TPG Mortgage Investment Trust, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In this quarterly report on Form 10-Q, or this "report," we refer to AG Mortgage Investment Trust, Inc. as "we," "us," the "Company," or "our," unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, AG REIT Management, LLC, as our "Manager," and we refer to the direct parent company of our Manager, Angelo, Gordon & Co., L.P., as "Angelo Gordon." The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Item 1 of this report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2020, and any subsequent filings. Forward-Looking Statements We make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in this report that are subject to substantial known and unknown risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, returns, results of operations, plans, yields, objectives, the composition of our portfolio, actions by governmental entities, including the Federal Reserve, and the potential effects of actual and proposed legislation on us, and our views on certain macroeconomic trends, and the impact of the novel coronavirus ("COVID-19"). When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements. These forward-looking statements are based upon information presently available to our management and are inherently subjective, uncertain and subject to change. There can be no assurance that actual results will not differ materially from our expectations. Some, but not all, of the factors that might cause such a difference include, without limitation: • the uncertainty and economic impact of the COVID-19 pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties; • changes in our business and investment strategy; • our ability to predict and control costs; • changes in interest rates and the fair value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in the yield curve; • changes in prepayment rates on the loans we own or that underlie our investment securities; • increased rates of default or delinquencies and/or decreased recovery rates on our assets; • our ability to obtain and maintain financing arrangements on terms favorable to us or at all; • changes in general economic conditions, in our industry and in the finance and real estate markets, including the impact on the value of our assets; • conditions in the market for Residential Investments, Agency RMBS, and Commercial Investments; • legislative and regulatory actions by the U.S. Congress, U.S. Department of the Treasury, the Federal Reserve and other agencies and instrumentalities in response to the economic effects of the COVID-19 pandemic; • the forbearance program included in the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"); • our ability to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; and • our ability to qualify for an exemption from registration under the Investment Company Act of 1940, as amended. We caution investors not to rely unduly on any forward-looking statements, which speak only as of the date made, and urge you to carefully consider the risks noted above and identified under the captions "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020 and any subsequent filings. 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. All forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice. 44 Special Note Regarding COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. On March 13, 2020, the U.S. declared a national emergency concerning the COVID-19 pandemic, and several states and municipalities have subsequently declared public health emergencies. These conditions have caused, and may continue to cause, a significant disruption in the U.S. and world economies. Beginning in mid-March 2020, the global pandemic associated with COVID-19 and related economic conditions caused financial and mortgage-related asset markets to come under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. These events, in turn, resulted in falling prices of our assets and increased margin calls from our repurchase agreement counterparties. To conserve capital, protect assets and to pause the escalating negative impacts caused by the market dislocation and allow the markets for many of our assets to stabilize, in April 2020, we entered into forbearance agreements with our repurchase agreement counterparties, which we subsequently exited on June 10, 2020 pursuant to a reinstatement agreement. These agreements are detailed in the "Financing activities–Forbearance and Reinstatement Agreements" section below. In an effort to manage our portfolio through this unprecedented turmoil in the financial markets, to improve liquidity, and preserve capital, we reduced the size of our investment portfolio on a GAAP and non-GAAP basis by $2.9 billion and $3.0 billion, respectively, during 2020 through sales, either directly or as a result of financing counterparty seizures. During 2020, we also reduced our corresponding financing arrangement balance on a GAAP and non-GAAP basis by $2.7 billion and $2.8 billion, respectively. In doing so, we recognized a significant amount of realized and unrealized losses which were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic. We do not yet know the full extent of the effects of the COVID-19 pandemic on our business, operations, personnel, or the U.S. economy as a whole. We cannot predict future developments, including the scope and duration of the pandemic, the effectiveness of our work from home arrangements, third-party providers' ability to support our operations, the nature and effect of any actions taken by governmental authorities and other third parties in response to the pandemic, and the other factors discussed throughout this report. Future developments with respect to the COVID-19 pandemic and the actions taken to reduce its spread could continue to materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Executive Summary During the first quarter of 2021, we focused our efforts on continuing to grow our diversified risk-adjusted portfolio of Residential Credit Investments and Agency RMBS. In doing so, our primary focus is to invest in residential mortgage loans with the intent to securitize these assets as market conditions permit. During the quarter, we continued to grow the Non-QM Loans composition of our investment portfolio by purchasing loans from third parties as well as Arc Home. We also continued to invest in Agency RMBS while reallocating capital from our Commercial Investments and Non-Agency RMBS portfolios into the residential mortgage market. The information presented below provides a summary of investment and capital activity during the current quarter: Investment Activity • Purchased $208.5 million of Non-QM Loans, $59.2 million of which were purchased from Arc Home, a licensed mortgage originator we invest in alongside other Angelo Gordon funds; ◦ During the quarter we amended certain financing arrangements to include a maximum uncommitted borrowing capacity to finance the acquisition of Non-QM Loans; ◦ Subsequent to quarter end, we purchased an additional $154.2 million of Non-QM Loans, inclusive of $47.3 million which were purchased from Arc Home, while also increasing our maximum uncommitted borrowing capacity under certain financing arrangements to support our continued growth within the Non-QM Loan market; • Purchased 30 Year Fixed Rate positions, increasing our Agency RMBS portfolio to $915.4 million; • Sold two commercial real estate loans for total proceeds of $74.3 million, releasing unfunded commitments of approximately $28.8 million as of December 31, 2020; and • Sold several Non-Agency RMBS and CMBS positions for total proceeds of $40.4 million. 45 Capital Activity • Utilized our ATM program to issue 2.2 million shares of common stock, raising net proceeds of approximately $10.0 million; and • Entered into a privately negotiated exchange offer with existing holders of the preferred stock, issuing 2.8 million shares of common stock in exchange for 0.5 million shares of preferred stock. Our company We are a hybrid mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of Credit Investments and Agency RMBS. Our Credit Investments include Residential Investments and Commercial Investments. We are a Maryland corporation and are externally managed by our Manager, a wholly-owned subsidiary of Angelo Gordon, pursuant to a management agreement. Our Manager, pursuant to a delegation agreement dated as of June 29, 2011, has delegated to Angelo Gordon the overall responsibility of its day-to-day duties and obligations arising under the management agreement. We conduct our operations to qualify and be taxed as a real estate investment trust ("REIT"), for U.S. federal income tax purposes. