# CHIMERA INVESTMENT CORP (CIM) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CHIMERA INVESTMENT CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1409493/000162828024007962/cim-20231231.htm
Accession: 0001628280-24-007962
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CIM/
All MD&A years: /company/CIM/mda/
Previous year: /company/CIM/mda/fy2022/ (FY 2022)
Next year: /company/CIM/mda/fy2024/ (FY 2024)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes to those statements included in Item 15 of this 2023 Form 10-K. The discussion may contain certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are those that are not historical in nature. As a result of many factors, such as those set forth under “Risk Factors” in this 2023 Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.

This section of the 2023 Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this 2023 Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Executive Summary

We are a publicly traded REIT that is primarily engaged in the business of investing directly or having a beneficial interest in a diversified portfolio of mortgage assets, including residential mortgage loans, Non-Agency RMBS, Agency RMBS, Agency CMBS, business purpose and investor loans, and other real estate-related assets. The MBS and other real estate-related securities we purchase may include investment-grade, non-investment grade, and non-rated classes. We use leverage to increase potential returns from our investments. Our principal business objective is to provide attractive risk-adjusted returns through the generation of distributable income and through asset performance linked to 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 currently focus our investment activities primarily on acquiring residential mortgage loans. In addition, we acquire and own Non-Agency RMBS and Agency mortgage-backed securities, or MBS. At December 31, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS. At December 31, 2022, based on the fair value of our interest earning assets, approximately 88% of our investment portfolio was residential mortgage loans, 9% of our investment portfolio was Non-Agency RMBS, and 3% of our investment portfolio was Agency MBS.

We use leverage to seek to increase our potential returns and to finance the acquisition of our assets. We expect to finance our investments using a variety of financing sources, including securitizations, warehouse facilities and repurchase agreements. We may seek to manage our debt and interest rate risk by utilizing interest rate hedges, such as interest rate swaps, caps, options and futures to reduce the effect of interest rate fluctuations related to our financing sources.

Our investment strategy is intended to take advantage of opportunities in the current interest rate and credit environment. We adjust our strategy in response to changing market conditions by shifting our asset allocations across various asset classes as interest rate and credit cycles change over time. We believe that our strategy will provide us an opportunity to pay dividends throughout changing market cycles. We expect to take a long-term view of assets and liabilities.

Business Update

2023 was a dramatic year for the fixed income markets highlighted by geo-political events, tight monetary conditions, high interest rate volatility, and several regional bank failures. The year began with market optimism for an economic soft-landing, which gave way in March as bank failures induced an investor’s flight-to-quality driving interest rates lower and credit spreads wider. By summer, concerns about high inflation and a potential recession intensified. Interest rates subsequently reversed course and moved higher. The 10-year U.S. Treasury note reached a low yield of 3.3% in early April and then rose to a yearly high of 5% by the middle of October, a 50% increase in yield from the low. Market sentiment began to shift more favorably in November, as positive economic data suggested the Federal Reserve was beginning to win its battle with inflation. Products across the fixed income and equity markets rallied for the remainder of 2023 with investor expectations of the Federal Reserve easing interest rates in 2024.

The fourth quarter of 2023 was a pivotal quarter for the fixed income market. The 10-year Treasury yield dropped nearly 115 basis points within a month, resulting in a sweeping and powerful bond rally. Lower yields boosted equity valuations substantially, contributing to a broad-based rally, with the S&P 500 generating a 12% gain for the fourth quarter. Housing markets continued to show resiliency, with home price indices showing nationwide increases, although the overall volume of existing home sales remained low due to high mortgage rates and low housing inventory available for sale. The rate for 30-year mortgages reached a peak in 2023 of nearly 8%. The mortgage rate fell as a result of the late-year market rally and settled back to the high-6% range by the end of the year, creating some relief to the housing affordability crisis.

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Investment activity during 2023

Higher interest rate volatility, along with a continued yield curve inversion in 2023, presented many challenges throughout the year impacting our business activity and performance. During 2023, we acquired $1.4 billion of residential mortgage loans, down from $1.7 billion in 2022 and $3.2 billion in 2021. We were diligent in diversifying our loan purchases in 2023. Of the settled loans, approximately 50% were seasoned re-performing loans ("RPL"), 33% were non-QM, and the remainder were Business Purpose Loans (BPL). Apart from BPLs, all loans purchased were financed for the long-term through securitization. The loan characteristics of the seasoned RPLs and BPLs were consistent with the characteristics which currently exist in our portfolio. During the fourth quarter we committed to purchasing $152 million residential BPLs which we expect to settle in the first quarter of 2024. Due to the short duration of these loans, we plan to finance them with our existing loan warehouse facilities.

Secured Financing Activity during 2023

Our financing costs continued to increase and remained high throughout 2023. The Federal Reserve increased its target rate four times for a total of 100 basis points and Fed officials provided additional commentary during the early part of 2023 for market participants to expect higher rates for a longer period. Managing our floating rate liabilities through this period of high volatility and increasing rates, remained amongst the top priorities of management. Management was keenly focused, throughout the year, on strengthening our liability structure through proactive portfolio management (selling non-core assets) and securitization, which provides long-term, fixed rate, non-recourse financing.

In January, we exited a maturing $141 million non-mark-to-market secured financing facility and separately entered a new non-mark-to-market secured facility with a different counterparty for principal amount borrowed of $125 million. The new facility has a maturity date in January 2025. While we were able to successfully obtain new financing on our maturing facility, the financing cost on the new facility was considerably higher due to market volatility and the overall interest rate environment at that time.

In the fourth quarter, we refinanced $250 million of an existing high cost, fixed-rate financing facility into a new two-year limited mark-to-market variable-rate facility. Although the new facility is variable-rate, it carries an interest rate cap that is significantly below the previous facility and will represent considerable interest expense savings through the term of the new facility.

On a year-over-year basis, our secured financing agreements (recourse liabilities) decreased by $1.0 billion while increasing our securitized debt (non-recourse liabilities) by $498 million. At year-end, we had no outstanding warehouse financing exposure (recourse liabilities) backed by residential re-performing loans ("RPL"). Our repo funding costs increased by 90 basis-points during the year, consistent with increases in the federal funds rates over the period.

Securitization Activity during 2023

The total market issuance of residential re-performing loans ("RPL") was substantially reduced on a year-over-year basis. We estimate a total gross issuance amongst all issuers of $9 billion RPL for all of 2023 relative to $17 billion RPL for 2022. RPL securitization represents 94% of our total loan securitizations. Despite lower issuance, Chimera maintained a top issuer status of RPL deals during 2023. Our ability to securitize is not limited to RPL and we will continue to seek to optimize our liability structure through securitization which provides long-term non-recourse financing for our residential mortgage loan portfolio.

During the year, we remained active in the securitization market and sold $841 million of re-performing loans into three securitizations in challenging market conditions. We issued $662 billion of new debt at an average advance rate of 80%, locking in long-term financing while giving the company the option to call the debt, and refinance when rates become more favorable in the future. We believe we were one of the top issuers of RPL deals during the year.

In addition, we sponsored two rated securitizations of Non-Agency Investor residential mortgage loans, having a principal balance of $475 million. Securities issued by these securitizations with an aggregate balance of approximately $408 million, were sold in a private placement to institutional investors. These securities represented approximately 86% of the capital structure. We retained an option to call the securitized mortgage loans at any time beginning in the second quarter 2026.

Re-Securitization Activity during 2023

As part of our ongoing liquidity and liability initiative, during the year we were able to extract cash from some of our existing securitizations (due to deleveraging over the years) through re-securitization activity.

In January, we exercised our call rights and terminated four existing securitization trusts, CIM 2020-R4, CIM 2020-NR1, CIM 2018-R5 and CIM 2018-R6, and issued CIM Trust 2023-R1 and CIM Trust 2023-NR1 (commonly referred to as re-securitization). Though the interest rate was higher on the newly issued 2023 trusts, the re-securitizations enabled us to improve our balance sheet structure (as discussed above) and pay off maturing repo with Credit Suisse. We successfully converted $139

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million of recourse financing into long-term, non-mark-to-market securitized debt while re-capturing approximately $90 million in cash from the terminated trusts. We estimate the re-securitization activity increased our cost of senior debt financing by approximately 250 basis points compared to the terminated trusts. Both securitizations are callable within two-years which gives us the ability to refinance the securitized debt should interest rates improve in the future.

In April, we exercised our call rights and terminated two existing securitization trusts: CIM 2017-7, and CMLTI 2019-E. In addition to the collateral received by calling these two securitizations, we added an additional $104 million in collateral and issued CIM Trust 2023-R3 and CIM Trust 2023-NR2 (commonly referred to as re-securitization). Though the interest rate was higher on the newly issued 2023 trusts, the interest rate on the senior debt from these deals called were due to an embedded step-up feature to a higher rate. We successfully converted $86 million of recourse financing into long-term, non-mark-to-market securitized debt while re-capturing approximately $43 million cash from the terminated trusts. We estimate the re-securitization activity increased our cost of senior debt financing by approximately 128 basis points compared to the terminated trusts. We were able to negotiate a two-year call on CIM 2023-R3 and a one-year call on CIM 2023-NR2. We are in a position to refinance these structures if rates are lower.

Over the full year 2023, we sponsored $2.6 billion in securitizations (including re-securitizations). These securitizations helped us further strengthen our balance sheet as we prepared for a higher-for-longer interest rate environment.

Asset sales and portfolio composition

Given the challenging operating environment, ongoing liquidity needs, and opportunities to purchase new assets with higher yields, we rebalanced a portion of our investment portfolio that included the sale of some non-core assets. Overall, we sold $344 million Agency CMBS Securities. These sales resulted in a recognized loss of $31.2 million.

Considering the overall investment purchases, sales, and securitization activities, at year end our portfolio consisted of 91% residential mortgage loans, 8% Non-Agency RMBS, and 1% Agency MBS on a fair value basis. Our Agency portfolio was reduced by $328 million year-over-year through a combination of paydowns and sales activities.

Hedging transactions during 2023

We engaged in a series of interest rate hedges to help mitigate the impact of higher interest rates on our future financing and soften the impact of higher interest rates on the overall portfolio value. Our hedging strategies are dynamic. In 2023 we were focused on limiting the impact of higher interest rates, while maintaining optionality for our portfolio to benefit from lower interest rates in the future. The execution of this strategy was challenging due to heightened volatility from the events previously discussed, the magnitude of the overall rate movement and the shape of the yield curve. Over the year, we initiated and terminated a series of pay-fixed interest rate swaps and pay-fixed swaptions which created a realized loss of $45 million for the year. As of December 31, 2023, we maintained open positions in a $1.0 billion 3.26% pay-fixed interest rate swap maturing May 2024 and a $1.5 billion one-year option on a one-year pay-fixed interest rate swap "1 X 1" with maturities in early 2025. If the swaptions are executed, the 1-year interest swaps will carry a blended fixed rate of 3.56%. We believe these hedge positions will help us to achieve our goals.

Considering the velocity and magnitude of interest rate movements, in 2023 we also initiated a hedging program to manage the interest rate risk for the time differential between loan purchase commitment and the closing of loans into securitization. In addition, we used a combination of various U.S. Treasury futures contracts to hedge our exposure to future financing costs. Chimera’s hedging techniques attempt to mitigate the interest rate risk but do not capture the impact of credit spread risk. As of December 31, 2023, we did not have any loan and/or securitization commitments or related hedge positions.

