities 27,179
 1,945
 9
 —
 —
 —
 27,179
 1,945
Total MBS and CRT securities $445,662
 $4,932
 120
 $1,280,103
 $30,297
 288
 $1,725,765
 $35,229

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

At September 30, 2017, the Company did not intend to sell any of its investments that were in an unrealized loss position, and it is “more likely than not” that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may be at their maturity. 
Gross unrealized losses on the Company’s Agency MBS were $32.9 million at September 30, 2017.  Agency MBS are issued by Government Sponsored Entities (“GSEs”) and enjoy either the implicit or explicit backing of the full faith and credit of the U.S. Government. While the Company’s Agency MBS are not rated by any rating agency, they are currently perceived by market participants to be of high credit quality, with risk of default limited to the unlikely event that the U.S. Government would not continue to support the GSEs. Given the credit quality inherent in Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In assessing whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at its maturity, the Company considers for each impaired security, the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at September 30, 2017 any unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency MBS were $390,000 at September 30, 2017. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of OTTI and does not believe that these unrealized losses are credit related, but are rather a reflection of current market yields and/or marketplace bid-ask spreads.  The Company has reviewed its Non-Agency MBS that are in an unrealized loss position to identify those securities with losses that are other-than-temporary based on an assessment of changes in expected cash flows for such securities, which considers recent bond performance and, where possible, expected future performance of the underlying collateral.
The Company did not recognize any credit-related OTTI losses through earnings related to its Non-Agency MBS during the three months ended September 30, 2017. The Company recognized credit-related OTTI losses through earnings related to its Non-Agency MBS of $1.0 million during the nine months ended September 30, 2017 and $485,000 during the three and nine months ended September 30, 2016.

Non-Agency MBS on which OTTI is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes.  The Company’s estimate of cash flows for these Non-Agency MBS is based on its review of the underlying mortgage loans securing these MBS.  The Company considers information available about the structure of the securitization, including

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

structural credit enhancement, if any, and the past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, LTVs, geographic concentrations, as well as Rating Agency reports, general market assessments, and dialogue with market participants.  Changes in the Company’s evaluation of each of these factors impacts the cash flows expected to be collected at the OTTI assessment date. For Non-Agency MBS purchased at a discount to par that were assessed for and had no OTTI recorded this period, such cash flow estimates indicated that the amount of expected losses decreased compared to the previous OTTI assessment date. These positive cash flow changes are primarily driven by recent improvements in LTVs due to loan amortization and home price appreciation, which, in turn, positively impacts the Company’s estimates of default rates and loss severities for the underlying collateral. In addition, voluntary prepayments (i.e., loans that prepay in full with no loss) have generally trended higher for these MBS which also positively impacts the Company’s estimate of expected loss. Overall, the combination of higher voluntary prepayments and lower LTVs supports the Company’s assessment that such MBS are not other-than-temporarily impaired.

The following table presents the composition of OTTI charges recorded by the Company for the three and nine months ended September 30, 2017 and 2016:
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands) 2017 2016 2017 2016
Total OTTI losses $—
 $(1,255) $(63) $(1,255)
OTTI reclassified from OCI —
 770
 (969) 770
OTTI recognized in earnings $—
 $(485) $(1,032) $(485)

The following table presents a roll-forward of the credit loss component of OTTI on the Company’s Non-Agency MBS for which a non-credit component of OTTI was previously recognized in OCI.  Changes in the credit loss component of OTTI are presented based upon whether the current period is the first time OTTI was recorded on a security or a subsequent OTTI charge was recorded.
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands) 2017 2017
Credit loss component of OTTI at beginning of period $38,337
 $37,305
Additions for credit related OTTI not previously recognized —
 63
Subsequent additional credit related OTTI recorded —
 969
Credit loss component of OTTI at end of period $38,337
 $38,337


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Purchase Discounts on Non-Agency MBS
The following tables present the changes in the components of the Company’s purchase discount on its Non-Agency MBS between purchase discount designated as Credit Reserve and OTTI and accretable purchase discount for the three and nine months ended September 30, 2017 and 2016:

  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016
(In Thousands) 
Discount
Designated as
Credit Reserve and OTTI
 
Accretable
Discount (1) 
Discount
Designated as
Credit Reserve and OTTI
 
 Accretable Discount (1)
Balance at beginning of period $(626,498) $(257,967) $(724,198) $(325,548)
Accretion of discount —
 18,621
 —
 20,236
Realized credit losses 13,982
 —
 15,629
 —
Purchases —
 (1,929) (15,124) 9,830
Sales 4,620
 11,244
 2,398
 6,523
Net impairment losses recognized in earnings —
 —
 (485) —
Transfers/release of credit reserve 14,762
 (14,762) 6,822
 (6,822)
Balance at end of period $(593,134) $(244,793) $(714,958) $(295,781)


  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016
(In Thousands) Discount
Designated as
Credit Reserve and OTTI		 
Accretable
Discount (1) 
Discount
Designated as
Credit Reserve and OTTI		 
 Accretable Discount (1)
Balance at beginning of period $(694,241) $(278,191) $(787,541) $(312,182)
Impact of RMBS Issuer Settlement (2)
 —
 —
 —
 (52,881)
Accretion of discount —
 60,461
 —
 61,153
Realized credit losses 39,445
 —
 49,408
 —
Purchases (484) (3,449) (25,999) 13,210
Sales 29,398
 10,166
 16,281
 28,297
Net impairment losses recognized in earnings (1,032) —
 (485) —
Transfers/release of credit reserve 33,780
 (33,780) 33,378
 (33,378)
Balance at end of period $(593,134) $(244,793) $(714,958) $(295,781)

(1)  Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.
(2) Includes the impact of approximately $61.8 million of cash proceeds (a one-time payment) received by the Company during the nine months ended September 30, 2016 in connection with the settlement of litigation related to certain Countrywide-sponsored residential mortgage backed securitization trusts.

Sales of MBS
During the three and nine months ended September 30, 2017, the Company sold certain Non-Agency MBS for $44.5 million and $83.1 million, realizing gross gains of $14.9 million and $30.8 million, respectively.  During the three and nine months ended September 30, 2016, the Company sold certain Non-Agency MBS for $13.2 million and $65.1 million, realizing gross gains of $7.1 million and $26.1 million, respectively. The Company has no continuing involvement with any of the sold MBS.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

MSR Related Assets

(a)Term Notes Backed by MSR Related Collateral

At September 30, 2017 and December 31, 2016, the Company had $311.6 million and $141.0 million, respectively of term notes issued by SPVs that have acquired rights to receive cash flows representing the servicing fees and/or excess servicing spread associated with certain MSRs. Payment of principal and interest on these term notes is considered to be largely dependent on cash flows generated by the underlying MSRs, as this impacts the cash flows available to the SPV that issued the term notes.

At September 30, 2017, these term notes had an amortized cost of $311.0 million, gross unrealized gains of $563,000, a weighted average yield of 5.62% and a weighted average term to maturity of 3.7 years. At December 31, 2016, the term notes had an amortized cost of $141.0 million, no gross unrealized gains, a weighted average yield of 5.50% and a weighted average term to maturity of 4.6 years.

(b) Corporate Loan

The Company has entered into a loan agreement with an entity that originates loans and owns the related MSRs. The loan is secured by certain U.S. Government, Agency and private-label MSRs, as well as other unencumbered assets owned by the borrower. Under the terms of the loan agreement, the Company has committed to lend $130.0 million of which approximately $101.1 million was drawn at September 30, 2017. At September 30, 2017, the coupon paid by the borrower on the drawn amount is 7.74%, the remaining term associated with the loan is 2.8 years and remaining commitment period on any undrawn amount is nine months. During the remaining commitment period, the Company receives a commitment fee of 1% of the undrawn amount for the first three months, which then increases to 1.5% for the subsequent six month period. For the three months ended September 30, 2017, the Company recognized interest income of $2.1 million, including discount accretion and commitment fee income of $76,000. For the nine months ended September 30, 2017, the Company recognized interest income of $5.7 million including discount accretion and commitment fee income of $212,000.

Impact of AFS Securities on AOCI
 
The following table presents the impact of the Company’s AFS securities on its AOCI for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2017 2016 2017 2016(In Thousands)2023202220232022
AOCI from AFS securities:  
  
  
  
AOCI from AFS securities:    
Unrealized gain on AFS securities at beginning of period $668,223
 $625,697
 $620,403
 $585,250
Unrealized gain on AFS securities at beginning of period$20,225 $41,856 $21,341 $46,833 
Unrealized (loss)/gain on Agency MBS, net (3,032) (6,941) (22,241) 17,857
Unrealized gain on Non-Agency MBS, net 10,020
 71,291
 93,429
 106,906
Reclassification adjustment for MBS sales included in net income (14,935) (6,829) (30,283) (26,795)
Reclassification adjustment for OTTI included in net income —
 (485) (1,032) (485)
Unrealized (losses) on securities available-for-saleUnrealized (losses) on securities available-for-sale(6,805)(4,937)(7,921)(9,914)
Change in AOCI from AFS securities (7,947) 57,036
 39,873
 97,483
Change in AOCI from AFS securities(6,805)(4,937)(7,921)(9,914)
Balance at end of period $660,276
 $682,733
 $660,276
 $682,733
Balance at end of period$13,420 $36,919 $13,420 $36,919 
 


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Interest Income on MBS, CRT Securities, and MSR Related Assetsat Fair Value
 
The following table presents the components of interest income on the Company’s MBS, CRT securities and MSR related assetsSecurities, at fair value for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016: 2022: 
 Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Agency MBS
Coupon interest$4,471 $— 6,522 — 
Effective yield adjustment (1)(2)
(45)— (76)— 
Interest income$4,426 $— $6,446 $— 
Other MBS
Coupon interest$2,025 $1,055 $3,936 $1,950 
Effective yield adjustment (1)(2)
28 1,006 217 2,272 
Interest income$2,053 $2,061 $4,153 $4,222 
Term notes backed by MSR collateral
Coupon interest$2,100 $1,419 $4,063 $2,576 
Effective yield adjustment (2)
1,369 1,814 2,594 3,771 
Interest income$3,469 $3,233 $6,657 $6,347 
  Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 2017 2016
Agency MBS        
Coupon interest $23,473
 $29,283
 $74,589
 $92,263
Effective yield adjustment (1)
 (7,940) (10,326) (24,575) (27,717)
Interest income $15,533
 $18,957
 $50,014
 $64,546
         
Legacy Non-Agency MBS        
Coupon interest $30,688
 $37,763
 $97,796
 $117,620
Effective yield adjustment (2)
 18,005
 20,055
 59,033
 59,270
Interest income $48,693
 $57,818
 $156,829
 $176,890
         
RPL/NPL MBS        
Coupon interest $13,947
 $25,630
 $54,475
 $74,773
Effective yield adjustment (1)
 612
 190
 1,424
 1,892
Interest income $14,559
 $25,820
 $55,899
 $76,665
         
CRT securities        
Coupon interest $7,868
 $3,562
 $19,712
 $8,725
Effective yield adjustment (2)
 808
 421
 3,186
 1,172
Interest income $8,676
 $3,983
 $22,898
 $9,897
         
MSR related assets        
Coupon interest $7,117
 $—
 $17,621
 $—
Effective yield adjustment (1)
 77
 —
 212
 —
Interest income $7,194
 $—
 $17,833
 $—

(1)Includes amortization of premium paid net of accretion of purchase discount.  For Agency MBS, RPL/NPL MBS and the corporate loan secured by MSRs, interestInterest 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 which isless the current coupon yield. The net yield may be based on management’s estimates of the amount and timing of future cash flows lessor in the current coupon yield.

4.    Residential Whole Loans

Includedinstrument’s contractual cash flows, depending on the Company’s consolidated balance sheets at September 30, 2017 and December 31, 2016 are approximately $1.7 billion and $1.4 billion, respectively, of residential whole loans arising from the Company’s interests in certain entities established to acquire the loans and an entity in connection with its loan securitization transaction. The Company has assessed that these entities are required to be consolidated.relevant accounting standards.


Residential Whole Loans, at Carrying Value

Residential whole loans, at carrying value totaled approximately $639.2 million and $590.5 million at September 30, 2017 and December 31, 2016, respectively. The carrying value reflects the original investment amount, plus accretion of interest income, less principal and interest cash flows received. The carrying value is reduced by any allowance for loan losses established subsequent to acquisition. The Company had approximately 3,700 and 3,200 Residential whole loans held at carrying value at September 30, 2017 and December 31, 2016, respectively.

As of September 30, 2017 the Company had established an allowance for loan losses of approximately $318,000 on its residential whole loan pools held at carrying value. For the three and nine months ended September 30, 2017, a net reversal of


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023


provision for loan losses of approximately $57,000 and $672,000 was recorded, respectively, which is included in Operating and Other Expense on the Company’s consolidated statements of operations. For the three months ended September 30, 2016, there was no provision for loan losses recorded. For the nine months ended September 30, 2016, a net reversal of provision for loan losses of approximately $142,000 was recorded.

The following table presents the activity in the Company’s allowance for loan losses on its residential whole loan pools held at carrying value for the three and nine months ended September 30, 2017 and 2016:

 (In Thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017
2016 2017 2016
Balance at the beginning of period $375
 $1,023
 $990
 $1,165
Reversal of provisions for loan losses (57) —
 (672) (142)
Balance at the end of period $318
 $1,023
 $318
 $1,023

The following table presents information regarding estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the residential whole loans held at carrying value acquired by the Company for the three and nine months ended September 30, 2017 and 2016:

 (In Thousands) Three Months Ended September 30, Nine Months Ended September 30,
  
2017 (1)
 
2016 (2)
 
2017 (1)
 
2016 (2)
Contractually required principal and interest $185,234
 $121,818
 $185,234
 $363,144
Contractual cash flows not expected to be collected (non-accretable yield) (33,448) (31,648) (33,448) (66,685)
Expected cash flows to be collected 151,786
 90,170
 151,786
 296,459
Interest component of expected cash flows (accretable yield) (53,916) (28,801) (53,916) (98,550)
Fair value at the date of acquisition $97,870
 $61,369
 $97,870
 $197,909

(1) Included in the activity presented for the three and nine months ended September 30, 2017 are approximately $97.9 million of loans the Company committed to purchase during the three months ended June 30, 2017, but for which the closing of the purchase transaction occurred during the three months ended September 30, 2017.
(2) Excluded from the table above are approximately $111.2 million of residential whole loans held at carrying value for which the closing of the purchase transaction had not occurred as of September 30, 2016.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

The following table presents accretable yield activity for the Company’s residential whole loans held at carrying value for the three and nine months ended September 30, 2017 and 2016:

 (In Thousands) Three Months Ended September 30, Nine Months Ended September 30,
  
2017 (1)
 
2016 (2)
 
2017 (1)
 
2016 (2)
Balance at beginning of period $318,125
 $234,527
 $334,379
 $175,271
  Additions 53,916
 28,801
 53,916
 98,550
  Accretion (9,026) (5,917) (26,219) (16,112)
  Reclassifications from/(to) non-accretable difference, net 303
 218
 1,242
 (80)
Balance at end of period $363,318
 $257,629
 $363,318
 $257,629

(1) Included in the activity presented for the three and nine months ended September 30, 2017 are approximately $97.9 million of loans the Company committed to purchase during the three months ended June 30, 2017, but for which the closing of the purchase transaction occurred during the three months ended September 30, 2017.
(2) Excluded from the table above are approximately $111.2 million of residential whole loans held at carrying value for which the closing of the purchase transaction had not occurred as of September 30, 2016.

Accretable yield for residential whole loans is the excess of loan cash flows expected to be collected over the purchase price. The cash flows expected to be collected represent the Company’s estimate of the amount and timing of undiscounted principal and interest cash flows. Additions include accretable yield estimates for purchases made during the period and reclassification to accretable yield from non-accretable yield. Accretable yield is reduced by accretion during the period. The reclassifications between accretable and non-accretable yield and the accretion of interest income are based on changes in estimates regarding loan performance and the value of the underlying real estate securing the loans. In future periods, as the Company updates estimates of cash flows expected to be collected from the loans and the underlying collateral, the accretable yield may change. Therefore, the amount of accretable income recorded during the three and nine months ended September 30, 2017 is not necessarily indicative of future results.

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

The following table presents information regarding the Company’s residential whole loans held at fair value at September 30, 2017 and December 31, 2016:
 (Dollars in Thousands)
 
September 30, 2017 (1)
 December 31, 2016
Outstanding principal balance $1,178,866
 $966,174
Aggregate fair value $983,150
 $814,682
Number of loans 4,834
 3,812

(1) Excluded from the table above are approximately $120.4 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2017.

During the three and nine months ended September 30, 2017, the Company recorded net gains on residential whole loans held at fair value of $18.7 million and $48.7 million, respectively. During the three and nine months ended September 30, 2016, the Company recorded net gains on residential whole loans held at fair value of $19.6 million and $47.7 million, respectively.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

The following table presents the components of Net gain on residential whole loans held at fair value for the three and nine months ended September 30, 2017 and 2016:
 (In Thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Coupon payments and other income received $9,824
 $6,253
 $27,971
 $15,987
Net unrealized gains 5,289
 10,913
 12,499
 25,529
Net gain on payoff/liquidation of loans 1,456
 1,535
 3,076
 3,536
Net gain on transfer to REO 2,110
 938
 5,114
 2,677
    Total $18,679
 $19,639
 $48,660
 $47,729


5.    Other Assets


The following table presents the components of the Company’s Other assets at SeptemberJune 30, 20172023 and December 31, 2016:2022:


(In Thousands)June 30, 2023December 31, 2022
Receivable for sale of unsettled residential whole loans$— $275,656 
REO119,996 130,605 
Goodwill61,076 61,076 
Intangibles, net (1)
9,600 12,200 
Capital contributions made to loan origination partners27,437 28,308 
Other interest-earning assets70,473 63,964 
Interest receivable79,490 68,704 
Other loan related receivables25,745 23,463 
Lease Right-of-Use Asset (2)
38,340 39,459 
Other66,598 62,786 
Total Other Assets$498,755 $766,221 

(1) Net of aggregate accumulated amortization of $18.4 million and $15.8 million as of June 30, 2023 and December 31, 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).

(In Thousands) September 30, 2017 December 31, 2016
REO $137,979
 $80,503
Interest receivable 25,319
 27,795
Swaps, at fair value —
 233
Goodwill 7,189
 7,189
Prepaid and other assets 62,870
 78,775
Total Other Assets $233,357
 $194,495

(a) Real Estate Owned


At SeptemberJune 30, 2017,2023, the Company had 671338 REO properties with an aggregate carrying value of $138.0$120.0 million. At December 31, 2016,2022, the Company had 447388 REO properties with an aggregate carrying value of $80.5$130.6 million.
During the three and nine months ended September 30, 2017, the Company reclassified 174 and 521 mortgage loans to REO at an aggregate estimated fair value less estimated selling costs of $38.9 million and $97.4 million, respectively, at the time of transfer. During the three and nine months ended September 30, 2016, the Company reclassified 122 and 385 mortgage loans to REO at an aggregate estimated fair value less estimated selling costs of $24.8 million and $69.8 million, respectively, at the time of transfer. Such transfers occur when the Company takes possession of the property by foreclosing on the borrower or completes a “deed-in-lieu of foreclosure” transaction. From time to time, the Company also acquires REO in connection with transactions to acquire residential whole loans.

At SeptemberJune 30, 2017, $125.22023, $119.6 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 $31.4$89.0 million of residential whole loans held at carrying value and $538.5$238.2 million of residential whole loans held at fair value at SeptemberJune 30, 2017.2023.


During the three and nine months ended September 30, 2017, the Company sold 139 and 368 REO properties for consideration of $18.4 million and $53.0 million, realizing net gains of approximately $805,000 and $2.8 million, respectively. During the three and nine months ended September 30, 2016, the Company sold 57 and 179 REO properties for consideration of $7.9 million and $24.0 million, realizing net gains of approximately $733,000 and $1.8 million, respectively. These amounts are included in Other, net on the Company’s consolidated statements of operations. In addition, following an updated assessment of liquidation amounts expected to be realized that was performed on all REO held at the end of the third quarters of 2017 and 2016, downward adjustments of approximately $3.1 million and $1.7 million were recorded to reflect certain REO properties at the lower of cost or estimated fair value as of September 30, 2017 and 2016, respectively.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

The following table presents the activity in the Company’s REO for the three and nine months ended September 30, 2017 and 2016:
(In Thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Balance at beginning of period $104,443
 $56,784
 $80,503
 $28,026
Adjustments to record at lower of cost or fair value (3,129) (1,659) (7,306) (4,655)
Transfer from residential whole loans (1)
 38,944
 24,812
 97,388
 69,803
Purchases and capital improvements 15,342
 415
 17,224
 2,204
Disposals (17,621) (7,163) (49,830) (22,189)
Balance at end of period $137,979
 $73,189
 $137,979
 $73,189

(1)  Includes net gain recorded on transfer of approximately $2.8 million and $845,000 for the three months ended September 30, 2017 and 2016, respectively; and approximately $5.3 million and $2.5 million for the nine months ended September 30, 2017 and 2016, respectively.

(b)Derivative Instruments
The Company’s derivative instruments are currently comprised of Swaps, which are designated as cash flow hedges against the interest rate risk associated with its borrowings. The following table presents the fair value of the Company’s derivative instruments and their balance sheet location at September 30, 2017 and December 31, 2016:
      September 30, 2017 December 31, 2016
Derivative Instrument Designation  Balance Sheet Location Notional Amount Fair Value Notional Amount Fair Value
(In Thousands)            
Non-cleared legacy Swaps (1)
 Hedging Assets $—
 $—
 $350,000
 $233
Cleared Swaps (2)
 Hedging Liabilities $2,550,000
 $—
 $2,550,000
 $(46,954)
(1)  Non-cleared legacy Swaps include Swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. The Company’s final non-cleared legacy Swaps expired during the threesix months ended June 30, 2017.2023 and 2022:
(2) Cleared Swaps include Swaps executed bilaterally with a counterparty
Three Months Ended June 30,Six Months Ended June 30,
(Dollars In Thousands)2023202220232022
Balance at beginning of period$121,215 $145,568 $130,605 $156,223 
Adjustments to record at lower of cost or fair value(1,800)(324)(2,853)(772)
Transfer from residential whole loans28,256 23,138 49,181 45,217 
Purchases and capital improvements, net118 277 256 629 
Disposals and other (1)
(27,793)(32,812)(57,193)(65,450)
Balance at end of period$119,996 $135,847 $119,996 $135,847 
Number of properties338 438 338 438 
(1)During the three and six months ended June 30, 2023, the Company sold 95 and 194 REO properties for consideration of $31.7 million and $65.5 million, realizing net gains of approximately $4.0 million and $9.0 million, respectively. During the three and six months ended June 30, 2022, the Company sold 124 and 259 REO properties for consideration of $39.6 million and $81.2 million, realizing net gains of approximately $3.9 million and $6.1 million, respectively. These amounts are included in the over-the-counter market but then novated to a central clearing house, whereby the central clearing house becomes the counterparty to both of the original counterparties. As of September 30, 2017, all of the Company’s Swaps have been novated to and are cleared by a central clearing house are subject to initial margin requirements. Beginning in January 2017, variation margin paymentsOther Income, net on the Company’s cleared Swaps are treated as a legal settlementconsolidated statements of operations.



(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 exposure underfinite lived intangible assets and the Swap contract. Previously such payments were treatedactivity for the six months ended June 30, 2023 is summarized in the table below:

(Dollars in Thousands)Carrying Value at December 31, 2022Amortization
 Six Months Ended
June 30, 2023		Carrying Value at
June 30, 2023
Amortization Period (Years) (1)
Trademarks / Trade Names$3,400 $(200)$3,200 10
Customer Relationships6,000 (2,000)4,000 4
Internally Developed Software2,800 (400)2,400 5
Total Identified Intangibles$12,200 $(2,600)$9,600 

(1) Amortization is calculated on a straight-line basis over the amortization period, except for Customer Relationships, where amortization is calculated based on expected levels of customer attrition.


(c) Capital Contributions Made to Loan Origination Partners

The Company has made investments in several loan originators as collateral pledgedpart 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 June 30, 2023, the carrying value of these investments (including adjustments for impairments or mark-to-market changes) was $27.4 million, including $3.4 million of common equity (including partnership interests) and $24.0 million of preferred equity.

The Company did not record any impairment charges to earnings on its investments in loan origination partners during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, the Company recorded an impairment charge in earnings of $28.6 million against the exposure undercarrying value of its investment in one loan origination partner, bringing the Swap contract. The effectnet carrying value of this change isinvestment to reduce what would have otherwise been reported as fair value of the Swap.zero at June 30, 2022.

Swaps
The following table presents the assets pledged as collateral against the Company’s Swap contracts at September 30, 2017 and December 31, 2016:
(In Thousands) September 30, 2017 December 31, 2016
Agency MBS, at fair value $23,197
 $32,468
Restricted cash 6,524
 53,849
Total assets pledged against Swaps $29,721
 $86,317
The Company’s derivative hedging instruments, or a portion thereof, could become ineffective in the future if the associated repurchase agreements that such derivatives hedge fail to exist or fail to have terms that match those of the derivatives that hedge such borrowings.  At September 30, 2017, all of the Company’s derivatives were deemed effective for hedging purposes and no derivatives were terminated during the three and nine months ended September 30, 2017 and 2016.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

The Company’s Swaps designated as hedging transactions have the effect of modifying the repricing characteristicsFor certain of the Company’s repurchase agreementsinvestments, the interests acquired to date by the Company generally do not have a readily determinable fair value. Consequently, the Company accounts for these interests (including any acquired options and cash flows for such liabilities.  To date, no costwarrants) 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 incurred ata subsequent observable transaction in either the inception ofinvestee company’s equity securities or a Swap (exceptsimilar security that provides evidence to support an adjustment to the carrying value. In addition, for certain transaction fees related to entering into Swaps cleared though a central clearing house), pursuant to whichpartners, options or warrants have also been acquired that provide the Company agreesthe 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.
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(d)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 one-month or three-month London Interbank Offeredthe Secured Overnight Financing Rate (“LIBOR”SOFR”), on the notional amount of the Swap. The Company did not recognize any change inAt June 30, 2023, none of the value of its existingCompany’s Swaps were designated as hedges through earningsfor accounting purposes.

The following table presents the assets pledged as a result of hedge ineffectiveness duringcollateral against the threeCompany’s Swaps at June 30, 2023, and nine months ended September 30, 2017 and 2016.December 31, 2022:
(In Thousands)June 30,
2023		December 31,
2022
Restricted Cash$55,672 $60,764 
 
At SeptemberJune 30, 2017,2023, the Company had Swaps designated in hedging relationships with an aggregate notional amount of $2.6$3.0 billion and extended 30an average maturity of approximately 36 months on average with a maximum term of approximately 7172 months.


The following table presents certain information with respect to the Company’s Swap activity during the three and nine months ended September 30, 2017:

(Dollars in Thousands) Three Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2017
New Swaps:    
Number of new Swaps —
 —
Aggregate notional amount $—
 $—
Swaps amortized/expired:    
Aggregate notional amount $—
 $350,000
Weighted average fixed-pay rate —% 0.58%

The following table presents information about the Company’s Swaps at SeptemberJune 30, 20172023, and December 31, 2016:2022:
 
 June 30, 2023December 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 to 12 months$— — %— %$— — %— %
Over 6 months to 12 months100,000 1.49 5.09 — — — 
Over 12 months to 24 months1,125,010 1.27 5.09 550,010 1.01 4.30 
Over 24 months to 36 months— — — 775,000 1.75 4.30 
Over 36 months to 48 months1,425,000 1.53 5.09 450,000 1.12 4.30 
Over 48 months to 60 months— — — 1,075,000 1.86 4.30 
Over 60 months to 72 months310,000 2.95 5.09 — — — 
Over 72 months to 84 months— — — 310,000 2.95 4.30 
Total Swaps$2,960,010 1.58 %5.09 %$3,160,010 1.69 %4.30 %
   September 30, 2017 December 31, 2016
  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)
 
 
Maturity (1)
 (Dollars in Thousands)            
 Within 30 days $—
 —% —% $—
 —% —%
 Over 30 days to 3 months —
 —
 —
 50,000
 0.67
 0.64
 Over 3 months to 6 months —
 —
 —
 300,000
 0.57
 0.66
 Over 6 months to 12 months 550,000
 1.49
 1.23
 —
 —
 —
 Over 12 months to 24 months 200,000
 1.71
 1.24
 550,000
 1.49
 0.71
 Over 24 months to 36 months 1,500,000
 2.22
 1.24
 200,000
 1.71
 0.76
 Over 36 months to 48 months 200,000
 2.20
 1.23
 1,500,000
 2.22
 0.74
 Over 48 months to 60 months —
 —
 —
 200,000
 2.20
 0.75
 Over 60 months to 72 months 100,000
 2.75
 1.24
 —
 —
 —
 
Over 72 months to 84 months (3)
 —
 —
 —
 100,000
 2.75
 0.74
 Total Swaps $2,550,000
 2.04% 1.24% $2,900,000
 1.87% 0.72%


(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, whichpresented. This rate adjusts monthly or quarterlydaily based on one-month or three-month LIBOR, respectively.SOFR. 
(3) Reflects one Swap with a maturity date of July 2023.



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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

The following table presents the net impact of the Company’s derivative hedging instruments on its interest expense and the weighted average interest rate paid and received for such Swaps for the three and nine months ended September 30, 2017 and 2016:
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(Dollars in Thousands) 2017 2016 2017 2016
Interest expense attributable to Swaps $5,310
 $10,170
 $19,606
 $31,279
Weighted average Swap rate paid 2.04% 1.82% 1.96% 1.82%
Weighted average Swap rate received 1.23% 0.49% 1.00% 0.45%
Impact of Derivative Hedging Instruments on AOCIEarnings

The following table presentspresent the impactcomponents of Net (loss)/gain on derivatives used for risk management purposes for the years ended June 30, 2023 and 2022, which is presented in Other income in the consolidated statements of operations:

For the Three Months Ended June 30,For the Six Months Ended June 30,
 (In Thousands)2023202220232022
Income on swap variable receive leg$37,784 $4,899 $71,635 $5,306 
Expense on swap fixed pay leg(11,819)(9,172)(23,853)(15,108)
Unrealized mark-to-market (loss)/gain37,018 31,767 (3,729)112,521 
Net price alignment expense on margin collateral received(2,532)— (4,810)— 
Net gain on TBA short positions— 20,310 — 39,186 
Total Net (loss)/gain on derivatives used for risk management purposes$60,451 $47,804 $39,243 $141,905 


6.      Financing Agreements
The following tables present the components of, and certain information with respect to, the Company’s derivative hedging instruments on its AOCI for the threeFinancing agreements at June 30, 2023 and nine months ended September 30, 2017 and 2016:
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands) 2017 2016 2017 2016
AOCI from derivative hedging instruments:        
Balance at beginning of period $(35,841)—
$(131,971) $(46,721) $(69,399)
Net gain/(loss) on Swaps 5,791
 22,769
 16,671
 (39,803)
Balance at end of period $(30,050) $(109,202) $(30,050) $(109,202)



6.      Repurchase Agreements and Other Advances
Repurchase Agreements

The Company’s repurchase agreements are accounted for as secured borrowings and bear interest that is generally LIBOR-based.  (See Notes 2(l) and 7)  At September 30, 2017, the Company’s borrowings under repurchase agreements had a weighted average remaining term-to-interest rate reset of 19 days and an effective repricing period of eleven months, including the impact of related Swaps.  At December 31, 2016, the Company’s borrowings under repurchase agreements had a weighted average remaining term-to-interest rate reset of 19 days and an effective repricing period of 12 months, including the impact of related Swaps.2022:


June 30, 2023
(In Thousands)CollateralUnpaid 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 provisionsResidential Whole Loans and REO$1,939,310 $1,938,380 7.17 %9.1
Agreements with mark-to-market collateral provisionsSecurities464,064 464,064 5.67 %0.5
Total Agreements with mark-to-market collateral provisions2,403,374 2,402,444 6.87 %
Agreements with non-mark-to-market collateral provisionsResidential Whole Loans and REO968,546 967,884 7.61 %13.3
Securitized debtResidential Whole Loans4,187,578 3,969,274 3.88 %See Note 14
Convertible senior notesUnsecured229,989 228,575 6.94 %11.5
Impact of net Swap carry(1.38)%
Total Financing agreements (2)
$7,789,487 $7,568,177 3.96 %


December 31, 2022
(In Thousands)CollateralUnpaid 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 provisionsResidential Whole Loans and REO$2,111,647 $2,111,396 5.74 %6.9
Agreements with mark-to-market collateral provisionsSecurities111,651 111,651 5.47 %1.5
Total Agreements with mark-to-market collateral provisions2,223,298 2,223,047 5.73 %
Agreements with non-mark-to-market collateral provisionsResidential Whole Loans and REO1,004,260 1,003,604 6.53 %16.8
Securitized debtResidential Whole Loans3,586,397 3,357,590 3.33 %See Note 14
Convertible senior notesUnsecured229,989 227,845 6.94 %17.5
Impact of net Swap carry(0.84)%
Total Financing agreements (2)
$7,043,944 $6,812,086 3.70 %

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(1)The Company has both financing agreements held at fair value and financings agreements held at their carrying value (amortized cost basis). Financing agreements held at fair value are reported at estimated fair value each period as a result of the Company’s fair value option election. The fair value option was not elected for financing agreements held at carrying value. Consequently, Total financing agreements as presented reflects a summation of balances reported at fair and carrying value. At June 30, 2023, the Company had $553.2 million of agreements with mark-to-market collateral provisions held at fair value, $440.1 million of agreements with non-mark-to-market collateral provisions held at fair value, and $3.1 billion of securitized debt held at fair value, with amortized cost bases of $553.2 million, $440.1 million, and $3.3 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 annualized quarter-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 quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points, and for the quarter ended December 31, 2022, this decreased the overall funding cost by 84 basis points. The Company does not allocate the impact of the net carry by type of financing agreement.


The following table presents informationmaturities with respect to the Company’s borrowings under repurchasefinancing agreements with mark-to-market and associated assets pledged asnon-mark-to-market collateral at September 30, 2017 and December 31, 2016:provisions:
As of June 30, 2023
Unpaid Principal Balance, Maturing In
(In Thousands)Collateral
0-3 Months (1)
3-6 Months6-12 Months
Greater than 12 Months (2)
Total
Agreements with mark-to-market collateral provisionsResidential Whole Loans$401,591 $88,389 $480,381 $968,949 $1,939,310 
Agreements with mark-to-market collateral provisionsSecurities464,064 — — — 464,064 
Total Agreements with mark-to-market collateral provisions865,655 88,389 480,381 968,949 2,403,374 
Agreements with non-mark-to-market collateral provisionsResidential Whole Loans491,160 13,033 — 464,353 968,546 
(Dollars in Thousands) September 30,
2017		 December 31,
2016
Repurchase agreement borrowings secured by Agency MBS $2,671,245
 $3,095,020
Fair value of Agency MBS pledged as collateral under repurchase agreements $2,888,156
 $3,280,689
Weighted average haircut on Agency MBS (1)
 4.62% 4.67%
Repurchase agreement borrowings secured by Legacy Non-Agency MBS $1,361,866
 $1,690,937
Fair value of Legacy Non-Agency MBS pledged as collateral under repurchase agreements (2)
 $1,848,134
 $2,317,708
Weighted average haircut on Legacy Non-Agency MBS (1)
 22.40% 24.01%
Repurchase agreement borrowings secured by RPL/NPL MBS $798,508
 $1,943,572
Fair value of RPL/NPL MBS pledged as collateral under repurchase agreements $1,005,757
 $2,433,711
Weighted average haircut on RPL/NPL MBS (1)
 21.58% 20.98%
Repurchase agreements secured by U.S. Treasuries $474,726
 $504,572
Fair value of U.S. Treasuries pledged as collateral under repurchase agreements $475,688
 $510,767
Weighted average haircut on U.S. Treasuries (1)
 1.39% 1.60%
Repurchase agreements secured by CRT securities 
 $413,172
 $271,205
Fair value of CRT securities pledged as collateral under repurchase agreements $530,833
 $357,488
Weighted average haircut on CRT securities (1)
 22.05% 23.22%
Repurchase agreements secured by MSR related assets $268,819
 $135,112
Fair value of MSR related assets pledged as collateral under repurchase agreements $412,674
 $226,780
Weighted average haircut on MSR related assets (1)
 33.76% 41.40%
Repurchase agreements secured by residential whole loans (3)
 $883,366
 $832,060
Fair value of residential whole loans pledged as collateral under repurchase agreements $1,273,955
 $1,175,088
Weighted average haircut on residential whole loans (1)
 28.35% 25.03%

(1)Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount.
(2) Includes $172.4(1)$681.1 million of Legacy Non-Agency MBS acquired from consolidated VIEs thatthe mark-to-market agreements (included in the 0-3 months category) can be terminated by either party.
(2)Amounts presented are eliminated frombased on the assumed exercise of the Company’s consolidated balance sheets at December 31, 2016.
(3) Excludes $259,000 and $210,000unilateral option to extend by one year the maturity of unamortized debt issuance costs at September 30, 2017 and December 31, 2016, respectively.

The following table presents repricing information about the Company’s borrowings under repurchase agreements, which does not reflect the impact of associated derivative hedging instruments, at September 30, 2017 and December 31, 2016:

an Agreement with mark-market collateral provisions with $311.2 million outstanding.
31
  September 30, 2017 December 31, 2016
 Balance 
 Weighted Average Interest RateBalance Weighted Average Interest Rate
Time Until Interest Rate Reset
(Dollars in Thousands)        
Within 30 days $6,378,566
 2.15% $7,284,062
 1.77%
Over 30 days to 3 months 493,136
 2.42
 1,188,416
 1.91
Total repurchase agreements 6,871,702
 2.17% 8,472,478
 1.79%
Less debt issuance costs 259
   210
  
Total repurchase agreements less debt
  issuance costs
 $6,871,443
   $8,472,268
  


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023



The following table presents contractual maturity information with respect to the Company’s financing agreements with mark-to-market collateral provisions and associated assets pledged as collateral at June 30, 2023 and December 31, 2022:

(Dollars in Thousands)June 30,
2023		December 31,
2022
Mark-to-market financing agreements secured by residential whole loans$1,909,699 $2,095,002 
Fair value of residential whole loans pledged as collateral under financing agreements$2,441,356 $2,632,489 
Weighted average haircut on residential whole loans (1)
20.11 %18.33 %
Mark-to-market financing agreements secured by securities at fair value$464,064 $111,651 
Securities at fair value pledged as collateral under financing agreements$543,400 $177,111 
Weighted average haircut on securities at fair value (1)
12.23 %37.43 %
Mark-to-market financing agreements secured by real estate owned$28,681 $16,394 
Fair value of real estate owned pledged as collateral under financing agreements$59,919 $33,367 
Weighted average haircut on real estate owned (1)
50.39 %48.07 %
(1)Haircut represents the percentage amount by which the collateral value is contractually required to exceed the loan amount.

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 June 30, 2023 and December 31, 2022:
(Dollars in Thousands)June 30,
2023		December 31,
2022
Non-mark-to-market financing secured by residential whole loans$967,884 $994,494 
Fair value of residential whole loans pledged as collateral under financing agreements$1,184,587 $1,301,685 
Weighted average haircut on residential whole loans17.35 %21.43 %
Non-mark-to-market financing secured by real estate owned$— $9,109 
Fair value of real estate owned pledged as collateral under financing agreements$— $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 $19.6 million and $16.0 million at June 30, 2023 and December 31, 2022, respectively.

