MFA FINANCIAL INC

Previous wording

At June 30, 2024, we had total assets of approximately $11.1 billion, of which $9.2 billion, or 83%, represented residential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans,” which are included in “Other loans”). In addition, at June 30, 2024, we had approximately $863.3 million or 8% of total assets invested in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

Current wording

At September 30, 2024, we had total assets of approximately $11.2 billion, of which $9.0 billion, or 81%, represented residential whole loans. Our residential whole loans include primarily: (i) loans to finance (or refinance) one-to-four family residential properties that are not considered to meet the definition of a “Qualified Mortgage” in accordance with guidelines adopted by the Consumer Financial Protection Bureau (“Non-QM loans”), (ii) short-term business purpose loans collateralized by residential properties made to non-occupant borrowers that generally intend to rehabilitate or construct residential housing and then refinance or sell the properties (“Single-family transitional loans”), (iii) short-term business purpose loans collateralized by multifamily properties, typically with a loan balance below $10 million, made to non-occupant borrowers that generally intend to rehabilitate or stabilize and then refinance or sell the properties (“Multifamily transitional loans”) (collectively, “Transitional loans,” also sometimes referred to as “Rehabilitation loans” or “Fix and Flip loans”), (iv) business purpose loans to finance (or refinance) non-owner occupied one-to-four family residential properties that are rented to one or more tenants (“Single-family rental loans” and, collectively with Transitional loans, “Business purpose loans”), (v) loans primarily secured by residential real estate that were generally either non-performing or re-performing at acquisition (“Legacy RPL/NPL”) and (vi) loans on investor properties that conform to the standards for purchase by a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (“Agency eligible investor loans,” which are included in “Other loans”). In addition, at September 30, 2024, we had approximately $1.1 billion or 10% of total assets invested in securities, including Agency MBS, Term notes backed by MSR collateral, CRT securities and Non-Agency MBS.

Previous wording

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 represents the annualized constant rate of principal repayment in excess of scheduled principal amortization. CPRs on our residential mortgage securities and whole loans may differ significantly. For the three months ended June 30, 2024, the average CPRs on certain of our loan portfolios were: 7.4% for Single-family rental loans, 10.8% for Non-QM loans, and 10.8% for Legacy RPL/NPL loans. In addition, for the three months ended June 30, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 66.3% for our Single-family transitional loans and 23.9% for our Multifamily transitional loans.

Current wording

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 represents the annualized constant rate of principal repayment in excess of scheduled principal amortization. CPRs on our residential mortgage securities and whole loans may differ significantly. For the three months ended September 30, 2024, the average CPRs on certain of our loan portfolios were: 9.6% for Single-family rental loans, 11.3% for Non-QM loans, and 8.0% for Legacy RPL/NPL loans. In addition, for the three months ended September 30, 2024, the repayment rate (which includes both scheduled and unscheduled repayments of principal) was 63.5% for our Single-family transitional loans and 20.1% for our Multifamily transitional loans.

Previous wording

Although interest rates ended relatively unchanged from the end of the prior quarter, fixed income markets continued to exhibit significant volatility during the second quarter of 2024. Credit assets again outperformed Treasuries in the quarter as credit spreads continued to tighten. During the second quarter, we generated GAAP earnings of $0.32 per basic common share and Distributable Earnings, a non-GAAP financial measure that excludes the impact of fair value changes and certain other items, of $0.44 per basic common share. During the quarter, our GAAP book value was flat and our Economic book value rose to $14.34 per common share, and we declared dividends of $0.35 per common share. In April 2024, we issued $75 million of 9.00% senior unsecured notes due in August 2029, and in June 2024 we repaid our maturing 6.25% convertible notes. We added approximately $688 million residential mortgage loans and $176 million of Agency MBS with an average coupon of approximately 9.6% and 6.0%, respectively, and we completed two securitizations collateralized by $365.2 million of Non-QM loans and $191.8 million of Transitional loans. During the quarter we exercised the call option on one of our securitizations issued in 2021, and shortly following quarter end issued a new securitization collateralized predominantly by the called Legacy RPL/NPL loans. During the quarter, Lima One originated Business purpose loans with a maximum unpaid principal balance of $412.3 million. In response to what we believe to be a softening in multifamily housing in certain markets and several consecutive quarters of declines in origination volumes in multifamily transitional lending, we decided to temporarily refocus our resources away from multifamily lending at Lima One and instead redeploy resources to single-family transitional and single-family rental lending. As a result of increased industry competition in single-family lending and our redeployment of resources away from multifamily lending over the next several quarters, we expect that Lima One’s origination volumes will decline from previous quarters.

