CHIMERA INVESTMENT CORP (CIM) FY 2024 MD&A

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 2024 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 2024 Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.

This section of the 2024 Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this 2024 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, 2023.

All per share amounts, common shares outstanding and restricted shares for all periods presented reflect our 1-for-3 reverse stock split, which was effective after the close of trading on May 21, 2024.

Executive Summary

We are a publicly traded REIT that is primarily engaged in the business of investing in a diversified portfolio of mortgage assets for ourselves and for unrelated third parties through our third-party investment management and advisory services. The assets we may invest in and manage for others include residential mortgage loans, Non-Agency RMBS, Agency RMBS, business purpose loans (“BPLs”) (including residential transition loans (“RTLs”)) and investor loans, mortgage servicing rights (“MSRs”) and other real estate-related assets such as Agency CMBS, junior liens and home equity lines of credit, or HELOCs, equity appreciation rights, and reverse mortgages. The MBS and other real estate-related securities we purchase may include investment-grade, non-investment grade, and non-rated securities. Our investment management and advisory services are provided on a discretionary basis through investment funds that we manage and on a non-discretionary basis with respect to assets acquired and owned by third-party institutions, including insurance companies, credit funds, and other institutional investors.

Our principal business objective is to provide attractive risk-adjusted returns through the generation of distributable income from our investment portfolio whose asset performance is linked to mortgage credit fundamentals and fees generated from providing investment management and advisory services to third parties. We plan to execute our business strategy through a combination of organic and external growth, depending on opportunities and market conditions. In addition to our strategy of building a durable portfolio of residential mortgage assets, we may invest in operational platforms, including entities that originate or service mortgage loans, and other businesses, partnerships or investments that could enhance our business activities.

For a full description of our business, see Part 1 – Business in this Annual Report on Form 10-K.

Market Conditions and our Strategy

Interest Rates

The consumer price index declined in the first part of 2024 and then held steady before rising in November and December, increasing 2.9% during 2024. The personal consumption expenditures price index increased 2.6% in December 2024, as compared with December 2023, recording a bigger increase than the 2.1% increase from October 2023 to October 2024.

Meanwhile, real GDP in the U.S. grew at an annualized rate of 2.3% in the fourth quarter of 2024. Labor market conditions remained tight throughout the year, with the unemployment rate fluctuating between 3.7% and 4.2%.

The Federal Reserve kept the federal funds rate in a target range of 5.25% and 5.50% through the first three quarters of 2024. The Federal Reserve then lowered the target federal funds rate by one hundred basis points between September and year-end. Long-term interest rates did not react to the federal funds rate cut as expected. In each of the previous seven cutting cycles since the 1980s, the 10-year Treasury rate decreased after a Fed rate cut. In 2024, the 10-year Treasury yield had decreased to 3.62% from a high of 4.70% in April only to spike back up to 4.63% by year-end after the Fed rate cuts. During the fourth quarter of 2024, the term premium for 10-year Treasuries increased by 75 basis points, which means the 10-year Treasury rate increased an additional 75 basis points over the rate change based on changing Fed expectations. We believe this increase in the term premium reflects the market’s uncertainty about future rates.

Credit Spreads

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Residential credit performance was strong in 2024, driven by robust fundamentals given low defaults, rising home prices and record levels of homeowners’ equity. In addition, Non-Agency RMBS gross issuance ended at approximately $137 billion, almost doubling from 2023 issuance levels of $71 billion. Investor demand was very strong, and credit spreads tightened in 2024, especially at the bottom of capital structure, with the credit curve flattening significantly.

While credit spreads in the residential market tightened significantly in 2024, they continue to remain attractive relative to the investment grade and high yield corporate bond markets. We believe market conditions align well with our residential credit strategy.

Housing Market

As discussed earlier, interest rates experienced volatility during the year and that was reflected in mortgage rates. According to Freddie Mac, the average 30-year fixed mortgage rate started the year at 6.62% and ended the year at 6.85%, representing an increase of twenty-three basis points. However, mortgage rates were volatile throughout 2024 and peaked at 7.22% in May and by September had retreated down to 6.08%, prompting a modest uptick in refinancing activity. The mortgage basis, which is the spread between MBS and Treasury benchmarks, remained mostly range-bound between 120 and 160 basis points and ended the year at 135.

During 2024, the number of previously owned-homes that were sold declined for the third consecutive year and to the lowest level since 1995 reflecting what we believe was the continuation of the lock-in effect and homeowners are reluctant to trade in the low mortgage rate for a higher rate if they sell their home. New home construction was up slightly from 2023, but new homes for sale that are under construction peaked in March and were slightly down from that peak in December. The number of completed new homes for sale hit its highest level in December since 2009. Demand, however, on a national basis for newly constructed homes remained strong during the year as the time from completing construction to sale remained under 3 months as compared to a historical average of nearly 5 months.