The following table presents repricing information (excluding the impact of associated derivative hedging instruments, if any) about the Company’s borrowings under repurchasefinancing agreements allthat have non-mark-to-market collateral provisions as well as those that have mark-to-market collateral provisions, at June 30, 2023 and December 31, 2022:

 June 30, 2023December 31, 2022
Amortized Cost BasisWeighted Average Interest RateAmortized Cost BasisWeighted Average Interest Rate
Time Until Interest Rate Reset
(Dollars in Thousands)    
Within 30 days$3,135,319 7.20 %$3,060,111 6.60 %
Over 30 days to 3 months236,602 6.51 167,447 6.19 
Over 3 months to 12 months— — — — 
Over 12 months— — — — 
Total financing agreements$3,371,921 7.15 %$3,227,558 6.58 %

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(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 are accounted for as secured borrowings, at September 30, 2017, and does not reflectis 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 derivative contracts that hedgeamortization 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.

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 repurchase agreements:indebtedness and (ii) equal in right of payment to the Company’s existing and future senior unsecured obligations, if any.



  September 30, 2017
Contractual Maturity Overnight Within 30 Days Over 30 Days to 3 Months Over 3 Months to 12 Months Over 12 months Total
(Dollars in Thousands)            
Agency MBS $—
 $2,590,020
 $81,225
 $—
 $—
 $2,671,245
Legacy Non-Agency MBS —
 746,798
 478,331
 136,737
 —
 1,361,866
RPL/NPL MBS —
 359,471
 316,638
 122,399
 —
 798,508
U.S. Treasuries —
 474,726
 —
 —
 —
 474,726
CRT securities —
 409,123
 4,049
 —
 —
 413,172
MSR related assets —
 268,819
 —
 —
 —
 268,819
Residential whole loans —
 —
 —
 821,770
 61,596
 883,366
Total (1)
 $—
 $4,848,957
 $880,243
 $1,080,906
 $61,596
 $6,871,702
             
Weighted Average Interest Rate —% 1.83% 2.56% 3.31% 3.68% 2.17%
             
Gross amount of recognized liabilities for repurchase agreements in Note 8 $6,871,702
Amounts related to repurchase agreements not included in offsetting disclosure in Note 8 $—
(b) Counterparties

(1)Excludes $259,000 of unamortized debt issuance costs at September 30, 2017.


The Company had financing agreements, including repurchase agreements and other forms of secured financing, with 3114 and 12 counterparties at both SeptemberJune 30, 20172023 and December 31, 2016.2022, respectively. The following table presents information with respect to each counterparty under repurchasefinancing agreements for which the Company had greater than 5% of stockholders’ equity at risk in the aggregate at SeptemberJune 30, 2017:2023:
 
June 30, 2023
Amount 
at Risk (1)
Weighted 
Average Months 
to Repricing for
Repurchase Agreements		Percent of
Stockholders’ Equity
Counterparty
(Dollars in Thousands)
Wells Fargo$267,784 113.8 %
Barclays Bank192,258 19.9 
Atlas Securitized Products, L.P.107,587 15.5 
Goldman Sachs Bank100,225 15.2 
Churchill Finance LLC98,574 15.1 
  September 30, 2017
  
Counterparty
Rating (1)
 
Amount 
at Risk (2)
 
Weighted 
Average Months 
to Maturity for
Repurchase Agreements
 
Percent of
Stockholders’ Equity
Counterparty    
(Dollars in Thousands)        
Wells Fargo (3)
 AA-/Aa2/AA- $325,023
 6 10.0%
Credit Suisse (4)
 BBB+/Aa2/A- 235,579
 2 7.2
UBS (5)
 A+/A1/A+ 167,329
 8 5.1


(1)As rated at September 30, 2017 by S&P, Moody’s and Fitch, Inc., respectively.  The counterparty rating presented is the lowest published for these entities.
(2)The amount at risk reflects the difference between (a) the amount loaned to the Company through repurchase agreements, including interest payable, and (b) the cash and the fair value of the securities(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 securities.
(3)Includes $313.8 million at risk with Wells Fargo Bank, NA and $11.2 million at risk with Wells Fargo Securities LLC.
(4)Includes $9.7 million at risk with Credit Suisse AG, Cayman Islands and $225.9 million at risk with Credit Suisse. Counterparty ratings are not published for Credit Suisse AG, Cayman Islands.
(5) Includes Non-Agency MBS pledged as collateral, with contemporaneous repurchase and reverse repurchase agreements.including accrued interest receivable on such assets.





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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(c) Pledged Collateral
FHLB Advances

In January 2016,The following tables present the FHFA releasedCompany’s assets (based on carrying value) pledged as collateral for its final rule amending its regulation on FHLB membership, which, among other things, provided termination rules for then current captive insurance members. As a resultvarious financing arrangements as of such regulation, MFA Insurance was required to repay all of its outstanding FHLB advances by February 19, 2017June 30, 2023 and its FHLB membership was terminated on such date. At December 31, 2016, MFA Insurance2022:

June 30, 2023
Financing Agreements
(In Thousands)
Non-Mark-to-Market (1)
Mark-to-Market (1)
SecuritizedTotal
Assets:
Residential whole loans, at carrying value$65,527 $364,419 $1,233,089 $1,663,035 
Residential whole loans, at fair value1,121,567 1,781,344 3,555,923 6,458,834 
Securities, at fair value— 543,400 — 543,400 
Other assets: REO— 52,376 30,374 82,750 
Total$1,187,094 $2,741,539 $4,819,386 $8,748,019 

December 31, 2022
Financing Agreements
(In Thousands)
Non-Mark-to-Market (1)
Mark-to-Market (1)
SecuritizedTotal
Assets:
Residential whole loans, at carrying value$215,993 $284,683 $1,314,104 $1,814,780 
Residential whole loans, at fair value1,095,556 2,164,158 2,720,757 5,980,471 
Securities, at fair value— 177,111 — 177,111 
Other assets: REO19,837 28,490 36,486 84,813 
Total$1,331,386 $2,654,442 $4,071,347 $8,057,175 

(1)An aggregate of $31.7 million and $30.9 million of accrued interest on those assets pledged against non-mark-to-market and mark-to-market financings agreements had $215.0 million in outstanding long-term secured FHLB advances with a weighted average borrowing ratealso been pledged as of 0.78%. Interest payable on outstanding FHLB advances atJune 30, 2023 and December 31, 2016 totaled approximately $42,000 and was included in Other liabilities on the Company’s consolidated balance sheets.2022, respectively.

7. Collateral Positions

The Company pledges securities or cash as collateral to its counterparties pursuantin relation to certain of its borrowings under repurchase agreements and for initial margin payments on centrally cleared Swaps. In addition, the Company receives securities or cash as collateral pursuant to financing provided under reverse repurchase agreements.arrangements. The Company exchanges collateral with its counterparties based on changes in the fair value, notional amount and term of the associated repurchase agreementsfinancing arrangements and Swap contracts,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.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

The following table summarizes the fair value of the Company’s collateral positions, which includes collateral pledged and collateral held, with respect to its borrowings under repurchase agreements, reverse repurchase agreements, derivative hedging instruments and FHLB advances at September 30, 2017 and December 31, 2016: 
  September 30, 2017 December 31, 2016
(In Thousands) Assets Pledged Collateral Held Assets Pledged Collateral Held
Derivative Hedging Instruments:  
  
  
  
Agency MBS $23,197
 $—
 $32,468
 $—
Cash (1)
 6,524
 —
 53,849
 —
  29,721
 —
 86,317
 —
Repurchase Agreement Borrowings:        
Agency MBS 2,888,156
 —
 3,280,689
 —
Legacy Non-Agency MBS (2)(3)
 1,848,134
 —
 2,317,708
 —
RPL/NPL MBS 1,005,757
 —
 2,433,711
 —
U.S. Treasury securities 475,688
 —
 510,767
 —
CRT securities 530,833
 —
 357,488
 —
MSR related assets 412,674
 —
 226,780
 —
Residential whole loans 1,273,955
 —
 1,175,088
 —
Cash (1)
 8,916
 —
 4,614
 —
  8,444,113
 —
 10,306,845
 —
         
FHLB Advances:        
Agency MBS —
 —
 227,244
 —
  —
 —
 227,244
 —
         
Reverse Repurchase Agreements:        
U.S. Treasury securities —
 507,318
 —
 510,767
  —
 507,318
 —
 510,767
Total $8,473,834
 $507,318
 $10,620,406
 $510,767
(1)  Cash pledged as collateral is reported as “Restricted cash” on the Company’s consolidated balance sheets.
(2)  Includes $172.4 million of Legacy Non-Agency MBS acquired in connection with resecuritization transactions from consolidated VIEs that are eliminated from the Company’s consolidated balance sheets at December 31, 2016.
(3)  In addition, at September 30, 2017 and December 31, 2016, $689.3 million and $688.2 million of Legacy Non-Agency MBS, respectively, are pledged as collateral in connection with contemporaneous repurchase and reverse repurchase agreements entered into with a single counterparty.


33
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

The following table presents detailed information about the Company’s assets pledged as collateral pursuant to its borrowings under repurchase agreementsare also described in Notes 2(e) - Restricted Cash and derivative hedging instruments at September 30, 2017:5(d) - Derivative Instruments.
  September 30, 2017
  
Assets Pledged Under Repurchase 
Agreements
 
Assets Pledged Against Derivative
Hedging Instruments
 
Total Fair
Value of Assets Pledged and Accrued Interest
(In Thousands) Fair Value 
Amortized
Cost
 
Accrued 
Interest on
Pledged 
Assets
 
Fair Value/ 
Carrying 
Value
 
Amortized
Cost
 
Accrued Interest on 
Pledged 
Assets
 
Agency MBS $2,888,156
 $2,890,386
 $7,461
 $23,197
 $23,763
 $48
 $2,918,862
Legacy Non-Agency MBS (1)
 1,848,134
 1,432,145
 6,711
 —
 —
 —
 1,854,845
RPL/NPL MBS 1,005,757
 1,001,548
 757
 —
 —
 —
 1,006,514
U.S. Treasuries 475,688
 475,342
 —
 —
 —
 —
 475,688
CRT securities 530,833
 491,490
 418
 —
 —
 —
 531,251
MSR related assets 412,674
 411,277
 942
 —
 —
 —
 413,616
Residential whole loans (2)
 1,273,955
 1,251,400
 2,974
 —
 —
 —
 1,276,929
Cash (3)
 8,916
 8,916
 —
 6,524
 6,524
 —
 15,440
Total $8,444,113
 $7,962,504
 $19,263
 $29,721
 $30,287
 $48
 $8,493,145

(1)In addition, at September 30, 2017, $689.3 million of Legacy Non-Agency MBS are pledged as collateral in connection with contemporaneous repurchase and reverse repurchase agreements entered into with a single counterparty.
(2)Includes residential whole loans held at carrying value with an aggregate fair value of $370.5 million and aggregate amortized cost of $347.9 million and residential whole loans held at fair value with an aggregate fair value and amortized cost of $903.5 million.
(3)Cash pledged as collateral is reported as “Restricted cash” on the Company’s consolidated balance sheets.

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Table of Contents
MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

8.    Offsetting Assets and Liabilities
The following tables present information about certain assets and liabilities that are subject to master netting arrangements (or similar agreements) and may potentially be offset on the Company’s consolidated balance sheets at September 30, 2017 and December 31, 2016:
Offsetting of Financial Assets and Derivative Assets
  Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset in 
the Consolidated Balance Sheets
  Net Amount
(In Thousands) 
Financial
Instruments
 
Cash 
Collateral 
Received
September 30, 2017            
Swaps, at fair value $—
 $—
 $—
 $—
 $—
 $—
Total $—
 $—
 $—
 $—
 $—
 $—
             
December 31, 2016            
Swaps, at fair value $233
 $—
 $233
 $(233) $—
 $—
Total $233
 $—
 $233
 $(233) $—
 $—
Offsetting of Financial Liabilities and Derivative Liabilities
  Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets 
Gross Amounts Not Offset in the 
Consolidated Balance Sheets
 Net Amount 
(In Thousands)
Financial 
Instruments (1)
 
Cash 
Collateral 
Pledged (1)
September 30, 2017            
Swaps, at fair value (2)
 $—
 $—
 $—
 $—
 $—
 $—
Repurchase agreements and other advances (3)(4)
 6,871,702
 —
 6,871,702
 (6,862,786) (8,916) —
Total $6,871,702
 $—
 $6,871,702
 $(6,862,786) $(8,916) $—
             
December 31, 2016            
Swaps, at fair value (2)
 $46,954
 $—
 $46,954
 $—
 $(46,954) $—
Repurchase agreements and other advances (3)(4)
 8,687,478
 —
 8,687,478
 (8,682,864) (4,614) —
Total $8,734,432
 $—
 $8,734,432
 $(8,682,864) $(51,568) $—
(1) Amounts disclosed in the Financial Instruments column of the table above represent collateral pledged that is available to be offset against liability balances associated with repurchase agreements and other advances, and derivative transactions.  Amounts disclosed in the Cash Collateral Pledged column of the table above represent amounts pledged as collateral against derivative transactions and repurchase agreements, and exclude excess collateral of $6.5 million and $6.9 million at September 30, 2017 and December 31, 2016, respectively.
(2) The fair value of securities pledged against the Company’s Swaps was $23.2 million and $32.5 million at September 30, 2017 and December 31, 2016, respectively. Beginning in January 2017, variation margin payments on the Company’s cleared Swaps are treated as a legal settlement of the exposure under the Swap contract. Previously such payments were treated as collateral pledged against the exposure under the Swap contract. The effect of this change is to reduce what would have otherwise been reported as fair value of the Swap.
(3) The fair value of financial instruments pledged against the Company’s repurchase agreements and other advances was $8.4 billion and $10.5 billion at September 30, 2017 and December 31, 2016, respectively.
(4) Excludes $259,000 and $210,000 of unamortized debt issuance costs at September 30, 2017 and December 31, 2016, respectively.

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Table of Contents
MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

Nature of Setoff Rights
In the Company’s consolidated balance sheets, all balances associated with the repurchase agreement and Swap transactions that are not centrally cleared are presented on a gross basis.

Certain of the Company’s repurchase agreementfinancing 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. For one repurchase agreement counterparty, the underlying agreements provide for an unconditional right of setoff.  

9.     Senior Notes
On April 11, 2012, the Company issued $100.0 million in aggregate principal amount of its Senior Notes in an underwritten public offering.  The total net proceeds to the Company from the offering of the Senior Notes were approximately $96.6 million, after deducting offering expenses and the underwriting discount.  The Senior Notes bear interest at a fixed rate of 8.00% per year, paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year and will mature on April 15, 2042.  The Senior Notes have an effective interest rate, including the impact of amortization to interest expense of debt issuance costs, of 8.31%. The Company may redeem the Senior Notes, in whole or in part, at any time on or after April 15, 2017, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to, but not excluding, the redemption date.

The Senior Notes areIn the Company’s senior unsecured obligations and are subordinate toconsolidated balance sheets, all of the Company’s secured indebtedness, which includes the Company’sbalances associated with repurchase agreements obligation to return securities obtained as collateral and other financing arrangements, to the extentare presented on a gross basis.


34
Table of the value of the collateral securing such indebtedness.Contents
MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
10JUNE 30, 2023
7. Other Liabilities


The following table presents the components of the Company’s Other liabilities at SeptemberJune 30, 20172023 and December 31, 2016:2022:


(In Thousands)June 30, 2023December 31, 2022
Payable for purchase of unsettled Agency MBS$30,931 $132,026 
Dividends and dividend equivalents payable35,789 35,769 
Lease liability44,123 45,314 
Accrued interest payable25,057 23,040 
Accrued expenses and other87,385 75,321 
Total Other Liabilities$223,285 $311,470 
35
(In Thousands) September 30, 2017 December 31, 2016
Securitized debt (1)
 $137,327
 $—
Dividends and dividend equivalents payable 79,605
 74,657
Accrued interest payable 11,223
 14,129
Swaps, at fair value (2)
 —
 46,954
Accrued expenses and other liabilities 18,123
 19,612
Total Other Liabilities $246,278
 $155,352
(1)Securitized debt represents third-party liabilities of consolidated VIEs and excludes liabilities of the VIEs acquired by the Company that are eliminated in consolidation. The third-party beneficial interest holders in the VIEs have no recourse to the general credit of the Company. (See Notes 11 and 16 for further discussion.)
(2)Beginning in January 2017, variation margin payments on the Company’s cleared Swaps are treated as a legal settlement of the exposure under the Swap contract. Previously such payments were treated as collateral pledged against the exposure under the Swap contract. The effect of this change is to reduce what would have otherwise been reported as fair value of the Swap.


11.    Commitments and Contingencies
(a) Lease Commitments
The Company pays monthly rent pursuant to two operating leases.  The lease term for the Company’s headquarters in New York, New York extends through June 30, 2020.  The lease provides for aggregate cash payments ranging over time of approximately $2.5 million per year, paid on a monthly basis, exclusive of escalation charges.  In addition, as part of this lease agreement, the Company has provided the landlord a $785,000 irrevocable standby letter of credit fully collateralized by cash.  The letter of credit may be drawn upon by the landlord in the event that the Company defaults under certain terms of the lease.  In addition, the

36
Table of Contents
MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

8. Income Taxes
Company has a lease through December 31, 2021 for its off-site back-up facility located in Rockville Centre, New York, which provides for, among other things, lease payments totaling $32,000, annually.

(b) Corporate Loan


The Company has entered intoelected to be taxed as a loan agreement with an entityREIT 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 originates loans and ownswill enable it to satisfy the related MSRs. The loan is secured by certain U.S. Government, Agency and private-label MSRs,various requirements to maintain its status as wella REIT for federal income tax purposes. In order to maintain its status as a REIT, the Company must, among other unencumbered assets ownedthings, distribute at least 90% of its REIT taxable income (excluding net long-term capital gains) to stockholders in the timeframe permitted by the borrower. UnderCode. As long as the termsCompany 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 loan agreement,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 committedelected to lend $130.0treat certain of its subsidiaries as taxable REIT subsidiaries (“TRS”). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. Generally, a domestic TRS is subject to U.S. federal, state and local corporate income taxes. Given that a portion of the Company’s business is conducted through one or more TRS, the net taxable income earned by its domestic TRS, if any, is subject to corporate income taxation. To maintain the Company’s REIT election, no more than 20% of the value of the Company’s assets at the end of each calendar quarter may consist of stock or securities in TRS. For purposes of the determination of U.S. 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 June 30, 2023, December 31, 2022 or June 30, 2022. As of the date of this filing, the Company’s tax returns for tax years 2019 through 2022 are open to examination.

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 June 30, 2023 and December 31, 2022 are presented in the following table:

(In Thousands)June 30, 2023December 31, 2022
Deferred tax assets (DTAs):
Net operating loss and tax credit carryforwards$105,792 $97,655 
Unrealized mark-to-market, impairments and loss provisions14,787 12,609 
Other realized / unrealized treatment differences(42,011)(28,620)
Total deferred tax assets78,568 81,644 
Less: valuation allowance(78,568)(81,644)
Net deferred tax assets$— $— 

Realization of the Company’s DTAs at June 30, 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.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
No net deferred tax benefit was recorded by the Company for the three and six months ended June 30, 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 June 30, 2023, the Company’s federal NOL carryforward from prior years was $382.6 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 whichthe 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 three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Current provision/(benefit)
Federal$(286)$38 $(420)$143 
State(71)184 (125)209 
Total current provision/(benefit)(357)222 (545)352 
Deferred provision/(benefit)
Federal— 120 589 270 
State— 15 155 65 
Total deferred provision/(benefit)— 135 744 335 
Total provision/(benefit)$(357)$357 $199 $687 


The following is a reconciliation of the statutory federal tax rate to the Company’s effective tax rate at June 30, 2023 and 2022:

Six Months Ended
June 30, 2023June 30, 2022
Federal statutory rate21.0 %21.0 %
Non-taxable REIT income (dividends paid deduction)(32.6)%2.9 %
Other differences in taxable income (loss) from GAAP23.0 %(17.0)%
State and local taxes— %— %
Change in valuation allowance on DTAs(11.0)%(7.1)%
Effective tax rate0.4 %(0.2)%
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023

9.    Commitments and Contingencies
(a) Lease Commitments
The Company’s primary lease commitment relates to its corporate headquarters. For the three and six months ended June 30, 2023, the Company recorded an expense of approximately $101.1$1.5 million was drawn at Septemberand $2.7 million, respectively, 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.

At June 30, 2017.2023, the contractual minimum rental payments (exclusive of possible rent escalation charges and normal recurring charges for maintenance, insurance and taxes) regarding the Company’s lease commitments were as follows:


(c)
Year Ending December 31, Minimum Rental Payments
(In Thousands) 
2023 (1)$2,876 
20245,751 
20254,888 
20264,776 
20275,055 
Thereafter46,999 
Total$70,345 

(1) Reflects contractual minimum rental payments due for the period from July 1, 2023 through December 31, 2023.

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


In connection with the loan securitization transactionand sale transactions entered into by the Company, in June 2017 (See Note 16 for further discussion), the Company has the obligation under certain circumstances to repurchase assets previously transferred to a securitization vehiclevehicles, or otherwise sold, upon breach of certain representations and warranties. As of SeptemberJune 30, 2017,2023, the Company had no reserve established for repurchases of loans and was not aware of any material unsettled repurchase claims that would require the establishment of such a reserve. reserve (see Note 14).


(d)MBS Purchase(c)Transitional Loan Commitments


At SeptemberJune 30, 2017,2023, the Company had unfunded commitments to purchase Non-Agency MBS at an estimated price of $3.6 million. The expected settlement amounts are included$587.2 million in the Non-Agency MBS balances presented at fair value on the Company’s consolidated balance sheets,connection with a corresponding liability included in Payable for unsettled MBS and residential whole loan purchases.its Transitional loans (see Note 3).


(e)Residential Whole Loan Purchase Commitments

At September 30, 2017, the Company has agreed, subject to the completion of due diligence, and customary closing conditions, to purchase residential whole loans at fair value at an aggregate estimated purchase price of $120.4 million. The expected settlement amounts are included in the Company’s consolidated balance sheets in Residential whole loans, at fair value, with a corresponding liability included in Payable for unsettled MBS and residential whole loan purchases.


12.10.    Stockholders’ Equity
 
(a) Preferred Stock
 
Issuance of 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 commencing on April 15, 2018 (subject to the Company’s right, under limited circumstances, to redeem the Series B Preferred Stock prior to that date in order to preserve its qualification as a REIT) and upon certain specified change in control transactions in which the Company’s common stock and the acquiring or surviving entity common securities would not be listed on the New York Stock Exchange (the “NYSE”), the NYSE American LLC or NASDAQ, or any successor exchange.option.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
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.


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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

The following table presents cash dividends declared by the Company on its Series B Preferred Stock from January 1, 20172022 through June 30, 2023:

Declaration DateRecord DatePayment DateDividend Per Share
May 22, 2023June 5, 2023June 30, 2023$0.46875
February 21, 2023March 6, 2023March 31, 2023$0.46875

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 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, it is the Company’s present expectation that three-month SOFR (Secured Overnight Financing Rate) would 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 2017: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.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
Declaration Date Record Date Payment Date Dividend Per Share
August 10, 2017 September 1, 2017 September 29, 2017 $0.46875
May 16, 2017 June 2, 2017 June 30, 2017 0.46875
February 17, 2017 March 6, 2017 March 31, 2017 0.46875
The following table presents cash dividends declared by the Company on its Series C Preferred Stock from January 1, 2022 through June 30, 2023:


Declaration DateRecord DatePayment DateDividend Per Share
May 22, 2023June 5, 2023June 30, 2023$0.40625
February 21, 2023March 6, 2023March 31, 20230.40625

(b)  Dividends on Common Stock
 
The following table presents cash dividends declared by the Company on its common stock from January 1, 20172022 through SeptemberJune 30, 2017:2023:

Declaration Date
Record DatePayment DateDividend Per Share 
June 15, 2023June 30, 2023July 31, 2023$0.350(1)
March 10, 2023March 31, 2023April 28, 20230.350
Declaration Date (1)
 Record Date Payment Date Dividend Per Share
September 14, 2017 September 28, 2017 October 31, 2017 $0.20
(1)
June 12, 2017 June 29, 2017 July 28, 2017 0.20
 
March 8, 2017 March 29, 2017 April 28, 2017 0.20
 

(1) At SeptemberJune 30, 2017,2023, the Company had accrued dividends and dividend equivalents payable of $79.6$35.8 million related to the common stock dividend declared on September 14, 2017.June 15, 2023.

(c) Public Offering of Common Stock

The table below presents information with respect to shares of the Company’s common stock issued through public offerings during the nine months ended September 30, 2017. The Company did not issue any common stock through public offerings during the nine months ended September 30, 2016.

Share Issue Date Shares Issued Gross Proceeds Per Share Gross Proceeds
(In Thousands, Except Per Share Amounts)       
May 10, 2017 23,000
 $7.85
 $180,550
(1)

(1) The Company incurred approximately $412,000 of expenses in connection with this equity offering.

(d) Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (“DRSPP”)
 
On September 16, 2016,27, 2022, the Company filed a shelf registration statement on Form S-3 with the SEC under the Securities Act of 1933, as amended (the “1933“Securities Act”), for the purpose of registering additional common stock for sale through its DRSPP.  Pursuant to Rule 462(e) ofunder the 1933Securities Act, this shelf registration statement became effective automatically upon filing with the SEC and when combined with the unused portion of the Company’s previous DRSPP shelf registration statements, registered an aggregate of 152.0 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 SeptemberJune 30, 2017, 13.02023, approximately 2.0 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.
 
During the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company issued 513,5093,440 and 1,516,3076,666 shares of common stock through the DRSPP, raising net proceeds of approximately $4.3 million$37,000 and $12.2 million,$74,000, respectively.  From the inception of the DRSPP in September 2003 through SeptemberJune 30, 2017,2023, the Company issued 32,899,0928,848,219 shares pursuant to the DRSPP, raising net proceeds of $275.1$290.8 million.

(d)  Stock Repurchase Program
 

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

(e)  Stock Repurchase Program
As previously disclosed, in August 2005,On March 11, 2022, the Company’s Board authorized a stock repurchase program (the “Repurchase Program”)under which the Company may repurchase up to $250 million of its common stock through the end of 2023. The Board’s authorization superseded and replaced the authorization under a prior stock repurchase program that had been adopted in November 2020, which also authorized the Company to repurchase up to 4.0 million shares$250 million.

The stock repurchase program does not require the purchase of its outstanding common stock.  The Board reaffirmed such authorization in May 2010.  In December 2013, the Board increased theany minimum number of shares. The timing and extent to which the Company repurchases its shares authorizedwill 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 Repurchase Program to an aggregate of 10.0 million. Such authorization does not have an expiration date and, at present, there is no intention to modifystock repurchase program may be made in the open market, through privately negotiated transactions or otherwise rescind such authorization.  Subject toblock trades or other means, in accordance with applicable securities laws repurchases of common stock under the Repurchase Program are made at times and in amounts as the Company deems appropriate, (including, in ourthe Company’s discretion, through the use of one or more plans adopted under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “1934“Exchange Act”)) using available cash resources.  Shares of common stock repurchased by the Company under the Repurchase Program are cancelled and, until reissued by the Company, are deemed to be authorized but unissued shares of the Company’s common stock.  The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice. .

The Company did not repurchase any shares of its common stock during the ninesix months ended SeptemberJune 30, 2017.  At September2023. During the three and six months ended June 30, 2017, 6,616,3552022, the Company repurchased 3,280,977 and 6,476,746 shares of its common stock through the stock repurchase program at an average cost of $14.48 and $15.80 per share and a total cost of approximately $47.5 million and $102.1 million, net of fees and commissions paid to the sales agent of approximately $33,000 and $161,000,
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
respectively. As of June 30, 2023, approximately $202.5 million remained authorized for repurchaseavailable under the Repurchase Program.current authorization for the purchase of common stock under the stock repurchase program.


(f) (e)Accumulated Other Comprehensive Income/(Loss)


The following table presents changes in the balances of each component of the Company’s AOCI for the three and ninesix months ended SeptemberJune 30, 2017:2023:
Three Months Ended
June 30, 2023		Six Months Ended
June 30, 2023
(In Thousands)Net Unrealized
Gain/(Loss) on
AFS Securities
Net Unrealized Gain/(Loss) on Financing Agreements (1)
Total 
AOCI		Net Unrealized
Gain/(Loss) on
AFS Securities
Net Unrealized Gain/(Loss) on Financing Agreements (1)
Total 
AOCI
Balance at beginning of period$20,225 $— $20,225 $21,341 $— $21,341 
OCI before reclassifications(6,805)— (6,805)(7,921)— (7,921)
Amounts reclassified from AOCI— — — — — — 
Net OCI during the period (2)
(6,805)— (6,805)(7,921)— (7,921)
Balance at end of period$13,420 $— $13,420 $13,420 $— $13,420 
  Three Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2017
(In Thousands) 
Net Unrealized
Gain/(Loss) on
AFS Securities
 
Net 
(Loss)/Gain
on Swaps
 Total AOCI Net Unrealized
Gain/(Loss) on
AFS Securities		 
Net 
(Loss)/Gain
on Swaps
 Total AOCI
Balance at beginning of period $668,223
 $(35,841) $632,382
 $620,403
 $(46,721) $573,682
OCI before reclassifications 6,988
 5,791
 12,779
 71,188
 16,671
 87,859
Amounts reclassified from AOCI (1)
 (14,935) —
 (14,935) (31,315) —
 (31,315)
Net OCI during the period (2)
 (7,947) 5,791
 (2,156) 39,873
 16,671
 56,544
Balance at end of period $660,276
 $(30,050) $630,226
 $660,276
 $(30,050) $630,226


(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).

The following table presents changes in the balances of each component of the Company’s AOCI for the three and six months ended June 30, 2022:
Three Months Ended
June 30, 2022		Six Months Ended
June 30, 2022
(In Thousands)Net Unrealized
Gain/(Loss) on
AFS Securities
Net Unrealized Gain/(Loss) on Financing Agreements (1)
Total
AOCI		Net Unrealized
Gain/(Loss) on
AFS Securities
Net Unrealized Gain/(Loss) on Financing Agreements (1)
Total
AOCI
Balance at beginning of period$41,856 $— $41,856 $46,833 $(1,255)$45,578 
OCI before reclassifications(4,937)— (4,937)(9,914)1,255 (8,659)
Amounts reclassified from AOCI— — — — — — 
Net OCI during the period (2)
(4,937)— (4,937)(9,914)1,255 (8,659)
Balance at end of period$36,919 $— $36,919 $36,919 $— $36,919 

(1)  See separate table below for details about these reclassifications.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).
 


The following table presents changes in the balances of each component of the Company’s AOCI for the three and nine months ended September 30, 2016:
41
  Three Months Ended 
 September 30, 2016		 Nine Months Ended 
 September 30, 2016
(In Thousands) 
Net Unrealized
Gain/(Loss) on
AFS Securities
 
Net 
(Loss)/Gain
on Swaps
 Total AOCI Net Unrealized
Gain/(Loss) on
AFS Securities		 
Net 
(Loss)/Gain
on Swaps
 Total AOCI
Balance at beginning of period $625,697
 $(131,971) $493,726
 $585,250
 $(69,399) $515,851
OCI before reclassifications 64,350
 22,769
 87,119
 124,763
 (39,803) 84,960
Amounts reclassified from AOCI (1)
 (7,314) —
 (7,314) (27,280) —
 (27,280)
Net OCI during the period (2)
 57,036
 22,769
 79,805
 97,483
 (39,803) 57,680
Balance at end of period $682,733
 $(109,202) $573,531
 $682,733
 $(109,202) $573,531

(1)  See separate table below for details about these reclassifications.
(2)  For further information regarding changes in OCI, see the Company’s consolidated statements of comprehensive income/(loss).

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023


The following table presents information about the significant amounts reclassified out of the Company’s AOCI for the three and nine months ended September 30, 2017:
  Three Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2017		  
Details about AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Statement
Where Net Income is Presented
(In Thousands)      
AFS Securities:      
Realized gain on sale of securities $(14,935) $(30,283) Net gain on sales of MBS and U.S. Treasury securities
OTTI recognized in earnings —
 (1,032) Net impairment losses recognized in earnings
Total AFS Securities $(14,935) $(31,315)  
Total reclassifications for period $(14,935) $(31,315)  
11.    EPS Calculation
 
The following table presents information about the significant amounts reclassified out of the Company’s AOCI for the three and nine months ended September 30, 2016:
  Three Months Ended 
 September 30, 2016		 Nine Months Ended 
 September 30, 2016		  
Details about AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Statement
Where Net Income is Presented
(In Thousands)      
AFS Securities:      
Realized gain on sale of securities $(6,829) $(26,795) Net gain on sales of MBS and U.S. Treasury securities
OTTI recognized in earnings (485) (485) Net impairment losses recognized in earnings
Total AFS Securities $(7,314) $(27,280)  
Total reclassifications for period $(7,314) $(27,280)  

At September 30, 2017 and December 31, 2016, the Company had unrealized losses recorded in AOCI of approximately $103,000 and $1.7 million, respectively, on securities for which OTTI had been recognized in earnings in prior periods.

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017


13.    EPS Calculation
The following table presents a reconciliation of the (loss)/earnings and shares used in calculating basic and diluted (loss)/earnings per share for the three and six months ended June 30, 2023 and 2022:
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands, Except Per Share Amounts)2023202220232022
Basic (Loss)/Earnings per Share:
Net (loss)/income$(25,928)$(100,367)$46,856 $(183,273)
Dividends declared on preferred stock(8,218)(8,219)(16,437)(16,438)
Dividends, dividend equivalents and undistributed earnings allocated to participating securities(119)(174)(206)(315)
Net (loss)/income available to common stockholders - basic$(34,265)$(108,760)$30,213 $(200,026)
Basic weighted average common shares outstanding101,915 102,515 101,907 104,531 
Basic (Loss)/Earnings per Share$(0.34)$(1.06)$0.30 $(1.91)
Diluted (Loss)/Earnings per Share:
Net (loss)/income available to common stockholders - basic$(34,265)$(108,760)$30,213 $(200,026)
Dividends, dividend equivalents and undistributed earnings allocated to participating securities— — 206 — 
Net (loss)/income available to common stockholders - diluted$(34,265)$(108,760)$30,419 $(200,026)
Basic weighted average common shares outstanding101,915 102,515 101,907 104,531 
Effect of assumed conversion of Convertible Senior Notes to common shares— — — — 
Unvested and vested restricted stock units— — 1,771 — 
Diluted weighted average common shares outstanding (1)
101,915 102,515 103,678 104,531 
Diluted (Loss)/Earnings per Share$(0.34)$(1.06)$0.29 $(1.91)

(1)At June 30, 2023, the Company had approximately 3.6 million equity instruments outstanding that were included in the calculation of diluted EPS for the three and ninesix months ended SeptemberJune 30, 20172023.  These equity instruments reflect RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $12.09. These equity instruments may continue to have a dilutive impact on future EPS.

During the six months ended June 30, 2023, the Convertible Senior Notes were determined to be anti-dilutive and 2016: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.

  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands, Except Per Share Amounts) 2017 2016 2017 2016
Numerator:        
Net income $63,805
 $83,011
 $221,799
 $240,031
Dividends declared on preferred stock (3,750) (3,750) (11,250) (11,250)
Dividends, dividend equivalents and undistributed earnings allocated to participating securities (409) (442) (1,299) (1,255)
Net income to common stockholders - basic and diluted $59,646
 $78,819
 $209,250
 $227,526
         
Denominator:        
Weighted average common shares for basic and diluted earnings per share (1)
 396,698
 373,141
 385,282
 373,011
Basic and diluted earnings per share $0.15
 $0.21
 $0.54
 $0.61

(1)
At September 30, 2017, the Company had an aggregate of 2.5 million equity instruments outstanding that were not included in the calculation of diluted EPS for the three and nine months ended September 30, 2017, as their inclusion would have been anti-dilutive.  These equity instruments were comprised of approximately 4,000 shares of restricted common stock with a weighted average grant date fair value of $7.12 and approximately 2.5 million RSUs (based on current estimate of expected share settlement amount) with a weighted average grant date fair value of $6.49. These equity instruments may have a dilutive impact on future EPS.

14.12.    Equity Compensation Employment Agreements and Other Benefit Plans
 
(a)  Equity Compensation Plan
 
In accordance with the terms of the Company’s Equity Compensation Plan, (the “Equity Plan”), which was adopted by the Company’s stockholders on May 21, 2015June 6, 2023 (and which amended and restated the Company’s 20102020 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 12.08.5 million shares of common stock may be granted under the Equity Plan; forfeitures and/or awards that expire unexercised do not count towardstoward this limit.  At SeptemberJune 30, 2017,2023, approximately 6.95.2 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 1.52.0 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
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awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of the Company’s common stock.  Unless previously terminated by the Board, awards may be granted under the Equity Plan until May 20, 2025.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 of the Board (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 SeptemberJune 30, 20172023 are designated to be settled in shares of the Company’s common stock.  The Company did not grant anygranted 90,388 and 1,608,063 RSUs during the three and six months ended SeptemberJune 30, 2017 and 20162023 and granted 898,94574,251 and 728,195677,776 RSUs during the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2022, respectively. There were no27,413 RSUs forfeited during the ninethree and six months ended SeptemberJune 30,

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2017. During 2023 and 29,693 RSUs forfeited during the ninethree and six months ended SeptemberJune 30, 2016 an aggregate2022. All holders of 10,000 RSUs were forfeited. All RSUs outstanding at SeptemberJune 30, 20172023 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 certain performance-based RSU awards, as a grant of stock at the time such awards are settled.  At SeptemberJune 30, 20172023 and December 31, 2016,2022, the Company had unrecognized compensation expense of $5.0$18.1 million and $3.6$11.2 million, respectively, related to RSUs.  The unrecognized compensation expense at SeptemberJune 30, 20172023, is expected to be recognized over a weighted average period of 1.92.0 years.


Restricted Stock
 
The Company did not awardgrant any shares of restricted common stock during the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022. At SeptemberJune 30, 2017 and December 31, 2016,2023, the Company had unrecognized compensation expense of approximately $28,000 and $203,000, respectively, related to the unvesteddid not have any shares of restricted common stock.  The Company had accrued dividends payable of approximately $13,000 and $55,000 on unvested shares of restricted stock at September 30, 2017 and December 31, 2016, respectively.  The unrecognized compensation expense at September 30, 2017 is expected to be recognized over a weighted average period of three months.outstanding.


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.  Payments made on the Company’s outstanding dividendDividend equivalent rights that have been granted as a separate instrumentpayments are generally charged to Stockholders’ Equity when common stock dividends are declared to the extent that such equivalents are expected to vest.  The Company did not make anymade dividend equivalent payments in respect of such instruments during the nine months ended September 30, 2017 and made paymentsassociated with RSU awards of approximately $2,000$119,000 and $5,000 in respect of such separate instruments$206,000 during the three and ninesix months ended SeptemberJune 30, 2016,2023, respectively, and approximately $141,000 and $311,000 during the three and six months ended June 30, 2022, respectively. At September 30, 2017, there wereIn addition, no dividend equivalentequivalents rights outstanding, which had been awarded separately from, but in connection with, grants of RSUs made in prior years.as separate instruments were granted during the six months ended June 30, 2023 and 2022.
 