Current wording

During the third quarter, we generated GAAP earnings of $0.38 per basic common share and Distributable Earnings, a non-GAAP financial measure, of $0.37 per basic common share. During the quarter, our GAAP book value remained essentially flat at $13.77 per common share and our Economic book value increased approximately 1% to $14.46 per common share, and we declared dividends of $0.35 per common share. We added approximately $565.2 million of residential mortgage loans and $293.9 million of Agency MBS with an average coupon of approximately 9.4% and 5.5%, respectively, and we completed two securitizations collateralized by $245.4 million of performing Legacy RPL/NPL loans and $398.0 million of Non-QM loans. Subsequent to quarter-end, we issued two securitizations collateralized by $423.8 million of primarily non-performing Legacy RPL/NPL loans and $214.7 million UPB of Transitional loans. During the quarter, Lima One originated Business purpose loans with a maximum unpaid principal balance of $312.3 million. Delinquency on our Residential whole loans increased modestly during the quarter from 6.5% at June 30, 2024 to 6.7% at September 30, 2024. The increase was driven primarily by an increase from 3.0% to 3.5% on our Non-QM loans, and an increase from 4.6% to 5.5% on our Multifamily transitional loans. Subsequent to quarter-end, Multifamily transitional loan delinquency increased to 8.1% as of October 31, 2024, as an additional net $32.6 million of loans, primarily to one sponsor, went from 30 days delinquent to 60 or more days delinquent. Following our decision made earlier in the year to refocus Lima One’s resources away from multifamily lending, and in light of the softening we have seen in multifamily housing over the last several quarters, we expect to see continued heightened levels of delinquency and a commensurate risk of credit losses in our Multifamily transitional loan portfolio over the next several quarters.

Previous wording

Second quarter 2024 portfolio activity and impact on financial results

Current wording

Third quarter 2024 portfolio activity and impact on financial results

Previous wording

At June 30, 2024, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $10.2 billion, compared to $10.0 billion at March 31, 2024.

Current wording

At September 30, 2024, our residential mortgage asset portfolio, which includes residential whole loans and REO, and Securities, at fair value, was approximately $10.3 billion, compared to $10.2 billion at June 30, 2024.

Previous wording

At June 30, 2024, our total recorded investment in residential whole loans and REO was $9.3 billion, or 91.5% of our residential mortgage asset portfolio. Of this amount, $4.0 billion are Non-QM loans, $1.6 billion are Single-family Rental loans,$1.2 billion are Single-family transitional loans, $1.2 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans. Loan acquisition activity of $688.2 million for the three months ended June 30, 2024 included $278.5 million of Single-family transitional loans (including draws), $266.1 million of Non-QM loans, $110.0 million of Single-family rental loans and $33.6 million of Multifamily transitional loans (including draws). For the three months ended June 30, 2024, we recognized approximately $165.7 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.92%, with Single-family transitional loans generating an effective yield of 9.75%, Multifamily transitional loans generating an effective yield of 8.34%, Single-family Rental loans generating an effective yield of 6.47%, Non-QM loans generating an effective yield of 5.49% and Legacy RPL/NPL loans generating an effective yield of 8.72%. All new loans and 85% of our total loan portfolio are measured at fair value as a result of the election of the fair value option at acquisition or origination. Included in earnings in Other Income/(Loss), net are net gains/losses on these loans of $16.4 million for the three months ended June 30, 2024. At June 30, 2024 and March 31, 2024, we had REO with an aggregate carrying value of $108.0 million and $106.2 million, respectively, which is included in Other assets on our consolidated balance sheets.

Current wording

At September 30, 2024, our total recorded investment in residential whole loans and REO was $9.2 billion, or 88.9% of our residential mortgage asset portfolio. Of this amount, $4.2 billion are Non-QM loans, $1.5 billion are Single-family rental loans,$1.2 billion are Single-family transitional loans, $1.1 billion are Multifamily transitional loans and $1.1 billion are Legacy RPL/NPL loans. Loan acquisition activity of $565.2 million for the three months ended September 30, 2024 included $243.6 million of Single-family transitional loans (including draws), $236.2 million of Non-QM loans, $76.6 million of Single-family rental loans and $8.8 million of Multifamily transitional loans (including draws). For the three months ended September 30, 2024, we recognized approximately $157.4 million of residential whole loan interest income on our consolidated statements of operations, representing an effective yield of 6.74%, with Single-family transitional loans generating an effective yield of 9.53%, Multifamily transitional loans generating an effective yield of 8.20%, Single-family rental loans generating an effective yield of 6.52%, Non-QM loans generating an effective yield of 5.47% and Legacy RPL/NPL loans generating an effective yield of 7.75%. All new loans and 85% of our total loan portfolio are measured at fair value as a result of the election of the fair value option at acquisition or origination. Included in earnings in Other Income/(Loss), net are net gains/losses on these loans of $143.4 million for the three months ended September 30, 2024. At September 30, 2024 and June 30, 2024, we had REO with an aggregate carrying value of $127.1 million and $108.0 million, respectively, which is included in Other assets on our consolidated balance sheets.

