CHIMERA INVESTMENT CORP - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 1-33796

CHIMERA INVESTMENT CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Maryland		26-0630461
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification Number)
630 Fifth Avenue, Ste 2400
New York,	New York	10111
(Address of Principal Executive Offices)		(Zip Code)

(888) 895-6557

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share	CIM	New York Stock Exchange
8.00% Series A Cumulative Redeemable Preferred Stock	CIM PRA	New York Stock Exchange
8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRB	New York Stock Exchange
7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRC	New York Stock Exchange
8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock	CIM PRD	New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes þ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:


Class			Outstanding at October 31, 2023
Common Stock, $0.01 par value			226,762,239

CHIMERA INVESTMENT CORPORATION

FORM 10-Q

TABLE OF CONTENTS


	PART I. FINANCIAL INFORMATION

ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
	Consolidated Statements of Financial Condition as of September 30, 2023 (Unaudited) and December 31, 2022 (Derived from the audited consolidated financial statements as of December 31, 2022)	2
	Consolidated Statements of Operations (Unaudited) for the quarters and nine months ended September 30, 2023 and 2022	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters and nine months ended September 30, 2023 and 2022	4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the quarters and nine months ended September 30, 2023 and 2022	5
	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2023 and 2022	7
	Notes to Consolidated Financial Statements (Unaudited)	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	46
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	70
ITEM 4	CONTROLS AND PROCEDURES	76

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	77
ITEM 1A.	RISK FACTORS	77
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	77
ITEM 6.	EXHIBITS	77
	SIGNATURES	80

Part I - Financial Information

Item 1. Consolidated Financial Statements


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
(Unaudited)
	September 30, 2023		December 31, 2022

Cash and cash equivalents	$	138,591	$	264,600
Non-Agency RMBS, at fair value (net of allowance for credit losses of $16 million and $7 million, respectively)	1,024,609		1,147,481
Agency MBS, at fair value	127,706		430,944
Loans held for investment, at fair value	11,426,932		11,359,236

Accrued interest receivable	72,815		61,768
Other assets	96,764		133,866
Derivatives, at fair value	—		4,096
Total assets (1)	$	12,887,417	$	13,401,991
Liabilities:
Secured financing agreements ($3.7 billion and $4.7 billion pledged as collateral, respectively, and includes $340 million and $374 million at fair value, respectively)	$	2,603,911	$	3,434,765

Securitized debt, collateralized by Non-Agency RMBS ($250 million and $276 million pledged as collateral, respectively)	75,819		78,542
Securitized debt at fair value, collateralized by Loans held for investment ($11.0 billion and $10.0 billion pledged as collateral, respectively)	7,598,721		7,100,742

Payable for investments purchased	6,237		9,282
Accrued interest payable	35,670		30,696
Dividends payable	49,881		64,545
Accounts payable and other liabilities	22,721		16,616

Total liabilities (1)	$	10,392,960	$	10,735,188

Commitments and Contingencies (See Note 15)

Stockholders' Equity:
Preferred Stock, par value of $0.01 per share, 100,000,000 shares authorized:
8.00% Series A cumulative redeemable: 5,800,000 shares issued and outstanding, respectively ($145,000 liquidation preference)	$	58	$	58
8.00% Series B cumulative redeemable: 13,000,000 shares issued and outstanding, respectively ($325,000 liquidation preference)	130		130
7.75% Series C cumulative redeemable: 10,400,000 shares issued and outstanding, respectively ($260,000 liquidation preference)	104		104
8.00% Series D cumulative redeemable: 8,000,000 shares issued and outstanding, respectively ($200,000 liquidation preference)	80		80
Common stock: par value $0.01 per share; 500,000,000 shares authorized, 226,760,148 and 231,824,192 shares issued and outstanding, respectively	2,268		2,318
Additional paid-in-capital	4,291,775		4,318,388
Accumulated other comprehensive income	181,227		229,345
Cumulative earnings	4,134,502		4,038,942
Cumulative distributions to stockholders	(6,115,687)		(5,922,562)
Total stockholders' equity	$	2,494,457	$	2,666,803
Total liabilities and stockholders' equity	$	12,887,417	$	13,401,991

(1) The Company's consolidated statements of financial condition include assets of consolidated variable interest entities, or VIEs, that can only be used to settle obligations and liabilities of the VIE for which creditors do not have recourse to the primary beneficiary (Chimera Investment Corporation). As of September 30, 2023, and December 31, 2022, total assets of consolidated VIEs were $10,758,561 and $10,199,266, respectively, and total liabilities of consolidated VIEs were $7,337,986 and $6,772,125, respectively. See Note 8 for further discussion.

See accompanying notes to consolidated financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share and per share data)
(Unaudited)
	For the Quarters Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022			September 30, 2023		September 30, 2022
Net interest income:
Interest income (1)	$	195,591	$	188,303		$	581,700	$	585,835
Interest expense (2)	132,193		83,464			382,988		226,403
Net interest income	63,398		104,839			198,712		359,432

Increase/(decrease) in provision for credit losses	3,217		(1,534)			9,041		3,203








Other investment gains (losses):
Net unrealized gains (losses) on derivatives	17		10,307			9,460		8,689
Realized gains (losses) on derivatives	—		—			(40,957)		—
Periodic interest cost of swaps, net	4,894		(122)			11,871		(122)
Net gains (losses) on derivatives	4,911		10,185			(19,626)		8,567
Net unrealized gains (losses) on financial instruments at fair value	(43,988)		(239,513)			27,558		(848,925)
Net realized gains (losses) on sales of investments	(460)		(37,031)			(27,482)		(37,031)

Gains (losses) on extinguishment of debt	—		—			6,348		(2,897)
Other investment gains (losses)	2,381		(462)			2,077		517
Total other gains (losses)	(37,156)		(266,821)			(11,125)		(879,769)





Other expenses:




Compensation and benefits	7,124		10,000			25,292		30,211
General and administrative expenses	5,427		4,836			17,674		16,493
Servicing and asset manager fees	8,139		8,516			24,965		27,122
Transaction expenses	90		2,341			14,955		12,872
Total other expenses	20,780		25,693			82,886		86,698
Income (loss) before income taxes	2,245		(186,141)			95,660		(610,238)
Income tax expense (benefit)	75		4			100		28
Net income (loss)	$	2,170	$	(186,145)		$	95,560	$	(610,266)

Dividends on preferred stock	18,438		18,438			55,313		55,283

Net income (loss) available to common shareholders	$	(16,268)	$	(204,583)		$	40,248	$	(665,549)

Net income (loss) per share available to common shareholders:
Basic	$	(0.07)	$	(0.88)		$	0.17	$	(2.84)
Diluted	$	(0.07)	$	(0.88)		$	0.17	$	(2.84)

Weighted average number of common shares outstanding:
Basic	226,734,643		231,750,422			230,099,867		234,671,912
Diluted	226,734,643		231,750,422			232,288,318		234,671,912

(1) Includes interest income of consolidated VIEs of $153,710 and $139,598 for the quarters ended September 30, 2023 and 2022, respectively, and $443,286 and $410,873 for the nine months ended September 30, 2023 and 2022, respectively. See accompanying notes to consolidated financial statements for further discussion.

(2) Includes interest expense of consolidated VIEs of $75,902 and $50,030 for the quarters ended September 30, 2023 and 2022, respectively, and $208,678 and $142,714 for the nine months ended September 30, 2023 and 2022, respectively. See accompanying notes to consolidated financial statements.




CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except share and per share data)
(Unaudited)

	For the Quarters Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022			September 30, 2023		September 30, 2022
Comprehensive income (loss):
Net income (loss)	$	2,170	$	(186,145)		$	95,560	$	(610,266)
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net	(29,447)		(61,526)			(49,431)		(160,850)


Reclassification adjustment for net realized losses (gains) included in net income	—		—			1,313		—

Other comprehensive income (loss)	(29,447)		(61,526)			$	(48,118)	$	(160,850)
Comprehensive income (loss) before preferred stock dividends	$	(27,277)	$	(247,671)		$	47,442	$	(771,116)
Dividends on preferred stock	$	18,438	$	18,438		$	55,313	$	55,283
Comprehensive income (loss) available to common stock shareholders	$	(45,715)	$	(266,109)		$	(7,871)	$	(826,399)

See accompanying notes to consolidated financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except per share data)
(Unaudited)


For the Quarter Ended September 30, 2023

	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
Balance, June 30, 2023	$	58	$	130	$	104	$	80	$	2,263	$	4,289,449	$	210,674	$	4,132,332	$	(6,055,687)	$	2,579,403
Net income (loss)	—		—		—		—		—		—		—		2,170		—		2,170

Other comprehensive income (loss)	—		—		—		—		—		—		(29,447)		—		—		(29,447)


Stock based compensation	—		—		—		—		5		2,326		—		—		—		2,331
Common dividends declared	—		—		—		—		—		—		—		—		(41,562)		(41,562)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, September 30, 2023	$	58	$	130	$	104	$	80	$	2,268	$	4,291,775	$	181,227	$	4,134,502	$	(6,115,687)	$	2,494,457

For the Quarter Ended September 30, 2022

	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
Balance, June 30, 2022	$	58	$	130	$	104	$	80	$	2,317	$	4,312,604	$	305,730	$	4,127,887	$	(5,775,911)	$	2,972,999
Net income (loss)	—		—		—		—		—		—		—		(186,145)		—		(186,145)
Other comprehensive income (loss)	—		—		—		—		—		—		(61,526)		—		—		(61,526)



Stock based compensation	—		—		—		—		1		2,338		—		—		—		2,339
Common dividends declared	—		—		—		—		—		—		—		—		(55,525)		(55,525)
Preferred dividends declared	—		—		—		—		—		—		—		—		(18,438)		(18,438)

Balance, September 30, 2022	$	58	$	130	$	104	$	80	$	2,318	$	4,314,942	$	244,204	$	3,941,742	$	(5,849,874)	$	2,653,704


For the Nine Months Ended September 30, 2023

	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
Balance, December 31, 2022	$	58	$	130	$	104	$	80	$	2,318	$	4,318,388	$	229,345	$	4,038,942	$	(5,922,562)	$	2,666,803
Net income (loss)	—		—		—		—		—		—		—		95,560		—		95,560

Other comprehensive income (loss)	—		—		—		—		—		—		(48,118)		—		—		(48,118)
Repurchase of common stock	—		—		—				(59)		(33,043)		—		—		—		(33,102)

Stock based compensation	—		—		—				9		6,430		—		—		—		6,439
Common dividends declared	—		—		—		—		—		—		—		—		(137,812)		(137,812)
Preferred dividends declared	—		—		—		—		—		—		—		—		(55,313)		(55,313)

Balance, September 30, 2023	$	58	$	130	$	104	$	80	$	2,268	$	4,291,775	$	181,227	$	4,134,502	$	(6,115,687)	$	2,494,457



For the Nine Months Ended September 30, 2022

	Series A Preferred Stock Par Value		Series B Preferred Stock Par Value		Series C Preferred Stock Par Value		Series D Preferred Stock Par Value		Common Stock Par Value		Additional Paid-in Capital		Accumulated Other Comprehensive Income		Cumulative Earnings		Cumulative Distributions to Stockholders		Total
Balance, December 31, 2021	$	58	$	130	$	104	$	80	$	2,370	$	4,359,045	$	405,054	$	4,552,008	$	(5,582,658)	$	3,736,191
Net income (loss)	—		—		—		—		—		—		—		(610,266)		—		(610,266)
Other comprehensive income (loss)	—		—		—		—		—		—		(160,850)		—		—		(160,850)
Repurchase of common stock	—		—		—				(54)		(48,832)		—		—		—		(48,886)


Stock based compensation	—		—		—				2		4,729		—		—		—		4,731
Common dividends declared	—		—		—		—		—		—		—		—		(211,933)		(211,933)
Preferred dividends declared	—		—		—		—		—		—		—		—		(55,283)		(55,283)

Balance, September 30, 2022	$	58	$	130	$	104	$	80	$	2,318	$	4,314,942	$	244,204	$	3,941,742	$	(5,849,874)	$	2,653,704

See accompanying notes to financial statements.


CHIMERA INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
	For the Nine Months Ended
	September 30, 2023		September 30, 2022
Cash Flows From Operating Activities:
Net income (loss)	$	95,560	$	(610,266)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Accretion) amortization of investment discounts/premiums, net	16,985		68,632
Accretion (amortization) of deferred financing costs, debt issuance costs, and Securitized debt discounts/premiums, net	27,228		(2,799)

Net unrealized losses (gains) on derivatives	(9,460)		(8,689)

Proceeds (payments) for derivative settlements	(20,509)		(6,200)
Margin (paid) received on derivatives	78,248		(2,301)
Net unrealized losses (gains) on financial instruments at fair value	(27,558)		848,925
Net realized losses (gains) on sales of investments	27,482		37,031
Other investment (gains) losses	(2,077)		(517)
Net increase (decrease) in provision for credit losses	9,041		3,203

(Gain) loss on extinguishment of debt	(6,348)		2,897

Equity-based compensation expense	6,439		4,731
Changes in operating assets:
Decrease (increase) in accrued interest receivable, net	(11,047)		164
Decrease (increase) in other assets	(13,121)		(57,260)
Changes in operating liabilities:
Increase (decrease) in accounts payable and other liabilities	6,105		15,079

Increase (decrease) in accrued interest payable, net	4,974		6,657
Net cash provided by (used in) operating activities	$	181,942	$	299,287
Cash Flows From Investing Activities:
Agency MBS portfolio:
Purchases	$	(2,006)	$	(57,473)
Sales	285,709		4,187
Principal payments	677		253,131
Non-Agency RMBS portfolio:
Purchases	(3,954)		(23,000)
Sales	—		—
Principal payments	64,796		159,151
Loans held for investment:
Purchases	(1,260,187)		(1,444,542)
Sales	2,611		—
Principal payments	1,087,319		1,764,067


Net cash provided by (used in) investing activities	$	174,965	$	655,521
Cash Flows From Financing Activities:
Proceeds from secured financing agreements	$	22,272,760	$	28,538,545
Payments on secured financing agreements	(23,099,486)		(28,982,125)


Payments on repurchase of common stock	(33,101)		(48,886)
Proceeds from securitized debt borrowings, collateralized by Loans held for investment	2,046,620		1,029,050
Payments on securitized debt borrowings, collateralized by Loans held for investment	(1,461,868)		(1,498,622)
Payments on securitized debt borrowings, collateralized by Non-Agency RMBS	(52)		(2,769)





Common dividends paid	(152,476)		(234,225)
Preferred dividends paid	(55,313)		(55,283)


Net cash provided by (used in) financing activities	$	(482,916)	$	(1,254,315)
Net increase (decrease) in cash and cash equivalents	(126,009)		(299,507)
Cash and cash equivalents at beginning of period	264,600		385,741
Cash and cash equivalents at end of period	$	138,591	$	86,234

Supplemental disclosure of cash flow information:
Interest received	$	587,637	$	654,650
Interest paid	$	350,787	$	223,845


Non-cash investing activities:
Receivable for investments sold	$	—	$	14,118
Payable for investments purchased	$	6,237	$	644,120

Net change in unrealized gain (loss) on available-for sale securities	$	(49,431)	$	(160,850)


Transfer of investments due to consolidation
Loans held for investment, at fair value	$	—	$	1,047,838

Securitized debt at fair value, collateralized by loans held for investment	$	—	$	774,514
Non-Agency RMBS, at fair value	$	—	$	(218,276)






Non-cash financing activities:
Dividends declared, not yet paid	$	49,881	$	63,860

See accompanying notes to consolidated financial statements.

CHIMERA INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Chimera Investment Corporation, or the Company, was organized in Maryland on June 1, 2007. The Company commenced operations on November 21, 2007 when it completed its initial public offering. The Company elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, or the Code.

The Company is an internally managed REIT that is primarily engaged, through its subsidiaries, in the business of investing in a diversified portfolio of mortgage assets, including residential mortgage loans, Agency RMBS, Non-Agency RMBS, Agency CMBS, and other real estate-related assets. The following defines certain of the commonly used terms in this Quarterly Report on Form 10-Q: Agency refers to a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae; MBS refers to mortgage-backed securities secured by pools of residential or commercial mortgage loans; Agency RMBS and Agency CMBS refer to MBS that are secured by pools of residential and commercial mortgage loans, respectively, and are issued or guaranteed by an Agency; Agency MBS refers to MBS that are issued or guaranteed by an Agency and includes Agency RMBS and Agency CMBS collectively; Non-Agency RMBS refers to residential MBS that are not guaranteed by any agency of the U.S. Government or any Agency. IO refers to Interest-only securities.

The Company conducts its operations through various subsidiaries including subsidiaries it treats as taxable REIT subsidiaries, or TRSs. In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business. The Company currently has twelve wholly-owned direct subsidiaries: Chimera RMBS Whole Pool LLC and Chimera RMBS LLC formed in June 2009; CIM Trading Company LLC, or CIM Trading, formed in July 2010; Chimera Funding TRS LLC, or CIM Funding TRS, a TRS formed in October 2013; Chimera CMBS Whole Pool LLC and Chimera RMBS Securities LLC formed in March 2015; Chimera RR Holding LLC formed in April 2016; Anacostia LLC, a TRS formed in June 2018; NYH Funding LLC, a TRS formed in May 2019; Kali 2020 Holdings LLC formed in May 2020; Varuna Capital Partners LLC formed in September 2020; and Aarna Holdings LLC formed in November 2020.

During 2022, the Company exchanged its interest in Kah Capital Management, LLC for an interest in Kah Capital Holdings, LLC, which is accounted for as an equity method investment in other assets on the Statement of Financial Condition at September 30, 2023. Kah Capital Holdings, LLC is the parent of Kah Capital Management, LLC. The Company paid $150 thousand and $445 thousand for mortgage asset servicing oversight fees to Kah Capital Management during the quarter and nine months ended September 30, 2023. The Company did not pay any fees to Kah Capital Management during the quarter ended September 30, 2022 and paid $250 thousand during the nine months ended September 30, 2022 in fees to Kah Capital Management, LLC. These fees were paid for investment services provided, and are reported within Other Expenses on the Statement of Operations. The Company has made a $75 million capital commitment to a fund managed by Kah Capital Management, LLC. As of September 30, 2023, the Company has funded $46 million towards that commitment. The Company's investment in this fund is accounted for as an equity method investment in other assets on the Statement of Financial Condition. The Company records any gains and losses associated with its equity method investments in other investment gains (losses) on the Statement of Operations.

2. Summary of the Significant Accounting Policies

(a) Basis of Presentation and Consolidation

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. In the opinion of the Company, all normal and recurring adjustments considered necessary for a fair presentation of its financial position, results of operations and cash flows have been included. Investment transactions are recorded on the trade date. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company's Form 10-K, filed with SEC.

The consolidated financial statements include the Company’s accounts, the accounts of its wholly-owned subsidiaries, and variable interest entities, or VIEs, in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

The Company uses securitization trusts considered to be VIEs in its securitization transactions. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, 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 VIEs’ 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 and structure of the VIE.

The trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. The Company’s risks associated with its involvement with these VIEs are limited to its risks and rights as a holder of the security it has retained as well as certain risks associated with being the sponsor and depositor of and the seller, directly or indirectly to, the securitizations entities.

Determining the primary beneficiary of a VIE requires judgment. The Company determined that for the securitizations it consolidates, its ownership provides the Company with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, the Company has the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, such as rights to replace the servicer without cause, or the Company was determined to have power in connection with its involvement with the structure and design of the VIE.

The Company’s interest in the assets held by these securitization vehicles, which are consolidated on the Company’s Consolidated Statements of Financial Condition, is restricted by the structural provisions of these trusts, and a recovery of the Company’s investment in the vehicles will be limited by each entity’s distribution provisions. Generally, the securities retained by the Company are the most subordinate in the capital structure, which means those securities receive distributions after the senior securities have been paid. The liabilities of the securitization vehicles, which are also consolidated on the Company’s Consolidated Statements of Financial Condition, are non-recourse to the Company, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

The assets of securitization entities are comprised of residential mortgage-backed securities, or RMBS, or residential mortgage loans. See Notes 3, 4 and 8 for further discussion of the characteristics of the securities and loans in the Company’s portfolio.

(b) Statements of Financial Condition Presentation

The Company’s Consolidated Statements of Financial Condition include both the Company’s direct assets and liabilities and the assets and liabilities of consolidated securitization vehicles. Retained beneficial interests of the consolidated securitization vehicles are eliminated in consolidation. Assets of each consolidated VIE can only be used to satisfy the obligations of that VIE, and the liabilities of consolidated VIEs are non-recourse to the Company. The Company is not obligated to provide, nor does it intend to provide, any financial support to these consolidated securitization vehicles. The notes to the consolidated financial statements describe the Company’s assets and liabilities including the assets and liabilities of consolidated securitization vehicles. See Note 8 for additional information related to the Company’s investments in consolidated securitization vehicles.

Certain prior period investment balances for Non-Agency Subordinate and Interest-Only securities were updated to conform to current period presentation.

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company’s estimates contemplate current conditions and how it expects them to change in the future, it is reasonably possible that actual conditions could be materially different than anticipated in those estimates, which could have a material adverse impact on the Company’s results of operations and its financial condition.

The Company has made significant estimates including in accounting for income recognition on Agency MBS, Non-Agency RMBS, IO MBS (Note 3) and residential mortgage loans (Note 4), valuation of Agency MBS and Non-Agency RMBS (Notes 3 and 5), residential mortgage loans (Notes 4 and 5), secured financing agreements (Notes 5 and 6), and securitized debt (Notes 5 and 7). Actual results could differ materially from those estimates.

(d) Significant Accounting Policies

There have been no significant changes to the Company's accounting policies included in Note 2 to the consolidated financial statements of the Company’s Form 10-K for the year ended December 31, 2022, other than the significant accounting policies discussed below.

Fair Value Disclosure

A complete discussion of the methodology utilized by the Company to estimate the fair value of its financial instruments is included in Note 5 to these consolidated financial statements.

Income Taxes

The Company does not have any material unrecognized tax positions that would affect its financial statements or require disclosure. No accruals for penalties and interest were necessary as of September 30, 2023 or December 31, 2022.

(e) Recent Accounting Pronouncements

Reference Rate Reform (Topic 848)

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2020-4, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter Bank Offering Rate (or LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The amendments in this update are effective for contracts held by the Company subject to reference rate reform that fall within the scope of this update beginning immediately through December 31, 2024, as extended under ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The guidance in the ASU was effective for the Company as of July 1, 2023. The Company has elected to apply the optional expedient across all contracts and considers the replacement of LIBOR-based rates to SOFR-based rates plus the appropriate spread as a qualifying modification that does not require contract remeasurement or reassessment of previous accounting determination. The adoption of this guidance did not have any material impact on the Company's consolidated financial statements.

3. Mortgage-Backed Securities

The Company classifies its Non-Agency RMBS as senior, subordinated, or Interest-only. The Company also invests in Agency MBS which it classifies as Agency RMBS to include residential and residential interest-only MBS and Agency CMBS to include commercial and commercial interest-only MBS. Senior interests in Non-Agency RMBS are generally entitled to the first principal repayments in their pro-rata ownership interests at the acquisition date. The tables below present amortized cost, allowance for credit losses, fair value and unrealized gain/losses of the Company's MBS investments as of September 30, 2023 and December 31, 2022.


September 30, 2023
(dollars in thousands)
	Principal or Notional Value		Total Premium		Total Discount		Amortized Cost		Allowance for credit losses		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gain/(Loss)
Non-Agency RMBS
Senior	$	1,091,694	$	6,230	$	(587,415)	$	510,509	$	(12,966)	$	683,849	$	194,562	$	(8,256)	$	186,306
Subordinated	588,224		3,556		(290,352)		301,427		(3,264)		267,120		17,023		(48,066)		(31,043)
Interest-only	2,926,629		159,171		—		159,171		—		73,639		13,764		(99,296)		(85,532)
Agency RMBS

Interest-only	395,197		19,042		—		19,042		—		13,893		409		(5,558)		(5,149)
Agency CMBS
Project loans	117,400		1,804		—		119,205		—		105,341		—		(13,864)		(13,864)
Interest-only	481,488		8,142		—		8,142		—		8,473		1,225		(894)		331
Total	$	5,600,632	$	197,945	$	(877,767)	$	1,117,496	$	(16,230)	$	1,152,315	$	226,983	$	(175,934)	$	51,049



December 31, 2022
(dollars in thousands)
	Principal or Notional Value		Total Premium		Total Discount		Amortized Cost		Allowance for credit losses		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gain/(Loss)
Non-Agency RMBS
Senior	$	1,153,458	$	7,377	$	(624,803)	$	536,032	$	(4,418)	$	761,808	$	237,127	$	(6,933)	$	230,194
Subordinated	611,206		3,872		(310,757)		304,321		(2,770)		286,909		22,035		(36,677)		(14,642)
Interest-only	3,114,930		162,820		—		162,820		—		98,764		15,968		(80,024)		(64,056)
Agency RMBS

Interest-only	409,940		18,768		—		18,768		—		15,148		1,371		(4,991)		(3,620)
Agency CMBS
Project loans	302,685		5,805		(192)		308,298		—		289,418		—		(18,880)		(18,880)
Interest-only	2,669,396		139,738		—		139,738		—		126,378		1,654		(15,014)		(13,360)
Total	$	8,261,615	$	338,380	$	(935,752)	$	1,469,977	$	(7,188)	$	1,578,425	$	278,155	$	(162,519)	$	115,636

The following tables present the gross unrealized losses and estimated fair value of the Company’s Agency and Non-Agency MBS by length of time that such securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022. All Non-Agency RMBS held as available-for-sale, and not accounted under the fair value option election in an unrealized loss position have been evaluated by the Company for current expected credit losses.