Market Conditions and our Strategy

2023 was an interesting year with many challenges and opportunities. To combat inflation, the Fed ramped up interest rates to levels we have not seen in decades. The stock market was expected to decline under this new interest rate environment but returns for all major indices were much stronger than expected. The last two years have been volatile, with stocks falling hard from their January 2022 peak and then whipsawing back throughout 2023. And we’re starting to see similar whipsaw action when it comes to mortgage rates. However mortgage rates haven’t returned to January 2022 levels, and the expectation is they will not return to those levels in 2024. Home prices are also holding up extremely well with prices a few percentage points higher than they were at this time last year. Overall, the housing market has been incredibly resilient in the face of economic uncertainty. The potential for Federal Reserve rate cuts in 2024 got most of the investor attention over the last few weeks of the fourth quarter, but several additional factors drove earning results this quarter including data on cooling inflation and the refinancing of our high-cost debt in October.

For the full year 2023, spreads on most fixed income sectors were volatile. Spreads then tightened in the later part of the year as investors received positive economic data regarding inflation. Securitized products spreads tightened substantially over the year, retracing much of the widening that occurred in 2022. Specific to the mortgage sectors, commercial real estate started to see some silver linings with lower cap rates, while Residential MBS and other ABS sectors saw tighter spreads and more

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issuance (tempered in RMBS by low mortgage origination). The CLO market continued to see strong returns and Agency mortgage spreads tightened substantially as prepayment rates stabilized and interest rate volatility began to decrease.

The outlook for 2024 shows signs of a more stable interest rate landscape and more normalized returns. We are positioned for a higher-for-longer rate cycle, and we continue to believe the market can experience some headwinds due to large government deficit spending (and financing needs), geopolitical events and the upcoming 2024 presidential election.

Book value impact

Given the interest rate volatility during the year, the portfolio valuations remained volatile and ended the year with valuations ranging from flat to slightly down. However, realized losses on derivatives, net dilution from capital markets activity, asset sales as noted previously along with dividend distribution in excess of net income during the year lead to a decline in book value. Our book value per common share was $6.75, as of December 31, 2023, as compared to $7.49 as of December 31, 2022. We declared $0.70 common stock dividends per share in 2023. Our economic return on book value, which includes overall change in book value for the period plus dividends was -0.53% for the full year of 2023. The total rate of return on our common stock, including dividend reinvestment, was 3.0% for 2023.

Operating expenses

Operating expenses for the year were lower by 17%, driven mainly by lower compensation of 38% during the year. G&A and servicing expenses remained consistent year over year. Transaction expenses were significantly lower during the second half of the year on account of limited securitization activity. As noted above, we have purchased additional hedges to protect our earnings against rising interest rates.

Capital Markets activity during 2023

Persistently high and volatile interest rates through much of 2023 caused a significant decline in our earnings and a reduction in the common stock dividend brought it more in line with our earnings capability. During the fourth quarter, a less hawkish tone began to set in and while asset yields remained high, it provided us with an opportunity to raise equity and be able to invest in higher yielding assets.

Share repurchase: In June, our Board of Directors announced an increase in common stock buyback authorization by $73 million to $250 million. After this announcement the company repurchased 5.8 million of common stock at an average price of $5.66 for a total of $33 million during the year ended December 31, 2023. In January 2024, the Company's Board of Directors updated the authorization to include the Company's preferred stock into the Repurchase Program and increased the authorization by $33 million back up to $250 million. The quarterly dividend was reduced from $0.23 in the first quarter to $0.11 in the fourth quarter of 2023 as the company looked to align its dividend payout with our earnings outlook.

ATM Program: We issued approximately 14.5 million shares of our common stock at an average price of $5.09 for a total of $74 million during the year ended December 31, 2023.

Strategy going forward.

We continue to manage our portfolio consistent with our belief that interest rates will be higher on a relative basis for longer, despite the change in market sentiment at the end of the year. For the full year we reduced our total recourse financing exposure by $1 billion. We continue to seek opportunities to finance our retained notes from securitizations with long-term, limited, or non-mark-to market finance facilities. We currently have 60% of our recourse financings with these facilities. To further manage our interest rate risk, we intend to use financial derivatives such as futures, interest rate swaps and swaptions to hedge against securitization executions, net interest margin compression and the protection of our book value.

Cash management is critical to our business. We monitor our ongoing needs for margin, repurchase financing maturities, liquidity, and new investments. Over time, we expect to continue to acquire and securitize mortgage loans as well as further implement the company’s call optimization strategy on our securitizations. With available funds, we plan to evaluate the merits of any new investments and compare them to the merits of repurchasing outstanding common and preferred stock, or reducing higher cost liabilities as they mature. The timing of these re-securitizations is impacted by many factors, including credit performance, prepayment speeds and interest rates.

As we navigate current market conditions, we are focused on maintaining low recourse leverage and managing our liquidity with a proper balance of both cash and unencumbered securities. Our credit portfolio continued to perform well in the fourth quarter. Our current credit performance on our portfolio continues to be within, or better than, our original investment expectations on mortgage delinquencies, default rates, and recoveries. We monitor our portfolio regularly and seek opportunities to improve upon our liquidity, capital structure and investment returns. We have historically achieved success

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through re-securitization and have a substantial amount of capital that can be re-captured in the future. We believe there will be ample opportunity to extract additional portfolio value when interest rates moderate and the capital markets improve.

Over the course of the low-rate environment that persisted for many years (prior to the last two years of higher rates), our investment portfolio was able to generate an above market risk premium for our shareholders compared to the risk premium available on assets in the broad market. Over the last two years we have seen a decline in risk premium and a steep increase in financing costs due to Fed tightening and an inverted yield curve. We believe this will begin to reverse as the Fed eventually moves back to lower rates. Looking forward, we are committed to resetting, managing, executing, and aligning the risk premium to be in line with or above the market risk premium available for the investments available in the broad market.

Business Operations

Net Income (Loss) Summary

The table below presents our net income (loss) on a GAAP basis for the years ended December 31, 2023, 2022, and 2021.

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[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(1) Includes interest income of consolidated VIEs of $593,384, $551,253, and $586,580 for the years ended December 31, 2023, 2022, and 2021, respectively.

(2) Includes interest expense of consolidated VIEs of $282,542, $197,823, and $203,135 for the years ended December 31, 2023, 2022, and 2021, respectively.

See accompanying notes to consolidated financial statements.

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Results of Operations for the Years Ended December 31, 2023 and 2022.

Our primary source of income is interest income earned on our assets, net of interest expense paid on our financing liabilities.

The volatility in the interest rate and MBS markets during 2023 as discussed above resulted in an increase in our interest expense and muted market pricing improvements on our portfolio as compared to 2022. For the year ended December 31, 2023, our net income available to common shareholders was $52 million, or $0.23 per average basic common share, compared to a net loss of $587 million, or $2.51 per average basic common share for the year ended December 31, 2022. During the year ended December 31, 2023, we had net interest income of $263 million and unrealized gains on financial instruments at fair value of $34 million, offset in part by operating expenses of $104 million, preferred stock dividend of $74 million, realized losses on sales of investment of $31 million, and net losses derivative of $30 million. The increase in net income available to common shareholders for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily driven by an increase in unrealized gains on financial instruments at fair value of $771 million which was partially offset by an increase in interest expense of $176 million.

The net loss available for the year ended December 31, 2022 was primarily driven by mark-to-market losses on our portfolio's asset prices due to continued increases in interest rates and credit spread widening. During the year ended December 31, 2022, we had net unrealized losses on financial instruments at fair value of $737 million, other expenses of $124 million and net realized losses on sale of investment of $76 million, partially offset by net interest income of $440 million.

Interest Income

Interest income remained relatively unchanged at $773 million for the year ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, the yields on our average interest earning assets increased by 10 basis points at 5.7%, as compared to 5.6% for the year ended December 31, 2022. Our average interest earning assets decreased by $268 million to $13.4 billion as compared to $13.6 billion from the same period of 2022.

We reduced our Agency MBS and Non-Agency RMBS positions by $381 million and $160 million, respectively, and increased our Loans held for investments by $273 million during 2023 as compared to 2022. Due to these changes in our portfolio our Agency MBS and Non-Agency RMBS interest income decreased by $30 million and $30 million, respectively, during the year ended December 31, 2023 as compared to 2022. This decrease was offset by an increase in interest income of $53 million on our Loans held for investment portfolio during the year ended December 31, 2023 as compared to 2022.

Interest Expense

Interest expense increased by $177 million, or 53%, to $510 million for the year ended December 31, 2023 as compared to $333 million for the year ended December 31, 2022. This increase in our interest expense during the year ended December 31, 2023, as compared to the same period of 2022, was primarily driven by the increases in borrowing rates on our secured financing agreements and securitized debt, due to increases in the Federal Funds Rate.

The interest expense on our securitized debt increased by $83 million during the year ended December 31, 2023, as the average borrowing rates on our securitizations increased by 90 basis points as compared to the year ended December 31, 2022. During the year ended December 31, 2023, our interest expense on secured financing agreements collateralized by Loans held for investments and Non-Agency RMBS increased by $42 million and $33 million, respectively, due to the higher Federal Funds Rate as compared to the year ended December 31, 2022.

Economic Net Interest Income

Our Economic net interest income is a non-GAAP financial measure that equals GAAP net interest income adjusted for net periodic interest cost of interest rate swaps and excludes interest earned on cash. For the purpose of computing economic net interest income and ratios relating to cost of funds measures throughout this section, interest expense includes net payments on our interest rate swaps, which is presented as a part of Net gains (losses) on derivatives in our Consolidated Statements of Operations. Interest rate swaps are used to manage the increase in interest paid on secured financing agreements in a rising rate environment. Presenting the net contractual interest payments on interest rate swaps with the interest paid on interest-bearing liabilities reflects our total contractual interest payments. We believe this presentation is useful to investors because it depicts the economic value of our investment strategy by showing all components of interest expense and net interest income of our investment portfolio. However, Economic net interest income should not be viewed in isolation and is not a substitute for net interest income computed in accordance with GAAP. Where indicated, interest expense, adjusting for any interest earned on

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cash, is referred to as Economic interest expense. Where indicated, net interest income reflecting net periodic interest cost of interest rate swaps and any interest earned on cash, is referred to as Economic net interest income.

The following table reconciles the Economic net interest income to GAAP net interest income and Economic interest expense to GAAP interest expense for the periods presented.

[[GREPCENT_TABLE]]
[["","GAAP Interest Income","GAAP Interest Expense","Periodic Interest Cost of Interest Rate Swaps","Interest Expense on Long Term Debt","Economic Interest Expense","","GAAP Net Interest Income","Periodic Interest Cost of Interest Rate Swaps","Other (1)","Economic Net Interest Income"],["For the Year Ended December 31, 2023","$","772,904","","$","509,541","","$","(17,167)","","$","\u2014","","$","492,374","","","$","263,363","","$","17,167","","$","(9,871)","","$","270,659"],["For the Year Ended December 31, 2022","$","773,121","","$","333,293","","$","1,752","","$","\u2014","","$","335,045","","","$","439,828","","$","(1,752)","","$","(2,505)","","$","435,571"],["For the Year Ended December 31, 2021","$","937,546","","$","326,628","","$","\u2014","","$","(2,274)","","$","324,354","","","$","610,918","","$","\u2014","","$","2,208","","$","613,126"],["For the Quarter Ended December 31, 2023","$","191,204","","$","126,553","","$","(5,296)","","$","\u2014","","$","121,257","","","$","64,651","","$","5,296","","$","(1,651)","","$","68,296"],["For the Quarter Ended September 30, 2023","$","195,591","","$","132,193","","$","(4,894)","","$","\u2014","","$","127,299","","","$","63,398","","$","4,894","","$","(2,301)","","$","65,991"],["For the Quarter Ended June 30, 2023","$","196,859","","$","131,181","","$","(4,159)","","$","\u2014","","$","127,022","","","$","65,678","","$","4,159","","$","(2,884)","","$","66,953"],["For the Quarter Ended March 31, 2023","$","189,250","","$","119,615","","$","(2,819)","","$","\u2014","","$","116,796","","","$","69,635","","$","2,819","","$","(3,035)","","$","69,419"]]
[[/GREPCENT_TABLE]]

(1) Primarily interest income on cash and cash equivalents and interest expense on Long-term debt.