Previous wording

At June 30, 2024, we held $863.3 million of Securities, at fair value, including $701.3 million of Agency MBS, $54.3 million of MSR-related assets, $84.6 million of CRT securities and $23.1 million of Non-Agency MBS. For the three months ended June 30, 2024, there were $175.5 million purchases of Agency MBS securities and $26.9 million sales of MSR-related assets. The net yield on our Securities, at fair value was 7.03% for the three months ended June 30, 2024, compared to 7.24% for the three months ended March 31, 2024.

Current wording

At September 30, 2024, we held $1.1 billion of Securities, at fair value, including $993.5 million of Agency MBS, $54.5 million of MSR-related assets, $68.2 million of CRT securities and $23.8 million of Non-Agency MBS. For the three months ended September 30, 2024, there were $293.9 million purchases of Agency MBS securities and $8.7 million sales of a CRT security. The net yield on our Securities, at fair value was 6.48% for the three months ended September 30, 2024, compared to 7.03% for the three months ended June 30, 2024.

Previous wording

For the three months ended June 30, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.1 million. The total allowance for credit losses recorded on residential whole loans held at carrying value at June 30, 2024 was $13.3 million.

Current wording

For the three months ended September 30, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.9 million. The total allowance for credit losses recorded on residential whole loans held at carrying value at September 30, 2024 was $10.7 million.

Previous wording

During the second quarter of 2024, we completed two securitizations collateralized by $365.2 million UPB of Non-QM loans and $191.8 million UPB of Transitional loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. During the second quarter, we called one of our securitizations issued in 2021 and repaid the remaining $68.1 million amount. Subsequent to the second quarter, we completed one additional securitization collateralized by $245.4 million UPB of Legacy RPL/NPL loans and $57.5 million of Non-QM loans. During the quarter, interest rates exhibited significant volatility, but ended the quarter only modestly higher, and credit spreads tightened. The net impact on the value of our investment portfolio resulted in net mark-to-market gains in our GAAP financial results. We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business.

Current wording

During the third quarter of 2024, we completed two securitizations collateralized by $245.4 million UPB of Legacy RPL/NPL loans and $398.0 million of Non-QM loans. These securitizations provided longer term, non-recourse, non-mark-to-market financing. During the second quarter, we called one of our securitizations issued in 2021 and repaid the remaining $68.1 million amount. Subsequent to the third quarter, we completed one additional securitization collateralized by $423.8 million UPB of Legacy RPL/NPL loans. During the quarter, interest rates exhibited significant volatility, but ended the quarter only modestly higher, and credit spreads tightened. The net impact on the value of our investment portfolio resulted in net mark-to-market gains in our GAAP financial results. We continue to closely follow the actions of the Federal Reserve regarding the path and timing of changes in interest rates and the impact such rate changes would be expected to have on levels of inflation, the overall economic environment and our business.

Previous wording

Our GAAP book value per common share was $13.80 as of June 30, 2024. Book value per common share was also $13.80 as of March 31, 2024. Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $14.34 as of June 30, 2024, an increase from $14.32 as of March 31, 2024. Increases in GAAP and Economic book value during the second quarter of 2024 primarily reflect GAAP earnings in excess of dividends declared on our common stock. 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.

Current wording

Our GAAP book value per common share was $13.77 as of September 30, 2024. Book value per common share was $13.80 as of June 30, 2024. Economic book value per common share, a non-GAAP financial measure of our financial position that adjusts GAAP book value by the amount of unrealized mark-to-market gains or losses on our residential whole loans and securitized debt held at carrying value, was $14.46 as of September 30, 2024, an increase from $14.34 as of June 30, 2024. The slight decrease in GAAP book value during the third quarter of 2024 primarily reflects dividends declared on our common stock in excess of GAAP comprehensive income. The increase in Economic book value during the third quarter of 2024 primarily reflects GAAP earnings in excess of dividends declared on our common stock and increases in the fair value of our mortgage loans held at carrying value, partially offset by changes in the estimated fair value of our securities and our securitized debt at carrying value. For additional information regarding the calculation of Economic book value per share, including a reconciliation to GAAP book value per share, refer to “Reconciliation of GAAP and Non-GAAP Financial Measures” below.