September 30, 2023
(dollars in thousands)
	Unrealized Loss Position for Less than 12 Months					Unrealized Loss Position for 12 Months or More					Total
	Estimated Fair Value		Unrealized Losses		Number of Positions	Estimated Fair Value		Unrealized Losses		Number of Positions	Estimated Fair Value		Unrealized Losses		Number of Positions
Non-Agency RMBS
Senior	$	76,971	$	(833)	15	$	38,809	$	(7,423)	5	$	115,780	$	(8,256)	20
Subordinated	20,937		(1,749)		6	175,017		(46,317)		34	195,954		(48,066)		40
Interest-only	18,428		(12,469)		39	26,260		(86,827)		102	44,688		(99,296)		141
Agency RMBS

Interest-only	—		—		—	8,589		(5,558)		8	8,589		(5,558)		8
Agency CMBS
Project loans	64,005		(7,559)		39	41,335		(6,305)		33	105,340		(13,864)		72
Interest-only	4,314		(618)		2	160		(276)		2	4,474		(894)		4
Total	$	184,655	$	(23,228)	101	$	290,170	$	(152,706)	184	$	474,825	$	(175,934)	285



December 31, 2022
(dollars in thousands)
	Unrealized Loss Position for Less than 12 Months					Unrealized Loss Position for 12 Months or More					Total
	Estimated Fair Value		Unrealized Losses		Number of Positions	Estimated Fair Value		Unrealized Losses		Number of Positions	Estimated Fair Value		Unrealized Losses		Number of Positions
Non-Agency RMBS
Senior	$	83,553	$	(6,170)	13	$	7,577	$	(763)	1	$	91,130	$	(6,933)	14
Subordinated	161,959		(27,120)		28	37,025		(9,557)		8	198,984		(36,677)		36
Interest-only	41,890		(24,411)		79	15,213		(55,613)		50	57,103		(80,024)		129
Agency RMBS

Interest-only	6,062		(500)		4	2,825		(4,491)		4	8,887		(4,991)		8
Agency CMBS
Project loans	281,307		(18,880)		131	—		—		—	281,307		(18,880)		131
Interest-only	81,472		(10,503)		5	35,234		(4,511)		3	116,706		(15,014)		8
Total	$	656,243	$	(87,584)	260	$	97,874	$	(74,935)	66	$	754,117	$	(162,519)	326

At September 30, 2023, the Company did not intend to sell any of its Agency and Non-Agency MBS classified as available-for-sale that were in an unrealized loss position, and it was not more likely than not that the Company would be required to sell these MBS investments before recovery of their amortized cost basis, which may be at their maturity. With respect to RMBS held by consolidated VIEs, the ability of any entity to cause the sale by the VIE prior to the maturity of these RMBS is either expressly prohibited, not probable, or is limited to specified events of default, none of which have occurred as of September 30, 2023.

The Company had $25 thousand and $3 million gross unrealized losses on its Agency MBS (excluding Agency MBS which are reported at fair value with changes in fair value recorded in earnings) as of September 30, 2023 and December 31, 2022, respectively. Given the inherent credit quality of Agency MBS, the Company does not consider any of the current impairments on its Agency MBS to be credit related. In evaluating whether it is more likely than not that it will be required to sell any impaired security before its anticipated recovery, which may be at their maturity, the Company considers the significance of each investment, the amount of impairment, the projected future performance of such impaired securities, as well as the Company’s current and anticipated leverage capacity and liquidity position. Based on these analyses, the Company determined that at September 30, 2023 unrealized losses on its Agency MBS were temporary.

Gross unrealized losses on the Company’s Non-Agency RMBS (excluding Non-Agency RMBS which are reported at fair value with changes in fair value recorded in earnings), net of any allowance for credit losses, were $13 million and $20 million, at September 30, 2023 and December 31, 2022, respectively. After evaluating the securities and recording any allowance for credit losses, the Company concluded that the remaining unrealized losses reflected above were non-credit related and would

be recovered from the securities' estimated future cash flows. The Company considered a number of factors in reaching this conclusion, including that it did not intend to sell the securities, it was not considered more likely than not that it would be required to sell the securities prior to recovering the amortized cost, and there were no material credit events that would have caused the Company to otherwise conclude that it would not recover the amortized cost. The allowance for credit losses are calculated by comparing the estimated future cash flows of each security discounted at the yield determined as of the initial acquisition date or, if since revised, as of the last date previously revised, to the net amortized cost basis. Significant judgment is used in projecting cash flows for Non-Agency RMBS.

The Company has reviewed its Non-Agency RMBS that are in an unrealized loss position to identify those securities with losses that are credit related based on an assessment of changes in cash flows expected to be collected for such RMBS, which considers recent bond performance and expected future performance of the underlying collateral. A summary of the credit losses allowance on available-for-sale securities for the quarters and nine months ended September 30, 2023 and 2022 is presented below.


	For the Quarter Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
	(dollars in thousands)				(dollars in thousands)
Beginning allowance for credit losses	$	13,013	$	4,890	$	7,188	$	213


Additions to the allowance for credit losses on securities for which credit losses were not previously recorded	415		851		1,514		2,443
Allowance on purchased financial assets with credit deterioration	—		—		—		—
Reductions for the securities sold during the period	—		—		—		—
Increase/(decrease) on securities with an allowance in the prior period	2,802		(2,385)		10,355		636
Write-offs charged against the allowance	—		(1)		(2,860)		(77)
Recoveries of amounts previously written off	—		—		33		140

Ending allowance for credit losses	$	16,230	$	3,355	$	16,230	$	3,355

The following table presents significant credit quality indicators used for the credit loss allowance on our Non-Agency RMBS investments as of September 30, 2023 and December 31, 2022.



	September 30, 2023
		(dollars in thousands)
		Prepay Rate	CDR	Loss Severity
	Amortized Cost	Weighted Average	Weighted Average	Weighted Average
Non-Agency RMBS
Senior	96,668	6.2%	2.0%	34.2%
Subordinated	75,294	6.6%	0.3%	41.9%



	December 31, 2022
		(dollars in thousands)
		Prepay Rate	CDR	Loss Severity
	Amortized Cost	Weighted Average	Weighted Average	Weighted Average
Non-Agency RMBS
Senior	88,062	7.5%	2.4%	39.7%
Subordinated	66,914	9.2%	0.4%	40.9%

The increase in the allowance for credit losses for the quarter and nine months ended September 30, 2023 is primarily due to increases in expected losses and delinquencies as compared to the same periods of 2022. 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.

The following tables present a summary of unrealized gains and losses at September 30, 2023 and December 31, 2022.


			September 30, 2023
			(dollars in thousands)
	Gross Unrealized Gain Included in Accumulated Other Comprehensive Income		Gross Unrealized Gain Included in Cumulative Earnings		Total Gross Unrealized Gain		Gross Unrealized Loss Included in Accumulated Other Comprehensive Income		Gross Unrealized Loss Included in Cumulative Earnings		Total Gross Unrealized Loss
Non-Agency RMBS
Senior	$	194,562	$	—	$	194,562	$	(6,305)	$	(1,951)	$	(8,256)
Subordinated	10,860		6,163		17,023		(17,863)		(30,203)		(48,066)
Interest-only	—		13,764		13,764		—		(99,296)		(99,296)
Agency RMBS

Interest-only	—		409		409		—		(5,558)		(5,558)
Agency CMBS
Project loans	—		—		—		(25)		(13,839)		(13,864)
Interest-only	—		1,225		1,225		—		(894)		(894)
Total	$	205,422	$	21,561	$	226,983	$	(24,193)	$	(151,741)	$	(175,934)


			December 31, 2022
			(dollars in thousands)
	Gross Unrealized Gain Included in Accumulated Other Comprehensive Income		Gross Unrealized Gain Included in Cumulative Earnings		Total Gross Unrealized Gain		Gross Unrealized Loss Included in Accumulated Other Comprehensive Income		Gross Unrealized Loss Included in Cumulative Earnings		Total Gross Unrealized Loss
Non-Agency RMBS
Senior	$	237,127	$	—	$	237,127	$	(5,132)	$	(1,801)	$	(6,933)
Subordinated	14,600		7,435		22,035		(14,418)		(22,259)		(36,677)
Interest-only	—		15,968		15,968		—		(80,024)		(80,024)
Agency RMBS

Interest-only	—		1,371		1,371		—		(4,991)		(4,991)
Agency CMBS
Project loans	—		—		—		(2,832)		(16,048)		(18,880)
Interest-only	—		1,654		1,654		—		(15,014)		(15,014)
Total	$	251,727	$	26,428	$	278,155	$	(22,382)	$	(140,137)	$	(162,519)

Changes in prepayments, actual cash flows, and cash flows expected to be collected, among other items, are affected by the collateral characteristics of each asset class. The Company chooses assets for the portfolio after carefully evaluating each investment’s risk profile.

The following tables provide a summary of the Company’s MBS portfolio at September 30, 2023 and December 31, 2022.


	September 30, 2023
	Principal or Notional Value at Period-End (dollars in thousands)		Weighted Average Amortized Cost Basis		Weighted Average Fair Value	Weighted Average Coupon		Weighted Average Yield at Period-End (1)
Non-Agency RMBS
Senior	$	1,091,694	$	45.58	62.64	5.6	%	17.0	%
Subordinated	588,224		50.69		45.41	3.7	%	6.8	%
Interest-only	2,926,629		5.44		2.52	0.5	%	5.5	%
Agency RMBS

Interest-only	395,197		4.82		3.52	0.2	%	4.7	%
Agency CMBS
Project loans	117,400		101.54		89.73	4.1	%	4.0	%
Interest-only	481,488		1.69		1.76	0.6	%	8.0	%

(1) Bond Equivalent Yield at period end.


	December 31, 2022
	Principal or Notional Value at Period-End (dollars in thousands)		Weighted Average Amortized Cost Basis		Weighted Average Fair Value		Weighted Average Coupon		Weighted Average Yield at Period-End (1)
Non-Agency RMBS
Senior	$	1,153,458	$	46.09	$	66.05	5.3	%	16.4	%
Subordinated	611,206		49.79		46.94		3.1	%	6.8	%
Interest-only	3,114,930		5.14		3.17		0.7	%	5.3	%
Agency RMBS

Interest-only	409,940		4.58		3.70		0.9	%	5.0	%
Agency CMBS
Project loans	302,685		101.85		95.62		4.3	%	4.1	%
Interest-only	2,669,396		5.23		4.73		0.7	%	3.4	%

(1) Bond Equivalent Yield at period end.

Actual maturities of MBS are generally shorter than the stated contractual maturities. Actual maturities of the Company’s MBS are affected by the underlying mortgages, periodic payments of principal, realized losses and prepayments of principal. The following tables provide a summary of the fair value and amortized cost of the Company’s MBS at September 30, 2023 and December 31, 2022 according to their estimated weighted-average life classifications. The weighted-average lives of the MBS in the tables below are based on lifetime expected prepayment rates using the Company's prepayment assumptions for the Agency MBS and Non-Agency RMBS. The prepayment model considers current yield, forward yield, steepness of the interest rate curve, current mortgage rates, mortgage rates of the outstanding loan, loan age, margin, and volatility.


	September 30, 2023
	(dollars in thousands)
	Weighted Average Life
	Less than one year		Greater than one year and less than five years		Greater than five years and less than ten years		Greater than ten years		Total
Fair value
Non-Agency RMBS
Senior	$	10,791	$	105,507	$	275,837	$	291,714	$	683,849
Subordinated	3,115		17,699		84,753		161,553		267,120
Interest-only	284		22,076		48,937		2,342		73,639
Agency RMBS

Interest-only	13,893		—		—		—		13,893
Agency CMBS
Project loans	7,870		—		—		97,471		105,341
Interest-only	772		7,701		—		—		8,473
Total fair value	$	36,725	$	152,983	$	409,527	$	553,080	$	1,152,315
Amortized cost
Non-Agency RMBS
Senior	$	1,517	$	96,886	$	205,336	$	206,770	$	510,509
Subordinated	1,417		13,944		88,855		197,211		301,427
Interest-only	16,243		45,012		91,008		6,908		159,171
Agency RMBS

Interest-only	19,042		—		—		—		19,042
Agency CMBS
Project loans	7,895		—		—		111,310		119,205
Interest-only	901		7,241		—		—		8,142
Total amortized cost	$	47,015	$	163,083	$	385,199	$	522,199	$	1,117,496


	December 31, 2022
	(dollars in thousands)
	Weighted Average Life
	Less than one year		Greater than one year and less than five years		Greater than five years and less than ten years		Greater than ten years		Total
Fair value
Non-Agency RMBS
Senior	$	6,727	$	152,811	$	308,351	$	293,919	$	761,808
Subordinated	3,957		6,829		113,903		162,220		286,909
Interest-only	205		30,780		65,038		2,741		98,764
Agency RMBS

Interest-only	—		—		15,148		—		15,148
Agency CMBS
Project loans	8,112		—		—		281,306		289,418
Interest-only	139		126,239		—		—		126,378
Total fair value	$	19,140	$	316,659	$	502,440	$	740,186	$	1,578,425
Amortized cost
Non-Agency RMBS
Senior	$	6,336	$	122,916	$	206,615	$	200,165	$	536,032
Subordinated	1,184		5,008		118,700		179,429		304,321
Interest-only	6,249		64,172		89,266		3,133		162,820
Agency RMBS

Interest-only	—		—		18,768		—		18,768
Agency CMBS
Project loans	8,112		—		—		300,186		308,298
Interest-only	200		139,538		—		—		139,738
Total amortized cost	$	22,081	$	331,634	$	433,349	$	682,913	$	1,469,977

The Non-Agency RMBS investments are secured by pools of mortgage loans which are subject to credit risk. The following table summarizes the delinquency, bankruptcy, foreclosure and Real estate owned, or REO, total of the pools of mortgage loans

securing the Company’s investments in Non-Agency RMBS at September 30, 2023 and December 31, 2022. When delinquency rates increase, it is expected that the Company will incur additional credit losses.


September 30, 2023	30 Days Delinquent		60 Days Delinquent		90+ Days Delinquent		Bankruptcy		Foreclosure		REO		Total

% of Unpaid Principal Balance	3.3	%	1.1	%	2.6	%	1.3	%	3.0	%	0.5	%	12.0	%


December 31, 2022	30 Days Delinquent		60 Days Delinquent		90+ Days Delinquent		Bankruptcy		Foreclosure		REO		Total

% of Unpaid Principal Balance	2.9	%	1.3	%	3.3	%	1.3	%	3.0	%	0.6	%	12.4	%

The Non-Agency RMBS in the Portfolio have the following collateral characteristics at September 30, 2023 and December 31, 2022.


	September 30, 2023				December 31, 2022
Weighted average maturity (years)		19.7				21.4
Weighted average amortized loan to value (1)		57.4		%		58.2		%
Weighted average FICO (2)		708				713
Weighted average loan balance (in thousands)		$	254			$	258
Weighted average percentage owner-occupied		84.4		%		84.4		%
Weighted average percentage single family residence		61.5		%		61.4		%
Weighted average current credit enhancement		1.3		%		1.1		%
Weighted average geographic concentration of top four states	CA	32.9		%	CA	32.7		%
	NY	11.5		%	NY	11.3		%
	FL	7.6		%	FL	7.6		%
	NJ	4.5		%	NJ	4.5		%

(1) Value represents appraised value of the collateral at the time of loan origination.

(2) FICO as determined at the time of loan origination.

The table below presents the origination year of the underlying loans related to the Company’s portfolio of Non-Agency RMBS at September 30, 2023 and December 31, 2022.


Origination Year	September 30, 2023		December 31, 2022
2003 and prior	1.1	%	0.7	%
2004	0.7	%	1.1	%
2005	8.2	%	9.0	%
2006	43.0	%	45.0	%
2007	33.2	%	30.8	%
2008 and later	13.8	%	13.4	%
Total	100.0	%	100.0	%

Gross realized gains and losses are recorded in “Net realized gains (losses) on sales of investments” on the Company’s Consolidated Statements of Operations. The proceeds and gross realized gains and gross realized losses from sales of investments for the quarters and nine months ended September 30, 2023 and 2022 are as follows:


	For the Quarter Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
	(dollars in thousands)				(dollars in thousands)
Proceeds from sales:


Agency MBS	$	4,861	$	18,378	285,709		18,378

Gross realized gains:


Agency MBS	—		—		—		—
Gross realized losses:


Agency MBS	(460)		(37,031)		(27,482)		(37,031)
Net realized gain (loss)	$	(460)	$	(37,031)	$	(27,482)	$	(37,031)

4. Loans Held for Investment

The Loans held for investment are comprised primarily of loans collateralized by seasoned reperforming residential mortgages. Additionally, it includes jumbo prime loans, investor loans and business purpose loans.

The investor loans are loans to individuals securing non-primary residences as well as to individuals or businesses who rent out the residential properties secured by such loans. The Company purchases qualified mortgages, or QM, and non-qualified mortgages, or Non-QM, investor loans and securitizes them under its loan securitization program. The business purpose loans are loans to businesses that are secured by real property which will be renovated by the borrower. The business purpose loans tend to be short duration, often less than one year, and generally the coupon rate is higher than residential mortgage loans.

At September 30, 2023 and December 31, 2022, all Loans held for investment are carried at fair value. See Note 5 for a discussion on how the Company determines the fair values of the Loans held for investment. As changes in the fair value of these loans are reflected in earnings, the Company does not estimate or record a loan loss provision. The total amortized cost of the Company's Loans held for investment was $12.0 billion and $11.9 billion as of September 30, 2023 and December 31, 2022, respectively. The total unpaid principal balance of the Company's Loans held for investment was $12.2 billion and $12.1 billion as of June 30, 2023 and December 31, 2022, respectively.

The following table provides a summary of the changes in the carrying value of Loans held for investment at fair value at September 30, 2023 and December 31, 2022:


	For the Nine Months Ended		For the Year Ended
	September 30, 2023		December 31, 2022
	(dollars in thousands)
Balance, beginning of period	$	11,359,236	$	12,261,926
Transfer due to consolidation	—		1,047,838
Purchases	1,264,997		1,615,377
Principal paydowns	(1,087,456)		(2,160,445)
Sales and settlements	699		(5,369)
Net periodic accretion (amortization)	(40,112)		(52,616)

Change in fair value	(70,432)		(1,347,475)
Balance, end of period	$	11,426,932	$	11,359,236

The primary cause of the change in fair value is due to market demand, interest rates and changes in credit risk of mortgage loans. The Company did not retain any beneficial interests on loan sales during the nine months ended September 30, 2023 and year ended December 31, 2022, respectively.

Residential mortgage loans

The loan portfolio for all residential mortgages were originated during the following periods:


Origination Year	September 30, 2023		December 31, 2022
2002 and prior	5.4	%	6.0	%
2003	4.7	%	5.0	%
2004	8.7	%	9.7	%
2005	14.8	%	16.3	%
2006	18.6	%	20.3	%
2007	21.1	%	21.5	%
2008	6.8	%	6.6	%
2009	1.7	%	1.5	%
2010 and later	18.2	%	13.1	%
Total	100.0	%	100.0	%

The following table presents a summary of key characteristics of the residential loan portfolio at September 30, 2023 and December 31, 2022:


	September 30, 2023				December 31, 2022
Number of loans		115,523				116,876
Weighted average maturity (years)		21.1				20.9
Weighted average loan to value (1)		79.0		%		82.2		%
Weighted average FICO		665				658
Weighted average loan balance (in thousands)		$	106			$	103
Weighted average percentage owner occupied		85.9		%		87.5		%
Weighted average percentage single family residence		78.3		%		79.3		%
Weighted average geographic concentration of top five states	CA	14.7		%	CA	14.6		%
	FL	8.8		%	FL	8.5		%
	NY	8.5		%	NY	8.5		%
	PA	4.5		%	VA	4.5		%
	VA	4.3		%	PA	4.4		%

(1) Value represents appraised value of the collateral at the time of loan origination.

The following table summarizes the outstanding principal balance of the residential loan portfolio which are 30 days delinquent and greater as reported by the servicers at September 30, 2023 and December 31, 2022, respectively.


	30 Days Delinquent		60 Days Delinquent		90+ Days Delinquent		Bankruptcy		Foreclosure		REO		Total		Unpaid Principal Balance
(dollars in thousands)
September 30, 2023	$778,337		$237,709		$338,717		$178,562		$346,558		$28,089		$1,907,972		$12,214,857
% of Unpaid Principal Balance	6.4	%	1.9	%	2.8	%	1.5	%	2.8	%	0.2	%	15.6	%

December 31, 2022	$778,196		$248,579		$399,369		$211,226		$391,958		$33,843		$2,063,171		$12,060,530
% of Unpaid Principal Balance	6.5	%	2.1	%	3.3	%	1.8	%	3.2	%	0.3	%	17.1	%

The fair value of residential mortgage loans 90 days or more past due was $623 million and $717 million as of September 30, 2023 and December 31, 2022, respectively.

5. Fair Value Measurements

The Company applies fair value guidance in accordance with GAAP to account for its financial instruments. The Company categorizes its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall

within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to fair value.

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. Any changes to the valuation methodology are reviewed by the Company to ensure the changes are appropriate. As markets and products evolve and the pricing for certain products becomes more transparent, the Company will continue to refine its valuation methodologies. The methodology utilized by the Company for the periods presented is unchanged. The methods used to produce a fair value calculation may not be indicative of net realizable value or reflective of future fair values. Furthermore, the Company believes its valuation methods are appropriate and consistent with other market participants. Using different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company uses inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.

The Company determines the fair values of its investments using internally developed processes and validates them using a third-party pricing service. During times of market dislocation, the observability of prices and inputs can be difficult for certain investments. If the third-party pricing service is unable to provide a price for an asset, or if the price provided by them is deemed unreliable by the Company, then the asset will be valued at its fair value as determined by the Company without validation to third-party pricing. Illiquid investments typically experience greater price volatility as an active market does not exist. Observability of prices and inputs can vary significantly from period to period and may cause instruments to change classifications within the three level hierarchy.

A description of the methodologies utilized by the Company to estimate the fair value of its financial instruments by instrument class follows:

Agency MBS and Non-Agency RMBS

The Company determines the fair value of all of its investment securities based on discounted cash flows utilizing an internal pricing model that incorporates factors such as coupon, prepayment speeds, loan size, collateral composition, borrower characteristics, expected interest rates, life caps, periodic caps, reset dates, collateral seasoning, delinquency, expected losses, expected default severity, credit enhancement, and other pertinent factors. To corroborate that the estimates of fair values generated by these internal models are reflective of current market prices, the Company compares the fair values generated by the model to non-binding independent prices provided by an independent third-party pricing service. For certain highly liquid asset classes, such as Agency fixed-rate pass-through bonds, the Company’s valuations are also compared to quoted prices for To-Be-Announced, or TBA, securities.

Each quarter, the Company develops thresholds generally using market factors or other assumptions, as appropriate. If internally developed model prices differ from the independent third-party prices by greater than these thresholds for the period, the Company conducts a further review, both internally and with the third-party pricing service of the prices of such securities. First, the Company obtains the inputs used by the third-party pricing service and compares them to the Company’s inputs. The Company then updates its own inputs if the Company determines the third-party pricing inputs more accurately reflect the current market environment. If the Company believes that its internally developed inputs more accurately reflect the current market environment, it will request that the third-party pricing service review market factors that may not have been considered by the third-party pricing service and provide updated prices. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established. At September 30, 2023, eight investment holdings with an internally developed fair value of $58 million had a difference between the model generated prices and third-party prices provided in excess of the thresholds for the period. The internally developed prices were $11 million higher , in the aggregate, than the third-party prices provided of $47 million. After review and discussion, the Company affirmed and valued the investments at the higher internally developed prices. No other differences were noted at September 30, 2023 in excess of the thresholds for the period. At December 31, 2022, fourteen investment holdings with an internally developed fair value of $96 million had a

difference between the model generated prices and third-party prices provided in excess of the thresholds for the period. The internally developed prices were $14 million higher, in the aggregate, than the third-party prices provided of $82 million. After review and discussion, the Company affirmed and valued the investments at the higher internally developed prices. No other differences were noted at December 31, 2022 in excess of the thresholds for the period.

The Company’s estimate of prepayment, default and severity curves all involve judgment and assumptions that are deemed to be significant to the fair value measurement process. This subjective estimation process renders the Non-Agency RMBS fair value estimates as Level 3 in the fair value hierarchy. As the fair values of Agency MBS are more observable, these investments are classified as Level 2 in the fair value hierarchy.