Our Strategy in 2024

Against this market backdrop, we managed our portfolio by increasing liquidity and diversifying sources of income. Consistent with this strategy, we raised $74 million from an equity raise in December 2023 and $140 million from two issuances of unsecured notes and deployed the net proceeds.

We invested approximately $102 million in subordinated tranches of new issue third-party mortgage securitizations backed by RPLs and small balance commercial properties. These investments were purchased at attractive unlevered yields. Finally, we invested $1 billion in floating rate Agency CMOs. These floating rate investments were purchased at levered yields that exceeded the cost of capital from the Company’s unsecured debt issuance. We believe these investments will provide an attractive return while serving as a source of liquidity during intermittent periods as we seek to deploy capital in loans or other investments.

In 2024, we committed to purchase $1.1 billion of residential mortgage loans, down from $1.4 billion in 2023 and $1.7 billion in 2022. Of such loans, approximately 44% were seasoned RPLs, 29% were Non-QMs, and the remainder were BPLs. Of the $1.1 billion of residential mortgage loans that we committed to acquire in 2024, $130 million were RTLs and $308 million were Non-QM DSCR loans that settled in the first quarter of 2025. Apart from RTLs, all loans purchased were financed or expected to be financed through non-recourse term securitization transactions. The loan characteristics of the seasoned RPLs and BPLs were consistent with the characteristics which currently exist in our portfolio.

In December 2024, we completed the Palisades Acquisition, providing us with a new fee-based source of income, as discussed below.

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. Overall, we sold $38 million Agency CMBS. These sales resulted in a recognized loss of $3.8 million. Additionally, to fund our investment activity and the Palisades Acquisition, we raised $20 million in liquidity through the sale of Agency CMOs during the fourth quarter. These sales resulted in a realized loss of $1.5 million.

Considering the overall investment purchases, sales, and securitization activities, at December 31, 2024, our portfolio consisted of 88% residential mortgage loans, 8% Non-Agency RMBS, and 4% Agency MBS (including Agency CMOs) on a fair value basis. Our Agency portfolio increased by $417 million year-over-year through a combination of purchases and sales of Agency CMOs and sales of Agency CMBS activities.

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Given the interest rate volatility during the year, portfolio valuations remained volatile and ended the year with valuations ranging from flat to slightly down. The increase in rates, particularly at the longer dated maturity toward the end of the year, caused a 11.77% decline in book value during the fourth quarter of 2024. Our book value per common share was $19.72, as of December 31, 2024, as compared to $20.25 as of December 31, 2023. We declared $1.42 common stock dividends per share in 2024. Our economic return on book value, which includes the overall change in book value for the period plus dividends, was 4.40% for the full year of 2024. The total rate of return on our common stock, including dividend reinvestment, was 3.5% for 2024.

Additional Business Highlights

Capital Raising Activity during 2024

In May 2024, we issued $65 million of 9.00% unsecured senior notes due May 15, 2029. Net of underwriting fees, we received a total of $62 million in proceeds. These notes may be redeemed, in whole or in part, at any time at our option on or after May 15, 2026. In August 2024, we issued $75 million of 9.25% unsecured senior notes due August 15, 2029. Net of underwriting fees, we received a total of $72 million in proceeds. These notes may be redeemed, in whole or in part, at any time at our option on or after August 15, 2026.

Acquisition of Palisades Group

In December 2024, we consummated the Palisades Acquisition. Founded in 2012, Palisades manages and invests, on behalf of third parties, in residential real estate assets across a broad spectrum of credit products. Upon closing, Jack Macdowell, Jr., co-founder and Chief Investment Officer of Palisades, became our Chief Investment Officer. Under the terms of the agreement, we acquired Palisades for cash consideration of $30 million at closing, plus an additional potential earnout of up to $20 million over five years contingent upon achieving certain financial targets, with the option for us to pay 50% of the earnout payments in common shares, aligning interests with those of our shareholders.

Secured Financing Activity during 2024

The Federal Reserve shifted its monetary policy stance, transitioning from a period of rate hikes to implementing one hundred basis points in rate cuts during 2024 in response to evolving economic conditions. Managing our floating rate liabilities through this period of uncertainty remained among the top priorities of management. Management was focused throughout the year on strengthening our portfolio’s liability structure through proactive portfolio management (selling certain assets, purchasing non-agency subordinate securities and Agency CMO floaters) and securitization, which provides long-term, fixed rate, non-recourse financing.

On a year-over-year basis, our secured financing agreements (recourse liabilities) increased by a net $392 million:

•Secured financing facilities backed by residential credit portfolio increased by $35 million.

•Secured financing backed by Agency CMO facilities increased by $403 million.