Previous wording

(1)Includes $289.4 million of cash and cash equivalents, $252.0 million of restricted cash, $53.4 million of Other loans and $18.3 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

Current wording

(1)Includes $305.6 million of cash and cash equivalents, $197.3 million of restricted cash, $55.9 million of Other loans and $16.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.

Previous wording

Our Transitional loans contain various contractual extension features, typically ranging from three to twelve months subject to certain conditions, generally including our consent. Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms. Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions. At June 30, 2024, approximately 11% of our Multifamily transitional loans and 21% of our Single-family transitional loans held as of period end had been extended.

Current wording

Our Transitional loans contain various contractual extension features, typically ranging from three to twelve months subject to certain conditions, generally including our consent. Transitional loans are generally only extended if the loan is current and in compliance with various other loan terms. Given the short duration of our Transitional loans, maturity extensions are a regular occurrence, irrespective of market conditions. At September 30, 2024, approximately 15% of our Multifamily transitional loans and 21% of our Single-family transitional loans held as of period end had been extended.

Previous wording

We estimate that for the six months ended June 30, 2024, our REIT taxable income was approximately $55.9 million.

Current wording

We estimate that for the nine months ended September 30, 2024, our REIT taxable income was approximately $81.6 million.

Previous wording

We estimate that for the six months ended June 30, 2024, our net TRS taxable income will be $24.0 million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes.

Current wording

We estimate that for the nine months ended September 30, 2024, our net TRS taxable income will be $36.3 million. Net income or loss generated by our TRS subsidiaries is included in consolidated GAAP net income, but may not be included in REIT taxable income in the same period. REIT taxable income generally does not include taxable income of the TRS unless and until it is distributed to the REIT. For example, because our securitization transactions that are treated as a sale for tax purposes are undertaken by a domestic TRS, any gain or loss recognized on the sale is not included in our REIT taxable income until it is distributed by the TRS. Similarly, the income earned from loans, securities, REO and other investments held by our domestic TRS is excluded from REIT taxable income until it is distributed by the TRS. Net income of our foreign domiciled TRS subsidiaries is included in REIT taxable income as if distributed to the REIT in the taxable year it is earned by the foreign domiciled TRS. A TRS may carry forward its net taxable losses indefinitely as net operating losses to offset up to 80% of its taxable income in future tax years, but REIT taxable income generally does not include the net taxable loss of a TRS unless the TRS liquidates for tax purposes.

Previous wording

For the second quarter of 2024, we had net income available to our common stock and participating securities of $33.7 million, or $0.32 per basic and diluted common share, compared to a net income available to common stock and participating securities of $15.0 million, or $0.14 per basic and diluted common share, for the first quarter of 2024. The increase in net income available to common stock and participating securities in the current period primarily reflects a higher Other income/(loss), net, which increased by $7.4 million to $29.8 million for the current quarter, compared to an Other income/(loss), net of $22.4 million in the immediately prior quarter as well as higher Net Interest Income after Reversal/(Provision) for Credit Losses. The increase in Other income/(Loss) net was primarily driven by higher mark-to-market results in the current period on both our residential whole loans and securitized debt that are measured at fair value through earnings, partially offset by lower gains on derivatives used for risk management purposes.

Current wording

For the third quarter of 2024, we had net income available to our common stock and participating securities of $40.0 million, or $0.38 per basic common share and $0.37 per diluted common share, compared to net income available to common stock and participating securities of $33.7 million, or $0.32 per basic and diluted common share, for the second quarter of 2024. The increase in net income available to common stock and participating securities in the current period primarily reflects a higher Other income/(loss), net, which increased by $10.4 million to $40.3 million for the current quarter, compared to an Other income/(loss), net of $29.8 million in the immediately prior quarter, partially offset by lower Net Interest Income after Reversal/(Provision) for Credit Losses and a higher provision for income taxes. The increase in Other income/(Loss) net was primarily driven by higher mark-to-market results in the current period on our residential whole loans, securities and other portfolio investments, partially offset by losses on derivatives used for risk management purposes and securitized debt that are measured at fair value through earnings.

Previous wording

For the second quarter of 2024, our net interest spread and margin (including the impact of swaps) were 2.16% and 3.01%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.06% and 2.88%, respectively, for the first quarter of 2024. Our net interest income increased by $5.7 million and was $53.5 million for the second quarter of 2024, compared to $47.8 million for the first quarter of 2024. For the second quarter of 2024, net interest income, which does not include the benefit of swap carry, includes higher net interest income from our residential whole loan portfolio of $5.3 million, compared to the first quarter of 2024, primarily due to higher average balances and asset yields, partially offset by an increase in financing rates and higher average balances for our financing agreement borrowings. Net interest income for the second quarter of 2024 also includes approximately $1.3 million of additional interest income from cash investment and higher net interest income from our Securities, at fair value portfolio.