Options
The Company did not grant any stock options during the nine months ended September 30, 2017 and 2016. At September 30, 2017, the Company had no stock options outstanding.
Expense Recognized for Equity-Based Compensation Instruments
 
The following table presents the Company’s expenses related to its equity-based compensation instruments for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands)2023202220232022
RSUs$3,932 $3,540 $6,952 $6,185 
Total$3,932 $3,540 $6,952 $6,185 
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
(In Thousands) 
2017 (1)
 2016 
2017 (1)
 2016
RSUs $1,836
 $948
 $5,194
 $3,642
Restricted shares of common stock 74
 153
 175
 457
Dividend equivalent rights —
 —
 —
 44
Total $1,910
 $1,101
 $5,369
 $4,143


(1) Equity-based compensation expense for the three and nine months ended September 30, 2017 includes a one-time expense of approximately $900,000 for the accelerated vesting of certain time-based equity awards arising from the death of the Company’s former Chief Executive Officer.

(b)  Employment AgreementsDeferred Compensation Plans
 
At September 30, 2017, the Company had employment agreements with three of its officers, with varying terms that provide for, among other things, base salary, bonus and change-in-control payments upon the occurrence of certain triggering events.


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SEPTEMBER 30, 2017

(c)  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
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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 its non-employee directors and senior officers for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
(In Thousands) 2017 2016 2017 2016(In Thousands)2023202220232022
Non-employee directors $125
 $52
 $339
 $173
Non-employee directors$305 $(839)$414 $(1,117)
Total $125
 $52
 $339
 $173
Total$305 $(839)$414 $(1,117)
 
The following table presents the aggregate amount of income deferred by participants of the Deferred Plans through SeptemberJune 30, 20172023 and December 31, 20162022 that had not been distributed and the Company’s associated liability for such deferrals at SeptemberJune 30, 20172023 and December 31, 2016:2022:
 
June 30, 2023December 31, 2022
(In Thousands)
Undistributed Income Deferred (1)
 Liability Under Deferred Plans
Undistributed Income Deferred (1)
 Liability Under Deferred Plans
Non-employee directors$2,491 $2,112 $2,923 $1,953 
Total$2,491 $2,112 $2,923 $1,953 
  September 30, 2017 December 31, 2016
(In Thousands)
Undistributed Income Deferred (1)
  Liability Under Deferred Plans
Undistributed Income Deferred (1)
  Liability Under Deferred Plans
Non-employee directors $1,525
 $2,061
 $1,066
 $1,263
Total $1,525
 $2,061
 $1,066
 $1,263


(1)  Represents the cumulative amounts that were deferred by participants through SeptemberJune 30, 20172023 and December 31, 2016,2022, which had not been distributed through such respective date.
 
(d)  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 three months ended September 30, 2017 and 2016, the Company recognized expenses for matching contributions of $87,500 and $86,000, respectively, and $262,500 and $259,000 and for the nine months ended September 30, 2017 and 2016, respectively.

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SEPTEMBER 30, 2017

15.13.  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.
 
Securities Obtained and Pledged as Collateral/Obligation to Return Securities Obtained as Collateral
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The fair value of U.S. Treasury securities obtained as collateral and the associated obligation to return securities obtained as collateral are based upon prices obtained from a third-party pricing service, which are indicative of market activity.  Securities obtained as collateral are classified as Level 1 in the fair value hierarchy.NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
MBS and CRT SecuritiesResidential Whole Loans, at Fair Value
 
The Company determines the fair value of its Agency MBS based upon pricesresidential whole loans held at fair value after considering valuations obtained from third-party pricing services, which are indicativethird parties that specialize in providing valuations of market activity, and repurchase agreement counterparties.
For Agency MBS,residential mortgage loans. The valuation approach applied generally depends on whether the loan is considered performing or non-performing at the date the valuation methodology of the Company’s third-party pricing services incorporate commonly used market pricing methods, trading activity observed in the marketplace and other data inputs.  The methodology also considers the underlying characteristics of each security, which are also observable inputs, including: collateral vintage, coupon, maturity date, loan age, reset date, collateral type, periodic and life cap, geography, and prepayment speeds.  Management analyzes pricing data received from third-party pricing services and compares it to other indicationsis performed. For performing loans, estimates of fair value including data receivedare derived using a discounted cash flow approach, where estimates of cash flows are determined from repurchase agreement counterpartiesthe scheduled payments, adjusted using forecasted prepayment, default and its own observationsloss 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 trading activity observedthe 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 marketplace.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 its Non-Agency MBS and CRTthe Company’s residential mortgage securities, management considers a number of observable market data points, including prices obtained from pricing services and brokers as well as dialogue with market participants.  Valuations of TBA securities positions are based on executed levels for positions entered into and subsequently rolled forward, as well as prices obtained from pricing services for outstanding positions at each reporting date. These valuations are assessed for reasonableness by considering market TBA levels observed via Bloomberg for the same coupon and term to maturity. In valuing Non-Agency MBS, the Company understands that pricing services use observable inputs that include, in addition to trading activity observed in the marketplace, loan delinquency data, credit enhancement levels and vintage, which are taken into account to assign pricing factors such as spread and prepayment assumptions.  For tranches of Legacy Non-Agency MBS that are cross-collateralized, performance of all collateral groups involved in the tranche are considered.  The Company collects and considers current market intelligence on all major markets, including benchmark security evaluations and bid-lists from various sources, when available.
 
The Company’s Legacy Non-Agency MBS, RPL/NPL MBS and CRTresidential 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.


Term Notes Backed by MSR Related Collateral


The Company’s valuation process for term notes backed by MSR related collateral is similar to that used for residential mortgage securities and considers a number of factors,observable market data points, including indicative valuationsprices 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 third-party pricing serviceguarantee that are reviewedis intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the Company and mayrelated underlying MSR collateral be adjusted to ensure they reflect a realistic exit price atinsufficient. Based on its evaluation of the valuation date givenobservability of the structural features ofdata used in its fair value estimation process, these securities. As this process includes significant unobservable inputs, these securitiesassets are classified as Level 32 in the fair value hierarchy.


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SEPTEMBERJUNE 30, 20172023


Residential Whole Loans,Financing Agreements, at Fair Value

The Company determinesAgreements 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 of its residential whole loansis 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 after considering valuations obtained from a third-party who specializes in providing valuations of residential mortgage loans trading activity observedare classified as Level 2 in the marketplace.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, and their base interest rates reset frequently to market based rates. 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 residential whole loansfinancing agreements with non-mark-to-market collateral provisions held at fair value are classified as Level 3 in the fair value hierarchy.


SwapsSecuritized Debt

As of September 30, 2017, all of the Company’s Swaps are cleared by a central clearing house. Valuations provided by the clearing house are used for purposes ofIn 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. Accordingly, the Company’s Swaps. Such valuations obtained are tested with internally developed models that apply readily observable market parameters.   As the Company’s Swaps are subject to the clearing house’s margin requirements, no credit valuation adjustment was considered necessarysecuritized debt is classified as Level 2 in determining the fair value of such instruments.  Beginning in January 2017, variationhierarchy.

Swaps

Variation margin payments on the Company’s cleared Swaps are treated as a legal settlement of the exposure under the related Swap contract. Previously such payments were treated as collateral pledged againstcontract, the exposure under the Swap contract. The effect of this change is to reducewhich reduces what would have otherwise been reported as the fair value of the Swap. SwapsSwap, generally to zero.

Changes to the valuation methodologies used with respect to the Company’s financial instruments are classifiedreviewed by management to ensure any such changes result in appropriate exit price valuations.  The Company will refine its valuation methodologies as Level 2 inmarkets 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 hierarchy.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.


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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

The following tables present the Company’s financial instruments carried at fair value on a recurring basis as of SeptemberJune 30, 20172023 and December 31, 2016,2022, on the consolidated balance sheets by the valuation hierarchy, as previously described:


Fair Value at SeptemberJune 30, 20172023
 
(In Thousands)Level 1Level 2Level 3Total
Assets:
Residential whole loans, at fair value$— $58,068 $6,441,964 $6,500,032 
Securities, at fair value— 594,294 — 594,294 
Total assets carried at fair value$— $652,362 $6,441,964 $7,094,326 
Liabilities:
Agreements with non-mark-to-market collateral provisions$— $— $440,106 $440,106 
Agreements with mark-to-market collateral provisions— — 553,162 553,162 
Securitized debt— 3,123,478 — 3,123,478 
Total liabilities carried at fair value$— $3,123,478 $993,268 $4,116,746 
(In Thousands) Level 1 Level 2 Level 3 Total
Assets:        
Agency MBS $—
 $3,019,304
 $—
 $3,019,304
Non-Agency MBS —
 3,911,660
 —
 3,911,660
CRT securities —
 653,633
 —
 653,633
Term notes backed by MSR related collateral —
 —
 311,563
 311,563
Residential whole loans, at fair value —
 —
 1,103,518
 1,103,518
Securities obtained and pledged as collateral 507,318
 —
 —
 507,318
Total assets carried at fair value $507,318
 $7,584,597
 $1,415,081
 $9,506,996
Liabilities:        
Swaps $—
 $—
 $—
 $—
Obligation to return securities obtained as collateral 507,318
 —
 —
 507,318
Total liabilities carried at fair value $507,318
 $—
 $—
 $507,318


Fair Value at December 31, 20162022
(In Thousands)Level 1Level 2Level 3Total
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 
 
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(In Thousands) Level 1 Level 2 Level 3 Total
Assets:  
  
  
  
Agency MBS $—
 $3,738,497
 $—
 $3,738,497
Non-Agency MBS, including MBS transferred to consolidated VIEs —
 5,684,836
 —
 5,684,836
CRT securities —
 404,850
 —
 404,850
Term notes backed by MSR related collateral —
 140,980
 —
 140,980
Residential whole loans, at fair value —
 —
 814,682
 814,682
Securities obtained and pledged as collateral 510,767
 —
 —
 510,767
Swaps —
 233
 —
 233
Total assets carried at fair value $510,767
 $9,969,396
 $814,682
 $11,294,845
Liabilities:        
Swaps $—
 $46,954
 $—
 $46,954
Obligation to return securities obtained as collateral 510,767
 —
 —
 510,767
Total liabilities carried at fair value $510,767
 $46,954
 $—
 $557,721

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SEPTEMBERJUNE 30, 20172023

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis


The following table presents additional information for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 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
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Balance at beginning of period$6,013,378 $4,956,772 $5,676,430 $4,222,584 
Purchases and originations (1)
734,748 674,202 1,071,563 1,788,245 
Draws132,914 82,482 251,991 143,822 
Changes in fair value recorded in Net gain/(loss) on residential whole loans measured at fair value through earnings(129,797)(158,507)(2,193)(381,919)
Repayments(293,792)(280,662)(527,226)(482,747)
Loan sales(900)(8,949)(1,477)(10,496)
Transfer to REO(14,586)(13,290)(27,123)(27,441)
Balance at end of period$6,441,965 $5,252,048 $6,441,965 $5,252,048 
  
Residential Whole Loans, at Fair Value (1)
  Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 
2017 (2)
 2016 
2017 (2)
 2016
Balance at beginning of period $744,072
 $684,582
 $814,682
 $623,276
Purchases and capitalized advances 284,930
 50,071
 295,094
 169,830
Changes in fair value recorded in Net gain on residential whole loans held at fair value 5,289
 10,913
 12,499
 25,529
Collection of principal, net of liquidation gains/losses (17,670) (18,119) (53,366) (48,909)
  Repurchases (257) —
 (1,013) —
  Transfer to REO (33,214) (22,985) (84,746) (65,264)
Balance at end of period $983,150
 $704,462
 $983,150
 $704,462


(1) Excluded from the table above are approximately $120.4 million and $92.8$28.9 million of residentialResidential whole loans, held at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2017 and 2016, respectively.
(2) Included in the activity presented for the three and nine months ended September 30, 2017 are approximately $92.7 million of loans the Company committed to purchase during the three months ended June 30, 2017,March 31, 2022, but for which the closing of the purchase transaction occurred during the three months ended SeptemberJune 30, 2017.2022.


The following table presents additional information for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 about the Company’s investments in term notes backed by MSR relatedfinancing agreements with non-mark-to-market collateral held at fair value,provisions, which are classified as Level 3 and measured at fair value on a recurring basis:

Agreements with Non-mark-to-market Collateral Provisions
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Balance at beginning of period$526,623 $563,860 $578,879 $628,280 
Issuances126,565 — 272,395 — 
Payment of principal(213,082)(121,977)(411,168)(185,142)
Change in unrealized losses— — — (1,255)
Balance at end of period$440,106 $441,883 $440,106 $441,883 

  Term Notes Backed by MSR Related Collateral
  Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2017 2016 
2017 (1)
 2016
Balance at beginning of period $273,961
 $—
 $—
 $—
Purchases 161,000
 —
 311,000
 —
  Collection of principal (123,961) —
 (140,980) —
Changes in unrealized gain/losses 563
 —
 563
 —
  Transfers from Level 2 to Level 3 (1)
 —
 —
 140,980
 —
Balance at end of period $311,563
 $—
 $311,563
 $—

(1) Investments in term notes backed by MSR relatedThe following table presents additional information for the three and six months ended June 30, 2023 and 2022 about the Company’s financing agreements with mark-to-market collateral were transferred from Level 2 toprovisions, which are classified as Level 3 during the nine months ended September 30, 2017 as there has been very limited secondary market trading in these securities since issuance. Transfers between levels are deemed to take placeand measured at fair value on the first day of the reporting period in which the transfer has taken place.a recurring basis:

Agreements with Mark-to-market Collateral Provisions
Three Months Ended June 30,Six Months Ended June 30,
(In Thousands)2023202220232022
Balance at beginning of period$680,708 $1,555,250 $884,495 $1,322,362 
Issuances9,463 401,122 22,018 870,606 
Payment of principal(137,009)(522,515)(353,351)(759,111)
Changes in unrealized losses— — — — 
Balance at end of period$553,162 $1,433,857 $553,162 $1,433,857 
The Company did not transfer any assets or liabilities from one level to another during the three months ended September 30, 2017 and three and nine months ended September 30, 2016.




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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

Fair Value Methodology for Level 3 Financial Instruments


Residential Whole Loans, at Fair Value


The following table presentstables 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 SeptemberJune 30, 20172023 and December 31, 2016:2022:


June 30, 2023
(Dollars in Thousands)
Fair Value (1)
Valuation TechniqueUnobservable Input
Weighted Average (2)
Range
Purchased Non-Performing Loans$537,510 Discounted cash flowDiscount rate7.1 %
6.3-11.0%
Prepayment rate7.6 %
0.0-29.1%
Default rate2.8 %
0.0-30.7%
Loss severity10.1 %
0.0-100.0%
$201,679 Liquidation modelDiscount rate8.0 %
8.0-8.0%
Annual change in home prices3.5 %
(3.1)-12.0%
Liquidation timeline
(in years)
1.9
0.1-4.5
Current value of underlying properties (3)
$787 
$28-$4,720
Total$739,189 
  September 30, 2017
(Dollars in Thousands) 
Fair Value (1)
 Valuation Technique Unobservable Input 
Weighted Average (2)
 Range
           
Residential whole loans, at fair value $304,166
 Discounted cash flow Discount rate 6.1% 5.0-8.0%
      Prepayment rate 7.7% 0.0-13.0%
      Default rate 4.1% 0.0-9.8%
      Loss severity 12.6% 0.0-100.0%
           
  $488,654
 Liquidation model Discount rate 8.4% 6.7-50.0%
      Annual change in home prices 2.7% (4.5)-9.7%
      
Liquidation timeline
(in years)
 1.6
 0.1-4.5
      
Current value of underlying properties (3)
 $669
 $15-$4,900
Total $792,820
        


December 31, 2022
(Dollars in Thousands)
Fair Value (1)
Valuation TechniqueUnobservable Input
Weighted Average (2)
Range
Purchased Non-Performing Loans$546,675 Discounted cash flowDiscount rate7.0 %
6.3-10.0%
Prepayment rate8.9 %
0.0-33.5%
Default rate3.7 %
0.0-52.4%
Loss severity11.3 %
0.0-100.0%
$249,219 Liquidation modelDiscount rate7.8 %
7.8-7.8%
Annual change in home prices6.9 %
(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 
  December 31, 2016
(Dollars in Thousands) 
Fair Value (1)
 Valuation Technique Unobservable Input 
Weighted Average (2)
 Range
           
Residential whole loans, at fair value $253,287
 Discounted cash flow Discount rate 6.6% 5.0-7.7%
      Prepayment rate 7.6% 0.0-12.0%
      Default rate 2.9% 0.0-9.7%
      Loss severity 13.0% 0.0-77.5%
           
  $516,014
 Liquidation model Discount rate 7.7% 6.8-26.9%
      Annual change in home prices 1.7% (9.2)-7.7%
      
Liquidation timeline
(in years)
 1.6
 0.1-4.4
      
Current value of underlying properties (3)
 $634
 $5-$4,900
Total $769,301
        


(1) Excludes approximately $310.7 million$523,000 and $45.4 million$215,000 of loans for which management considers the purchase price continues to reflect the fair value of such loans at SeptemberJune 30, 20172023 and December 31, 2016,2022, 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 $353,000$472,000 and $320,000$457,000 as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.




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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

June 30, 2023
(Dollars in Thousands)
Fair Value (1)
Valuation TechniqueUnobservable Input
Weighted Average (2)
Range
Purchased Performing Loans$5,634,049 Discounted cash flowDiscount rate8.0 %6.5-45.5%
Prepayment rate9.2 %0.0-41.9%
Default rate0.9 %0.0-26.0%
Loss severity11.0 %0.0-100.0%
$68,204 Liquidation modelDiscount rate8.0 %8.0-8.0%
Annual change in home prices2.2 %(3.2)-8.7%
Liquidation timeline
(in years)
1.80.8-4.2
Current value of underlying properties$1,607 $44-$4,500
Total$5,702,253 
The following table presents the difference between the fair value and the aggregate unpaid principal balance of the Company’s residential whole loans for which the fair value option was elected, at September 30, 2017 and December 31, 2016:


December 31, 2022
(Dollars in Thousands)Fair ValueValuation TechniqueUnobservable Input
Weighted Average (2)
Range
Purchased Performing Loans$4,857,587 Discounted cash flowDiscount rate7.6 %5.6-22.7%
Prepayment rate7.9 %0.0-44.8%
Default rate0.8 %0.0-19.4%
Loss severity7.3 %0.0-100.0%
$22,734 Liquidation modelDiscount rate7.8 %7.8%-7.8%
Annual change in home prices3.2 %(1.0)%-10.7%
Liquidation timeline
(in years)
1.90.8-4.2
Current value of underlying properties$1,319 $50-$2,850
Total$4,880,321 
  
September 30, 2017 (1)
 December 31, 2016
(In Thousands) Fair Value Unpaid Principal Balance Difference Fair Value Unpaid Principal Balance Difference
Residential whole loans, at fair value            
Total loans $983,150
 $1,178,866
 $(195,716) $814,682
 $966,174
 $(151,492)
Loans 90 days or more past due $690,924
 $853,655
 $(162,731) $570,025
 $695,282
 $(125,257)


(1) Excludes approximately $120.4$39.0 million of residential whole loans held atfor which management considers the purchase price continues to reflect the fair value for whichof such loans at June 30, 2023.
(2) Amounts are weighted based on the closing of the purchase transaction had not occurred as of September 30, 2017.


Term Notes Backed by MSR Related Collateral

The Company’s valuation process for term notes backed by MSR related collateral considers a number of factors, including a comparable bond analysis performed by a third-party pricing service which involves determining a pricing spread at issuance of the term note. The pricing spread is used at each subsequent valuation date to determine an implied yield to maturity of the term note, which is used to derive an indicative market value for the security. This indicative market value is further reviewed by the Company and may be adjusted to ensure it reflects a realistic exit price at the valuation date given the structural features of these securities. At September 30, 2017, the indicative implied yields used in the valuation of these securities ranged from 5.6% to 6.1%. The weighted average indicative yield to maturity was 5.72%. Other factors taken into consideration include indicative values provided by repurchase agreement counterparties, estimated changes in fair value of the related underlying MSR collateral and the financial performance of the ultimate parent or sponsoring entity of the issuer, who has provided a guarantee that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the related underlying MSR collateral be insufficient.loan.



Changes in market conditions, as well as changes in the assumptions or methodology used to the valuation methodologies used with respect to the Company’s financial instruments are reviewed by management to ensure any such changesdetermine fair value, could 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 valuea significant increase 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 determinedecrease in the fair value of certain financial instruments couldresidential 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 different estimate oflower fair value atmeasurement, whereas increases in the reporting date.  The Company uses inputs that are current asor expected value 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 theunderlying properties, in isolation, would result in a higher fair value hierarchymeasurement. 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 a quarterly basis, and management may conclude that its financial instruments should be reclassified to a different level in the future.

overall valuation.
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023


The following table presents the carrying values and estimated fair values of the Company’s financial instruments at SeptemberJune 30, 20172023 and December 31, 2016:2022:
 
June 30, 2023June 30, 2023December 31, 2022
Level in Fair Value HierarchyCarrying
Value		Estimated Fair ValueCarrying
Value		Estimated Fair Value
(In Thousands)
Financial Assets:
Residential whole loans3$8,081,718 $8,023,447 $7,467,645 $7,397,421 
Residential whole loans258,068 58,068 51,094 51,094 
Securities, at fair value2594,294 594,294 333,364 333,364 
Cash and cash equivalents1329,391 329,391 334,183 334,183 
Restricted cash1174,005 174,005 159,898 159,898 
Financial Liabilities (1):
Financing agreements with non-mark-to-market collateral provisions3967,884 968,546 1,003,604 1,004,260 
Financing agreements with mark-to-market collateral provisions31,938,379 1,939,310 2,111,396 2,111,647 
Financing agreements with mark-to-market collateral provisions2464,064 464,064 111,651 111,651 
Securitized debt (2)
23,969,274 3,839,491 3,357,590 3,217,905 
Convertible senior notes2228,575 220,071 227,845 211,015 
  September 30, 2017 December 31, 2016
Carrying
Value
 Estimated Fair Value
Carrying
Value
 Estimated Fair Value
(In Thousands)
Financial Assets:        
Agency MBS $3,019,304
 $3,019,304
 $3,738,497
 $3,738,497
Non-Agency MBS, including MBS transferred to consolidated VIEs 3,911,660
 3,911,660
 5,684,836
 5,684,836
CRT securities 653,633
 653,633
 404,850
 404,850
MSR related assets 411,840
 412,674
 226,780
 226,780
Residential whole loans, at carrying value 639,216
 693,795
 590,540
 621,548
Residential whole loans, at fair value 1,103,518
 1,103,518
 814,682
 814,682
Securities obtained and pledged as collateral 507,318
 507,318
 510,767
 510,767
Cash and cash equivalents 608,173
 608,173
 260,112
 260,112
Restricted cash 15,440
 15,440
 58,463
 58,463
Swaps —
 —
 233
 233
Financial Liabilities (1):
        
Repurchase agreements 6,871,443
 6,871,553
 8,472,268
 8,472,078
FHLB advances —
 —
 215,000
 215,000
Obligation to return securities obtained as collateral 507,318
 507,318
 510,767
 510,767
Securitized debt 137,327
 139,064
 —
 —
Senior Notes 96,763
 102,231
 96,733
 101,111
Swaps —
 —
 46,954
 46,954

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

(2)Includes securitized debt that is carried at amortized cost basis and fair value.
In addition to the methodologies used to determine the fair value of the Company’s financial assets and liabilities reported
Other Assets Measured at fair valueFair Value on a recurring basis discussed on pages 44-49, the following methods and assumptions were used by the Company in arriving at the fair value of the Company’s other financial instruments presented in the above table that are not reported at fair value on a recurring basis:Nonrecurring Basis

Residential Whole Loans, at Carrying Value:  The Company determines the fair value of its residential whole loans held at carrying value after considering portfolio valuations obtained from a third-party who specializes in providing valuations of residential mortgage loans and trading activity observed in the market place. The Company’s residential whole loans held at carrying value are classified as Level 3 in the fair value hierarchy.
Cash and Cash Equivalents and Restricted Cash:  Cash and cash equivalents and restricted cash are comprised of cash held in overnight money market investments and demand deposit accounts.  At September 30, 2017 and December 31, 2016, the Company’s money market funds were invested in securities issued by the U.S. Government, or its agencies, instrumentalities, and sponsored entities, and repurchase agreements involving the securities described above.  Given the overnight term and assessed credit risk, the Company’s investments in money market funds are determined to have a fair value equal to their carrying value.

Corporate Loan: The Company determines the fair value of this loan after considering recent past and expected future loan performance, recent financial performance of the borrower and estimates of the current value of the underlying collateral, which includes certain MSRs and other assets of the borrower that are pledged to secure the borrowing. The Company’s investment in this term loan is classified as Level 3 in the fair value hierarchy.

Repurchase Agreements:  The fair value of repurchase agreements reflects the present value of the contractual cash flows discounted at market interest rates at the valuation date for repurchase agreements with a term equivalent to the remaining term

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017

to interest rate repricing, which may be at maturity.  Such interest rates are estimated based on LIBOR rates observed in the market.  The Company’s repurchase agreements are classified as Level 2 in the fair value hierarchy.

FHLB Advances: As previously discussed, the Company did not have any FHLB advances as of September 30, 2017. FHLB advances at December 31, 2016 reflected collateralized borrowings at variable market interest rates that reset on a monthly basis. Accordingly, the carrying amount of FHLB advances were considered to approximate fair value. The Company’s FHLB advances at December 31, 2016 were classified as Level 2 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. Accordingly, the Company’s securitized debt is classified as Level 2 in the fair value hierarchy.

Senior Notes:  The fair value of the Senior Notes is determined using the end of day market price quoted on the NYSE at the reporting date.  The Company’s Senior Notes are classified as Level 1 in the fair value hierarchy.

The Company holds REO at the lower of the current carrying amount or fair value less estimated selling costs. At SeptemberDuring the six months ended June 30, 20172023 and December 31, 2016,2022, the Company’sCompany recorded REO had an aggregate carrying value of $138.0 million and $80.5 million, andwith an aggregate estimated fair value, less estimated cost to sell, of $159.3$49.2 million and $91.1$45.2 million, respectively.respectively, at the time of foreclosure. The Company classifies fair value measurements of REO as Level 3 in the fair value hierarchy.



16.
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 resecuritizingre-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 ana 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 in prior years entered into several MBS resecuritizationfinancing transactions and during the second quarter of 2017, a loan securitization transaction that resulted in the Company consolidating as VIEs the SPEs that were created to facilitate these transactions. See Note 2(s)2(p) for a discussion of the accounting policies applied to the consolidation of VIEs and transfers of financial assets in connection with securitization and resecuritizationfinancing transactions.
 
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
The Company has engaged in loan securitization and MBS resecuritization transactionssecuritizations primarily for the purpose of obtaining improved overall financing terms as well as non-recourse financing on a portion of its residential whole loan and Non-Agency MBS portfolios.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 TransactionTransactions


In June 2017, as partThe following table summarizes the key details of athe Company’s consolidated loan securitization transaction, the Company sold residential whole loans with an aggregate unpaid principal balancetransactions currently outstanding as of approximately $219.8June 30, 2023 and December 31, 2022:
(Dollars in Thousands)June 30, 2023December 31, 2022
Aggregate unpaid principal balance of residential whole loans sold$7,119,527 $6,079,749 
Face amount of Senior Bonds issued by the VIE and purchased by third-party investors$6,165,095 $5,333,090 
Outstanding amount of Senior Bonds, at carrying value$845,796 (1)$922,220 (1)
Outstanding amount of Senior Bonds, at fair value$3,123,478 $2,435,370 
Outstanding amount of Senior Bonds, total$3,969,274 $3,357,590 
Weighted average fixed rate for Senior Bonds issued3.85 %(2)3.38 %(2)
Weighted average contractual maturity of Senior Bonds37 years(2)38 years(2)
Face amount of Senior Support Certificates received by the Company (3)
$919,974 $715,640 
Cash received$6,103,771 $5,286,305 
(1)Net of $2.0 million comprised of approximately $137.0 million Residential whole loans, at carrying value (with unpaid principal balance of $176.6 million) and approximately $44.4$2.9 million of Residential whole loans,deferred financing costs at fair value (with unpaid principal balanceJune 30, 2023 and December 31, 2022, respectively.
(2)At June 30, 2023 and December 31, 2022, $2.6 billion and $1.9 million, respectively, of $43.2 million)Senior Bonds sold in securitization transactions contained a contractual coupon step-up feature whereby the coupon increases by either 100, 200, or 300 basis points or more at defined dates ranging from 24 months, up to MFA 2017-RPL1 Trust, which48 months from issuance if the Company consolidates as a VIE. In connection with this transaction, third-party investors purchased $147.8 million face amount of fixed-rate, sequential senior and mezzanine bonds (“Sold Bonds”) issued by the VIE at a weighted average fixed-rate of 2.753% and the Company acquired $72.0 million face amount of four classes of rated and non-rated certificates issued by this trust, which together providebond is not redeemed before such date.
(3)Provides credit support to the SoldSenior Bonds sold to third-party investors in the securitization transactions.

During the three and received $147.8six months ended June 30, 2023, the Company issued Senior Bonds with a current face of $308.8 million in cash, excluding expenses,and $832.0 million to third-party investors for proceeds of $296.4 million and $817.5 million, respectively, before offering costs and accrued interest and underwriting fees.interest. The Company also acquired two non-rated, variable-rate interest-only certificatesSenior Bonds issued by the trust, each with a notional amount of $219.8 millionCompany during the three months ended June 30, 2023 are included in connection with“Financing agreements, at fair value” (at carrying value) on the transaction.Company’s consolidated balance sheets (see Note 6).

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017



As of SeptemberJune 30, 2017,2023 and December 31, 2022, as a result of the transactiontransactions described above, securitized loans of approximately $4.8 billion and $4.0 billion are included in “Residential whole loans” and REO with a carrying value of approximately $131.3$30.4 million and $36.5 million are included in “Residential whole loans, at carrying value” and securitized loans with a fair value of approximately $40.4 million are included in “Residential whole loans, at fair value,”“Other assets” on the Company’s consolidated balance sheets.sheets, respectively. As of SeptemberJune 30, 2017,2023 and December 31, 2022, the aggregate carrying value of SoldSenior Bonds issued by consolidated VIEs was $137.3 million.$4.0 billion and $3.4 billion, respectively.  These SoldSenior Bonds are disclosed as “Securitized debt” and are included in Other liabilitiesFinancing agreements on the Company’s consolidated balance sheets.  The holders of the Sold Bondssecuritized 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 in relationwith 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.

Resecuritization Transactions

During the first quarter of 2017, the Company entered into a transaction to exchange the remaining beneficial interests issued by the WFMLT 2012-RR1 (the “Trust”) and held by the Company for the underlying securities that had previously been transferred to and held by the Trust.  Following the completion of this transaction, the remaining beneficial interests were cancelled and the Trust was terminated.

For financial reporting purposes, the exchange transaction and termination of this financing structure did not result in any gain or loss to the Company as this resecuritization was accounted for as a financing transaction.  However, for purposes of determining REIT taxable income, this resecuritization transaction was originally accounted for as a sale of the underlying securities to the Trust and acquisition of beneficial interests issued by the Trust.  Because the fair value of the underlying securities received exceeded the Company’s tax basis in the remaining beneficial interests at the exchange date, the unwind of this resecuritization structure resulted in the Company recognizing taxable income currently estimated to be approximately $47.1 million, or $0.12 per common share. In addition, the underlying securities originally transferred as part of this resecuritization are reported as Non-Agency MBS in the Company’s consolidated balance sheets at September 30, 2017 and interest income from the underlying securities from the date of exchange transaction through September 30, 2017 is reported as Interest income from Non-Agency MBS in the Company’s consolidated statements of operations.

As of September 30, 2017 the Company did not have any Non-Agency MBS that were resecuritized as described above. At December 31, 2016, the aggregate fair value of the Non-Agency MBS that were resecuritized as described above was $174.4 million.  These assets were included in the Company’s consolidated balance sheets and disclosed as “Non-Agency MBS transferred to consolidated VIEs, at fair value.”


The Company concluded that the entities created to facilitate these MBS resecuritization andthe loan securitization transactions are VIEs.  The Company then completed an analysis of whether each VIE created to facilitate the securitization and resecuritization 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
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
•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 its involvement in the purpose and design of the entity, the Company determined that it was required to consolidate each VIE created to facilitate thesethe loan securitization and MBS resecuritization transactions.


PriorResidential Whole Loans and REO (including Residential Whole Loans and REO transferred to consolidated VIEs)

Included on the completionCompany’s consolidated balance sheets as of June 30, 2023 and December 31, 2022 are a total of $8.1 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 first MBS resecuritization transaction in October 2010,REO assets, are directly owned by certain trusts established by the Company hadto 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)).

15. Segment Reporting

At June 30, 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 transferred assetsdirectly attributable to VIEs or QSPEsLima One, interest expense on unsecured convertible senior notes (see Note 6), securitization issuance costs, and other than acquiring MBS issued by such entities, had no other involvement with VIEs or QSPEs.preferred stock dividends.



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

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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172023

(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Three months ended June 30, 2023
Interest Income$89,912 $51,308 $3,130 $144,350 
Interest Expense58,940 36,943 3,962 99,845 
Net Interest Income/(Expense)$30,972 $14,365 $(832)$44,505 
Provision for Credit Losses on Residential Whole Loans(294)— — (294)
Net Interest Income/(Expense) after Provision for Credit Losses$30,678 $14,365 $(832)$44,211 
Net loss on residential whole loans measured at fair value through earnings$(97,459)$(33,244)$— $(130,703)
Impairment and other net loss on securities and other portfolio investments(3,697)— (872)(4,569)
Net gain/(loss) on real estate owned2,493 (340)— 2,153 
Net gain on derivatives used for risk management purposes45,142 15,309 — 60,451 
Net gain on securitized debt measured at fair value through earnings18,887 8,507 — 27,394 
Lima One - origination, servicing and other fee income— 11,477 — 11,477 
Other, net3,812 1,076 608 5,496 
Total Other (Loss)/Income, net$(30,822)$2,785 $(264)$(28,301)
General and administrative expenses (including compensation)$— $15,601 $17,339 $32,940 
Loan servicing, financing, and other related costs5,395 131 2,072 7,598 
Amortization of intangible assets— 1,300 — 1,300 
Net (Loss)/Income$(5,539)$118 $(20,507)$(25,928)
Less Preferred Stock Dividend Requirement$— $— $8,218 $8,218 
Net (Loss)/Income Available to Common Stock and Participating Securities$(5,539)$118 $(28,725)$(34,146)
Residential Whole Loans (including Residential Whole Loans transferred to consolidated VIEs)

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Included onMFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Three months ended June 30, 2022
Interest Income$84,732 $24,353 $236 109,321 
Interest Expense39,889 12,916 3,937 56,742 
Net Interest Income/(Expense)$44,843 $11,437 $(3,701)$52,579 
Provision for Credit Losses on Residential Whole Loans$(1,785)$(32)$— (1,817)
Provision for Credit Losses on Other Assets— — (28,579)(28,579)
Net Interest Income/(Expense) after Provision for Credit Losses$43,058 $11,405 $(32,280)$22,183 
Net loss on residential whole loans measured at fair value through earnings$(177,203)$(40,978)$— $(218,181)
Impairment and other net loss on securities and other portfolio investments(1,463)— (10,583)(12,046)
Net gain on real estate owned7,150 35 — 7,185 
Net gain on derivatives used for risk management purposes44,161 3,643 — 47,804 
Net gain on securitized debt measured at fair value through earnings64,966 19,607 — 84,573 
Lima One - origination, servicing and other fee income— 10,673 — 10,673 
Other, net2,598 (26)972 3,544 
Total Other Loss, net$(59,791)$(7,046)$(9,611)$(76,448)
General and administrative expenses (including compensation)$— $13,013 $16,554 $29,567 
Loan servicing, financing, and other related costs6,513 323 6,399 13,235 
Amortization of intangible assets— 3,300 — 3,300 
Net Loss$(23,246)$(12,277)$(64,844)$(100,367)
Less Preferred Stock Dividend Requirement$— $— $8,219 $8,219 
Net Loss Available to Common Stock and Participating Securities$(23,246)$(12,277)$(73,063)$(108,586)
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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Six months ended June 30, 2023
Interest Income$174,732 $95,828 $5,995 $276,555 
Interest Expense116,017 68,747 7,917 192,681 
Net Interest Income/(Expense)$58,715 $27,081 $(1,922)$83,874 
(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans(595)314 — (281)
Net Interest Income/(Expense) after (Provision)/Reversal of Provision for Credit Losses$58,120 $27,395 $(1,922)$83,593 
Net (loss)/gain on residential whole loans measured at fair value through earnings$(1,949)$420 $— $(1,529)
Impairment and other net loss on securities and other portfolio investments(767)— (871)(1,638)
Net gain/(loss) on real estate owned6,417 (322)— 6,095 
Net gain on derivatives used for risk management purposes28,820 10,423 — 39,243 
Net loss on securitized debt measured at fair value through earnings(15,933)(8,398)— (24,331)
Lima One - origination, servicing and other fee income— 20,453 — 20,453 
Other, net6,020 1,447 1,201 8,668 
Total Other Income, net$22,608 $24,023 $330 $46,961 
General and administrative expenses (including compensation)$— $28,136 $35,825 $63,961 
Loan servicing, financing, and other related costs10,114 350 6,673 17,137 
Amortization of intangible assets— 2,600 — 2,600 
Net Income/(Loss)$70,614 $20,332 $(44,090)$46,856 
Less Preferred Stock Dividend Requirement$— $— $16,437 $16,437 
Net Income/(Loss) Available to Common Stock and Participating Securities$70,614 $20,332 $(60,527)$30,419 
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Six months ended June 30, 2022
Interest Income$173,554 $41,853 $263 $215,670 
Interest Expense72,898 19,272 7,868 100,038 
Net Interest Income/(Expense)$100,656 $22,581 $(7,605)$115,632 
Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans1,731 (37)— 1,694 
Provision for Credit Losses on Other Assets— — (28,579)(28,579)
Net Interest Income/(Expense) after Reversal of Provision/(Provision) for Credit Losses$102,387 $22,544 $(36,184)$88,747 
Net loss on residential whole loans measured at fair value through earnings$(430,330)$(75,786)$— $(506,116)
Impairment and other net loss on securities and other portfolio investments(4,384)— (11,363)(15,747)
Net gain on real estate owned15,885 32 — 15,917 
Net gain on derivatives used for risk management purposes130,396 11,509 — 141,905 
Net gain on securitized debt measured at fair value through earnings122,545 26,145 — 148,690 
Lima One - origination, servicing and other fee income— 25,167 — 25,167 
Other, net3,917 28 2,275 6,220 
Total Other Loss, net$(161,971)$(12,905)$(9,088)$(183,964)
General and administrative expenses (including compensation)$— $25,232 $32,588 $57,820 
Loan servicing, financing, and other related costs13,445 559 9,632 23,636 
Amortization of intangible assets— 6,600 — 6,600 
Net Loss$(73,029)$(22,752)$(87,492)$(183,273)
Less Preferred Stock Dividend Requirement$— $— $16,438 $16,438 
Net Loss Available to Common Stock and Participating Securities$(73,029)$(22,752)$(103,930)$(199,711)

(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
June 30, 2023
Total Assets$6,183,728 $3,156,741 $395,762 $9,736,231 
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’s consolidated balance sheets asCompany completed the acquisition of September 30, 2017Lima One Holdings, LLC, the parent company of Lima One Capital, LLC (collectively, “Lima One”), a leading originator and December 31, 2016 are a totalservicer of $1.7 billionbusiness purpose loans.