While our securitized debt (non-recourse liabilities) increased by $392 million during the third quarter as we closed on our CIM 2024-R1 securitization, our net securitized debt balance decreased by $617 million due to prepayments during the year. As of December 31, 2024, we had no outstanding warehouse financing exposure (recourse liabilities) backed by RPLs. Our repo funding costs decreased by 103 basis points during the year, consistent with decreases in the federal funds rates over the period.

Securitization Activity during 2024

In July, we sponsored CIM 2024-R1, a $468 million securitization of seasoned RPLs. Securities issued by CIM 2024-R1, with an aggregate balance of approximately $352 million, were sold in a private placement to institutional investors. These senior securities represented approximately 75.15% of the capital structure. We retained subordinate interests in securities with an aggregate balance of approximately $116 million and certain interest-only securities. We also retained an option to call the securitized mortgage loans when their unpaid principal balance is less than or equal to 30% of the unpaid principal balance of the securitized mortgage loans as of the cut-off date. The advance rate was 75% with a 5.7% weighted average cost of debt.

Hedging transactions during 2024

We engaged in a series of interest rate hedges to help mitigate the impact of higher interest rates on our future financing and protect against the impact of higher interest rates on the overall portfolio value. Our hedging strategies are dynamic. In 2024, management focused on limiting the impact of higher interest rates, while maintaining optionality for our portfolio to benefit from potential lower interest rates in the future. Over the year, we converted $1.5 billion of swaptions to a pay-fixed 1-year swap with a weighted average coupon of 3.56%. In addition, $1 billion of pay fixed 3.26% swaps matured .

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As of December 31, 2024, we maintained open interest rate swap positions in: (i) a $500 million 3.43% pay-fixed interest rate swap maturing in April 2025, (ii) a $500 million 3.49% pay-fixed interest rate swap maturing in April 2025, and (iii) a $500 million 3.76% pay-fixed interest rate swap maturing in June 2025. The company also has a long position in $500 million 1-year swaption on a 1-year pay-fixed interest rate swap with a fixed rate of 3.45% that we exercised in January 2025.

Considering the velocity and magnitude of interest rate movements, we maintained 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. Our hedging techniques attempt to mitigate the interest rate risk but do not capture the impact of credit spread risk. As part of our ongoing securitization execution hedging strategy, we entered into $200 million of short 2-year treasury futures contracts during the fourth quarter to buy protection that hedges the coupon rate of the senior notes of the securitization execution that settled during the first quarter of 2025.

Operating expenses

Compensation, general, administrative, and servicing expenses were lower marginally year-over-year when excluding expenses related to the Palisades Acquisition. Our transaction expenses were significantly lower during the year due to reduced securitization activity in 2024. However, these expenses increased in the fourth quarter by $2.4 million primarily from expenses related to the Palisades Acquisition. The increase in Compensation and benefits costs for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily driven by a $10 million, related-party, non-cash imputed compensation charge on the Palisade Acquisition.

Reverse Stock Split

On May 10, 2024, our Board of Directors approved a 1-for-3 reverse stock split of our common stock. The reverse stock split was effective after the close of trading on May 21, 2024, and shares of our common stock began trading on a reverse split-adjusted basis on the New York Stock Exchange beginning at the opening of trading on May 22, 2024. We implemented the reverse stock split with the objective of reducing our number of shares of common stock outstanding to more closely align with the number of common shares outstanding for companies of a similar market capitalization. As a result of the reverse stock split, every three shares of our common stock was converted into one share of common stock, reducing the number of issued and outstanding shares of our common stock from approximately 241 million to approximately 80 million and reducing the number of authorized shares from 500 million to approximately 167 million.

Strategy Outlook

We continue to approach portfolio management in a disciplined manner and are expecting to operate in an uncertain environment defined in part by higher interest rates and increased rate volatility. In 2025, we expect to continue to diversify our portfolio, increase liquidity and grow our fee-based income revenue streams.

While we intend to continue to look for opportunities to acquire and securitize mortgage loans, we expect to grow our Agency RMBS portfolio. In addition to supporting our regulatory compliance, we believe that a larger Agency RMBS portfolio will provide portfolio diversity, more stable dividends, and a source of liquidity for opportunistic asset and business acquisitions and protection in periods of volatility. We also intend to look at opportunities to acquire MSRs, which we believe will help hedge our loan portfolio, as well as provide a diverse source of income for our dividends.

With the Palisades Acquisition, we have embarked on our strategy of enhancing returns to our shareholders through diversification of revenue from fee-based income. As we move into 2025 and beyond, we expect to expand and grow our non-discretionary investment management and advisory services and continue to look for opportunities to grow through a combination of organic and external growth, depending on opportunities and market conditions.

We expect that funds for these portfolio diversification and growth initiatives will come from our existing portfolio as we return to our re-lever strategy. We expect to call, and if market conditions are appropriate, re-securitize our NR securitizations, as well as some of our R securitizations in 2025.