Current wording

For the third quarter of 2024, our net interest spread and margin (including the impact of swaps) were 2.18% and 3.00%, respectively, compared to a net interest spread and margin (including the impact of swaps) of 2.16% and 3.01%, respectively, for the second quarter of 2024. Our net interest income decreased by $2.9 million and was $50.6 million for the third quarter of 2024, compared to $53.5 million for the second quarter of 2024. For the third quarter of 2024, net interest income, which does not include the benefit of swap carry, includes lower net interest income from our residential whole loan portfolio of $6.3 million, compared to the second quarter of 2024, primarily due to lower asset yields and average balances, partially offset by lower average financing agreement balances. Net interest income for the third quarter of 2024 also includes approximately $2.8 million of additional interest income from other investments and lower net interest income from our Securities, at fair value portfolio.

Previous wording

(2)Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps and, accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 227 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 238 basis points for our Legacy RPL/NPL loans. For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 235 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 240 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 254 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 222 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 297 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 198 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans.

Current wording

(2)Reflects annualized interest expense divided by average balance of agreements with mark-to-market collateral provisions (repurchase agreements), agreements with non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps. While we have not elected hedge accounting treatment for Swaps and, accordingly, net carry is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate net carry to the cost of funding to reflect the economic impact of our Swaps on the funding costs shown in the table above. For the quarter ended September 30, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 227 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 238 basis points for our Legacy RPL/NPL loans. For the quarter ended December 31, 2023, this decreased the overall funding cost by 140 basis points for our Residential whole loans, 235 basis points for our Business purpose loans, 177 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 240 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 254 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 222 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 297 basis points for our Legacy RPL/NPL loans. For the quarter ended March 31, 2023, this decreased the overall funding cost by 127 basis points for our Residential whole loans, 198 basis points for our Business purpose loans, 161 basis points for our Non-QM loans, and 251 basis points for our Legacy RPL/NPL loans.

Previous wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the quarter ended June 30, 2024, this decreased the overall funding cost by 190 basis points. For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points. For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points. For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points. For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points.

Current wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the quarter ended September 30, 2024, this decreased the overall funding cost by 171 basis points. For the quarter ended June 30, 2024, this decreased the overall funding cost by 190 basis points. For the quarter ended March 31, 2024, this decreased the overall funding cost by 179 basis points. For the quarter ended December 31, 2023, this decreased the overall funding cost by 206 basis points. For the quarter ended September 30, 2023, this decreased the overall funding cost by 191 basis points. For the quarter ended June 30, 2023, this decreased the overall funding cost by 138 basis points. For the quarter ended March 31, 2023, this decreased the overall funding cost by 104 basis points.

Previous wording

Interest income on our residential whole loans for the second quarter of 2024 increased by $8.1 million, or 5.1%, to $165.7 million, compared to $157.7 million for the first quarter of 2024. This increase primarily reflects a $63.9 million increase in the average balance of this portfolio to $9.6 billion for the second quarter of 2024 from the first quarter of 2024 and an increase in the yield to 6.92% for the second quarter of 2024 from 6.63% for the first quarter of 2024.

Current wording

Interest income on our residential whole loans for the third quarter of 2024 decreased by $8.3 million, or 5.0%, to $157.4 million, compared to $165.7 million for the second quarter of 2024. This decrease primarily reflects a decrease in the yield to 6.74% for the third quarter of 2024 from 6.92% for the second quarter of 2024, and a $232.9 million decrease in the average balance of this portfolio to $9.3 billion for the third quarter of 2024 from the second quarter of 2024. This decrease in residential whole loan interest income was partially offset by an increase in other interest earning assets of $2.8 million and securities, at fair value of $1.1 million.

Previous wording

For the second quarter of 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.1 million compared to a reversal of provision for credit losses of $0.5 million for the first quarter of 2024. The reversal of provision recorded in the current period and in the first quarter of 2024 primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions.

Current wording

For the third quarter of 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.9 million compared to a reversal of provision for credit losses of $1.1 million for the second quarter of 2024. The reversal of provision recorded in the current period and in the second quarter of 2024 primarily reflects minor changes to modeling assumptions and the run-off of loans held at carrying value.