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT, with the exception of our domestic taxable REIT subsidiaries ("TRS"). We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. Our investment portfolio Our investment portfolio is comprised of our Credit Investments and Agency RMBS. Our Credit Investments include Residential Investments and Commercial Investments. These investments are described in more detail below. Credit Investments Residential Investments Our Residential Investments include: • Non-QM Loans, which include: ◦ Residential mortgage loans that do not qualify for the Consumer Finance Protection Bureau's (the "CFPB") safe harbor provision for "qualifying mortgages," or "QM." When held directly, these investments are included in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets. ◦ Non-QM Loans held alongside other private funds under the management of Angelo Gordon are held in one of our unconsolidated subsidiaries, Mortgage Acquisition Trust I LLC ("MATT") (see the "Contractual obligations" section below for more detail). These investments are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. ◦ Non-QM Loans in securitized form that are issued by MATT. The securitizations typically take the form of various classes of notes. These investments are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. • Re/Non-Performing Loans, which include: ◦ RPLs or NPLs in securitized form issued by an entity in which we own an equity interest and that we hold alongside other private funds under the management of Angelo Gordon. The securitizations typically take the form of equity and various classes of notes. These investments are included in the "RMBS" and "Investments in debt and equity of affiliates" line items on our consolidated balance sheets. ◦ RPLs or NPLs we hold through interests in certain consolidated trusts. These investments are secured by residential real property, including prime, Alt-A, and subprime mortgage loans, and are included in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets. • Land Related Financing includes first mortgage loans we originate to third-party land developers and home builders for purposes of the acquisition and horizontal development of land. These loans may be held through our unconsolidated subsidiaries. These loans are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. The Residential Investments that we own also include residential mortgage-backed securities ("RMBS") that are not issued or guaranteed by Ginnie Mae or a GSE. We collectively refer to these investments as our Non-Agency RMBS. The mortgage loan 46 collateral for residential Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by U.S. government agencies or U.S. government-sponsored entities. Our Non-Agency RMBS include investment grade and non-investment grade fixed and floating-rate securities. Commercial Investments Our Commercial Investments include: • Fixed and floating rate commercial mortgage-backed securities ("CMBS") secured by commercial mortgage loans to multiple borrowers ("Conduit") or secured by a single commercial mortgage loan which is backed by a single asset (usually a large commercial property) or by a pool of cross collateralized mortgage obligations to a single borrower or related borrowers ("Single-Asset/Single-Borrower"); • Interest Only securities (CMBS backed by interest-only strips); • Commercial real estate loans secured by commercial real property, including first mortgages and mezzanine loans for construction or redevelopment of a property; and • CMBS, Interest-Only securities and CMBS principal-only securities which are regularly-issued by Freddie Mac as structured pass-through securities backed by multifamily mortgage loans ("Freddie Mac K-Series" or "K-Series"). Agency RMBS Our investment portfolio includes RMBS. Certain of the assets in our RMBS portfolio have a guarantee of principal and interest by a U.S. government agency such as the Government National Mortgage Association, or Ginnie Mae, or by a government-sponsored entity such as the Federal National Mortgage Association, or Fannie Mae, or the Federal Home Loan Mortgage Corporation, or Freddie Mac (each, a "GSE"). We refer to these securities as Agency RMBS ("Agency RMBS"). Our Agency RMBS includes fixed rate securities held as mortgage pass-through securities, as well as excess mortgage servicing rights ("Excess MSRs"). Excess MSRs are interests in mortgage servicing rights ("MSR"), representing a portion of the interest payment collected from a pool of mortgage loans, net of a basic servicing fee paid to the mortgage servicer. An MSR provides a mortgage servicer with the right to service a mortgage loan or a pool of mortgages in exchange for a portion of the interest payments made on the mortgage or the underlying mortgages. Investment classification Throughout this report, (1) we use the terms "credit portfolio" and "credit investments" to refer to our Residential Investments and Commercial Investments, inclusive of investments held within affiliated entities but exclusive of AG Arc (discussed below); (2) we refer to our Re/Non-Performing Loans (exclusive of our RPLs or NPLs in securitized form), Non-QM Loans (exclusive of those in securitized form), Land Related Financing, and commercial real estate loans, collectively, as our "loans"; (3) we use the term "credit securities" to refer to our credit portfolio, excluding loans; and (4) we use the term "real estate securities" or "securities" to refer to our Agency RMBS portfolio, exclusive of Excess MSRs, and our credit securities. Our "investment portfolio" refers to our combined Agency RMBS portfolio and credit portfolio and encompasses all of the investments described above. We also use the term "GAAP investment portfolio" which consists of (i) our Agency RMBS, exclusive of (x) to-be-announced securities ("TBAs"), if any, and (y) any investment classified as "Other assets" on our consolidated balance sheets (our "GAAP Agency RMBS portfolio"), and (ii) our credit portfolio, exclusive of (x) all investments held within affiliated entities and (y) any investments classified as "Other assets" on our consolidated balance sheets (our "GAAP credit portfolio"). See Note 2 to the "Notes to Consolidated Financial Statements" for a discussion of our investments held within affiliated entities. For a reconciliation of our investment portfolio to our GAAP investment portfolio, see the GAAP Investment Portfolio Reconciliation Table below. This presentation of our investment portfolio is consistent with how our management evaluates our business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. Arc Home LLC We, alongside private funds under the management of Angelo Gordon, through AG Arc LLC, one of our indirect subsidiaries ("AG Arc"), formed Arc Home LLC ("Arc Home"). Arc Home originates conforming, Government, Jumbo, Non-QM, and other non-conforming residential mortgage loans and retains the mortgage servicing rights associated with the loans that it originates. From time to time, Arc Home may sell originated loans to us or other private funds under the management of 47 Angelo Gordon. See Note 10 to the "Notes to Consolidated Financial Statements (unaudited)" for additional financial information regarding transactions with affiliates. Market conditions During the first quarter of 2021, the financial markets generally continued their recovery from the unprecedented dislocation caused by the COVID-19 pandemic and the resulting economic shutdown across much of the U.S. economy. We believe several factors have contributed to the momentum of the ongoing rise in risk asset prices, most notably positive vaccine and reopening related news, demand for fixed income