Loans Held for Investment

Loans held for investment is comprised primarily of seasoned reperforming residential mortgage loans. Loans held for investment also include prime, jumbo, investor owned and business purpose loans.

Loans consisting of seasoned reperforming residential mortgage loans, jumbo prime loans and investor loans:

The Company estimates the fair value of its Loans held for investment consisting of seasoned reperforming residential mortgage loans, jumbo prime loans and investor loans on a loan by loan basis using an internally developed model which compares the loan held by the Company 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, FICO, loan-to-value ratios, delinquency history, owner occupancy, and property type, among other factors. A baseline is developed for each significant loan factor and adjusts the price up or down depending on how that factor for each specific loan compares to the baseline rate. Generally, the most significant impact on loan value is the loan coupon rate as compared to coupon rates currently available in the market and delinquency history.

The Company also monitors market activity to identify trades which may be used to compare internally developed prices; however, as the portfolio of loans held at fair value is a seasoned reperforming pool of residential mortgage loans, comparable loan pools are not common or directly comparable. There are limited transactions in the marketplace to develop a comprehensive direct range of values.

The Company reviews the fair values generated by the model to determine whether prices are reflective of the current market by corroborating its estimates of fair value by comparing the results to non-binding independent prices provided by an independent third-party pricing service for the loan portfolio. Each quarter the Company develops thresholds generally using market factors or other assumptions as appropriate.

If the internally developed fair values of the loan pools differ from the independent third-party prices by greater than the threshold for the period, the Company highlights these differences for further review, both internally and with the third-party pricing service. The Company obtains certain inputs used by the third-party pricing service and evaluates them for reasonableness. Then the Company updates its own model if the Company determines the third-party pricing inputs more accurately reflect the current market environment or observed information from the third-party vendor. If the Company believes that its internally developed inputs more accurately reflect the current market environment, it will request that the third-party pricing service review market factors that may not have been considered by the third-party pricing service. The Company reconciles and resolves all pricing differences in excess of the thresholds before a final price is established.

At September 30, 2023, seven loan pools with an internally developed fair value of $2.1 billion had a difference between the model generated prices and third-party prices provided in excess of the threshold for the period. The internally developed prices were $113 million higher than the third-party prices provided of $2.0 billion. After review and discussion, the Company affirmed and valued the investments at the higher internally developed prices. No other differences were noted at September 30, 2023 in excess of the threshold for the period. At December 31, 2022, eight loan pools with an internally developed fair value of $2.1 billion had a difference between the model generated prices and third-party prices provided in excess of the threshold for the period. The internally developed prices were $122 million higher than the third-party prices provided of $2.0 billion. After review and discussion, the Company affirmed and valued the investments at the higher internally developed prices. No other differences were noted at December 31, 2022 in excess of the threshold for the period.

The Company’s estimates of fair value of Loans held for investment involve judgment and assumptions that are deemed to be significant to the fair value measurement process, which renders the resulting fair value estimates Level 3 inputs in the fair value hierarchy.

Business purpose loans:

Business purpose loans are loans to businesses that are secured by real property which will be renovated by the borrower. Upon completion of the renovation the property will be either sold by the borrower or refinanced by the borrower who may subsequently sell or rent the property. Most, but not all, of the properties securing these loans are residential and a portion of the loan is used to cover renovation costs. The business purpose loans are included as a part of the Company's Loans held for investment portfolio and are carried at fair value with changes in fair value reflected in earnings. These loans tend to be short duration, often less than one year, and generally the coupon rate is higher than the Company's typical residential mortgage loans. As these loans are generally short-term in nature and there is an active market for these loans, the Company estimates fair value of the business purpose loans based on the recent purchase price of the loan, adjusted for observable market activity for similar assets offered in the market. Business purpose loans have a fair value of $142 million and $205 million as of September 30, 2023 and December 31, 2022, respectively.

As the fair value prices of the business purpose loans are based on the recent trades of similar assets in an active market, the Company has classified them as Level 2 in the fair value hierarchy.

Securitized Debt, collateralized by Loans Held for Investment

The process for determining the fair value of securitized debt, collateralized by Loans held for investment is based on discounted cash flows utilizing an internal pricing model that incorporates factors such as coupon, prepayment speeds, loan size, collateral composition, borrower characteristics, expected interest rates, life caps, periodic caps, reset dates, collateral seasoning, delinquencies, expected losses, expected default severity, credit enhancement, and other pertinent factors. This process, including the review process, is consistent with the process used for Agency MBS and Non-Agency RMBS using internal models. For further discussion of the valuation process and benchmarking process, see Agency MBS and Non-Agency RMBS discussion herein. The primary cause of the change in fair value is due to market demand and changes in credit risk of mortgage loans.

At September 30, 2023, two securitized debt collateralized by loans held for investment positions with an internally developed fair value of $45 million had a difference between the model generated prices and third-party prices provided in excess of the threshold for the period. The internally developed prices were $9 million higher on a net basis than the third-party prices provided of $36 million. After review and discussion, the Company affirmed and valued the securitized debt positions at the higher internally developed prices. No other differences were noted at September 30, 2023 in excess of the threshold for the period. At December 31, 2022, six securitized debt collateralized by loans held for investment positions with an internally developed fair value of $35 million had a difference between the model generated prices and third-party prices provided in excess of the threshold for the period. The internally developed prices were $3 million higher on a net basis than the third-party prices provided of $32 million. After review and discussion, the Company affirmed and valued the securitized debt positions at the higher internally developed prices. No other pricing differences were noted at December 31, 2022 in excess of the threshold for the period.

The Company’s estimates of fair value of securitized debt, collateralized by Loans held for investment involve judgment and assumptions that are deemed to be significant to the fair value measurement process, which renders the resulting fair value estimates Level 3 inputs in the fair value hierarchy.

Securitized Debt, collateralized by Non-Agency RMBS

The Company carries securitized debt, collateralized by Non-Agency RMBS at the principal balance outstanding plus unamortized premiums, less unaccreted discounts recorded in connection with the financing of the loans or RMBS with third parties. For disclosure purposes, the Company estimates the fair value of securitized debt, collateralized by Non-Agency RMBS by estimating the future cash flows associated with the underlying assets collateralizing the secured debt outstanding. The Company models the fair value of each underlying asset by considering, among other items, the structure of the underlying security, coupon, servicer, delinquency, actual and expected defaults, actual and expected default severities, reset indices, and prepayment speeds in conjunction with market research for similar collateral performance and the Company's expectations of general economic conditions in the sector and other economic factors. This process, including the review process, is consistent with the process used for Agency MBS and Non-Agency RMBS using internal models. For further discussion of the valuation process and benchmarking process, see Agency MBS and Non-Agency RMBS discussion herein.

The Company’s estimates of fair value of securitized debt, collateralized by Non-Agency RMBS involve judgment and assumptions that are deemed to be significant to the fair value measurement process, which renders the resulting fair value estimates Level 3 inputs in the fair value hierarchy.

Fair value option

The table below shows the unpaid principal and fair value of the financial instruments carried at fair value with changes in fair value reflected in earnings under the fair value option election as of September 30, 2023 and December 31, 2022, respectively:


	September 30, 2023				December 31, 2022
	(dollars in thousands)
	Unpaid Principal/ Notional		Fair Value		Unpaid Principal/ Notional		Fair Value
Assets:
Non-Agency RMBS
Senior	$	16,569	$	14,687	$	18,513	$	16,731
Subordinated	413,054		166,977		429,273		175,603
Interest-only	2,926,629		73,639		3,114,930		98,764
Agency RMBS

Interest-only	395,197		13,893		409,940		15,148
Agency CMBS
Project loans	109,506		97,471		268,078		256,950
Interest-only	481,488		8,473		2,669,396		126,378
Loans held for investment, at fair value	12,214,857		11,426,932		12,060,631		11,359,236
Liabilities:
Secured Financing Agreements, at fair value	367,619		339,838		382,838		374,172
Securitized debt at fair value, collateralized by Loans held for investment	8,514,774		7,598,721		7,856,140		7,100,742

The table below shows the impact of change in fair value on each of the financial instruments carried at fair value with changes in fair value reflected in earnings under the fair value option election in statement of operations for the quarters and nine months ended September 30, 2023 and 2022:


	For the Quarter Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023	September 30, 2022
	(dollars in thousands)				(dollars in thousands)
	Gain/(Loss) on Change in Fair Value				Gain/(Loss) on Change in Fair Value
Assets:
Non-Agency RMBS
Senior	$	(368)	$	(144)	(150)	(1,529)
Subordinated	(6,682)		(30,295)		(9,215)	(75,569)
Interest-only	(20,340)		(15,948)		(21,472)	(51,546)
Agency RMBS

Interest-only	882		23,472		(1,525)	13,548
Agency CMBS
Project loans	(2,616)		(16,595)		2,210	(51,627)
Interest-only	(286)		(4,870)		13,691	(13,704)
Loans held for investment, at fair value	(144,976)		(353,650)		(70,432)	(1,402,683)
Liabilities:
Secured Financing Agreements, at fair value	6,669		—		19,115	—
Securitized debt at fair value, collateralized by Loans held for investment	123,728		158,517		95,338	679,133

Derivatives

Interest Rate Swaps and Swaptions

The Company uses clearing exchange market prices to determine the fair value of its exchange cleared interest rate swaps. For bi-lateral swaps, the Company determines the fair value based on the net present value of expected future cash flows on the swap. The Company uses an option pricing model to determine the fair value of its swaptions. For bi-lateral swaps and swaptions, the Company compares its own estimate of fair value with counterparty prices to evaluate for reasonableness. Both the clearing exchange and counter-party pricing quotes, incorporate common market pricing methods, including a spread measurement to the Treasury yield curve or interest rate swap curve as well as underlying characteristics of the particular contract. Interest rate swaps and swaptions are modeled by the Company by incorporating such factors as the term to maturity, swap curve, overnight index swap rates, and the payment rates on the fixed portion of the interest rate swaps. The Company has classified the characteristics used to determine the fair value of interest rate swaps and swaptions as Level 2 inputs in the fair value hierarchy.

Treasury Futures

The fair value of Treasury futures is determined by quoted market prices in an active market. The Company has classified the characteristics used to determine the fair value of Treasury futures as Level 1 inputs in the fair value hierarchy.

Secured Financing Agreements

Secured financing agreements are collateralized financing transactions utilized by the Company to acquire investment securities. For short term secured financing agreements and longer term floating rate secured financing agreements, the Company estimates fair value using the contractual obligation plus accrued interest payable. The Company has classified the characteristics used to determine the fair value of secured financing agreements as Level 2 inputs in the fair value hierarchy.

Secured Financing Agreements, at fair value

Fair value for certain secured financing agreements which are carried at fair value with changes in fair value reported in earnings are valued at the price that the Company would pay to transfer the liability to a market participant at the reporting date in an orderly transaction. The Company evaluates recent trades of financial liabilities made by the Company, which includes an element of non-performance risk, as well as changes in market interest rates to determine the fair value of the secured financing agreements. The primary factor in determining the fair value is the change in market interest rates from the transaction date of the secured financing agreements and the reporting date. As these rates are observable, the secured financing agreements are reported as level 2 inputs in the fair value hierarchy.

Short-term Financial Instruments

The carrying value of cash and cash equivalents, accrued interest receivable, dividends payable, payable for investments purchased, and accrued interest payable are considered to be a reasonable estimate of fair value due to the short term nature and low credit risk of these short-term financial instruments.

Equity Method Investments

The Company has made investments in entities or funds. For these investments where we have a non-controlling interest, but we are deemed to be able to exert significant influence over the affairs of these entities or funds, we utilize equity method of accounting. These investments are not carried at fair value. The carrying value of the Company's equity method investments is determined using cost accumulation method. The Company adjusts the carrying value of its equity method investments for its share of earnings or losses, dividends or return of capital on a quarterly basis. The fair value of equity method investments is based on the fund valuation received from the manager of the fund. The Company has classified the characteristics used to determine the fair value of equity method investments as Level 3 inputs in the fair value hierarchy. The equity method investments are included in Other assets on Statement of Financial Condition.

The Company’s financial assets and liabilities carried at fair value on a recurring basis, including the level in the fair value hierarchy, at September 30, 2023 and December 31, 2022 are presented below.


	September 30, 2023
	(dollars in thousands)
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	$	1,024,609	$	—	$	1,024,609
Agency MBS, at fair value	—		127,706		—		—		127,706
Loans held for investment, at fair value	—		142,186		11,284,746		—		11,426,932
Derivatives, at fair value	—		34,688		—		(34,688)		—

Liabilities:
Secured Financing Agreement, at fair value	—		339,838		—		—		339,838
Securitized debt at fair value, collateralized by Loans held for investment	—		—		7,598,721		—		7,598,721
Derivatives, at fair value	—		—		—		—		—


	December 31, 2022
	(dollars in thousands)
	Level 1		Level 2		Level 3	Counterparty and Cash Collateral, netting		Total
Assets:
Non-Agency RMBS, at fair value	$	—	$	—	1,147,481	$	—	$	1,147,481
Agency MBS, at fair value	—		430,944		—	—		430,944
Loans held for investment, at fair value	—		204,636		11,154,600	—		11,359,236
Derivatives, at fair value	—		18,793		—	(14,697)		4,096

Liabilities:
Secured Financing Agreement, at fair value	—		374,172		—	—		374,172
Securitized debt at fair value, collateralized by Loans held for investment	—		—		7,100,742	—		7,100,742
Derivatives, at fair value	—		14,074		—	(14,074)		—

The table below provides a summary of the changes in the fair value of financial instruments classified as Level 3 at September 30, 2023 and December 31, 2022.


Fair Value Level 3 Rollforward - Assets
	For the Nine Months Ended		For the Year Ended
	September 30, 2023		December 31, 2022
	(dollars in thousands)
	Non-Agency RMBS		Loans held for investment		Non-Agency RMBS		Loans held for investment
Beginning balance Level 3	$	1,147,481	$	11,154,600	$	1,810,208	$	12,032,299
Transfers into Level 3	—		—		—		—
Transfers out of Level 3	—		—		—		—
Transfer due to consolidation	—		—		(218,276)		1,047,838
Purchases of assets	5,431		1,179,880		23,589		1,429,503
Principal payments	(64,796)		(940,404)		(178,300)		(1,953,098)
Sales and Settlements	—		3,039		(23,056)		(5,368)
Net accretion (amortization)	27,288		(41,318)		31,387		(52,767)
Gains (losses) included in net income
(Increase) decrease in provision for credit losses	(9,043)		—		(7,036)		—
Realized gains (losses) on sales and settlements	13		—		(15,594)		—
Net unrealized gains (losses) included in income	(30,841)		(71,051)		(104,631)		(1,343,807)
Gains (losses) included in other comprehensive income	—		—		—		—
Total unrealized gains (losses) for the period	(50,924)		—		(170,810)		—
Ending balance Level 3	$	1,024,609	$	11,284,746	$	1,147,481	$	11,154,600


Fair Value Level 3 Rollforward - Liabilities
	For the Nine Months Ended		For the Year Ended
	September 30, 2023		December 31, 2022
	(dollars in thousands)
	Securitized Debt		Securitized Debt
Beginning balance Level 3	$	7,100,742	$	7,726,043
Transfers into Level 3	—		—
Transfers out of Level 3	—		—
Transfer due to consolidation/deconsolidation	—		774,514
Issuance of debt	2,046,620		1,122,982
Principal payments	(917,175)		(1,844,397)
Sales and Settlements	(544,693)		—
Net (accretion) amortization	14,912		5,021
(Gains) losses included in net income
Other than temporary credit impairment losses	—		—
Realized (gains) losses on sales and settlements	(6,348)		—
Net unrealized (gains) losses included in income	(95,337)		(683,421)
(Gains) losses included in other comprehensive income	—		—
Total unrealized (gains) losses for the period	—		—
Ending balance Level 3	$	7,598,721	$	7,100,742

There were no transfers in or out from Level 3 during the quarter ended September 30, 2023 and the year ended December 31, 2022, respectively.

The significant unobservable inputs used in the fair value measurement of the Company’s Non-Agency RMBS and securitized debt are the weighted average discount rates, prepayment rate, constant default rate, and the loss severity.

Discount Rate

The discount rate refers to the interest rate used in the discounted cash flow analysis to determine the present value of future cash flows. The discount rate takes into account not just the time value of money, but also the risk or uncertainty of future cash flows. An increased uncertainty of future cash flows results in a higher discount rate. The discount rate used to calculate the

present value of the expected future cash flows is based on the discount rate implicit in the security as of the last measurement date. As discount rates move up, the values of the discounted cash flows are reduced.

The discount rates applied to the expected cash flows to determine fair value are derived from a range of observable prices on securities backed by similar collateral. As the market becomes more or less liquid, the availability of these observable inputs will change.

Prepayment Rate

The prepayment rate specifies the percentage of the collateral balance that is expected to prepay at each point in the future. The prepayment rate is based on factors such as interest rates, loan-to-value ratio, debt-to-income ratio, and is scaled up or down to reflect recent collateral-specific prepayment experience as obtained from remittance reports and market data services.

Constant Default Rate

Constant default rate represents an annualized rate of default on a group of mortgages. The constant default rate, or CDR, represents the percentage of outstanding principal balances in the pool that are in default, which typically equates to the home being past 60-day and 90-day notices and in the foreclosure process. When default rates increase, expected cash flows on the underlying collateral decreases. When default rates decrease, expected cash flows on the underlying collateral increases.

Default vectors are determined from the current “pipeline” of loans that are more than 30 days delinquent, in foreclosure, bankruptcy, or are REO. These delinquent loans determine the first 30 months of the default curve. Beyond month 30, the default curve transitions to a value that is reflective of a portion of the current delinquency pipeline.

Loss Severity

Loss severity rates reflect the amount of loss expected from a foreclosure and liquidation of the underlying collateral in the mortgage loan pool. When a mortgage loan is foreclosed the collateral is sold and the resulting proceeds are used to settle the outstanding obligation. In many circumstances, the proceeds from the sale do not fully repay the outstanding obligation. In these cases, a loss is incurred by the lender. Loss severity is used to predict how costly future losses are likely to be. An increase in loss severity results in a decrease in expected future cash flows. A decrease in loss severity results in an increase in expected future cash flows.

The curve generated to reflect the Company’s expected loss severity is based on collateral-specific experience with consideration given to other mitigating collateral characteristics. Collateral characteristics such as loan size, loan-to-value, seasoning or loan age and geographic location of collateral also effect loss severity.

Sensitivity of Significant Inputs – Non-Agency RMBS and securitized debt, collateralized by Loans held for investment

Prepayment rates vary according to interest rates, the type of financial instrument, conditions in financial markets, and other factors, none of which can be predicted with any certainty. In general, when interest rates rise, it is relatively less attractive for borrowers to refinance their mortgage loans, and as a result, prepayment speeds tend to decrease. When interest rates fall, prepayment speeds tend to increase. For RMBS investments purchased at a premium, as prepayment rates increase, the amount of income the Company earns decreases as the purchase premium on the bonds amortizes faster than expected. Conversely, decreases in prepayment rates result in increased income and can extend the period over which the Company amortizes the purchase premium. For RMBS investments purchased at a discount, as prepayment rates increase, the amount of income the Company earns increases from the acceleration of the accretion of the purchase discount into interest income. Conversely, decreases in prepayment rates result in decreased income as the accretion of the purchase discount into interest income occurs over a longer period.

For securitized debt carried at fair value issued at a premium, as prepayment rates increase, the amount of interest expense the Company recognizes decreases as the issued premium on the debt amortizes faster than expected. Conversely, decreases in prepayment rates result in increased expense and can extend the period over which the Company amortizes the premium.

For debt issued at a discount, as prepayment rates increase, the amount of interest the Company expenses increases from the acceleration of the accretion of the discount into interest expense. Conversely, decreases in prepayment rates result in decreased expense as the accretion of the discount into interest expense occurs over a longer period.

A summary of the significant inputs used to estimate the fair value of Level 3 Non-Agency RMBS held for investment at fair value as of September 30, 2023 and December 31, 2022 follows. The weighted average discount rates are based on fair value.


	September 30, 2023
	Significant Inputs
	Discount Rate		Prepay Rate		CDR		Loss Severity
	Range	Weighted Average	Range	Weighted Average	Range	Weighted Average	Range	Weighted Average
Non-Agency RMBS
Senior	7%-40%	7.1%	1%-18%	6.6%	0%-6%	1.4%	26%-82%	32.5%
Subordinated	0%-13%	8.0%	0%-12%	6.7%	0%-4%	0.5%	10%-50%	35.8%
Interest-only	0%-100%	12.0%	5%-20%	7.3%	0%-7%	1.0%	26%-82%	33.2%


	December 31, 2022
	Significant Inputs
	Discount Rate		Prepay Rate		CDR		Loss Severity
	Range	Weighted Average	Range	Weighted Average	Range	Weighted Average	Range	Weighted Average
Non-Agency RMBS
Senior	6% -25%	6.5%	1% -20%	7.7%	0% -10%	1.5%	26% -80%	31.8%
Subordinated	0% -12%	7.6%	4% -16%	9.6%	0% -7%	0.8%	10% -82%	39.8%
Interest-only	0% -85%	10.2%	6% -30%	9.5%	0% -6%	1.0%	0% -86%	27.5%

A summary of the significant inputs used to estimate the fair value of securitized debt at fair value, collateralized by Loans held for investment, as of September 30, 2023 and December 31, 2022 follows:

September 30, 2023

Significant Inputs

Discount Rate

Prepay Rate

CDR

Loss Severity

Range

Weighted Average

Range

Weighted Average

Range

Weighted Average

Range

Weighted Average

Securitized debt at fair value, collateralized by Loans held for investment

6%-10%

7.0%

6%-15%

8.3%

0%-6%

0.9%

20%-55%

41.8%

December 31, 2022

Significant Inputs

Discount Rate

Prepay Rate

CDR

Loss Severity

Range

Weighted Average

Range

Weighted Average

Range

Weighted Average

Range

Weighted Average

Securitized debt at fair value, collateralized by Loans held for investment

5% -10%

6.4%

6% - 15%

10.4%

0% - 7%

1.2%

30% - 60%

45.8%

All of the significant inputs listed have some degree of market observability based on the Company’s knowledge of the market, information available to market participants, and use of common market data sources. Collateral default and loss severity projections are in the form of “curves” that are updated quarterly to reflect the Company’s collateral cash flow projections. Methods used to develop these projections conform to industry conventions. The Company uses assumptions it considers its best estimate of future cash flows for each security.

Sensitivity of Significant Inputs – Loans held for investment

The Loans held for investment are primarily comprised of loans collateralized by seasoned reperforming residential mortgages. Additionally, it includes non-conforming, single family, owner occupied, investor owned, jumbo and prime residential mortgages. The significant unobservable factors used to estimate the fair value of the Loans held for investment collateralized by seasoned reperforming residential mortgage loans, as of September 30, 2023 and December 31, 2022, include coupon, FICO score at origination, loan-to-value, or LTV ratios, owner occupancy status, and property type. A summary of the significant factors used to estimate the fair value of Loans held for investment collateralized primarily by seasoned reperforming residential mortgages at fair value as of September 30, 2023 and December 31, 2022 follows:



	September 30, 2023	December 31, 2022
Factor:
Coupon
Base Rate	6.8%	6.3%
Actual	5.9%	5.8%

FICO
Base Rate	640	640
Actual	664	656

Loan-to-value (LTV)
Base Rate	86%	87%
Actual	79%	82%

Loan Characteristics:
Occupancy
Owner Occupied	87%	89%
Investor	9%	5%
Secondary	5%	6%
Property Type
Single family	79%	80%
Manufactured housing	3%	3%
Multi-family/mixed use/other	18%	17%

The loan factors are generally not observable for the individual loans and the base rates developed by the Company’s internal model are subjective and change as market conditions change. The impact of the loan coupon on the value of the loan is dependent on the loan history of delinquent payments. A loan with no history of delinquent payments would result in a higher overall value than a loan which has a history of delinquent payments. Similarly, a higher FICO score and a lower LTV ratio results in increases in the fair market value of the loan and a lower FICO score and a higher LTV ratio results in a lower value. See Note 4 for delinquency details for the Loans held for investment portfolio.

Property types also affect the overall loan values. Property types include single family, manufactured housing and multi-family/mixed use and other types of properties. Single family homes represent properties which house one to four family units. Manufactured homes include mobile homes and modular homes. Loan value for properties that are investor or secondary homes have a reduced value as compared to the baseline loan value. Additionally, single family homes will result in an increase to the loan value, whereas manufactured and multi-family/mixed use and other properties will result in a decrease to the loan value, as compared to the baseline.

Financial instruments not carried at fair value

The following table presents the carrying value and fair value, as described above, of the Company’s financial instruments not carried at fair value on a recurring basis at September 30, 2023 and December 31, 2022.