Net Interest Rate Spread

The following table shows our average earning assets held, interest earned on assets, yield on average interest earning assets, average debt balance, economic interest expense, economic average cost of funds, economic net interest income and net interest rate spread for the periods presented.

47

[[GREPCENT_TABLE]]
[["","For the Quarter Ended"],["","December 31, 2023","","September 30, 2023","","December 31, 2022"],["","(dollars in thousands)","","(dollars in thousands)","","(dollars in thousands)"],["","Average Balance","Interest","Average Yield/Cost","","Average Balance","Interest","Average Yield/Cost","","Average Balance","Interest","Average Yield/Cost"],["Assets:"],["Interest-earning assets (1):"],["Agency RMBS","$","19,136","","$","303","","6.3","%","","$","18,990","","$","234","","4.9","%","","$","31,542","","$","346","","4.4","%"],["Agency CMBS","105,270","","1,138","","4.3","%","","124,094","","1,701","","5.5","%","","441,421","","4,291","","3.9","%"],["Non-Agency RMBS","950,366","","29,611","","12.5","%","","961,257","","28,826","","12.0","%","","1,013,693","","29,304","","11.6","%"],["Loans held for investment","11,882,662","","158,501","","5.3","%","","12,188,221","","162,530","","5.3","%","","12,075,239","","151,478","","5.0","%"],["Total","$","12,957,434","","$","189,553","","5.9","%","","$","13,292,562","","$","193,290","","5.8","%","","$","13,561,895","","$","185,419","","5.5","%"],["Liabilities and stockholders' equity:"],["Interest-bearing liabilities (2):"],["Secured financing agreements collateralized by:"],["Agency RMBS","$","\u2014","","$","\u2014","","\u2014","%","","$","\u2014","","$","\u2014","","\u2014","%","","$","4,547","","$","46","","4.0","%"],["Agency CMBS","75,847","","1,071","","5.6","%","","90,205","","1,200","","5.3","%","","358,914","","3,464","","3.9","%"],["Non-Agency RMBS","710,550","","13,561","","7.6","%","","742,579","","17,769","","9.6","%","","788,795","","13,275","","6.7","%"],["Loans held for investment","1,761,188","","30,298","","6.9","%","","1,832,445","","29,896","","6.5","%","","1,971,144","","33,776","","6.9","%"],["Securitized debt","8,422,017","","76,327","","3.6","%","","8,663,773","","78,434","","3.6","%","","8,056,913","","57,959","","2.9","%"],["Total","$","10,969,602","","$","121,257","","4.4","%","","$","11,329,002","","$","127,299","","4.5","%","","$","11,180,313","","$","108,520","","3.9","%"],["Economic net interest income/net interest rate spread","","$","68,296","","1.5","%","","","$","65,991","","1.3","%","","","$","76,899","","1.6","%"],["Net interest-earning assets/net interest margin","$","1,987,832","","","2.1","%","","$","1,963,560","","","2.0","%","","$","2,381,582","","","2.3","%"],["Ratio of interest-earning assets to interest bearing liabilities","1.18","","","","","1.17","","","","","1.21"],["(1) Interest-earning assets at amortized cost"],["(2) Interest includes periodic net interest cost on swaps"]]
[[/GREPCENT_TABLE]]

48

[[GREPCENT_TABLE]]
[["","For the Year Ended"],["","December 31, 2023","","December 31, 2022"],["","(dollars in thousands)","","(dollars in thousands)"],["","Average Balance","Interest","Average Yield/Cost","","Average Balance","Interest","Average Yield/Cost"],["Assets:"],["Interest-earning assets (1):"],["Agency RMBS","$","18,907","","$","1,164","","6.2","%","","$","93,287","","$","1,185","","1.3","%"],["Agency CMBS","176,826","","7,523","","4.3","%","","483,500","","37,884","","7.8","%"],["Non-Agency RMBS","970,211","","118,078","","12.2","%","","1,130,059","","147,907","","13.1","%"],["Loans held for investment","12,214,061","","636,268","","5.2","%","","11,940,993","","583,640","","4.9","%"],["Total","$","13,380,005","","$","763,033","","5.7","%","","$","13,647,839","","$","770,616","","5.6","%"],["Liabilities and stockholders' equity:"],["Interest-bearing liabilities (2):"],["Secured financing agreements collateralized by:"],["Agency RMBS","$","1,551","","$","118","","7.6","%","","$","11,714","","$","158","","1.3","%"],["Agency CMBS","139,746","","6,878","","4.9","%","","376,551","","6,512","","1.7","%"],["Non-Agency RMBS","744,208","","64,831","","8.7","%","","820,997","","32,311","","3.9","%"],["Loans held for investment","1,950,810","","127,627","","6.5","%","","1,998,874","","85,874","","4.3","%"],["Securitized debt","8,408,355","","292,920","","3.5","%","","8,064,675","","210,190","","2.6","%"],["Total","$","11,244,670","","$","492,374","","4.4","%","","$","11,272,811","","$","335,045","","3.0","%"],["Economic net interest income/net interest rate spread","","$","270,659","","1.3","%","","","$","435,571","","2.6","%"],["Net interest-earning assets/net interest margin","$","2,135,335","","","2.0","%","","$","2,375,028","","","3.2","%"],["Ratio of interest-earning assets to interest bearing liabilities","1.19","","","","","1.21"],["(1) Interest-earning assets at amortized cost"],["(2) Interest includes periodic net interest cost on swaps"]]
[[/GREPCENT_TABLE]]

Economic Net Interest Income and the Average Earning Assets

Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) decreased by $165 million to $271 million for the year ended December 31, 2023 from $436 million for the year ended December 31, 2022. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, decreased by 130 basis points for the year ended December 31, 2023, as compared to the same period of 2022. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, decreased by 120 basis points for the year ended December 31, 2023, as compared to the same period of 2022. Our Average net interest-earning assets decreased by $240 million to $2.1 billion for the year ended December 31, 2023, compared to $2.4 billion for the same period of 2022. The decrease in our net interest rate spread for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to higher interest expense on our securitized debt collateralized by loans and secured financing agreements driven by higher Federal Funds Rate.

Economic Interest Expense and the Cost of Funds

The borrowing rate at which we are able to finance our assets using secured financing agreements is typically correlated to SOFR and the term of the financing. The borrowing rate on the majority of our securitized debt is fixed and correlated to the term of the financing. The table below shows our average borrowed funds, Economic interest expense, average cost of funds (inclusive of periodic interest costs on swaps), average one-month SOFR, average three-month SOFR and average one-month SOFR relative to average three-month SOFR.

49

[[GREPCENT_TABLE]]
[["","Average Debt Balance","Economic Interest Expense","Average Cost of Funds","Average One-Month SOFR","Average Three-Month SOFR","Average One-Month SOFR Relative to Average Three-Month SOFR"],["","(Ratios have been annualized, dollars in thousands)"],["For The Year Ended December 31, 2023","$","11,244,670","","$","492,374","","4.38","%","5.07","%","5.17","%","(0.10)","%"],["For The Year Ended December 31, 2022","$","11,272,811","","$","335,045","","2.97","%","1.85","%","2.18","%","(0.33)","%"],["For The Year Ended December 31, 2021","$","12,244,263","","$","324,354","","2.65","%","0.04","%","0.05","%","(0.01)","%"],["For the Quarter Ended December 31, 2023","$","10,969,602","","$","121,257","","4.42","%","5.34","%","5.38","%","(0.04)","%"],["For the Quarter Ended September 30, 2023","$","11,329,002","","$","127,299","","4.49","%","5.30","%","5.37","%","(0.07)","%"],["For the Quarter Ended June 30, 2023","$","11,517,226","","$","127,022","","4.41","%","5.04","%","5.13","%","(0.09)","%"],["For the Quarter Ended March 31, 2023","$","11,258,996","","$","116,796","","4.15","%","4.62","%","4.79","%","(0.17)","%"]]
[[/GREPCENT_TABLE]]

Average interest-bearing liabilities decreased by $28 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Economic interest expense increased by $157 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022 due to the increases in our secured financing agreements and securitized debt borrowing rates driven by higher Federal Funds Rates. While we may use interest rate hedges to mitigate risks related to changes in interest rate, the hedges may not fully offset interest expense movements.

Provision for Credit Losses

For the year ended December 31, 2023, we recorded an increase in provision for credit losses of $4 million, to $11 million, as compared to the provision of credit losses of $7 million for the year ended December 31, 2022. The increase in provision for credit losses for the year ended December 31, 2023 is primarily due to an increase in expected losses and delinquencies. In addition, certain Non-Agency RMBS positions, now have higher unrealized losses and resulted in the recognition of an allowance for credit losses which was previously limited by unrealized gains on these investments.

Net Gains (Losses) on Derivatives

We use derivatives to economically hedge the effects of changes in interest rates on our portfolio, specifically our secured financing agreements. Unrealized gains and losses include the change in market value, period over period, on our derivatives portfolio. Changes in market value are generally a result of changes in interest rates. We may or may not ultimately realize these unrealized derivative gains and losses depending on trade activity, changes in interest rates and the values of the underlying securities. The net gains and losses on our derivatives include both unrealized and realized gains and losses. Realized gains and losses include the net cash paid and received on our interest rate swaps during the period as well as sales, terminations and settlements of our swaps, swaptions and U.S. Treasury futures.

The table below shows a summary of our net gains (losses) on derivative instruments, for the years ended December 31, 2023, 2022, and 2021, respectively.

50

[[GREPCENT_TABLE]]
[["","","For the Year Ended"],["","","","December 31, 2023","December 31, 2022","December 31, 2021"],["","","","(dollars in thousands)"],["Periodic interest income (expense) on interest rate swaps, net","","","$","17,167","","$","(1,752)","","$","\u2014"],["Realized gains (losses) on derivative instruments, net:"],["Swaps - Terminations","","","(45,226)","","(561)","","\u2014"],["Treasury futures","","","(6,344)","","\u2014","","\u2014"],["Swaptions","","","10,613","","\u2014","","\u2014"],["Total realized gains (losses) on derivative instruments, net","","","$","(40,957)","","(561)","","\u2014"],["Unrealized gains (losses) on derivative instruments, net:"],["Interest rate swaps","","","497","","(10,358)","","\u2014"],["Swaptions","","","(6,908)","","8,876","","\u2014"],["Total unrealized gains (losses) on derivative instruments, net:","","","(6,411)","","(1,482)","","\u2014"],["Total gains (losses) on derivative instruments, net","","","$","(30,201)","","$","(3,795)","","$","\u2014"]]
[[/GREPCENT_TABLE]]

During the year ended December 31, 2023 and 2022, we recognized total net losses on derivatives of $30 million and $4 million, respectively. Unrealized gains and losses include the change in market value, period over period, on our derivatives portfolio. Changes in market value are generally a result of changes in interest rates. We may or may not ultimately realize these unrealized derivative gains and losses depending on trade activity, changes in interest rates and the values of the underlying securities.