The Lima One segment includes the stand-alone mortgage origination and $1.4 billionservicing 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 which approximately $639.2 millionassociated financing and $590.5 millionhedging instruments), all
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MFA FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
as recorded under GAAP. Associated financing economics are reported at carrying value and $1.1 billion and $814.7 million are reported at fair value, respectively. The inclusionequal to the results of these assets arises from the Company’s interests in certain entities established to acquire the loans and an entity in connection with its loan securitization transaction. The Company has assessed that these entities are required to be consolidated. During the three and nine months ended September 30, 2017, the Company recognized interest income fromdirect financings of Lima One-related residential whole loans reported at carrying valueand REO plus allocations of approximately $9.0 million and $26.2 million, respectively. During the three and nine months ended September 30, 2016, the Company recognized interest income fromresults of financings which include Lima One related residential whole loans reported at carrying valueand REO as part of approximately $5.9 million and $16.1 million, respectively. These amounts are included in Interest Incometheir collateral, based on the relative carrying values of the financed assets. Associated hedging economics are equal to allocations of the Company’s consolidated statements of operations. In addition, the Company recognized net gains on residential whole loans held at fair value during the three and nine months ended September 30, 2017 of approximately $18.7 million and $48.7 million, respectively. During the three and nine months ended September 30, 2016, the Company recognized net gains on residential whole loans held at fair value of $19.6 million and $47.7 million, respectively. These amounts are included in Other Income, netoverall 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 consolidated statementsinvestments (including any related taxes and the economics of operations. (See Note 4)associated financing and hedging instruments).



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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
In this Quarterly Report on Form 10-Q, we refer to MFA Financial, Inc. and its subsidiaries as “the Company,” “MFA,” “we,” “us,” or “our,” unless we specifically state otherwise or the context otherwise indicates.
 
The following discussion should be read in conjunction with our financial statements and accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the year ended December 31, 2016.2022.


Forward Looking Statements


When used in this Quarterly Report on Form 10-Q, in future filings with the SEC or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may”“may,” the negative of these words or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the 1933Securities Act and Section 21E of the 1934Exchange Act and, as such, may involve known and unknown risks, uncertainties and assumptions.


These forward-looking statements include information about possible or assumed future results with respect to our business, financial condition, liquidity, results of operations, plans and objectives.  Statements regardingAmong the following subjects, among others, may be forward-looking: changesimportant factors that could cause our actual results to differ materially from those projected in any forward-looking statements we make are: general economic developments and trends and the performance of the housing, real estate, mortgage finance, broader financial markets; inflation, increases in interest rates and changes in the market (i.e., fair) value of our MBS;residential whole loans, MBS, securitized debt and other assets, as well as changes in the value of our liabilities accounted for at fair value through earnings; the effectiveness of hedging transactions; changes in the prepayment rates on theresidential mortgage loans securing our MBS,assets, an increase of which could result in a reduction of the yield on MBScertain investments in our portfolio and an increase of which could require us to reinvest the proceeds received by us as a result of such prepayments in MBSinvestments with lower coupons;coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in our portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows; credit risks underlying our assets, including changes in the default rates and management’s assumptions regarding default rates on the mortgage loans securing our Non-Agency MBS and relating toin our residential whole loan portfolio; our ability to borrow to finance our assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting our business; our estimates regarding taxable income the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by us to accrete the market discount on Non-Agency MBS and residential whole loans and the extent of prepayments, realized losses and changes in the composition of our Agency MBS, Non-Agency MBS and residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modification foreclosuremodifications, foreclosures and liquidation;liquidations; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of our Board and will depend on, among other things, our taxable income, our financial results and overall financial condition and liquidity, maintenance of our REIT qualification and such other factors as the Board deems relevant; our ability to maintain our qualification as a REIT for federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (or the Investment Company Act), including statements regarding the concept release issued by the SEC relating to interpretive issues under the Investment Company Act with respect to the status under the Investment Company Act of certain companies that are engaged in the business of acquiring mortgages and mortgage-related interests; our ability to successfully implement our strategy to growcontinue growing our residential whole loan portfolio, which is dependent on, among other things, the supply of loans offered for sale in the market; targeted or expected returns on our investments in recently-originated mortgage loans, the performance of which is, similar to our other mortgage loan investments, subject to, among other things, differences in prepayment risk, credit risk and financing costs associated with such investments; risks associated with the ongoing operation of Lima One Holdings, LLC (including, without limitation, unanticipated expenditures relating to or liabilities arising from its operation (including, among other things, a failure to realize management’s assumptions regarding expected growth in business purpose loan (BPL) origination volumes and credit risks underlying BPLs, including changes in the default rates and management’s assumptions regarding default rates on the BPLs originated by Lima One)); expected returns on our investments in nonperforming residential whole loans (or NPLs), which are affected by, among other things, the length of time required to foreclose upon, sell, liquidate or otherwise reach a resolution of the property underlying the NPL, home price values, amounts advanced to carry the asset (e.g., taxes, insurance, maintenance expenses, etc. on the underlying property) and the amount ultimately realized upon resolution of the asset; risks associated with our investments in MSR-related assets, including servicing, regulatory and economic risks, risks associated with our investments in loan originators; risks associated with investing in real estate assets generally, including changes in business conditions and the general economy.  Theseeconomy; and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that we file with the SEC, could cause our actual results to differ materially from those projected in any forward-looking statements we make.SEC.  All
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forward-looking statements are based on beliefs, assumptions and expectations of our future performance, taking into account all information currently available.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.  New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us.  Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


 
Business/General
 
We are a REIT primarily engagedspecialty finance company that invests in the business of investing,and finances residential mortgage assets. We invest, on a leveraged basis, in residential mortgage assets, including Agency MBS, Non-Agency MBS, residential whole loans, CRTresidential mortgage securities and MSR relatedother 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.

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.

At SeptemberJune 30, 2017,2023, we had total assets of approximately $11.1$9.7 billion, of which $6.9$8.1 billion, or 62.4%84%, represented our MBS portfolio.  At such date, our MBS portfolio was comprised of $3.0 billion of Agency MBS and $3.9 billion of Non-Agency MBS which includes $2.7 billion of Legacy Non-Agency MBS and $1.2 billion of RPL/NPL MBSresidential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are primarily structurednot considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (or Non-QM loans), (ii) short-term business purpose loans collateralized by residential and multi-family properties made to non-occupant borrowers that intend to rehabilitate and sell the properties (or Transitional loans), (iii) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (or Single-family rental loans), (iv) loans on investor properties that conform to the standards for purchase by a contractual coupon step-up feature wherefederally chartered corporation, such as the coupon increases upFederal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (or Agency eligible investor loans), (v) previously originated loans secured by residential real estate that is generally owner occupied (or Seasoned performing loans) and (vi) loans on which a borrower was previously delinquent but has resumed repaying (re-performing loans or RPLs) and loans on which the borrower continues to 300 basis points at 36 months from issuancebe more than 60 days delinquent with respect to payment (non-performing loans or sooner. These securities are primarily backed by securitized re-performing and non-performing loans.NPLs). In addition, at SeptemberJune 30, 2017,2023, we had approximately $1.7 billion$594.3 million in residential whole loans acquired through our consolidated trusts, which represented approximately 15.7% of our total assets.investments in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS. Our remaining investment-related assets, which represent approximately 3% of our total assets at June 30, 2023, were primarily comprised of collateral obtained in connection with reverse repurchase agreements, cashREO, capital contributions made to loan origination partners, other interest-earning assets, and cash equivalents (including restricted cash), CRT securities, MSR related assets, REO and MBS relatedloan-related receivables.


The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income and the market value of our assets, liabilities and hedges that are accounted for at fair value through earnings, which is driven by numerous factors, including the supply and demand for residential mortgage assets in the marketplace, the terms and availability of adequate financing, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate and mortgage sector, and the credit performance of our credit sensitive residential mortgage assets. Changes in these factors, or uncertainty in the market regarding the potential for changes in these factors, can result in significant changes in the value and/or performance of our investment portfolio. Further, our GAAP results may be impacted by market volatility, resulting in changes in market values of certain financial instruments for which changes in fair value are recorded in net income each period, including certain residential whole loans, securitized debt and interest rate swap agreements (or 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, on our MBS, 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 prepaymentprepayments on a bondan asset as a percentage of the bondasset balance), vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our financial results are impacted by estimates of credit losses that are required to be recorded when loans that are not accounted for at fair value through net income are acquired or originated, as well as changes in these credit loss estimates that will be required to be made periodically.
 
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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 MBS portfolioresidential mortgage assets and correspondingly, our stockholders’ equitysecuritized debt to decline; (iii) coupons on our ARM-MBSadjustable-rate assets to reset, on a delayed basis, to higher interest rates; (iv) prepayments on our MBSassets to decline, thereby slowing the amortization of our MBS purchase premiums and the accretion of our purchase discounts;discounts, and slowing our ability to redeploy capital to generally higher yielding investments; and (v) the value of our derivative hedging instruments, and, correspondingly, our stockholders’ equityif 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 MBS portfolioresidential mortgage assets and correspondingly, our stockholders’ equitysecuritized debt, to increase; (iii) coupons on our ARM-MBS to reset,adjustable-rate assets, on a delayed basis, to lower interest rates; (iv) prepayments on our MBSassets to increase, thereby accelerating the amortization of our MBS purchase premiums and the accretion of our purchase discounts;discounts, and accelerating the redeployment of our capital to generally lower yielding investments; and (v) the value of our derivative hedging instruments, and, correspondingly, our stockholders’ equityif 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, generally meaning that we are generally subject to credit losses due to the risk of delinquency, default and foreclosure on the underlying real estate collateral. WeOur investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. With respect to investments in Purchased Performing Loans, we believe that sound underwriting standards, including low LTVs at origination, significantly mitigate our risk of loss. Further, we believe the discounted purchase prices paid on certain of these investmentsPurchased Non-performing and Purchased Credit Deteriorated Loans mitigate our risk of loss in the event that, as we expect on most such investments, we receive less than 100% of the par value of these investments.  Our investment process for credit sensitive assets focuses primarily on quantifying and pricing credit risk. 

As of September 30, 2017, approximately $3.9 billion, or 56.8%, of our MBS portfolio was in its contractual fixed-rate period or were fixed-rate MBS and approximately $3.0 billion, or 43.2%, was in its contractual adjustable-rate period, or were floating rate MBS with interest rates that reset monthly.  Our ARM-MBS in their contractual adjustable-rate period primarily include MBS collateralized by Hybrids for which the initial fixed-rate period has elapsed, such that the interest rate will typically adjust on an annual or semiannual basis. 

Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value). or when we acquire residential whole loans at a price in excess of their aggregate principal balance. Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance.  Premiums paid on our MBS are amortized against interest income and accretableAccretable purchase discounts on these investments are accreted to interest income. Purchase premiums, which are primarily carried on our Agency MBS and certain CRT securities,Premiums paid to purchase loans are amortized against interest income over the life of each securitythe 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 IRR/interest income earned on these assets.
 

CPR levels are impacted by, among other things, conditions in the housing market, new regulations, government and private sector initiatives, interest rates, availability of credit to home borrowers, underwriting standards and the economy in general. In particular, CPR reflects the conditional repaymentprepayment rate, (or CRR), which measures voluntary prepayments of mortgages collateralizing a particular MBS,loan, and the conditional default rate (or CDR), which measures involuntary prepayments resulting from defaults. CPRs on Agency MBSour residential mortgage securities and Legacy Non-Agency MBSwhole loans may differ significantly. For the three months ended SeptemberJune 30, 2017, our Agency MBS portfolio experienced a weighted2023, the average CPR of 16.2%, and our Legacy Non-Agency MBS portfolio experienced a weighted average CPR of 18.7%. Over the last consecutive eight quarters, ending with September 30, 2017, the monthly weighted average CPRCPRs on our Agency and Legacy Non-Agency MBS portfolios ranged from a high of 18.4% experienced during the month ended July 31, 2017 to a low of 11.3%, experienced during the month ended February 29, 2016, with an average CPR over such quarters of 15.3%.
Our method of accounting for Non-Agency MBS purchased at significant discounts to par value, requires us to make assumptions with respect to each security.  These assumptions include, but are not limited to, future interest rates, voluntary prepayment rates, default rates, mortgage modifications and loss severities.  As partcertain of our Non-Agency MBS surveillance process, we trackloan portfolios were: 8.1% for Non-QM loans, 5.8% for Single-family rental loans, 7.3% for Purchased Credit Deteriorated loans, and compare each security’s actual performance over time to14.4% for Purchased Non-Performing loans. In addition, for the performance expected atthree months ended June 30, 2023, the timerepayment rate (which includes both voluntary and involuntary repayments of purchase or, if we have modifiedprincipal) was 42.2% for our original purchase assumptions, to our revised performance expectations.  To the extent that actual performance or our expectation of future performance of our Non-Agency MBS deviates materially from our expected performance parameters, we may revise our performance expectations, such that the amount of purchase discount designated as credit discount may be increased or decreased over time.  Nevertheless, credit losses greater than those anticipated or in excess of the recorded purchase discount could occur, which could materially adversely impact our operating results.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 MBS, CRTinvestments in securities and MSR related assetsthat are designated as AFS for other-than-temporary 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.  At September 30, 2017, we had net unrealized gains on our Non-Agency MBS of $648.4 million, comprised of gross unrealized gains of $648.8 million and gross unrealized losses of $390,000 and net unrealized losses of $2.8 million on our Agency MBS, comprised of gross unrealized losses of $32.9 million and gross unrealized gains of $30.1 million. At September 30, 2017, we did not intend to sell any of our MBS or CRT securities that were in an unrealized loss position, and we believe it is more likely than not that we will not be required to sell those securities before recovery of their amortized cost basis, which may be at their maturity.
 
We rely primarily on borrowings under repurchase agreements to finance our residential mortgage assets.  Our residential mortgage investments have longer-term contractual maturities than our borrowings under repurchase agreements.  Even though the majority of our investments have interest rates that adjust over time based on short-term changes in corresponding interest rate indices (typically following an initial fixed-rate period for our Hybrids),non-securitization related financing liabilities, and the interest rates we pay on our borrowingsnon-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 at September 30, 2017 were comprisedcurrently include Swaps.





61
Table of Swaps.Contents
Our Swap derivative instruments are designated as cash-flow hedges against a portion of our current and forecasted LIBOR-based repurchase agreements.  Our Swaps do not extend the maturities of our repurchase agreements; they do, however, lock in a fixed rate of interest over their term for the notional amount of the Swap corresponding to the hedged item.  During the nine months ended September 30, 2017, we did not enter into any new Swaps and had Swaps with an aggregate notional amount of $350.0 million and a weighted average fixed-pay rate of 0.58% amortize and/or expire. At September 30, 2017, we had Swaps designated in hedging relationships with an aggregate notional amount of $2.6 billion with a weighted average fixed-pay rate of 2.04% and a weighted average variable interest rate received of 1.24%.

Recent Market Conditions and Our Strategy

Sadly,The second quarter of 2023 again exhibited significant volatility in interest rates and credit spreads. MFA continues to navigate these challenges by prioritizing liquidity and actively managing our investment portfolio. Through our strong balance sheet and Lima One (our wholly owned leading business purpose loan originator), we added nearly $1 billion of residential whole loans and residential mortgage securities at attractive levels during the thirdsecond quarter of 2017 we lost our former chief executive officer, William S. Gorin, who passed away in August 2017 following2023. This included $523 million of high yielding business purpose loans funded at Lima One, a two-year battle with cancer. Shortly44% increase over the prior to Mr. Gorin’s passing, our Boardquarter. We also purchased $345 million of Directors appointed our PresidentNon-QM loans and Chief Operating Officer, Craig L. Knutson, as co-CEO, and Mr. Knutson was appointed as our sole CEO following Mr. Gorin’s death. In connection with Mr. Gorin’s death, we recorded a one-time expense of approximately $5.1 million, which relatedadded to our contractual obligationsAgency MBS position. While GAAP net income reflects the impact of declines in asset values primarily due to acceleratehigher interest rates, Distributable Earnings, a non-GAAP financial measure that excludes the vestingimpact of fair value changes and certain share-based awards previously madeother items, exceeded the second quarter common dividend. Of particular note, our net interest spread, which continues to Mr. Gorinreflect our success in acquiring assets at attractive yields and the benefits of our proactive approach to portfolio hedging, was 2.14% in the second quarter, a death benefit payment made40 basis point increase over the prior quarter. As noted, higher interest rates during the quarter resulted in lower mortgage loan valuations. However, the impact on our book value was relatively modest, with GAAP book value declining by approximately 5% and Economic book value by approximately 6%. Finally, we continued to his estate.be an active issuer of residential whole loan securitizations, completing our fourth transaction for the year in the second quarter.

Second quarter 2023 portfolio activity and impact on financial results

At SeptemberJune 30, 2017,2023, our residential mortgage asset portfolio, which includes MBS, residential whole loans CRT securities and MSR related assetsREO, and Securities, at fair value was approximately $9.7$8.9 billion compared to $11.5$8.4 billion at DecemberMarch 31, 2016. During2023.

The following table presents the three months

ended September 30, 2017, we purchased or committed to purchase, through consolidated trusts,activity for approximately $187.7 million, residential whole loans with an unpaid principal balance of approximately $245.2 million. In addition, we acquired approximately $183.7 million of RPL/NPL MBS, $161.0 million of MSR related assets and $29.1 million of CRT securities.

At September 30, 2017, $3.9 billion, or 40.2% of our residential mortgage asset portfolio was invested in Non-Agency MBS.  Duringfor the three months ended SeptemberJune 30, 2017, the fair value of our Non-Agency MBS holdings decreased by $406.7 million. The primary components of the change during the quarter in these Non-Agency MBS include $582.0 million of2023:
(In Millions)March 31, 2023
Runoff (1)
Acquisitions (2)
Other (3)
June 30, 2023Change
Residential whole loans and REO$7,915 $(394)$868 $(129)$8,260 $345 
Securities, at fair value505 (10)109 (10)594 89 
Totals$8,420 $(404)$977 $(139)$8,854 $434 

(1)    Primarily includes principal repayments and other principal reductions and the salesales of Non-Agency MBS with aREO.
(2)    Includes draws on previously originated Transitional loans.
(3)    Primarily includes changes in fair value of $44.5 million partially offset by $187.4 million of purchases (at a weighted average purchase price of 99% of par), and an increase reflecting Non-Agency MBS price changes of $32.4 million.in the allowance for credit losses.


At SeptemberJune 30, 2017, $3.0 billion, or 31.0% of our residential mortgage asset portfolio, was invested in Agency MBS.  During the three months ended September 30, 2017, the fair value of our Agency MBS decreased by $228.7 million. This was due to $217.8 million of principal repayments, $7.9 million of premium amortization, and $3.0 million in net unrealized losses.

At September 30, 2017,2023, our total recorded investment in residential whole loans and REO was $1.7$8.3 billion, or 17.9%93.3% of our residential mortgage asset portfolio. Of this amount, $639.2$7.0 billion are Purchased Performing Loans, $428.2 million is presented as Residential wholeare Purchased Credit Deteriorated Loans and $739.7 million are Purchased Non-performing Loans. Loan acquisition activity of $867.7 million for the three months ended June 30, 2023 included $523.2 million of business purpose loans at carrying value(including draws on Transitional loans) and $1.1 billion as Residential whole loans, at fair value in our consolidated balance sheets.$344.5 million of Non-QM loans. For the three months ended SeptemberJune 30, 2017,2023, we recognized approximately $9.0$128.0 million of income on residential whole loans held at carrying value in Interest Incomeloan interest income on our consolidated statements of operations, representing an effective yield of 5.92% (excluding servicing costs)6.10%, with Purchased Performing Loans generating an effective yield of 5.66%, Purchased Credit Deteriorated Loans generating an effective yield of 7.09% and Purchased Non-performing Loans generating an effective yield of 10.11%. In addition,All of our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition. Included in earnings in Other income, net are net losses on these loans of $130.7 million for the three months ended June 30, 2023. At June 30, 2023 and March 31, 2023, we had REO with an aggregate carrying value of $120.0 million and $121.2 million, respectively, which is included in Other assets on our consolidated balance sheets.

At June 30, 2023, we held $594.3 million of Securities, at fair value, including $396.3 million of Agency MBS, $91.2 million of MSR-related assets, $82.5 million of CRT securities and $24.3 million of Non-Agency MBS. We opportunistically added $108.8 million of Agency MBS this quarter. The net yield on our Securities, at fair value was 7.67% for the three months ended June 30, 2023, compared to 8.76% for the three months ended March 31, 2023.

For the three months ended June 30, 2023, we recorded a net gainprovision for credit losses on residential whole loans held at faircarrying value of $18.7 million in Other Income, net in our consolidated statements$294,000. The total allowance for credit losses recorded on residential whole loans held at carrying value at June 30, 2023 was $31.0 million.

62
Table of operations for the three months ended September 30, 2017.Contents

At September 30, 2017 our total investment in MSR related assets was $411.8 million. During the three months ended September 30, 2017second quarter of 2023, we acquired $161.0completed one securitization collateralized by $371.6 million of and had $124.0 millionunpaid principal balance (or UPB) of principal repayments onNon-QM loans. This securitization provided longer term, notes backed by MSR related collateral. We also acquired $29.1 million of CRT securities, bringing our total investment in these securities to $653.6 million.non-recourse, non-mark-to-market financing. During the quarter, interest rates increased across the yield curve, with 2-year Treasury yields up by nearly 90 basis points, 5-Year Treasury yields up by nearly 60 basis points and 10-year yields up by nearly 40 basis points. The net impact on the value of our CRTinvestment portfolio experienced significant price volatility, as markets reacted to concerns related to seasonal hurricanes and other factors. While unrealized losses recognizedresulted in net income on this portfolio for the quarter were $5.2 million,mark-to-market losses in our CRT portfolio at September 30, 2017 was in an overall unrealized gain position of $41.0 million.

GAAP financial results. We will continue to seek investmentsclosely follow the actions of the Federal Reserve regarding the path and timing of changes in residential mortgage assets duringinterest rates and the remainderimpact such rate changes would be expected to have on levels of 2017. The investment landscape is challenging, as market pricing for all asset classes remains high, thereby making it difficult to purchase assets at attractive risk/reward levels. In addition, unlike Agency MBS, certain ofinflation, the overall economic environment and our other asset classes are not always available for purchase, as sellers offer these investments from time to time as opposed to more liquid markets which feature active buyers and sellers at nearly all times. We expect that our purchase focus will be primarily on additional credit sensitive residential whole loans, RPL/NPL MBS and MSR related assets. While the third quarter runoff of RPL/NPL MBS slowed considerably from the runoff we experienced in the second quarter (approximately $400 million versus $1.3 billion), we could experience further reduction in this portfolio if issuers continue to call these securities.business.


Our GAAP book value per common share was $7.70$14.42 as of SeptemberJune 30, 2017, a decline2023. Book value per common share decreased from $15.15 as of March 31, 2023. Economic book value per common share, a non-GAAP financial measure of $7.76our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $15.12 as of June 30, 2017. This2023, a decrease wasfrom $16.02 as of March 31, 2023. Decreases in GAAP and Economic book value during the second quarter of 2023 primarily reflect decreases in the fair value of our Residential whole loan portfolios due to dividends declaredinterest rate increases during the quarter that exceeded our net income.quarter. 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.

At the end of the third quarter of 2017, the average coupon on mortgages underlying our Agency MBS was higher compared to the end of the third quarter of 2016, due to upward resets on Hybrid and ARM-MBS within the portfolio.  As a result, the coupon yield on our Agency MBS portfolio increased to 2.98% for the three months ended September 30, 2017, from 2.83% for the three months ended September 30, 2016 and the net Agency MBS yield increased to 1.97% for the three months ended September 30, 2017 from 1.83% for the three months ended September 30, 2016. The net yield for our Legacy Non-Agency MBS portfolio was 8.93% for the three months ended September 30, 2017 compared to 8.09% for the three months ended September 30, 2016.  The increase in the net yield on our Legacy Non-Agency MBS portfolio reflects the impact of the cash proceeds received during 2016 in connection with the settlement of litigation related to certain Countrywide and Citigroup sponsored residential mortgage backed securitization trusts and the improved performance of loans underlying the Legacy Non-Agency MBS portfolio, which have resulted in credit reserve releases. The net yield for our RPL/NPL MBS portfolio was 4.43% for the three months ended September 30, 2017 compared to 3.86% for the three months ended September 30, 2016.  The increase in the net yield reflects an increase in the average coupon yield to 4.24% for the three months ended September 30, 2017 from 3.83% for the three months ended September 30, 2016 and higher accretion income recognized in the current quarter due to the impact of redemptions of certain securities that had been previously purchased at a discount.

We believe that our $593.1 million Credit Reserve and OTTI appropriately factors in remaining uncertainties regarding underlying mortgage performance and the potential impact on future cash flows for our existing Legacy Non-Agency MBS

portfolio.  In addition, while the majority of our Legacy Non-Agency MBS will not return their full face value due to loan defaults, we believe that they will deliver attractive loss adjusted yields due to our discounted amortized cost of 71% of face value at September 30, 2017. Home price appreciation and underlying mortgage loan amortization have decreased the LTV for many of the mortgages underlying our Legacy Non-Agency portfolio. Home price appreciation during the past few years has generally been driven by a combination of limited housing supply, low mortgage rates and demographic-driven U.S. household formation. Lower LTVs lessen the likelihood of defaults and simultaneously decrease loss severities. Further, during 2016 and the nine months ended September 30, 2017, we have also observed faster voluntary prepayment (i.e., prepayment of loans in full with no loss) speeds than originally projected. The yields on our Legacy Non-Agency MBS that were purchased at a discount are generally positively impacted if prepayment rates on these securities exceed our prepayment assumptions. Based on these current conditions, we have reduced estimated future losses within our Legacy Non-Agency portfolio. As a result, during the three months ended September 30, 2017, $14.8 million was transferred from Credit Reserve to accretable discount.  This increase in accretable discount is expected to increase the interest income realized over the remaining life of our Legacy Non-Agency MBS. The remaining average contractual life of such assets is approximately 19 years, but based on scheduled loan amortization and prepayments (both voluntary and involuntary), loan balances will decline substantially over time. Consequently, we believe that the majority of the impact on interest income from the reduction in Credit Reserve will occur over the next ten years.
At September 30, 2017, we have access to various sources of liquidity which we estimate to be in excess of $1.2 billion. This amount includes (i) $608.2 million of cash and cash equivalents; (ii) $186.0 million in estimated financing available from unpledged Agency MBS and from other Agency MBS collateral that is currently pledged in excess of contractual requirements; and (iii) $363.4 million in estimated financing available from unpledged Non-Agency MBS. Our sources of liquidity do not include restricted cash. We believe that we are positioned to continue to take advantage of investment opportunities within the residential mortgage marketplace. 
Repurchase agreement funding for our residential mortgage investments continued to be available to us from multiple counterparties during the third quarter of 2017.  Typically, repurchase agreement funding involving credit-sensitive investments is available at terms requiring higher collateralization and higher interest rates, than for repurchase agreement funding involving Agency MBS.  At September 30, 2017, our debt consisted of borrowings under repurchase agreements with 31 counterparties, securitized debt, Senior Notes outstanding, obligation to return securities obtained as collateral and payable for unsettled purchases, resulting in a debt-to-equity multiple of 2.4 times.  (See table on page 75 under Results of Operations that presents our quarterly leverage multiples since September 30, 2016.)

Information About Our Assets


The tablestable below presentpresents certain information about our asset allocation at SeptemberJune 30, 2017:2023:
 
ASSET ALLOCATION
(Dollars in Millions)
Purchased Performing Loans (1)
Purchased Credit Deteriorated Loans (2)
Purchased Non-Performing LoansSecurities, at fair valueReal Estate Owned
Other,
net (3)
Total
Fair Value/Carrying Value$6,972 $428 $740 $594 $120 $690 $9,544 
Receivable/(Payable) for Unsettled Transactions— — — (31)— — (31)
Financing Agreements with Non-mark-to-market Collateral Provisions(968)— — — — — (968)
Financing Agreements with Mark-to-market Collateral Provisions(1,548)(131)(230)(464)(29)— (2,402)
Securitized Debt(3,416)(237)(304)— (12)— (3,969)
Convertible Senior Notes— — — — — (229)(229)
Net Equity Allocated$1,040 $60 $206 $99 $79 $461 $1,945 
Debt/Net Equity Ratio (4)
5.7 x6.1 x2.6 x5.0 x0.5 x3.9 x
  Agency MBS 
Legacy
Non-Agency MBS
 
RPL/NPL MBS (1)
 Credit Risk Transfer Securities MSR Related Assets 
Residential Whole Loans, at Carrying Value (2)
 Residential Whole Loans, at Fair Value 
Other,
net (3)
 Total
(Dollars in Millions)  
  
          
  
  
Fair Value/Carrying Value $3,019
 $2,717
 $1,195
 $654
 $412
 $639
 $1,103
 $748
 $10,487
Less Payable for Unsettled Purchases —
 (4) —
 —
 —
 —
 (120) —
 (124)
Less Repurchase Agreements (2,671) (1,837) (798) (413) (269) (273) (610) —
 (6,871)
Less Senior Notes —
 —
 —
 —
 —
 —
 —
 (97) (97)
Less Securitized Debt —
 —
 —
 —
 —
 (111) (26) —
 (137)
Net Equity Allocated $348
 $876
 $397
 $241
 $143
 $255
 $347
 $651
 $3,258
Debt/Net Equity Ratio (4)
 7.7x 2.1x 2.0x 1.7x 1.9x 1.5x 2.2x   2.4x


(1)RPL/NPL MBS are backed primarily by securitized re-performing and non-performing loans. The securities are structured such that the coupon increases up to 300 basis points at 36 months from issuance or sooner. Included with the balance of Non-Agency MBS reported on our consolidated balance sheets.
(2)The carrying value of such loans reflects the purchase price, accretion of income, cash received and provision for loan losses since acquisition. At September 30, 2017, the fair value of such loans is estimated to be approximately $693.8 million.
(3)Includes cash and cash equivalents and restricted cash, securities obtained and pledged as collateral, other assets, obligation to return securities obtained as collateral and other liabilities.     
(4)Represents the sum of borrowings under repurchase agreements, securitized debt and payable for unsettled purchases as a multiple of net equity allocated.  The numerator of our Total Debt/Net Equity Ratio also includes the obligation to return securities obtained as collateral of $507.3 million and Senior Notes.

(1)Includes $3.6 billion of Non-QM loans, $1.7 billion of Transitional loans, $1.5 billion of Single-family rental loans, $75.3 million of Seasoned performing loans, and $58.1 million of Agency eligible investor loans. At June 30, 2023, the total fair value of these loans is estimated to be $6.9 billion.

(2)At June 30, 2023, the total fair value of these loans is estimated to be $447.5 million.
Agency MBS
The following table presents certain information regarding the composition of our Agency MBS portfolio as of September 30, 2017 and December 31, 2016:
September 30, 2017
(Dollars in Thousands) 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Coupon (2)
 
3 Month
Average
CPR
15-Year Fixed Rate:  
  
  
  
  
  
  
Low Loan Balance (3)
 $1,000,583
 104.3% 102.5% $1,025,730
 64
 2.95% 11.1%
HARP (4)
 95,571
 104.7
 102.6
 98,095
 63
 2.95
 14.7
Other (Post June 2009) (5)
 87,314
 104.0
 105.2
 91,890
 84
 4.14
 11.9
Other (Pre June 2009) (6)
 315
 104.9
 105.2
 332
 100
 4.50
 28.8
Total 15-Year Fixed Rate $1,183,783
 104.3% 102.7% $1,216,047
 65
 3.04% 11.4%
               
Hybrid:  
  
  
  
  
  
  
Other (Post June 2009) (5)
 $1,092,102
 104.4% 104.2% $1,137,631
 76
 3.16% 20.1%
Other (Pre June 2009) (6)
 553,753
 101.7
 105.0
 581,390
 129
 3.35
 18.8
Total Hybrid $1,645,855
 103.5% 104.4% $1,719,021
 94
 3.23% 19.7%
CMO/Other $80,764
 102.5% 103.0% $83,172
 196
 3.04% 16.1%
Total Portfolio $2,910,402
 103.8% 103.7% $3,018,240
 85
 3.15% 16.2%

December 31, 2016

(Dollars in Thousands) 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Coupon (2)
 3 Month
Average
CPR
15-Year Fixed Rate:  
  
  
  
  
  
  
Low Loan Balance (3)
 $1,170,788
 104.3% 103.0% $1,206,174
 55
 2.97% 11.2%
HARP (4)
 116,790
 104.7
 103.0
 120,290
 54
 2.96
 12.1
Other (Post June 2009) (5)
 106,343
 104.0
 105.7
 112,400
 75
 4.14
 14.3
Other (Pre June 2009) (6)
 564
 104.9
 105.9
 597
 91
 4.50
 28.8
Total 15-Year Fixed Rate $1,394,485
 104.3% 103.2% $1,439,461
 57
 3.06% 11.5%
               
Hybrid:  
  
  
  
  
  
  
Other (Post June 2009) (5)
 $1,370,019
 104.4% 104.8% $1,436,184
 67
 2.99% 19.9%
Other (Pre June 2009) (6)
 720,419
 101.7
 105.6
 761,052
 120
 3.03
 17.0
Total Hybrid $2,090,438
 103.5% 105.1% $2,197,236
 86
 3.01% 18.9%
CMO/Other $96,379
 102.5% 102.9% $99,196
 187
 2.81% 14.7%
Total Portfolio $3,581,302
 103.8% 104.3% $3,735,893
 77
 3.02% 15.9%

(1)  Does not include principal payments receivable of $1.1 million and $2.6 million at September 30, 2017 and December 31, 2016, respectively.
(2)  Weighted average is based on MBS current face at September 30, 2017 and December 31, 2016, respectively.
(3)  Low loan balance represents MBS collateralized by mortgages with an original loan balance of less than or equal to $175,000.
(4)  Home Affordable Refinance Program (or HARP) MBS are backed by refinanced loans with LTVs greater than or equal to 80% at origination.
(5)  MBS issued in June 2009 or later. Majority of underlying loans are ineligible to refinance through the HARP program.
(6)  MBS issued before June 2009.

The following table presents certain information regarding our 15-year fixed-rate Agency MBS as of September 30, 2017 and December 31, 2016:
September 30, 2017

Coupon 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Loan Rate
 
Low Loan
Balance
and/or
HARP (3)
 3 Month
Average
CPR
(Dollars in Thousands)                
15-Year Fixed Rate:  
  
  
  
    
  
  
2.5% $608,076
 104.0% 101.3% $616,008
 57 3.04% 100% 10.6%
3.0% 243,604
 105.9
 103.0
 250,902
 63 3.49
 100
 11.5
3.5% 5,944
 103.5
 104.5
 6,211
 83 4.18
 100
 6.2
4.0% 281,506
 103.5
 105.0
 295,672
 82 4.40
 80
 13.3
4.5% 44,653
 105.2
 105.8
 47,254
 86 4.88
 34
 11.8
Total 15-Year Fixed Rate $1,183,783
 104.3% 102.7% $1,216,047
 65 3.53% 93% 11.4%

December 31, 2016

Coupon 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Loan Rate
 
Low Loan
Balance
and/or
HARP (3)
 3 Month
Average
CPR
(Dollars in Thousands)                
15-Year Fixed Rate:  
  
  
  
    
  
  
2.5% $700,388
 104.0% 101.6% $711,696
 48 3.04% 100% 9.9%
3.0% 288,648
 105.9
 103.3
 298,311
 54 3.49
 100
 11.3
3.5% 7,244
 103.5
 104.6
 7,576
 74 4.18
 100
 15.7
4.0% 343,105
 103.5
 105.9
 363,258
 73 4.40
 80
 14.2
4.5% 55,100
 105.2
 106.4
 58,620
 77 4.88
 34
 14.5
Total 15-Year Fixed Rate $1,394,485
 104.3% 103.2% $1,439,461
 57 3.54% 92% 11.5%

(1)  Does not include principal payments receivable of $1.1 million and $2.6 million at September 30, 2017 and December 31, 2016, respectively.
(2)  Weighted average is based on MBS current face at September 30, 2017 and December 31, 2016, respectively.
(3)  Low Loan Balance represents MBS collateralized by mortgages with an original loan balance less than or equal to $175,000.  HARP MBS are backed by refinanced loans with LTVs greater than or equal to 80% at origination.


The following table presents certain information regarding our Hybrid Agency MBS as of September 30, 2017 and December 31, 2016:
September 30, 2017
(Dollars in Thousands) 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Coupon (2)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Months to
Reset (3)
 
Interest
Only (4)
 3 Month
Average
CPR
Hybrid Post June 2009:                  
Agency 5/1 $425,236
 104.3% 104.7% $445,304
 3.44% 86 6 27% 23.3%
Agency 7/1 486,038
 104.4
 103.8
 504,745
 2.95
 71 14 25
 20.2
Agency 10/1 180,828
 104.6
 103.7
 187,582
 3.08
 65 54 64
 12.0
Total Hybrids Post June 2009 $1,092,102
 104.4% 104.2% $1,137,631
 3.16% 76 17 32% 20.1%
                   
Hybrid Pre June 2009:                  
Coupon < 4.5% (5)
 $545,851
 101.7% 105.0% $573,132
 3.32% 130 6 24% 18.9%
Coupon >= 4.5% (6)
 7,902
 101.8
 104.5
 8,258
 5.50
 118 6 44
 12.0
Total Hybrids Pre June 2009 $553,753
 101.7% 105.0% $581,390
 3.35% 129 6 24% 18.8%
Total Hybrids $1,645,855
 103.5% 104.4% $1,719,021
 3.23% 94 14 29% 19.7%

December 31, 2016

(Dollars in Thousands) 
Current
Face
 
Weighted
Average
Purchase
Price
 
Weighted
Average
Market
Price
 
Fair
Value (1)
 
Weighted
Average
Coupon (2)
 
Weighted
Average
Loan Age
(Months) (2)
 
Weighted
Average
Months to
Reset (3)
 
Interest
Only (4)
 3 Month
Average
CPR
Hybrid Post June 2009:                  
Agency 5/1 $551,736
 104.3% 105.7% $583,318
 2.93% 76 6 25% 17.7%
Agency 7/1 618,414
 104.5
 104.3
 645,200
 3.00
 62 21 24
 22.8
Agency 10/1 199,869
 104.7
 103.9
 207,666
 3.13
 58 61 64
 17.1
Total Hybrids Post June 2009 $1,370,019
 104.4% 104.8% $1,436,184
 2.99% 67 21 30% 19.9%
                   
Hybrid Pre June 2009:  
  
  
  
  
      
  
Coupon < 4.5% (5)
 $691,572
 101.7% 105.6% $730,626
 2.92% 121 6 33% 16.9%
Coupon >= 4.5% (6)
 28,847
 101.4
 105.5
 30,426
 5.71
 112 7 69
 18.1
Total Hybrids Pre June 2009 $720,419
 101.7% 105.6% $761,052
 3.03% 120 6 34% 17.0%
Total Hybrids $2,090,438
 103.5% 105.1% $2,197,236
 3.01% 86 15 32% 18.9%

(1)  Does not include principal payments receivable of $1.1 million and $2.6 million at September 30, 2017 and December 31, 2016, respectively.
(2)  Weighted average is based on MBS current face at September 30, 2017 and December 31, 2016, respectively.
(3)  Weighted average months to reset is the number of months remaining before the coupon interest rate resets.  At reset, the MBS coupon will adjust based upon the underlying benchmark interest rate index, margin and periodic or lifetime caps.  The months to reset do not reflect scheduled amortization or prepayments.
(4)  Interest only represents MBS backed by mortgages currently in their interest-only period.  Percentage is based on MBS current face at September 30, 2017 and December 31, 2016, respectively.
(5)  Agency 3/1, 5/1, 7/1 and 10/1 Hybrid ARM-MBS with coupon less than 4.5%.
(6)  Agency 3/1, 5/1, 7/1 and 10/1 Hybrid ARM-MBS with coupon greater than or equal to 4.5%.