Finally, at the end of the year, our total recourse financing exposure was $2.96 billion. We continue to seek opportunities to finance our retained notes from securitizations with long-term, limited, or, when conditions are appropriate, non-MTM finance facilities. We currently have 48% of our recourse financing with these types of 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 and net interest margin compression.

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Business Operations

Net Income (Loss) Summary

The table below presents our net income (loss) on a GAAP basis for the years ended December 31, 2024, 2023 and 2022.

(1) Includes interest income of consolidated VIEs of $640,499, $593,384, and $551,253 for the years ended December 31, 2024, 2023, and 2022, respectively.

(2) Includes interest expense of consolidated VIEs of $293,509, $282,542, and $197,823 for the years ended December 31, 2024, 2023, and 2022, respectively.

(3) Includes a related-party, non-cash imputed compensation expense from the Palisades Acquisition of $10 million for the year ended December 31, 2024.

See accompanying notes to consolidated financial statements.

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Results of Operations for the Years Ended December 31, 2024 and 2023.

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

For the year ended December 31, 2024, our net income available to common shareholders was $90 million, or $1.12 per average basic common share, compared to a net income of $52 million, or $0.68 per average basic common share for the year ended December 31, 2023. The increase in net income available to common shareholders for the year ended December 31, 2024, as compared to the year ended December 31, 2023 was primarily driven by an increase in net gains on derivatives of $35 million, a decrease in net losses on sales of investments of $26 million, and a decrease in transactions expenses of $8 million.

During the year ended December 31, 2024, we had net interest income of $265 million, unrealized gains on financial instruments at fair value of $11 million, net gains on derivatives of $5 million, investment and asset management fees of $3 million, and other investment gains of $10 million, offset in part by operating expenses of $102 million, preferred stock dividend of $86 million, and realized losses on sales of investments of $5 million.

Interest Income

Interest income decreased by $12 million, or 1.5%, to $761 million for the year ended December 31, 2024, as compared to $773 million for the year ended December 31, 2023. This decrease in our interest income during the year ended December 31, 2024 was primarily driven by a decrease in our average interest earning assets as compared to the year ended December 31, 2023. We reduced our Loans held for investments by $877 million and Agency CMBS positions by $127 million offset by an increase in our Agency RMBS balance by $613 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023. However, during the year ended December 31, 2024, the yields on our average interest earning assets increased by 10 basis points to 5.8%, as compared to 5.7% for the year ended December 31, 2023, which partially offset the effects of lower interest earning asset balances.

Due to these changes in our portfolio, our interest income on Loans held for investment and Agency CMBS decreased by $28 million and $5 million, respectively, during the year ended December 31, 2024, as compared to the year ended December 31, 2023. This decrease was offset in part by an increase in interest income of $23 million on our Agency RMBS portfolio driven by our Agency CMO purchases during the year ended December 31, 2024, as compared to the year ended December 31, 2023.

Interest Expense

Interest expense decreased by $14 million, or 3%, to $496 million for the year ended December 31, 2024, as compared to $510 million for the year ended December 31, 2023. This decrease in interest expense for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily driven by a decrease in our average interest-bearing liabilities and the Federal Reserve's 100 basis points rate cut.

As we rebalanced our investment portfolio, we reduced our average secured financing agreements collateralized by Agency CMBS, Non-Agency RMBS and Loans held for investment by $428 million, which combined with lower financing costs due to Fed rate cuts, decreased our interest expense on secured financing agreements collateralized by Loans held for investments, Non-agency RMBS, and Agency CMBS by $19 million, $20 million, and $5 million, respectively, during the year ended December 31, 2024, as compared to the year ended December 31, 2023. This was partially offset by an increase in interest expense on our secured financing agreements collateralized by Agency RMBS by $17 million, driven by higher borrowings to finance our Agency CMO purchases, and Long term debt expense of $7 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023. Interest expense on our secured debt increased slightly by $1 million, to $294 million during the year ended December 31, 2024, as compared to $293 million in the prior year. Our average securitized debt balances decreased by $478 million during the year ended December 31, 2024, as compared to the year ended December 31, 2023, but we had an increase in our average yield on our debt of 20 basis points which primarily drove the slight increase in interest expense.

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

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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 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.

(1) Primarily interest income on cash and cash equivalents.

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.

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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) increased by $10 million to $281 million for the year ended December 31, 2024 from $271 million for the year ended December 31, 2023. 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, increased by 20 basis points for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Our Average net interest-earning assets decreased by $127 million to $2.0 billion for the year ended December 31, 2024, compared to $2.1 billion for the same period of 2023. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, increased by 20 basis points for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in our net interest spread was primarily driven by a decrease in our interest expense due to Fed rate cuts and lower average interest-bearing liabilities balances driven by our de-levering efforts.

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 Secured Overnight Financing Rate (“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.

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Average interest-bearing liabilities decreased by $257 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Economic interest expense decreased by $20 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, primarily due to Fed rate cuts.