	September 30, 2023
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount		Fair Value
Equity method investments (1)	3	$	46,039	$	46,039
Secured financing agreements	2	2,264,073		2,297,057
Securitized debt, collateralized by Non-Agency RMBS	3	75,819		49,735

(1) Included in Other Assets on the Consolidated Statements of Financial Condition


	December 31, 2022
	(dollars in thousands)
	Level in Fair Value Hierarchy	Carrying Amount		Fair Value
Equity method investments (1)	3	$	25,538	$	25,538
Secured financing agreements	2	3,060,592		3,080,982
Securitized debt, collateralized by Non-Agency RMBS	3	78,542		54,590

(1) Included in Other Assets on the Consolidated Statements of Financial Condition

6. Secured Financing Agreements

Secured financing agreements include short term repurchase agreements with original maturity dates of less than one-year, long-term financing agreements with original maturity dates of more than one year and loan warehouse credit facilities collateralized by loans acquired by the Company.

At September 30, 2023, the repurchase agreements are collateralized by Agency and Non-Agency mortgage-backed securities with interest rates generally indexed to the Secured Overnight Financing Rate (“SOFR”). At December 31, 2022, the repurchase agreements are collateralized by Agency and Non-Agency mortgage-backed securities with interest rates generally indexed to either the one-month LIBOR rates, the three-month LIBOR rates, or the SOFR. The maturity dates on the repurchase agreements are all less than one year and generally are less than 180 days. The collateral pledged as security on the repurchase agreements may include the Company’s investments in bonds issued by consolidated VIEs, which are eliminated in consolidation.

The long-term financing agreements include secured financing arrangements with an original term of one year or greater which is secured by Non-Agency RMBS pledged as collateral. These long-term secured financing agreements have a maturity date of February 2025. The collateral pledged as security on the long-term financing agreements may include the Company’s investments in bonds issued by consolidated VIEs, which are eliminated in consolidation.

The warehouse credit facilities collateralized by loans are repurchase agreements intended to finance loans until they can be sold into a longer-term securitization structure. The maturity dates on the warehouse credit facilities range from 30 days to one year with interest rates indexed to SOFR.

The secured financing agreements generally require the Company to post collateral at a specific rate in excess of the unpaid principal balance of the agreement. For certain secured financing agreements, this may require the Company to post additional margin if the fair value of the assets were to drop. To mitigate this risk, the Company has negotiated several long-term financing agreements which are not subject to additional margin requirements upon a drop in the fair value of the collateral pledged or until the drop is greater than a threshold. At September 30, 2023 and December 31, 2022, the Company has $1.2 billion and $1.2 billion, respectively, of secured financing agreements which are not subject to additional margin requirements upon a change in the fair value of the collateral pledged. At September 30, 2023 and December 31, 2022, the Company has $307 million and $365 million, respectively, of secured financing agreements which are not subject to additional margin requirements until the drop in the fair value of collateral is greater than a threshold. Repurchase agreements may allow the credit counterparty to avoid the automatic stay provisions of the Bankruptcy Code, in the event of a bankruptcy of the Company, and take possession of, and liquidate, the collateral under such repurchase agreements without delay.

At September 30, 2023 and December 31, 2022, we pledged $23 million and $33 million respectively, of margin cash collateral to the Company's secured financing agreement counterparties. At September 30, 2023, the weighted average haircut on the Company's secured financing agreements collateralized by Agency CMBS was 5.1% and Non-Agency RMBS and Loans held for investment was 25.2%. At December 31, 2022, the weighted average haircut on the Company's secured financing agreements collateralized by Agency RMBS IOs was 20.0%, Agency CMBS was 7.8% and Non-Agency RMBS and Loans held for investment was 25.7%.

Certain of the long-term financing agreements and warehouse credit facilities are subject to certain covenants. These covenants include that the Company maintain its REIT status as well as maintain a net asset value or GAAP equity greater than a certain level. If the Company fails to comply with these covenants at any time, the financing may become immediately due in full. Additionally, certain financing agreements become immediately due if the total stockholders' equity of the Company drops by 50% from the most recent year end. Currently, the Company is in compliance with all covenants and does not expect to fail to comply with any of these covenants within the next twelve months. The Company has a total of $2.1 billion unused uncommitted warehouse credit facilities as of September 30, 2023.

At September 30, 2023, the Company had amounts at risk with Nomura Securities International, Inc., or Nomura, of 11% of its equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 379 days. The amount at risk with Nomura was $282 million. At December 31, 2022, the Company had amounts at risk with Nomura of 12% of its equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 582 days. The amount at risk with Nomura was $308 million.

The secured financing agreements principal outstanding, weighted average borrowing rates, weighted average remaining maturities, average balances and the fair value of the collateral pledged as of September 30, 2023 and December 31, 2022 were:


	September 30, 2023			December 31, 2022
Secured financing agreements outstanding principal secured by:
Agency RMBS (in thousands)	$	—		$	3,946
Agency CMBS (in thousands)	79,751			355,934
Non-Agency RMBS and Loans held for investment (in thousands) (1)	2,551,941			3,083,551
Total:	$	2,631,692		$	3,443,431

MBS pledged as collateral at fair value on Secured financing agreements:
Agency RMBS (in thousands)	$	—		$	6,662
Agency CMBS (in thousands)	80,110			382,547
Non-Agency RMBS and Loans held for investment (in thousands)	3,590,575			4,310,513
Total:	$	3,670,685		$	4,699,722

Average balance of Secured financing agreements secured by:
Agency RMBS (in thousands)	$	2,017		$	11,714
Agency CMBS (in thousands)	159,306			376,551
Non-Agency RMBS and Loans held for investment (in thousands)	2,770,022			2,819,871
Total:	$	2,931,345		$	3,208,136

Average borrowing rate of Secured financing agreements secured by:
Agency RMBS	N/A			4.70		%
Agency CMBS	5.48		%	4.49		%
Non-Agency RMBS and Loans held for investment	8.07		%	6.86		%

Average remaining maturity of Secured financing agreements secured by:
Agency RMBS	N/A			17 Days
Agency CMBS	33 Days			25 Days
Non-Agency RMBS and Loans held for investment	436 Days			474 Days

Average original maturity of Secured financing agreements secured by:
Agency RMBS	N/A			60 Days
Agency CMBS	43 Days			42 Days
Non-Agency RMBS and Loans held for investment	462 Days			499 Days

(1) The outstanding balance for secured financing agreements in the table above is net of $1 million and $1 million of deferred financing cost as of September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, the secured financing agreements collateralized by MBS and Loans held for investment had the following remaining maturities and borrowing rates.


	September 30, 2023				December 31, 2022
	(dollars in thousands)
	Principal (1)		Weighted Average Borrowing Rates	Range of Borrowing Rates	Principal (1)		Weighted Average Borrowing Rates	Range of Borrowing Rates
Overnight	—		N/A	N/A	—		N/A	NA
1 to 29 days	$	200,131	7.62%	6.23% - 8.17%	$	493,918	4.66%	3.63% - 6.16%
30 to 59 days	490,698		6.57%	5.47% - 7.87%	762,768		6.14%	4.60% - 7.34%
60 to 89 days	93,144		6.46%	6.31% - 7.16%	225,497		6.04%	4.70% - 7.12%
90 to 119 days	84,854		6.54%	6.48% - 7.24%	43,180		6.54%	5.50% - 6.70%
120 to 180 days	364,014		7.27%	6.42% - 7.85%	401,638		5.88%	5.57% - 6.92%
180 days to 1 year	192,722		6.67%	6.64% - 6.67%	402,283		6.06%	5.63% - 6.64%
1 to 2 years	838,510		11.10%	9.07% - 13.98%	251,286		13.98%	13.98% - 13.98%
2 to 3 years	—		—%	0.00% - 0.00%	480,022		8.07%	8.07% - 8.07%
Greater than 3 years	367,619		5.11%	5.10% - 7.06%	382,839		5.14%	5.10% - 6.07%
Total	$	2,631,692	7.99%		$	3,443,431	6.61%

Secured Financing Agreements at fair value

The Company entered into a secured financing agreement during fourth quarter of 2022 for which the Company has elected fair value option. The Company believes electing fair value for this financial instrument better reflect the transactional economics. The total principal balance outstanding on this secured financing at September 30, 2023 and December 31, 2022 was $368 million and $383 million, respectively. The fair value of collateral pledged was $401 million and $418 million as of September 30, 2023 and December 31, 2022, respectively. The Company carries this secured financing instrument at fair value of $340 million and $374 million as of September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, the weighted average borrowing rate on secured financing agreements at fair value was 5.11%. At September 30, 2023 and December 31, 2022, the haircut for the secured financing agreements at fair value was 7.5%. At September 30, 2023, the maturity on the secured financing agreements at fair value was four years.

7. Securitized Debt

All of the Company’s securitized debt is collateralized by residential mortgage loans or Non-Agency RMBS. For financial reporting purposes, the Company’s securitized debt is accounted for as secured borrowings. Thus, the residential mortgage loans or RMBS held as collateral are recorded in the assets of the Company as Loans held for investment or Non-Agency RMBS and the securitized debt is recorded as a non-recourse liability in the accompanying Consolidated Statements of Financial Condition.

Securitized Debt Collateralized by Non-Agency RMBS

At September 30, 2023 and December 31, 2022, the Company’s securitized debt collateralized by Non-Agency RMBS was carried at amortized cost and had a principal balance of $110 million, respectively. At September 30, 2023 and December 31, 2022, the debt carried a weighted average coupon of 6.7%. As of September 30, 2023, the maturities of the debt range between the years 2036 and 2037. None of the Company’s securitized debt collateralized by Non-Agency RMBS is callable.

The Company did not acquire any securitized debt collateralized by Non-Agency RMBS during the quarters and nine months ended September 30, 2023 and 2022.

The following table presents the estimated principal repayment schedule of the securitized debt collateralized by Non-Agency RMBS at September 30, 2023 and December 31, 2022, based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for projected losses on the underlying collateral of the debt. All of the securitized debt recorded in the Company’s Consolidated Statements of Financial Condition is non-recourse to the Company.


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Within One Year	$	311	$	640
One to Three Years	379		523
Three to Five Years	—		71
Greater Than Five Years	81		92
Total	$	771	$	1,326

Maturities of the Company’s securitized debt collateralized by Non-Agency RMBS are dependent upon cash flows received from the underlying collateral. The estimate of their repayment is based on scheduled principal payments on the underlying collateral. This estimate will differ from actual amounts to the extent prepayments or losses are experienced. See Note 3 for a more detailed discussion of the securities collateralizing the securitized debt.

Securitized Debt Collateralized by Loans Held for Investment

At September 30, 2023 and December 31, 2022, the Company’s securitized debt collateralized by Loans held for investment had a principal balance of $8.5 billion and $7.9 billion, respectively. At September 30, 2023 and December 31, 2022, the total securitized debt collateralized by Loans held for investment carried a weighted average coupon of 3.3% and 2.8%, respectively. As of September 30, 2023, the maturities of the debt range between the years 2029 and 2067.

During the quarter ended September 30, 2023, the Company did not acquire any securitized debt collateralized by Loans held for investment. During the nine months ended September 30, 2023, the Company 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. The Company did not acquire any securitized debt collateralized by loans held for investment during the quarter and nine months ended September 30, 2022.

The following table presents the estimated principal repayment schedule of the securitized debt collateralized by Loans held for investment at September 30, 2023 and December 31, 2022, based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for projected losses on the underlying collateral of the debt. All of the securitized debt recorded in the Company’s Consolidated Statements of Financial Condition is non-recourse to the Company.


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Within One Year	$	1,488,382	$	1,636,544
One to Three Years	2,416,199		2,535,642
Three to Five Years	1,802,768		1,733,022
Greater Than Five Years	2,806,476		1,949,240
Total	$	8,513,825	$	7,854,448

Maturities of the Company’s securitized debt collateralized by Loans held for investment are dependent upon cash flows received from the underlying loans. The estimate of their repayment is based on scheduled principal payments on the underlying loans. This estimate will differ from actual amounts to the extent prepayments or loan losses are experienced. See Note 4 for a more detailed discussion of the loans collateralizing the securitized debt.

Certain of the securitized debt collateralized by Loans held for investment contain call provisions at the option of the Company at a specific date. Other securitized debt issued by the Company contain clean-up call provisions. A clean-up call provision is a right to call the outstanding debt at pre-defined terms when the collateral falls below a certain percentage of the original balance, typically 10%. Generally, these clean-up call rights are shared with other parties to the debt, including the loan servicers and the paying agents. Clean-up calls are generally put in place to reduce the administrative burdens when a loan pool balance becomes de minimis hence uneconomical to manage. The following table presents the par value of the callable debt by year as of September 30, 2023, excluding any debt issued by the Company where the Company only has a clean-up call.


September 30, 2023
(dollars in thousands)
Year	Principal





Currently callable	$	1,601,525
2023	503,948
2024	1,233,096
2025	2,537,672
2026	605,287
2027	774,494
2028	620,637
Total	$	7,876,659

8. Consolidated Securitization Vehicles and Other Variable Interest Entities

Since its inception, the Company has utilized VIEs for the purpose of securitizing whole mortgage loans or re-securitizing RMBS and obtaining long-term, non-recourse financing. The Company evaluated its interest in each VIE to determine if it is the primary beneficiary.

The Company did not consolidate any residential mortgage loans during the quarter ended September 30, 2023. During the nine months ended September 30, 2023, the Company consolidated approximately $2.6 billion unpaid principal balance of seasoned residential reperforming residential mortgage loans. During the quarter and nine months ended September 30, 2022, the Company consolidated approximately $370 million and $2.5 billion, respectively, unpaid principal balance of seasoned residential reperforming residential mortgage loans.

VIEs for Which the Company is the Primary Beneficiary

The retained beneficial interests in VIEs for which the Company is the primary beneficiary are typically the subordinated tranches of these securitizations and in some cases the Company may hold interests in additional tranches. The table below reflects the assets and liabilities recorded in the Consolidated Statements of Financial Condition related to the consolidated VIEs as of September 30, 2023 and December 31, 2022.


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Assets:
Non-Agency RMBS, at fair value (1)	$	249,825	$	276,030
Loans held for investment, at fair value	10,440,568		9,855,390
Accrued interest receivable	53,602		47,553
Other assets	14,566		20,293
Total Assets:	$	10,758,561	$	10,199,266

Liabilities:
Securitized debt, collateralized by Non-Agency RMBS	$	75,819	$	78,542
Securitized debt at fair value, collateralized by Loans held for investment	7,236,558		6,673,917
Accrued interest payable	23,421		17,427
Other liabilities	2,188		2,239
Total Liabilities:	$	7,337,986	$	6,772,125

(1) September 30, 2023 and December 31, 2022 balances includes allowance for credit losses of $5 million and $2 million, respectively.

Income and expense amounts related to consolidated VIEs recorded in the Consolidated Statements of Operations is presented in the tables below.


	For the Quarter ended
	September 30, 2023		September 30, 2022
	(dollars in thousands)
Interest income, Assets of consolidated VIEs	$	153,710	$	139,598
Interest expense, Non-recourse liabilities of VIEs	75,902		50,030
Net interest income	$	77,808	$	89,568

(Increase) decrease in provision for credit losses	$	(1,560)	$	2,284


Servicing fees	$	7,199	$	6,701


	For the Nine Months Ended
	September 30, 2023		September 30, 2022
	(dollars in thousands)
Interest income, Assets of consolidated VIEs	$	443,286	$	410,873
Interest expense, Non-recourse liabilities of VIEs	208,678		142,714
Net interest income	$	234,608	$	268,159

(Increase) decrease in provision for credit losses	$	(3,519)	$	(859)


Servicing fees	$	21,403	$	20,256

VIEs for Which the Company is Not the Primary Beneficiary

The Company is not required to consolidate VIEs in which it has concluded it does not have a controlling financial interest, and thus is not the primary beneficiary. In such cases, the Company does not have both the power to direct the entities’ most significant activities, such as rights to replace the servicer without cause, and the obligation to absorb losses or right to receive benefits that could potentially be significant to the VIEs. The Company’s investments in these unconsolidated VIEs are carried in Non-Agency RMBS on the Consolidated Statements of Financial Condition and include senior and subordinated bonds issued by the VIEs.

The fair value of the Company’s investments in each unconsolidated VIEs at September 30, 2023, ranged from less than $1 million to $20 million, with an aggregate amount of $775 million. The fair value of the Company’s investments in each unconsolidated VIEs at December 31, 2022, ranged from less than $1 million to $23 million, with an aggregate amount of $871 million. The Company’s maximum exposure to loss from these unconsolidated VIEs was $780 million and $813 million at September 30, 2023 and December 31, 2022, respectively. The maximum exposure to loss was determined as the amortized cost of the unconsolidated VIE, which represents the purchase price of the investment adjusted by any unamortized premiums or discounts as of the reporting date.

9. Derivative Instruments

In connection with the Company’s interest rate risk strategy, the Company may economically hedge a portion of its interest rate risk by entering into derivative financial instrument contracts in the form of interest rate swaps, swaptions, and U.S. Treasury futures. Swaps are used to lock in a fixed rate related to a portion of its current and anticipated payments on its secured financing agreements. The Company typically agrees to pay a fixed rate of interest, or pay rate, in exchange for the right to receive a floating rate of interest, or receive rate, over a specified period of time. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. U.S. Treasury futures are derivatives which track the prices of generic benchmark U.S. Treasury securities with identical maturity and are traded on an active exchange. It is generally the Company’s policy to close out any U.S. Treasury futures positions prior to delivering the underlying security. U.S. Treasury futures lock in a fixed rate related to a portion of its current and anticipated payments on its secured financing agreements.

The Company’s derivatives are recorded as either assets or liabilities in the Consolidated Statements of Financial Condition and measured at fair value. These derivative financial instrument contracts are not designated as hedges for GAAP; therefore, all changes in fair value are recognized in earnings. The Company elects to net the fair value of its derivative contracts by counterparty when appropriate. These contracts contain legally enforceable provisions that allow for netting or setting off of all individual derivative receivables and payables with each counterparty and therefore, the fair values of those derivative contracts are reported net by counterparty.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the contracts. In the event of a default by the counterparty, the Company could have difficulty obtaining its RMBS or cash pledged as collateral for these derivative instruments. The Company periodically monitors the credit profiles of its counterparties to determine if it is exposed to counterparty credit risk. See Note 14 for further discussion of counterparty credit risk.

The weighted average pay rate on the Company’s interest rate swap at September 30, 2023 was 3.26% and the weighted average receive rate was 5.31%. At September 30, 2023, the weighted average maturity on the Company’s interest rate swaps was less than one year.

The weighted average pay rate on the Company’s interest rate swaps at December 31, 2022 was 4.07% and the weighted average receive rate was 4.30%. At December 31, 2022, the weighted average maturity on the Company’s interest rate swaps was 4 years.

The Company did not enter into or terminate any derivative contracts during the quarter ended September 30, 2023.

The Company paid $45 million to terminate interest rate swaps with a notional value of $2.5 billion during the nine months ended September 30, 2023. The terminated swaps had original maturities ranging from 2025 to 2028.

During the nine months ended September 30, 2023, the Company entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with 3.56% strike rate. The underlying swap terms will allow the Company to pay a fix rate of 3.56% and receive floating overnight SOFR rate. Additionally, during the nine months ended September 30, 2023, the Company terminated its existing $1.0 billion notional swaption contract for a one-year swap. The Company also entered into and terminated three new swaptions contracts with $2.3 billion notional during the nine months ended September 30, 2023. The Company had net realized gains of $11 million on these swaption terminations.

During the nine months ended September 30, 2023, the Company entered into 6,000 short 5-year and 1,875 short 2-year U.S. Treasury futures contract with a notional of $600 million and $375 million, respectively, which it subsequently covered and had no outstanding U.S. Treasury futures contract at September 30, 2023. The Company had a net realized loss of $6 million on covering these short U.S. Treasury futures contract. The Company also entered into 400 call options on 2-year and 5-year U.S. Treasury futures and subsequently covered them during the nine months ended September 30, 2023 for a realized loss of $187 thousand.

During the nine months ended September 30, 2022, the Company purchased a swaption contract for a one-year forward starting swap of $1.0 billion in notional amount with a weighted average strike rate of 3.26%. The Company entered into two, pay-fixed-receive-floating, SOFR-based interest rate swaps during the quarter and nine months ended September 30, 2022 with a $885 million notional amount. The weighted average pay rate on the Company's interest rate swaps at September 30, 2022 was 3.94% and the weighted average receive rate was 2.98%. The swaps had remaining maturity range of two years to five years and weighted average maturity of three years.

The Company also maintains collateral in the form of cash margin from its counterparties to its derivative contacts. In accordance with the Company's netting policy, the Company presents the fair value of its derivative contracts net of cash margin received. See Note 14 for additional details on derivative netting.

The table below summarizes the location and fair value of the derivatives reported in the Consolidated Statements of Financial Condition after counterparty netting and posting of cash collateral as of September 30, 2023 and December 31, 2022.


			September 30, 2023
			Derivative Assets			Derivative Liabilities
Derivative Instruments	Notional Amount Outstanding		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value
			(dollars in thousands)
Interest Rate Swaps	$	1,000,000	Derivatives, at fair value	$	—	Derivatives, at fair value	$	—
Swaptions	1,500,000		Derivatives, at fair value	—		Derivatives, at fair value	$	—
U.S. Treasury futures	—		Derivatives, at fair value, net	—		Derivatives, at fair value, net	—
Total	$	2,500,000		$	—		$	—


			December 31, 2022
			Derivative Assets			Derivative Liabilities
Derivative Instruments	Notional Amount Outstanding		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value		Location on Consolidated Statements of Financial Condition	Net Estimated Fair Value/Carrying Value
			(dollars in thousands)
Interest Rate Swaps	$	1,485,000	Derivatives, at fair value, net	$	3,716	Derivatives, at fair value, net	$	—
Swaptions	1,000,000		Derivatives, at fair value, net	380		Derivatives, at fair value, net	$	—

Total	$	2,485,000		$	4,096		$	—

The effect of the Company’s derivatives on the Consolidated Statements of Operations for the quarters ended September 30, 2023 and 2022, respectively is presented below.


		Net gains (losses) on derivatives for the quarters ended
Derivative Instruments	Location on Consolidated Statements of Operations and Comprehensive Income	September 30, 2023		September 30, 2022
		(dollars in thousands)
Interest Rate Swaps	Net unrealized gains (losses) on interest rate swaps	$	(4,422)	$	3,718
Interest Rate Swaps	Net realized gains (losses) on interest rate swaps	—		—
Interest Rate Swaps	Periodic interest cost of interest rate swaps, net	4,894		(122)


Treasury futures	Net unrealized gains (losses) on derivatives	—		—
Treasury futures	Net realized gains (losses) on derivatives	—		—
Swaptions	Net unrealized gains (losses) on derivatives	4,439		6,589
Swaptions	Net realized gains (losses) on derivatives	—		—


Total		$	4,911	$	10,185


		Net gains (losses) on derivatives for the nine months ended
Derivative Instruments	Location on Consolidated Statements of Operations and Comprehensive Income	September 30, 2023		September 30, 2022
		(dollars in thousands)
Interest Rate Swaps	Net unrealized gains (losses) on interest rate swaps	$	6,510	$	3,718
Interest Rate Swaps	Net realized gains (losses) on interest rate swaps	(45,226)		—
Interest Rate Swaps	Periodic interest cost of interest rate swaps, net	11,871		(122)


Treasury futures	Net unrealized gains (losses) on derivatives	—		—
Treasury futures	Net realized gains (losses) on derivatives	(6,344)		—
Swaptions	Net unrealized gains (losses) on derivatives	2,950		4,971
Swaptions	Net realized gains (losses) on derivatives	10,613


Total		$	(19,626)	$	8,567

When the Company enters into derivative contracts, they are typically subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange, or NYSE. Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. If the Company breaches any of these provisions, it will be required to settle its obligations under

the agreements at their termination values, which approximates fair value.

10. Capital Stock

Preferred Stock

The Company declared dividends to Series A preferred stockholders of $3 million and $9 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. The Company declared dividends to Series A preferred stockholders of $3 million and $9 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

The Company declared dividends to Series B preferred stockholders of $7 million and $20 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. The Company declared dividends to Series B preferred stockholders of $7 million and $20 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

The Company declared dividends to Series C preferred stockholders of $5 million and $15 million, or $0.484375 and $1.453125 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. The Company declared dividends to Series C preferred stockholders of $5 million and $15 million, or $0.484375 and $1.453125 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

The Company declared dividends to Series D preferred stockholders of $4 million and $12 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. The Company declared dividends to Series D preferred stockholders of $4 million and $12 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

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

After June 30, 2023, all LIBOR tenors relevant to the Company ceased to be published or became no longer representative. The Company believes that the federal Adjustable Interest Rate (LIBOR) Act (the “Act”) and the related regulations promulgated thereunder are applicable to each of its 8% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”), 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) and 8% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock,” and together with the Series B Preferred Stock and the Series C Preferred Stock, the “Preferred Stock”). In light of the

applicability of the Act to the Preferred Stock, the Company believes, given all of the information available to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum will automatically replace three-month LIBOR as the reference rate for calculations of the dividend rate payable on the Preferred Stock for dividend periods from and after (i) March 30, 2024, in the case of the Series B Preferred Stock, (ii) September 30, 2025, in the case of the Series C Preferred Stock, or (iii) March 30, 2024, in the case of the Series D Preferred Stock.