Previous wording

For the second quarter of 2024, we recorded a provision for credit losses on Other Assets of $26,000 related to an uncollectible receivable from an unaffiliated third-party servicer. For the first quarter of 2024, we recorded a provision for credit losses on Other Assets of $1.1 million related to an uncollectible receivable from an unaffiliated third-party servicer.

Current wording

For the third quarter of 2024, we had no provision for credit losses on Other Assets. For the second quarter of 2024, we recorded a provision for credit losses on Other Assets of $26,000 related to an uncollectible receivable from an unaffiliated third-party servicer.

Previous wording

For the second quarter of 2024, Other Income/(Loss), net was $29.8 million, compared to Other Income/(Loss), net of $22.4 million for the first quarter of 2024. The components of Other Income/(Loss), net for the second and first quarter of 2024 are summarized in the table below:

Current wording

For the third quarter of 2024, Other Income/(Loss), net was $40.3 million, compared to Other Income/(Loss), net of $29.8 million for the second quarter of 2024. The components of Other Income/(Loss), net for the third and second quarter of 2024 are summarized in the table below:

Previous wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense decreased by $3.7 million to $21.7 million for the second quarter of 2024, compared to $25.5 million for the first quarter of 2024, primarily as a result of inclusion of accelerated recognition of stock-based compensation in the first quarter of 2024 related to awards made to retirement eligible employees in January 2024 as well as lower bonus accruals at Lima One.

Current wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased by $0.7 million to $22.4 million for the third quarter of 2024, compared to $21.7 million for the second quarter of 2024, primarily driven by the accrual of executive severance pay, partially offset by a reduction in employee stock-based compensation, annual bonus, and Lima One salary and commission expenses.

Previous wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses of $10.8 million for the second quarter of 2024 were lower when compared to $12.0 million for the first quarter of 2024, primarily as a result of reduced IT infrastructure costs at our corporate offices and lower professional fees.

Current wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses of $11.4 million for the third quarter of 2024 were higher when compared to $10.8 million for the second quarter of 2024, primarily as a result of impairment on a software asset at Lima One and fair value adjustments on the deferred compensation plan for the board of directors, partially offset by lower professional fees at Lima One and software expense at our corporate offices.

Previous wording

Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities. These expenses increased compared to the prior quarter period by approximately $1.7 million, or 23.8%, primarily due to higher expenses recognized related to loan securitization activities.

Current wording

Loan servicing and other related operating expenses are composed of non-recoverable advances, upfront costs on securitization and other fees related to our residential whole loan activities. These expenses decreased compared to the prior quarter period by approximately $0.2 million, or 2.5%, primarily due to lower expenses recognized related to loan securitization activities.

Previous wording

Six Month Period Ended June 30, 2024 Compared to the Six Month Period Ended June 30, 2023

Current wording

Nine Month Period Ended September 30, 2024 Compared to the Nine Month Period Ended September 30, 2023

Previous wording

The following table summarizes the changes in our results of operations for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

The following table summarizes the changes in our results of operations for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, we had net income available to our common stock and participating securities of $48.7 million, or $0.47 per basic common share and $0.46 per diluted common share, compared to net income available to our common stock and participating securities of $30.4 million, or $0.30 per basic common share and $0.29 per diluted common share, for the six months ended June 30, 2023. The net income available to common stock and participating securities in the current period primarily reflects increased Net interest income by $17.4 million from the prior year period, primarily due to higher asset yields earned on our residential whole loans portfolio and higher amounts invested in our residential mortgage asset portfolio, partially offset by higher funding costs associated with our financing arrangements. In addition, Other Income/(Loss), net, increased $5.5 million from the prior year period, partially offset by higher Operating and other expense of $4.1 million.

Current wording

For the nine months ended September 30, 2024, we had net income available to our common stock and participating securities of $88.7 million, or $0.85 per basic common share and $0.83 per diluted common share, compared to a net loss available to our common stock and participating securities of $(34.2) million, or $(0.34) per basic and diluted common share, for the nine months ended September 30, 2023. The net income available to common stock and participating securities in the current period primarily reflects an increase in Other Income/(Loss), net of $105.6 million from the prior year period, as well as higher net interest income of $21.9 million, partially offset by higher operating and other expense and a higher provision for income taxes from the prior year period. Other Income/(Loss) was higher primarily due to a gain of $148.3 million on residential whole loans measured at fair value in the current period compared with losses in the prior period, partially offset by a loss of $108.4 million on securitized debt measured at fair value in the current period compared with a gain in the prior year period and a lower gain on derivatives used for risk management purposes.