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, 2024, we recorded provision for credit losses of $10 million, as compared to provision of credit losses of $11 million for the year ended December 31, 2023.

The increase in provision for credit losses for the year ended December 31, 2024 as compared to 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, 2024, 2023, and 2022, respectively.

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During the years ended December 31, 2024 and 2023, we recognized total net gains on derivatives of $5 million and total net losses on derivatives of $30 million, respectively. 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, 2024 was 3.56% and the weighted average receive rate was 4.49%. At December 31, 2024, the weighted average maturity on our interest rate swaps was less than one year. The weighted average pay rate on our interest rate swap 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.

We had no swap terminations during the year ended December 31, 2024. We had a realized loss of $17 million related to the maturity of one swap during the year ended December 31, 2024. 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.

During the year ended December 31, 2024, we exercised three swaption contracts, each with $500 million notional, and entered into three one-year swaps, each with $500 million notional and a weighted average fixed pay rate of 3.56%.

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 fixed 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 for a one-year forward starting swap. We also entered 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, 2024, we entered into 1,391 short 5-year and 1,684 short 5-year U.S. Treasury futures contracts with notional amounts of $139 million and $168 million, respectively, which we subsequently covered for a net realized loss of $4.9 million. Additionally, we covered and reopened our existing open 2-year U.S Treasury futures contact position for a realized gain of $641 thousand. We are short 1,000 2-year U.S. Treasury futures contracts as of December 31, 2024. 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 contracts with a notional amounts of $600 million and $375 million, respectively, which we subsequently covered and had no outstanding U.S. Treasury futures contracts at December 31, 2023. We had a net realized loss of $6 million on covering these short U.S. Treasury futures contracts. 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.

Investment management and advisory fees

During the fourth quarter of 2024, we started earning investment management and advisory fees through certain investment management agreements entered into with our investment partnerships and privately offered pooled investment vehicles,

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insurance companies, and other institutional clients. We recognized investment management and advisory fees of $3 million for the year ended December 31, 2024.

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

As discussed earlier, generally tighter residential credit spreads and lower interest rates during the year ended December 31, 2024, as compared to the year ended December 31, 2023, resulted in a slight increase in the market value of our investments carried with fair value option. We had Net unrealized gains on financial instruments at fair value of $11 million and $34 million for the years ended December 31, 2024 and December 31, 2023, respectively.

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. As mentioned earlier, during the year ended December 31, 2024, we rebalanced a portion of our investment portfolio and sold Agency CMBS and Agency CMO assets. These sales resulted in a net realized losses of $5 million during the year ended December 31, 2024. 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.

Gain and Loss on Extinguishment of Debt

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, 2024, and December 31, 2023.

Securitized Debt Collateralized by Loans Held for Investment

We did not acquire any securitized debt collateralized by Loans held for investment during the year ended December 31, 2024. 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.

Long Term Debt Expense

During the second quarter of 2024, we issued $65 million aggregate principal amount of 9.00% unsecured senior notes due 2029 that pay quarterly interest. After deducting the underwriting discount and other debt issuance costs, we received approximately $62 million of proceeds.

During the third quarter of 2024, we issued $75 million aggregate principal amount (including the additional amount

issued pursuant to the exercise of the over-allotment option) of 9.25% unsecured senior notes due 2029 that pay quarterly interest. After deducting the underwriting discount and other debt issuance costs, we received approximately $72 million of proceeds.

At December 31, 2024, the outstanding principal amount of these notes was $140 million and the accrued interest payable on this debt was $2 million. At December 31, 2024, the unamortized deferred debt issuance cost was $5 million. The net interest expense was $7 million for the year ended December 31, 2024.

Compensation, General and Administrative Expenses and Transaction Expenses

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

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The Compensation and benefits costs were approximately $41 million and $31 million for the year ended December 31, 2024 and December 31, 2023, respectively. The increase in Compensation and benefits costs for the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily driven by $10.3 million related-party, non-cash imputed compensation expense related to the Palisade Acquisition.

The general and administrative expenses were at $23 million for the year ended December 31, 2024 and $25 million for the year ended December 31, 2023, respectively. The G&A expenses are primarily comprised of legal, market data and research, auditing, consulting, information technology, and independent investment consulting expenses.

The transactions expenses were approximately $7 million and $15 million for the year ended December 31, 2024 and December 31, 2023, respectively. The decrease in transaction expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023, was primarily driven by lower call and securitization activity.

Servicing and Asset Manager Fee Expense

The servicing fees and asset manager expenses were $30 million and $33 million for the year ended December 31, 2024 and December 31, 2023, 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.