Non-Agency MBS
The following table presents information with respect to our Non-Agency MBS at September 30, 2017 and December 31, 2016:
(In Thousands) September 30, 2017 December 31, 2016 
 Non-Agency MBS  
  
 
Face/Par $4,101,102
 $6,065,618
 
Fair Value 3,911,660
 5,684,836
 
Amortized Cost 3,263,226
 5,093,243
 
Purchase Discount Designated as Credit Reserve and OTTI (593,134)(1)(694,241)(2)
Purchase Discount Designated as Accretable (244,793) (278,191) 
Purchase Premiums 51
 57
 

(1)  Includes discount designated as Credit Reserve of $578.3 million and OTTI of $14.8 million.
(2)  Includes discount designated as Credit Reserve of $675.6 million and OTTI of $18.6 million.

Purchase Discounts on Non-Agency MBS
The following table presents the changes in the components of purchase discount on Non-Agency MBS with respect to purchase discount designated as Credit Reserve and OTTI, and accretable purchase discount, for the three and nine months ended September 30, 2017 and 2016:
  Three Months Ended 
 September 30, 2017		 Three Months Ended 
 September 30, 2016
(In Thousands) Discount
Designated as
Credit Reserve and OTTI		 
Accretable
Discount (1) 
 Discount
Designated as
Credit Reserve and OTTI		 
 Accretable Discount (1)
Balance at beginning of period $(626,498) $(257,967) $(724,198) $(325,548)
Accretion of discount —
 18,621
 —
 20,236
Realized credit losses 13,982
 —
 15,629
 —
Purchases —
 (1,929) (15,124) 9,830
Sales 4,620
 11,244
 2,398
 6,523
Net impairment losses recognized in earnings —
 —
 (485) —
Transfers/release of credit reserve 14,762
 (14,762) 6,822
 (6,822)
Balance at end of period $(593,134) $(244,793) $(714,958) $(295,781)

  Nine Months Ended 
 September 30, 2017		 Nine Months Ended 
 September 30, 2016
(In Thousands) Discount
Designated as
Credit Reserve and OTTI		 
Accretable
Discount (1) 
Discount
Designated as
Credit Reserve and OTTI		 
 Accretable Discount (1)
Balance at beginning of period $(694,241) $(278,191) $(787,541) $(312,182)
Impact of RMBS Issuer Settlement (2)
 —
 —
 —
 (52,881)
Accretion of discount —
 60,461
 —
 61,153
Realized credit losses 39,445
 —
 49,408
 —
Purchases (484) (3,449) (25,999) 13,210
Sales 29,398
 10,166
 16,281
 28,297
Net impairment losses recognized in earnings (1,032) —
 (485) —
Transfers/release of credit reserve 33,780
 (33,780) 33,378
 (33,378)
Balance at end of period $(593,134) $(244,793) $(714,958) $(295,781)

(1)  Together with coupon interest, accretable purchase discount is recognized as interest income over the life of the security.
(2) Includes the impact of approximately $61.8$329.4 million of cash proceeds (a one-time payment) received byand cash equivalents, $174.0 million of restricted cash, and $27.4 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.    
(4)Total Debt/Net Equity ratio represents the Company during the nine months ended September 30, 2016 in connection with the settlementsum of litigation related to certain Countrywide sponsored residential mortgage backed securitization trusts.


The following table presents information with respect to the yield componentsborrowings under our financing agreements as a multiple of our Non-Agency MBS for the three months ended September 30, 2017 and 2016:net equity allocated. 
63
  Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
  
Legacy
Non-Agency MBS
 RPL/NPL MBS 
Legacy
Non-Agency MBS
 RPL/NPL MBS
Non-Agency MBS        
Coupon Yield (1)
 5.63% 4.24% 5.28% 3.83%
Effective Yield Adjustment (2)
 3.30
 0.19
 2.81
 0.03
Net Yield 8.93% 4.43% 8.09% 3.86%

(1) Reflects the annualized coupon interest income divided by the average amortized cost.  The discounted purchase price on Legacy Non-Agency MBS causes the coupon yield to be higher than the pass-through coupon interest rate.
(2) The effective yield adjustment is the difference between the net yield, calculated utilizing management’s estimatesTable of timing and amount of future cash flows for Legacy Non-Agency MBS and RPL/NPL MBS, less the current coupon yield.

Actual maturities of MBS are generally shorter than stated contractual maturities because actual maturities of MBS are affected by the contractual lives of the underlying mortgage loans, periodic payments of principal and prepayments of principal.  The following table presents certain information regarding the amortized costs, weighted average yields and contractual maturities of our MBS at September 30, 2017 and does not reflect the effect of prepayments or scheduled principal amortization on our MBS:
Contents
  Within One Year One to Five Years Five to Ten Years Over Ten Years Total MBS
(Dollars in Thousands) 
Amortized
Cost
 
Weighted
Average
Yield
 
Amortized
Cost
 
Weighted
Average
Yield
 
Amortized
Cost
 
Weighted
Average
Yield
 
Amortized
Cost
 
Weighted
Average
Yield
 
Total
Amortized
Cost
 
Total Fair
Value
 
Weighted
Average
Yield
Agency MBS:      
  
  
  
  
  
  
  
  
Fannie Mae $—
 —% $173
 2.05% $563,126
 2.00% $1,834,686
 1.99% $2,397,985
 $2,404,220
 1.99%
Freddie Mac —
 —
 —
 —
 143,086
 2.29
 474,364
 1.82
 617,450
 608,349
 1.93
Ginnie Mae —
 —
 —
 —
 100
 2.32
 6,550
 2.13
 6,650
 6,735
 2.13
Total Agency MBS $—
 —% $173
 2.05% $706,312
 2.06% $2,315,600
 1.95% $3,022,085
 $3,019,304
 1.98%
Non-Agency MBS $—
 —
 $306,082
 3.98% $53
 1.16% $2,957,091
 7.74% $3,263,226
 $3,911,660
 7.39%
Total MBS $—
 —% $306,255
 3.98% $706,365
 2.06% $5,272,691
 5.20% $6,285,311
 $6,930,964
 4.79%



CRT Securities

At September 30, 2017, our CRT securities had an amortized cost of $612.7 million, a fair value of $653.6 million, a weighted average yield of 5.67% and a weighted average time to maturity of 9.4 years. At December 31, 2016, our CRT securities had an amortized cost of $382.7 million, a fair value of $404.9 million, a weighted average yield of 5.86% and weighted average time to maturity of 9.0 years.



Residential Whole Loans


The following table presents the contractual maturities of our residential whole loans held by consolidated trustsloan portfolios at SeptemberJune 30, 2017 and does2023. Amounts presented do not reflect estimates of prepayments or scheduled amortization. For residential whole loans held

(In Thousands)
Purchased
Performing Loans (1)
Purchased Credit
Deteriorated Loans (2)
Purchased Non-Performing Loans
Amount due: 
Within one year$988,366 $645 $1,768 
After one year:
Over one to five years825,457 2,854 2,955 
Over five years5,168,920 444,867 734,989 
Total due after one year$5,994,377 $447,721 $737,944 
Total residential whole loans$6,982,743 $448,366 $739,712 

(1)Excludes an allowance for credit losses of $10.8 million at carrying value, amounts presented are estimated based on the underlying loan contractual amounts.June 30, 2023.

(2)Excludes an allowance for credit losses of $20.2 million at June 30, 2023.
(In Thousands) 
Residential Whole Loans,
at Carrying Value
 
Residential Whole Loans,
at Fair Value (1)
Amount due:    
Within one year $1,471
 $7,981
After one year:    
Over one to five years 4,002
 12,577
Over five years 633,743
 962,592
Total due after one year $637,745
 $975,169
Total residential whole loans $639,216
 $983,150

(1) Excludes approximately $120.4 million of residential whole loans held at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2017.


The following table presents, at SeptemberJune 30, 2017,2023, the dollar amount of certain of our residential whole loans, held at fair value, contractually maturing after one year, and indicates whether the loans have fixed interest rates or adjustable interest rates:


(In Thousands)
Purchased
Performing Loans (1)(2)
Purchased Credit
 Deteriorated Loans (1)(2)
Purchased Non-Performing Loans (1)
Interest rates: 
Fixed$4,701,392 $382,358 $608,678 
Adjustable1,292,985 65,363 129,266 
Total$5,994,377 $447,721 $737,944 
(In Thousands) 
Residential Whole Loans,
at Fair Value (1)(2)
Interest rates:  
Fixed $561,122
Adjustable 414,047
Total $975,169


(1)Includes loans on which borrowers have defaulted and are not making payments of principal and/or interest as of SeptemberJune 30, 2017.2023.
(2)Excludes approximately $120.4 millionan allowance for credit losses.

64
Table of residential whole loans heldContents
Securities, at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2017.Fair Value

Information is not presented for residential whole loans held at carrying value as income is recognized based on pools of assets with similar risk characteristics using an estimated yield based on cash flows expected to be collected over the lives of the loans in such pools rather than on the contractual coupons of the underlying loans.


The following table presents additional information regardingwith respect to our residential whole loans heldSecurities, at fair value at SeptemberJune 30, 20172023 and December 31, 2016:2022:
(Dollars in Thousands)June 30, 2023 December 31, 2022
Agency MBS
Face/Par$398,469 $131,165 
Fair Value396,291 131,700 
Amortized Cost400,124 132,025 
Weighted average yield (2)
5.25 %N/A(1)
Weighted average time to maturity29.7 years30.0 years
Term notes backed by MSR collateral
Face/Par$105,000 $105,000 
Fair Value91,200 97,898 
Amortized Cost88,993 86,399 
Weighted average yield (2)
16.20 %14.30 %
Weighted average time to maturity0.3 years0.8 years
CRT Securities
Face/Par$80,201 $80,791 
Fair Value82,514 79,214 
Amortized Cost69,820 70,438 
Weighted average yield (2)
9.55 %9.96 %
Weighted average time to maturity18.5 years19.0 years
Non-Agency MBS
Face/Par$29,156 $29,858 
Fair Value24,289 24,552 
Amortized Cost24,096 24,552 
Weighted average yield (2)
5.90 %N/A(1)
Weighted average time to maturity28.3 years28.8 years
  
Residential Whole Loans,
at Fair Value
(Dollars in Thousands) September 30, 2017 December 31, 2016
Loans 90 days or more past due (1):
    
Number of Loans 3,276
 2,560
Aggregate Amount Outstanding $690,924
 $570,025
(1)These securities were acquired at the end of the reporting period in 2022 and, therefore, no interest income was recorded with respect to these securities in 2022.

(1) Excludes loans which are 90 or more days past due at September 30, 2017 from the $120.4 million of residential whole loans held(2)Weighted average yield is annualized interest income divided by average amortized cost for Securities, at fair value for which the closing of the purchase transaction had not occurred as of September 30, 2017.

Income on residential whole loans held at carrying value is recognized based on pools of assets with similar credit risk characteristics using an estimated yield based on cash flows expected to be collected over the lives of the loans in such pools rather than the contractual coupons of the underlying loans. As the unit of account is at the pool level rather than the individual loan level, none of our residential whole loans held at carrying value are currently considered 90 days or more past due.June 30, 2023 and December 31, 2022.



Exposure to Financial Counterparties
We finance a significant portion of our residential mortgage assets with repurchase agreements and other advances. In connection with these financing arrangements, we pledge our assets as collateral to secure the borrowing. The amount of collateral pledged will typically exceed the amount of the financing with the extent of over-collateralization ranging from 1% - 5% of the amount borrowed (U.S. Treasury and Agency MBS collateral) to up to 35% (Non-Agency MBS collateral). Consequently, while repurchase agreement financing results in us recording a liability to the counterparty in our consolidated balance sheets, we are exposed to the counterparty, if during the term of the repurchase agreement financing, a lender should default on its obligation and we are not able to recover our pledged assets. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral.



The table below summarizes our exposure to our counterparties at September 30, 2017, by country:
Country 
Number of
Counterparties
 
Repurchase
Agreement
Financing
 
Exposure (1)
 
Exposure as a
Percentage of
MFA Total
Assets
(Dollars in Thousands)        
European Countries:  (2)
    
  
  
Switzerland (3)
 3 $1,216,558
 $451,176
 4.06%
France 2 633,669
 164,412
 1.48
United Kingdom 2 389,142
 118,615
 1.07
Holland 1 128,838
 10,898
 0.10
Total European 8 2,368,207
 745,101
 6.71%
Other Countries:    
  
  
United States 14 $3,393,888
 $822,352
 7.41%
Canada (4)
 3 546,052
 138,114
 1.24
Japan (5)
 3 458,915
 39,246
 0.35
China (5)
 1 412,410
 13,115
 0.12
South Korea 1 192,229
 12,931
 0.12
Total Other 22 5,003,494
 1,025,758
 9.24%
Total 30 $7,371,701
(6)$1,770,859
 15.95%

(1)Represents for each counterparty the amount of cash and/or securities pledged as collateral less the aggregate of repurchase agreement financing and net interest receivable/payable on all such instruments.
(2)Includes European-based counterparties as well as U.S.-domiciled subsidiaries of the European parent entity.
(3)Includes London branch of one counterparty and Cayman Islands branch of the other counterparty.
(4)Includes Canada-based counterparties as well as U.S.-domiciled subsidiaries of Canadian parent entities. In the case of one counterparty, also includes exposure of $411.4 million to Barbados-based affiliate of the Canadian parent entity.
(5)Exposure is to U.S.-domiciled subsidiary of the Japanese or Chinese parent entity, as the case may be.
(6)Includes $500.0 million of repurchase agreements entered into in connection with contemporaneous repurchase and reverse repurchase agreements with a single counterparty.
At September 30, 2017, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.
Uncertainty in the global financial market and weak economic conditions in Europe, including as a result of the United Kingdom’s recent vote to leave the European Union (commonly known as “Brexit”), could potentially impact our major European financial counterparties, with the possibility that this would also impact the operations of their U.S. domiciled subsidiaries. This could adversely affect our financing and operations as well as those of the entire mortgage sector in general. Management monitors our exposure to our repurchase agreement counterparties on a regular basis, using various methods, including review of recent rating agency actions or other developments and by monitoring the amount of cash and securities collateral pledged and the associated loan amount under repurchase agreements with our counterparties. We intend to make reverse margin calls on our counterparties to recover excess collateral as permitted by the agreements governing our financing arrangements, or take other necessary actions to reduce the amount of our exposure to a counterparty when such actions are considered necessary. 

Tax Considerations
 
Current period estimated taxable income and items expected to impact future taxable income


We estimate that for the ninesix months ended SeptemberJune 30, 2017,2023, our REIT taxable income was approximately $250.9$72.3 million. Based on dividends paid or declared during the nine months ended September 30, 2017, we have undistributed taxable income of approximately $60.7 million, or $0.15 per share. We have until the filing of our 2017 tax return (due not later than October 15, 2018) to declare the distribution of any 2017 REIT taxable income not previously distributed.

During the first quarter of 2017 we unwound our remaining MBS resecuritization transaction. We currently estimate that the unwind will generate taxable income (but not GAAP income) of an amount in excess of $0.12 per share. During the second

quarter of 2017 we entered into our first securitization of residential whole loans. As part of this transaction, loans deemed to be sold for tax purposes are estimated to generate 2017 taxable income in excess of $0.01 per share.


Key differences between GAAP net income and REIT Taxable Income for Non-Agency MBS and

Residential Whole Loans
Our total Non-Agency MBS portfolio for tax differs from our portfolio reported for GAAP primarily due to the fact that for tax purposes; (i) certain of the MBS contributed to the VIEs used to facilitate MBS resecuritization transactions were deemed to be sold; and (ii) the tax basis of underlying MBS considered to be re-acquired in connection with the unwind of such transactions becomes the fair market value of such securities at the time of the unwind. For GAAP reporting purposes the underlying MBS that were included in these MBS resecuritization transactions were not considered to be sold. Similarly, for tax purposes the residential whole loans contributed to the VIEs used to facilitate our second quarter 2017 loan securitization transaction were deemed to be sold for tax purposes, but not for GAAP reporting purposes. In addition, for our Non-Agency MBS and residential whole loan tax portfolios, potential timing differences arise with respect to the accretion of market discount into income and recognition of realized losses for tax purposes as compared to GAAP.  Consequently, our REIT taxable income calculated in a given period may differ significantly from our GAAP net income.Securities
  
The determination of taxable income attributable to Non-Agency MBS and 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 Non-Agency MBS and residential whole loanssuch 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.  Moreover,

Potential timing differences can arise with respect to the deductibilityaccretion of realizeddiscount 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 Non-Agency MBSthe termination of Swaps by us generally are amortized over the remaining term of the Swap.
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Table of Contents

Securitization

Generally, securitization transactions for GAAP and residential whole loans,tax can be characterized as either sales or financings, depending on transaction type, structure and their effect on market discount accretion is analyzed on an asset-by-asset basisavailable elections. For GAAP purposes, our securitizations have been treated as on-balance sheet financing transactions. For tax purposes, they have been characterized as both financing and while they will result insale transactions.
Where a reduction of taxable income, this reduction tends to occur gradually and primarily for Non-Agency MBS in periods after the realized losses are reported. In addition, for MBS resecuritization transactions that were treatedsecuritization has been characterized as a sale, of the underlying MBS for tax purposes, taxable gain or loss if any, resulting from the unwind of such transactions is not recognized in GAAP net income.
Securitization transactions result in differences between GAAP net income and REIT Taxable Income
For tax purposes, depending on the transaction structure, a securitization and/or resecuritization transaction may be treated either as a sale or a financing of the underlying collateral.  Income recognized from securitization and resecuritization transactions will differ for tax and GAAP purposes. For tax purposes,In addition, we own andor may in the future acquire interests in securitization and/or resecuritizationre-securitization trusts, in which several of the classes of securities are or will be issued with Original Issue Discountoriginal 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. For tax purposes, 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 effectingaffecting our dividend distribution requirement to stockholders. In addition, for
For securitization and/or resecuritizationre-securitization transactions that were treated as a sale of the underlying collateral for tax purposes, the unwindunwinding of any such transaction will likely result in a taxable gainincome or lossloss. Given that is likely not recognized in GAAP net income since securitization and resecuritizationre-securitization transactions are typically accounted for as financing transactions for GAAP purposes. Thepurposes, 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 basisand GAAP purposes.

Whether our investments are held by our REIT or one of underlying residential whole loansits Taxable REIT Subsidiaries (TRS)

We estimate that for the six months ended June 30, 2023, our net TRS taxable loss will be $31.9 million. Net income or MBS re-acquiredloss generated by our TRS subsidiaries is included in connection withconsolidated GAAP net income, but may not be included in REIT taxable income in the unwind of such transactions becomes the fair market value of such assets at the timesame period. REIT taxable income generally does not include taxable income of the unwind.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 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.


Regulatory Developments
 
The U.S. Congress, Board of Governors of the Federal Reserve, System, U.S. Treasury, Federal Deposit Insurance Corporation SEC(or FDIC), the Securities and Exchange Commission (or SEC) and other governmental and regulatory bodies have taken and continue to consider additional actions in response to the 2007-2008 financial crisis.  In particular, the Dodd-Frank Wall Street Reform and Consumer Protection Act (or the Dodd-Frank Act) created a new regulator, an independent bureau housed within the Federal Reserve System and known as the Consumer Financial Protection Bureau (or the CFPB). The CFPB has broad authority over a wide range of consumer financial products and services, including mortgage lending.lending and servicing.  One portion of the Dodd-Frank Act, the Mortgage Reform and Anti-Predatory Lending Act (or Mortgage Reform Act), contains underwriting and servicing standards for the mortgage industry, restrictions on compensation for mortgage loan originators, and various other requirements related to mortgage origination.origination and servicing.  In addition, the Dodd-Frank Act grants enforcement authority and broad discretionary regulatory authority to the CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans that the CFPB finds abusive, unfair, deceptive or predatory, as well as to take other actions that the CFPB finds are necessary or proper to ensure responsible affordable mortgage credit remains available to consumers.  The Dodd-Frank Act also affects the securitization of mortgages (and other assets) with requirements for risk retention by securitizers and requirements for regulating Rating Agencies.rating agencies.


TheNumerous regulations have been issued pursuant to the Dodd-Frank Act, requires that numerousincluding regulations be issued, many of which (including those mentioned above regarding mortgage loan servicing, underwriting and mortgage loan originator compensation) have only recently been implementedcompensation, and operationalized.others could be issued in the future.  As a result, we are unable to fully predict at this time how the Dodd-Frank Act, as well as other laws or regulations that may be adopted in the future, will affect our business, results of operations and financial condition, or the environment for repurchase financing and other forms
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of borrowing, the investing environment for Agency MBS, Non-Agency MBS and/or residential mortgage loans, the securitization industry, Swaps and other derivatives.  However, at a minimum, weWe believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to continue to increase the economic and compliance costs for participants in the mortgage and securitization industries, including us.


In additionOn October 19, 2022, a three-judge panel of the Fifth Circuit Court of Appeals issued an opinion in Community Financial Services Association of America, et al. v. Consumer Financial Protection Bureau, et al., concluding that the CFPB’s funding structure unconstitutionally violates the Appropriations Clause of the U.S. Constitution. As a result, the Court vacated the payday lending rule that was the subject of challenge. Although the Fifth Circuit’s decision applies only to the regulatory actions being implemented underdisputed regulation in that case, it may call into question the Dodd-Frank Act, on August 31, 2011,Bureau’s authority and other rules promulgated during CFPB’s self-funding structure. On February 27, 2023, the SEC issued a concept release under whichSupreme Court granted the government's petition to review the Fifth Circuit's decision in the Community Financial case, and it is reviewing interpretive issues relatedscheduled to Section 3(c)(5)(C)hear oral arguments in this matter in early October 2023. On March 23, 2023, the Second Circuit Court of Appeals declined to follow Community Financial, concluding in Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney that CFPB’s funding structure is constitutional. It is unclear yet what impact these rulings may have on the Investment Company Act.  Section 3(c)(5)(C) excludes from the definition of “investment company” entities that are primarily engagedmortgage lending markets but they may give rise to uncertainty, particularly in among other things, “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.”  Many companies that engagethose markets in the business of acquiring mortgages and mortgage-related instruments seek to relyFifth Circuit. Any such uncertainty could adversely impact the cash flow on existing interpretations of the SEC Staff with respect to Section 3(c)(5)(C) so as not to be deemed an investment company for the purpose of regulation under the Investment Company Act.  In connection with the concept release, the SEC requested comments on, among other things, whether it should reconsider its existing interpretation of Section 3(c)(5)(C). To date the SEC has not taken or otherwise announced any further action in connection with the concept release.mortgage loans.  

The FHFAFederal Housing Finance Agency (or FHFA) and both houses of Congress have discussed and considered separatevarious measures intended to restructure the U.S. housing finance system and the operations of Fannie Mae and Freddie Mac. Congress may continue to consider legislation that would significantly reform the country’s mortgage finance system, including, among other things, eliminating Freddie Mac and Fannie Mae and replacing them with a single new MBS insurance agency. Many details remain unsettled, including the scope and costs of the agencies’ guarantee and their affordable housing mission, some of which could be addressed even in the absence of large-scale reform.  On March 27, 2019, then President Trump issued a memorandum on federal housing finance reform that directed the Secretary of the Treasury to develop a plan for administrative and legislative reforms as soon as practicable to achieve the following housing reform goals: 1) ending the conservatorships of the Government-sponsored enterprises (or GSEs) upon the completion of specified reforms; 2) facilitating competition in the housing finance market; 3) establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and 4) providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. On September 5, 2019, in response to then President Trump’s memorandum, the U.S. Department of the Treasury released a plan, developed in conjunction with the FHFA, the Department of Housing and Urban Development (or HUD), and other government agencies, which includes legislative and administrative reforms to achieve each of these reform goals. At this point, it remains unclear whether any of these legislative or regulatory reforms will be enacted or implemented. On June 23, 2021, the United States Supreme Court concluded that the structure of the FHFA (which insulated its director from removal by the President) was unconstitutional and remanded the case for further proceedings. Subsequent to the Supreme Court’s ruling, President Biden dismissed the FHFA director and appointed Sandra L. Thompson, who was sworn in as the third Senate-confirmed Director of the FHFA in June 2022. The prospects for passage of any of these plans are uncertain, and the change in FHFA leadership underscores the potential for change to Fannie Mae and Freddie Mac.

While the likelihood of enactment of major mortgage finance system reform in the short term remains uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations. A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage loans.In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general.

On October 27, 2021, FHFA announced that it is seeking comment on a proposed rulemaking that would introduce additional public disclosure requirements for the Enterprise Regulatory Capital Framework (or ERCF) for Fannie Mae and Freddie Mac. As proposed, the rule would implement quarterly quantitative and qualitative disclosure requirements for Fannie Mae and Freddie Mac related to regulatory capital instruments, risk-weighted assets calculated under the ERCF’s standardized approach, and risk management policies and procedures. This notice of proposed rulemaking suggests the potential for enhanced regulation and reporting obligations in the mortgage and securitization industries, which in turn may further increase the economic and compliance costs for participants in the mortgage and securitization industries, including us. On February 25, 2022, FHFA announced its final rule amending the ERCF by refining the prescribed leverage buffer amount (leverage buffer) and both housesrisk-based capital treatment of Congress continueretained CRT exposures for Fannie Mae and Freddie Mac. The final rule largely tracks the proposed rule. Among other things, the final rule will replace the fixed leverage buffer equal to consider various measures intended1.5% of each of Fannie Mae’s and Freddie Mac’s adjusted total assets with a dynamic leverage buffer equal to dramatically restructure50% of each enterprise’s stability capital buffer; replace the U.S. housing finance systemprudential floor of 10% on the risk weight assigned to any retained CRT exposure with a prudential floor of
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5% on the risk weight assigned to any retained CRT exposure; and remove the operationsrequirement that each of Fannie Mae and Freddie Mac we expect debatemust apply an overall effectiveness adjustment to its retained CRT exposures. The final rule went into effect on May 16, 2022.

On June 1, 2022, FHFA published a Final Rule that supplements the ERCF by requiring Fannie Mae and Freddie Mac to submit annual capital plans to the Agency and provide prior notice for certain capital actions. The final rule also incorporates the stress capital buffer determination from the ERCF into the capital planning process. Among other things, the final rule mandates that the each of Fannie Mae’s and Freddie Mac’s capital plans must include:

•An assessment of the expected sources and uses of capital over the planning horizon;
•Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the enterprise's internal scenarios, as well as under FHFA's scenarios;
•A description of all planned capital actions over the planning horizon;
•A discussion of how the enterprise will, under expected and stressful conditions, maintain capital commensurate with the business risks and continue to serve the housing market; and
•A discussion of any expected changes to the enterprise's business plan that are likely to have a material impact on the topicenterprise's capital adequacy or liquidity.

This final rule was effective August 2, 2022.

Thus far in 2023, the FHFA has taken numerous actions including a series of pricing adjustments to the framework of upfront fees the GSEs charge lenders on single-family loans or Loan-Level Price Adjustments (LLPAs) and updates to the GSE’s annual Equitable Housing Finance Plans relating to loss mitigation support, financial coaching, and other programs. The FHFA also requested comments regarding proposals to codify the FHFA’s fair lending oversight requirements for the GSEs and information collection and reporting obligations for the GSEs. On March 13, 2023, the FHFA issued a notice of proposed rulemaking regarding the ERCF, including potential modifications related to guarantees on commingled securities, multifamily mortgage exposures secured by government-subsidized properties, derivatives and cleared transactions, and credit scores, among other items. As discussed above, new or modified regulatory obligations may continue throughout 2017. However, we cannot beto increase the economic and compliance costs for participants in the mortgage and securitization industries, including MFA.

On June 28, 2021, the CFPB Issued a Final Rule amending Regulation X under the Real Estate Settlement Procedures Act to provide additional foreclosure protections to borrowers, such as barring certain ifnew foreclosure filings until after December 31, 2021. These mortgage servicing rules and any housing and/or mortgage-related legislation will emerge from committee, or be approvedsimilar regulations passed by Congress, and if so, whatCFPB in the effect will befuture could adversely impact the cash flow on our business.mortgage loans.
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Results of Operations


Quarter Ended SeptemberJune 30, 20172023 Compared to the Quarter Ended SeptemberMarch 31, 2023

The following table summarizes the changes in our results of operations for the three months ended June 30, 20162023 compared to the three months ended March 31, 2023.

Three Months Ended
(In Thousands)June 30, 2023 March 31, 2023QoQ Change
Interest Income: 
Residential whole loans$128,048 $119,510 $8,538 
Securities, at fair value9,948 7,308 2,640 
Other interest-earning assets2,622 2,351 271 
Cash and cash equivalent investments3,732 3,036 696 
Interest Income$144,350 $132,205 $12,145 
Interest Expense:
Asset-backed and other collateralized financing arrangements$95,884 $88,880 $7,004 
Other interest expense3,961 3,956 5 
Interest Expense$99,845 $92,836 $7,009 
Net Interest Income$44,505 $39,369 $5,136 
(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans$(294)$13 $(307)
Net Interest Income after Provision for Credit Losses$44,211 $39,382 $4,829 
Other (Loss)/Income, net:
Net (loss)/gain on residential whole loans measured at fair value through earnings$(130,703)$129,174 $(259,877)
Impairment and other net (loss)/gain on securities and other portfolio investments(4,569)2,931 (7,500)
Net gain on real estate owned2,153 3,942 (1,789)
Net gain/(loss) on derivatives used for risk management purposes60,451 (21,208)81,659 
Net gain/(loss) on securitized debt measured at fair value through earnings27,394 (51,725)79,119 
Lima One - origination, servicing and other fee income11,477 8,976 2,501 
Other, net5,496 3,172 2,324 
Other (Loss)/Income), net$(28,301)$75,262 $(103,563)
Operating and Other Expense:
Compensation and benefits$21,771 $20,630 $1,141 
Other general and administrative expense11,169 10,391 778 
Loan servicing, financing and other related costs7,598 9,539 (1,941)
Amortization of intangible assets1,300 1,300 — 
Operating and Other Expense$41,838 $41,860 $(22)
Net (Loss)/Income$(25,928)$72,784 $(98,712)
Less Preferred Stock Dividend Requirement$8,218 $8,219 $(1)
Net (Loss)/Income Available to Common Stock and Participating Securities$(34,146)$64,565 $(98,711)
Basic (Loss)/Earnings per Common Share$(0.34)$0.63 $(0.97)
Diluted (Loss)/Earnings per Common Share$(0.34)$0.62 $(0.96)

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General
 
For the thirdsecond quarter of 2017,2023, we had net incomeloss available to our common stock and participating securities of $60.1$(34.1) million, or $0.15$(0.34) per basic and diluted common share, compared to net income available to common stock and participating securities of $79.3$64.6 million, or $0.21$0.63 per basic common share and $0.62 per diluted common share, for the thirdfirst quarter of 2016.2023. The decrease in net income available to common stock and participating securities andin the decrease of this item on a per share basiscurrent period primarily reflects alower Other income, which decreased by $103.6 million to $(28.3) million for the current period, compared to Other net income of $75.3 million in the immediately prior quarter. The decrease in Other income was primarily driven by mark-to-market losses in the current quarter on our residential whole loans that are measured at fair value through earnings, partially offset by net gains on derivatives used for risk management purposes as well as on securitized debt measured at fair value through earnings. The decrease in Other income was partially offset by higher net interest income of $5.1 million for the second quarter of 2023 compared to the immediately prior quarter, primarily due to higher interest income earned on our Agency and Non-Agency MBS portfolios and lower other income, driven primarily by unrealized lossesresidential mortgage asset portfolio, due to an increase in the yield earned on CRT securities accounted for at fair value, partially offset by gains on liquidation of certainour residential whole loans accounted for at carrying value. In addition, operating and other expenses were higher primarily due to non-recurring expensesadditional investments in relation to our contractual obligation to accelerate the vesting of certain share based awards and to make a death benefit payment to the estate of our former Chief Executive Officer.Agency MBS.


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 MBS.investments. Interest rates and CPRs (which measure the amount of unscheduled principal prepayment on a bond or loan as a percentage of the bondits 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 the thirdsecond quarter of 2017,2023, our net interest spread and margin were 2.02%2.14% and 2.54%2.99%, respectively, compared to a net interest spread and margin of 2.13%1.74% and 2.46%2.64%, respectively, for the thirdfirst quarter of 2016.2023. Our net interest income decreasedincreased by $8.7$5.1 million or 13.5%, to $55.9 million from $64.5and was $44.5 million for the thirdsecond quarter of 2016.  Current2023, compared to $39.4 million for the first quarter of 2023. For the second quarter of 2023, net interest income includes higher net interest income from Agency MBS and Legacy Non-Agency MBS declined compared to the third quarter of 2016 by approximately $11.0 million, primarily due to lower average amounts invested in these securities and higher funding costs, partially offset by higher yields earned on these investments. In addition, net interest income on RPL/NPL MBS was $6.8 million lower compared to the third quarter of 2016 primarily due to lower average amounts invested in these securities and higher funding costs partially offset by higher yields earned on these securities. These decreases were partially offset by higher net interest income on MSR related assets, CRT securities andour residential whole loans at carrying valueloan portfolio of approximately $9.2$4.2 million compared to the thirdfirst quarter of 2016,2023, primarily due to higher average balances investedasset yields, partially offset by an increase in these assets. In addition, netfinancing rates on our financing agreement borrowings. Net interest income for the second quarter of 2023 also includes $4.6 millionapproximately $967,000 of interest expense associated with residential whole loans at fair value, reflecting a $1.3 million increase in borrowing costs related to these investments compared to the third quarter of 2016. Couponadditional interest income received from residential whole loans at fair value is presented as a componentcash and other interest-earning assets.


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Table of the total income earned on these investments and therefore is included in Other Income, net rather than net interest income.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 three months ended SeptemberJune 30, 20172023 and 2016March 31, 2023. Average yields are derived by dividing annualized interest income by the average amortized cost of the related assets, and average costs are derived by dividing annualized interest expense by the daily average balance of the related liabilities, for the periods shown. The yields and costs include premium amortization and purchase discount accretion, which are considered adjustments to interest rates.

 Three Months Ended June 30, 2023Three Months Ended March 31, 2023
 Average Balance InterestAverage
Yield/Cost		Average Balance InterestAverage Yield/Cost
(Dollars in Thousands)  
Assets:
Interest-earning assets (1):
Residential whole loans$8,402,307 $128,048 6.10 %$8,423,319 $119,510 5.68 %
 Securities, at fair value518,958 9,948 7.67 333,808 7,308 8.76 
Cash and cash equivalents (2)
478,015 3,732 3.12 469,353 3,036 2.59 
Other interest-earning assets64,354 2,622 16.30 59,241 2,351 15.87 
Total interest-earning assets9,463,634 144,350 6.10 9,285,721 132,205 5.69 
Liabilities:
Interest-bearing liabilities:
Collateralized financing agreements (3)
$3,148,269 $56,562 7.11 %$3,145,555 $53,301 6.78 %
Securitized debt (4)
4,051,021 39,322 3.88 3,816,051 35,579 3.73 
Convertible Senior Notes228,333 3,961 6.94 227,969 3,956 6.94 
Total interest-bearing liabilities7,427,623 99,845 5.34 7,189,575 92,836 5.17 
Net interest income/net interest rate spread (5)
44,505 0.76 39,369 0.52 
Impact of net Swap carry (6)
25,965 1.38 21,817 1.22 
Net interest rate spread (including the impact of Swaps)$70,470 2.14 %$61,186 1.74 %
Net interest-earning assets/net interest margin (7)
$2,036,011 2.99 %$2,096,146 2.64 %

(1)Yields presented throughout this Quarterly Report on Form 10-Q are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses. For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.  
(2)Includes average interest-earning cash, cash equivalents and restricted cash.
(3)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 1 of this Quarterly Report on Form 10-Q.
(4)Includes both securitized debt, at carrying value, and securitized debt, at fair value.
(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 annualized net interest income (including net swap expense) divided by average interest-earning assets.


  Three Months Ended September 30,
  2017 2016
(Dollars in Thousands) Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost
Assets:  
  
  
  
  
  
Interest-earning assets:  
  
  
  
  
  
Agency MBS (1)
 $3,154,112
 $15,533
 1.97% $4,143,523
 $18,957
 1.83%
Legacy Non-Agency MBS (1)
 2,182,148
 48,693
 8.93
 2,858,731
 57,818
 8.09
RPL/NPL MBS (1)
 1,315,737
 14,559
 4.43
 2,673,527
 25,820
 3.86
Total MBS 6,651,997
 78,785
 4.74
 9,675,781
 102,595
 4.24
CRT securities (1)
 604,322
 8,676
 5.74
 294,704
 3,983
 5.41
MSR related assets (1)
 454,354
 7,194
 6.33
 —
 —
 —
Residential whole loans, at carrying value (2)
 609,538
 9,026
 5.92
 388,601
 5,917
 6.09
Cash and cash equivalents (3)
 657,331
 1,452
 0.88
 307,147
 221
 0.29
Total interest-earning assets 8,977,542
 105,133
 4.68
 10,666,233
 112,716
 4.23
Total non-interest-earning assets (2)
 2,487,953
     2,146,677
    
Total assets $11,465,495
     $12,812,910
    
             
Liabilities and stockholders’ equity:            
Interest-bearing liabilities:            
  Total repurchase agreements and other advances (4)
 $7,022,913
 $46,303
 2.58% $8,868,173
 $46,158
 2.04%
Securitized debt 139,276
 962
 2.70
 —
 —
 —
Senior Notes 96,756
 2,010
 8.31
 96,718
 2,009
 8.31
Total interest-bearing liabilities 7,258,945
 49,275
 2.66
 8,964,891
 48,167
 2.10
Total non-interest-bearing liabilities 927,877
     842,227
    
Total liabilities 8,186,822
     9,807,118
    
Stockholders’ equity 3,278,673
     3,005,792
    
Total liabilities and stockholders’ equity $11,465,495
     $12,812,910
    
             
Net interest income/net interest rate spread (5)
   $55,858
 2.02%   $64,549
 2.13%
Net interest-earning assets/net interest margin (6)
 $1,718,597
   2.54% $1,701,342
   2.46%
Ratio of interest-earning assets to
interest-bearing liabilities		 1.24x     1.19x    
71

(1)Yields presented throughout this Quarterly Report on Form 10-Q are calculated using average amortized cost data for securities which excludes unrealized gains and losses and includes principal payments receivable on securities.  For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.  Includes Non-Agency MBS transferred to consolidated VIEs.
(2)Excludes residential whole loans held at fair value that are reported as a component of total non-interest-earning assets.
(3)Includes average interest-earning cash, cash equivalents and restricted cash.
(4)Average cost of repurchase agreements includes the cost of Swaps allocated based on the proportionate share of the overall estimated weighted average portfolio duration.
(5)Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds.
(6)Net interest margin reflects annualized net interest income divided by average interest-earning assets.