Common Stock

In June 2023, the Company's Board of Directors increased the authorization of the Company's share repurchase program, or the Repurchase Program, by $73 million to $250 million. Such authorization does not have an expiration date, and at present, there is no intention to modify or otherwise rescind such authorization. Shares of the Company's common 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, or the Exchange Act. The timing, manner, price and amount of any repurchases will be determined at the Company's discretion and the program may be suspended, terminated or modified at any time, for any reason. Among other factors, the Company intends to only consider repurchasing shares of its common stock when the purchase price is less than the last publicly reported book value per common share. In addition, the Company does not intend to repurchase any shares from directors, officers or other affiliates. The program does not obligate the Company 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.

The Company did not repurchase any of its common stock during the quarters ended September 30, 2023 and 2022. The Company repurchased 5.8 million shares of its common stock at an average price of $5.66 for a total of $33 million during the nine months ended September 30, 2023. The Company repurchased approximately 5.4 million shares of its common stock at an average price of $9.10 for a total of $49 million during the nine months ended September 30, 2022. The approximate dollar value of shares that may yet be purchased under the Repurchase Program is $217 million as of September 30, 2023.

In February 2022, the Company 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, the Company amended the Existing Sales Agreements and entered into separate Distribution Agency Agreements (together with the Existing Sales Agreements, as amended, the “Sales Agreements”) with J.P. Morgan Securities LLC and UBS Securities LLC to include J.P. Morgan Securities LLC and UBS Securities LLC as additional sales agents (together with the Existing Sales Agents, the “Sales Agents”). Pursuant to the terms of the Sales Agreements, the Company 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 of 1933. The Company did not issue any shares under the at-the-market sales program during the quarter and nine months ended September 30, 2023, and year ended December 31, 2022.

During the quarter and nine months ended September 30, 2023, the Company declared dividends to common shareholders of $42 million and $138 million or $0.18 and $0.59 per share, respectively. During the quarter and nine months ended September 30, 2022, the Company declared dividends to common shareholders of $56 million and $212 million, or $0.23 and $0.89 per share, respectively.

Earnings per Share (EPS)

EPS for the quarters and nine months ended September 30, 2023 and 2022 are computed as follows:


	For the Quarters Ended
	September 30, 2023		September 30, 2022
	(dollars in thousands)
Numerator:
Net income (loss) available to common shareholders - Basic	$	(16,268)	$	(204,583)
Effect of dilutive securities:	—		—

Net income (loss) available to common shareholders - Diluted	$	(16,268)	$	(204,583)

Denominator:
Weighted average basic shares	226,734,643		231,750,422
Effect of dilutive securities	—		—
Weighted average dilutive shares	226,734,643		231,750,422

Net income (loss) per average share attributable to common stockholders - Basic	$	(0.07)	$	(0.88)
Net income (loss) per average share attributable to common stockholders - Diluted	$	(0.07)	$	(0.88)


	For the Nine Months Ended
	September 30, 2023		September 30, 2022
	(dollars in thousands)
Numerator:
Net income (loss) available to common shareholders - Basic	$	40,248	$	(665,549)
Effect of dilutive securities:	—		—

Net income (loss) available to common shareholders - Diluted	$	40,248	$	(665,549)

Denominator:
Weighted average basic shares	230,099,867		234,671,912
Effect of dilutive securities	2,188,451		—
Weighted average dilutive shares	232,288,318		234,671,912

Net income (loss) per average share attributable to common stockholders - Basic	$	0.17	$	(2.84)
Net income (loss) per average share attributable to common stockholders - Diluted	$	0.17	$	(2.84)

For the quarter ended September 30, 2023 potentially dilutive shares of 2.0 million were excluded from the computation of fully diluted EPS because their effect would have been anti-dilutive. For the quarter and nine months ended September 30, 2022 potentially dilutive shares of 2.4 million were excluded from the computation of fully diluted EPS because their effect would have been anti-dilutive. Anti-dilutive shares for the quarter ended quarter September 30, 2023 and nine months ended September 30, 2022 were comprised of restricted stock units and performance stock units.

11. Accumulated Other Comprehensive Income

The following table presents the changes in the components of Accumulated Other Comprehensive Income, or the AOCI, for the nine months ended September 30, 2023 and 2022:


	September 30, 2023
	(dollars in thousands)
	Unrealized gains (losses) on available-for-sale securities, net		Total Accumulated OCI Balance
Balance as of December 31, 2022	$	229,345	$	229,345
OCI before reclassifications	(49,431)		(49,431)
Amounts reclassified from AOCI	1,313		1,313
Net current period OCI	(48,118)		(48,118)
Balance as of September 30, 2023	$	181,227	$	181,227


	September 30, 2022
	(dollars in thousands)
	Unrealized gains (losses) on available-for-sale securities, net		Total Accumulated OCI Balance
Balance as of December 31, 2021	$	405,054	$	405,054
OCI before reclassifications	(160,850)		(160,850)
Amounts reclassified from AOCI	—		—
Net current period OCI	(160,850)		(160,850)
Balance as of September 30, 2022	$	244,204	$	244,204

The amounts reclassified from AOCI balance comprised of $1 million net unrealized losses on available-for-sale securities sold for the nine months ended September 30, 2023. There were no amounts reclassified from AOCI during the nine months ended September 30, 2022.

12. Equity Compensation, Employment Agreements and other Benefit Plans

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

As of September 30, 2023, approximately 20 million shares were available for future grant under the Plan.

Awards under the Plan may include stock options, stock appreciation rights (“SARs”), restricted stock, dividend equivalent rights (“DERs”) and other share-based awards (including RSUs). Under the Plan, any of these awards may be performance awards that are conditioned on the attainment of performance goals.

The Compensation Committee of the Board of Directors of the Company has approved a Stock Award Deferral Program, or the Deferral Program. Under the Deferral Program, non-employee directors and certain executive officers can elect to defer payment of certain stock awards made pursuant to the Incentive Plan. Deferred awards are treated as deferred stock units and paid at the earlier of separation from service or a date elected by the participant who is separating. Payments are generally made in a lump sum or, if elected by the participant, in five annual installments. Deferred awards receive dividend equivalents during the deferral period in the form of additional deferred stock units. Amounts are paid at the end of the deferral period by delivery of shares from the Incentive Plan (plus cash for any fractional deferred stock units), less any applicable tax withholdings. Deferral elections do not alter any vesting requirements applicable to the underlying stock award. At September 30, 2023 and December 31, 2022, there are approximately 1 million shares for which payments have been deferred until separation or a date elected by the participant, respectively. At September 30, 2023 and December 31, 2022, there are approximately 1 million dividend equivalent rights earned but not yet delivered.

Grants of Restricted Stock Units, or RSUs

The Company did not grant any RSUs during the quarters ended September 30, 2023 and 2022. During the nine months ended September 30, 2023 and 2022, the Company granted RSU awards to employees. These RSU awards are designed to reward employees of the Company for services provided to the Company. Generally, the RSU awards vest equally over a three-year period beginning from the grant date and will fully vest after three years. For employees who are retirement eligible, defined as years of service to the Company plus age, is equal to or greater than 65, the service period is considered to be fulfilled and all grants are expensed immediately. The RSU awards are valued at the market price of the Company’s common stock on the grant date and generally the employees must be employed by the Company on the vesting dates to receive the RSU awards. The Company granted 817 thousand RSU awards during the nine months ended September 30, 2023 with a grant date fair value of $5 million for the 2023 performance year. The Company granted 221 thousand RSU awards during the nine months ended September 30, 2022 with a grant date fair value of $3 million, respectively for the 2022 performance year.

Grants of Performance Share Units, or PSUs

The Company did not grant any PSUs during the quarters ended September 30, 2023 and 2022. PSU awards are designed to align compensation with the Company’s future performance. The PSU awards granted during the nine months ended September 30, 2023 and 2022, include a three-year performance period ending on December 31, 2025 and December 31, 2024, respectively. For the PSU awards granted during the nine months ended September 30, 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. The Company’s three-year Company Economic Return is equal to the Company’s 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 the Company’s best estimate of the actual number of shares awarded. For the PSU awards granted during the nine months ended September 30, 2022, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on the Company Economic Return compared to a peer group. During the nine months ended September 30, 2023, the Company granted 605 thousand PSU awards to senior management with a grant date fair value of $3 million. During the nine months ended September 30, 2022, the Company granted 128 thousand PSU awards to senior management with a grant date fair value of $2 million.

The Company recognized stock based compensation expense of $2 million and $6 million for the quarters and nine months ended September 30, 2023. The Company recognized stock based compensation expenses of $2 million and $5 million for the quarters and nine months ended September 30, 2022.

The Company also maintains a qualified 401(k) plan. The plan is a retirement savings plan that allows eligible employees to contribute a portion of their wages on a tax-deferred basis under Section 401(k) of the Code. Employees may contribute, through payroll deductions, up to $22,500 if under the age of 50 years and an additional $7,500 “catch-up” contribution for employees 50 years or older. The Company matches 100% of the first 6% of the eligible compensation deferred by employee contributions. The employer funds the 401(k) matching contributions in the form of cash, and participants may direct the Company match to an investment of their choice. The benefit of the Company’s contributions vests immediately. Generally, a participating employee is entitled to distributions from the plans upon termination of employment, retirement, death or disability. The 401(k) expenses related to the Company’s qualified plan for the quarters and nine months ended September 30, 2023 was $96 thousand and $353 thousand, respectively. The 401(k) expenses related to the Company’s qualified plan for the quarters and nine months ended September 30, 2022 was $95 thousand and $423 thousand, respectively.

13. Income Taxes

For the year ended December 31, 2022, the Company qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company is not subject to U.S. federal income tax to the extent that it makes qualifying distributions of taxable income to its stockholders. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income (subject to certain adjustments) to its shareholders and meet certain other requirements such as assets it may hold, income it may generate and its shareholder composition. It is generally the Company’s policy to distribute to its shareholders all of the Company’s taxable income.

The state and local tax jurisdictions in which the Company is subject to tax-filing obligations generally recognize the Company’s status as a REIT and, therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state, and local tax filing fees and its TRSs are subject to U.S. federal, state, and local taxes. The Company recorded current income tax expense of $75 thousand and $100 thousand for the quarter and nine months ended September 30, 2023. The Company recorded current income tax expense of $4 thousand and $28 thousand for the quarter and nine months ended September 30, 2022, respectively.

The Company’s effective tax rate differs from its combined U.S. federal, state and local corporate statutory tax rate primarily due to the deduction of dividend distributions required to be paid under Code Section 857(a).

The Company’s U.S. federal, state, and local tax returns for the tax years ending on or after December 31, 2019, remain open for examination.

14. Credit Risk and Interest Rate Risk

The Company’s primary components of market risk are credit risk and interest rate risk. The Company is subject to interest rate risk in connection with its investments in Agency MBS and Non-Agency RMBS, residential mortgage loans, borrowings under secured financing agreements and securitized debt. When the Company assumes interest rate risk, it attempts to minimize interest rate risk through asset selection, hedging and matching the income earned on mortgage assets with the cost of related financing.

The Company attempts to minimize credit risk through due diligence, asset selection and portfolio monitoring. The Company has established a whole loan target market including qualified mortgages, non-qualified mortgages and reperforming residential mortgage loans. Additionally, the Company seeks to minimize credit risk through compliance with regulatory requirements, geographic diversification, owner occupied property, and moderate loan-to-value ratios. These factors are considered to be important indicators of credit risk.

By using derivative instruments and secured financing agreements, the Company is exposed to counterparty credit risk if counterparties to the contracts do not perform as expected. If a counterparty fails to perform on a derivative instrument, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset on its balance sheet to the extent that amount exceeds collateral obtained from the counterparty or, if in a net liability position, the extent to which collateral posted exceeds the liability to the counterparty. The amounts reported as a derivative asset/(liability) are derivative contracts in a gain/(loss) position, and to the extent subject to master netting arrangements, net of derivatives in a loss/(gain) position with the same counterparty and collateral received/(pledged). If the counterparty fails to perform on a secured financing agreement, the Company is exposed to a loss to the extent that the fair value of collateral pledged exceeds the liability to the counterparty. The Company attempts to minimize counterparty credit risk by evaluating and monitoring the counterparty’s credit, executing master netting arrangements and obtaining collateral, and executing contracts and agreements with multiple counterparties to reduce exposure to a single counterparty.

The Company's secured financing agreements transactions are governed by underlying agreements that provide for a right of setoff by the lender, including in the event of default or in the event of bankruptcy of the borrowing party to the transactions. The Company's derivative transactions are governed by underlying agreements that provide for a right of setoff under master netting arrangements, including in the event of default or in the event of bankruptcy of either party to the transactions. The Company presents its assets and liabilities subject to such arrangements on a net basis in the Consolidated Statements of Financial Condition. The following table presents information about our assets and liabilities that are subject to such arrangements and can potentially be offset on our consolidated statements of financial condition as of September 30, 2023 and December 31, 2022.


	September 30, 2023
	(dollars in thousands)
	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Offset in the Consolidated Statements of Financial Position		Gross Amounts Not Offset with Financial Assets (Liabilities) in the Consolidated Statements of Financial Position
							Financial Instruments		Cash Collateral (Received) Pledged (1)		Net Amount
Secured financing agreements	$	(2,603,911)	$	—	$	(2,603,911)	$	3,670,685	$	23,490	$	1,090,264
Interest Rate Swaps - Gross Assets	13,468		(13,468)		—		—		(3,096)		(3,096)



Swaptions - Gross Assets	21,220		(21,220)		—		—		(230)		(230)


Total	$	(2,569,223)	$	(34,688)	$	(2,603,911)	$	3,670,685	$	20,164	$	1,086,938

(1) Included in other assets


	December 31, 2022
	(dollars in thousands)
	Gross Amounts of Recognized Assets (Liabilities)		Gross Amounts Offset in the Consolidated Statements of Financial Position		Net Amounts Offset in the Consolidated Statements of Financial Position		Gross Amounts Not Offset with Financial Assets (Liabilities) in the Consolidated Statements of Financial Position
							Financial Instruments		Cash Collateral (Received) Pledged (1)		Net Amount
Secured financing agreements	$	(3,434,765)	$	—	$	(3,434,765)	$	4,699,722	$	33,415	$	1,298,373
Interest Rate Swaps - Gross Assets	3,716		—		3,716		—		13,179		16,895
Interest Rate Swaps - Gross Liabilities	(14,074)		14,074		—		—		27,678		27,678


Swaptions - Gross Assets	15,077		(14,697)		380		—		—		380


Total	$	(3,430,046)	$	(623)	$	(3,430,669)	$	4,699,722	$	74,271	$	1,343,326

(1) Included in other assets

15. Commitments and Contingencies

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. In connection with certain securitization transactions engaged in by the Company, it has the obligation under certain circumstances to repurchase assets from the VIE upon breach of certain representations and warranties.

16. Subsequent Events

None.

Item 2. 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 1 of this Quarterly Report on Form 10-Q.

In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or “the Company” refer to Chimera Investment Corporation and its subsidiaries unless specifically stated otherwise or the context otherwise indicates. The following defines certain of the commonly used terms in this Quarterly Report on Form 10-Q: Agency refers to a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an agency of the U.S. Government, such as Ginnie Mae; MBS refers to mortgage-backed securities secured by pools of residential or commercial mortgage loans; RMBS refers to mortgage-backed securities secured by pools of residential mortgage loans; CMBS refers to mortgage-backed securities secured by pools of commercial mortgage loans; Agency RMBS and Agency CMBS refer to MBS that are secured by pools of residential and commercial mortgage loans, respectively, and are issued or guaranteed by an Agency; Agency MBS refers to MBS that are issued or guaranteed by an Agency and includes Agency RMBS and Agency CMBS collectively; Non-Agency RMBS refers to residential MBS that are not guaranteed by any agency of the U.S. Government or any Agency; IO refers to Interest-only securities.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this report that are subject to risks and uncertainties. These forward-looking statements include information about, among other things, possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘plan,’’ ‘‘continue,’’ ‘‘intend,’’ ‘‘should,’’ ‘‘may,’’ ‘‘would,’’ ‘‘will’’ or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, are forward-looking by their nature:

•our business and investment strategy;

•our ability to accurately forecast the payment of future dividends on our common and preferred stock, and the amount of such dividends;

•our ability to determine accurately the fair market value of our assets;

•availability of investment opportunities in real estate-related and other securities, including our valuation of potential opportunities that may arise as a result of current and future market dislocations;

•our expected investments;

•changes in the value of our investments, including negative changes resulting in margin calls related to the financing of our assets;

•changes in inflation, interest rates and mortgage prepayment rates;

•prepayments of the mortgage and other loans underlying our mortgage-backed securities, or MBS, or other asset-backed securities, or ABS;

•rates of default, delinquencies, forbearance, deferred payments or decreased recovery rates on our investments;

•general volatility of the securities markets in which we invest;

•our ability to maintain existing financing arrangements and our ability to obtain future financing arrangements;

•our ability to affect our strategy to securitize residential mortgage loans;

•interest rate mismatches between our investments and our borrowings used to finance such purchases;

•effects of interest rate caps on our adjustable-rate investments;

•the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•the impact of and changes to various government programs;

•the impact of and changes in governmental regulations, tax law and rates, accounting guidance, and similar matters;

•market trends in our industry, interest rates, the debt securities markets or the general economy;

•estimates relating to our ability to make distributions to our stockholders in the future;

•our understanding of our competition;

•our ability to find and retain qualified personnel;

•our ability to maintain our classification as a real estate investment trust, or REIT, for U.S. federal income tax purposes;

•our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or 1940 Act;

•our expectations regarding materiality or significance;

•the effectiveness of our disclosure controls and procedures; and

•changes in Adjustable Interest Rate (LIBOR) Act (the “Act”), additional regulations under the Act or changes in the interpretation of the Act and related regulations.

Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and prospects may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We are a publicly traded REIT that is primarily engaged in the business of investing directly or having a beneficial interest in a diversified portfolio of mortgage assets, including residential mortgage loans, Non-Agency RMBS, Agency RMBS, Agency CMBS, business purpose and investor loans, and other real estate-related assets. The MBS and other real estate-related securities we purchase may include investment-grade, non-investment grade, and non-rated classes. We use leverage to increase potential returns from our investments. Our principal business objective is to provide attractive risk-adjusted returns through the generation of distributable income and through asset performance linked to mortgage credit fundamentals. We selectively invest in residential mortgage assets with a focus on credit analysis, projected prepayment rates, interest rate sensitivity and expected return.

We currently focus our investment activities primarily on acquiring residential mortgage loans. In addition, we acquire and own Non-Agency RMBS and Agency mortgage-backed securities, or MBS. At September 30, 2023, based on the fair value of our interest earning assets, approximately 91% of our investment portfolio was residential mortgage loans, 8% of our investment portfolio was Non-Agency RMBS, and 1% of our investment portfolio was Agency MBS. At December 31, 2022, based on the fair value of our interest earning assets, approximately 88% of our investment portfolio was residential mortgage loans, 9% of our investment portfolio was Non-Agency RMBS, and 3% of our investment portfolio was Agency MBS.

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

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

Business Update

After gaining nearly 17% in the first half of 2023, the S&P 500 posted a negative return of 3.3% in the third quarter. Increased concerns over government deficit spending and high inflation caused bond prices to decline and their yields to rise further. Many fixed-income investors began the quarter optimistic that the Federal Reserve had orchestrated a soft landing for the economy, and that the era of tight monetary policy would soon come to an end. That outlook turned negative over August and September, and the prospect of a sustained period of higher rates prevailed. Overall, the U.S. labor market appears very strong. Inflation, rose slightly in August, but has been on a downward trend since the third quarter of 2022; however, overall inflation still remains high. Comments from Fed policymakers suggest a further rate hike is likely to come before the end of the year, while the dot plot now illustrates a higher median rate for 2024. Overall, in the third quarter, the fixed-income markets experienced both increased volatility and higher interest rates. Financing costs for the government and private sector increased to levels not seen in well over a decade. Considering the market conditions our investment activity was limited to purchase of $32 million of Residential transition loans with a weighted-average-coupon of 10.84% and a $4 million of Non-Agency bond.

Interest rate volatility had a larger impact on medium to longer-term maturities along the yield curve. Over the quarter, the 2-year treasury increased by 15 basis points and the 10-year treasury increased by 73 basis points. At the July FOMC meeting, the Fed increased overnight rates by 25 basis points and did not further increase rates in September. Higher interest rates experienced in 2023 have negatively impacted the cost of borrowing for homeowners and consumers. According to Freddie Mac, the 30-year mortgage rate ended the quarter at 7.5 %, up from their low of 2.8 % in 2021. We believe the Federal Reserve could raise short-term rates again in the fourth quarter, and market sentiment will continue to be higher rates for the longer term. As such, strengthening our balance sheet and managing our liabilities continue to remain the top focus of management. The repurchase financing markets continued to operate smoothly in the third quarter, and during the quarter we continued to roll existing repurchase fundings while committing to de-lever the portfolio, where appropriate, and until market conditions improve. For the third quarter, our securitized debt and repurchase borrowings decreased by $444 million and $83 million, respectively. We continue to believe securitization is the optimal financing technique for our liabilities as it enables long-term non-mark-to-market financing on our residential mortgage loans. Our repurchase funding costs increased by 23 basis-points during the quarter, modestly higher than the second quarter and securitized debt represented approximately 74% of our total liabilities. Additionally, during the third quarter, we began the process of refinancing an existing high fixed rate non-mark-to-market financing into a new two-year limited mark-to-market variable rate with a rate cap that is significantly lower than existing facility. This refinancing was completed in October 2023.

Market Conditions and our Strategy

Looking ahead to the fourth quarter, financial markets continue to be roiled by a litany of factors both economically and geopolitically. The increase in rates along the yield curve will likely impact inflation and the economy as much as Fed actions. While it does appear that the Fed is nearing the end of its hiking cycle of short-term interest rates, it is also clear that there is a likely prospect of persistent higher rates. The uptrend in yields could continue and a persistent move in 10-year Treasury yields above 5% is possible. Home sales are on pace for the slowest year since the great financial crisis in 2008. Elevated home prices, constrained housing inventory, and high mortgage rates have created a housing affordability crisis. Apart from data driven volatility, there is also a rising risk of a government shutdown that could further exacerbate volatility in the capital markets.

Corporate bond markets outperformed government bonds, with spreads tightening in Investment Grade (IG) and modestly wider in High Yield (HY).

Securitized Products spreads ended the quarter mixed with tops of the capital stack seeing marginal widening while bottoms of the stack seeing significant tightening – driven by strong housing market fundamentals and strong technical indicators. While Non-Agency RMBS supply picked up this quarter – new issuance is still running approximately 50% less than the same period last year. Reperforming loans held up well given its shorter duration and strong credit profile driven by seasoning and low amortized HPI adjusted LTVs. Agency RMBS spreads hit historic wides. Spread widening was driven by increased volatility as longer-term treasuries sold-off. Technical indicators also remain negative with continued runoff from the Fed and reduced bank participation. The outlook going forward points to continued uncertainty over interest rates as well as spreads, especially given the recent geopolitical turmoil.

Higher interest rates at the end of the quarter drove a decline in our book value per common share to $6.90 as of September 30, 2023, as compared to $7.29 as of June 30, 2023.

We continue to manage our portfolio consistent with our belief that interest rates will be higher for longer. For the first nine months of 2023, we reduced our total recourse financing exposure by $831 million. We continue to seek opportunities to finance our retained notes from securitizations with long-term, limited, or non-mark-to market finance facilities. We currently have 58% of our recourse financings with these facilities. To further manage our interest rate risk, we intend to use financial derivatives such as futures, interest rate swaps and swaptions to hedge against securitization executions, net interest margin compression and the protection of our book value.

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

As we navigate current market conditions, we are focused on maintaining low recourse leverage and managing our liquidity with a proper balance of both cash and unencumbered securities. Our credit portfolio continued to perform well in the third quarter. Our current credit performance on our portfolio is within, or better than, our original investment expectations on mortgage delinquencies, default rates, and recoveries. We monitor our portfolio regularly and seek opportunities to improve upon our liquidity, capital structure and investment returns. We have historically achieved success through re-securitization and have a substantial amount of capital that can be re-captured in the future. We believe there will be ample opportunity to extract additional portfolio value when interest rates moderate and the capital markets improve.

During the third quarter, we declared $0.18 dividend per share of common stock. Our Economic Return (as measured by the net change in book value per common share plus common stock dividend) was (2.9%) for the third quarter of 2023 and 0.0% for the nine months ended September 30, 2023.

Business Operations

Net Income (Loss) Summary

The table below presents our net income (loss) on a GAAP basis for the quarters ended September 30, 2023 and June 30, 2023, and the nine months ended September 30, 2023 and September 30, 2022.