assets, and improving economic data. The Federal Reserve has also consistently signaled that it intends to maintain low interest rates for the foreseeable future. At the end of 2020, home price indices pointed to an annual increase of over 10% for national home prices, and in its first reading of 2021, the Case-Shiller index rose to over 11%. We expect that the mortgage and consumer sectors will continue to benefit from the unemployment support and stimulus disbursements, which were included in the Bipartisan-Bicameral Omnibus COVID Relief Deal bill, which was passed by Congress in December 2020. Non-QM Whole Loans and Securitizations: In the first quarter of 2021, there were Non-QM Loan transactions totaling approximately $1.2 billion. In addition to offers from established sellers, the market saw its first widely syndicated sale of called collateral from a seasoned Non-QM securitization. We expect sale volumes to continue at this pace throughout the year even as rate increases lower overall mortgage origination volumes. In general, the price of residential whole loans continued to increase throughout the quarter as aggregators accounted for the decreased cost of funds in securitization, new government stimulus packages, and the demand for Non-QM assets remains outsized compared to originators ability to reach pre-COVID volumes. Agency RMBS: Agency RMBS experienced some volatility during the first quarter as 10-year U.S. Treasury rates increased by 82 basis points. With the move in higher rates and the market’s expectation of slowing prepayment speeds, specified pool payups came under pressure during the quarter, resulting in better performance in the TBA market. Overall, strong bank demand and steady buying by the Federal Reserve continue to be broadly supportive of the sector. Non-Agency RMBS: Overall, the factors discussed above contributed to increasingly tighter spreads over the course of the quarter, particularly with regard to the lower tranches of credit-related assets. Assets with more credit risk, which are generally those with the widest spreads, outperformed during the quarter. New-issue volume was notably stronger compared to the fourth quarter of 2020. The supply was well-absorbed by the market as offerings were often oversubscribed, particularly to start the year. Compared to the prior quarter, RMBS new issues grew 38% to nearly $30 billion. CMBS: A continued recovery in the CMBS market was experienced in the first quarter of 2021. In addition to the factors that typically push CMBS spreads tighter, such as the need to invest newly allocated capital amounts into the market, we believe overall market dynamics in the first quarter were supplemented by a few additional considerations. One factor being that the recovery of CMBS has tended to lag other product types. Additionally, with the vaccination rollout picking up momentum, property valuation uncertainty has been mitigated to some degree. Finally, given a limited amount of maturities in 2021, issuance volumes are expected to remain below historical levels. The overall CMBS delinquency rate continues to trend lower with March becoming the 9th consecutive month of improved loan performance. Not surprisingly the hardest hit sectors in 2020, which included hotel and retail, led the recovery during the current quarter and, in our opinion, the greatest area of uncertainly in the commercial real estate markets relates to the office sector and the long-term impacts of more remote or home working options for employees. In light of various market uncertainties, in particular the pervasive uncertainties of the COVID-19 pandemic for the U.S. and global economy, there can be no assurance that the trends and conditions described above will not change in a manner materially adverse to the mortgage REIT industry and/or our Company. Results of Operations Our operating results can be affected by a number of factors and primarily depend on the size and composition of our investment portfolio, the level of our net interest income, the fair value of our assets and the supply of, and demand for, our investments in residential mortgages in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose mortgage loans are included in our investment portfolio and other unanticipated events in our markets. Our primary source of net income or loss available to common stockholders is our net interest income, less our cost of hedging, which represents the difference between the interest 48 earned on our investment portfolio and the costs of financing and economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates. Three Months Ended March 31, 2021 compared to the Three Months Ended March 31, 2020 The table below presents certain information from our consolidated statements of operations for the three months ended March 31, 2021 and March 31, 2020 (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Increase/(Decrease) Statement of Operations Data: Net Interest Income Interest income $ 12,119 $ 40,268 $ (28,149) Interest expense 4,061 19,971 (15,910) Total Net Interest Income 8,058 20,297 (12,239) Other Income/(Loss) Net realized gain/(loss) (4,038) (151,143) 147,105 Net interest component of interest rate swaps (741) 923 (1,664) Unrealized gain/(loss) on real estate securities and loans, net (6,658) (313,897) 307,239 Unrealized gain/(loss) on derivative and other instruments, net 26,507 5,686 20,821 Foreign currency gain/(loss), net 14 1,649 (1,635) Other income 23 3 20 Total Other Income/(Loss) 15,107 (456,779) 471,886 Expenses Management fee to affiliate 1,654 2,149 (495) Other operating expenses 3,983 930 3,053 Restructuring related expenses — 1,500 (1,500) Excise tax — (815) 815 Servicing fees 615 579 36 Total Expenses 6,252 4,343 1,909 Income/(loss) before equity in earnings/(loss) from affiliates 16,913 (440,825) 457,738 Equity in earnings/(loss) from affiliates 26,336 (44,192) 70,528 Net Income/(Loss) 43,249 (485,017) 528,266 Gain on Exchange Offers, net 358 — 358 Dividends on preferred stock (4,924) (5,667) 743 Net Income/(Loss) Available to Common Stockholders $ 38,683 $ (490,684) $ 529,367 Interest income Interest income is calculated using the effective interest method for our GAAP investment portfolio and calculated based on the actual coupon rate. Interest income decreased from March 31, 2020 to March 31, 2021 primarily due to a decrease in the weighted average cost of our portfolio. The weighted average cost of our GAAP investment portfolio decreased by $2.2 billion from $3.6 billion for the three months ended March 31, 2020 to $1.4 billion for the three months ended March 31, 2021. The decrease was driven by sales and seizures which occurred primarily during the first and second quarters of 2020 due to market volatility caused by the 49 COVID-19 pandemic. Additionally, the weighted average yield of our GAAP investment portfolio decreased by 1.09% from 4.48% for the three months ended March 31, 2020 to 3.39% for the three months ended March 31, 2021. Interest expense Interest expense is calculated based on the actual financing rate and the outstanding financing balance of our GAAP investment portfolio. Interest expense decreased from March 31, 2020 to March 31, 2021 primarily due to a decrease in the weighted average financing balance on our GAAP investment portfolio during the period. The weighted average financing balance on our GAAP investment portfolio during the period decreased by $2.2 billion from $3.0 billion for the three months ended March 31, 2020 to $0.8 billion for the three months ended March 31, 2021. The decrease was driven by financing removed on sales and seizures which occurred primarily during the first and second quarters of 2020 due to market volatility caused by the COVID-19 pandemic. Additionally, the weighted average financing rate on our GAAP investment portfolio decreased by 0.70% from 2.64% for the three months ended March 31, 2020 to 1.94% for the three months ended March 31, 2021. For the three months ended March 31, 2021 and March 31, 2020, interest expense includes $0.2 million and $(0.2) million, respectively, of deferred financing costs that were excluded from core earnings in the "Transaction related expenses and deal