Previous wording

For the six months ended June 30, 2024, our net interest spread and margin were 2.11% and 2.95%, respectively, compared to a net interest spread and margin of 1.94% and 2.82%, respectively, for the six months ended June 30, 2023. Our net interest income increased by $17.4 million, or 20.8%, to $101.3 million for the six months ended June 30, 2024 compared to net interest income of $83.9 million for the six months ended June 30, 2023. For the six months ended June 30, 2024, net interest income, which does not include the benefit of swap carry, includes higher net interest income from our residential whole loan portfolio of $19.3 million compared to the six months ended June 30, 2023, primarily due to higher average balances and asset yields, partially offset by an increase in financing rates and higher average balances for our financing agreement borrowings. In addition, net interest income for the six months ended June 30, 2024 included higher net interest income from our Securities, at fair value portfolio of approximately $0.4 million. Net interest income for the six months ended June 30, 2024 also includes approximately $1.9 million of additional interest income from cash and other interest earning assets compared to the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, our net interest spread and margin were 2.14% and 2.96%, respectively, compared to a net interest spread and margin of 2.02% and 2.89%, respectively, for the nine months ended September 30, 2023. Our net interest income increased by $21.9 million, or 16.9%, to $151.9 million for the nine months ended September 30, 2024 compared to net interest income of $130.0 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, net interest income, which does not include the benefit of swap carry, includes higher net interest income from our residential whole loan portfolio of $22.0 million compared to the nine months ended September 30, 2023, primarily due to higher asset yields and average balances on our residential whole loan portfolio, partially offset by an increase in financing rates and average balances for our securitized debt and an increase in financing rates for our financing agreement borrowings. Net interest income for the nine months ended September 30, 2024 also includes approximately $5.1 million of additional interest income from cash and other interest earning assets compared to the nine months ended September 30, 2023.

Previous wording

The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the six months ended June 30, 2024 and 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.

Current wording

The following table sets forth certain information about the average balances of our assets and liabilities and their related yields and costs for the nine months ended September 30, 2024 and 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.

Previous wording

(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, 2024, this decreased the overall funding cost by 130 basis points for our Residential whole loans, 96 basis points for our Business purpose loans, 166 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the period ended June 30, 2023, this decreased the overall funding cost by 135 basis points for our Residential whole loans, 211 basis points for our Business purpose loans, 169 basis points for our Non-QM loans, and 275 basis points for our Legacy RPL/NPL loans.

Current wording

(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 September 30, 2024, this decreased the overall funding cost by 130 basis points for our Residential whole loans, 98 basis points for our Business purpose loans, 169 basis points for our Non-QM loans, and 89 basis points for our Legacy RPL/NPL loans. For the period ended September 30, 2023, this decreased the overall funding cost by 138 basis points for our Residential whole loans, 221 basis points for our Business purpose loans, 171 basis points for our Non-QM loans, and 268 basis points for our Legacy RPL/NPL loans.

Previous wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the six months ended June 30, 2024, this decreased the overall funding cost by 185 basis points for our Securities, at fair value. For the six months ended June 30, 2023, this decreased the overall funding cost by 125 basis points for our Securities, at fair value.

Current wording

(2)Reflects annualized interest expense divided by average balance of repurchase agreements. Cost of funding shown in the table above includes the impact of the net carry (the difference between swap interest income received and swap interest expense paid) on our Swaps that is allocated to the financing of our Securities, at fair value. For the nine months ended September 30, 2024, this decreased the overall funding cost by 180 basis points for our Securities, at fair value. For the nine months ended September 30, 2023, this decreased the overall funding cost by 155 basis points for our Securities, at fair value.

Previous wording

Interest income on our residential whole loans for the six months ended June 30, 2024 increased by $75.8 million, or 30.6%, to $323.4 million, compared to $247.6 million for the six months ended June 30, 2023. This increase primarily reflects an increase in the yield to 6.78% for the six months ended June 30, 2024 from 5.89% for the six months ended June 30, 2023, and a $1.1 billion increase in the average balance of this portfolio to $9.5 billion for the six months ended June 30, 2024 from $8.4 billion for the six months ended June 30, 2023.

Current wording

Interest income on our residential whole loans for the nine months ended September 30, 2024 increased by $92.7 million, or 23.9%, to $480.8 million, compared to $388.1 million for the nine months ended September 30, 2023. This increase primarily reflects an increase in the yield to 6.76% for the nine months ended September 30, 2024 from 6.04% for the nine months ended September 30, 2023, and a $0.9 billion increase in the average balance of this portfolio to $9.5 billion for the nine months ended September 30, 2024 from $8.6 billion for the nine months ended September 30, 2023.