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.
  Three Months Ended September 30, 2017
  Compared to
  Three Months Ended September 30, 2016
  Increase/(Decrease) due to 
Total Net
Change in
Interest Income/Expense
(In Thousands) Volume Rate 
Interest-earning assets:  
  
  
Agency MBS (4,790) 1,366
 (3,424)
Legacy Non-Agency MBS (14,688) 5,563
 (9,125)
RPL/NPL MBS (14,616) 3,355
 (11,261)
CRT securities 4,430
 263
 4,693
MSR related assets 7,194
 —
 7,194
Residential whole loans, at carrying value (1)
 3,276
 (167) 3,109
Cash and cash equivalents 437
 794
 1,231
Total net change in income from interest-earning assets $(18,757) $11,174
 $(7,583)
       
Interest-bearing liabilities:      
Agency repurchase agreements and FHLB advances (3,498) 3,767
 269
Legacy Non-Agency repurchase agreements (3,396) 1,541
 (1,855)
RPL/NPL MBS repurchase agreements (7,199) 2,760
 (4,439)
CRT securities repurchase agreements 1,242
 316
 1,558
MSR related assets repurchase agreements 2,408
 —
 2,408
Residential whole loan at carrying value repurchase agreements 605
 457
 1,062
Residential whole loan at fair value repurchase agreements 690
 452
 1,142
Securitized debt 962
 —
 962
Senior Notes 1
 —
 1
Total net change in expense of interest-bearing liabilities $(8,185) $9,293
 $1,108
Net change in net interest income $(10,572) $1,881
 $(8,691)
Three Months Ended June 30, 2023
Compared to
 Three Months Ended March 31, 2023
 Increase/(Decrease) due toTotal Net
Change in
Interest Income/Expense
(In Thousands)VolumeRate
Interest-earning assets:   
Residential whole loans$(299)$8,837 $8,538 
Securities, at fair value3,642 (1,002)2,640 
Cash and cash equivalents57 639 696 
Other interest-earning assets206 65 271 
Total net change in income of interest-earning assets$3,606 $8,539 $12,145 
Interest-bearing liabilities:  
Residential whole loan financing agreements$(2,985)$3,500 $515 
Securities, at fair value repurchase agreements2,672 72 2,744 
REO financing agreements7 (5)2 
Securitized debt2,264 1,479 3,743 
Convertible Senior Notes5 — 5 
Total net change in expense of interest-bearing liabilities$1,963 $5,046 $7,009 
Net change in net interest income$1,643 $3,493 $5,136 
 
(1)Excludes residential whole loans held at fair value which are reported as a component of non-interest-earning assets.




72

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
 
Net Interest
Spread (1)
 
Net Interest
Margin (2)
Quarter Ended  
September 30, 2017 2.02% 2.54%
June 30, 2017 2.10
 2.58
March 31, 2017 2.27
 2.63
December 31, 2016 2.12
 2.46
September 30, 2016 2.13
 2.46
 Total Interest-Earning Assets and Interest-
Bearing Liabilities
Net Interest
Spread (1)
Net Interest
Margin (2)
Quarter Ended
June 30, 20232.14 %2.99 %
March 31, 20231.74 2.64 
December 31, 20222.21 3.04 
September 30, 20221.64 2.43 
June 30, 20221.37 2.13 
 
(1)Reflects the difference between the yield on average interest-earning assets and average cost of funds.funds (including net swap expense).
(2)Reflects annualized net interest income (including net swap expense) divided by average interest-earning assets.


The following table presents the components of the net interest spread earned on our Agency MBSResidential whole loans for the quarterly periods presented:

 Quarter Ended
June 30, 2023March 31, 2023December 31, 2022September 30, 2022June 30, 2022
Purchased Performing Loans
Net Yield (1)
5.66 %5.38 %5.04 %4.75 %4.20 %
Cost of Funding (2)
3.97 %3.95 %3.70 %3.60 %3.28 %
Net Interest Spread1.69 %1.43 %1.34 %1.15 %0.92 %
Purchased Credit Deteriorated Loans
Net Yield (1)
7.09 %6.13 %6.59 %6.49 %6.85 %
Cost of Funding (2)
1.98 %2.23 %2.13 %2.72 %3.17 %
Net Interest Spread5.11 %3.90 %4.46 %3.77 %3.68 %
Purchased Non-Performing Loans
Net Yield (1)
10.11 %8.46 %11.15 %9.84 %9.40 %
Cost of Funding (2)
3.53 %3.53 %3.01 %2.86 %3.34 %
Net Interest Spread6.58 %4.93 %8.14 %6.98 %6.06 %
Total Residential Whole Loans
Net Yield (1)
6.10 %5.68 %5.62 %5.30 %4.85 %
Cost of Funding (2)
3.83 %3.82 %3.56 %3.49 %3.28 %
Net Interest Spread2.27 %1.86 %2.06 %1.81 %1.57 %

(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 Non-Agency MBSsecuritized debt. Cost of funding shown in the table above include the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps and, accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 145 basis points for our Purchased Performing Loans, 206 basis points for our Purchased Credit Deteriorated Loans, and 87 basis points for our Purchased Non-Performing Loans. For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 129 basis points for our
73
Purchased Performing Loans, 171 basis points for our Purchased Credit Deteriorated Loans, and 77 basis points for our Purchased Non-Performing Loans. For the quarter ended December 31, 2022, this decreased the overall funding cost by 89 basis points for our Residential whole loans, 87 basis points for our Purchased Performing Loans, 141 basis points for our Purchased Credit Deteriorated Loans, and 76 basis points for our Purchased Non-Performing Loans. For the quarter ended September 30, 2022, this decreased the overall funding cost by 20 basis points for our Residential whole loans, 19 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 24 basis points for our Purchased Non-Performing Loans. For the quarter ended June 30, 2022, this increased the overall funding cost by 25 basis points for our Residential whole loans, 23 basis points for our Purchased Performing Loans, 43 basis points for our Purchased Credit Deteriorated Loans, and 29 basis points for our Purchased Non-Performing Loans.

The following table presents the components of the net interest spread earned on our Securities for the quarterly periods presented:
 
  Agency MBS Legacy Non-Agency MBS RPL/NPL MBS Total MBS
Quarter Ended 
Net
Yield 
(1)
 
Cost of
Funding (2)
 
Net Interest
Rate
Spread (3)
 
Net
Yield 
(1)
 
Cost of
Funding (2)
 
Net Interest
Rate
Spread (3)
 
Net
Yield 
(1)
 
Cost of
Funding (2)
 
Net Interest
Rate
Spread (3)
 
Net
Yield 
(1)
 
Cost of
Funding (2)
 
Net Interest
Rate
Spread (3)
September 30, 2017 1.97% 1.75% 0.22% 8.93% 3.26% 5.67% 4.43% 2.69% 1.74% 4.74% 2.41% 2.33%
June 30, 2017 1.96
 1.57
 0.39
 8.85
 3.28
 5.57
 4.18
 2.46
 1.72
 4.68
 2.29
 2.39
March 31, 2017 1.98
 1.49
 0.49
 8.90
 3.05
 5.85
 3.87
 2.27
 1.60
 4.58
 2.15
 2.43
December 31, 2016 1.92
 1.41
 0.51
 8.24
 3.01
 5.23
 3.86
 2.14
 1.72
 4.35
 2.07
 2.28
September 30, 2016 1.83
 1.28
 0.55
 8.09
 2.98
 5.11
 3.86
 2.05
 1.81
 4.24
 1.96
 2.28
Securities, at fair value
Quarter Ended
Net
Yield (1)(2)
Cost of
Funding (3)
Net Interest
Rate
Spread
June 30, 20237.67 %4.29 %3.38 %
March 31, 20238.76 4.52 4.24 
December 31, 202230.33 5.47 24.86 
September 30, 202211.06 3.94 7.12 
June 30, 202210.09 2.54 7.55 
 
(1)Reflects annualized interest income on MBS divided by average amortized cost of MBS.
(2)Reflects annualized interest expense divided by average balance of repurchase agreements and other advances, including the cost of Swaps allocated based on the proportionate share of the overall estimated weighted average portfolio duration and securitized debt. Agency cost of funding includes 44, 49, 60, 65 and 62 basis points and Legacy Non-Agency cost of funding includes 45, 58, 58, 69, and 74 basis points associated with Swaps to hedge interest rate sensitivity on these assets for the quarters ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.
(3)Reflects the difference between the net yield on average MBS and average cost of funds on MBS.
(1)Reflects annualized interest income divided by average amortized cost.
(2)For the quarter ended December 31, 2022, the net yield of 30.33% includes $7.8 million of accretion income recognized in 2022 due to the redemption of term notes backed by MSR collateral that had been held at amortized cost basis below par due to impairment charges recorded in the first quarter of 2020. Excluding this accretion, the yield reported would have been 11.87%.
(3)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above for the quarterly periods ended June 30, 2023 and March 31, 2023 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 June 30, 2023, this decreased the overall funding cost by 138 basis points for our Securities, at fair value. For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points for our Securities, at fair value. Periods prior to the quarter ended March 31, 2023 were not impacted as there was no allocation of net swap carry to the financing of our Securities, at fair value for those periods.

Interest Income
 
Interest income on our Agency MBSresidential whole loans for the thirdsecond quarter of 2017 decreased2023 increased by $3.4$8.5 million, or 18.1%7.1%, to $15.5$128.0 million, from $19.0compared to $119.5 million for the thirdfirst quarter of 2016.2023. This decreaseincrease primarily reflects an increase in the yield to 6.10% for the second quarter of 2023 from 5.68% for the first quarter of 2023, partially offset by a $989.4$21.0 million decrease in the average balance of this portfolio to $8.4 billion for the second quarter of 2023 from the first quarter of 2023. Additional payoffs of Non-Performing and Purchased Credit Impaired loans compared to the prior quarter increased interest income in the current quarter by approximately $2.4 million, while the impact of certain Non-Performing and Purchased Credit Impaired loans reverting to accrual status increased interest income in the second quarter by approximately $0.6 million.

Interest income on our Securities, at fair value portfolio for the second quarter of 2023 increased by $2.6 million to $9.9 million from $7.3 million for the first quarter of 2023. This increase primarily reflects an increase in the average amortized cost of ourthe portfolio of $185.2 million, due to additional purchases of Agency MBS portfolio to $3.2 billion forin the thirdsecond quarter of 2017 from $4.1 billion for the third quarter of 20162023, partially offset by an increasea decrease in the net yield on our Agency MBSSecurities, at fair value to 1.97%7.67% for the thirdsecond quarter of 2017 from 1.83%2023, compared to 8.76% for the thirdfirst quarter of 2016. At the end of the third quarter of 2017, the average coupon on mortgages underlying our Agency MBS was higher compared to the end of the third quarter of 2016.  In addition, during the third quarter of 2017, our Agency MBS portfolio experienced a 16.2% CPR and we recognized $7.9 million of net premium amortization compared to a CPR of 16.7% and $10.3 million of net premium amortization for the third quarter of 2016. At September 30, 2017, we had net purchase premiums on our Agency MBS of $110.6 million, or 3.8% of current par value, compared to net purchase premiums of $135.1 million, or 3.8% of par value at December 31, 2016.2023.
Interest income on our Non-Agency MBS decreased $20.4 million, or 24.4%, for the third quarter of 2017 to $63.3 million compared to $83.6 million for the third quarter of 2016. This decrease is primarily due to the decrease in the average amortized cost of our Non-Agency MBS portfolio of $2.0 billion or 36.8%, to $3.5 billion from $5.5 billion for the third quarter of 2016. This decrease more than offset the impact of the higher yields generated on our Legacy Non-Agency MBS portfolio, which were 8.93% for the third quarter of 2017 compared to 8.09% for the third quarter of 2016. The increase in the net yield on our Legacy Non-Agency MBS portfolio reflects the impact of the cash proceeds received during 2016 in connection with the settlement of litigation related to certain Countrywide and Citigroup sponsored residential mortgage backed securitization trusts and the improved

performance of loans underlying the Legacy Non-Agency MBS portfolio, which has resulted in credit reserve releases. Our RPL/NPL MBS portfolio yielded 4.43% for the third quarter of 2017 compared to 3.86% for the third quarter of 2016. The increase in the net yield reflects an increase in the average coupon yield to 4.24% for the third quarter of 2017 from 3.83% for the third quarter of 2016 and higher accretion income recognized in the current quarter due to the impact of redemptions of certain securities that had been previously purchased at a discount.

During the third quarter of 2017, we recognized net purchase discount accretion of $18.6 million on our Non-Agency MBS, compared to $20.2 million for the third quarter of 2016.  At September 30, 2017, we had net purchase discounts of $835.8 million, including Credit Reserve and previously recognized OTTI of $593.1 million, on our Legacy Non-Agency MBS, or 28.7% of par value.  During the third quarter of 2017 we reallocated $14.8 million of purchase discount designated as Credit Reserve to accretable purchase discount.

The following table presents the coupon yield and net yields earned on our Agency MBS and Non-Agency MBS and weighted average CPRs experienced for such MBS for the quarterly periods presented:
  Agency MBS Legacy Non-Agency MBS RPL/NPL MBS
Quarter Ended 
Coupon Yield (1)
 
Net Yield (2)
 
3 Month Average CPR (3)
 
Coupon Yield (1)
 
Net Yield (2)
 
3 Month Average CPR (3)
 
Coupon Yield (1)
 
Net Yield (2)
 
3 Month Average Bond CPR (4)
September 30, 2017 2.98% 1.97% 16.2% 5.63% 8.93% 18.7% 4.24% 4.43% 26.2%
June 30, 2017 2.94
 1.96
 16.3
 5.52
 8.85
 18.2
 4.03
 4.18
 36.2
March 31, 2017 2.90
 1.98
 15.1
 5.50
 8.90
 16.8
 3.84
 3.87
 27.1
December 31, 2016 2.86
 1.92
 15.9
 5.40
 8.24
 17.3
 3.82
 3.86
 25.8
September 30, 2016 2.83
 1.83
 16.7
 5.28
 8.09
 15.9
 3.83
 3.86
 32.2
(1)Reflects the annualized coupon interest income divided by the average amortized cost. The discounted purchase price on Legacy Non-Agency MBS causes the coupon yield to be higher than the pass-through coupon interest rate.
(2)Reflects annualized interest income on MBS divided by average amortized cost of MBS.
(3)3 month average CPR weighted by positions as of the beginning of each month in the quarter.
(4)All principal payments are considered to be prepayments for CPR purposes.


Interest Expense
 
Our interest expense for the thirdsecond quarter of 20172023 increased by $1.1$7.0 million, or 2.3%7.5%, to $49.3$99.8 million, from $48.2$92.8 million for the thirdfirst quarter of 2016.2023. This increase primarily reflects an increase in financing rates on our repurchase agreement financings,financing agreements, and an increase in our average borrowings to finance residential whole loans, MSR related assets and CRT securities, which wassecuritized debt partially offset by a decrease in our average repurchasecollateralized financing agreement borrowings and other advances to finance Agency MBS and Non-Agency MBS. The effective interest rate paidour residential mortgage asset portfolio.
74

Provision for Credit Losses on our borrowings increased to 2.66% for the quarter ended September 30, 2017 from 2.10% for the quarter ended September 30, 2016. Residential Whole Loans Held at Carrying Value
At September 30, 2017, we had repurchase agreement borrowings of $6.9 billion, of which $2.6 billion was hedged with Swaps.  At September 30, 2017, our Swaps designated in hedging relationships had a weighted average fixed-pay rate of 2.04% and extended 30 months on average with a maximum remaining term of approximately 71 months.
Payments made and/or received on our Swaps are a component of our borrowing costs and accounted for interest expense of $5.3 million, or 29 basis points, for the third quarter of 2017, as compared to interest expense of $10.2 million, or 44 basis points, for the third quarter of 2016.  The weighted average fixed-pay rate on our Swaps designated as hedges increased to 2.04% for the quarter ended September 30, 2017 from 1.82% for the quarter ended and September 30, 2016.  The weighted average variable interest rate received on our Swaps increased to 1.23% for the quarter ended September 30, 2017 from 0.49% for the quarter ended September 30, 2016.  During the quarter ended September 30, 2017, we did not enter into any new Swaps and had no Swaps amortize and/or expire.

We expect that our interest expense and funding costs for the remainder of 2017 will be impacted by market interest rates, the amount of our borrowings and incremental hedging activity, existing and future interest rates on our hedging instruments and the extent to which we execute additional longer-term structured financing transactions.  As a result of these variables, our borrowing costs cannot be predicted with any certainty.  (See Notes 5(b), 6 and 15 to the accompanying consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q.)
OTTI
We did not recognize any OTTI charges through earnings during the third quarter of 2017. During the third quarter of 2016, we recognized OTTI charges through earnings against certain of our Non-Agency MBS of $485,000. These impairment charges reflected changes in our estimated cash flows for such securities based on an updated assessment of the estimated future performance of the underlying collateral, including the expected principal loss over the term of the securities and changes in the expected timing of receipt of cash flows. At September 30, 2017, we had 386 Agency MBS with a gross unrealized loss of $32.9 million and 13 Non-Agency MBS with a gross unrealized loss of $390,000.  Impairments on Agency MBS in an unrealized loss position at September 30, 2017 are considered temporary and not credit related.  Unrealized losses on Non-Agency MBS for which no OTTI was recorded during the quarter are considered temporary based on an assessment of changes in the expected cash flows for such securities, which considers recent bond performance and expected future performance of the underlying collateral.  Significant judgment is used both in our analysis of expected cash flows for our Legacy Non-Agency MBS and any determination of the credit component of OTTI.

Other Income, net


For the thirdsecond quarter of 2017, Other Income, net decreased by $4.8 million, or 14.2%, to $29.1 million compared to $33.9 million2023, we recorded a provision for the third quarter of 2016.  Other Income, net for the third quarter of 2017 primarily reflects a $18.7 million net gain recordedcredit losses on residential whole loans held at faircarrying value $14.9 million of net gains realized on$294,000 compared to a reversal of provision of $13,000 for the salefirst quarter of $44.5 million2023. The provision recorded in the current period primarily reflects the impact of Non-Agency MBS and U.S. Treasury securities primarilyloan charge-offs, partially offset by $5.2run-off of loans held at carrying value.

Other (Loss)/Income, net

For the second quarter of 2023, Other Loss, net was $28.3 million, compared to Other Income, net of unrealized losses on CRT securities accounted$75.3 million for at fair value.the first quarter of 2023.  The components of Other (Loss)/Income, net for the third quartersecond and first quarters of 2016 primarily reflects a $19.6 million net gain recorded on residential whole loans held at fair value, $7.7 million of unrealized gains on CRT securities accounted for at fair value and $7.1 million of gross gains realized on2023 are summarized in the sale of $13.2 million Non-Agency MBS.table below:

Three Months Ended
(In Thousands)June 30, 2023March 31, 2023
Net (loss)/gain on residential whole loans measured at fair value through earnings$(130,703)$129,174 
Impairment and other net (loss)/gain on securities and other portfolio investments(4,569)2,931 
Net gain on real estate owned2,153 3,942 
Net gain/(loss) on derivatives used for risk management purposes60,451 (21,208)
Net gain/(loss) on securitized debt measured at fair value through earnings27,394 (51,725)
Lima One - origination, servicing and other fee income11,477 8,976 
Other, net5,496 3,172 
Other (Loss)/Income, net$(28,301)$75,262 

Operating and Other Expense


For the thirdsecond quarter of 2017,2023, we had compensation and benefits and other general and administrative expenses of $15.0$32.9 million, or 1.83% of average equity, compared to $10.8$31.0 million or 1.44% of average equity, for the thirdfirst quarter of 2016.2023. Compensation and benefits expense increased $3.8by $1.1 million to $10.9$21.8 million for the thirdsecond quarter of 2017,2023, compared to $7.1$20.6 million for the thirdfirst quarter of 2016, which2023, primarily reflects non-recurring expenses recorded in relation to our contractual obligation to accelerate the vesting of certain share based awardsreflecting higher compensation costs at Lima One, consistent with higher origination volumes and to make a death benefit paymenthigher headcount compared to the estate of our former Chief Executive Officer.prior period. Our other general and administrative expenses increased by $372,000$778,000 to $4.1$11.2 million for the second quarter ended September 30, 2017of 2023, compared to $3.7$10.4 million for the first quarter ended September 30, 2016of 2023, primarily duereflecting Directors compensation costs related to higherthe annual grant of equity awards to non-employee Directors made in the second quarter of 2023. In addition, professional services related costs. expenses were also higher in the second quarter. These increases were partially offset by lower provisions for income taxes as estimated taxable income generated in our taxable REIT subsidiary decreased compared to the prior period.


Operating and Other Expense for the thirdsecond quarter of 20172023 also includes $6.2$7.6 million of loan servicing and other related operating expenses related to our residential whole loan activities. These expenses increaseddecreased compared to the prior yearquarter period by approximately $2.0$1.9 million, or 20.3%, primarily due to increases in non-recoverable advances on REO, increasedlower expenses recognized related to loan servicingsecuritization activities.

In addition, Other expenses for each of the second quarter of 2023 and modification fees and higher loan acquisitionthe first quarter of 2023 also include $1.3 million of amortization related expenses.to intangible assets recognized as part of the purchase accounting for the Lima One acquisition.



75
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)
June 30, 2023(0.27)%(1.31)%—20.99 %3.91.9
March 31, 20233.14 14.40 0.5621.81 3.51.6
December 31, 20220.29 1.32 —21.59 3.51.8
September 30, 2022(0.58)(2.57)—22.53 3.61.7
June 30, 2022(1.06)(4.35)—24.33 3.31.8

(1)Reflects annualized net income divided by average total assets. For the quarters ended June 30, 2023, September 30, 2022 and June 30, 2022, 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 June 30, 2023, September 30, 2022 and June 30, 2022, the amounts calculated reflect the quarterly net income divided by average total stockholders’ equity.
(3)Reflects dividends declared per share of common stock divided by earnings per share. The ratio has not been calculated for periods where earnings per share is negative as the calculations are not meaningful.
(4)Reflects total average stockholders’ equity divided by total average assets.
(5)Represents the sum of our borrowings under financing agreements and payable for unsettled purchases divided by stockholders’ equity.
(6)Represents the sum of our borrowings under financing agreements (excluding securitized debt) and payable for unsettled purchases divided by stockholders’ equity.



76
At or for the Quarter Ended 
Return on
Average Total
Assets (1)
 
Return on
Average Total
Stockholders’
Equity (2)
 
Total Average
Stockholders’
Equity to Total
Average Assets (3)
 
Dividend Payout
Ratio (4)
 
Leverage Multiple (5)
 
Book Value
per Share
of Common
Stock (6)
September 30, 2017 2.10% 7.78% 28.60% 1.33 2.4 $7.70
June 30, 2017 2.63
 10.01
 27.59
 1.00 2.5 7.76
March 31, 2017 2.42
 10.19
 24.95
 1.00 2.9 7.66
December 31, 2016 2.18
 9.52
 24.19
 1.11 3.1 7.62
September 30, 2016 2.47
 11.05
 23.46
 0.95 3.1 7.64

(1)Reflects annualized net income available to common stock and participating securities divided by average total assets.
(2)Reflects annualized net income divided by average total stockholders’ equity.
(3)Reflects total average stockholders’ equity divided by total average assets.
(4)Reflects dividends declared per share of common stock divided by earnings per share.
(5)Represents the sum of borrowings under repurchase agreements, FHLB advances, securitized debt, payable for unsettled purchases, and obligations to return securities obtained as collateral and Senior Notes divided by stockholders’ equity.
(6)Reflects total stockholders’ equity less the preferred stock liquidation preference divided by total shares of common stock outstanding.


NineSix Month Period Ended SeptemberJune 30, 20172023 Compared to the NineSix Month Period Ended SeptemberJune 30, 20162022

The following table summarizes the changes in our results of operations for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Six Months Ended
(In Thousands)June 30, 2023 June 30, 2022YoY Change
Interest Income:
Residential whole loans$247,558 $201,820 $45,738 
Securities, at fair value17,256 10,569 6,687 
Other interest-earning assets4,973 2,855 2,118 
Cash and cash equivalent investments6,768 426 6,342 
Interest Income$276,555 $215,670 $60,885 
Interest Expense:
Asset-backed and other collateralized financing arrangements$184,764 $92,170 $92,594 
Other interest expense7,917 7,868 49 
Interest Expense$192,681 $100,038 $92,643 
Net Interest Income$83,874 $115,632 $(31,758)
(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans$(281)$1,694 $(1,975)
Provision for Credit Losses on Other Assets— (28,579)28,579 
Net Interest Income after Provision for Credit Losses$83,593 $88,747 $(5,154)
Other Income/(Loss), net:
Net loss on residential whole loans measured at fair value through earnings$(1,529)$(506,116)$504,587 
Impairment and other net loss on securities and other portfolio investments(1,638)(15,747)14,109 
Net gain on real estate owned6,095 15,917 (9,822)
Net gain on derivatives used for risk management purposes39,243 141,905 (102,662)
Net (loss)/gain on securitized debt measured at fair value through earnings(24,331)148,690 (173,021)
Lima One - origination, servicing and other fee income20,453 25,167 (4,714)
Other, net8,668 6,220 2,448 
Other Income/(Loss), net$46,961 $(183,964)$230,925 
Operating and Other Expense:
Compensation and benefits$42,401 $38,616 $3,785 
Other general and administrative expense21,560 19,204 2,356 
Loan servicing, financing and other related costs17,137 23,636 (6,499)
Amortization of intangible assets2,600 6,600 (4,000)
Operating and Other Expense$83,698 $88,056 $(4,358)
Net Income/(Loss)$46,856 $(183,273)$230,129 
Less Preferred Stock Dividend Requirement$16,437 $16,438 $(1)
Net Income/(Loss) Available to Common Stock and Participating Securities$30,419 $(199,711)$230,130 
Basic Earnings/(Loss) per Common Share$0.30 $(1.91)$2.21 
Diluted Earnings/(Loss) per Common Share$0.29 $(1.91)$2.20 
 
General
 
For the ninesix months ended SeptemberJune 30, 2017,2023, we had net income available to our common stock and participating securities of $210.5$30.4 million, or $0.54$0.30 per basic common share and $0.29 per diluted common share, compared to a net incomeloss available to our common stock and participating securities of $228.8$(199.7) million, or $0.61$(1.91) per basic and diluted common share, for the nine six
77
months ended SeptemberJune 30, 2016.2022. The decreaseincrease in net income available to common stock and participating securities and the decrease of this item on a per share basis primarily reflects higher Other income, which increased by $230.9 million to $47.0 million for the current period, compared to a decreaseOther loss, net of $(184.0) million for the prior year period. The increase in our net interestOther income was primarily driven by lower mark-to-market losses in the current period on our Agencyresidential whole loans that are measured at fair value through earnings, partially offset by lower net gains on derivatives used for risk management purposes and Non-Agency MBS portfolios. This decreaseunrealized losses on securitized debt, compared to gains in the prior period. Higher Other income was partially offset by lower net interest income, which decreased by $31.8 million from the prior six month period, primarily due to higher other income, driven primarilyfunding costs associated with our financing arrangements given the impact of significantly higher interest rates over the past twelve months, partially offset by higher gainsasset yields earned on sales of Legacy Non-Agency MBS, unrealized gains on CRT securities accounted for at fair value and gains on the liquidation of certainour residential whole loans accounted for at carrying value.portfolio and higher amounts invested in our residential mortgage asset portfolio. In addition, operating and other expenses where higher primarily due to non-recurring expenses in relation to our contractual obligation to acceleratefor the vestingsix months ended June 30, 2022, we recorded a Provision for Credit Losses on Other Assets of certain share based awards and to make a death benefit payment to$28.6 million, reflecting an impairment charge against the estatecarrying value of our former Chief Executive Officer.investment in one loan origination partner, bringing the net carrying value of this investment to zero at June 30, 2022.

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 the ninesix months ended SeptemberJune 30, 2017,2023, our net interest spread and margin were 2.15%1.94% and 2.59%2.82%, respectively, compared to a net interest spread and margin of 2.16%1.65% and 2.49%2.37%, respectively, for the ninesix months ended SeptemberJune 30, 2016.2022. Our net interest income decreased by $17.3$31.8 million, or 8.6%27.5%, to $183.9 million from $201.2$83.9 million for the ninesix months ended SeptemberJune 30, 2016.2023 compared to net interest income of $115.6 million for the six months ended June 30, 2022. For the ninesix months ended SeptemberJune 30, 2017,2023, net interest income includes lower net interest income from Agency MBS and Legacy Non-Agency MBS declinedour residential whole loan portfolio of $38.5 million compared to the ninesix months ended SeptemberJune 30, 2016, by approximately $27.3 million,2022, primarily due to lower average amounts invested in these securities and higher funding costs,rates paid on our financing agreement borrowings partially offset by higher asset yields earned on Legacy Non-Agency MBS. In addition, net interest income on RPL/NPL MBS was approximately $14.8 million lower compared to the nine months ended September 30, 2016 primarily due to lower averageand higher amounts invested in these securities and higher funding costs partially offset by higher yields earned on these securities. These decreases were partially offset by higher net interest income on MSR related assets, CRT securities, and residential whole loans at carrying value of approximately $25.4 million compared to the nine months ended September 30, 2016, primarily due to higher average amounts invested in these assets and higher yields earned on CRT securities. In addition, netloan portfolio. Net interest income for the ninesix months ended SeptemberJune 30, 20172023 also includes $13.2 million oflower net interest expense associated with residential whole loansincome from our Securities, at fair value reflecting a $2.9portfolio of approximately $1.3 million increase in borrowing costs related to these investmentsand approximately $8.5 million of additional interest income from cash and other interest earning assets compared to the ninesix months ended SeptemberJune 30, 2016. Coupon interest income received from residential whole loans at fair value is presented as a component2022.

78




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 ninesix months ended SeptemberJune 30, 20172023 and 20162022. Average yields are derived by dividing annualized interest income by the average amortized cost of the related assets, and average costs are derived by dividing annualized interest expense by the daily average balance of the related liabilities, for the periods shown.  The yields and costs include premium amortization and purchase discount accretion which are considered adjustments to interest rates.
 Six Months Ended June 30,
 20232022
 Average BalanceInterestAverage Yield/CostAverage Balance InterestAverage Yield/Cost
(Dollars in Thousands) 
Assets:      
Interest-earning assets (1):
      
Residential whole loans$8,412,755 $247,558 5.89 %$8,244,026 $201,820 4.90 %
 Securities, at fair value426,894 17,256 8.08 209,129 10,569 10.11 
Cash and cash equivalents (2)
473,708 6,768 2.86 474,714 426 0.18 
Other interest-earning assets61,812 4,973 16.09 56,853 2,855 10.04 
Total interest-earning assets9,375,169 276,555 5.90 8,984,722 215,670 4.80 
Liabilities:
Interest-bearing liabilities:
Collateralized financing agreements (3)
$3,146,920 $109,862 6.94 %$3,778,304 $53,024 2.79 %
Securitized debt (4)
3,934,185 74,902 3.81 2,932,134 39,146 2.66 
Convertible Senior Notes228,152 7,917 6.94 226,754 7,868 6.94 
Total interest-bearing liabilities7,309,257 192,681 5.26 6,937,192 100,038 2.87 
Net interest income/net interest rate spread (5)
83,874 0.64 115,632 1.93 
Impact of net Swap carry (6)
47,782 1.30 (9,801)(0.28)
Net interest rate spread (including the impact of Swaps)$131,656 1.94 %$105,831 1.65 %
Net interest-earning assets/net interest margin (7)
$2,065,912 2.82 %$2,047,530 2.37 %

(1)Yields presented throughout this Quarterly Report on Form 10-Q are calculated using average amortized cost data for residential whole loans and securities, which excludes unrealized gains and losses.  For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.  
(2)Includes average interest-earning cash, cash equivalents and restricted cash.
(3)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 1 of this Quarterly Report on Form 10-Q.
(4)Includes both securitized debt, at carrying value, and securitized debt, at fair value.
(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 annualized net interest income (including net swap carry) divided by average interest-earning assets.















  Nine Months Ended September 30,
  2017 2016
  Average Balance Interest Average Yield/Cost Average Balance Interest Average Yield/Cost
(Dollars in Thousands)      
Assets:  
  
  
  
  
  
Interest-earning assets:  
  
  
  
  
  
Agency MBS (1)
 $3,383,373
 $50,014
 1.97% $4,389,672
 $64,546
 1.96%
Legacy Non-Agency MBS (1)
 2,350,975
 156,829
 8.89
 3,023,239
 176,890
 7.80
RPL/NPL MBS (1)
 1,813,557
 55,899
 4.11
 2,630,475
 76,665
 3.89
Total MBS 7,547,905
 262,742
 4.64
 10,043,386
 318,101
 4.22
CRT securities (1)
 520,585
 22,898
 5.86
 243,776
 9,897
 5.41
MSR related assets (1)
 376,811
 17,833
 6.31
 —
 —
 —
Residential whole loans, at carrying value (2)
 587,511
 26,219
 5.95
 346,013
 16,112
 6.21
Cash and cash equivalents (3)
 531,722
 2,854
 0.72
 270,297
 531
 0.26
Total interest-earning assets 9,564,534
 332,546
 4.64
 10,903,472
 344,641
 4.21
Total non-interest-earning assets (2)
 2,207,939
  
  
 2,007,033
  
  
Total assets $11,772,473
  
  
 $12,910,505
  
  
             
Liabilities and stockholders’ equity:  
  
  
  
  
  
Interest-bearing liabilities:  
  
  
  
  
  
   Total repurchase agreements and other advances (4)
 7,704,662
 141,444
 2.42
 9,069,065
 137,127
 1.99
Securitized debt (5)
 57,073
 1,173
 2.71
 8,949
 333
 4.89
Senior Notes 96,746
 6,029
 8.31
 96,709
 6,027
 8.31
Total interest-bearing liabilities 7,858,481
 148,646
 2.49
 9,174,723
 143,487
 2.05
Total non-interest-bearing liabilities 734,181
  
  
 799,438
  
  
Total liabilities 8,592,662
  
  
 9,974,161
  
  
Stockholders’ equity 3,179,811
  
  
 2,936,344
  
  
Total liabilities and stockholders’ equity $11,772,473
  
  
 $12,910,505
  
  
             
Net interest income/ net interest rate spread (6)
  
 $183,900
 2.15%  
 $201,154
 2.16%
Net interest-earning assets/ net interest margin (7)
 $1,706,053
  
 2.59% $1,728,749
  
 2.49%
Ratio of interest-earning assets to
    interest-bearing liabilities
 1.22x  
  
 1.19x  
  
79

(1)Yields presented throughout this Quarterly Report on Form 10-Q are calculated using average amortized cost data for securities which excludes unrealized gains and losses and includes principal payments receivable on securities.  For GAAP reporting purposes, purchases and sales are reported on the trade date. Average amortized cost data used to determine yields is calculated based on the settlement date of the associated purchase or sale as interest income is not earned on purchased assets and continues to be earned on sold assets until settlement date.  Includes Non-Agency MBS transferred to consolidated VIEs.
(2)Excludes residential whole loans held at fair value that are reported as a component of total non-interest-earning assets.
(3)Includes average interest-earning cash, cash equivalents and restricted cash.
(4)Average cost of repurchase agreements includes the cost of Swaps allocated based on the proportionate share of the overall estimated weighted average portfolio duration.
(5)Securitized debt for the nine months ended September 30, 2017 reflects securitized debt from our loan securitization transaction in June 2017. Securitized debt for the nine months ended September 30, 2016 reflects securitized debt from our MBS resecuritization transaction in February 2012.
(6)Net interest rate spread reflects the difference between the yield on average interest-earning assets and average cost of funds.
(7)Net interest margin reflects annualized net interest income divided by average interest-earning assets.


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.
 
Six Months Ended June 30, 2023
Compared to
 Six Months Ended June 30, 2022
 Increase/(Decrease) due toTotal Net
Change in
Interest Income/Expense
(In Thousands)VolumeRate
Interest-earning assets:   
Residential whole loans$4,207 $41,531 $45,738 
Securities, at fair value7,385 (698)6,687 
Cash and cash equivalents— 6,342 6,342 
Other interest-earning assets268 1,850 2,118 
Total net change in income of interest-earning assets$11,860 $49,025 $60,885 
Interest-bearing liabilities:   
Residential whole loan financing agreements$(13,841)$62,197 $48,356 
Securities, at fair value repurchase agreements3,285 4,688 7,973 
REO financing agreements22 487 509 
Securitized debt15,786 19,970 35,756 
Convertible Senior Notes and Senior Notes49 — 49 
Total net change in expense of interest-bearing liabilities$5,301 $87,342 $92,643 
Net change in net interest income$6,559 $(38,317)$(31,758)

























80
  Nine Months Ended September 30, 2017
  Compared to
  Nine Months Ended September 30, 2016
  Increase/(Decrease) due to 
Total Net
Change in
Interest Income/Expense
(In Thousands) Volume Rate 
Interest-earning assets:  
  
  
Agency MBS $(14,842) $310
 $(14,532)
Legacy Non-Agency MBS (42,659) 22,598
 (20,061)
RPL/NPL MBS (24,970) 4,204
 (20,766)
CRT securities 12,111
 890
 13,001
MSR related assets 17,833
 —
 17,833
Residential whole loans, at carrying value (1)
 10,804
 (697) 10,107
Cash and cash equivalents 833
 1,490
 2,323
Total net change in income from interest-earning assets $(40,890) $28,795
 $(12,095)
       
Interest-bearing liabilities:  
  
  
Agency repurchase agreements and FHLB advances $(10,361) $8,616
 $(1,745)
Legacy Non-Agency repurchase agreements (10,192) 4,965
 (5,227)
RPL/NPL MBS repurchase agreements (11,447) 5,434
 (6,013)
CRT securities repurchase agreements 3,452
 579
 4,031
MSR related assets repurchase agreements 5,773
 —
 5,773
Residential whole loan at carrying value repurchase agreements 3,998
 747
 4,745
Residential whole loan at fair value repurchase agreements 2,071
 682
 2,753
Securitized debt 1,049
 (209) 840
Senior Notes 2
 —
 2
Total net change in expense of interest-bearing liabilities $(15,655) $20,814
 $5,159
Net change in net interest income $(25,235) $7,981
 $(17,254)

(1)Excludes residential whole loans held at fair value which are reported as a component of non-interest-earning assets.