Net Income (Loss)
(dollars in thousands, except share and per share data)
(unaudited)
	For the Quarters Ended						For the Nine Months Ended
	September 30, 2023		June 30, 2023		QoQ Change			September 30, 2023		September 30, 2022		YoY Change
Net interest income:
Interest income (1)	$	195,591	$	196,859	$	(1,268)		$	581,700	$	585,835	$	(4,135)
Interest expense (2)	132,193		131,181		1,012			382,988		226,403		156,585
Net interest income	63,398		65,678		(2,280)			198,712		359,432		(160,720)

Increase (decrease) in provision for credit losses	3,217		2,762		455			9,041		3,203		5,838








Other investment gains (losses):
Net unrealized gains (losses) on derivatives	17		17,994		(17,977)			9,460		8,689		771
Realized gains (losses) on derivatives	—		(6,822)		6,822			(40,957)		—		(40,957)
Periodic interest cost of swaps, net	4,894		4,159		735			11,871		(122)		11,993
Net gains (losses) on derivatives	4,911		15,331		(10,420)			(19,626)		8,567		(28,193)
Net unrealized gains (losses) on financial instruments at fair value	(43,988)		6,954		(50,942)			27,558		(848,925)		876,483
Net realized gains (losses) on sales of investments	(460)		(21,758)		21,298			(27,482)		(37,031)		9,549

Gains (losses) on extinguishment of debt	—		4,039		(4,039)			6,348		(2,897)		9,245
Other investment gains (losses)	2,381		(421)		2,802			2,077		517		1,560
Total other gains (losses)	(37,156)		4,145		(41,301)			(11,125)		(879,769)		868,644




Other expenses:




Compensation and benefits	7,124		7,677		(553)			25,292		30,211		(4,919)
General and administrative expenses	5,427		6,471		(1,044)			17,674		16,493		1,181
Servicing and asset manager fees	8,139		8,408		(269)			24,965		27,122		(2,157)
Transaction expenses	90		8,456		(8,366)			14,955		12,872		2,083
Total other expenses	20,780		31,012		(10,232)			82,886		86,698		(3,812)
Income (loss) before income taxes	2,245		36,049		(33,804)			95,660		(610,238)		705,898
Income taxes	75		25		50			100		28		72
Net income (loss)	$	2,170	$	36,024	$	(33,854)		$	95,560	$	(610,266)	$	705,826

Dividends on preferred stock	18,438		18,438		—			55,313		55,283		30

Net income (loss) available to common shareholders	$	(16,268)	$	17,586	$	(33,854)		$	40,248	$	(665,549)	$	705,797

Net income (loss) per share available to common shareholders:
Basic	$	(0.07)	$	0.08	$	(0.15)		$	0.17	$	(2.84)	$	3.01
Diluted	$	(0.07)	$	0.08	$	(0.15)		$	0.17	$	(2.84)	$	3.01

Weighted average number of common shares outstanding:
Basic	226,734,643		231,628,141		(4,893,498)			230,099,867		234,671,912		(4,572,045)
Diluted	226,734,643		233,867,501		(5,135,311)			232,288,318		234,671,912		(2,383,594)


Dividends declared per share of common stock	$	0.18	$	0.23	$	(0.05)		$	0.59	$	0.89	$	(0.30)

Results of Operations for the quarters ended September 30, 2023, and June 30, 2023, and for the nine months ended September 30, 2023 and September 30, 2022.

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

Quarter ended September 30, 2023 compared to the Quarter ended June 30, 2023

For the quarter ended September 30, 2023, our net loss available to common shareholders was $16 million, or $0.07 per average basic common share, compared to a net income of $18 million, or $0.08 per average basic common share, for the quarter ended June 30, 2023. During the quarter ended September 30, 2023, we had unrealized losses on financial instruments at fair value of $44 million and other expenses of $21 million, partially offset by net interest income of $63 million.

The continued market volatility and rising interest rates during the third quarter of 2023 resulted in net unrealized losses on financial instruments at fair value, while our other expenses declined, our net interest income remained relatively unchanged resulting in a net loss available to common shareholders, as compared to a net income available to common shareholders during the quarter ended June 30, 2023. During the quarter ended September 30, 2023, our unrealized losses on financial instruments at fair value increased by $51 million and our net gains on derivatives decreased by $10 million which was partially offset by a decrease in realized losses on sale of investment of $21 million, and a decrease in other expenses of $10 million as compared to the quarter ended June 30, 2023.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

For the nine months ended September 30, 2023, our net income available to common shareholders was $40 million, or $0.17 per average basic common share, compared to a net loss of $666 million, or a loss of $2.84 per average basic common share, for the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we had net interest income of $199 million and unrealized gains on financial instruments at fair value of $28 million offset in part by operating expenses and preferred stock dividends of $83 million and $55 million. During the nine months ended September 30, 2022 we had $849 million in unrealized losses on financial instruments at fair value, partially offset by $359 million of net interest income. 2022 demonstrated a significant amount of market volatility, resulting in a mark to market losses on our investment portfolio of $849 million. 2023, while still experiencing significant market volatility, has thus far been considerably more stable and market prices relatively unchanged.

Interest Income

Quarter ended September 30, 2023 compared to the Quarter ended June 30, 2023

Interest income decreased slightly by $1 million, or 1%, to $196 million for the quarter ended September 30, 2023 as compared to $197 million for the quarter ended June 30, 2023. The yields on our average interest earning assets increased by 20 basis points at 5.8% while our average interest earning assets decreased by $454 million to $13.3 billion during the quarter ended September 30, 2023, as compared to the yields on average interest earning asset of 5.6% and average interest earning assets of $13.7 billion for the quarter ended June 30, 2023 driving the slight decrease in the interest income.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Interest income decreased by $4 million, or 1%, to $582 million for the nine months ended September 30, 2023 as compared to $586 million for the nine months ended September 30, 2022. This decrease in our interest income during the nine months ended September 30, 2023 was primarily driven by a decline in our average interest earning assets and lower prepayment penalties on our Agency CMBS investments as compared to the nine months ended September 30, 2022. We reduced our average interest earning asset balances by $180 million to $13.5 billion as compared to $13.7 billion from the same period of 2022. Our Agency CMBS interest income decreased by $27 million, primarily due to lower prepayment penalties and lower asset balances, and Non-Agency RMBS portfolio interest income decreased by $30 million due to lower asset balances and lower yields during the nine months ended September 30, 2023 as compared to the same period of 2022. These decreases were partially offset by an increase in interest income of $46 million on our Loans held for investment due to higher asset balances and higher yields during the nine months ended September 30, 2023 as compared to the same period of 2022.

Interest Expense

Quarter ended September 30, 2023 compared to the Quarter ended June 30, 2023

Interest expense increased slightly by $1 million, or 1%, to $132 million for the quarter ended September 30, 2023 as compared to $131 million for the quarter ended June 30, 2023. The interest expense on securitized debt increased by $3 million for the quarter ended September 30, 2023 due to an increase in average debt balance and higher borrowing rates compared to the quarter ended June 30, 2023. This increase was partially offset by lower interest expense on our secured financing agreements collateralized by Non-Agency and loans of $2 million, due to lower secured financing balances.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Interest expense increased by $157 million, or 69%, to $383 million for the nine months ended September 30, 2023 as compared to $226 million for the nine months ended September 30, 2022. This increase in our interest expense during the nine months ended September 30, 2023, as compared to the same period of 2022, was primarily driven by the increases in borrowing rates on our secured financing agreements and securitized debt, due to increases in the Federal Funds Rate. The interest expense on our securitized debt increased by $64 million during the nine months ended September 30, 2023, as the average borrowing rates on our securitizations increased by 90 basis points as compared to the nine months ended September 30, 2022. During the nine months ended September 30, 2023, our interest expense on secured financing agreements collateralized by Loans held for investments, Non-Agency RMBS and Agency MBS increased by $45 million, $32 million and $3 million, respectively, due to the higher Federal Funds Rate.

Economic Net Interest Income

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


	GAAP Interest Income		GAAP Interest Expense		Periodic Interest Cost of Interest Rate Swaps		Economic Interest Expense		GAAP Net Interest Income		Periodic Interest Cost of Interest Rate Swaps		Other (1)		Economic Net Interest Income




For the Quarter Ended September 30, 2023	$	195,591	$	132,193	$	(4,894)	$	127,299	$	63,398	$	4,894	$	(2,301)	$	65,991
For the Quarter Ended June 30, 2023	$	196,859	$	131,181	$	(4,159)	$	127,022	$	65,678	$	4,159	$	(2,884)	$	66,953
For the Quarter Ended March 31, 2023	$	189,250	$	119,615	$	(2,819)	$	116,796	$	69,635	$	2,819	$	(3,035)	$	69,419
For the Quarter Ended December 31, 2022	$	187,286	$	106,891	$	1,629	$	108,520	$	80,395	$	(1,629)	$	(1,867)	$	76,899
For the Quarter Ended September 30, 2022	$	188,303	$	83,464	$	122	$	83,586	$	104,839	$	(122)	$	(540)	$	104,177

(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.


	For the Quarter Ended
	September 30, 2023						June 30, 2023
	(dollars in thousands)						(dollars in thousands)
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets:
Interest-earning assets (1):
Agency RMBS	$	18,990	$	234	4.9	%	$	18,798	$	305	6.5	%
Agency CMBS	124,094		1,701		5.5	%	165,270		1,728		4.2	%
Non-Agency RMBS	961,257		28,826		12.0	%	976,994		29,543		12.1	%
Loans held for investment	12,188,221		162,530		5.3	%	12,585,384		162,399		5.2	%
Total	$	13,292,562	$	193,290	5.8	%	$	13,746,444	$	193,975	5.6	%

Liabilities and stockholders' equity:
Interest-bearing liabilities (2):

Secured financing agreements collateralized by:
Agency RMBS	$	—	$	—	—	%	$	1,994	$	27	5.4	%
Agency CMBS	90,205		1,200		5.3	%	133,306		1,651		5.0	%
Non-Agency RMBS	742,579		17,769		9.6	%	772,486		17,438		9.0	%
Loans held for investment	1,832,445		29,896		6.5	%	2,024,638		32,652		6.5	%
Securitized debt	8,663,773		78,434		3.6	%	8,584,803		75,254		3.5	%
Total	$	11,329,002	$	127,299	4.5	%	$	11,517,226	$	127,022	4.4	%

Economic net interest income/net interest rate spread			$	65,991	1.3	%			$	66,953	1.2	%

Net interest-earning assets/net interest margin	$	1,963,560			2.0	%	$	2,229,219			1.9	%

Ratio of interest-earning assets to interest bearing liabilities	1.17						1.19

(1) Interest-earning assets at amortized cost
(2) Interest includes periodic net interest cost on swaps


	For the Nine Months Ended
	September 30, 2023						September 30, 2022
	(dollars in thousands)						(dollars in thousands)
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets:
Interest-earning assets (1):
Agency RMBS	$	18,828	$	861	6.1	%	$	115,393	$	839	1.0	%
Agency CMBS	199,879		6,386		4.3	%	496,384		33,593		9.0	%
Non-Agency RMBS	976,616		88,467		12.1	%	1,168,586		118,603		13.5	%
Loans held for investment	12,326,662		477,768		5.2	%	11,921,301		432,162		4.8	%
Total	$	13,521,986	$	573,481	5.7	%	$	13,701,664	$	585,197	5.7	%

Liabilities and stockholders' equity:
Interest-bearing liabilities (2):

Secured financing agreements collateralized by:
Agency RMBS	$	2,017	$	118	7.8	%	$	14,024	$	111	1.1	%
Agency CMBS	159,306		5,807		4.9	%	382,806		3,048		1.1	%
Non-Agency RMBS	756,784		51,270		9.0	%	835,233		19,037		3.0	%
Loans held for investment	2,013,238		97,329		6.4	%	1,971,247		52,098		3.5	%
Securitized debt	8,412,347		216,594		3.4	%	8,077,615		152,231		2.5	%
Total	$	11,343,691	$	371,117	4.4	%	$	11,280,925	$	226,525	2.7	%

Economic net interest income/net interest rate spread			$	202,363	1.3	%			$	358,672	3.0	%

Net interest-earning assets/net interest margin	$	2,178,295			2.0	%	$	2,420,739			3.5	%

Ratio of interest-earning assets to interest bearing liabilities	1.19						1.21

(1) Interest-earning assets at amortized cost
(2) Interest includes periodic net interest cost on swaps

Economic Net Interest Income and the Average Earning Assets

Quarter ended September 30, 2023 compared to the Quarter ended June 30, 2023

Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) decreased slightly by $1 million to $66 million for the quarter ended September 30, 2023 from $67 million for the quarter ended June 30, 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 10 basis points for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 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 10 basis points for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023. Our Average net interest-earning assets decreased by $266 million to $2.0 billion for the quarter ended September 30, 2023, compared to $2.2 billion for the quarter ended June 30, 2023. The increase in our net interest rate spread for the quarter ended September 30, 2023 as compared to the quarter ended June 30, 2023 is primarily due to an increase in our interest earning asset yields.

Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Our Economic net interest income (which is a non-GAAP measure, see “Economic net interest income” discussion earlier for details) decreased by $157 million to $202 million for the nine months ended September 30, 2023 from $359 million for the nine months ended September 30, 2022. Our net interest rate spread, which equals the yield on our average interest-earning assets less the economic average cost of funds, decreased by 170 basis points for the nine months ended September 30, 2023, as compared to the same period of 2022. The net interest margin, which equals the Economic net interest income as a percentage of the net average balance of our interest-earning assets less our interest-bearing liabilities, decreased by 150 basis points for the nine months ended September 30, 2023, as compared to the same period of 2022. Our Average net interest-earning assets decreased by $242 million to $2.2 billion for the nine months ended September 30, 2023, compared to $2.4 billion for the same period of 2022. The decrease in our net interest rate spread for the nine months ended September 30, 2023 as compared to the

nine months ended September 30, 2022 is primarily due to higher interest expense on our securitized debt collateralized by loans and secured financing agreements due to higher Federal Funds Rate.

Economic Interest Expense and the Cost of Funds

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


	Average Debt Balance		Economic Interest Expense		Average Cost of Funds		Average One-Month SOFR		Average Three-Month SOFR		Average One-Month SOFR Relative to Average Three-Month SOFR
	(Ratios have been annualized, dollars in thousands)




For the Quarter Ended September 30, 2023	$	11,329,002	$	127,299	4.49	%	5.30	%	5.37	%	(0.07)	%
For the Quarter Ended June 30, 2023	$	11,517,226	$	127,022	4.41	%	5.04	%	5.13	%	(0.09)	%
For the Quarter Ended March 31, 2023	$	11,258,996	$	116,796	4.15	%	4.62	%	4.79	%	(0.35)	%
For the Quarter Ended December 31, 2022	$	11,180,313	$	108,520	3.88	%	3.89	%	4.24	%	(0.39)	%
For the Quarter Ended September 30, 2022	$	11,233,052	$	83,586	2.98	%	2.45	%	2.84	%	(0.39)	%

Average interest-bearing liabilities decreased by $188 million for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023. Economic interest expense remained relatively unchanged at $127 million for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023.

Average interest-bearing liabilities increased by $63 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022. Economic interest expense increased by $145 million for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 due to the increases in our secured financing agreements and securitized debt borrowing rates driven by higher Federal Funds Rates.

While we may use interest rate hedges to mitigate risks related to changes in interest rate, the hedges may not fully offset interest expense movements.

Provision for Credit Losses

For the quarters ended September 30, 2023 and June 30, 2023 our provision for credit losses was $3 million and $3 million, respectively, and remained relatively unchanged. For the nine month ended September 30, 2023, we recorded an increase in provision for credit losses of $9 million, as compared to an increase in provision of credit losses of $3 million for the nine months ended September 30, 2022. The increase in provision for credit losses for the nine months ended September 30, 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 Treasury futures.

The table below shows a summary of our net gains (losses) on derivative instruments, for the quarters ended September 30, 2023 and June 30, 2023, and, nine months ended September 30, 2023 and September 30, 2022, respectively.


	For the Quarter Ended
		September 30, 2023		June 30, 2023
		(dollars in thousands)
Periodic interest income (expense) on interest rate swaps, net		$	4,894	$	4,159
Realized gains (losses) on derivative instruments, net:

Swaps - Terminations		—		—
Treasury futures		—		(6,822)
Swaptions		—		—

Total realized gains (losses) on derivative instruments, net		—		(6,822)
Unrealized gains (losses) on derivative instruments, net:
Interest rate swaps		(4,422)		3,023

Treasury futures		—		6,851
Swaptions		4,439		8,120

Total unrealized gains (losses) on derivative instruments, net:		17		17,994
Total gains (losses) on derivative instruments, net		$	4,911	$	15,331


	For the Nine Months Ended
		September 30, 2023		September 30, 2022
		(dollars in thousands)
Periodic interest income (expense) on interest rate swaps, net		11,871		(122)
Realized gains (losses) on derivative instruments, net:

Swaps - Terminations		(45,226)		—
Treasury futures		(6,344)		—
Swaptions		10,613		—

Total realized gains (losses) on derivative instruments, net		(40,957)		—
Unrealized gains (losses) on derivative instruments, net:
Interest rate swaps		$	6,510	3,718

Treasury futures		—		—
Swaptions		2,950		4,971

Total unrealized gains (losses) on derivative instruments, net:		9,460		8,689
Total gains (losses) on derivative instruments, net		$	(19,626)	$	8,567

During the quarter ended September 30, 2023, and June 30, 2023, we recognized total net gain on derivatives of $5 million and $15 million, respectively. During the nine months ended September 30, 2023 and September 30, 2022, we recognized total net losses on derivatives of $20 million and net gains on derivatives of $9 million, respectively.

Unrealized gains and losses include the change in market value, period over period, on our derivatives portfolio. Changes in market value are generally a result of changes in interest rates. We may or may not ultimately realize these unrealized derivative gains and losses depending on trade activity, changes in interest rates and the values of the underlying securities.

The weighted average pay rate on the our interest rate swap at September 30, 2023 was 3.26% and the weighted average receive rate was 5.31%. At September 30, 2023, the weighted average maturity on our interest rate swaps was less than one year. The weighted average pay rate on our interest rate swaps at December 31, 2022 was 4.07% and the weighted average receive rate was 4.30%. At December 31, 2022, the weighted average maturity on our interest rate swaps was 4 years.

We did not enter into or terminate any derivative contracts during the quarter ended September 30, 2023. We paid $45 million to terminate interest rate swaps with a notional value of $2.5 billion during the nine months ended September 30, 2023. The terminated swaps had original maturities ranging from 2025 to 2028.

During the nine months ended September 30, 2023, we entered into three swaption contracts for a one-year forward starting swaps with a total notional of $1.5 billion with a weighted average strike rate of 3.56%. The underlying swap terms will allow us to pay a fix rate of 3.56% and receive floating overnight SOFR rate. Additionally, during the nine months ended September 30, 2023, we terminated our existing $1.0 billion notional swaption contract for a one-year swap. We also entered

into and terminated three new swaptions contracts with $2.3 billion notional during the nine months ended September 30, 2023. We had net realized gains of $11 million on these swaption terminations.

During the nine months ended September 30, 2023, we entered into 6,000 short 5-year and 1,875 short 2-year U.S. Treasury futures contract with a notional of $600 million and $375 million, respectively, which we subsequently covered and had no outstanding U.S. Treasury futures contract at September 30, 2023. We had a net realized loss of $6 million on covering these short U.S. Treasury futures contract. We also entered into 400 call options on 2-year and 5-year U.S. Treasury futures and subsequently covered them during the nine months ended September 30, 2023 for a realized loss of $187 thousand.

During the nine months ended September 30, 2022, we purchased a swaption contract for a one-year forward starting swap of $1.0 billion in notional amount with a 3.26% strike rate. We entered into two, pay-fixed-receive-floating, SOFR-based interest rate swaps during the quarter and nine months ended September 30, 2022 with a $885 million notional amount. The weighted average pay rate on our interest rate swaps at September 30, 2022 was 3.94% and the weighted average receive rate was 2.98%. The swaps had remaining maturity range of two years to five years and weighted average maturity of three years.

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

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

We recorded Net unrealized losses on financial instruments at fair value of $44 million for the quarter ended September 30, 2023, as compared to Net unrealized gains on financial instruments at fair value of $7 million for the quarter ended June 30, 2023. Unrealized losses were due to higher market yields in the market, reducing market prices. Overall increases in market yields during the third quarter of 2023 was due to the market adjusting to higher rates for longer resulted in lower prices and more unrealized losses in the third quarter of 2023 as compared to the same period of 2022.

We recorded Net unrealized gains on financial instruments at fair value of $28 million for the nine months ended September 30, 2023, as compared to Net unrealized losses on financial instruments at fair value of $849 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023 changes in market value were not significant compared to the nine months ended September 30, 2022. The rate increases in 2022 and overall increased market yields resulted in significant increases in unrealized loss during the nine months ended September 30, 2022.

Gains and Losses on Sales of Assets

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

During the quarters ended September 30, 2023, and June 30, 2023 we sold some of our Agency CMBS investments as a part of our portfolio optimization efforts and realized a loss of $460 thousand and $22 million, respectively. During the nine months ended September 30, 2023 we recorded a realized loss of $27 million as we sold some our Agency CMBS investments. During the nine months ended September 30, 2022, we sold some of our Agency IO investments and realized a loss of $37 million.

Extinguishment of Securitized 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 quarters ended September 30, 2023 and June 30, 2023, and nine months ended September 30, 2023 and September 30, 2022.

Securitized Debt Collateralized by Loans Held for Investment

We did not acquire any securitized debt collateralized by loans held for investment during the quarter ended September 30, 2023. During the quarter ended June 30, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $212 million for $208 million. This transaction resulted in net gain on extinguishment of debt of $4 million.

During the nine months ended September 30, 2023, we acquired securitized debt collateralized by Loans held for investment with an amortized cost balance of $551 million for $545 million. These transactions resulted in net gain on extinguishment of debt of $6 million. We did not acquire any securitized debt collateralized by loans held for investment during the nine months ended September 30, 2022.

Compensation, General and Administrative Expenses and Transaction Expenses

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


	Total Compensation, G&A and Transaction Expenses		Total Compensation, G&A and Transaction Expenses/Average Assets		Total Compensation, G&A and Transaction Expenses/Average Equity
	(Ratios have been annualized, dollars in thousands)




For the Quarter Ended September 30, 2023	$	12,641	0.38	%	1.99	%
For the Quarter Ended June 30, 2023	$	22,604	0.65	%	3.46	%
For the Quarter Ended March 31, 2023	$	22,678	0.66	%	3.41	%
For the Quarter Ended December 31, 2022	$	28,599	0.85	%	4.30	%
For the Quarter Ended September 30, 2022	$	17,177	0.50	%	2.44	%

The Compensation and benefit costs were approximately $7 million and $8 million for the quarters ended September 30, 2023, and June 30, 2023, respectively. The Compensation and benefit costs were approximately $25 million and $30 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. The decrease in Compensation and benefit costs were primarily driven by lower performance based compensation costs.

The general and administrative expenses were approximately $5 million and $6 million for the quarters ended September 30, 2023, and June 30, 2023, respectively. The general and administrative expenses were approximately $18 million and $16 million for the nine months ended September 30, 2023 and September 30, 2022, respectively, and increased by $2 million. The G&A expenses are primarily comprised of legal, market data and research, auditing, consulting, information technology, and independent investment consulting expenses.

We incurred transaction expenses in relation to securitizations of $90 thousand and $8 million for the quarters ended September 30, 2023 and June 30, 2023 , respectively. The decrease in transaction expense for the quarter ended September 30, 2023 as compared to the quarter ended June 30, 2023 was driven by lower call and securitization activity. The transactions expenses were approximately $15 million and $13 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Servicing and Asset Manager Fees

Servicing fees and asset manager expenses remained relatively unchanged at $8 million and $8 million for the quarters ended September 30, 2023 and June 30, 2023, respectively. The servicing fees and asset manager expenses were $25 million and $27 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. These servicing fees are primarily related to the servicing costs of the whole loans held in consolidated securitization vehicles and are paid from interest income earned by the VIEs. The servicing fees generally range from 2 to 50 basis points of unpaid principal balances of our consolidated VIEs.

Earnings available for distribution

Earnings available for distribution is a non-GAAP measure and is defined as GAAP net income excluding unrealized gains or losses on financial instruments carried at fair value with changes in fair value recorded in earnings, realized gains or losses on the sales of investments, gains or losses on the extinguishment of debt, changes in the provision for credit losses, other gains or losses on equity investments, and transaction expenses incurred. Transaction expenses are primarily comprised of costs only incurred at the time of execution of our securitizations and certain structured secured financing agreements and include costs such as underwriting fees, legal fees, diligence fees, bank fees and other similar transaction related expenses. These costs are all incurred prior to or at the execution of the transaction and do not recur. Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from earnings available for distribution. We believe that excluding these costs is useful to investors as it is generally consistent with our peer groups treatment of these costs in their non-GAAP measures presentation, mitigates period to period comparability issues tied to the timing of securitization and

structured finance transactions, and is consistent with the accounting for the deferral of debt issue costs prior to the fair value election option made by us. In addition, we believe it is important for investors to review this metric which is consistent with how management internally evaluates the performance of the Company. Stock compensation expense charges incurred on awards to retirement eligible employees is reflected as an expense over a vesting period (generally 36 months) rather than reported as an immediate expense.