related performance fees" line item. Refer to the "Financing activities" section below for a discussion of the material changes in our cost of funds. Net realized gain/(loss) Net realized gain/(loss) represents the net gain or loss recognized on any (i) sales and seizures, if any, of real estate securities out of our GAAP investment portfolio, including any associated deficiencies recognized, if any, (ii) sales of loans out of our GAAP investment portfolio, transfers of loans from our GAAP investment portfolio to real estate owned included in Other assets, and sales of Other assets, and (iii) settlement of derivatives and other instruments. The following table presents a summary of Net realized gain/(loss) for the three months ended March 31, 2021 and March 31, 2020 (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Sales/Seizures of real estate securities $ (500) $ (86,305) Sales of loans and loans transferred to or sold from Other assets (3,373) (2,967) Settlement of derivatives and other instruments (165) (61,871) Total Net realized gain/(loss) $ (4,038) $ (151,143) Net interest component of interest rate swaps Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps. Net interest component of interest rate swaps decreased from March 31, 2020 to March 31, 2021, primarily due to the difference in terms on the outstanding interest rate swaps during the periods. As of the March 31, 2021, we held an interest rate swap portfolio of $1.1 billion of notional with a weighted average receive-variable rate of 0.20% and a weighted average pay-fix rate of 0.80%. Unrealized gain/(loss) on real estate securities and loans, net During the three months ended March 31, 2021, we recognized $6.7 million in net unrealized losses comprised of unrealized losses on securities and unrealized gains on loans of $24.0 million and $17.3 million, respectively. The unrealized losses on securities primarily relates to losses on our Agency RMBS portfolio and the unrealized gains on loans primarily relates to gains on our Re/Non-performing loan portfolio. During the three months ended March 31, 2020, we recognized $313.9 million net unrealized losses comprised of unrealized losses on securities and unrealized losses on loans of $203.4 million and $110.5 million, respectively. These losses were due directly to the disruptions of the financial markets caused by the COVID-19 pandemic and our response thereto, including $2.4 billion in asset sales and a significant decrease in asset valuations in March 2020. 50 Unrealized gain/(loss) on derivative and other instruments, net For the three months ended March 31, 2021, the gains of $26.5 million were comprised of unrealized gains of $28.5 million, primarily related to mark-to-market changes on our interest rate swap portfolio, offset by unrealized losses of $2.0 million on securitized debt. For the three months ended March 31, 2020, the gain of $5.7 million was comprised of unrealized gains on securitized debt offset by unrealized losses on excess MSRs and derivatives. Foreign currency gain/(loss), net Foreign currency gain/(loss), net pertains to the effects of remeasuring the monetary assets and liabilities of our foreign investments into U.S. dollars using foreign currency exchange rates at the end of the reporting period. During the three months ended March 31, 2020, the value of GBP relative to USD decreased, resulting in a gain on the liabilities held in foreign currencies. The decrease in gains from March 31, 2020 to March 31, 2021 is primarily as a result of a decreased foreign currency denominated portfolio throughout the current period. As of March 31, 2021, the Company no longer held any foreign currency denominated positions. Management fee to affiliate Our management fee is based upon a percentage of our Stockholders’ Equity. See the "Contractual obligations" section of this Item 2 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity. Management fees decreased from March 31, 2020 to March 31, 2021 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement. Other operating expenses This amount is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance and directors’ fees, as well as certain expenses reimbursable to the Manager. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence, and other services. Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager. The following table presents a summary of expenses within Other operating expenses broken out between non-investment related expenses and investment related expenses for the three months ended March 31, 2021 and March 31, 2020 (in thousands): Three Months Ended March 31, 2021 March 31, 2020 Non Investment Related Expenses Affiliate expense reimbursement - Operating expenses (1) $ 1,250 $ 1,879 Professional fees 1,225 545 D&O insurance 394 174 Directors' compensation 168 218 Equity based compensation to affiliate — 88 Other 156 229 Total Corporate Expenses 3,193 3,133 Investment Related Expenses Affiliate expense reimbursement - Deal related expenses 281 162 Professional fees 28 47 Residential mortgage loan related expenses 608 692 Transaction related expenses and deal related performance fees (2)(3) (167) (3,219) Other 40 115 Total Investment Expenses 790 (2,203) Total Other operating expenses $ 3,983 $ 930 (1) For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of 51 $0.8 million. For the three months ended March 31, 2021, $0.2 million of the reduction in reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above. (2) The increase in Transaction related expenses and deal related performance fees from the three months ended March 31, 2020 to the three months ended March 31, 2021 is primarily a result of accrued deal related performance fees being reversed in the period ended March 31, 2020 due to a decline in the price of the related assets, as well as the seizure of such assets by financing counterparties. (3) In computing core earnings, transaction related expenses and deal related performance fees are added back to Net Income/(Loss). For the three months ended March 31, 2021, total transaction related expenses and deal related performance fees excluded from core earnings were $(12) thousand, consisting of $(167) thousand recorded within the "Other operating expenses" line item, as detailed above, and $155 thousand recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs. For the three months ended March 31, 2020, total transaction related expenses and deal related performance fees excluded from core earnings were $(3.4) million, consisting of $(3.2) million recorded within the "Other operating expenses" line item, as detailed above, and $(0.2) million recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs. Restructuring related expenses Restructuring related expenses relate to legal and consulting fees primarily incurred in connection with executing the Forbearance Agreement and subsequent Reinstatement Agreement in 2020. Refer to the "Financing activities" section below for more information regarding the Forbearance Agreement and the Reinstatement Agreement. Excise tax Excise tax represents a four percent tax on the required amount of any ordinary income and net capital gains not distributed during the year. The expense is calculated in accordance with applicable tax regulations. During the three months ended March 31, 2020, we reversed previously accrued excise taxes primarily as a result of losses associated with COVID-19. We did not record any excise taxes for the three months ended March 31, 2021. Servicing fees We incur servicing fee expenses in connection with the servicing of our Residential mortgage loans. As of March 31, 2021 and March 31, 2020, we owned Residential mortgage loans with a fair value of $643.0 million and $767.0 million, respectively. This decrease in the fair value of the Residential mortgage loans was a result of net sales of Residential mortgage loan pools in 2020 and 2021. For the three months ended March 31, 2021 and March 31, 2020, our servicing fees remained relatively consistent. Equity in earnings/(loss) from affiliates Equity in earnings/(loss) from affiliates represents our share of earnings and profits of investments held within affiliated entities. A majority of these