The weighted average pay rate on our interest rate swaps at December 31, 2023 was 3.26% and the weighted average receive rate was 5.40%. At December 31, 2023, the weighted average maturity on our interest rate swaps was less than one year. The weighted average pay rate on our interest rate swaps at December 31, 2022 was 4.07% and the weighted average receive rate was 4.30%. At December 31, 2022, the weighted average maturity on our interest rate swaps was 4 years.

We paid $45 million to terminate interest rate swaps with a notional value of $2.5 billion during the year ended December 31, 2023. The terminated swaps had original maturities ranging from 2025 to 2028. We paid $561 thousand to terminate interest rate swaps with a notional value of $1.0 billion during the year ended December 31, 2022. The terminated swaps had original maturity of 2024.

During the year ended December 31, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with a 3.56% strike rate. The underlying swap terms will allow us to pay a fix rate of 3.56% and receive floating overnight SOFR rate. Additionally, during the year ended December 31, 2023, we terminated our existing $1.0 billion notional swaption contract in exchange for a one-year swap. We also entered into and terminated three new swaptions contracts with $2.3 billion notional during the year ended December 31, 2023. We had net realized gains of $11 million on these swaption terminations. During the year ended December 31, 2022, we purchased a swaption contract for a one-year forward starting swap of $1.0 billion in notional amount with a weighted average strike rate of 3.26%. We paid a $6 million premium for the purchase of this swaption contract.

During the year ended December 31, 2023, we entered into 6,000 short 5-year and 1,875 short 2-year U.S. Treasury futures contract with a notional of $600 million and $375 million, respectively, which we subsequently covered and had no outstanding U.S. Treasury futures contract at December 31, 2023. We had a net realized loss of $6 million on covering these short U.S. Treasury futures contract. We also entered into 400 call options on 2-year and 5-year U.S. Treasury futures and subsequently covered them during the year ended December 31, 2023 for a realized loss of $187 thousand.

Changes in our derivative positions were primarily a result of changes in our secured financing composition and changes in interest rates.

Net Unrealized Gains (Losses) on Financial Instruments at Fair Value

During the year ended December 31, 2023, changes in market value on our portfolio were modestly positive compared to the market value losses during the year ended December 31, 2022. During 2022, the Fed Funds Rate increases, headline inflation, the inversion of the yield curve, and widening of credit spreads resulted in significant increases in market volatility and unrealized losses on our investment portfolio. 2023, while still experiencing market volatility, has been relatively stable and market prices have remained slightly positive as compared to 2022. We recorded Net unrealized gains on financial instruments at fair value of $34 million for the year ended December 31, 2023, as compared to Net unrealized losses on financial instruments at fair value of $737 million for the year ended December 31, 2022.

51

Gains and Losses on Sales of Assets

We do not forecast sales of investments as we generally expect to invest for long term gains. However, from time to time, we may sell assets to create liquidity necessary to pursue new opportunities, to achieve targeted leverage ratios as well as for gains when prices indicate a sale is most beneficial to us, or is the most prudent course of action to maintain a targeted risk adjusted yield for our investors.

During the year ended December 31, 2023, we sold some of our Agency MBS investments as part of our portfolio optimization efforts and realized a loss of $31 million. During the year ended December 31, 2022, we sold some of our Agency IO and Non-Agency RMBS investments and realized a loss of $76 million.

Gain and Loss on Extinguishment of Debt

We recognized losses on extinguishment of debt of $2 million and $3 million, respectively, for the year ended December 31, 2023 and December 31, 2022, related to early termination of certain of our secured financing agreements.

When we acquire our outstanding securitized debt, we extinguish the outstanding debt and recognize a gain or loss based on the difference between the carrying value of the debt and the cost to acquire the debt which is reflected in the Consolidated Statements of Operations as a gain or loss on extinguishment of debt.

Securitized Debt Collateralized by Non-Agency RMBS

We did not acquire any securitized debt collateralized by Non-Agency RMBS during the year ended December 31, 2023 and December 31, 2022.

Securitized Debt Collateralized by Loans Held for Investment

During the year ended December 31, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million. We did not acquire any securitized debt collateralized by loans held for investment during the year ended December 31, 2022.

Compensation, General and Administrative Expenses and Transaction Expenses

The table below shows our total compensation and benefit expense, general and administrative, or G&A expenses, and transaction expenses as compared to average total assets and average equity for the periods presented.

[[GREPCENT_TABLE]]
[["","Total Compensation, G&A and Transaction Expenses","Total Compensation, G&A and Transaction Expenses/Average Assets","Total Compensation, G&A and Transaction Expenses/Average Equity"],["","(Ratios have been annualized, dollars in thousands)"],["For The Year Ended December 31, 2023","$","71,067","","0.53","%","2.74","%"],["For The Year Ended December 31, 2022","$","88,175","","0.61","%","2.87","%"],["For The Year Ended December 31, 2021","$","98,925","","0.61","%","2.67","%"],["For the Quarter Ended December 31, 2023","$","13,144","","0.41","%","2.08","%"],["For the Quarter Ended September 30, 2023","$","12,641","","0.38","%","1.99","%"],["For the Quarter Ended June 30, 2023","$","22,604","","0.65","%","3.46","%"],["For the Quarter Ended March 31, 2023","$","22,678","","0.66","%","3.41","%"]]
[[/GREPCENT_TABLE]]

The Compensation and benefit costs were approximately $31 million and $49 million for the year ended December 31, 2023 and December 31, 2022, respectively. The decrease in Compensation and benefit costs were primarily driven by lower performance based compensation costs.

The general and administrative expenses were approximately $25 million and $23 million for the year ended December 31, 2023 and December 31, 2022, respectively. The G&A expenses are primarily comprised of legal, market data and research, auditing, consulting, information technology, and independent investment consulting expenses.

52

We incurred transaction expenses in relation to securitizations of $15 million and $16 million for the year ended December 31, 2023 and December 31, 2022, respectively.

Servicing and Asset Manager Fees

The servicing fees and asset manager expenses were $33 million and $36 million for the year ended December 31, 2023 and December 31, 2022, respectively. These servicing fees are primarily related to the servicing costs of the whole loans held in consolidated securitization vehicles and are paid from interest income earned by the VIEs. The servicing fees generally range from 2 to 50 basis points of unpaid principal balances of our consolidated VIEs.

Earnings available for distribution

Earnings available for distribution is a non-GAAP measure and is defined as GAAP net income excluding unrealized gains or losses on financial instruments carried at fair value with changes in fair value recorded in earnings, realized gains or losses on the sales of investments, gains or losses on the extinguishment of debt, changes in the provision for credit losses, other gains or losses on equity investments, and transaction expenses incurred. Transaction expenses are primarily comprised of costs only incurred at the time of execution of our securitizations and certain structured secured financing agreements and include costs such as underwriting fees, legal fees, diligence fees, bank fees and other similar transaction related expenses. These costs are all incurred prior to or at the execution of the transaction and do not recur. Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from earnings available for distribution. We believe that excluding these costs is useful to investors as it is generally consistent with our peer groups treatment of these costs in their non-GAAP measures presentation, mitigates period to period comparability issues tied to the timing of securitization and structured finance transactions, and is consistent with the accounting for the deferral of debt issue costs prior to the fair value election option made by us. In addition, we believe it is important for investors to review this metric which is consistent with how management internally evaluates the performance of the Company. Stock compensation expense charges incurred on awards to retirement eligible employees is reflected as an expense over a vesting period (generally 36 months) rather than reported as an immediate expense.

Earnings available for distribution is the Economic net interest income, as defined previously, reduced by compensation and benefits expenses (adjusted for awards to retirement eligible employees), general and administrative expenses, servicing and asset manager fees, income tax benefits or expenses incurred during the period, as well as the preferred dividend charges.

We view Earnings available for distribution as one measure of our investment portfolio's ability to generate income for distribution to common stockholders. Earnings available for distribution is one of the metrics, but not the exclusive metric, that our Board of Directors uses to determine the amount, if any, of dividends on our common stock. Other metrics that our Board of Directors may consider when determining the amount, if any, of dividends on our common stock include (among others) REIT taxable income, dividend yield, book value, cash generated from the portfolio, reinvestment opportunities and other cash needs. In addition, Earnings available for distribution is different than REIT taxable income and the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to our stockholders in order to maintain qualification as a REIT is not based on Earnings available for distribution. Therefore, Earnings available for distribution should not be considered as an indication of our REIT taxable income, a guaranty of our ability to pay dividends, or as a proxy for the amount of dividends we may pay. We believe Earnings available for distribution as described above helps us and investors evaluate our financial performance period over period without the impact of certain transactions. Therefore, Earnings available for distribution should not be viewed in isolation and is not a substitute for net income or net income per basic share computed in accordance with GAAP. In addition, our methodology for calculating Earnings available for distribution may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and accordingly, our Earnings available for distribution may not be comparable to the Earnings available for distribution reported by other REITs.

The following table provides GAAP measures of net income and net income per diluted share available to common stockholders for the periods presented and details with respect to reconciling the line items to Earnings available for distribution and related per average diluted common share amounts. Earnings available for distribution is presented on an adjusted dilutive shares basis.

53

[[GREPCENT_TABLE]]
[["","For the Years Ended"],["","December 31, 2023","December 31, 2022","December 31, 2021"],["","(dollars in thousands, except per share data)"],["GAAP Net income (loss) available to common stockholders","$","52,354","","$","(586,831)","","$","596,350"],["Adjustments:"],["Net unrealized (gains) losses on financial instruments at fair value","(34,373)","","736,899","","(437,357)"],["Net realized (gains) losses on sales of investments","31,234","","76,473","","(45,313)"],["(Gains) losses on extinguishment of debt","(3,875)","","2,897","","283,556"],["Interest expense on long term debt","\u2014","","\u2014","","2,274"],["Increase (decrease) in provision for credit losses","11,371","","7,037","","33"],["Net unrealized (gains) losses on derivatives","6,411","","1,482","","\u2014"],["Realized (gains) losses on terminations of interest rate swaps","40,957","","561","","\u2014"],["Transaction expenses","15,379","","16,146","","29,856"],["Stock Compensation expense for retirement eligible awards","966","","(205)","","(432)"],["Other investment (gains) losses","(1,091)","","1,866","","\u2014"],["Earnings available for distribution","$","119,333","","$","256,325","","$","428,967"],["GAAP net income (loss) per diluted common share","$","0.23","","$","(2.51)","","$","2.44"],["Earnings available for distribution per adjusted diluted common share","$","0.51","","$","1.08","","$","1.78"]]
[[/GREPCENT_TABLE]]

(1) Included in net realized gains (losses) on derivatives in the Consolidated Statement of Operations

The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted average adjusted diluted shares used for Earnings available for distribution for the years ended December 31, 2023, 2022 and 2021.

[[GREPCENT_TABLE]]
[["","For the Year Ended"],["","December 31, 2023","","","","","December 31, 2022","December 31, 2021"],["Weighted average diluted shares - GAAP","232,617,866","","","","","","233,938,745","","245,496,926"],["Potentially dilutive shares (1)","\u2014","","","","","","2,617,417","","\u2014"],["Non-participating Warrants","\u2014","","","","","","\u2014","","(5,070,543)"],["Adjusted weighted average diluted shares - Earnings available for distribution","232,617,866","","","","","","236,556,162","","240,426,383"]]
[[/GREPCENT_TABLE]]

(1) Potentially dilutive shares related to restricted stock units and performance stock units excluded from the computation of weighted average GAAP diluted shares

because their effect would have been anti-dilutive given the GAAP net loss available to common shareholders for the year ended December 31, 2022.