Amortization of intangibles and depreciation expenses

We acquired both intangible assets and long-lived fixed assets through the Palisades Acquisition during the fourth quarter of 2024. We recognized intangible assets related to investment management agreements and developed technology acquired in the transaction. The long-lived fixed assets are comprised of leasehold improvements, furniture and fixtures, and computers. The fixed assets and intangible assets are depreciated or amortized over their estimated useful lives. During the year ended December 31, 2024, we recognized amortization of intangible assets and depreciation expense of $321 thousand.

Earnings available for distribution

Earnings available for distribution is a non-GAAP measure and is defined as GAAP net income excluding (i) unrealized gains or losses on financial instruments carried at fair value with changes in fair value recorded in earnings, (ii) realized gains or losses on the sales of investments, (iii) gains or losses on the extinguishment of debt, (iv) changes in the provision for credit losses, (v) unrealized gains or losses on derivatives, (vi) realized gains or losses on derivatives, (vii) transaction expenses, (viii) stock compensation expenses for retirement eligible awards, (ix) amortization of intangibles and depreciation expenses, (x) non-cash imputed compensation expense related to business acquisitions, and (xi) other gains and losses on equity investments.

Non-cash imputed compensation expense reflects the portion of the consideration paid in the Palisades Acquisition that pursuant to the seller’s contractual arrangements is distributable to the seller’s legacy employees (who are now our employees) and that for GAAP purposes is recorded as non-cash imputed compensation expense with an offsetting entry recorded as non-cash contribution from a related party to our shareholder’s equity. The excluded amounts do not include any normal, recurring compensation paid to our employees.

Transaction expenses are primarily comprised of costs only incurred at the time of execution of our securitizations, certain structured secured financing agreements, and business combination transactions and include costs such as underwriting fees, legal fees, diligence fees, accounting 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

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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 group’s 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.

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. To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. Earnings available for distribution, however, 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 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 helps us and investors evaluate our financial performance period over period without the impact of certain non-recurring transactions. Therefore, Earnings available for distribution should not be viewed in isolation and is not a substitute for or superior to 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.

(1) As a result of the Palisades Acquisition, we updated the determination of earnings available for distribution to exclude non-recurring acquisition-related transaction expenses, non-cash amortization of intangibles and depreciation expenses, and non-cash imputed compensation expenses. These expenses are excluded as they relate to the Palisades Acquisition and are not directly related to generation of our portfolio’s investment income.

(2) Non-cash amortization of intangibles and depreciation expenses related to the Palisades Acquisition

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, 2024, 2023 and 2022.

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(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, 2024.

(1) As a result of the Palisades Acquisition, we updated the determination of earnings available for distribution to exclude non-recurring acquisition-related transaction expenses, non-cash amortization of intangibles and depreciation expenses, and non-cash imputed compensation expenses. These expenses are excluded as they relate to the Palisades Acquisition and are not directly related to generation of our portfolio’s investment income.

(2) Non-cash amortization of intangibles and depreciation expenses related to the Palisades Acquisition

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.

(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 December 31, 2024.

Our Earnings available for distribution for the year ended December 31, 2024 were $121 million, or $1.48 per average diluted common share, and remained relatively unchanged as compared to $119 million, or $1.53 per average diluted common share for the year ended December 31, 2023.

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.

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Return on average equity increased to 6.72% for the year ended December 31, 2024, as compared to 4.87% for the year ended December 31, 2023. Economic net interest income as a percentage of average equity increased by 27 basis points for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Earnings available for distribution as a percentage of average common equity decreased slightly by 3 basis points for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Financial Condition

Portfolio Review

During the year ended December 31, 2024, 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, 2024, on an aggregate basis, we purchased $1.8 billion of investments, sold $569 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, 2024 and December 31, 2023.

(1) Excludes cash and cash equivalents.

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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, 2024 and December 31, 2023. 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.

(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.)

(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.

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Liquidity and Capital Resources

General

Liquidity measures our ability to meet cash requirements, including for ongoing borrowing commitments such as margin calls on non-MTM facilities, purchases of RMBS, residential mortgage loans and other assets for our portfolio, payment of 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 2024, interest rates remained volatile, inflation remained sticky and cost of financing remained elevated. 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.

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 agreement 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, (“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, debt 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.

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Current Period

We held cash and cash equivalents of approximately $84 million and $222 million at December 31, 2024 and December 31, 2023, respectively. As a result of our operating, investing and financing activities described below, our cash position decreased by $138 million from December 31, 2023 to December 31, 2024.

Our operating activities provided net cash of approximately $206 million and $213 million for the year ended December 31, 2024 and 2023, respectively. The cash flows from operations were primarily driven by interest received in excess of interest paid of $282 million and $304 million during the year ended December 31, 2024 and 2023, respectively.

Our investing activities provided cash of $178 million and $552 million for the year ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, we used cash to purchase $1.1 billion Agency MBS, $657 million Loans held for investment and $96 million Non-Agency RMBS offset by cash received for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $1.5 billion and from the sale of our Agency MBS of $569 million. 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 the 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.