investments are comprised of real estate securities, loans, and our investment in AG Arc. The below table reconciles the net income/(loss) to the "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands). Three Months Ended March 31, 2021 March 31, 2020 Non-QM Loans (1) $ 14,646 $ (26,729) AG Arc (2) 6,340 (10,026) Land Related Financing 710 664 Other 4,640 (8,101) Equity in earnings/(loss) from affiliates $ 26,336 $ (44,192) (1) The increase in earnings within MATT was the primarily the result of mark-to-market gains on the Non-QM Loan portfolio and related financing. (2) The earnings at AG Arc during the three months ended March 31, 2021 were primarily the result of $4.2 million of net income related to Arc Home's lending and servicing operations and $1.5 million related to changes in the fair value of the MSR portfolio held by Arc Home. 52 Gain on Exchange Offers, net We completed a privately negotiated exchange offer during the three months ended March 31, 2021. As a result of the exchange offer, we exchanged 153,325 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") and 350,609 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") for a total of 2,812,388 shares of common stock. We recognized a gain of $0.4 million in connection with the offer. Refer to the "Liquidity and capital resources" section below for more information on the exchange offers. Book value and Adjusted book value per share Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP, including all vested shares issued to our Manager, and our independent directors under our equity incentive plans as of quarter-end. As of March 31, 2021, the net proceeds for the Series A Preferred Stock, Series B Preferred Stock, and our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") were $40.1 million, $92.3 million, and $93.9 million, respectively. As of March 31, 2021, the liquidation preference for the issued and outstanding Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock was $41.6 million , $95.4 million, and $97.1 million, respectively. As of March 31, 2021 and December 31, 2020, our book value per common share calculated using stockholders’ equity less net proceeds on our preferred stock as the numerator was $4.92 and $4.13, respectively. As of March 31, 2021 and December 31, 2020, our adjusted book value per common share calculated using stockholders’ equity less the liquidation preference of our preferred stock as the numerator was $4.76 and $3.94, respectively Presentation of investment, financing and hedging activities In the "Investment activities," "Financing activities," "Hedging activities," and "Liquidity and capital resources" sections of this Item 2, where we disclose our investment portfolio and the related financing arrangements, we have presented this information inclusive of (i) unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method and (ii) TBAs, which are accounted for as derivatives under GAAP. Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition. See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates. Net interest margin and leverage ratio GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio or our investment portfolio, respectively, both of which exclude cash held by us and any net TBA position. The weighted average yield on our credit portfolio and our Agency RMBS portfolio represents an effective interest rate, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end. The calculation of weighted average yield is weighted on fair value at quarter-end. The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay rate on our interest rate swaps. Both elements of cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio or our investment portfolio and securitized debt at quarter-end. As our capital allocation shifts, our weighted average yields and weighted average cost of funds will also shift. Our Agency Investments, given their liquidity and high credit quality, are eligible for higher levels of leverage, while our Credit Investments, with less liquidity and/or more exposure to credit risk and prepayment, utilize lower levels of leverage. As a result, our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the diversification of our counterparties and their available capacity to finance our assets, and anticipated regulatory developments. Our debt-to-equity ratio is directly correlated to the composition of our portfolio; specifically, the higher percentage of Agency Investments we hold, the higher our leverage ratio is, while the higher percentage of Credit Investments we hold, the lower our leverage ratio is. Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio. See the "Financing activities" section below for more detail on our leverage ratio. 53 The chart below sets forth the net interest margin and leverage ratio from our investment portfolio as of March 31, 2021 and March 31, 2020 and a reconciliation to our GAAP investment portfolio: March 31, 2021 Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a) Yield 3.31 % 13.09 % 4.44 % Cost of Funds (b) 1.83 % 2.73 % 1.77 % Net Interest Margin 1.48 % 10.36 % 2.67 % Leverage Ratio (c) 3.2x (d) 2.6x March 31, 2020 Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a) Yield 5.20 % 8.42 % 5.96 % Cost of Funds (b) 2.88 % 4.94 % 3.25 % Net Interest Margin 2.32 % 3.48 % 2.71 % Leverage Ratio (c) 3.1x (d) 3.3x (a) Excludes any net TBA position. (b) Includes cost of non-recourse financing arrangements. (c) The leverage ratio on our GAAP investment portfolio represents GAAP leverage. The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section. (d) Refer to the "Financing activities" section below for an aggregate breakout of leverage. Core Earnings We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on real estate securities, loans, derivatives and other investments, inclusive of our investment in AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition or disposition of our investments, (iii) accrued deal-related performance fees payable to Arc Home and third party operators to the extent the primary component of the accrual relates to items that are excluded from Core Earnings, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) any foreign currency gain/(loss) relating to monetary assets and liabilities, (vii) income from discontinued operations, and (viii) any gains/(losses) associated with exchange transactions on our common and preferred stock. Items (i) through (viii) above include any amount related to those items held in affiliated entities. Management considers the transaction related expenses referenced in (ii) above to be similar to realized losses incurred at the acquisition or disposition of an asset and does not view them as being part of its core operations. Management views the exclusion described in (iv) above to be consistent with how it calculates Core Earnings on the remainder of its portfolio. Management excludes all deferred taxes because it believes deferred taxes are not representative of current operations. As defined, Core Earnings include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income or any other investment activity that may earn or pay net interest or its economic equivalent. One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings to help measure our performance against this objective. Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors as it enables them to evaluate our current core performance using the same methodology that management uses to operate the business. This metric, in conjunction with related GAAP measures, provides greater transparency into the information used by our management team in its financial and operational decision-making. Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. This non-GAAP measure should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated. Refer to the "Results of Operations" section above for a detailed discussion of our GAAP financial results. 