The following table presents the components of the net interest spread earned on our Agency MBS and Non-Agency MBSResidential whole loans for the
periods presented:

  Agency MBS Legacy Non-Agency MBS RPL/NPL MBS Total MBS
Nine Months Ended 
Net Yield 
(1)
 
Cost of Funding 
(2)
 
Net Interest Spread 
(3)
 
Net Yield 
(1)
 
Cost of Funding 
(2)
 
Net Interest Spread 
(3)
 
Net Yield 
(1)
 
Cost of Funding 
(2)
 
Net Interest Spread 
(3)
 
Net Yield 
(1)
 
Cost of Funding 
(2)
 
Net Interest Spread 
(3)
September 30, 2017 1.97% 1.60% 0.37% 8.89% 3.19% 5.70% 4.11% 2.43% 1.68% 4.64% 2.27% 2.37%
September 30, 2016 1.96% 1.26% 0.70% 7.80% 2.89% 4.91% 3.89% 2.03% 1.86% 4.22% 1.91% 2.31%
 Six Months Ended
June 30, 2023June 30, 2022
Purchased Performing Loans
Net Yield (1)
5.52 %4.19 %
Cost of Funding (2)
3.96 %3.02 %
Net Interest Spread1.56 %1.17 %
Purchased Credit Deteriorated Loans
Net Yield (1)
6.60 %6.82 %
Cost of Funding (2)
2.11 %3.02 %
Net Interest Spread4.49 %3.80 %
Purchased Non-Performing Loans
Net Yield (1)
9.27 %9.62 %
Cost of Funding (2)
3.53 %3.21 %
Net Interest Spread5.74 %6.41 %
Total Residential Whole Loans
Net Yield (1)
5.89 %4.90 %
Cost of Funding (2)
3.82 %3.04 %
Net Interest Spread2.07 %1.86 %
(1)Reflects annualized interest income on MBSResidential whole loans divided by average amortized cost of MBS.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 period ended June 30, 2023, this decreased the overall funding cost by 135 basis points for our Residential whole loans, 137 basis points for our Purchased Performing Loans, 189 basis points for our Purchased Credit Deteriorated Loans, and 82 basis points for our Purchased Non-Performing Loans. For the period ended June 30, 2022, this increased the overall funding cost by 30 basis points for our Residential whole loans, 28 basis points for our Purchased Performing Loans, 50 basis points for our Purchased Credit Deteriorated Loans, and 34 basis points for our Purchased Non-Performing Loans.

81

The following table presents the components of the net interest spread earned on our residential mortgage securities and MSR-related assets for the periods presented:

Securities, at fair value
Six Months Ended
Net
Yield (1)
Cost of
Funding (2)
Net Interest
Rate
Spread
June 30, 20238.08 %4.38 %3.70 %
June 30, 202210.11 2.13 7.98 
(1)Reflects annualized interest income divided by average amortized cost.
(2)Reflects annualized interest expense divided by average balance of repurchase agreements and other advances, includingagreements. Cost of funding shown in the cost of Swaps allocated based ontable above for the proportionate sharesix months ended June 30, 2023 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 six months ended June 30, 2023, this decreased the overall estimated weighted average portfolio duration, and securitized debt. Agencyfunding cost of funding includes 51 and 63by 125 basis points and Legacy Non-Agency costfor our Securities, at fair value. Periods prior to the quarter ended March 31, 2023 were not impacted as there was no allocation of funding includes 54 and 69 basis points associated with Swapsnet swap carry to hedge interest rate sensitivity on these assetsthe financing of our Securities, at fair value for the nine months ended September 30, 2017 and 2016, respectively.those periods.
(3) Reflects the difference between the net yield on average MBS and average cost of funds on MBS.


Interest Income
 
Interest income on our Agency MBSresidential whole loans for the ninesix months ended SeptemberJune 30, 2017 decreased2023 increased by $14.5$45.7 million, or 22.5%22.7%, to $50.0$247.6 million, from $64.5compared to $201.8 million for the ninesix months ended SeptemberJune 30, 2016.2022. This changeincrease primarily reflects an increase in the yield to 5.89% for the six months ended June 30, 2023 from 4.90% for the six months ended June 30, 2022, and a $1.0$168.7 million increase in the average balance of this portfolio to $8.4 billion decreasefor the six months ended June 30, 2023 from $8.2 billion for the six months ended June 30, 2022.

Interest income on our Securities, at fair value portfolio for the six months ended June 30, 2023 increased by $6.7 million to $17.3 million from $10.6 million for the six months ended June 30, 2022. This increase primarily reflects an increase in the average amortized cost of ourthe portfolio of $217.8 million due to purchases of Agency MBS, portfolio to $3.4 billion for the nine months ended September 30, 2017 from $4.4 billion for the nine months ended September 30, 2016 partially offset by a slight increasedecrease in the net yield on our Agency MBSSecurities, at fair value portfolio to 1.97%8.08% for the ninesix months ended SeptemberJune 30, 2017 from 1.96%2023, compared to 10.11% for the ninesix months ended SeptemberJune 30, 2016.  At the end of the third quarter of 2017, the average coupon on mortgages underlying our Agency MBS was higher compared to the end of the third quarter of 2016.  However, during the nine months ended September 30, 2017, our Agency MBS portfolio experienced a 14.4% CPR and we recognized $24.6 million of net premium amortization compared to a CPR of 12.7% and $27.7 million of net premium amortization for the nine months ended September 30, 2016.  At September 30, 2017, we had net purchase premiums on our Agency MBS of $110.6 million, or 3.8% of current par value, compared to net purchase premiums of $135.1 million, or 3.8% of par value at December 31, 2016.2022.
Interest income on our Non-Agency MBS (which includes Non-Agency MBS transferred to consolidated VIEs) decreased by $40.8 million, or 16.1%, for the nine months ended September 30, 2017 to $212.7 million compared to $253.6 million for the nine months ended September 30, 2016. This decrease is primarily due to the decrease in the average amortized cost of our Non-Agency MBS portfolio of $1.5 billion or 26.3%, to $4.2 billion from $5.7 billion for the nine months ended September 30, 2016.  This decrease more than offset the impact of the higher yields generated on our Legacy Non-Agency MBS portfolio, which were 8.89% for the nine months ended September 30, 2017 compared to 7.80% for the nine months ended September 30, 2016.  The increase in the net yield on our Legacy Non-Agency MBS portfolio reflects the impact of the cash proceeds received during 2016 in connection with the settlement of litigation related to certain Countrywide and Citigroup sponsored residential mortgage backed securitization trusts, the improved performance of loans underlying the Legacy Non-Agency MBS portfolio, which has resulted in credit reserve releases and the impact of redemptions during 2017 of certain securities that had been previously purchased at a discount. Our RPL/NPL MBS portfolio yielded 4.11% for the nine months ended September 30, 2017 compared to 3.89% for the nine months ended September 30, 2016. The increase in the net yield reflects an increase in the average coupon yield to 4.01% for the nine months ended September 30, 2017 from 3.79% for the nine months ended September 30, 2016 and higher accretion income recognized in the current nine month period due to the impact of redemptions of certain securities that had been previously purchased at a discount.

During the nine months ended September 30, 2017, we recognized net purchase discount accretion of $60.5 million on our Non-Agency MBS, compared to $61.2 million for the nine months ended September 30, 2016.  At September 30, 2017, we had net purchase discounts of $835.8 million, including Credit Reserve and previously recognized OTTI of $593.1 million, on our Legacy Non-Agency MBS, or 28.7% of par value.  During the nine months ended September 30, 2017 we reallocated $33.8 million of purchase discount designated as Credit Reserve to accretable purchase discount.

The following table presents the coupon yield and net yields earned on our Agency MBS and Non-Agency MBS and weighted average CPRs experienced for such MBS for the periods presented:
  Agency MBS Legacy Non-Agency MBS RPL/NPL MBS
Nine Months Ended 
Coupon Yield (1)
 
Net Yield (2)
 
9 Month Average CPR (3)
 
Coupon Yield (1)
 
Net Yield (2)
 
9 Month Average CPR (3)
 
Coupon Yield (1)
 
Net Yield (2)
 
9 Month Average Bond CPR (4)
September 30, 2017 2.94% 1.97% 14.4% 5.55% 8.89% 16.3% 4.01% 4.11% 32.2%
September 30, 2016 2.80
 1.96
 12.7
 5.19
 7.80
 13.7
 3.79
 3.89
 26.9
(1)Reflects the annualized coupon interest income divided by the average amortized cost. The discounted purchase price on Legacy Non-Agency MBS causes the coupon yield to be higher than the pass-through coupon interest rate.
(2)Reflects annualized interest income on MBS divided by average amortized cost of MBS.
(3)9 month average CPR weighted by positions as of the beginning of each month in the quarter.
(4)All principal payments are considered to be prepayments for CPR purposes.


Interest Expense
 
Our interest expense for the ninesix months ended SeptemberJune 30, 20172023 increased by $5.2$92.6 million, or 3.6%92.6%, to $148.6$192.7 million, from $143.5$100.0 million for the ninesix months ended SeptemberJune 30, 2016.2022.  This increase primarily reflects an increase in financing rates on our repurchase agreement financings, an increase in ourfinancing agreements and higher overall average borrowings to finance residential whole loans, MSR related assets and CRT securities, which was partially offset by a decrease in our average repurchase agreement borrowings and other advances to finance Agency MBS and Non-Agency MBS. The effective interest rate paid on our borrowings increased to 2.49% for the nine months ended September 30, 2017, from 2.05% for the nine months ended September 30, 2016. 

Payments made and/or received on our Swaps are a componentbalances of our borrowing costs and accountedfinancing agreements.

Provision for interest expense of $19.6 million, or 33 basis points, for the nine months ended September 30, 2017, compared to interest expense of $31.3 million, or 45 basis points, for the nine months ended September 30, 2016.  The weighted average fixed-pay rateCredit Losses on our Swaps designated as hedges increased to 1.96% for the nine months ended September 30, 2017 from 1.82% for the nine months ended September 30, 2016.  The weighted average variable interest rate received on our Swaps designated as hedges increased to 1.00% for the nine months ended September 30, 2017 from 0.45% for the nine months ended September 30, 2016.  During the nine months ended September 30, 2017, we did not enter into any new Swaps and had Swaps with an aggregate notional amount of $350.0 million and a weighted average fixed-pay rate of 0.58% amortize and/or expire.Residential Whole Loans Held at Carrying Value
We expect that our interest expense and funding costs for the remainder of 2017 will be impacted by market interest rates, the amount of our borrowings and incremental hedging activity, existing and future interest rates on our hedging instruments and the extent to which we execute additional longer-term structured financing transactions.  As a result of these variables, our borrowing costs cannot be predicted with any certainty.  (See Notes 5(b), 6 and 15 to the accompanying consolidated financial statements, included under Item 1 of this Quarterly Report on Form 10-Q.)
OTTI
During the nine months ended September 30, 2017 and 2016, we recognized OTTI charges through earnings against certain of our Non-Agency MBS of $1.0 million and $485,000, respectively. These impairment charges reflected changes in our estimated cash flows for such securities based on an updated assessment of the estimated future performance of the underlying collateral, including the expected principal loss over the term of the securities and changes in the expected timing of receipt of cash flows.

Other Income, net

For the ninesix months ended SeptemberJune 30, 2017, Other Income, net increased by $10.4 million, or 12.4%, to $94.0 million compared to $83.6 million2023, we recorded a provision for the nine months ended September 30, 2016.  Other Income, net for the nine months ended September 30, 2017 primarily reflects a $48.7 million net gain recordedcredit losses on residential whole loans held at faircarrying value $30.5of $281,000 compared to a reversal of provision for credit losses of $1.7 million for the six months ended June 30, 2022. The provision recorded in the current period primarily reflects the impact of loan charge-offs, partially offset by the run-off of loans held at carrying value. The prior period reversal primarily reflects run-off of loans held at carrying value and adjustments to certain economic and loan prepayment speeds used in our credit loss forecasts.
82

Provision for Credit Losses on Other Assets

For the six months ended June 30, 2022, we recorded a provision for credit losses on Other Assets of $28.6 million, reflecting an impairment charge against the carrying value of our investment in one loan origination partner, bringing the net gains realized oncarrying value of this investment to zero at June 30, 2022.

Other Income/(Loss), net
For the sale of $222.1 million Non-Agency MBS and U.S. Treasury securities and $14.2 million of unrealized gains on CRT securities accounted for at fair value.six months ended June 30, 2023, Other Income, net was $47.0 million, compared to an Other Loss, net of $184.0 million for the ninesix months ended SeptemberJune 30, 2016 primarily reflects a2022.  The components of Other Income/(Loss), net gain of $47.7 million on residential whole loans held at fair value, $26.1 million of gains realized onfor the sale of $65.1 million of Non-Agency MBSsix months ended June 30, 2023 and $11.1 million of unrealized gains on CRT securities accounted for at fair value.2022 are summarized in the table below:


Six Months Ended
June 30,
(In Thousands)20232022
Net loss on residential whole loans measured at fair value through earnings$(1,529)(506,116)
Impairment and other net loss on securities and other portfolio investments(1,638)(15,747)
Net gain on real estate owned6,095 15,917 
Net gain on derivatives used for risk management purposes39,243 141,905 
Net (loss)/gain on securitized debt measured at fair value through earnings(24,331)148,690 
Lima One - origination, servicing and other fee income20,453 25,167 
Other, net8,668 6,220 
Other Income/(Loss), net$46,961 $(183,964)

Operating and Other Expense


During the ninesix months ended SeptemberJune 30, 2017,2023, we had compensation and benefits and other general and administrative expenses of $40.3$64.0 million, or 1.69% of average equity, compared to $34.0$57.8 million or 1.54% of average equity, for the ninesix months ended SeptemberJune 30, 2016.2022.  Compensation and benefits expense increased $4.8$3.8 million to $26.3$42.4 million for the ninesix months ended SeptemberJune 30, 2017,2023, compared to $21.5$38.6 million for the ninesix months ended SeptemberJune 30, 2016, which2022, primarily reflects non-recurring expenses recordedreflecting higher salary expense and an increase in relation to our contractual obligation to acceleratelong-term incentive compensation, partially offset by lower sales commission expense at Lima One, consistent with lower origination volumes in the vesting of certain share based awards and to make a death benefit payment to the estate of our former Chief Executive Officer.current period. Our other general and administrative expenses increased by $1.6$2.4 million to $14.1$21.6 million for the ninesix months ended SeptemberJune 30, 20172023, compared to $12.5$19.2 million for the ninesix months ended SeptemberJune 30, 2016,2022, primarily due toreflecting higher costs associated with deferred compensation to Directors in the loan securitization transaction completed duringcurrent period, which were impacted by changes in our stock price, the second quarterimpact of 2017higher depreciation and other structured financing transactions, higher costs in the current period primarily related to stock-based compensation awards to Directorsfurniture and higherfixtures and IT infrastructure at our corporate offices, partially offset by lower tax provisions and state tax expense as well as lower professional services relatedservice costs.


Operating and Other Expense during the ninesix months ended SeptemberJune 30, 20172023 also includes $14.8$17.1 million of loan servicing and other related operating expenses related to our residential whole loan activities. These expenses increaseddecreased compared to the prior year period by approximately $4.5$6.5 million, or 27.5%, primarily due to increases inlower expenses recognized related to loan securitization activities, lower servicing fees, diligence and other costs associated with acquiring loans and lower non-recoverable advances on our REO increased loan servicing and modification fees and higher loan acquisition relatedportfolio.

In addition, Other expenses which were partially offset by a decrease in the provision for loan losses recognized for the nine month period.six months ended June 30, 2023 and 2022 also includes $2.6 million and $6.6 million, respectively, of amortization related to intangible assets recognized as part of the purchase accounting for the Lima One acquisition.


83
Selected Financial Ratios

The following table presents information regarding certain of our financial ratios at or for the dates presented:

At or for the Six Months 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)
June 30, 20231.00 %4.68 %2.3321.39 %3.91.9
June 30, 2022(1.94)(7.64)— 25.46 3.31.91.8
(1)Reflects annualized net income divided by average total assets. For the six months ended June 30, 2022, the amount calculated reflects net income divided by average total assets.
(2)Reflects annualized net income divided by average total stockholders’ equity. For the six months ended June 30, 2022, the amount calculated reflects 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 borrowings under our financing agreements, and payable for unsettled purchases divided by stockholders’ equity.
(6)Represents the sum of our borrowings under financing agreements (excluding securitized debt) and payable for unsettled purchases divided by stockholders’ equity.


Reconciliation of GAAP and Non-GAAP Financial Measures

Reconciliation of GAAP Net Income to non-GAAP Distributable Earnings

“Distributable earnings” is a non-GAAP financial measure of our operating performance, within the meaning of Regulation G and Item 10(e) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Distributable earnings is determined by adjusting GAAP net income/(loss) by removing certain unrealized gains and losses, primarily on residential mortgage investments, associated debt, and hedges that are, in each case, accounted for at fair value through earnings, certain realized gains and losses, as well as certain non-cash expenses and securitization-related transaction costs. Management believes that the adjustments made to GAAP earnings result in the removal of (i) income or expenses that are not reflective of the longer term performance of our investment portfolio, (ii) certain non-cash expenses, and (iii) expense items required to be recognized solely due to the election of the fair value option on certain related residential mortgage assets and associated liabilities. Distributable earnings is one of the factors that our Board of Directors considers when evaluating distributions to our shareholders. Accordingly, we believe that the adjustments to compute Distributable earnings specified below provide investors and analysts with additional information to evaluate our financial results.

Distributable earnings should be used in conjunction with results presented in accordance with GAAP. Distributable earnings does not represent and should not be considered as a substitute for net income or cash flows from operating activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

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At or for the Nine Months Ended 
Return on
Average Total
Assets (1)
 
Return on
Average Total
Stockholders’
Equity (2)
 
Total Average
Stockholders’
Equity to Total
Average Assets (3)
 
Dividend Payout
Ratio (4)
 
Leverage Multiple (5)
 
Book Value
per Share
of Common
Stock (6)
September 30, 2017 2.38% 9.30% 27.01% 1.11 2.4
 $7.70
September 30, 2016 2.36
 10.90
 22.74
 0.98 3.1
 7.64
The following table provides a reconciliation of our GAAP net (loss)/income used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarterly periods below:

(1)Reflects annualized net income available to common stock and participating securities divided by average total assets.
(2)Reflects annualized net income divided by average total stockholders’ equity.
(3)Reflects total average stockholders’ equity divided by total average assets.
(4)Reflects dividends declared per share of common stock divided by earnings per share.
(5)Represents the sum of borrowings under repurchase agreements, FHLB advances, securitized debt, payable for unsettled purchases, and obligations to return securities obtained as collateral and Senior Notes divided by stockholders’ equity.
(6)Reflects total stockholders’ equity less the preferred stock liquidation preference divided by total shares of common stock outstanding.


Quarter Ended
(In Thousands, Except Per Share Amounts)June 30, 2023March 31, 2023December 31, 2022September 30, 2022June 30, 2022
GAAP Net (loss)/income used in the calculation of basic EPS$(34,265)$64,407 $(1,647)$(63,410)$(108,760)
Adjustments:
Unrealized and realized gains and losses on:
Residential whole loans held at fair value130,703 (129,174)68,828 291,818 218,181 
Securities held at fair value3,698 (2,931)383 (1,549)1,459 
Interest rate swaps(37,018)40,747 12,725 (108,917)(31,767)
Securitized debt held at fair value(30,908)48,846 (44,988)(100,767)(84,348)
Investments in loan origination partners872 — 8,526 2,031 39,162 
Expense items:
Amortization of intangible assets1,300 1,300 1,300 1,300 3,300 
Equity based compensation3,932 3,020 2,480 2,673 3,540 
    Securitization-related transaction costs2,071 4,602 1,744 5,014 6,399 
Total adjustments74,650 (33,590)50,998 91,603 155,926 
Distributable earnings$40,385 $30,817 $49,351 $28,193 $47,166 
GAAP (loss)/earnings per basic common share$(0.34)$0.63 $(0.02)$(0.62)$(1.06)
Distributable earnings per basic common share$0.40 $0.30 $0.48 $0.28 $0.46 
Weighted average common shares for basic earnings per share101,915 101,900 101,800 101,795 102,515 


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)
June 30, 20232.05 %9.79 %0.88
March 31, 20231.68 7.73 1.17
December 31, 20222.45 11.34 0.73
September 30, 20221.53 6.79 1.57
June 30, 20222.33 9.60 0.96

(1)Reflects annualized Distributable earnings before preferred dividends 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.

85

Segment Reporting (using Distributable earnings)

The following table presents our non-GAAP Distributable earnings by segment for the quarterly period below:


(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Three months ended June 30, 2023
GAAP Net (loss)/income used in the calculation of basic EPS$(5,539)$118 $(28,844)$(34,265)
Adjustments:
Unrealized and realized gains and losses on:
Residential whole loans held at fair value97,459 33,244 — 130,703 
Securities held at fair value3,698 — — 3,698 
Interest rate swaps(27,903)(9,115)— (37,018)
Securitized debt held at fair value(21,756)(9,152)— (30,908)
Investments in loan origination partners— — 872 872 
Expense items:
Amortization of intangible assets— 1,300 — 1,300 
Equity based compensation— 130 3,802 3,932 
Securitization-related transaction costs— — 2,071 2,071 
Total adjustments$51,498 $16,407 $6,745 $74,650 
Distributable earnings$45,959 $16,525 $(22,099)$40,385 


(Dollars in Thousands)Mortgage-Related AssetsLima OneCorporateTotal
Three months ended March 31, 2023
GAAP Net income/(loss) used in the calculation of basic EPS$76,153 $20,215 $(31,961)$64,407 
Adjustments:
Unrealized and realized gains and losses on:
Residential whole loans held at fair value(95,509)(33,665)— (129,174)
Securities held at fair value(2,931)— — (2,931)
Interest rate swaps30,870 9,877 — 40,747 
Securitized debt held at fair value32,580 16,266 — 48,846 
Investments in loan origination partners— — — — 
Expense items:
Amortization of intangible assets— 1,300 — 1,300 
Equity based compensation— 127 2,893 3,020 
Securitization-related transaction costs— — 4,602 4,602 
Total adjustments$(34,990)$(6,095)$7,495 $(33,590)
Distributable earnings$41,163 $14,120 $(24,466)$30,817 



86
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)June 30, 2023March 31, 2023December 31, 2022September 30, 2022June 30, 2022
GAAP Total Stockholders’ Equity$1,944.8 $2,018.6 $1,988.8 $2,033.9 $2,146.4 
Preferred Stock, liquidation preference(475.0)(475.0)(475.0)(475.0)(475.0)
GAAP Stockholders’ Equity for book value per common share1,469.8 1,543.6 1,513.8 1,558.9 1,671.4 
Adjustments:
Fair value adjustment to Residential whole loans, at carrying value(58.3)(33.9)(70.2)(58.2)9.5 
Fair value adjustment to Securitized debt, at carrying value129.8 122.4 139.7 109.6 75.4 
Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value)$1,541.3 $1,632.1 $1,583.3 $1,610.3 $1,756.3 
GAAP book value per common share$14.42 $15.15 $14.87 $15.31 $16.42 
Economic book value per common share$15.12 $16.02 $15.55 $15.82 $17.25 
Number of shares of common stock outstanding101.9 101.9 101.8 101.8 101.8 



87
Recent Accounting Standards to beBe Adopted in Future Periods


Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (or ASU 2017-12). The amendments in this ASU expand an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedgesWe are not aware of interest rate risk. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness and requires the entire change in the fair value of a hedging instrumentany recent accounting standards to be presented in the same income statement line as the hedged item. ASU 2017-12 also simplifies certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. ASU 2017-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted in any interim period or fiscal year before the effective date. An entity should apply the amendments of this ASU to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements of ASU 2017-12 should be applied prospectively. In addition, certain transition elections may be made by an entity upon adoption to allow for existing hedging relationships to transition to the newly allowable alternatives within this ASU. We are currently evaluating our adoption timing and the effect that ASU 2017-12 will have on our consolidated financial statements and related disclosures.

Compensation - Stock Compensation - Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting (or ASU 2017-09). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity

to apply modification accounting. Pursuant to this ASU, an entity should account for the effects of a modification unless all of the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award date is modified. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued or made available for issuance. The amendments of this ASU should be applied prospectively to an award modified on or after the adoption date. We do not expect the adoption of ASU 2017-09 to have a significant impact on our financial position or financial statement disclosures.

Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (or ASU 2017-04). The amendments in ASU 2017-04 eliminate the requirement to calculate the implied fair value of goodwill (Step 2 from today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). Public business entities should adopt the amendments in ASU 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The amendments of this ASU should be applied in a prospective basis. We do not expect the adoption of ASU 2017-04 to have a significant impact on our financial position or financial statement disclosures.

Statement of Cash Flows - Restricted Cash

In November 2016, the FASB issued ASU 2016-18, Restricted Cash (or ASU 2016-18). ASU 2016-18 clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows with the objective of reducing the existing diversity in practice. The amendments in ASU 2016-18 require restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early application is permitted, provided that all of the amendments are adopted in the same period. The amendments of this ASU should generally be applied using a retrospective transition method to each period presented. We do not expect the adoption of ASU 2016-18 to have a significant impact on our financial position or financial statement disclosures.

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (or ASU 2016-15). The amendments in ASU 2016-15 provide guidance for eight specific cash flow classification issues, certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for public business entities for fiscal years, and interimfuture periods within those fiscal years, beginning after December 15, 2017. Early application is permitted, provided that all of the amendments are adopted in the same period. The amendments of this ASU should generally be applied using a retrospective transition method to each period presented. We do not expect the adoption of ASU 2016-15 to have a significant impact on our financial position or financial statement disclosures.

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

In June 2016, the FASB issued ASU 2016-13, Measurements of Credit Losses on Financial Instruments (or ASU 2016-13). The amendments in ASU 2016-13 require entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Entities will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 also requires enhanced financial statement disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. Under ASU 2016-13 credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP. However, the amendments in this ASU require that credit losses be recorded through an allowance for credit losses, which will allow subsequent reversals in credit loss estimates to be recognized in current income. In addition, the allowance on available-for-sale debt securities will be limited to the extent that the fair value is less than the amortized cost.


ASU 2016-13 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The amendments in this ASU are required to be applied by recording a cumulative-effect adjustment to equity as of the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an OTTI had been recognized before the effective date. Based on our initial evaluation of the amendments in this ASU, we anticipate being required to make changes to the way we account for credit impairment losses on our available-for-sale debt securities. Under our current accounting, credit impairment losses are generally required to be recorded as OTTI, which directly reduce the carrying amount of impaired securities, and are recorded in earnings and are not reversed if expected cash flows subsequently recover. Under the new guidance, credit impairments on such securities will be recorded as an allowance for credit losses that are also recorded in earnings, but the allowance can be reversed through earnings in a subsequent period if expected cash flows subsequently recover. In addition, we expect that the new guidance will also result in changes to the accounting and presentation of our residential whole loans held at carrying value. We currently anticipate that upon adoption, the guidance will result in an increase in the gross carrying amount of our residential whole loans at carrying value by the amount of the allowance for loan losses calculated under the new guidance. Thereafter, changes in the expected cash flows of such assets are expected to result in the recognition (or reversal) of an allowance for loan losses that willwould materially impact earnings. We will continue to monitor and evaluate the potential effects that ASU 2016-13 will have on our consolidated financial statements and related disclosures.us.


Leases

In February 2016, the FASB issued ASU 2016-02, Leases (or ASU 2016-02). The amendments in this ASU establish a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company’s significant lease contracts are discussed in Note 11(a) of the accompanying consolidated financial statements. While we continue to evaluate the potential impact that adoption of ASU 2016-02 will have on our financial reporting, given the relatively limited nature and extent of lease financing transactions that we have entered into, we do not expect that the adoption of ASU 2016-02 will have a significant impact on our financial position or financial statement disclosures.

Financial Instruments - Overall - Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (or ASU 2016-01). The amendments in this ASU affect all entities that hold financial assets or owe financial liabilities, and address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  The classification and measurement guidance of investments in debt securities and loans are not affected by the amendments in this ASU. ASU 2016-01 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  Early adoption is not permitted for public business entities, except for a provision related to financial statements of fiscal years or interim periods that have not yet been issued, to recognize in other comprehensive income, the change in fair value of a liability resulting from a change in the instrument-specific credit risk measured using the fair value option. The amendments in this ASU are required to be applied by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We do not expect that adoption of ASU 2016-01 will have a significant impact on our financial position or financial statement disclosures.


Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (or ASU 2014-09).  The ASU requires an entity to recognize revenue in an amount that reflects the consideration to which it expects to be entitled for the transfer of promised goods or services to customers.  ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 originally would have been effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2016.  Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. On April 29, 2015, the FASB proposed a one-year deferral of the effective date for ASU 2014-09. On July 9, 2015 the FASB affirmed its proposal to defer the effective date of the new revenue standard for all entities by one year. As a result, public entities would apply the new revenue standard to annual reporting periods beginning after December 15, 2017 and interim periods therein. The FASB would also permit entities to adopt the standard early, but not before the original public entity effective date. Based on our initial evaluation of this ASU, we do not expect its adoption will have a material impact on our financial position or financial statement disclosures as the majority of the Company’s revenues are generated by financial instruments that are explicitly scoped out of this ASU. We will continue to monitor overall industry efforts to implement this ASU, including evaluating recent implementation questions and practice issues that may impact our business. As this monitoring effort continues, we will continue to assess potential impacts to our financial reporting procedures and controls (if any) as well as any impact on our financial position or financial statement disclosures.




Liquidity and Capital Resources
 
General
 
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, depositarydepository shares representing preferred stock, warrants, debt securities, rights and/or units pursuant to our automaticuniversal shelf registration statement and, at SeptemberJune 30, 2017,2023, we had 13.0approximately 2.0 million shares of common stock available for issuance pursuant to our DRSPPDiscount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or DRSPP) shelf registration statement. During the ninesix months ended SeptemberJune 30, 2017,2023, we issued 1,516,3076,666 shares of common stock through our DRSPP, raising net proceeds of approximately $12.2 million.$74,000.


During the six months ended June 30, 2023, we did not repurchase any share of common stock through the stock repurchase program. At June 30, 2023, approximately $202.5 million remained available under the current Board authorization for the purchase of common stock under our stock repurchase program.

In February 2023, our Board authorized a repurchase program for our 6.25% Convertible Senior Notes due 2024 (or the Convertible Senior Notes) pursuant to which we may repurchase up to $100 million of our Convertible Senior Notes. The convertible notes repurchase program does not require the purchase of any minimum amount of Convertible Senior Notes. The timing and extent to which we repurchase our Convertible Senior Notes will depend upon, among other things, market conditions, share price, liquidity, regulatory requirements and other factors, and repurchases may be commenced or suspended at any time without prior notice.


Financing Agreements

Our borrowings under repurchasefinancing 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 June 30, 2023, we had $2.4 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions and $5.2 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 (as defined below)(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
88
jurisdiction and cross default and setoff provisions. Other non-repurchase agreement financing arrangements also contain provisions governing collateral maintenance. At June 30, 2023, we had unused financing capacity of approximately $1.5 billion across our financing arrangements for all collateral types.
 
With respect to margin maintenance requirements for repurchase agreements secured by harder to value assets, such as Non-Agency MBS and residential whole loans, marginMargin 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 repurchase 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 are able to resolve the matter. In the unlikely event that resolution cannot be reached,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 1 of this Quarterly Report on Form 10-Q.
 

The following table presents information regarding the margin requirements, or the percentage amount by which the collateral value is contractually required to exceed the loan amount (this difference is referred to as the “haircut”), on our repurchase agreements at SeptemberAt June 30, 2017 and December 31, 2016:
At September 30, 2017
Weighted
Average
Haircut
Low
High
Repurchase agreement borrowings secured by:
 

 

 
Agency MBS
4.62% 3.00% 5.00%
Legacy Non-Agency MBS
22.40
 15.00
 35.00
RPL/NPL MBS 21.58
 20.00
 27.50
U.S. Treasury securities
1.39
 1.00
 2.00
CRT securities 22.05
 15.00
 25.00
MSR related assets 33.76
 30.00
 50.00
Residential whole loans 28.35
 20.00
 35.00
       
At December 31, 2016
Weighted
Average
Haircut		 Low High
Repurchase agreement borrowings secured by:
 
  
  
Agency MBS
4.67% 3.00% 6.00%
Legacy Non-Agency MBS
24.01
 15.00
 60.00
RPL/NPL MBS 20.98
 15.00
 30.00
U.S. Treasury securities
1.60
 1.00
 2.00
CRT securities 23.22
 20.00
 25.00
MSR related assets 41.40
 35.00
 50.00
Residential whole loans 25.03
 20.00
 35.00
During the first nine months2023, we had a total of 2017, the weighted average haircut requirements for the respective underlying collateral types for our repurchase agreements have remained fairly consistent compared to the end$3.9 billion of 2016. Weighted average haircuts have decreased on MSR related assets, Legacy Non-Agency MBS and CRT securities and have increased on Residentialresidential whole loans and RPL/NPL MBS.
Repurchase agreement funding forsecurities and $19.6 million of restricted cash pledged to our financing counterparties. We expect that we will continue to pledge residential mortgage assets as part of certain of our ongoing financing arrangements. When the value of our residential mortgage investments has been availableassets 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 us at generally attractive market terms from multiple counterparties.  Typically, due to the risks inherent in credit sensitive residential mortgage investments, repurchase agreementprovide ongoing funding, involving such investments is available at terms requiring higher collateralization and higher interest rates, than repurchase agreement funding secured by Agency MBS and U.S. Treasury securities.  Therefore, we generally expect to be ableour ability to finance our acquisitions of Agency MBSlong-maturity assets would decline or otherwise become available on more favorable terms than financing for credit sensitive investments.

We maintain cash and cash equivalents, unpledged Agency and Non-Agency MBS and collateral in excess of margin requirements held bypossibly 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 collectively, “cash and other unpledged collateral”)margin) requirements on new financings, including financings that we roll with the same counterparty, thereby reducing our ability to meet routine margin calls and protect against unforeseen reductionsuse leverage. Access to financing may also be negatively impacted by ongoing volatility in financial markets, thereby potentially adversely impacting our borrowing capabilities.  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 impactedaffected 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 our Consolidated Statements of Cash Flows, included under Item 1 of this Quarterly Report on Form 10-Q and “Interest Rate Risk” included under Item 3 of this Quarterly Report on Form 10-Q.)
 
At September 30, 2017, we had a total of $8.5 billion of MBS, U.S. Treasury securities, CRT securities, residential whole loans and MSR related assets and $15.4 million of restricted cash pledged against our repurchase agreements and Swaps. At September 30, 2017, we have access to various sources of liquidity which we estimate exceeds $1.2 billion. This includes (i) $608.2 million of cash and cash equivalents; (ii) $186.0 million in estimated financing available from unpledged Agency MBS and other Agency MBS collateral that is currently pledged in excess of contractual requirements; and (iii) $363.4 million in estimated financing available from unpledged Non-Agency MBS. Our sources of liquidity do not include restricted cash.


The table below presents certain information about our borrowings under repurchaseasset-backed financing agreements and other advances, and securitized debt:
 Asset-backed Financing AgreementsSecuritized 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)      
June 30, 2023$3,148,269 $3,370,327 $3,370,327 $3,924,422 $3,969,274 $4,043,482 
March 31, 20233,145,555 3,042,802 3,189,587 3,680,042 3,830,309 3,838,654 
December 31, 20223,147,303 3,226,651 3,226,651 3,842,757 3,357,590 3,855,013 
September 30, 20223,351,046 3,229,640 3,411,200 3,643,872 3,832,311 3,832,311 
June 30, 20223,638,476 3,530,510 3,761,049 3,170,406 3,374,716 3,374,716 
  Repurchase Agreements and Other Advances 
Securitized Debt (1)
Quarter Ended (2)
 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)            
September 30, 2017 $7,022,913
 $6,871,443
 $7,023,702
 $139,276
 $137,327
 $141,088
June 30, 2017 7,612,393
 7,040,844
 7,763,860
 30,414
 143,698
 143,698
March 31, 2017 8,494,853
 8,137,102
 8,564,493
 —
 —
 —
December 31, 2016 8,684,803
 8,687,268
 8,815,846
 —
 —
 —
September 30, 2016 8,868,173
 8,697,756
 8,917,550
 —
 —
 —


(1) Reflects securitized debt from our loan securitization transaction in June 2017
(2)  The information presented in the table above excludes $230.0 million of Convertible Senior Notes issued in April 2012. The outstanding balanceJune 2019.

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Cash Flows and Liquidity for the NineSix Months Ended SeptemberJune 30, 20172023
 
Our cash, and cash equivalents and restricted cash increased by $348.1$9.3 million during the ninesix months ended SeptemberJune 30, 2017,2023, reflecting:  $1.9 billion$692.2 million used in our investing activities, $636.4 million provided by our investingfinancing activities primarily from payments on our MBS; $119.0and $65.1 million provided by our operating activities; and $1.7 billion used in our financing activities.
 
At SeptemberJune 30, 2017,2023, our debt-to-equity multiple was 2.43.9 times compared to 3.13.5 times at December 31, 2016.2022. Our recourse leverage multiple at June 30, 2023 was 1.9 times compared to 1.8 times at December 31, 2022. At SeptemberJune 30, 2017,2023, we had borrowings under repurchaseasset-backed financing agreements of $6.9$3.4 billion, with 31 counterparties, of which $2.7$2.9 billion were secured by Agency MBS, $1.4 billion were secured by Legacy Non-Agency MBS, $798.5 million were secured by RPL/NPL MBS, $474.7 million were secured by U.S. Treasuries, $413.2 million were secured by CRT securities, $268.8 million were secured by MSR related assets and $883.4 million were secured by residential whole loans.  We continue to have available capacity under our repurchase agreement credit lines.loans, $464.1 million were secured by securities and $28.7 million were secured by REO. In addition, at SeptemberJune 30, 2017,2023, we had securitized debt of $137.3 million$4.0 billion in connection with our loan securitization transaction in June 2017.transactions. At December 31, 2016,2022, we had borrowings under repurchaseasset-backed financing agreements of $8.5$3.2 billion, with 31 counterparties, of which $3.1 billion were secured by Agency MBS, $1.7 billion were secured by Legacy Non-Agency MBS, $1.9 billion were secured by RPL/NPL MBS, $504.6residential whole loans, $111.7 million were secured by U.S. Treasuries, $271.2securities and $25.5 million were secured by CRT securities, $135.1 million were secured by MSR related assets and $832.1 million were secured by residential whole loans.REO. In addition, at December 31, 2016,2022, we had $215.0 millionsecuritized debt of $3.4 billion in outstanding FHLB advances, secured by Agency MBS, all of which were repaid in January 2017.connection with our loan securitization transactions.


During the ninesix months ended SeptemberJune 30, 2017, $1.9 billion2023, $692.2 million was provided throughused in our investing activities.  We utilized $1.3 billion for acquisitions and origination of residential whole loans, loan related investments and capitalized advances and $383.7 million for acquisitions of securities. During the six months ended June 30, 2023, we received cash of $3.4 billion from prepayments and scheduled amortization on our MBS, CRT securities and MSR related assets, of which $675.6 million was attributable to Agency MBS, $2.6 billion was from Non-Agency MBS and $12.1 million was from CRT securities and $140.1 million was attributable to MSR related assets.  We purchased $718.9$695.0 million of Non-Agency MBS, $238.8principal payments on residential whole loans and loan related investments, $262.7 million of CRT securities, $325.4proceeds from the sale of residential whole loans, and $66.2 million of MSR related assets and $3.2 millionproceeds on sales of Agency MBS funded with cash and repurchase agreement borrowings.  While we generally intend to hold our MBS as long-term investments, we may sell certain of our securities in order to manage our interest rate risk and liquidity needs, meet other operating objectives and adapt to market conditions.REO.  In addition, during the ninesix months ended SeptemberJune 30, 20172023, we sold certainreceived cash proceeds of $15.8 million from principal payments on our Non-Agency MBS and U.S. Treasury securities for $222.1 million, realizing net gains of $30.5 million.securities.
 