Our financing activities used cash of $522 million and $808 million for the year ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, we received cash from net proceeds on our secured financing agreements of $398 million, and issuance of unsecured notes of $134 million. This cash received was offset in part by cash used for repayment of principal on our securitized debt of $1.2 billion, and payment of common and preferred dividends of $223 million. 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.

Our recourse leverage was 1.2:1 and 1.0:1 at December 31, 2024 and at December 31, 2023, 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 and long term debt, 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, 2024 and December 31, 2023, we had $526 million and $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, 2024 and December 31, 2023, the remaining maturities and borrowing rates on our RMBS and loan secured financing agreements were as follows.

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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 remained relatively unchanged on secured financing agreements collateralized by Agency CMBS and Loans held for investments as of December 31, 2024 and December 31, 2023. At December 31, 2024, the weighted average haircut on our remaining secured financing agreements collateralized by Agency RMBS was 5.1%, Agency CMBS was 5.5%, and Non-Agency RMBS and Loans held for investment was 26.0%. 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%.

Because 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 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, 2024, we have entered into $853 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-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 that 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 MTM facilities. As of December 31, 2024 we have $512 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, 2024, the weighted average borrowing rates for our secured financing agreements collateralized by Agency RMBS was 4.8%, Agency CMBS was 4.8% and Non-Agency MBS and Loans held for investment was 6.8%. At December 31,

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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%.

We entered into a secured financing agreement during the 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, 2024 and December 31, 2023 was $337 million and $362 million, respectively. The fair value of collateral pledged was $383 million and $401 million as of December 31, 2024 and December 31, 2023, respectively. We carry this secured financing instrument at fair value of $319 million and $350 million as of December 31, 2024 and December 31, 2023, respectively. At December 31, 2024 and December 31, 2023, the weighted average borrowing rate on secured financing agreements at fair value was 5.0%. At December 31, 2024 and December 31, 2023, the haircut for the secured financing agreements at fair value was 7.5%. At December 31, 2024, the maturity on the secured financing agreements at fair value was three 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.

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, 2024 and December 31, 2023, the carrying value of our total interest-bearing debt was approximately $10.0 billion and $10.1 billion, respectively, which represented a leverage ratio of approximately 4.0:1 and 4.0:1, respectively. We include our secured financing agreements, long term debt, and securitized debt in the numerator of our leverage ratio and stockholders’ equity as the denominator.

At December 31, 2024, we had secured financing agreements with 13 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, 2024 and December 31, 2023, we had $4.1 billion and $3.6 billion, respectively, of securities or cash pledged against our secured financing agreements obligations.

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, 2024 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 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, 2024:

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(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, 2024, we had amounts at risk with Nomura of 20% of our equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 108 days. The amount at risk with Nomura was $512 million. At December 31, 2023, we had amounts at risk with 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, 2024, 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. In January 2024, our 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. 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 Securities Exchange Act of 1934, as amended (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 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 did not repurchase any of our common stock during the year ended December 31, 2024. We repurchased 1.9 million shares of common stock at an average price of $16.98 for a total of $33 million during the year ended December 31, 2023.

In 2022, we entered into separate Distribution Agency Agreements (the “Existing Sales Agreements”) with each of Credit Suisse Securities (USA) LLC, 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 (replacing Credit Suisse 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 million from time to time in “at the market offerings” through any of the Sales Agents under the Securities Act. 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, 2024. The approximate dollar value of shares that may yet be issued under our "at the market" offerings program is $426 million as of December 31, 2024.

On May 10, 2024, our Board of Directors approved a 1-for-3 reverse stock split of our common stock. The reverse stock split was effective after the close of trading on May 21, 2024, and shares of our common stock began trading on a reverse split-

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adjusted basis on the New York Stock Exchange beginning at the opening of trading on May 22, 2024. As a result of the reverse stock split, every three shares of our common stock was converted into one share of common stock, reducing the number of issued and outstanding shares of our common stock from approximately 241 million to approximately 80 million and reducing the number of authorized shares from 500 million to approximately 167 million. No fractional shares were issued in connection with the reverse stock split. Each stockholder who was otherwise entitled to receive a fractional share of our common stock was entitled to receive a cash payment in lieu of a fractional share. The reverse stock split was not subject to stockholder approval and did not change the par value of our common stock. All common shares, outstanding options and per share amounts for all periods presented were retroactively adjusted to reflect the reverse stock split.

We declared dividends to common shareholders of $117 million, or $1.42 per share, and $167 million, or $2.10 per share, during years ended December 31, 2024 and December 31, 2023, respectively.

We declared dividends to Series A preferred stockholders of $12 million, or $2.00 per preferred share, during the years ended December 31, 2024 and 2023.

We declared dividends to Series B preferred stockholders of $34 million, or $2.59 per preferred share, and $26 million, or $2.00 per share, during years ended December 31, 2024 and December 31, 2023, respectively.