54 A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the three months ended March 31, 2021 and March 31, 2020 is set forth below (in thousands, except per share data): Three Months Ended March 31, 2021 March 31, 2020 Net Income/(loss) available to common stockholders $ 38,683 $ (490,684) Add (Deduct): Net realized (gain)/loss 4,038 151,143 Unrealized (gain)/loss on real estate securities and loans, net 6,658 313,897 Unrealized (gain)/loss on derivative and other instruments, net (26,507) (5,686) Transaction related expenses and deal related performance fees (1) (12) (3,412) Equity in (earnings)/loss from affiliates (26,336) 44,192 Net interest income and expenses from equity method investments (2)(3) 7,322 1,233 Foreign currency (gain)/loss, net (14) (1,649) (Gains) from Exchange Offer, net (358) — Drop income — 322 Core Earnings (3) $ 3,474 $ 9,356 Core Earnings, per Diluted Share (3) $ 0.08 $ 0.29 (1) Refer to changes in Interest expense and Other operating expenses in our "Results of Operations" section above for a breakout of transaction related expenses and deal related performance fees for the three months ended March 31, 2021 and March 31, 2020. (2) For the three months ended March 31, 2021 and March 31, 2020, $2.6 million or $0.06 per share and $(4.6 million) or $(0.14) per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives net of taxes were excluded from Core Earnings per diluted share. (3) The three months ended March 31, 2021 included a cumulative retrospective adjustment of $0.5 million or $0.01 per diluted share on the premium amortization for investments accounted for under ASC 320-10. We did not disclose Core Earnings during the first three quarters of 2020 as we determined that this measure, as we have historically calculated it, did not appropriately capture our business, liquidity, results of operations, financial condition, or our ability to make distributions to our stockholders. During the fourth quarter of 2020, we began disclosing Core Earnings in conjunction with the reinstatement of our dividends on our common stock and preferred stock. Investment activities Overall, our intention is to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes. Historically, our investment portfolio has consisted of Residential Investments, Agency RMBS, and Commercial Investments. Our capital allocation to each of these investments is set forth in more detail below. Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. The risk-reward profile of our investment opportunities changes continuously with the market, with labor, housing and economic fundamentals, and with U.S. monetary policy, among others. As a result, in reacting to market conditions and taking into account a variety of other factors, including liquidity, duration, interest rate expectations and hedging, the mix of our assets changes over time as we opportunistically deploy capital. Our credit investments are subject to risk of loss with regard to principal and interest payments. We evaluate each investment in our credit portfolio based on the characteristics of the underlying collateral, the securitization structure, expected return, geography, collateral type, and the cost and availability of financing, among others. We maintain a comprehensive portfolio management process that generally includes day-to-day oversight by the portfolio management team and a quarterly credit review process for each investment that examines the need for a potential reduction in accretable yield, missed or late contractual payments, significant declines in collateral performance, prepayments, projected defaults, loss severities and other data that may indicate a potential issue in our ability to recover our capital from the investment. These processes are designed to enable our Manager to evaluate and proactively to manage asset-specific credit issues and identify credit trends on a portfolio-wide basis. Nevertheless, we cannot be certain that our review will identify all issues within our portfolio due to, among other things, adverse economic conditions or events adversely affecting specific assets. Therefore, potential future losses may also stem from issues with our investments that are not identified by our credit reviews. 55 We evaluate investments in Agency RMBS using factors including, among others, expected future prepayment trends, supply of and demand for Agency RMBS, costs of financing, costs of hedging, liquidity, expected future interest rate volatility and the overall shape of the U.S. Treasury and interest rate swap yield curves. Prepayment speeds, as reflected by the CPR, and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds on our Agency RMBS portfolio increase, the related purchase premium amortization increases, thereby reducing the net yield on such assets. The following table presents a detailed break-down of our investment portfolio as of March 31, 2021 and December 31, 2020 and a reconciliation to our GAAP Investment Portfolio ($ in thousands): Fair Value Percent of Investment Portfolio Fair Value Leverage Ratio (a) March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020 Agency RMBS $ 918,753 $ 521,843 48.4 % 37.4 % 7.8x 6.1x Residential Investments 876,758 691,478 46.2 % 49.5 % 0.9x 0.2x Commercial Investments 104,047 182,296 5.4 % 13.1 % 0.7x 0.9x Total: Investment Portfolio $ 1,899,558 $ 1,395,617 100.0 % 100.0 % 2.6x 1.5x Investments in Debt and Equity of Affiliates (b) $ 217,758 $ 217,964 N/A N/A (c) (c) Total: GAAP Investment Portfolio $ 1,681,800 $ 1,177,653 N/A N/A 3.2x 2.4x (a) The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements by its allocated equity (described in the chart below). Cash posted as collateral has been allocated pro-rata by each respective asset class's Economic Leverage amount. The Economic Leverage Ratio excludes any fully non-recourse financing arrangements. The leverage ratio on our Agency RMBS includes any net receivables on TBA. The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage. (b) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (c) Refer to the "Financing activities" section below for an aggregate breakout of leverage. We allocate our equity by investment using the fair value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost). We allocate all non-investment portfolio related assets and liabilities to our investment portfolio based on the characteristics of such assets and liabilities in order to sum to stockholders' equity per the consolidated balance sheets. Our equity allocation method is a non-GAAP methodology and may not be comparable to the similarly titled measure or concepts of other companies, who may use different calculations and allocation methodologies. The following table presents a summary of the allocated equity of our investment portfolio as of March 31, 2021 and December 31, 2020 ($ in thousands): Allocated Equity Percent of Equity March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020 Agency RMBS $ 110,986 $ 80,854 24.4 % 19.7 % Residential Investments 281,863 229,183 61.9 % 56.0 % Commercial Investments 62,456 99,668 13.7 % 24.3 % Total $ 455,305 $ 409,705 100.0 % 100.0 % 56 The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of March 31, 2021 ($ in thousands): Instrument Current Face Amortized Cost Unrealized Mark- to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Agency RMBS: 30 Year Fixed Rate $ 906,892 $ 944,627 $ (29,204) $ 915,423 2.15 % 1.62 % 9.23 Excess MSR 552,192 4,734 (1,404) 3,330 N/A 4.13 % 6.17 Total Agency RMBS 1,459,084 949,361 (30,608) 918,753 2.15 % 1.63 % 8.07 Credit Investments: Residential Investments Prime 6,816 2,187 390 2,577 3.50 % 14.20 % 10.86 Alt-A/Subprime 16,282 6,903 4,542 11,445 4.25 % 14.16 % 9.50 Credit Risk Transfer 420 420 7 427 5.61 % 5.61 % 7.91 Interest Only and Excess MSR 173,638 269 81 350 0.51 % 2.16 % 2.12 Re/Non-Performing Loans 566,760 460,086 20,809 480,895 3.45 % 7.03 % 6.42 Non-QM Loans (4) 198,371 207,864 1,443 209,307 5.36 % 4.00 % 4.66 MATT Non-QM Loans 1,159,556 145,535 3,504 149,039 1.16 % 11.57 % 0.96 Land Related Financing 22,718 22,718 — 22,718 14.60 % 14.60 % 0.66 Total Residential Investments 2,144,561 845,982 30,776 876,758 2.75 % 7.38 % 2.94 Commercial Investments Single-Asset/Single-Borrower 35,500 35,419 (5,981) 29,438 4.07 % 4.45 % 0.43 Freddie Mac K-Series 22,327 10,618 1,609 12,227 3.83 % 9.23 % 10.06 CMBS Interest Only (5) 685,961 4,009 164 4,173 0.10 % 7.02 % 4.00 Commercial Real Estate Loans (6) 68,220 67,883 (9,674) 58,209 2.52 % 3.10 % 2.77 Total Commercial Investments 812,008 117,929 (13,882) 104,047 0.52 % 4.36 % 3.91 Total Credit Investments 2,956,569 963,911 16,894 980,805 1.97 % 4.68 % 3.20 Total: Investment Portfolio $ 4,415,653 $ 1,913,272 $ (13,714) $ 1,899,558 2.02 % 4.44 % 4.81 Investments in Debt and Equity of Affiliates $ 1,341,627 $ 206,574 $ 11,184 $ 217,758 1.79 % 13.09 % 1.35 Total: GAAP Investment Portfolio $ 3,074,026 $ 1,706,698 $ (24,898) $ 1,681,800 2.09 % 3.31 % 6.32 (1) Refer to Note 2 to the "Notes of the Consolidated Financial Statements (unaudited)" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. Our assets held through Investments in debt and equity of affiliates are included in the "Excess MSR," "Re/Non-Performing Loans," "MATT Non-QM Loans," and "Land Related Financing" line items above. (2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal. (4) Prior to 2021, we acquired Non-QM Loans through our equity method investment in MATT. This line item represents direct purchases of Non-QM Loans, which began in Q1 2021. (5) Comprised of Freddie Mac K-Series interest-only bonds. (6) Yield on Commercial Real Estate Loans includes any exit fees. 57 The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of December 31, 2020 ($ in thousands): Instrument Current Face Amortized Cost Unrealized Mark- to-Market Fair Value (1) Weighted Average Coupon (2) Weighted Average Yield Weighted Average Life (Years) (3) Agency RMBS: 30 Year Fixed Rate $ 494,307 $ 516,675 $ 1,677 $ 518,352 2.10 % 1.17 % 5.55 Excess MSR 642,377 4,986 (1,495) 3,491 N/A 3.80 % 6.08 Total Agency RMBS 1,136,684 521,661 182 521,843 2.10 % 1.19 % 5.85 Credit Investments: Residential Investments Prime 15,093 8,012 653 8,665 3.68 % 8.97 % 12.99 Alt-A/Subprime 16,287 6,910 4,586 11,496 4.25 % 12.52 % 9.70 Credit Risk Transfer 13,880 13,880 (572) 13,308 4.71 % 4.70 % 5.86 Non-U.S. RMBS 2,435 3,141 (41) 3,100 6.45 % 6.41 % 4.59 Interest Only and Excess MSR 191,362 265 55 320 0.53 % 3.44 % 0.70 Re/Non-Performing Loans 582,329 470,440 8,125 478,565 3.62 % 6.49 % 6.17 MATT Non-QM Loans 1,271,998 156,109 (2,909) 153,200 1.08 % 4.95 % 1.29 Land Related Financing 22,824 22,824 — 22,824 14.59 % 14.59 % 0.84 Total Residential Investments 2,116,208 681,581 9,897 691,478 2.37 % 6.51 % 2.76 Commercial Investments Conduit 4,925 3,901 (606) 3,295 4.62 % 11.89 % 3.51 Single-Asset/Single-Borrower 50,480 48,986 (8,796) 40,190 4.15 % 4.81 % 2.27 Freddie Mac K-Series 22,572 10,510 (1,510) 9,000 3.83 % 9.00 % 10.32 CMBS Interest Only (4) 687,077 4,116 187 4,303 0.10 % 6.93 % 4.12 Commercial Real Estate Loans (5) 142,167 141,655 (16,147) 125,508 4.60 % 4.96 % 2.33 Total Commercial Investments 907,221 209,168 (26,872) 182,296 1.10 % 5.30 % 3.88 Total Credit Investments 3,023,429 890,749 (16,975) 873,774 1.87 % 6.26 % 3.10 Total: Investment Portfolio $ 4,160,113 $ 1,412,410 $ (16,793) $ 1,395,617 1.91 % 4.36 % 3.85 Investments in Debt and Equity of Affiliates $ 1,466,453 $ 216,450 $ 1,514 $ 217,964 1.67 % 7.78 % 1.68 Total: GAAP Investment Portfolio $ 2,693,660 $ 1,195,960 $ (18,307) $ 1,177,653 2.01 % 3.73 % 5.03 (1) Refer to Note 2 to the "Notes of the Consolidated Financial Statements (unaudited)" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets. Our assets held through Investments in debt and equity of affiliates are included in the "Excess MSR," "Re/Non-Performing Loans," "MATT Non-QM Loans," and "Land Related Financing" line items above. (2) Equity residuals, principal only securities and Excess MSRs with a zero coupon rate are excluded from this calculation. (3) Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal. (4) Comprised of Freddie Mac K-Series interest-only bonds. (5) Yield on Commercial Real Estate Loans includes any exit fees. Agency RMBS The following table presents the fair value ($ in thousands) and the Constant Prepayment Rate ("CPR") experienced on our GAAP Agency RMBS portfolio for the periods presented. Fair Value CPR (1)(2) Agency RMBS March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020 30 Year Fixed Rate $ 915,423 $ 518,352 3.3 % 2.7 % (1) Represents the weighted average monthly CPRs published during the period for our in-place portfolio. (2) Source: Bloomberg. 58 Credit Investments The following table presents the fair value of the securities and loans in our credit portfolio, and a reconciliation to our GAAP credit portfolio (in thousands): Fair Value March 31, 2021 December 31, 2020 Residential loans (1) $ 764,969 $ 563,263 Commercial real estate loans 58,209 125,508 Total loans 823,178 688,771 Non-Agency RMBS (2) $ 111,789 $ 128,215 CMBS (3) 45,838 56,788 Total Credit securities 157,627 185,003 Total Credit Investments $ 980,805 $ 873,774 Less: Investments in Debt and Equity of Affiliates $ 217,359 $ 217,547 Total GAAP Credit Portfolio $ 763,446 $ 656,227 (1) Includes Re/Non-Performing Loans, Non-QM Loans, and Land Related Financing not held in securitized form. (2) Includes Prime, Alt-A/Subprime, Credit Risk Transfer, Non-U.S RMBS, Interest-Only and Excess MSR, Re/Non-Performing Loans, and Non-QM Loans held in securitized form. (3) Includes Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments. Residential loans The following tables present certain information regarding credit quality for certain categories within our Residential loan portfolio ($ in thousands): March 31, 2021 Weighted Average (1)(2) Aging by Unpaid Principal Balance (1)(2) Unpaid Principal Balance Fair Value Current LTV Ratio Current FICO (3) Current 30-59 Days 60-89 Days 90+ Days Re/Non-Performing Loans (4) $ 493,197 $ 438,783 79.06 % 631 $ 311,279 $ 37,526 $ 13,642 $ 112,242 Non-QM Loans (5) 198,371 209,307 69.32 % 739 198,371 — — — MATT Non-QM Loans (6) 89,824 94,161 59.68 % 720 72,968 4,045 1,206 11,605 Land Related Financing 22,718 22,718 N/A N/A N/A N/A N/A N/A Total Residential loans $ 804,110 $ 764,969 74.22 % 669 $ 582,618 $ 41,571 $ 14,848 $ 123,847 Less: Investments in Debt and Equity of Affiliates 118,284 122,010 61.27 % 713 75,536 4,360 1,387 14,283 Total GAAP Residential Loans $ 685,826 $ 642,959 76.10 % 663 $ 507,082 $ 37,211 $ 13,461 $ 109,564 (1) Weighted average and aging data excludes residual positions where we consolidate a securitization and the positions are recorded on our balance sheet as Re/Non-Performing Loans. There may be limited data available regarding the underlying collateral of the residual positions. (2) Weighted average and aging data excludes Land Related Financing. (3) Weighted average current FICO excludes borrowers where FICO scores were not available. (4) In our Re/Non-Performing Loan portfolio, 30% of the population has requested COVID-19-related assistance as of March 31, 2021; approximately 59% of the population requesting assistance is being reported as contractually current as of period end as this population no longer owes any past due payments. (5) In our Non-QM Loan portfolio, 11% of the population has requested COVID-19-related assistance as of March 31, 2021; the entire population requesting assistance is being reported as contractually current as of period end as this population no longer owes any past due payments. (6) MATT Non-QM Loans includes Non-QM Loans not held in securitized form. In our MATT Non-QM Loan portfolio, 53% of the population has requested COVID-19-related assistance as of March 31, 2021; approximately 75% of the population requesting assistance is being reported as contractually current as of period end as this population no longer owes any past due payments. 