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

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

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


	For the Quarters Ended
	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
	(dollars in thousands, except per share data)
GAAP Net income (loss) available to common stockholders	$	(16,268)	$	17,586	$	38,928	$	78,716	$	(204,583)
Adjustments:
Net unrealized (gains) losses on financial instruments at fair value	43,988		(6,954)		(64,592)		(112,026)		239,513
Net realized (gains) losses on sales of investments	460		21,758		5,264		39,443		37,031
(Gains) losses on extinguishment of debt	—		(4,039)		(2,309)		—		—

Increase (decrease) in provision for credit losses	3,217		2,762		3,062		3,834		(1,534)

Net unrealized (gains) losses on derivatives	(17)		(17,994)		8,551		10,171		(10,307)




Realized gains (losses) on derivatives	—		6,822		34,134		561		—

Transaction expenses	90		8,456		6,409		3,274		2,341

Stock Compensation expense for retirement eligible awards	(392)		(388)		2,141		(309)		(310)

Other investment (gains) losses	(2,381)		421		(117)		2,383		462
Earnings available for distribution	$	28,697	$	28,430	$	31,471	$	26,047	$	62,613

GAAP net income (loss) per diluted common share	$	(0.07)	$	0.08	$	0.17	$	0.34	$	(0.88)
Earnings available for distribution per adjusted diluted common share	$	0.13	$	0.12	$	0.13	$	0.11	$	0.27

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.


	For the Quarters Ended
	September 30, 2023	June 30, 2023	March 31, 2023	December 31, 2022	September 30, 2022
Weighted average diluted shares - GAAP	226,734,643	233,867,501	235,201,614	234,240,836	231,750,422
Potentially dilutive shares (1)	1,997,547	—	—	—	2,425,579

Adjusted weighted average diluted shares - Earnings available for distribution	228,732,190	233,867,501	235,201,614	234,240,836	234,176,001

(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 quarters ended September 30, 2023 and 2022.

Our Earnings available for distribution for the quarter ended September 30, 2023 was $29 million, or $0.13 per average diluted common share, and increased by $267 thousand, or $0.01 per average diluted common share, as compared to $28 million, or $0.12 per average diluted common share, for the quarter ended June 30, 2023. Earnings available for distribution remained consistent with prior quarter.

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.


	Return on Average Equity		Economic Net Interest Income/Average Equity		Earnings available for distribution/Average Common Equity
	(Ratios have been annualized)




For the Quarter Ended September 30, 2023	0.34	%	10.40	%	7.14	%
For the Quarter Ended June 30, 2023	5.51	%	10.24	%	6.75	%
For the Quarter Ended March 31, 2023	8.63	%	10.45	%	7.28	%
For the Quarter Ended December 31, 2022	14.61	%	11.56	%	6.02	%
For the Quarter Ended September 30, 2022	(26.47)	%	14.81	%	13.30	%

Return on average equity decreased by 517 basis points for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023. This decrease is driven primarily by higher unrealized asset pricing losses. Economic net interest income as a percentage of average equity increased by 16 basis points for the quarter ended September 30, 2023 as compared to the quarter ended June 30, 2023. Earnings available for distribution as a percentage of average common equity increased by 39 basis points for the quarter ended September 30, 2023 as compared to the quarter ended June 30, 2023.

Financial Condition

Portfolio Review

During the nine months ended September 30, 2023, we focused our efforts on taking advantage of the opportunity to acquire higher yielding assets while maintaining low leverage and ample liquidity. During the nine months ended September 30, 2023, on an aggregate basis, we purchased $1.3 billion of investments, sold $288 million of investments, and received $1.2 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 September 30, 2023 and December 31, 2022.



	September 30, 2023		December 31, 2022
Interest earning assets at period-end (1)	$	12,579,247	$	12,937,661
Interest bearing liabilities at period-end	$	10,278,451	$	10,614,049
GAAP Leverage at period-end	4.1:1		4.0:1
GAAP Leverage at period-end (recourse)	1.0:1		1.3:1

(1) Excludes cash and cash equivalents.



	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Portfolio Composition	Amortized Cost				Fair Value
Non-Agency RMBS	7.4	%	7.5	%	8.1	%	8.9	%
Senior	3.9	%	4.0	%	5.4	%	5.9	%
Subordinated	2.3	%	2.3	%	2.1	%	2.2	%
Interest-only	1.2	%	1.2	%	0.6	%	0.8	%
Agency RMBS	0.1	%	0.1	%	0.1	%	0.1	%

Interest-only	0.1	%	0.1	%	0.1	%	0.1	%
Agency CMBS	1.0	%	3.3	%	0.9	%	3.2	%
Project loans	0.9	%	2.3	%	0.8	%	2.2	%
Interest-only	0.1	%	1.0	%	0.1	%	1.0	%
Loans held for investment	91.5	%	89.1	%	90.9	%	87.8	%
Fixed-rate percentage of portfolio	96.6	%	96.5	%	96.1	%	95.6	%
Adjustable-rate percentage of portfolio	3.4	%	3.5	%	3.9	%	4.4	%

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 September 30, 2023 and December 31, 2022. The principal or notional value represents the interest income earning balance of each class. The weighted average figures are weighted by each investment’s respective principal/notional value in the asset class.


	September 30, 2023
	Principal or Notional Value at Period-End (dollars in thousands)		Weighted Average Amortized Cost Basis		Weighted Average Fair Value		Weighted Average Coupon		Weighted Average Yield at Period-End (1)		Weighted Average 3 Month Prepay Rate at Period-End		Weighted Average 12 Month Prepay Rate at Period-End		Weighted Average 3 Month CDR at Period-End		Weighted Average 12 Month CDR at Period-End		Weighted Average Loss Severity(2)		Weighted Average Credit Enhancement
Non-Agency Mortgage-Backed Securities
Senior	$	1,091,694	$	45.58	$	62.64	5.6	%	17.0	%	5.8	%	5.2	%	1.6	%	1.8	%	36.0	%	2.7	%
Subordinated	$	588,224	$	50.69	$	45.41	3.7	%	6.8	%	6.6	%	6.7	%	1.3	%	0.7	%	20.3	%	6.5	%
Interest-only	$	2,926,629	$	5.44	$	2.52	0.5	%	5.5	%	4.8	%	5.2	%	1.1	%	0.9	%	24.8	%	1.6	%
Agency RMBS

Interest-only	$	395,197	$	4.82	$	3.52	0.1	%	4.7	%	11.3	%	10.7	%	N/A		N/A		N/A		N/A
Agency CMBS
Project loans	$	117,400	$	101.54	$	89.73	4.1	%	4.0	%	—	%	—	%	N/A		N/A		N/A		N/A
Interest-only	$	481,488	$	1.69	$	1.76	0.6	%	8.0	%	—	%	2.3	%	N/A		N/A		N/A		N/A
Loans held for investment	$	12,214,857	$	98.36	$	93.69	5.6	%	5.4	%	6.7	%	6.8	%	0.7	%	0.7	%	28.4	%	N/A

(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.)


	December 31, 2022
	Principal or Notional Value at Period-End (dollars in thousands)		Weighted Average Amortized Cost Basis		Weighted Average Fair Value		Weighted Average Coupon		Weighted Average Yield at Period-End (1)		Weighted Average 3 Month Prepay Rate at Period-End		Weighted Average 12 Month Prepay Rate at Period-End		Weighted Average 3 Month CDR at Period-End		Weighted Average 12 Month CDR at Period-End		Weighted Average Loss Severity(2)		Weighted Average Credit Enhancement
Non-Agency Mortgage-Backed Securities
Senior	$	1,153,458	$	46.09	$	66.05	5.3	%	16.4	%	5.2	%	10.8	%	1.4	%	1.8	%	34.5	%	2.1	%
Subordinated	$	611,206	$	49.34	$	46.94	3.1	%	6.8	%	8.0	%	14.1	%	0.4	%	0.4	%	34.9	%	6.6	%
Interest-only	$	3,114,930	$	5.23	$	3.17	0.7	%	5.3	%	5.4	%	11.8	%	1.0	%	0.8	%	38.2	%	1.6	%
Agency RMBS

Interest-only	$	409,940	$	4.58	$	3.70	0.9	%	5.0	%	12.9	%	17.4	%	N/A		N/A		N/A		N/A
Agency CMBS
Project loans	$	302,685	$	101.85	$	95.62	4.3	%	4.1	%	—	%	—	%	N/A		N/A		N/A		N/A
Interest-only	$	2,669,396	$	5.23	$	4.73	0.7	%	3.4	%	1.8	%	3.7	%	N/A		N/A		N/A		N/A
Loans held for investment	$	12,060,631	$	98.50	$	94.36	5.3	%	5.2	%	8.1	%	12.0	%	0.6	%	0.8	%	33.1	%	N/A

(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.


	For the Quarters Ended
	(dollars in thousands)
Accretable Discount (Net of Premiums)	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Balance, beginning of period	$	145,322	$	157,253	$	176,635	$	207,812	$	241,391
Accretion of discount	(9,022)		(10,620)		(11,663)		(11,128)		(12,989)
Purchases	(9)		—		—		—		—
Sales	—		—		—		(17,935)		—
Elimination in consolidation	—		—		—		—		—
Transfers from/(to) credit reserve, net	10,961		(1,311)		(7,719)		(2,114)		(20,590)
Balance, end of period	$	147,252	$	145,322	$	157,253	$	176,635	$	207,812

Liquidity and Capital Resources

General

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

As discussed earlier, overall, the third quarter saw higher interest rates, increased volatility, and costs of financing that remained high. 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 agreements facilities with our counterparties. Because secured financing agreements and warehouse facilities are short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings and have and may continue to impose more onerous conditions when rolling forward such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and dispose of assets.

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

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

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

Current Period

We held cash and cash equivalents of approximately $139 million and $265 million at September 30, 2023 and December 31, 2022, respectively. As a result of our operating, investing and financing activities described below, our cash position decreased

by $126 million from December 31, 2022 to September 30, 2023.

Our operating activities provided net cash of approximately $182 million and $299 million for the nine months ended September 30, 2023 and 2022, respectively. The cash flows from operations were primarily driven by interest received in excess of interest paid of $237 million and $431 million during the nine months ended September 30, 2023 and 2022, respectively.

Our investing activities provided cash of $175 million and $656 million for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $1.2 billion and from sale of our Agency MBS of $286 million. This cash received was offset in part by cash used on investment purchases of $1.3 billion, primarily consisting of Loans held for investment. During the nine months ended September 30, 2022, we received cash for principal repayments on Agency MBS, Non-Agency RMBS and Loans held for investment of $2.2 billion. This cash received was offset in part by cash used on investment purchases of $1.5 billion, primarily consisting of Loans held for investment of $1.4 billion, Agency MBS of $57 million and Non-Agency RMBS of $23 million.

Our financing activities used cash of $483 million and $1.3 billion for the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, we primarily used cash for repayment of principal on our securitized debt of $1.5 billion, net payments on our secured financing agreements of $827 million, payment of common and preferred dividends of $208 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 $2.0 billion. During the nine months ended September 30, 2022, we used cash for repayment of principal on our securitized debt of $1.5 billion, net payments on our secured financing agreements of $444 million, payment of common and preferred dividends of $290 million, and repurchase of our common stock of $49 million. This cash used was offset in part by cash received for securitized debt collateralized by loans issuance of $1.0 billion.

Our recourse leverage was 1.0:1 and 1.3:1 at September 30, 2023 and at December 31, 2022, respectively, and remained relatively low. Our recourse leverage excludes the securitized debt which can only be repaid from the proceeds on the assets securing this debt in their respective VIEs. Our recourse leverage is presented as a ratio of our secured financing agreements, which are recourse to our assets and our equity.

Based on our current portfolio, leverage ratio and available borrowing arrangements, we believe our assets will be sufficient to enable us to meet anticipated short-term liquidity requirements. However, if our cash resources are insufficient to satisfy our liquidity requirements, we may sell additional investments, reduce our dividends, issue debt or additional common or preferred equity securities to meet our liquidity needs. We currently have $467 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 September 30, 2023 and December 31, 2022, the remaining maturities and borrowing rates on our RMBS and loan secured financing agreements were as follows.


	September 30, 2023				December 31, 2022
	(dollars in thousands)
	Principal (1)		Weighted Average Borrowing Rates	Range of Borrowing Rates	Principal (1)		Weighted Average Borrowing Rates	Range of Borrowing Rates
Overnight	—		N/A	N/A	—		N/A	NA
1 to 29 days	$	200,131	7.62%	6.23% - 8.17%	$	493,918	4.66%	3.63% - 6.16%
30 to 59 days	490,698		6.57%	5.47% - 7.87%	762,768		6.14%	4.60% - 7.34%
60 to 89 days	93,144		6.46%	6.31% - 7.16%	225,497		6.04%	4.70% - 7.12%
90 to 119 days	84,854		6.54%	6.48% - 7.24%	43,180		6.54%	5.50% - 6.70%
120 to 180 days	364,014		7.27%	6.42% - 7.85%	401,638		5.88%	5.57% - 6.92%
180 days to 1 year	192,722		6.67%	6.64% - 6.67%	402,283		6.06%	5.63% - 6.64%
1 to 2 years	838,510		11.10%	9.07% - 13.98%	251,286		13.98%	13.98% - 13.98%
2 to 3 years	—		—%	0.00% - 0.00%	480,022		8.07%	8.07% - 8.07%
Greater than 3 years	367,619		5.11%	5.10% - 7.06%	382,839		5.14%	5.10% - 6.07%
Total	$	2,631,692	7.99%		$	3,443,431	6.61%


Average remaining maturity of Secured financing agreements secured by:
	September 30, 2023	December 31, 2022
Agency RMBS (in thousands)	N/A	17 Days
Agency CMBS (in thousands)	33 Days	25 Days
Non-Agency RMBS and Loans held for investment (in thousands)	436 Days	474 Days

We collateralize the secured financing agreements we use to finance our operations with our MBS investments and mortgage loans held in trusts controlled by us. Our counterparties negotiate a ‘haircut’, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will lend to us, when we enter into a financing transaction. The size of the haircut reflects the perceived risk and market volatility associated with holding the MBS by the lender. The haircut provides lenders with a cushion for daily market value movements that reduce the need for a margin call to be issued or margin to be returned as normal daily increases or decreases in MBS market values occur. Haircuts have decreased on our secured financing agreements collateralized by Agency MBS, Non-Agency RMBS and Loans held for investments during 2023 as compared to 2022. At September 30, 2023, the weighted average haircut on our remaining secured financing agreements collateralized by Agency CMBS was 5.1% and Non-Agency RMBS and Loans held for investment was 25.2%. At December 31, 2022, the weighted average haircut on our remaining secured financing agreements collateralized by Agency RMBS IOs was 20.0%, Agency CMBS was 7.8% and Non-Agency RMBS and Loans held for investment was 25.7%.

The fair value of the Non-Agency MBS is more difficult to determine in current financial conditions, as well as more volatile period to period than Agency MBS, the Non-Agency MBS typically requires a larger haircut. In addition, when financing assets using 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 September 30, 2023, we have entered into $1.2 billion of financing arrangements for which the collateral cannot be adjusted as a result of changes in market value, minimizing the risk of a margin call as a result in price volatility. We refer to these agreements as non-mark-to-market (non-MTM) facilities. These non-MTM facilities generally have higher costs of financing, but lower the risk of a margin call which could result in sales of our assets at distressed prices. All non-MTM facilities are collateralized by Non-Agency RMBS collateral, which tends to have increased volatile price changes during periods of market stress. In addition we have entered into certain secured financing agreements which are not subject to additional margin requirement until the drop in fair value of collateral is greater than a threshold. We refer to these agreements as limited mark-to-market (limited MTM) facilities. As of September 30, 2023 we have $307 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 September 30, 2023, the weighted average borrowing rates for our secured financing agreements collateralized by Agency CMBS was 5.5% and Non-Agency MBS and Loans held for investment was 8.1%. At December 31, 2022, the weighted average borrowing rates for our secured financing agreements collateralized by Agency RMBS IOs was 4.7%, Agency CMBS was 4.5%, and Non-Agency MBS and Loans held for investment was 6.9%.

We entered into a secured financing agreement during fourth quarter of 2022 for which we have elected fair value option. we believe electing fair value for this financial instrument better reflects the transactional economics. The total principal balance outstanding on this secured financing at September 30, 2023 and December 31, 2022 was $368 million and $383 million, respectively. The fair value of collateral pledged was $401 million and $418 million as of September 30, 2023 and December 31, 2022, respectively. We carry this secured financing instrument at fair value of $340 million and $374 million as of September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, the weighted average borrowing rate on secured financing agreements at fair value was 5.11%. At September 30, 2023 and December 31, 2022, the haircut for the secured financing agreements at fair value was 7.5%. At September 30, 2023, the maturity on the secured financing agreements at fair value was four years.

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


Period	Average secured financing agreements balances		Secured financing agreements balance at period end
	(dollars in thousands)




Quarter End September 30, 2023	$	2,665,230	$	2,603,911
Quarter End June 30, 2023	$	2,932,424	$	2,686,522
Quarter End March 31, 2023	$	3,209,153	$	3,195,322
Quarter End December 31, 2022	$	3,123,400	$	3,434,765
Quarter End September 30, 2022	$	3,056,286	$	2,820,931

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 September 30, 2023 and December 31, 2022, the carrying value of our total interest-bearing debt was approximately $10.3 billion and $10.6 billion, respectively, which represented a leverage ratio of approximately 4.1:1 and 4.0:1, respectively. We include our secured financing agreements and securitized debt in the numerator of our leverage ratio and stockholders’ equity as the denominator.

At September 30, 2023, 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 September 30, 2023 and December 31, 2022, we had $3.7 billion and $4.7 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 Treasury futures. The average remaining maturities on our interest rate swaps at September 30, 2023 was less than one year. All of our swaps are cleared by a central clearing house. When our interest rate swaps are in a net loss position (expected cash payments are in excess of expected cash receipts on the swaps), we post collateral as required by the terms of our swap agreements.

Exposure to Financial Counterparties

We actively manage the number of secured financing agreements counterparties to reduce counterparty risk and manage our liquidity needs. The following table summarizes our exposure to our secured financing agreements counterparties at September 30, 2023:


September 30, 2023

Country	Number of Counterparties	Secured Financing Agreement		Exposure (1)
(dollars in thousands)
United States	9	$	1,681,083	$	619,370
Japan	2	672,176		284,559
Canada	1	263,786		123,881
Netherlands	1	14,646		19











Total	13	$	2,631,691	$	1,027,829

(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 September 30, 2023, we had amounts at risk with Nomura Securities International, Inc., or Nomura, of 11% of our equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 379 days. The amount at risk with Nomura was $282 million. At December 31, 2022, we had amounts at risk with Nomura of 12% of our equity related to the collateral posted on secured financing agreements. The weighted average maturities of the secured financing agreements with Nomura were 582 days. The amount at risk with Nomura was $308 million.

At September 30, 2023, we did not use credit default swaps or other forms of credit protection to hedge the exposures summarized in the table above.

Stockholders’ Equity

In June 2023, our Board of Directors increased the authorization of the Company's share repurchase program, or the Repurchase Program, by $73 million to $250 million. Such authorization does not have an expiration date, and at present, there is no intention to modify or otherwise rescind such authorization. Shares of our common stock may be purchased in the open market, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. The timing, manner, price and amount of any repurchases will be determined at our discretion and the program may be suspended, terminated or modified at any time for any reason. Among other factors, we intend to only consider repurchasing shares of our common stock 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 quarters ended September 30, 2023 and 2022. We repurchased 5.8 million shares of our common stock at an average price of $5.66 for a total of $33 million during the nine months ended September 30, 2023. We repurchased approximately 5.4 million shares of our common stock at an average price of $9.10 for a total of $49 million during the nine months ended September 30, 2022. The approximate dollar value of shares that may yet be purchased under the Repurchase Program is $217 million as of September 30, 2023.

In February 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 to include J.P. Morgan Securities LLC and UBS Securities LLC as additional sales agents (together with the Existing Sales Agents, the “Sales Agents”). Pursuant to the terms of the Sales Agreements, we may offer and sell shares of our common stock, having an aggregate offering price of up to $500,000,000, from time to time in “at the market offerings” through any of the Sales Agents under the Securities Act of 1933. During the quarter and nine months ended September 30, 2023, and year ended December 31, 2022, we did not issue any shares under the at-the-market sales program.

During the quarter and nine months ended September 30, 2023, we declared dividends to common shareholders of $42 million and $138 million or $0.18 and $0.59 per share, respectively. During the quarter and nine months ended September 30, 2022, we declared dividends to common shareholders of $56 million and $212 million, or $0.23 and $0.89 per share, respectively.

We declared dividends to Series A preferred stockholders of $3 million and $9 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. We declared dividends to Series A preferred stockholders of $3 million and $9 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

We declared dividends to Series B preferred stockholders of $7 million and $20 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. We declared dividends to Series B preferred stockholders of $7 million and $20 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

We declared dividends to Series C preferred stockholders of $5 million and $15 million, or $0.484375 and $1.453125 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. We declared dividends to Series C preferred stockholders of $5 million and $15 million, or $0.484375 and $1.453125 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

We declared dividends to Series D preferred stockholders of $4 million and $12 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2023, respectively. We declared dividends to Series D preferred stockholders of $4 million and $12 million, or $0.50 and $1.50 per preferred share, during the quarter and nine months ended September 30, 2022, respectively.

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 8% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”), 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) and 8% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock,” and together with the Series B Preferred Stock and the Series C Preferred Stock, the “Preferred Stock”). In light of the applicability of the Act to the Preferred Stock, we believe, given all of the information available to us to date, that three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum will automatically replace three-month LIBOR as the reference rate for calculations of the dividend rate payable on the Preferred Stock for dividend periods from and after (i) March 30, 2024, in the case of the Series B Preferred Stock, (ii) September 30, 2025, in the case of the Series C Preferred Stock, or (iii) March 30, 2024, in the case of the Series D Preferred Stock.

Stock Based Compensation

As of September 30, 2023, approximately 20 million shares were available for future grant under the Plan.

Grants of Restricted Stock Units, or RSUs

We did not grant any RSUs during the quarters ended September 30, 2023 and 2022. During the nine months ended September 30, 2023 and 2022, we granted RSU awards to employees. These RSU awards are designed to reward our employees for services provided to us. Generally, the RSU awards vest equally over a three-year period beginning from the grant date and will fully vest after three years. For employees who are retirement eligible, defined as years of service to us plus age, is equal to or greater than 65, the service period is considered to be fulfilled and all grants are expensed immediately. The RSU awards are valued at the market price of our common stock on the grant date and generally the employees must be employed by us on the vesting dates to receive the RSU awards. We granted 817 thousand RSU awards during the nine months ended September 30, 2023 with a grant date fair value of $5 million for the 2023 performance year. We granted 221 thousand RSU awards during the nine months ended September 30, 2022 with a grant date fair value of $3 million for the 2022 performance year.

Grants of Performance Share Units, or PSUs

We did not grant any PSUs during the quarters ended September 30, 2023 and 2022. PSU awards are designed to align compensation with our future performance. The PSU awards granted during the nine months ended September 30, 2023 and 2022, include a three-year performance period ending on December 31, 2025 and December 31, 2024, respectively. For the PSU awards granted during the nine months ended September 30, 2023, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on our Economic Return and share price performance compared to a peer group. Our three-year Economic Return is equal to our change in book value per common share plus common stock dividends. Share price performance equals change in share prices plus common stock dividends. Compensation expense will be recognized on a straight-line basis over the three-year vesting period based on an estimate of our Economic Return and share price performance in relation to the entities in the peer group and will be adjusted each period based on our best estimate of the actual number of shares awarded. For the PSU awards granted during the nine months ended September 30, 2022, the final number of shares awarded will be between 0% and 200% of the PSUs granted based on the our Economic Return compared to a peer group. During the nine months ended September 30, 2023, we granted 605 thousand PSU awards to senior management with a grant date fair value of $3 million. During the nine months ended September 30, 2022, we granted 128 thousand PSU awards to senior management with a grant date fair value of $2 million.

At September 30, 2023 and December 31, 2022, there were approximately 3.4 million and 3.6 million, respectively, unvested shares of RSUs and PSUs issued to our employees and directors.

Contractual Obligations and Commitments

The following tables summarize our contractual obligations at September 30, 2023 and December 31, 2022. The estimated principal repayment schedule of the securitized debt is based on expected cash flows of the residential mortgage loans or RMBS, as adjusted for expected principal write-downs on the underlying collateral of the debt.


September 30, 2023
(dollars in thousands)
Contractual Obligations	Within One Year		One to Three Years		Three to Five Years		Greater Than or Equal to Five Years		Total
Secured financing agreements	$	1,425,563	$	838,510	$	367,619	$	—	$	2,631,692
Securitized debt, collateralized by Non-Agency RMBS	311		379		—		81		771
Securitized debt at fair value, collateralized by Loans held for investment	1,488,382		2,416,199		1,802,768		2,806,476		8,513,825
Interest expense on MBS secured financing agreements (1)	25,225		7,760		1,670		—		34,655
Interest expense on securitized debt (1)	272,683		416,901		278,999		290,737		1,259,320
Total	$	3,212,164	$	3,679,749	$	2,451,056	$	3,097,294	$	12,440,263

(1) Interest is based on variable rates in effect as of September 30, 2023.