[[GREPCENT_TABLE]]
[["","For the Quarters Ended"],["","December 31, 2023","September 30, 2023","June 30, 2023","March 31, 2023","December 31, 2022"],["","(dollars in thousands, except per share data)"],["GAAP Net income (loss) available to common stockholders","$","12,104","","$","(16,268)","","$","17,586","","$","38,928","","$","78,716"],["Adjustments:"],["Net unrealized (gains) losses on financial instruments at fair value","(6,815)","","43,988","","(6,954)","","(64,592)","","(112,026)"],["Net realized (gains) losses on sales of investments","3,752","","460","","21,758","","5,264","","39,443"],["(Gains) losses on extinguishment of debt","2,473","","\u2014","","(4,039)","","(2,309)","","\u2014"],["Increase (decrease) in provision for credit losses","2,330","","3,217","","2,762","","3,062","","3,834"],["Net unrealized (gains) losses on derivatives","15,871","","(17)","","(17,994)","","8,551","","10,171"],["Realized (gains) losses on derivatives","\u2014","","\u2014","","6,822","","34,134","","561"],["Transaction expenses","425","","90","","8,456","","6,409","","3,274"],["Stock Compensation expense for retirement eligible awards","(391)","","(392)","","(388)","","2,141","","(309)"],["Other investment (gains) losses","986","","(2,381)","","421","","(117)","","2,383"],["Earnings available for distribution","$","30,735","","$","28,697","","$","28,430","","$","31,471","","$","26,047"],["GAAP net income (loss) per diluted common share","$","0.05","","$","(0.07)","","$","0.08","","$","0.17","","$","0.34"],["Earnings available for distribution per adjusted diluted common share","$","0.13","","$","0.13","","$","0.12","","$","0.13","","$","0.11"]]
[[/GREPCENT_TABLE]]

54

The table below summarizes the reconciliation from weighted-average diluted shares under GAAP to the weighted-average adjusted diluted shares used for Earnings available for distribution for the periods reported below.

[[GREPCENT_TABLE]]
[["","For the Quarters Ended"],["","December 31, 2023","September 30, 2023","June 30, 2023","March 31, 2023","December 31, 2022"],["Weighted average diluted shares - GAAP","232,329,323","","226,734,643","","233,867,501","","235,201,614","","234,240,836"],["Potentially dilutive shares (1)","\u2014","","1,997,547","","\u2014","","\u2014","","\u2014"],["Adjusted weighted average diluted shares - Earnings available for distribution","232,329,323","","228,732,190","","233,867,501","","235,201,614","","234,240,836"]]
[[/GREPCENT_TABLE]]

(1) Potentially dilutive shares related to restricted stock units and performance stock units excluded from the computation of weighted average GAAP diluted shares because their effect would have been anti-dilutive given the GAAP net loss available to common shareholders for the quarter ended September 30, 2023.

Our Earnings available for distribution for the year ended December 31, 2023 were $119 million, or $0.51 per average diluted common share, and decreased by $137 million, or $0.57 per average diluted common share, as compared to $256 million, or $1.08 per average diluted common share for the year ended December 31, 2022. The decrease in Earnings available for distribution was driven by an increase in interest expense on our secured financing agreements and securitized debt collateralized by loans due to higher Federal Funds rate during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Net Income (Loss) and Return on Total Stockholders' Equity

The table below shows our Net Income and Economic net interest income as a percentage of average stockholders' equity and Earnings available for distribution as a percentage of average common stockholders' equity. Return on average equity is defined as our GAAP net income (loss) as a percentage of average equity.  Average equity is defined as the average of our beginning and ending stockholders' equity balance for the period reported. Economic net interest income and Earnings available for distribution are non-GAAP measures as defined in previous sections.

[[GREPCENT_TABLE]]
[["","Return on Average Equity","Economic Net Interest Income/Average Equity","Earnings available for distribution/Average Common Equity"],["","(Ratios have been annualized)"],["For the Year Ended December 31, 2023","4.87","%","10.45","%","7.19","%"],["For the Year Ended December 31, 2022","(16.69)","%","14.17","%","11.96","%"],["For the Year Ended December 31, 2021","18.05","%","16.52","%","15.42","%"],["For the Quarter Ended December 31, 2023","4.84","%","10.81","%","7.70","%"],["For the Quarter Ended September 30, 2023","0.34","%","10.40","%","7.14","%"],["For the Quarter Ended June 30, 2023","5.51","%","10.24","%","6.75","%"],["For the Quarter Ended March 31, 2023","8.63","%","10.45","%","7.28","%"]]
[[/GREPCENT_TABLE]]

Return on average equity increased by 2,156 basis points for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase is driven primarily by unrealized asset pricing gains during 2023, compared to unrealized losses during 2022. Economic net interest income as a percentage of average equity decreased by 372 basis points for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Earnings available for distribution as a percentage of average common equity decreased by 477 basis points for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily driven by increase in interest expense driven by higher Fed Funds Rate.

Financial Condition

Portfolio Review

During the year ended December 31, 2023, we focused our efforts on taking advantage of the opportunity to acquire higher yielding assets while maintaining low leverage and ample liquidity. During the year ended December 31, 2023, on an aggregate basis, we purchased $1.3 billion of investments, sold $316 million of investments, and received $1.5 billion in principal payments related to our Agency MBS, Non-Agency RMBS and Loans held for investment portfolio.

The following table summarizes certain characteristics of our portfolio at December 31, 2023 and December 31, 2022.

55

[[GREPCENT_TABLE]]
[["","December 31, 2023","December 31, 2022"],["Interest earning assets at period-end (1)","$","12,543,336","","$","12,937,661"],["Interest bearing liabilities at period-end","$","10,109,008","","$","10,614,049"],["GAAP Leverage at period-end","4.0:1","4.0:1"],["GAAP Leverage at period-end (recourse)","1.0:1","1.3:1"]]
[[/GREPCENT_TABLE]]

(1) Excludes cash and cash equivalents.

[[GREPCENT_TABLE]]
[["","December 31, 2023","December 31, 2022","","December 31, 2023","December 31, 2022"],["Portfolio Composition","Amortized Cost","","Fair Value"],["Non-Agency RMBS","7.5","%","7.5","%","","8.3","%","8.9","%"],["Senior","4.0","%","4.0","%","","5.4","%","5.9","%"],["Subordinated","2.3","%","2.3","%","","2.2","%","2.2","%"],["Interest-only","1.2","%","1.2","%","","0.7","%","0.8","%"],["Agency RMBS","0.2","%","0.1","%","","0.1","%","0.1","%"],["Interest-only","0.2","%","0.1","%","","0.1","%","0.1","%"],["Agency CMBS","0.7","%","3.3","%","","0.7","%","3.2","%"],["Project loans","0.6","%","2.3","%","","0.6","%","2.2","%"],["Interest-only","0.1","%","1.0","%","","0.1","%","1.0","%"],["Loans held for investment","91.6","%","89.1","%","","90.9","%","87.8","%"],["Fixed-rate percentage of portfolio","96.5","%","96.5","%","","95.9","%","95.6","%"],["Adjustable-rate percentage of portfolio","3.5","%","3.5","%","","4.1","%","4.4","%"]]
[[/GREPCENT_TABLE]]

GAAP leverage at period-end is calculated as a ratio of our secured financing agreements and securitized debt liabilities over GAAP book value. GAAP recourse leverage is calculated as a ratio of our secured financing agreements over stockholders equity.

The following table presents details of each asset class in our portfolio at December 31, 2023 and December 31, 2022. The principal or notional value represents the interest income earning balance of each class. The weighted average figures are weighted by each investment’s respective principal/notional value in the asset class.

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["","Principal or Notional Value at Period-End (dollars in thousands)","Weighted Average Amortized Cost Basis","Weighted Average Fair Value","Weighted Average Coupon","Weighted Average Yield at Period-End (1)","Weighted Average 3 Month Prepay Rate at Period-End","Weighted Average 12 Month Prepay Rate at Period-End","","Weighted Average 3 Month CDR at Period-End","Weighted Average 12 Month CDR at Period-End","Weighted Average Loss Severity(2)","Weighted Average Credit Enhancement"],["Non-Agency Mortgage-Backed Securities"],["Senior","$","1,073,632","","$","45.69","","$","62.98","","5.7","%","17.3","%","4.1","%","5.0","%","","1.5","%","1.8","%","32.2","%","2.6","%"],["Subordinated","$","583,049","","$","50.92","","$","47.49","","3.3","%","6.7","%","4.6","%","5.7","%","","0.2","%","0.9","%","18.4","%","6.5","%"],["Interest-only","$","2,874,680","","$","5.49","","$","3.16","","0.5","%","4.2","%","4.5","%","5.0","%","","0.9","%","1.0","%","24.9","%","1.9","%"],["Agency RMBS"],["Interest-only","$","392,284","","$","4.90","","$","3.83","","0.1","%","5.7","%","8.6","%","9.4","%","","N/A","N/A","N/A","N/A"],["Agency CMBS"],["Project loans","$","86,572","","$","101.44","","$","91.46","","4.0","%","3.8","%","\u2014","%","\u2014","%","","N/A","N/A","N/A","N/A"],["Interest-only","$","478,239","","$","1.62","","$","1.73","","0.5","%","8.2","%","0.3","%","1.0","%","","N/A","N/A","N/A","N/A"],["Loans held for investment","$","12,028,480","","$","98.35","","$","94.90","","5.7","%","5.4","%","6.5","%","6.5","%","","0.6","%","0.6","%","23.9","%","N/A"]]
[[/GREPCENT_TABLE]]

(1) Bond Equivalent Yield at period-end. Weighted Average Yield is calculated using each investment's respective amortized cost.

(2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.)

56

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["","Principal or Notional Value at Period-End (dollars in thousands)","Weighted Average Amortized Cost Basis","Weighted Average Fair Value","Weighted Average Coupon","Weighted Average Yield at Period-End (1)","Weighted Average 3 Month Prepay Rate at Period-End","Weighted Average 12 Month Prepay Rate at Period-End","","Weighted Average 3 Month CDR at Period-End","Weighted Average 12 Month CDR at Period-End","Weighted Average Loss Severity(2)","Weighted Average Credit Enhancement"],["Non-Agency Mortgage-Backed Securities"],["Senior","$","1,153,458","","$","46.09","","$","66.05","","5.3","%","16.4","%","5.2","%","10.8","%","","1.4","%","1.8","%","34.5","%","2.1","%"],["Subordinated","$","439,591","","$","68.60","","$","65.27","","4.2","%","6.8","%","5.9","%","12.3","%","","0.5","%","0.3","%","34.2","%","6.6","%"],["Interest-only","$","3,286,545","","$","4.95","","$","3.01","","0.6","%","5.3","%","5.8","%","12.1","%","","0.9","%","0.8","%","38.3","%","1.6","%"],["Agency RMBS"],["Interest-only","$","409,940","","$","4.58","","$","3.70","","0.9","%","5.0","%","12.9","%","17.4","%","","N/A","N/A","N/A","N/A"],["Agency CMBS"],["Project loans","$","302,685","","$","101.85","","$","95.62","","4.3","%","4.1","%","\u2014","%","\u2014","%","","N/A","N/A","N/A","N/A"],["Interest-only","$","2,669,396","","$","5.23","","$","4.73","","0.7","%","3.4","%","1.8","%","3.7","%","","N/A","N/A","N/A","N/A"],["Loans held for investment","$","12,060,631","","$","98.50","","$","94.36","","5.3","%","5.2","%","8.1","%","12.0","%","","0.6","%","0.8","%","33.1","%","N/A"]]
[[/GREPCENT_TABLE]]

(1) Bond Equivalent Yield at period-end. Weighted Average Yield is calculated using each investment's respective amortized cost.

(2) Calculated based on reported losses to date, utilizing widest data set available (i.e., life-time losses, 12-month loss, etc.)