Previous wording

Interest income on our Securities, at fair value portfolio for the six months ended June 30, 2024 increased by $9.4 million to $26.6 million from $17.3 million for the six months ended June 30, 2023. This increase primarily reflects an increase in the average amortized cost of the portfolio of $319.8 million, primarily due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 7.13% for the six months ended June 30, 2024, compared to 8.08% for the six months ended June 30, 2023.

Current wording

Interest income on our Securities, at fair value portfolio for the nine months ended September 30, 2024 increased by $12.2 million to $41.4 million from $29.2 million for the nine months ended September 30, 2023. This increase primarily reflects an increase in the average amortized cost of the portfolio of $300.2 million, primarily due to purchases of Agency MBS, partially offset by a decrease in the net yield on our Securities, at fair value portfolio to 6.88% for the nine months ended September 30, 2024, compared to 7.77% for the nine months ended September 30, 2023.

Previous wording

Our interest expense for the six months ended June 30, 2024 increased by $69.7 million, or 36.2%, to $262.4 million, from $192.7 million for the six months ended June 30, 2023. This increase primarily reflects the higher overall average balances of our financing agreements and an increase in financing rates on our financing agreements. In addition, the six months ended June 30, 2024 included $5.1 million and $1.5 million of interest expense related to our 8.875% Senior Notes issued in January 2024 and 9.00% Senior Notes that were issued in April 2024, respectively.

Current wording

Our interest expense for the nine months ended September 30, 2024 increased by $88.0 million, or 28.8%, to $393.7 million, from $305.7 million for the nine months ended September 30, 2023. This increase primarily reflects the higher overall average balances and financing rates of our securitized debt, higher average balances for securities repurchase agreements and $7.9 million and $3.3 million of interest expense related to our 8.875% Senior Notes issued in January 2024 and 9.00% Senior Notes that were issued in April 2024, respectively.

Previous wording

For the six months ended June 30, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $1.5 million compared to a provision for credit losses of $0.3 million for the six months ended June 30, 2023. The reversal of provision for the current period primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions.

Current wording

For the nine months ended September 30, 2024, we recorded a reversal of provision for credit losses on residential whole loans held at carrying value of $3.5 million compared to a reversal of provision for credit losses of $1.0 million for the nine months ended September 30, 2023. The reversal of provision for the current period primarily reflects the run-off of loans held at carrying value and minor changes to modeling assumptions.

Previous wording

For the six months ended June 30, 2024, we recorded a provision for credit losses on Other Assets of $1.1 million, related to an uncollectible receivable from an unrelated third party servicer. No such provision was recorded for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, we recorded a provision for credit losses on Other Assets of $1.1 million, related to an uncollectible receivable from an unrelated third party servicer. No such provision was recorded for the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, Other Income/(Loss), net was $52.3 million, compared to an Other Income/(Loss), net of $46.8 million for the six months ended June 30, 2023. The components of Other Income/(Loss), net for the six months ended June 30, 2024 and 2023 are summarized in the table below:

Current wording

For the nine months ended September 30, 2024, Other Income/(Loss), net was $92.5 million, compared to an Other Income/(Loss), net of $(13.0) million for the nine months ended September 30, 2023. The components of Other Income/(Loss), net for the nine months ended September 30, 2024 and 2023 are summarized in the table below:

Previous wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased $4.8 million to $47.2 million for the six months ended June 30, 2024, compared to $42.4 million for the six months ended June 30, 2023, primarily reflecting an increase in long-term incentive compensation and higher salaries expense at Lima One.

Current wording

Compensation and benefits expenses are composed of salaries, annual bonus, stock-based awards, long-term incentives, Lima One sales commissions, related payroll taxes, medical insurance, 401(k) matching and other benefits expenses. Compensation and benefits expense increased $3.2 million to $69.6 million for the nine months ended September 30, 2024, compared to $66.5 million for the nine months ended September 30, 2023, primarily driven by the accrual of executive severance pay, Lima One salary and long-term incentive compensation expenses, partially offset by a reduction in Lima One commission expense.

Previous wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses increased by $1.6 million to $22.8 million for the six months ended June 30, 2024, compared to $21.2 million for the six months ended June 30, 2023, primarily reflecting higher costs associated with IT infrastructure at our corporate offices, partially offset by lower depreciation.

Current wording

Other general and administrative expenses are comprised of leasing and other office expenses, professional fees, insurance costs, board of directors fees, and miscellaneous expenses. Other general and administrative expenses increased by $3.0 million to $34.3 million for the nine months ended September 30, 2024, compared to $31.3 million for the nine months ended September 30, 2023, primarily as a result of impairment on a software asset at Lima One and higher costs associated with IT infrastructure at our corporate offices, partially offset by lower depreciation.