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

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

Not included in the table above are the unfunded construction loan commitments of $5 million and $9 million as of September 30, 2023 and December 31, 2022, respectively. We expect the majority of these commitments will be paid within one year and are reported under Payable for investments purchased in our Consolidated Statements of Financial Condition.

We have made a $75 million capital commitment to a fund managed by Kah Capital Management, LLC. As of September 30, 2023, we have funded $46 million towards that commitment, leaving an unfunded commitment of $29 million.

Capital Expenditure Requirements

At September 30, 2023 and December 31, 2022, we had no material commitments for capital expenditures.

Dividends

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

Critical Accounting Estimates

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

The accounting policies and estimates which we consider most critical relate to the recognition of revenue on our investments, including recognition of any losses, and the determination of fair value of our financial instruments. Refer to the heading titled “Critical Accounting Estimates” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting estimates.

The consolidated financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, for which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although our estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially adversely impact our results of operations and our financial condition. Management has made significant estimates in several areas, including current expected credit losses of Non-Agency RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS, forward interest rates for interest rate swaps, and income recognition on Loans held for investments and Non-Agency RMBS. Actual results could differ materially from those estimates.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The primary components of our market risk are related to credit risk, interest rate risk, prepayment risk, extension risk, basis risk and market risk. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk and to maintain capital levels consistent with the risks we undertake.

Additionally, refer to Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on risks we face.

Credit Risk

We are subject to credit risk in connection with our investments in Non-Agency RMBS and residential mortgage loans and face more credit risk on assets we own that are rated below ‘‘AAA’’ or not rated. The credit risk related to these investments pertains to the ability and willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed throughout the loan or security term. We believe that residual loan credit quality, and thus the quality of our assets, is primarily determined by the borrowers’ credit profiles and loan characteristics.

In connection with loan acquisitions, we or a third-party perform an independent review of the mortgage file to assess the origination and servicing of the mortgage loan as well as our ability to enforce the contractual rights in the mortgage. Depending on the size of the loans, we may not review all of the loans in a pool, but rather a sample of loans for diligence review based upon specific risk-based criteria such as property location, loan size, effective loan-to-value ratio, borrower’s characteristics and other criteria we believe to be important indicators of credit risk. Additionally, we obtain representations and warranties from each seller with respect to the residential mortgage loans, including the origination and servicing of the mortgage loan as well as the enforceability of the lien on the mortgaged property. A seller who breaches these representations and warranties in making a loan that we purchase may be obligated to repurchase the loan from us. Our resources include a portfolio management system, as well as third-party software systems. We utilize third-party due diligence firms to perform an independent mortgage loan file review to ensure compliance with existing guidelines. In addition to statistical sampling techniques, we create adverse credit and valuation samples, which we individually review.

Additionally, we closely monitor credit losses incurred, as well as how expectations of credit losses are expected to change on our Non-Agency RMBS and Loans held for investment portfolios. We estimate future credit losses based on historical experience, market trends, current delinquencies as well as expected recoveries. The net present value of these expected credit losses can change, sometimes significantly from period to period as new information becomes available. When credit loss experience and expectations improve, we will collect more principal on our investments. If credit loss experience deteriorates, we will collect less principal on our investments. The favorable or unfavorable changes in credit losses are reflected in the yield on our investments in mortgage loans and recognized in earnings over the remaining life of our investments. The following table presents changes to net present value of expected credit losses for our Non-Agency RMBS and Loans held for investment portfolios during the previous five quarters. Gross losses are discounted at the rate used to amortize any discounts or premiums on our investments into income. A decrease (negative balance) in the "Increase/(decrease)" line item in the tables below represents a favorable change in expected credit losses. An increase (positive balance) in the "Increase/(decrease)" line item in the tables below represents an unfavorable change in expected credit losses.


	For the Quarters Ended
	(dollars in thousands)
Non-Agency RMBS	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Balance, beginning of period	$	80,532	$	79,875	$	89,234	$	103,394	$	91,187
Realized losses	(1,727)		(2,445)		(2,293)		(3,063)		(1,517)
Accretion	2,576		2,765		2,949		3,133		2,588
Losses on purchases	6		—		—		—		—
Losses on sold/paid-off	95		—		—		(4,444)		—

Increase/(decrease)	(246)		337		(10,015)		(9,786)		11,136
Balance, end of period	$	81,236	$	80,532	$	79,875	$	89,234	$	103,394


	For the Quarters Ended
	(dollars in thousands)
Loans held for investment	September 30, 2023		June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022
Balance, beginning of period	$	254,354	$	285,823	$	321,017	$	285,174	$	315,299
Realized losses	(8,200)		(10,281)		(7,992)		(11,023)		(8,127)
Accretion	3,444		3,554		3,650		3,715		3,989
Losses on purchases	—		—		404		7,677		—

Increase/(decrease)	1,404		(24,742)		(31,256)		35,474		(25,987)
Balance, end of period	$	251,002	$	254,354	$	285,823	$	321,017	$	285,174

Additionally, the Non-Agency RMBS which we acquire for our portfolio are reviewed by us to ensure that they satisfy our risk-based criteria. Our review of Non-Agency RMBS includes utilizing a portfolio management system. Our review of Non-Agency RMBS and other ABS is based on quantitative and qualitative analysis of the risk-adjusted returns on Non-Agency RMBS and other ABS. This analysis includes an evaluation of the collateral characteristics supporting the RMBS such as borrower payment history, credit profiles, geographic concentrations, credit enhancement, seasoning, and other pertinent factors.

Interest Rate Risk

Our net interest income, borrowing activities and profitability could be negatively affected by volatility in interest rates caused by uncertainties stemming from the effect of inflation and updated Federal Rate increase projections in 2023. As the Federal Reserve increases its Federal Funds Rate, the margin between short and long-term rates could further compress. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads to benchmark indices could cause a loss of future net interest income and a decrease in the current fair market values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

Interest rate risk is highly sensitive to many factors, including governmental, monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. We are subject to interest rate risk in connection with our investments and our related debt obligations, which are generally secured financing agreements and securitization trusts. Our secured financing agreements and warehouse facilities may be of limited duration that is periodically refinanced at current market rates. We typically mitigate this risk through utilization of derivative contracts, primarily interest rate swap agreements, swaptions, futures and mortgage options. 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.

Interest Rate Effects on Net Interest Income

Our operating results depend, in large part, on differences between the income from our investments and our borrowing costs. Most of our warehouse facilities and secured financing agreements provide financing based on a floating rate of interest calculated on a fixed spread over LIBOR or SOFR. The fixed spread varies depending on the type of underlying asset which collateralizes the financing. During periods of rising interest rates, the borrowing costs associated with our investments tend to

increase while the income earned on our investments may remain substantially unchanged or decrease. This will result in a narrowing of the net interest spread between the related assets and borrowings and may even result in losses. Further, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities. We generally do not hedge against credit losses. Hedging techniques are partly based on assumed levels of prepayments of our fixed-rate and hybrid adjustable-rate residential mortgage loans and RMBS. If prepayments are slower or faster than assumed, the life of the residential mortgage loans and RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions.

Interest Rate Effects on Fair Value

Another component of interest rate risk is the effect changes in interest rates will have on the fair value of the assets we acquire. We face the risk that the fair value of our assets will increase or decrease at different rates than that of our liabilities, including our hedging instruments, if any. We primarily assess our interest rate risk by estimating the duration of our assets compared to the duration of our liabilities and hedges. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration numbers for the same securities.

It is important to note that the impact of changing interest rates on fair value can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the fair value of our assets could increase significantly when interest rates change beyond 100 basis points. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown below and such difference might be material and adverse to our stockholders.

Effect of U.S. Dollar London Inter Bank Offered Rate or, LIBOR transition

The interest rates on our certain adjustable-rate mortgage loans in our securitizations are based on LIBOR, as are some classes of our preferred stock. On March 5, 2021, the United Kingdom Financial Conduct Authority, or FCA, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023. The FCA's announcement coincides with the March 5, 2021, announcement of LIBOR's administrator, the ICE Benchmark Administration Limited, or IBA, indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023. These announcements mean that any of our LIBOR-based adjustable-rate mortgage loans have been converted to an equivalent SOFR-based rates plus the appropriate spread adjustment as of July 1, 2023.

On March 15, 2022, President Biden signed the Adjustable Interest Rate (LIBOR) Act (the "Act"), which transitions contracts that use LIBOR as a benchmark for adjustable interest rates to another benchmark, effective July 1, 2023 as LIBOR is permanently discontinued. The Act provides, among other things, that a default alternative benchmark based on SOFR published by the New York Federal Reserve Bank will automatically apply after the LIBOR replacement date for any contract that does not select a benchmark replacement for LIBOR or identify a person authorized to select a benchmark replacement after LIBOR is permanently discontinued. The Act also provides that if the SOFR-based benchmark replacement is selected to replace LIBOR, the person responsible under a contract for determining values is not required to obtain the consent of anyone before determining values based on that benchmark replacement. The Act further creates a safe harbor by ensuring that the SOFR-based benchmark replacement is by law a commercially reasonable replacement for LIBOR, that the use of that benchmark replacement cannot be deemed a breach of a contract or an impairment of the right of any person to receive payment under that contract, and that no person can be liable for selecting or using that benchmark replacement. The Act further authorizes the Board of the Federal Reserve to promulgate regulations under the statute to designate specific SOFR-based rates that incorporate the statutory spread adjustments as replacement rates for covered LIBOR contracts. The Federal Reserve's final rules were issued in December 2022 and provide for the following SOFR-based replacement rates: (i) SOFR compounded in arrears for derivatives, using the same methodology as under the International Swaps and Derivatives Association protocol, (ii) CME Term SOFR for all covered cash products, except FHFA-regulated entity contracts and (iii) a 30-day compounded SOFR average for certain FHFA-regulated entity contracts.

We have evaluated the impact of the Act on our adjustable-rate mortgage loan investments covered by the legislation including the impact on certain classes of our outstanding fixed-to-floating preferred stock and determined that LIBOR transition to SOFR-based rates had no material impact on our financial statements.

Interest Rate Cap Risk

We may also invest in adjustable-rate residential mortgage loans and RMBS. These are mortgages or RMBS in which the underlying mortgages are typically subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the security’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements will not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our adjustable-rate residential mortgage loans and RMBS would effectively be limited. This problem will be magnified to the extent we acquire adjustable-rate RMBS that are not based on mortgages which are fully indexed. In addition, the mortgages or the underlying mortgages in an RMBS may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of less cash income on our adjustable-rate mortgages or RMBS than we need in order to pay the interest cost on our related borrowings. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.

Interest Rate Mismatch Risk

We fund a substantial portion of the acquisitions of our investments with borrowings that have interest rates based on indices and re-pricing terms similar to, but of somewhat shorter maturities than, the interest rate indices and re-pricing terms of the mortgages and mortgage-backed securities. In most cases the interest rate indices and re-pricing terms of our mortgage assets and our funding sources will not be identical, thereby creating an interest rate mismatch between assets and liabilities. Our cost of funds would likely rise or fall more quickly than would our earnings rate on assets. During periods of changing interest rates, such interest rate mismatches could negatively impact our financial condition, cash flows and results of operations. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above. Our analysis of risks is based on our experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of investment decisions by our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results.

To mitigate potential interest rate mismatches, we have entered into agreements for longer term, non-mark-to-market financing facilities at rates that are higher than short term secured financing agreements. These longer term agreements are primarily on our less liquid Non-Agency RMBS assets. Having non-mark-to-market financing facilities may be useful in this market to prevent significant margin calls or collateral liquidation in a volatile market. If the market normalizes and repurchase rates fall, we may be locked into long term and higher interest expenses than are otherwise available in the market to finance our portfolio.

Our profitability and the value of our investment portfolio including derivatives may be adversely affected during any period as a result of changing interest rates. The following table quantifies the potential changes in net interest income and market value on the assets we retain and derivatives, if interest rates go up or down 50 and 100 basis points, assuming parallel movements in the yield curves. All changes in income and value are measured as percentage changes from the projected net interest income and the value of the assets we retain at the base interest rate scenario. The base interest rate scenario assumes interest rates at September 30, 2023 and various estimates regarding prepayment and all activities are made at each level of rate change. Actual results could differ significantly from these estimates.


	September 30, 2023
Change in Interest Rate	Projected Percentage Change in Net Interest Income		Projected Percentage Change in Market Value (1)
-100 Basis Points	3.00	%	7.09	%
-50 Basis Points	1.76	%	3.45	%
Base Interest Rate	—		—
+50 Basis Points	(1.53)	%	(3.19)	%
+100 Basis Points	(2.58)	%	(6.16)	%

(1) Projected Percentage Change in Market Value is based on instantaneous moves in interest rates.

Prepayment Risk

As we receive prepayments of principal on these investments, premiums and discounts on such investments will be amortized or accreted into interest income. In general, an increase in actual or expected prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments. Conversely, discounts on such

investments are accelerated and accreted into interest income increasing interest income when prepayments increase. Actual prepayment results may be materially different than the assumptions we use for our portfolio.

Extension Risk

Management computes the projected weighted-average life of our investments based on assumptions regarding the rate at which the borrowers will prepay the underlying mortgages. In general, when fixed-rate or hybrid adjustable-rate residential mortgage loans or RMBS are acquired via borrowings, we may, but are not required to, enter into an interest rate swap agreement or other hedging instrument that attempts to fix our borrowing costs for a period close to the anticipated average life of the fixed-rate portion of the related assets. This strategy is designed to protect us from rising interest rates as the borrowing costs are managed to maintain a net interest spread for the duration of the fixed-rate portion of the related assets. However, if prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument. This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument while the income earned on the fixed and hybrid adjustable-rate assets would remain fixed. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

Basis Risk

We may seek to limit our interest rate risk by hedging portions of our portfolio through interest rate swaps or other types of hedging instruments. Basis risk relates to the risk of the spread between our MBS and hedges widening. Such a widening may cause a decline in the fair value of our MBS that is greater than the increase in fair value of our hedges resulting in a net decline in book value.

Market Risk

Market Value Risk

Certain of our securities classified as available-for-sale are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. The estimated fair value of these securities fluctuates primarily due to changes in interest rates, prepayment speeds, market liquidity, credit quality, and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our investments may be adversely impacted.

Real Estate Market Risk

We own assets secured by real property and may own real property directly. Residential property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions and unemployment (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; natural disasters and other acts of God; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to incur losses.

Risk Management

Subject to maintaining our REIT status, we seek to manage risk exposure to protect our portfolio of residential mortgage loans, RMBS, and other assets and related debt against the effects of major interest rate changes. We generally seek to manage risk by:

•monitoring and adjusting, if necessary, the reset index and interest rate related to our RMBS and our financings;

•attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods, rights to post both cash and collateral for margin calls and provisions for non-mark-to-market financing facilities;

•using derivatives, financial futures, swaps, options, caps, floors and forward sales to adjust the interest rate sensitivity of our investments and our borrowings;

•using securitization financing to receive the benefit of attractive financing terms for an extended period of time in contrast to short term financing and maturity dates of the investments not included in the securitization; and

•actively managing, through assets selection, on an aggregate basis, the interest rate indices, interest rate adjustment periods, and gross reset margins of our investments and the interest rate indices and adjustment periods of our financings.

Our efforts to manage our assets and liabilities are focused on the timing and magnitude of the re-pricing of assets and liabilities. We attempt to control risks associated with interest rate movements. Methods for evaluating interest rate risk include an analysis of our interest rate sensitivity “gap,” which is the difference between interest-earning assets and interest-bearing liabilities maturing or re-pricing within a given time period. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category.

The following table sets forth the estimated maturity or re-pricing of our interest-earning assets and interest-bearing liabilities at September 30, 2023. The amounts of assets and liabilities shown within a particular period were determined in accordance with the contractual terms of the assets and liabilities, and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature and includes the effect of the interest rate swaps, if any. The interest rate sensitivity of our assets and liabilities in the table could vary substantially based on actual prepayments.


September 30, 2023
(dollars in thousands)
	Within 3 Months			3-12 Months			1 Year to 3 Years			Greater than 3 Years			Total
Rate sensitive assets	$	549,482		$	—		$	—		$	12,047,168		$	12,596,650
Cash equivalents	138,591			—			—			—			138,591
Total rate sensitive assets	$	688,073		$	—		$	—		$	12,047,168		$	12,735,241

Rate sensitive liabilities	3,897,310			731,709			2,653,336			2,997,792			10,280,147
Interest rate sensitivity gap	$	(3,209,237)		$	(731,709)		$	(2,653,336)		$	9,049,376		$	2,455,094

Cumulative rate sensitivity gap	$	(3,209,237)		$	(3,940,946)		$	(6,594,282)		$	2,455,094

Cumulative interest rate sensitivity gap as a percentage of total rate sensitive assets	(25)		%	(31)		%	(52)		%	19		%

Our analysis of risks is based on our management’s experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of investment decisions by our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results shown in the above tables. These analyses contain certain forward-looking statements and are subject to the safe harbor statement set forth under the heading, “Special Note Regarding Forward-Looking Statements.”

Cybersecurity Risk

We have a suite of information security controls including enterprise technology hardware and software solutions, security programs such as cybersecurity risk assessment and tabletop exercise specific to our industry, testing of the resiliency of our systems including penetration and disaster recovery tests to continually improve our Business Continuity program against ever-changing threat landscape. We have established an incident response plan and team to take steps it determines are appropriate to contain, mitigate and remediate a cybersecurity incident and to respond to the associated business, legal and reputational risks. Our round-the-clock Security Operation Center actively monitors suspicious activities including tactics, techniques, or procedures related to state-sponsored threat actors and associated groups. Our cybersecurity user awareness program provides regular training sessions on cybersecurity risks and mitigation strategies. We assess our cybersecurity risk awareness, prevention, detection, response and recovery capabilities against industry standard frameworks and maturity models. In addition, we periodically perform an independent third-party cybersecurity maturity assessment of our systems, policies and

procedures focused on the National Institute of Standards and Technology, or NIST, Cybersecurity Framework and the SEC's Office of Compliance Inspections and Examinations, or OCIE cybersecurity guidance. The most recent review noted positive findings as well as a few low-risk recommendations which have been implemented to further improve our cyber security maturity level.

There is no assurance that these efforts will fully mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur.

We have been working remotely since March 2020 and have adopted a hybrid work schedule since the middle of March 2022. While we feel our remote work environment is secure, cybersecurity attacks have increased in an attempt to breach our system and take advantage of employees working from home. The technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. We have experienced higher than normal phishing and other attempts to access our systems. We have not had a cybersecurity breach and maintain vigilance around our technology platforms, but there is no assurance that all cybersecurity risks will be mitigated.

Enterprise Risk Management

We employ a “Three Layers of Defense Approach” to Enterprise Risk Management (“ERM”) designed to assess and manage risk to achieve our strategic goals. The “First Layer of Defense” consists of assessing key risks indicators (“KRIs”) facing each respective business unit within the Company. Our risk management unit is an independent group that acts as the “Second Layer of Defense”. The risk management unit partners with various business units to understand, monitor, manage and escalate risks as appropriate. The financial reporting unit operates under the requirements of the Sarbanes Oxley (“SOX”). The “Third Layer of Defense” consists of many of our internal controls which are subject to an independent evaluation by our third-party internal auditors. As an independent third-party, the mandate of the internal auditor is to objectively assess the adequacy and effectiveness of our internal control environment to improve risk management, control and governance processes. Periodic reporting from the risk management unit is provided to executive management and to our audit committee.

Business Continuity Plan (“BCP”)

Our BCP is prepared with the intent of providing guidelines to facilitate (i) employee safety and relocation; (ii) preparedness for carrying out activities and receiving communication; (iii) resumption and restoration of systems and business processes and (iv) the protection and integrity of the Company’s assets.

Our BCP is designed to facilitate business process resilience in a broad range of scenarios with a dedicated Disaster Recovery Team (“DRT”) which is comprised of executive management, head of technology, and professionals across our various business units. Our BCP identifies the critical systems and processes necessary for business operations as well as the resources, employees, and planning needed to support these systems and processes. Critical systems and processes are defined as those which have a material impact on core operations, financial performance, or regulatory requirements. This includes applications which facilitate financial transactions, transaction settlements, financial reporting, and business communication and the personnel who perform such actions. Our BCP provides guidelines to aid in the timely resumption of business operations and for communication with employees, service providers and other key stakeholders needed to support these operations. Our BCP is a "living process" that will evolve with the input and guidance of the key stakeholders, subject matter experts and industry best practices and is reviewed and updated at least annually.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer, Chief Financial Officer and the Chief Accounting Officer. Based on that evaluation, the Company’s management, including the Chief Executive Officer, Chief Financial Officer and the Chief Accounting Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Securities Exchange Act of 1934, the Company’s management, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that

evaluation, there has been no such changes, during the third quarter of 2023.

Part II. Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Under “Part I — Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 we set forth risk factors related to our business and operations. You should carefully consider the risk factors set forth in our Form 10-K for the year ended December 31, 2022. As of the date hereof, there have been no material changes to the risk factors set forth in our Form 10-K for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company did not repurchase any of its common stock during the quarter ended September 30, 2023. The approximate dollar value of shares that may yet be purchased under the Repurchase Program is $217 million as of September 30, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


EXHIBIT INDEX

Exhibit Number			Description


3.1			Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File No. 333-145525) filed on September 27, 2007 and incorporated herein by reference).
3.2			Articles of Amendment to the Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.1 to the Company’s Report on Form 8-K filed on May 28, 2009 and incorporated herein by reference).
3.3			Articles of Amendment to the Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.1 to the Company’s Report on Form 8-K filed on November 5, 2010 and incorporated herein by reference).
3.4			Articles of Amendment to the Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.1 to the Company’s Report on Form 8-K filed on April 6, 2015 and incorporated herein by reference).


3.5			Articles of Amendment to the Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.2 to the Company’s Report on Form 8-K filed on April 6, 2015 and incorporated herein by reference).
3.6			Articles of Amendment to the Articles of Amendment and Restatement of Chimera Investment Corporation (filed as Exhibit 3.6 to the Company’s Report on Form 8-A filed on January 17, 2019 and incorporated herein by reference).

3.7			Certificate of Correction, dated as of September 10, 2021 (filed as Exhibit 3.7 to the Company's Report on Form 8-K filed on September 13, 2021 and incorporated herein by reference)
3.8			Articles Supplementary to the Articles of Amendment and Restatement of Chimera Investment Corporation designating the Company’s 8.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (filed with the SEC as Exhibit 3.1 to the Company’s Report on Form 8-K filed October 12, 2016 and incorporated herein by reference).
3.9			Articles Supplementary to the Articles of Amendment and Restatement of Chimera Investment Corporation designating the Company’s 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (filed with the SEC as Exhibit 3.7 to the Company’s Registration Statement on Form 8-A filed on February 24, 2017 and incorporated herein by reference).
3.10			Articles Supplementary to the Articles of Amendment and Restatement of Chimera Investment Corporation designating the Company’s 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (filed as Exhibit 3.8 to the Company’s Report on Form 8-A filed September 18, 2018 and incorporated herein by reference).
3.11			Articles Supplementary to the Articles of Amendment and Restatement of Chimera Investment Corporation designating the Company’s 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (filed as Exhibit 3.10 to the Company’s Report on Form 8-A filed January 17, 2019 and incorporated herein by reference).
3.12			Amended and Restated Bylaws of Chimera Investment Corporation (filed with the Commission as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 10, 2017 and incorporated herein by reference).
4.1			Description of securities (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K filed on February 18, 2021 and incorporated herein by reference).
4.2			Specimen Common Stock Certificate of Chimera Investment Corporation (filed as Exhibit 4.1 to the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File No. 333-145525) filed on September 27, 2007 and incorporated herein by reference).
4.3			Form of specimen certificate representing the shares of 8.00% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate (filed as Exhibit 4.1 to the Company’s Report on Form 8-K filed October 12, 2016 and incorporated herein by reference).
4.4			Form of specimen certificate representing the shares of 8.00% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate (filed with the SEC as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on February 24, 2017 and incorporated herein by reference).
4.5			Form of specimen certificate representing the shares of 7.75% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate (filed with the SEC as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on September 18, 2018 and incorporated herein by reference).
4.6			Form of specimen certificate representing the shares of 8.00% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock Certificate (filed with the SEC as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on January 17, 2019 and incorporated herein by reference).











































31.1			Certification of Phillip J. Kardis II, Chief Executive Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Subramaniam Viswanathan, Chief Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Phillip J. Kardis II, Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Subramaniam Viswanathan, Chief Financial Officer the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*			XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH*			XBRL Taxonomy Extension Schema Document
101.CAL*			XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*			XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*			XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*			XBRL Taxonomy Extension Definition Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CHIMERA INVESTMENT CORPORATION

	By:	/s/ Phillip J. Kardis II
		Phillip J. Kardis II
		Chief Executive Officer
		(Principal Executive Officer of the registrant)
Date: November 2, 2023


	By:	/s/ Subramaniam Viswanathan
		Subramaniam Viswanathan
		Chief Financial Officer (Principal Financial Officer
		of the registrant)
Date: November 2, 2023