Based on the projected cash flows for our Non-Agency RMBS that are not of high credit quality, a portion of the original purchase discount is designated as Accretable Discount, which reflects the purchase discount expected to be accreted into interest income, and a portion is designated as Non-Accretable Difference, which represents the contractual principal on the security that is not expected to be collected. The amount designated as Non-Accretable Difference 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 is more favorable than previously estimated, a portion of the amount designated as Non-Accretable Difference may be transferred to Accretable Discount and accreted into interest income over time. Conversely, if the performance of a security is less favorable than previously estimated, a provision for credit loss may be recognized resulting in an increase in the amounts designated as Non-Accretable Difference.

The following table presents changes to Accretable Discount (net of premiums) as it pertains to our Non-Agency RMBS portfolio, excluding premiums on interest-only investments, during the previous five quarters.

[[GREPCENT_TABLE]]
[["","For the Quarters Ended"],["","(dollars in thousands)"],["Accretable Discount (Net of Premiums)","December 31, 2023","September 30, 2023","June 30, 2023","March 31, 2023","December 31, 2022"],["Balance, beginning of period","$","147,252","","$","145,322","","$","157,253","","$","176,635","","$","207,812"],["Accretion of discount","(12,840)","","(9,022)","","(10,620)","","(11,663)","","(11,128)"],["Purchases","\u2014","","(9)","","\u2014","","\u2014","","\u2014"],["Sales","\u2014","","\u2014","","\u2014","","\u2014","","(17,935)"],["Elimination in consolidation","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Transfers from/(to) credit reserve, net","5,325","","10,961","","(1,311)","","(7,719)","","(2,114)"],["Balance, end of period","$","139,737","","$","147,252","","$","145,322","","$","157,253","","$","176,635"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

General

Liquidity measures our ability to meet cash requirements, including ongoing borrowing commitments, purchase RMBS, residential mortgage loans and other assets for our portfolio, pay dividends and other general business needs. Our principal sources of capital and funds for additional investments primarily include earnings, principal paydowns and sales from our investments, borrowings under securitizations and re-securitizations, secured financing agreements and other financing facilities including warehouse facilities, and proceeds from equity or other securities offerings. 

As discussed earlier, during 2023 we experienced higher interest rates, increased volatility, and elevated costs of financing. If these uncertainties become more pronounced, we may experience an adverse impact on our liquidity. We have sought and expect to continue to seek longer-term, more durable financing to reduce our risk exposure to margin calls related to shorter-term repurchase financing.

57

Our ability to fund our operations, meet financial obligations and finance target asset acquisitions may be impacted by our ability to secure and maintain our master secured financing agreements, warehouse facilities and secured financing agreements facilities with our counterparties. Because secured financing agreements and warehouse facilities are short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings and have and may continue to impose more onerous conditions when rolling forward such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and dispose of assets.

To meet our short term (one year or less) liquidity needs, we expect to continue to borrow funds in the form of secured financing agreements and, subject to market conditions, other types of financing. The terms of the secured financing transaction borrowings under our master secured financing agreement generally conform to the terms in the standard master secured financing agreement as published by the Securities Industry and Financial Markets Association, or SIFMA, or similar market accepted agreements, as to repayment and margin requirements. In addition, each lender typically requires that we include supplemental terms and conditions to the standard master secured financing agreement. Typical supplemental terms and conditions include changes to the margin maintenance requirements, net asset value, required 'haircuts' (which are the difference expressed in percentage terms between the fair value of the collateral and the amount the counterpart will lend to us) purchase price maintenance requirements, and requirements that all disputes related to the secured financing agreement be litigated or arbitrated in a particular jurisdiction. These provisions may differ for each of our lenders. 

To meet our longer-term liquidity needs (greater than one year), we expect our principal sources of capital and funds to continue to be provided by earnings, principal paydowns and sales from our investments, borrowings under securitizations and re-securitizations, secured financing agreements and other financing facilities, as well as proceeds from equity or other securities offerings.

In addition to the principal sources of capital described above, we may enter into warehouse facilities and use longer dated structured secured financing agreements. The use of any particular source of capital and funds will depend on market conditions, availability of these facilities, and the investment opportunities available to us.

Current Period

We held cash and cash equivalents of approximately $222 million and $265 million at December 31, 2023 and December 31, 2022, respectively. As a result of our operating, investing and financing activities described below, our cash position decreased

by $43 million from December 31, 2022 to December 31, 2023.

Our operating activities provided net cash of approximately $213 million and $326 million for the years ended December 31, 2023 and 2022, respectively. The cash flows from operations were primarily driven by interest received in excess of interest paid of $304 million and $519 million during the year ended December 31, 2023 and 2022, respectively.

Our investing activities provided cash of $552 million and $510 million for the year ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $1.5 billion and from sale of our Agency MBS of $313 million. This cash received was offset in part by cash used on investment purchases of $1.3 billion, primarily consisting of Loans held for investment. During the year ended December 31, 2022, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $2.6 billion. This cash received was offset in part by cash used on investment purchases of $2.1 billion, primarily consisting of Loans held for investment of $2.1 billion, Agency MBS of $58 million and Non-Agency RMBS of $23 million.

Our financing activities used cash of $808 million and $957 million for the year ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, we primarily used cash for repayment of principal on our securitized debt of $1.8 billion, net payments on our secured financing agreements of $1.0 billion, payment of common and preferred dividends of $251 million and payment for repurchase of our common stock of $33 million. This cash used was offset in part by cash received for issuance of securitized debt collateralized by loans of $2.2 billion and issuance of our common stock of $74 million. During the year ended December 31, 2022, we primarily used cash for repayment of principal on our securitized debt of $1.8 billion, payment of common and preferred dividends of $362 million, and repurchase of our common stock of $49 million. This cash used was offset in part by cash received for securitized debt collateralized by loans issuance of $1.1 billion and net proceeds received from our secured financing agreements of $178 million.

58

Our recourse leverage was 1.0:1 and 1.3:1 at December 31, 2023 and at December 31, 2022, respectively, and remained relatively low. Our recourse leverage excludes the securitized debt which can only be repaid from the proceeds on the assets securing this debt in their respective VIEs. Our recourse leverage is presented as a ratio of our secured financing agreements, which are recourse to our assets and our equity.

Based on our current portfolio, leverage ratio and available borrowing arrangements, we believe our assets will be sufficient to enable us to meet anticipated short-term liquidity requirements. However, if our cash resources are insufficient to satisfy our liquidity requirements, we may sell additional investments, reduce our dividends, issue debt or additional common or preferred equity securities to meet our liquidity needs. As of December 31, 2023, we have $377 million of unencumbered assets available to us which can be pledged to access additional short-term financing or sold to raise additional cash, if necessary.

At December 31, 2023 and December 31, 2022, the remaining maturities and borrowing rates on our RMBS and loan secured financing agreements were as follows.

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022"],["","(dollars in thousands)"],["","Principal","Weighted Average Borrowing Rates","Range of Borrowing Rates","","Principal (1)","Weighted Average Borrowing Rates","Range of Borrowing Rates"],["Overnight","\u2014","","N/A","N/A","","\u2014","","N/A","NA"],["1 to 29 days","$","272,490","","7.35%","6.30% - 8.22%","","$","493,918","","4.66%","3.63% - 6.16%"],["30 to 59 days","495,636","","6.68%","5.58% - 7.87%","","762,768","","6.14%","4.60% - 7.34%"],["60 to 89 days","305,426","","7.17%","5.93% - 7.85%","","225,497","","6.04%","4.70% - 7.12%"],["90 to 119 days","54,376","","7.46%","6.59% - 7.80%","","43,180","","6.54%","5.50% - 6.70%"],["120 to 180 days","105,727","","7.09%","6.72% - 7.80%","","401,638","","5.88%","5.57% - 6.92%"],["180 days to 1 year","39,620","","7.06%","6.66% - 7.39%","","402,283","","6.06%","5.63% - 6.64%"],["1 to 2 years","808,601","","9.36%","8.36% - 12.50%","","251,286","","13.98%","13.98% - 13.98%"],["2 to 3 years","\u2014","","\u2014%","0.00% - 0.00%","","480,022","","8.07%","8.07% - 8.07%"],["Greater than 3 years","362,215","","5.11%","5.10% - 7.15%","","382,839","","5.14%","5.10% - 6.07%"],["Total","$","2,444,091","","7.51%","","","$","3,443,431","","6.61%"]]
[[/GREPCENT_TABLE]]

(1) The outstanding balance for secured financing agreements in the table above is net of $1 million of deferred financing cost as of December 31, 2022. There was no outstanding deferred financing cost for secured financing agreements in 2023.

[[GREPCENT_TABLE]]
[["Average remaining maturity of Secured financing agreements secured by:"],["","December 31, 2023","December 31, 2022"],["Agency RMBS (in thousands)","N/A","17 Days"],["Agency CMBS (in thousands)","32 Days","25 Days"],["Non-Agency RMBS and Loans held for investment (in thousands)","418 Days","474 Days"]]
[[/GREPCENT_TABLE]]

We collateralize the secured financing agreements we use to finance our operations with our MBS investments and mortgage loans held in trusts controlled by us. Our counterparties negotiate a ‘haircut’, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will lend to us, when we enter into a financing transaction. The size of the haircut reflects the perceived risk and market volatility associated with holding the MBS by the lender. The haircut provides lenders with a cushion for daily market value movements that reduce the need for a margin call to be issued or margin to be returned as normal daily increases or decreases in MBS market values occur. Haircuts have decreased on secured financing agreements collateralized by Agency CMBS and increased slightly on secured financing agreements collateralized by Non-Agency RMBS and Loans held for investments during 2023 as compared to 2022. At December 31, 2023, the weighted average haircut on our remaining secured financing agreements collateralized by Agency CMBS was 5.2% and Non-Agency RMBS and Loans held for investment was 26.1%. At December 31, 2022, the weighted average haircut on our remaining secured financing agreements collateralized by Agency RMBS IOs was 20.0%, Agency CMBS was 7.8% and Non-Agency RMBS and Loans held for investment was 25.7%.

The fair value of the Non-Agency MBS is more difficult to determine in current financial conditions, as well as more volatile period to period than Agency MBS, the Non-Agency MBS typically requires a larger haircut. In addition, when financing assets using the standard form of SIFMA Master Repurchase Agreements, the counterparty to the agreement typically nets its

59

exposure to us on all outstanding repurchase agreements and issues margin calls if movement of the fair values of the assets in the aggregate exceeds their allowable exposure to us. A decline in asset fair values could create a margin call or may create no margin call depending on the counterparty’s specific policy. In addition, counterparties consider a number of factors, including their aggregate exposure to us as a whole and the number of days remaining before the repurchase transaction closes prior to issuing a margin call. To minimize the risk of margin calls, as of December 31, 2023, we have entered into $924 million of financing arrangements for which the collateral cannot be adjusted as a result of changes in market value, minimizing the risk of a margin call as a result in price volatility. We refer to these agreements as non-mark-to-market (non-MTM) facilities. These non-MTM facilities generally have higher costs of financing, but lower the risk of a margin call which could result in sales of our assets at distressed prices. All non-MTM facilities are collateralized by Non-Agency RMBS collateral, which tends to have increased volatile price changes during periods of market stress. In addition we have entered into certain secured financing agreements which are not subject to additional margin requirement until the drop in fair value of collateral is greater than a threshold. We refer to these agreements as limited mark-to-market (limited MTM) facilities. As of December 31, 2023 we have $546 million, of limited MTM facilities. We believe these non-MTM and limited MTM facilities significantly reduce our financing risks. See Note 5 to our Consolidated Financial Statements for a discussion on how we determine the fair values of the RMBS collateralizing our secured financing agreements.