We declared dividends to Series C preferred stockholders of $20 million, or $1.94 per preferred share, during the years ended December 31, 2024 and 2023.

We declared dividends to Series D preferred stockholders of $20 million or $2.55 per preferred share, and $16 million, or $2.00 per preferred share, during years ended December 31, 2024 and December 31, 2023, 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.

On March 30, 2024, all 13,000,000 issued and outstanding shares of Series B Preferred Stock with an outstanding liquidation preference of $325 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.

On March 30, 2024, all 8,000,000 issued and outstanding shares of Series D Preferred Stock with an outstanding liquidation preference of $200 million became callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.

On September 30, 2025, all 10,400,000 issued and outstanding shares of Series C Preferred Stock with an outstanding liquidation preference of $260 million will become callable at a redemption price equal to the liquidation preference plus accrued and unpaid dividends through, but not including the redemption date.

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 the us to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum have automatically replaced, or 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, and (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 7 million shares of our common stock for the grant of awards under the Plan (adjusted on a retroactive basis to reflect the Company's 1-for-3-reverse stock split effected on May 21, 2024). The Plan replaced 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.

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As of December 31, 2024, approximately 5 million shares were available for future grants under the Plan.

Grants of Restricted Stock Units (“RSUs”)

During the years ended December 31, 2024 and 2023, we granted RSU awards to senior management and employees. These RSU awards are designed to reward our senior management and employees for services provided to us. Generally, the RSU awards vest equally over a three-year period 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. For senior management who are retirement eligible, defined as having attained age 55 and the sum of his or her age plus his or her years of service is equal 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 245 thousand RSU awards during the year ended December 31, 2024 with a grant date fair value of $5 million for the 2024 performance year. We granted 333 thousand RSU awards during the year ended December 31, 2023 with a grant date fair value of $6 million for the 2023 performance year.

Grants of Performance Share Units (“PSUs”)

PSU awards are designed to align compensation with our future performance. The PSU awards granted during the years ended December 31, 2024 and 2023, include a three-year performance period ending on December 31, 2026 and December 31, 2025, respectively. For the PSU awards granted during the year ended December 31, 2024, and 2023, the final number of shares awarded will be between 0% and 200% of the PSUs granted based equally on the Company Economic Return and share price performance compared to a peer group. Our three-year Company Economic Return is equal to our change in book value per common share plus common stock dividends. Share price performance equals change in share price 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 the Company 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 year ended December 31, 2024, we granted 179 thousand PSU awards to senior management with a grant date fair value of $3 million. For the year ended December 31, 2023, we granted 201 thousand PSU awards to senior management with a grant date fair value of $3 million.

At December 31, 2024 and December 31, 2023, there were approximately 1 million unvested shares of RSUs and PSUs issued to our employees and directors.

For the year ended December 31, 2024, we recognized a related-party, non-cash imputed compensation expense from the Palisades Acquisition of $10 million, a portion of which can be paid by stock.

Capital Raising Activity

In May 2024, we issued $65 million of 9.00% unsecured senior notes due May 15, 2029. Net of underwriting fees, we received a total of $62 million in proceeds. These notes may be redeemed, in whole or in part, at any time at our option on or after May 15, 2026. In August 2024, we issued $75 million of 9.25% unsecured senior notes due August 15, 2029. Net of underwriting fees, we received a total of $72 million in proceeds. These notes may be redeemed, in whole or in part, at any time at our option on or after August 15, 2026. While we continue to favor securitized debt as a favorable source of financing for our assets, the ability to issue unsecured debt helps us to further diversify our capital structure and provides long-term financing for our mortgage credit portfolio. We invested the proceeds from the capital raises in Agency CMOs which we expect will provide accretive returns to our shareholders. We raised a total of approximately $140 million from our unsecured bond offerings in 2024.

Contractual Obligations and Commitments

The following tables summarize our contractual obligations at December 31, 2024 and December 31, 2023. 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.

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(1) Interest is based on variable rates in effect as of December 31, 2024.

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

Not included in the table above are the unfunded construction loan commitments of $5 million as of December 31, 2024 and December 31, 2023. 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. During the year ended December 31, 2024, we funded an additional $10 million towards that commitment, which brought our total funding to $56 million, leaving an unfunded commitment of $19 million.

Capital Expenditure Requirements

At December 31, 2024 and December 31, 2023, 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

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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 (“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 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, Non-Agency RMBS, goodwill, intangibles and contingent earn-out liability. 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, 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 IO MBS strips which 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

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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, LTV 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 approximately 93% and 97% of total assets measured at fair value on a recurring basis as of December 31, 2024 and 2023, respectively. Level 3 liabilities represent approximately 96% and 96% of total liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023, 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.

VIEs

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 41 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, 2024, we consolidated 39 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 41 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.

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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.