In connection with our repurchase agreement borrowingsfinancings and Swaps, we routinely receive margin calls/reverse margin calls from our counterparties and make margin calls to our counterparties. Margin calls and reverse margin calls, which requirements vary over time, may occur daily between us and any of our counterparties when the value of collateral pledged changes from the amount contractually required. The value of securities pledged as collateral fluctuates reflecting changes in: (i) the face (or par) value of our MBS;assets; (ii) market interest rates and/or other market conditions; and (iii) the market value of our Swaps. Margin calls/reverse margin calls are satisfied when we pledge/receive additional collateral in the form of additional securitiesassets 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.presented:
 Collateral Pledged to Meet Margin CallsCash and
Securities Received for
Reverse Margin Calls		Net Assets
Received/(Pledged) for Margin Activity
For the Quarter Ended (1)
Fair Value of
Securities
Pledged		Cash PledgedAggregate Assets
Pledged For
Margin Calls
(In Thousands)     
June 30, 2023$5,982 $2,909 $8,891 $5,328 $(3,563)
March 31, 2023676 2,965 3,641 6,529 2,888 
December 31, 2022— 12,121 12,121 13,629 1,508 
September 30, 2022— 4,784 4,784 12,291 7,507 
June 30, 2022— 18,985 18,985 — (18,985)
 
(1) Excludes variation margin payments on the Company’s cleared Swaps which are treated as a legal settlement of the exposure under the Swap contract.
  Collateral Pledged to Meet Margin Calls 
Cash and
Securities Received for
Reverse Margin Calls
 Net Assets
Received/(Pledged) for Margin Activity
For the Quarter Ended Fair Value of
Securities
Pledged		 Cash Pledged Aggregate Assets
Pledged For
Margin Calls		  
(In Thousands)          
September 30, 2017 $83,513
 $—
 $83,513
 $53,499
 $(30,014)
June 30, 2017 106,432
 500
 106,932
 75,996
 (30,936)
March 31, 2017 150,264
 1,500
 151,764
 246,168
 94,404
December 31, 2016 337,694
 8,000
 345,694
 357,163
 11,469
September 30, 2016 343,351
 28,700
 372,051
 343,139
 (28,912)

We are subject to various financial covenants under our repurchasefinancing agreements, and derivative contracts, which include minimum liquidity and net worth and/or profitability requirements, net worth decline limitations and maximum debt-to-equity ratios and minimum market capitalization requirements.ratios. We have maintainedwere in compliance with all of our financial covenants through Septemberas of June 30, 2017.2023.

During the ninesix months ended SeptemberJune 30, 2017,2023, we paid $229.0$71.5 million for cash dividends on our common stock and dividend equivalents and paid cash dividends of $11.3$16.4 million on our preferred stock. On September 14, 2017,June 15, 2023, we declared our thirdsecond quarter 20172023 dividend on our common stock of $0.20$0.35 per share; on OctoberJuly 31, 2017,2023, we paid this dividend, which totaled approximately $79.6$35.8 million, including dividend equivalents of approximately $205,000. $119,000.

We believe that we have adequate financial resources to meet our current obligations, including margin calls, as they come due, to fund dividends we declare and to actively pursue our investment strategies.  However, should the value
90
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.

Inflation
Substantially all of our assets and liabilities are financial in nature.  As a result, changes in interest rates and other factors impact our performance far more than does inflation.  Our results of operations and reported assets, liabilities and equity are measured with reference to historical cost or fair value without considering inflation.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
We seek to manage our risks related to interest rates, liquidity, prepayment speeds, market value and the credit quality of our assets while, at the same time, seeking to provide an opportunity to stockholders to realize attractive total returns through ownership of our capital stock. While we do not seek to avoid risk, we seek, consistent with our investment policies, to: assume risk that can be quantified based on management’s judgment and experience and actively manage such risk; earn sufficient returns to justify the taking of such risks; and maintain capital levels consistent with the risks that we undertake.




Interest Rate Risk
  
We generally acquire interest-rate sensitive assets and fund them with interest-rate sensitive liabilities, a portion of which are hedged with Swaps. We are exposed to interest rate risk on our residential mortgage assets, as well as on our liabilities. Changes in interest rates can affect our net interest income and the fair value of our assets and liabilities.
We finance the majority of our investments in residential mortgage assets with short-term repurchase agreements. In general, when interest rates change, the borrowing costs ofon our repurchasefinancing agreements (net of the impact of Swaps)will change more quickly than the yield on our assets. In a rising interest rate environment, the borrowing costs of our repurchase agreements may increase faster than the interest income on our assets, thereby reducing our net income. In order to mitigate compression in net income based on such interest rate movements, we may use Swaps or other derivatives to lock in a portion of the net interest spread between assets and liabilities.liabilities or otherwise hedge interest rate risk.


When interest rates change, the fair value of our residential mortgage assets could change at a different rate than the fair value of our liabilities. We measure the sensitivity of our portfolio to changes in interest rates by estimating the duration of our assets and liabilities. Duration is the approximate percentage change in fair value for a 100 basis point parallel shift in the yield curve. In general, our assets have higher duration than our liabilities, and in order to reduce this exposure, we usehave historically used Swaps and other derivatives to reduce the gap in duration between our assets and liabilities.

In calculating the duration of our Agency MBS we take into account the characteristics of the underlying mortgage loans including whether the underlying loans are fixed rate, adjustable or hybrid; coupon, expected prepayment rates and lifetime and periodic caps. We use third-party financial models, combined with management’s assumptions and observed empirical data when estimating the duration of our Agency MBS.

In analyzing the interest rate sensitivity of our Legacy Non-Agency MBS we take into account the characteristics of the underlying mortgage loans, including credit quality and whether the underlying loans are fixed-rate, adjustable or hybrid. We estimate the duration of our Legacy Non-Agency MBS using management’s assumptions.

The majority of our RPL/NPL MBS deal structures contain a contractual coupon step-up feature where the coupon increases up to 300 basis points if the bond is not redeemed by the issuer at 36 months or sooner. Therefore, we believe their fair value exhibits little sensitivity to changes in interest rates. We estimate the duration of these securities using management’s assumptions.


The fair value of our re-performing and non-performing residential whole loans is in part dependent on the value of the underlying real estate collateral, past and expected delinquency status of the borrower as well as the level of interest rates. BecauseFor certain loans that were re-performing or non-performing when purchased and where the borrower is not delinquent on their mortgage paymentshas brought the loan current, but isnonetheless may be less likely to prepay the loan due to weak credit history and/or high LTV, we believe our re-performing residential wholethese loans exhibit positive duration. We estimate the duration of our re-performingthese residential whole loans using management’s assumptions.


The fair value of our Purchased Performing Loans is typically dependent on the value of the underlying real estate collateral, as well as the level of interest rates. Because these loans are primarily newly or recently originated performing loans, we believe these investments exhibit positive duration. Given the short duration of our Transitional loans, we believe the fair value of these loans exhibits little sensitivity to changes in interest rates. We estimate the duration of these Purchased Performing Loans held at carrying value using management’s assumptions.
The fair value of our non-performing residential whole loans is primarilytypically dependent on the value of the underlying real estate collateral and the time required for collateral liquidation. Since neither the value of the collateral nor the liquidation timeline is generally sensitive to interest rates, we believe their fair value exhibits little sensitivity to interest rates. We estimate the duration of our non-performing residential whole loans using management’s assumptions.


We estimate the duration of our Agency MBS using a third-party financial model, which takes into account key characteristics of securities, market data, and assumptions based on management’s view and observed empirical data.

We use derivative financial instruments, including Swaps, as part of our overall interest rate risk management strategy. Such derivative financial instruments are intendedused to act as aeconomically hedge against future interest rate increases on our repurchase agreement financings, which rates are typically highly correlated with LIBOR.financing transactions. While ouruse of such derivatives dodoes not extend the maturities of our borrowings under repurchase agreements, they do, in effect, lock in a fixed rate of interest over their term for a corresponding amount of our repurchase agreement financings that are hedged. hedged, or otherwise act as a hedge against changes in interest rates.




At September 30, 2017, MFA’s $5.7 billion of Agency MBS and Legacy Non-Agency MBS were backed by Hybrid, adjustable and fixed-rate mortgages.  Additional information about these MBS, including average months to reset and three-month average CPR, is presented below:
91
  Agency MBS 
Legacy Non-Agency MBS (1)
 
Total (1)
Time to Reset 
 Fair
Value (2)
 
Average Months to Reset (3)
 
3 Month 
Average CPR (4)
  Fair Value 
Average Months to Reset (3)
 
3 Month 
Average CPR (4)
 
 Fair
Value (2)
 
Average Months to Reset (3)
 
3 Month 
Average CPR (4)
(Dollars in Thousands)  
  
  
  
  
  
  
  
  
< 2 years (5)
 $1,597,666
 8
 20.4% $1,845,110
 5
 19.0% $3,442,776
 6
 19.6%
2-5 years 144,494
 46
 12.0
 —
 —
 —
 144,494
 46
 12.0
> 5 years 60,033
 67
 12.8
 —
 —
 —
 60,033
 67
 12.8
ARM-MBS Total $1,802,193
 13
 19.5% $1,845,110
 5
 19.0% $3,647,303
 9
 19.2%
15-year fixed (6)
 $1,216,047
  
 11.4% $3,250
  
 12.9% $1,219,297
  
 11.4%
30-year fixed (6)
 —
  
 —
 830,457
  
 18.3
 830,457
  
 18.3
40-year fixed (6)
 —
  
 —
 37,910
  
 15.1
 37,910
  
 15.1
Fixed-Rate Total $1,216,047
  
 11.4% $871,617
  
 18.1% $2,087,664
  
 14.4%
MBS Total $3,018,240
  
 16.2% $2,716,727
  
 18.7% $5,734,967
  
 17.5%
(1)Excludes $1.2 billion of RPL/NPL MBS. Refer to table below for further information.
(2)Does not include principal payments receivable of $1.1 million.
(3)Months to reset is the number of months remaining before the coupon interest rate resets.  At reset, the MBS coupon will adjust based upon the underlying benchmark interest rate index, margin and periodic and/or lifetime caps.  The months to reset do not reflect scheduled amortization or prepayments.
(4)3 month average CPR weighted by positions as of the beginning of each month in the quarter.
(5)Includes floating-rate MBS that may be collateralized by fixed-rate mortgages.
(6)Information presented based on data available at time of loan origination.


The following table presents certain information about our RPL/NPL MBS portfolio at September 30, 2017:
  Fair Value Net Coupon 
Months to
Step-Up (1)
 
3 Month Average
Bond CPR (2)
(Dollars in Thousands)        
Re-Performing loans $84,012
 3.65% 32
 43.0%
Non-Performing loans 1,110,920
 4.25
 21
 22.6
Total RPL/NPL MBS $1,194,932
 4.21% 22
 26.2%

(1)Months to step-up is the weighted average number of months remaining before the coupon interest rate increases pursuant to the first coupon reset. We anticipate that the securities will be redeemed prior to the step-up date.
(2)All principal payments are considered to be prepayments for CPR purposes.

At September 30, 2017, our CRT securities and MSR related assets had a fair valueTable of $653.6 million and $411.8 million, respectively, and their coupons reset monthly based on one-month LIBOR.Contents


Shock Table


The information presented in the following “Shock Table” projects the potential impact of sudden parallel changes in interest rates on our net interest income and portfolio value, including the impact of Swaps over the next 12 monthsand securitized debt and other fixed rate debt, based on the assets in our investment portfolio at SeptemberJune 30, 2017.2023. All changes in income and value are measured as the percentage change from the projected net interest income and portfolio value under the base interest rate scenario at SeptemberJune 30, 2017.2023.

Change in Interest Rates
Change in
Estimated
Net Portfolio Value (1)(2)
Percentage
Change in Net
Interest
Income (3)
Percentage
Change in
Portfolio
Value
(Dollars in Thousands)   
 +100 Basis Point Increase$(137,971)0.96 %(1.45)%
 + 50 Basis Point Increase$(63,237)0.35 %(0.67)%
Actual at June 30, 2023$— — %— %
 - 50 Basis Point Decrease$51,741 0.11 %0.55 %
 -100 Basis Point Decrease$91,984 (1.31)%0.97 %

Change in Interest Rates 
Estimated
Value
of Assets (1)
 Estimated
Value of
Swaps		 Estimated
Value of
Financial
Instruments		 
Change in
Estimated
Value
 Percentage
Change in Net
Interest
Income		 Percentage
Change in
Portfolio
Value
(Dollars in Thousands)            
 +100 Basis Point Increase $10,411,914
 $27,911
 $10,439,825
 $(85,728) (3.08)% (0.81)%
 + 50 Basis Point Increase $10,485,268
 $(1,070) $10,484,198
 $(41,355) (1.80)% (0.39)%
Actual at September 30, 2017 $10,555,603
 $(30,050) $10,525,553
 $—
 —
 —
 - 50 Basis Point Decrease $10,622,921
 $(59,030) $10,563,891
 $38,338
 (1.41)% 0.36 %
 -100 Basis Point Decrease $10,687,220
 $(88,011) $10,599,209
 $73,656
 (1.68)% 0.70 %
(1)Assets in our portfolio include residential whole loans and REO, securities, other portfolio investments, goodwill, intangibles, receivables, and cash and cash equivalents and restricted cash.

(2)Change in estimated net portfolio value includes the effect of our Swaps, securitized debt, and other fixed-rate debt.
(1)  Such assets include MBS and CRT securities, residential whole loans and REO, MSR related assets, cash and cash equivalents and restricted cash.

(3)Includes the impact of the net carry on our Swaps.

Certain assumptions have been made in connection with the calculation of the information set forth in the Shock Table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at SeptemberJune 30, 2017.2023. The analysis presented utilizes assumptions and estimates based on management’s judgment and experience.  Furthermore, while we generally expect to retain the majority of our assets and the associated interest rate risk to maturity, future purchases and sales of assets could materially change our interest rate risk profile. It should be specifically noted that the information set forth in the above table and all related disclosure constitute forward-looking statements within the meaning of Section 27A of the 1933Securities Act and Section 21E of the 1934Exchange Act. Actual results could differ significantly from those estimated in the Shock Table above.
 
The Shock Table quantifies the potential changes in net interest income and portfolio value, which includes the value of our Swapsderivative and other hedging transactions (if any) and securitized and other fixed rate debt (which are carried at fair value), should interest rates immediately change (i.e., are shocked). The Shock Table presents the estimated impact of interest rates instantaneously rising 50 and 100 basis points, and falling 50 and 100 basis points. The cash flows associated with our portfolio of MBS for each rate shock are calculated based on assumptions, including, but not limited to, prepayment speeds, yield on replacement assets, the slope of the yield curve and composition of our portfolio. Assumptions made with respect to the interest rate sensitive liabilities include anticipated interest rates, collateral requirements as a percent of repurchase agreement financings, and the amounts and terms of borrowing. At SeptemberJune 30, 2017,2023, we applied a floor of 0% for all anticipated interest rates included in our assumptions. Due to this floor, it is anticipated that any hypothetical interest rate shock decrease would have a limited positive impact on our funding costs; however, because prepayments speeds are unaffected by this floor, it is expected that any increase in our prepayment speeds (occurring as a result of any interest rate shock decrease or otherwise) could result in an acceleration of premium amortization on our Agency MBSassets purchased at a premium and discount accretion on our Non-Agency MBSassets purchased at a discount and in the reinvestment of principal repayments in lower yielding assets. As a result, because the presence of this floor limits the positive impact of interest rate decrease on our funding costs, hypothetical interest rate shock decreases could cause a decline in the fair value of our financial instruments and our net interest income.
 
At SeptemberJune 30, 2017,2023, the impact on portfolio value was approximated using estimated net effective duration (i.e., the price sensitivity to changes in interest rates), including the effect of Swaps,securitized and other fixed rate debt, of 0.761.19 which is the weighted average of 1.683.62 for our Agency MBS, 1.28Residential whole loans, 2.60 for our Non-AgencySecurities investments, (2.30)(2.67) for our Swaps,derivative and 0.05other hedging transactions and securitized and other fixed rate debt, and 0.01 for our Other assets and cash and cash equivalents. Estimated convexity (i.e., the approximate change in duration relative to the change in interest rates) of the portfolio was (0.11)(0.48), which is the weighted average of (0.40)(0.52) for our Agency MBS,Residential whole loans, zero for our Swaps,derivative and other hedging transactions and securitized and other fixed rate debt, (0.70) for our Securities and zero for our Non-Agency MBS, and zero for Other assets and cash and cash equivalents. The impact on our net interest income is driven mainly by the difference between portfolio yield and cost of funding of our repurchase agreements, which includes the cost and/or benefit from Swaps.agreements.  Our asset/liability structure is generally such that an increase in interest rates would
92
be expected to result in a decrease in net interest income, as our borrowings are generally shorter in term than our interest-earning assets. When interest rates are shocked, prepayment assumptions are adjusted based on management’s expectations along with the results from the prepayment model.



Credit Risk
 
Although we do not believe that we are exposed to credit risk in our Agency MBS portfolio, we are exposed to credit risk through our credit-sensitivecredit sensitive residential mortgage investments, in particular Legacy Non-Agency MBS and residential whole loans and to a lesser extentcertain of our investments in RPL/NPL MBS, CRT securities and MSR related assets. investments.

Our exposure to credit risk from our credit sensitive investments is discussed in more detail below:


Legacy Non-Agency MBSResidential Whole Loans


InWe are exposed to credit risk from our investments in residential whole loans. Credit risk on Purchased Performing Loans is mitigated through our process to underwrite the eventloan before it is acquired and/or originated and includes an assessment of the returnborrower’s financial condition and ability to repay the loan, nature of less than 100%the collateral and relatively low LTV, including after-repair LTV for the majority of par on our Legacy Non-Agency MBS, credit support contained inTransitional loans. Given the MBS deal structures andextent of home price appreciation that has occurred since the discounted purchase pricesmajority of our Purchased Performing Loans were acquired or originated, we paid mitigate ourestimate that current LTV’s have decreased significantly, further mitigating the risk of lossmaterial credit losses on these investments.  Over time, we expect the level of credit support remaining in certain MBS deal structures to decrease, which will result in an increase in the amount of realized credit loss experienced by our Legacy Non-Agency MBSthis portfolio.

Our investment process for Legacy Non-Agency MBS involves analysisPurchased Non-performing and Purchased Credit Deteriorated Loans is focused primarily on quantifying and pricing credit risk. When weNon-Performing and Purchased Credit Deteriorated Loans are acquired at purchase Legacy Non-Agency MBS, we assign certain assumptionsprices that are generally discounted to eachthe contractual loan balances based on a number of factors, including the impaired credit history of the MBS, including but not limited to, future interest rates, voluntary prepayment rates, mortgage modifications, default ratesborrower and loss severities, and generally allocate a portionthe value of the purchase discountcollateral securing the loan. In addition, as we generally own the mortgage-servicing rights associated with these loans, our process is also focused on selecting a Credit Reserve which provides credit protection for such securities.  As part ofsub-servicer with the appropriate expertise to mitigate losses and maximize our surveillance process, we review our Legacy Non-Agency MBS by trackingoverall return. This involves, among other things, performing due diligence on the sub-servicer prior to their actual performance compared to the securities’ expected performance at purchase or, if we have modified our original purchase assumptions, compared to our revised performance expectations.engagement as well as ongoing oversight and surveillance. To the extent that actual performancedelinquencies and defaults on these loans are higher than our expectation at the time the loans were purchased, the discounted purchase price at which the asset is acquired is intended to provide a level of a Legacy Non-Agency MBS is less favorable than its expected performance, we may revise our performance expectations.  As a result, we could reduce the accretable discount on the security and/or recognize an other-than-temporary impairment through earnings, either of which could have a material adverse impact on our operating results. protection against financial loss.


In evaluating our asset/liability management and Legacy Non-Agency MBS credit performance, we consider the credit characteristics of the mortgage loans underlying our Legacy Non-Agency MBS. 
The following table presents certain information about our Legacy Non-Agency MBS portfolioResidential whole loans at SeptemberJune 30, 2017.  Information presented with respect to the weighted2023:

Purchased Performing LoansPurchased Credit Deteriorated LoansPurchased Non-Performing Loans
 Loans with an LTV:Loans with an LTV:Loans with an LTV:
(Dollars in Thousands)80% or BelowAbove 80%80% or BelowAbove 80%80% or BelowAbove 80%Total
Amortized cost$7,305,168 $246,464 $365,515 $82,851 $520,005 $139,966 $8,659,969 
Unpaid principal balance (UPB)$7,191,512 $242,524 $417,556 $111,287 $596,291 $228,998 $8,788,168 
Weighted average coupon (1)
6.3 %6.0 %4.8 %4.7 %5.1 %5.0 %5.8 %
Weighted average term to maturity (months)257 337 261 313 258 319 256 
Weighted average LTV (2)
64.5 %86.5 %50.7 %105.2 %50.7 %109.7 %65.2 %
Loans 90+ days delinquent (UPB)$163,443 $7,238 $50,610 $24,208 $160,434 $90,042 $495,975 

(1)Weighted average FICO scores and other information aggregatedis calculated based on information reported at the timeinterest bearing principal balance of mortgage origination are historical and, as such,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 impactseller, interest rates included in the calculation are net of servicing fees.
(2)LTV represents the ratio of the general changes in home prices or changes in borrowers’ credit scores ortotal 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 $296.1 million, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The LTV of these loans based on the current useunpaid principal balance and the valuation obtained during underwriting, is 69%. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots for which the mortgaged properties.LTV ratio is not meaningful.

The information in the table below is presented as of September 30, 2017:

93
  
Securities with Average Loan FICO
of 715 or Higher (1)
 
Securities with Average Loan FICO
Below 715 (1)
  
Year of Securitization (2)
 2007 2006 2005
and Prior		 2007 2006 2005
and Prior		 Total
(Dollars in Thousands)  
  
  
  
  
  
  
Number of securities 84
 65
 90
 29
 57
 61
 386
MBS current face (3)
 $776,217
 $505,156
 $580,846
 $171,088
 $446,942
 $428,426
 $2,908,675
Total purchase discounts, net (3)
 $(229,043) $(143,950) $(107,878) $(56,606) $(169,151) $(129,206) $(835,834)
Purchase discount designated as Credit Reserve and OTTI (3)(4)
 $(145,118) $(74,508) $(57,820) $(46,116) $(165,468) $(104,104) $(593,134)
Purchase discount designated as Credit Reserve and OTTI as percentage of current face 18.7% 14.7% 10.0% 27.0% 37.0% 24.3% 20.4%
MBS amortized cost (3)
 $547,174
 $361,206
 $472,968
 $114,482
 $277,791
 $299,220
 $2,072,841
MBS fair value (3)
 $729,689
 $472,395
 $562,202
 $157,543
 $393,568
 $401,330
 $2,716,727
Weighted average fair value to current face 94.0% 93.5% 96.8% 92.1% 88.1% 93.7% 93.4%
Weighted average coupon (5)
 3.97% 3.45% 3.69% 4.93% 4.97% 4.74% 4.15%
Weighted average loan age (months) (5)(6)
 126
 135
 149
 131
 137
 148
 137
Weighted average current loan size (5)(6)
 $503
 $491
 $300
 $345
 $249
 $236
 $373
Percentage amortizing (7)
 99% 100% 100% 99% 99% 100% 100%
Weighted average FICO score at origination (5)(8)
 729
 729
 726
 705
 702
 703
 719
Owner-occupied loans 90.7% 90.9% 86.5% 84.8% 86.3% 84.4% 88.0%
Rate-term refinancings 29.8% 21.8% 14.9% 22.3% 15.7% 14.4% 20.5%
Cash-out refinancings 35.2% 35.2% 27.7% 44.5% 44.4% 39.5% 36.3%
3 Month CPR (6)
 23.0% 17.8% 20.2% 16.5% 16.7% 17.6% 19.4%
3 Month CRR (6)(9)
 19.5% 15.1% 17.3% 13.9% 12.6% 14.5% 16.2%
3 Month CDR (6)(9)
 4.5% 3.3% 3.5% 3.3% 5.5% 4.0% 4.1%
3 Month loss severity 61.5% 41.6% 45.8% 51.9% 55.8% 54.2% 53.4%
60+ days delinquent (8)
 11.5% 11.4% 8.5% 15.1% 15.1% 12.8% 11.8%
Percentage of always current borrowers (Lifetime) (10)
 32.6% 32.3% 39.8% 27.2% 23.4% 28.2% 31.6%
Percentage of always current borrowers (12M) (11)
 76.4% 76.9% 79.3% 69.2% 68.2% 70.4% 74.5%
Weighted average credit enhancement (8)(12)
 0.2% 0.2% 4.7% 0.0% 1.3% 2.8% 1.6%


(1)FICO score is used by major credit bureaus to indicate a borrower’s creditworthiness at time of loan origination.
(2)Information presented based on the initial year of securitization of the underlying collateral. Certain of our Non-Agency MBS have been resecuritized.  The historical information presented in the table is based on the initial securitization date and data available at the time of original securitization (and not the date of resecuritization). No information has been updated with respect to any MBS that have been resecuritized.
(3)Excludes Non-Agency MBS issued since 2012 in which the underlying collateral consists of RPL/NPL MBS. These Non-Agency MBS have a current face of $1.2 billion, amortized cost of $1.2 billion, fair value of $1.2 billion and purchase discounts of $2.0 million at September 30, 2017.
(4)Purchase discounts designated as Credit Reserve and OTTI are not expected to be accreted into interest income.
(5)Weighted average is based on MBS current face at September 30, 2017.
(6)Information provided is based on loans for individual groups owned by us.
(7)Percentage of face amount for which the original mortgage note contractually calls for principal amortization in the current period.
(8)Information provided is based on loans for all groups that provide credit enhancement for MBS with credit enhancement.
(9)CRR represents voluntary prepayments and CDR represents involuntary prepayments.
(10)Percentage of face amount of loans for which the borrower has not been delinquent since origination.
(11)Percentage of face amount of loans for which the borrower has not been delinquent in the last twelve months.
(12)Credit enhancement for a particular security is expressed as a percentage of all outstanding mortgage loan collateral.  A particular security will not be subject to principal loss as long as its credit enhancement is greater than zero. 


The mortgages securing our Legacy Non-Agency MBS are located in many geographic regions across the United States.  The following table presents the five largest geographic concentrations by state of the mortgages collateralizing our Legacy Non-Agency MBSresidential whole loan portfolio at SeptemberJune 30, 2017:
2023:
Property LocationPercent of Interest-Bearing Unpaid Principal Balance
California42.929.8 %
Florida7.812.5 %
New YorkTexas6.56.3 %
New JerseyGeorgia4.04.7 %
VirginiaNew York3.94.5 %

RPL/NPL MBS

These securities are backed by re-performing and non-performing loans, were purchased primarily through new issue at prices at or around par and represent the senior tranches of the related securitizations. The majority of these securities are structured with significant credit enhancement (typically approximately 50%) and the subordinate tranches absorb all credit losses (until those tranches are extinguished) and typically receive no cash flow (interest or principal) until the senior tranche is paid off. Prior to purchase, we analyze the deal structure in order to assess the associated credit risk. Subsequent to purchase, the ongoing credit risk associated with the deal is evaluated by analyzing the extent to which actual credit losses occur that result in a reduction in the amount of subordination enjoyed by our bond.


CRT Securities


We are exposed to potential credit losses from our investments in CRT securities issued by or sponsored by Fannie Mae and Freddie Mac. While CRT securities are debt obligations ofissued by or sponsored by these GSEs, payment of principal on these securities is not guaranteed. As an investor in a CRT security, we may incur a loss if losses on the mortgage loans in the associated reference pool exceed the credit enhancement on the underlying CRT security owned by us or if an actual pool of loans experience delinquencies exceeding specified thresholds or other specified credit events occur.losses. We assess the credit risk associated with our investments in CRT securities by assessing the current and expected future performance of the loans in the associated referenceloan pool.

MSR Related Assets


Term Notes Backed by MSR Collateral


We have invested in certain term notes that are 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 by us 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. In addition, credit support is also provided by a corporate guarantee from the ultimate parent or sponsor of the SPV that is intended to provide for payment of interest and principal to the holders of the term notes should cash flows generated by the underlying MSRs be insufficient.
Corporate Loan


We have entered into a loan agreement with an entity that originates loans and owns MSRs. We assess
Credit Spread Risk

Credit spreads measure the additional yield demanded by investors in financial instruments based on the credit risk associated with this loanan instrument relative to benchmark interest rates. They are impacted by consideringthe available supply and demand for instruments with various factors, including the current statuslevels of credit risk. Widening credit spreads would result in higher yields being required by investors in financial instruments. Credit spread widening generally results in lower values of the loan,financial instruments we hold at that time, but will generally result in a higher yield on future investments with similar credit risk. It is possible that the credit spreads on our assets and liabilities, including hedges, will not always move in tandem. Consequently, changes in fair value of the MSRs that secure the loancredit spreads can result in volatility in our financial results and the recent financial performance of the borrower.reported book value.


Residential Whole Loans

We are also exposed to credit risk from our investments in residential whole loans. Our investment process for residential whole loans is generally similar to that used for Legacy Non-Agency MBS and is likewise focused on quantifying and pricing credit risk. Consequently, these loans are acquired at purchase prices that are generally discounted (often substantially) to the contractual loan balances based on a number of factors, including the impaired credit history of the borrower and the value of the collateral securing the loan. In addition, as the owner of the servicing rights, our process is also focused on selecting a sub-servicer with the appropriate expertise to mitigate losses and maximize our overall return. This involves, among other things, performing due diligence on the sub-servicer prior to their engagement as well as ongoing oversight and surveillance. To the extent that loan

delinquencies and defaults are higher than our expectation at the time the loans were purchased, the discounted purchase price at which the asset is acquired is intended to provide a level of protection against financial loss.

The following table presents the five largest geographic concentrations by state of our credit sensitive residential whole loan portfolio at September 30, 2017:
Property Location
Percent of Interest-Bearing Unpaid Principal Balance (1)
California20.7%
New York15.0%
Florida8.6%
New Jersey7.1%
Maryland5.0%

(1) Excludes approximately $120.4 million of residential whole loans for which the closing of the purchase transaction had not occurred as of September 30, 2017.


Liquidity Risk


The primary liquidity risk we face arises from financing long-maturity assets with shorter-term borrowings primarily in the form of repurchase agreement financings. This risk was particularly pronounced during the first quarter of 2020, as conditions created by COVID-19 resulted in us receiving an unusually high number of margin calls, negatively impacting our overall liquidity and ultimately leading us to enter into forbearance agreements.

We pledge residential mortgage assets and cash to secure our repurchasefinancing agreements. Our financing agreements with mark-to-market collateral provisions require us to pledge additional collateral in the event the market value of the assets pledged decreases, in order to maintain the lenders contractually specified collateral cushion, which is measured as the difference between the loan amount and Swaps.  At September 30, 2017, we had access to various sourcesthe market value of liquidity which we estimate to be in excess of $1.2 billion, an amount which includes: (i) $608.2 million of cash and cash equivalents, (ii) $186.0 million in estimated financing available from unpledged Agency MBS and other Agency MBS collateral that are currentlythe asset pledged in excess of contractual requirements, and (iii) $363.4 million in estimated financing available from currently unpledged Non-Agency MBS.  Our sources of liquidity do not include restricted cash.as collateral. Should the value of our residential mortgage assets pledged as collateral suddenly decrease, margin calls under our repurchase agreements would likely increase, causing an adverse change in our liquidity position. Additionally, if one or more of our financing counterparties chose not to provide ongoing funding, our ability to finance our long-maturity assets would decline or be available on possibly less advantageous terms. As such, we cannot assure you that we will always be able to roll over our repurchase agreement financings and other advances.  Further, should marketwhen liquidity tighten,tightens, our repurchase agreement counterparties may increase our margincollateral cushion (or
94
margin) requirements on new financings, including repurchase agreement borrowings that we roll with the same counterparty, reducing our ability to use leverage.


At June 30, 2023, we had access to various sources of liquidity, including $329.4 million of cash and cash equivalents. Our sources of liquidity do not include restricted cash. In addition, at June 30, 2023, we had $49.0 million of unencumbered residential whole loans.

Prepayment Risk


Premiums arise when we acquire an MBS or loan at a price in excess of the aggregate principal balance of the mortgages securing the MBS (i.e., par value). or when we acquire residential whole loans at a price in excess of their aggregate principal balance.  Conversely, discounts arise when we acquire an MBS or loan at a price below the aggregate principal balance of the mortgages securing the MBS or when we acquire residential whole loans at a price below their aggregate principal balance.  Premiums paid on our MBS are amortized against interest income and accretable purchase discounts on these investments are accreted to interest income.  Purchase premiums, which are primarily carried on our Agency MBS and certain CRT securities,Purchased Performing Loans (excluding Transitional loans that are typically purchased at par), are amortized against interest income over the life of each securitythe 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 IRR/interest income earned on these assets. Fees payable by borrowers on the early repayment of certain of our Purchased Performing Loans serve to mitigate the impact on our income of higher prepayment rates. Generally, if prepayments on Non-Agency MBS and residential whole loans purchased at significant discounts and not accounted for at fair value are less than anticipated, we expect that the income recognized on these assets will be reduced and impairments and/or loancredit loss reserves may result.



In addition, increased prepayments are generally associated with decreasing market interest rates as borrowers are able to refinance their mortgages at lower rates. Therefore, increased prepayments on our investments may accelerate the redeployment of our capital to generally lower yielding investments. Similarly, decreased prepayments are generally associated with increasing market interest rates and may slow our ability to redeploy capital to generally higher yielding investments.


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Item 4.  Controls and Procedures
 
(a) Evaluation of Disclosure Controls and Procedures
 
Management, under the direction of its Chief Executive Officer and Chief Financial Officer, is responsible for maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 1934Exchange Act) that are designed to ensure that information required to be disclosed in reports filed or submitted under the 1934Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
 
In connection with the preparation of this Quarterly Report on Form 10-Q, management reviewed and evaluated the Company’s disclosure controls and procedures.  The evaluation was performed under the direction of the Company’s Chief Executive Officer and Chief Financial Officer to determine the effectiveness, as of SeptemberJune 30, 2017,2023, of the design and operation of the Company’s disclosure controls and procedures.  Based on that review and evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective as of SeptemberJune 30, 2017.2023. Notwithstanding the foregoing, a control system, no matter how well designed, implemented and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s current periodic reports.
(b) Changes in Internal Control over Financial Reporting


There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172023 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
There are no material pending legal proceedings to which we are a party or any of our assets are subject.


Item 1A. Risk Factors
 
For a discussion of the Company’s risk factors, see Part 1, Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022 (the “2022 Form 10-K”). There are no material changes from the risk factors set forth in such Annual Report onthe 2022 Form 10-K. However, the risks and uncertainties that the Company faces are not limited to those set forth in the Company’s Annual Report on2022 Form 10-K for the year ended December 31, 2016.10-K. Additional risks and uncertainties not currently known to the Company (or that it currently believes to be immaterial) may also adversely affect the Company’s business and the trading price of our securities.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
Purchases of Equity Securities
 
As previously disclosed, in August 2005, the Company’sOn March 11, 2022, our Board authorized a Repurchase Program,stock repurchase program under which we may repurchase up to $250 million of our 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 had also authorized us to repurchase up to 4.0 million$250 million.

The stock repurchase program does not require the purchase of any minimum number of shares. The timing and extent to which we repurchase our shares of the Company’s outstanding common stockwill 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 Repurchase Program.  The Board reaffirmed such authorizationstock repurchase program may be made in May 2010.  In December, 2013, the Company’s Board increased the number of shares authorized for repurchase to an aggregate of 10.0 million shares (under which approximately 6.6 million shares remain available for repurchase). Such authorization does not have an expiration date and, at present, there is no intention to modifyopen market, through privately negotiated transactions or otherwise rescind such authorization.  Subject toblock trades or other means, in accordance with applicable securities laws repurchases of common stock under the Repurchase Program are made at times and in amounts as we deem appropriate (including, in our discretion, through the use of one or more plans adopted under Rule 10b-5-110b5-1 promulgated under the 1934Exchange Act), using.

At June 30, 2023, approximately $202.5 million remained available cash resources.  Sharesunder the current authorization for the purchase of our common stock repurchased by the Company under the Repurchase Program are cancelled and, until reissued by the Company, are deemed to be authorized but unissued shares of the Company’s common stock.  The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice.stock repurchase program.


The CompanyWe engaged in no share repurchase activity during the thirdsecond quarter of 20172023 pursuant to the Repurchase Program.  The Companystock repurchase program nor did however,we withhold any restricted shares (under the terms of grants under our Equity Compensation Plan (or Equity Plan)) to offsetsatisfy tax and payroll withholding obligations that occur uponresulting from the vesting and releasesettlement of restricted stock awards and/or RSUs.  The following table presents information with respect to (i) such withheld restricted shares and (ii) eligible shares remaining for repurchase under the Repurchase Program:stock units (RSUs).
Month  Total
Number of
Shares
Purchased		 
Weighted
Average Price
Paid Per
Share (1)
 Total Number of
Shares Repurchased as
Part of Publicly
Announced
Repurchase Program
or Employee Plan		 Maximum Number of
Shares that May Yet be
Purchased Under the
Repurchase Program or
Employee Plan
July 1-31, 2017:  
  
  
  
Repurchase Program(2)—
 $—
 —
 6,616,355
Employee Transactions(3)552
 8.53
 N/A
 N/A
August 1-31, 2017:  
  
  
  
Repurchase Program(2)—
 —
 —
 6,616,355
Employee Transactions(3)3,676
 8.79
 N/A
 N/A
September 1-30, 2017:  
  
  
  
Repurchase Program(2)—
 —
 —
 6,616,355
Employee Transactions(3)140,195
 $8.77
 N/A
 N/A
Total Repurchase Program(2)—
 $—
 —
 6,616,355
Total Employee Transactions(3)144,423
 $8.77
 N/A
 N/A

(1)  Includes brokerage commissions.
(2)  As of September 30, 2017, the Company had repurchased an aggregate of 3,383,645 shares under the Repurchase Program.
(3)  The Company’s Equity Plan provides that the value of the shares delivered or withheld be based on the price of its common stock on the date the relevant transaction occurs.

Item 3.  Defaults Upon Senior Securities
 
None.


Item 4.  Mine Safety Disclosures
 
None.


Item 5.  Other Information
 
None.


Item 6. Exhibits
 
Exhibits required by Item 601 of Regulation S-K.
97
Table of Contents
EXHIBIT INDEX

The list offollowing exhibits required to beare filed as part of this Quarterly Report. The exhibit numbers followed by an asterisk (*) indicate exhibits to this reportelectronically filed or furnished herewith. All other exhibit numbers indicate exhibits previously filed and are listed on page E-1 hereof, under “Exhibit Index,” which ishereby incorporated herein by reference.


ExhibitDescription
Amended and Restated Bylaws of the Company (as amended and restated through April 18, 2023) (incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K, dated April 21, 2023 (Commission File No. 1-13991)).
Equity Compensation Plan of the Company (incorporated herein by reference to Exhibit 10.1 of the Form 8-K, dated June 8, 2023, filed by the Company pursuant to the Exchange Act (Commission File No. 1-13991)).
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline Extensible Business Reporting Language): (i) our Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022; (ii) our Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022; (iii) our Consolidated Statements of Comprehensive Income / (Loss) (Unaudited) for the three and six months ended June 30, 2023 and 2022; (iv) Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2023 and 2022; (v) our Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2023 and 2022; and (vi) the notes to our Unaudited Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

98
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: August 3, 2023MFA FINANCIAL, INC.
(Registrant)
Date: November 2, 2017MFA FINANCIAL, INC.
By:(Registrant)
By:/s/ Stephen D. Yarad
Stephen D. Yarad
Chief Financial Officer
(Principal Financial Officer)

EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report:

ExhibitDescription
31.1
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document
*These interactive data files are furnished and deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of  the Securities Act of 1933, as amended, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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