At December 31, 2023, the weighted average borrowing rates for our secured financing agreements collateralized by Agency CMBS was 5.6% and Non-Agency MBS and Loans held for investment was 7.6%. At December 31, 2022, the weighted average borrowing rates for our secured financing agreements collateralized by Agency RMBS IOs was 4.7%, Agency CMBS was 4.5%, and Non-Agency MBS and Loans held for investment was 6.9%.

We entered into a secured financing agreement during fourth quarter of 2022 for which we have elected fair value option. we believe electing fair value for this financial instrument better reflects the transactional economics. The total principal balance outstanding on this secured financing at December 31, 2023 and December 31, 2022 was $362 million and $383 million, respectively. The fair value of collateral pledged was $401 million and $418 million as of December 31, 2023 and December 31, 2022, respectively. We carry this secured financing instrument at fair value of $350 million and $374 million as of December 31, 2023 and December 31, 2022, respectively. At December 31, 2023 and December 31, 2022, the weighted average borrowing rate on secured financing agreements at fair value was 5.1%. At December 31, 2023 and December 31, 2022, the haircut for the secured financing agreements at fair value was 7.5%. At December 31, 2023, the maturity on the secured financing agreements at fair value was four years.

The table below presents our average daily secured financing agreements balance and the secured financing agreements balance at each period end for the periods presented. Our balance at period-end tends to fluctuate from the average daily balances due to the adjusting of the size of our portfolio by using leverage.

[[GREPCENT_TABLE]]
[["Period","Average secured financing agreements balances","Secured financing agreements balance at period end"],["","(dollars in thousands)"],["Year Ended December 31, 2023","$","2,836,314","","$","2,432,115"],["Year Ended December 31, 2022","$","3,208,136","","$","3,434,765"],["Year Ended December 31, 2021","$","3,937,929","","$","3,261,613"],["Quarter End December 31, 2023","$","2,547,584","","$","2,432,115"],["Quarter End September 30, 2023","$","2,665,230","","$","2,603,911"],["Quarter End June 30, 2023","$","2,932,424","","$","2,686,522"],["Quarter End March 31, 2023","$","3,209,153","","$","3,195,322"]]
[[/GREPCENT_TABLE]]

Our secured financing agreements do not require us to maintain any specific leverage ratio. We believe the appropriate leverage for the particular assets we are financing depends on the credit quality and risk of those assets. At December 31, 2023 and December 31, 2022, the carrying value of our total interest-bearing debt was approximately $10.1 billion and $10.6 billion, respectively, which represented a leverage ratio of approximately 4.0:1 and 4.0:1, respectively. We include our secured financing agreements and securitized debt in the numerator of our leverage ratio and stockholders’ equity as the denominator.

At December 31, 2023, we had secured financing agreements with 12 counterparties. All of our secured financing agreements are secured by Agency MBS, Non-Agency RMBS and Loans held for investment and cash. Under these secured financing agreements, we may not be able to reclaim our collateral but will still be obligated to pay our repurchase obligations. We mitigate this risk by ensuring our counterparties are rated financial institutions. As of December 31, 2023 and December 31, 2022, we had $3.6 billion and $4.7 billion, respectively, of securities or cash pledged against our secured financing agreements obligations.

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We expect to enter into new secured financing agreements at maturity; however, there is a risk that we will not be able to renew our secured financing agreements when we desire to renew them or obtain favorable interest rates and haircuts as a result of uncertainty in the market including, but not limited to, uncertainty as a result of inflation and increases in the Federal Funds Rate. We offset the interest rate risk of our repurchase agreements primarily through the use of derivatives, which primarily consist of interest rate swaps, swaptions and U.S. Treasury futures. The average remaining maturities on our interest rate swaps at December 31, 2023 was less than one year. All of our swaps are cleared by a central clearing house. When our interest rate swaps are in a net loss position (expected cash payments are in excess of expected cash receipts on the swaps), we post collateral as required by the terms of our swap agreements.

Exposure to Financial Counterparties

We actively manage the number of secured financing agreements counterparties to reduce counterparty risk and manage our liquidity needs. The following table summarizes our exposure to our secured financing agreements counterparties at December 31, 2023:

[[GREPCENT_TABLE]]
[["December 31, 2023"],["Country","Number of Counterparties","Secured Financing Agreement","","Exposure (1)"],["(dollars in thousands)"],["United States","8","$","1,244,452","","","$","485,169"],["Japan","2","920,372","","","462,229"],["Canada","1","271,810","","","138,898"],["Netherlands","1","7,457","","","283"],["Total","12","$","2,444,091","","","$","1,086,580"]]
[[/GREPCENT_TABLE]]

(1) Represents the amount of securities and/or cash pledged as collateral to each counterparty less the aggregate of secured financing

agreement.

We regularly monitor our exposure to financing counterparties for credit risk and allocate assets to these counterparties based, in part, on the credit quality and internally developed metrics measuring counterparty risk. Our exposure to a particular counterparty is calculated as the excess collateral which is pledged relative to the secured financing agreement balance. If our exposure to our financing counterparties exceeds internally developed thresholds, we develop a plan to reduce the exposure to an acceptable level. At December 31, 2023, we had amounts at risk with Nomura Securities International, Inc., or Nomura, of 17% of our equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 412 days. The amount at risk with Nomura was $433 million. At December 31, 2022, we had amounts at risk with Nomura of 12% of our equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 582 days. The amount at risk with Nomura was $308 million.

At December 31, 2023, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.

Stockholders’ Equity

In June 2023, our Board of Directors increased the authorization of the Company's share repurchase program, or the Repurchase Program, by $73 million to $250 million. Such authorization does not have an expiration date, and at present, there is no intention to modify or otherwise rescind such authorization. Shares of our common stock and preferred stock may be purchased in the open market, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. The timing, manner, price and amount of any repurchases will be determined at our discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, we intend to only consider repurchasing shares of our common stock and preferred stock when the purchase price is less than the last publicly reported book value per common share. In addition, we do not intend to repurchase any shares from directors, officers or other affiliates. The program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases.

We repurchased 5.8 million shares of our common stock at an average price of $5.66 for a total of $33 million during the year ended December 31, 2023. We repurchased approximately 5.4 million shares of our common stock at an average price of $9.10

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for a total of $49 million during the year ended December 31, 2022. The approximate dollar value of shares that may yet be purchased under the Repurchase Program is $217 million as of December 31, 2023.

In 2022, we entered into separate Distribution Agency Agreements (the “Existing Sales Agreements”) with each of JMP Securities LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and RBC Capital Markets, LLC (the “Existing Sales Agents”). In February 2023, we amended the Existing Sales Agreements and entered into separate Distribution Agency Agreements (together with the Existing Sales Agreements, as amended, the “Sales Agreements”) with J.P. Morgan Securities LLC and UBS Securities LLC to include J.P. Morgan Securities LLC and UBS Securities LLC as additional sales agents (together with the Existing Sales Agents, the “Sales Agents”). Pursuant to the terms of the Sales Agreements, we may offer and sell shares of our common stock, having an aggregate offering price of up to $500,000,000, from time to time in “at the market offerings” through any of the Sales Agents under the Securities Act of 1933. We issued approximately 14.5 million shares of our common stock at an average price of $5.09 for a total of $74 million during the year ended December 31, 2023. We did not issue any shares under the at-the-market sales program during the year ended December 31, 2022. The approximate dollar value of shares that may yet be issued under "at the market" offerings program is $426 million as of December 31, 2023.

During the year ended December 31, 2023, we declared dividends to common shareholders of $167 million or $0.70 per share, respectively. During the year ended December 31, 2022, we declared dividends to common shareholders of $266 million, or $1.12 per share, respectively.

We declared dividends to Series A preferred stockholders of $12 million, or $2.00 per preferred share, during the years ended December 31, 2023 and 2022, respectively.

We declared dividends to Series B preferred stockholders of $26 million, or $2.00 per preferred share, during the years ended December 31, 2023, and 2022, respectively.

We declared dividends to Series C preferred stockholders of $20 million, or $1.937500 per preferred share, during the years ended December 31, 2023, and 2022, respectively.

We declared dividends to Series D preferred stockholders of $16 million, or $2.00 per preferred share, during the years ended December 31, 2023, and 2022, respectively.

On October 30, 2021, all 5,800,000 issued and outstanding shares of Series A Preferred Stock with an outstanding liquidation preference of $145 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including, the redemption date. The dividend rate on shares of Series A Preferred Stock is 8.00% per annum.

After June 30, 2023, all LIBOR tenors relevant to us ceased to be published or became no longer representative. We believe that the federal Adjustable Interest Rate (LIBOR) Act (the “Act”) and the related regulations promulgated thereunder are applicable to each of our Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. In light of the applicability of the Act to the aforementioned preferred stock, we believe, given all of the information available to us to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum will automatically replace three-month LIBOR as the reference rate for calculations of the dividend rate payable on the relevant preferred stock for dividend periods from and after (i) March 30, 2024, in the case of the Series B Preferred Stock, (ii) September 30, 2025, in the case of the Series C Preferred Stock, or (iii) March 30, 2024, in the case of the Series D Preferred Stock.

Stock Based Compensation

On June 14, 2023, the Board of Directors recommended and shareholders approved, the Chimera Investment Corporation 2023 Equity Incentive Plan (the “Plan”). It authorized the issuance of up to 20,000,000 shares of our common stock for the grant of awards under the Plan. The Plan will replace our 2007 Equity Incentive Plan, as amended and restated effective December 10, 2015 (the “Prior Plan”), and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan will remain subject to and be paid under the Prior Plan. Any shares subject to outstanding awards under the Prior Plan that, expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the Plan. Also, shares withheld for tax withholding requirements after stockholder approval of the Plan for full value awards originally granted under the Prior Plan (such as the RSUs and PSUs awarded to our named executive officers) will automatically become available for issuance under the Plan.

As of December 31, 2023, approximately 18 million shares were available for future grant under the Plan.

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Grants of Restricted Stock Units, or RSUs

During the years ended December 31, 2023 and 2022, we granted RSU awards to employees. These RSU awards are designed to reward our employees for services provided to us. Generally, the RSU awards vest equally over a three-year period beginning from the grant date and will fully vest after three years. For employees who are retirement eligible, defined as years of service to us plus age that is equal to or greater than 65, the service period is considered to be fulfilled and all grants are expensed immediately. The RSU awards are valued at the market price of our common stock on the grant date and generally the employees must be employed by us on the vesting dates to receive the RSU awards. We granted 1 million RSU awards during the year ended December 31, 2023 with a grant date fair value of $6 million for the 2023 performance year. We granted 396 thousand RSU awards during the year ended December 31, 2022 with a grant date fair value of $4 million for the 2022 performance year.

Grants of Performance Share Units, or PSUs

PSU awards are designed to align compensation with our future performance. The PSU awards granted during the years ended December 31, 2023 and 2022, include a three-year performance period ending on December 31, 2025 and December 31, 2024, respectively. For the PSU awards granted during the year ended December 31, 2023, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on our Economic Return and share price performance compared to a peer group. Our three-year Economic Return is equal to our change in book value per common share plus common stock dividends. Share price performance equals change in share prices plus common stock dividends. Compensation expense will be recognized on a straight-line basis over the three-year vesting period based on an estimate of our Economic Return and share price performance in relation to the entities in the peer group and will be adjusted each period based on our best estimate of the actual number of shares awarded. For the PSU awards granted during the year ended December 31, 2022, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on the our Economic Return compared to a peer group. During the year ended December 31, 2023, we granted 605 thousand PSU awards to senior management with a grant date fair value of $3 million. During the year ended December 31, 2022, we granted 128 thousand PSU awards to senior management with a grant date fair value of $2 million.

At December 31, 2023 and December 31, 2022, there were approximately 3.6 million and 3.0 million, respectively, unvested shares of RSUs and PSUs issued to our employees and directors.

Contractual Obligations and Commitments

The following tables summarize our contractual obligations at December 31, 2023 and December 31, 2022. The estimated principal repayment schedule of the securitized debt is based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for expected principal write-downs on the underlying collateral of the debt.

[[GREPCENT_TABLE]]
[["December 31, 2023"],["(dollars in thousands)"],["Contractual Obligations","Within One Year","One to Three Years","Three to Five Years","Greater Than or Equal to Five Years","Total"],["Secured financing agreements","$","1,273,274","","$","808,602","","$","362,215","","$","\u2014","","$","2,444,091"],["Securitized debt, collateralized by Non-Agency RMBS","251","","326","","\u2014","","67","","644"],["Securitized debt at fair value, collateralized by Loans held for investment","1,405,503","","2,302,421","","1,738,678","","2,942,234","","8,388,836"],["Interest expense on MBS secured financing agreements (1)","23,423","","6,555","","1,696","","\u2014","","31,674"],["Interest expense on securitized debt (1)","273,963","","425,281","","294,111","","356,337","","1,349,693"],["Total","$","2,976,414","","$","3,543,185","","$","2,396,700","","$","3,298,638","","$","12,214,938"]]
[[/GREPCENT_TABLE]]

(1) Interest is based on variable rates in effect as of December 31, 2023.

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[[GREPCENT_TABLE]]
[["December 31, 2022"],["(dollars in thousands)"],["Contractual Obligations","Within One Year","One to Three Years","Three to Five Years","Greater Than or Equal to Five Years","Total"],["Secured financing agreements","$","2,329,284","","$","731,308","","$","382,838","","$","\u2014","","$","3,443,430"],["Securitized debt, collateralized by Non-Agency RMBS","640","","523","","71","","92","","1,326"],["Securitized debt at fair value, collateralized by Loans held for investment","1,636,544","","2,535,642","","1,733,022","","1,949,240","","7,854,448"],["Interest expense on MBS secured financing agreements (1)","28,915","","6,147","","1,750","","\u2014","","36,812"],["Interest expense on securitized debt (1)","208,059","","307,001","","187,281","","176,580","","878,921"],["Total","$","4,203,442","","$","3,580,621","","$","2,304,962","","$","2,125,912","","$","12,214,937"]]
[[/GREPCENT_TABLE]]

(1) Interest is based on variable rates in effect as of December 31, 2022.

Not included in the table above are the unfunded construction loan commitments of $5 million and $9 million as of December 31, 2023 and December 31, 2022, respectively. We expect the majority of these commitments will be paid within one year and are reported under Payable for investments purchased in our Consolidated Statements of Financial Condition.

We have made a $75 million capital commitment to a fund managed by Kah Capital Management, LLC. As of December 31, 2023, we have funded $46 million towards that commitment, leaving an unfunded commitment of $29 million.

Capital Expenditure Requirements

At December 31, 2023 and December 31, 2022, we had no material commitments for capital expenditures.

Dividends

To maintain our qualification as a REIT, we must pay annual dividends to our stockholders of at least 90% of our taxable income (subject to certain adjustments). Before we pay any dividend, we must first meet any operating requirements and scheduled debt service on our financing facilities and other debt payable.

Critical Accounting Estimates

Accounting policies are integral to understanding our Management’s Discussion and Analysis of Financial Condition and Results of Operations. The preparation of financial statements in accordance with GAAP requires management to make certain judgments and assumptions, on the basis of information available at the time of the financial statements, in determining accounting estimates used in the preparation of these statements. Our significant accounting policies and accounting estimates are described in Note 2 to the Consolidated Financial Statements. Critical accounting policies are described in this section. An accounting policy is considered critical if it requires management to make assumptions or judgments about matters that are highly uncertain at the time the accounting estimate was made or require significant management judgment in interpreting the accounting literature. If actual results differ from our judgments and assumptions, or other accounting judgments were made, this could have a significant and potentially adverse impact on our financial condition, results of operations and cash flows.

The accounting policies and estimates which we consider most critical relate to the recognition of revenue on our investments, including recognition of any losses, and the determination of fair value of our financial instruments. The consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, for which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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 our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially adversely impact our results of operations and our financial condition. Management has made significant estimates in several areas, including current expected credit losses of Non-Agency

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RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS, forward interest rates for interest rate swaps, and income recognition on Loans held for investments and Non-Agency RMBS. Actual results could differ materially from those estimates.

Recognition of Revenue

We primarily invest in pools of mortgage loans. All mortgage loans are carried at fair value with changes in fair value recognized in earnings. Our investments in mortgage loans pay principal and interest which is accrued when due. We also invest in MBS representing interests in obligations backed by pools of mortgage loans. Our investments in MBS includes investments in both Agency MBS and Non-Agency MBS. We delineate between (1) Agency MBS and (2) Non-Agency RMBS as follows: The Agency MBS are mortgage pass-through certificates, collateralized mortgage obligations, or CMOs, and other RMBS representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed as to principal and/or interest repayment by agencies of the U.S. Government or federally chartered corporations such as Ginnie Mae, Freddie Mac or Fannie Mae. The Non-Agency RMBS are not issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae and are therefore subject to credit risk. We also invests in Interest Only Agency MBS strips and Interest Only Non-Agency RMBS strips, or IO MBS strips. IO MBS strips represent our right to receive a specified proportion of the contractual interest flows of the collateral.

Income on our investments is recognized based on an effective interest rate we expect to earn over the life of the investment. The effective interest rate is determined based on the cost of the investment and the expectation of future cash flows. To determine the future cash flows, we estimate the amount and timing of principal and interest, referred to as the repayment rate, and our expectations of defaults on payments of principal and interest. These estimates require significant judgment which change over time as our expectations change due to changes in market conditions and changes in our investments as principal and interest, other cash flows or losses are experienced. These estimates are compared to actual results of the investment and other similar investments on a regular basis and updated as necessary. These comparisons may result in a favorable or unfavorable change in the effective interest rate expected to be collected. Any favorable or unfavorable changes are reflected as a change in income. Our estimates of the timing and amount of principal and interest, including our expectation of defaults on payments of principal and interest are critical to accurately reporting interest income.

Our accounting policies for recognition of interest income and current expected credit losses related to MBS investments are described in further detail in Note 2 of the consolidated financial statements.

Determination of Fair Value

Substantially all of our investments are carried at fair value. In accordance with current accounting guidance, fair value of our financial instruments represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the financial statement reporting date. We use internally developed models to determine fair value of our investments.

We determine the fair value of all of our Non-Agency RMBS investment securities, including Non-Agency represented as securitized debt, based on discounted cash flows utilizing an internal pricing model that incorporates factors such as coupon, repayment speeds, expected losses, expected loss severity, discount rates and other factors. Estimates of repayment speeds, expected losses and expected loss severity, require significant judgment and are based on what we believe a market participant would use to determine the cash flows. To corroborate that the estimates of fair values generated by these internal models are reflective of current market prices, we compare the fair values generated by the model to non-binding independent prices provided by an independent third party pricing services.

We estimate the fair value of our Loans held for investment consisting of seasoned subprime residential mortgage loans on a loan by loan basis using an internally developed model which compares the loan held by us with a loan currently offered in the market. The loan price is adjusted in the model by considering the loan factors which would impact the value of a loan. These loan factors include loan coupon as compared to coupon currently available in the market, FICO, loan-to-value ratios, delinquency history, owner occupancy, and property type, among other factors. A baseline is developed for each significant loan factor and adjusts the price up or down depending on how that factor for each specific loan compares to the baseline rate. Generally, the most significant impact on loan value is the loan interest rate as compared to interest rates currently available in the market and delinquency history. The determination of the baseline, the market expectation, requires significant judgment. To corroborate that the estimates of fair values generated by these internal models are reflective of current market prices, we compare the fair values generated by the model to non-binding independent prices provided by an independent third party pricing service.

To the extent the inputs used to estimate fair value are observable, the values would be categorized in Level 2 of the fair value hierarchy; otherwise they would be categorized as Level 3. Our fair value estimation process utilizes inputs other than quoted prices that are observed in the market. Our estimates are deemed to be significant to the fair value measurement process, which renders the resulting Non-Agency fair value estimates Level 3 inputs in the fair value hierarchy. Level 3 assets represent

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approximately 97% and 95% of total assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively. Level 3 liabilities represent approximately 96% and 95% of total liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022, respectively.

Our accounting policies for the determination of fair value of our investments are described in further detail in Note 2 and Note 5 of the consolidated financial statements.

Variable Interest Entities

VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE. For VIEs’ that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIEs’ economic performance may be determined by an entity’s involvement with the design of the VIE.

Our Consolidated Statements of Financial Condition contain the assets and liabilities related to 40 consolidated variable interest entities or VIEs. Due to the non-recourse nature of these VIEs our net exposure to loss from investments in these entities is limited to our retained beneficial interests.

At December 31, 2023, we consolidated 38 residential mortgage loan securitizations and 2 RMBS re-securitization transactions which are VIEs. The residential mortgage loan securitizations contain jumbo prime and Non-QM residential mortgage loans. The RMBS re-securitization transactions contain Non-Agency RMBS comprised of primarily first lien mortgages of 2005-2007 vintages.

Our determination to consolidate these 40 VIEs was significantly influenced by management’s judgment related to the activities that most significantly impact the economic performance of these entities and the identification of the party with the power over such activities. For the residential mortgage loan securitizations, we determined that our ability to remove the servicer without cause resulted in us having the power that most significantly impacts the economic performance of the VIE. For the three consolidated RMBS re-securitization transactions, we determined that no party has power over any ongoing activities of the entities and therefore the determination of the primary beneficiary should be based on involvement with the initial design of the entity. Since we transferred the RMBS to the securitization entities, we determined we had the power over the design of the entity, which resulted in us being considered the primary beneficiary. This determination was influenced by the amount of economic exposure to the financial performance of the entity and required a significant management judgment in determining that we should consolidate these three entities.

Due to the consolidation of these VIEs, our actual ownership interests in the securitization and re-securitizations have been eliminated in consolidation and the Consolidated Statements of Financial Condition reflect both the assets held and non-recourse debt issued to third parties by these VIEs. In addition, our operating results and cash flows include the gross amounts related to the assets and liabilities of the VIEs as opposed to the actual economic interests we own in these VIEs. Our interest in these VIEs is restricted to the beneficial interests we retained in these transactions. We are not obligated to provide any financial support to these VIEs.

Our Consolidated Statements of Financial Condition separately present: (i) our direct assets and liabilities, and (ii) the assets and liabilities of our consolidated securitization vehicles net of intercompany eliminations representing securities from the securitization trusts retained by us. Assets of all consolidated VIEs can only be used to satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs are non-recourse to us.

We have aggregated all the assets and liabilities of the consolidated securitization vehicles due to our determination that these entities are substantively similar and therefore a further disaggregated presentation would not be more meaningful. The notes to our consolidated financial statements describe our direct assets and liabilities and the assets and liabilities of our consolidated securitization vehicles. See Note 9 to our consolidated financial statements for additional information related to our investments in VIEs.

Recent Accounting Pronouncements

Refer to Note 2 in the Notes to Consolidated Financial Statements for a discussion of accounting guidance we have recently adopted or expect to be adopted in the future.

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