59 December 31, 2020 Weighted Average (1)(2) Aging by Unpaid Principal Balance (1)(2) Unpaid Principal Balance Fair Value Current LTV Ratio Current FICO (3) Current 30-59 Days 60-89 Days 90+ Days Re/Non-Performing Loans (4) $ 506,799 $ 440,175 79.58 % 627 $ 288,350 $ 44,761 $ 25,506 $ 128,690 MATT Non-QM Loans (5) 98,204 100,264 59.57 % 707 73,285 4,856 651 19,412 Land Related Financing 22,824 22,824 N/A N/A N/A N/A N/A N/A Total Residential loans $ 627,827 $ 563,263 76.23 % 640 $ 361,635 $ 49,617 $ 26,157 $ 148,102 Less: Investments in Debt and Equity of Affiliates 126,847 127,822 61.09 % 700 75,615 5,329 902 22,177 Total GAAP Residential Loans $ 500,980 $ 435,441 79.50 % 627 $ 286,020 $ 44,288 $ 25,255 $ 125,925 (1) Weighted average and aging data excludes residual positions where we consolidate a securitization and the positions are recorded on our balance sheet as Re/Non-Performing Loans. There may be limited data available regarding the underlying collateral of the residual positions. (2) Weighted average and aging data excludes Land Related Financing. (3) Weighted average current FICO excludes borrowers where FICO scores were not available. (4) In our Re/Non-Performing Loan portfolio, 28% of the population has requested COVID-19-related assistance as of December 31, 2020; approximately 48% of the population requesting assistance is being reported as contractually current as of period end as this population no longer owes any past due payments. (5) MATT Non-QM Loans includes Non-QM Loans not held in securitized form. In our MATT Non-QM Loan portfolio, 34% of the population has requested COVID-19-related assistance as of December 31, 2020; approximately 67% of the population requesting assistance is being reported as contractually current as of period end as this population no longer owes any past due payments. See Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for a breakout of geographic concentration of credit risk within loans we include in the "Residential mortgage loans, at fair value" line item on our consolidated balance sheets. Commercial loans Refer to Note 4 to the "Notes of the Consolidated Financial Statements (unaudited)" section for more detail on what is included in our "Commercial Loans" line item on our consolidated balance sheets. Credit securities The following table presents the fair value of our credit securities portfolio by credit rating as of March 31, 2021 and December 31, 2020 (in thousands): Credit Rating - Credit Securities (1) March 31, 2021 (2)(3) December 31, 2020 (2)(3) AAA $ 611 $ 630 BB 5,699 9,037 B 18,366 25,318 Below B 14,090 17,046 Not Rated 118,861 132,972 Total: Credit Securities $ 157,627 $ 185,003 Less: Investments in Debt and Equity of Affiliates $ 95,349 $ 89,725 Total: GAAP Basis $ 62,278 $ 95,278 (1) Represents the minimum rating for rated assets of S&P, Moody and Fitch credit ratings, stated in terms of the S&P equivalent. (2) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (3) As of March 31, 2021 and December 31, 2020, includes $0.1 million of credit Excess MSRs. 60 The following tables present the geographic concentration of the underlying collateral for our credit securities portfolio ($ in thousands). March 31, 2021 Non-Agency RMBS CMBS State Fair Value (1) Percentage (1) State Fair Value Percentage California $ 37,317 33.4 % Texas $ 5,588 12.2 % New York 18,347 16.4 % California 4,774 10.4 % Florida 10,347 9.3 % Florida 3,218 7.0 % New Jersey 3,839 3.4 % New Jersey 2,566 5.6 % Maryland 3,489 3.1 % Missouri 2,473 5.4 % Other 38,450 34.4 % Other 27,219 59.4 % Total $ 111,789 100.0 % Total $ 45,838 100.0 % (1) Non-Agency RMBS fair value includes $0.1 million of credit Excess MSRs where there was no data regarding the underlying collateral. These positions were excluded from the percent calculation. December 31, 2020 Non-Agency RMBS CMBS State Fair Value (1) Percentage (1) State Fair Value Percentage California $ 40,593 32.5 % Texas $ 6,454 11.4 % New York 17,742 14.2 % New York 6,264 11.0 % Florida 10,982 8.8 % California 4,801 8.5 % Texas 4,216 3.4 % Florida 4,014 7.1 % New Jersey 4,028 3.2 % Missouri 2,753 4.8 % Other 50,654 37.9 % Other 32,502 57.2 % Total $ 128,215 100.0 % Total $ 56,788 100.0 % (1) Non-Agency RMBS fair value includes $3.2 million of investments where there was no data regarding the underlying collateral, including $0.1 million of credit Excess MSRs. These positions were excluded from the percent calculation. The following tables present certain information regarding credit quality for certain categories within our Non-Agency RMBS and CMBS portfolios ($ in thousands): March 31, 2021 Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement Non-Agency RMBS (1) Prime $ 2,577 12.0 % 185.0 10.3 % Alt-A/Subprime 11,445 5.9 % 164.0 — % Credit Risk Transfer 427 0.2 % 30.0 0.9 % CMBS (1) Single-Asset/Single-Borrower $ 29,438 — % 25.1 5.2 % Freddie Mac K Series CMBS 12,227 0.1 % 28.9 — % 61 December 31, 2020 Category Fair Value Weighted Average 60+ Days Delinquent Weighted Average Loan Age (Months) Weighted Average Credit Enhancement Non-Agency RMBS (1) Prime $ 8,665 4.0 % 26.4 2.9 % Alt-A/Subprime 11,496 9.5 % 95.0 0.1 % Credit Risk Transfer 13,308 6.8 % 5.3 0.4 % Non-U.S. RMBS 3,100 2.4 % 41.4 1.3 % CMBS (1) Conduit $ 3,295 10.6 % 81.0 8.7 % Single-Asset/Single-Borrower 40,190 — % 29.2 6.1 % Freddie Mac K Series CMBS 9,000 0.2 % 25.9 — % (1) Sources: Intex, Trepp Investments in debt and equity of affiliates The below table details our investments in debt and equity of affiliates as of March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 December 31, 2020 Assets Liabilities Equity Assets Liabilities Equity Excess MSR $ 399 $ — $ 399 $ 417 $ — $ 417 Total Agency RMBS 399 — 399 417 — 417 Re/Non-Performing Loans (1) 45,602 (13,236) 32,366 41,523 (5,588) 35,935 MATT Non-QM Loans (2) 149,039 (100,762) 48,277 153,200 (111,135) 42,065 Land Related Financing 22,718 — 22,718 22,824 — 22,824 Total Residential Investments 217,359 (113,998) 103,361 217,547 (116,723) 100,824 Total Credit Investments 217,359 (113,998) 103,361 217,547 (116,723) 100,824 Total Investments excluding AG Arc 217,758 (113,998) 103,760 217,964 (116,723) 101,241 AG Arc, at fair value 52,138 — 52,138 45,341 — 45,341 Cash and Other assets/(liabilities) (3) 8,260 (3,835) 4,425 5,279 (1,194) 4,085 Investments in debt and equity of affiliates $ 278,156 $ (117,833) $ 160,323 $ 268,584 $ (117,917) $ 150,667 (1) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt. (2) As of March 31, 2021 and December 31, 2020, Non-QM Loans excluded loans with an unpaid principal balance of $14.2 million and $17.3 million, respectively, whereby an affiliate of MATT has the right, but not the obligation, to repurchase loans from a trust that are 90 days or more delinquent at its discretion. These loans, which are eligible to be repurchased, would be recorded on the balance sheet of MATT, an unconsolidated equity method investee of the Company, with a corresponding and offsetting liability. (3) Includes financing arrangements of $(9.4) thousand on real estate owned as of December 31, 2020. Financing activities We use leverage to finance the purchase of our investment portfolio. In 2021 and 2020, our leverage has primarily been in the form of repurchase agreements, revolving facilities, and securitized debt. Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date. The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset. Haircuts may change as our financing arrangements mature or roll 62 and are sensitive to governmental regulations. We experienced fluctuations in our haircuts that caused us to alter our business and financing strategies for the year ended December 31, 2020. As previously described, this resulted in us raising liquidity and reducing the risk within our portfolio. We had outstanding financing arrangements with five counterparties as of March 31, 2021 and December 31, 2020. Our repurchase agreements are accounted for as financings and require the repurchase of the transferred securities or loans or repayment of the advance at the end of each agreement’s term, typically 30 to 90 days. If we maintain the beneficial interest in the specific assets pledged during the term of the borrowing, we receive the related principal and interest payments. If we do not maintain the beneficial interest in the specific assets pledged during the term of the borrowing, the lender will remit to us the related principal and interest payments. Interest rates on borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time we may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty. We have also entered into revolving facilities to purchase certain loans in our investment portfolio. These facilities typically have longer stated maturities than repurchase agreements. Interest rates on these facilities are based on prevailing rates corresponding to the terms of the borrowings, and interest is paid on a monthly basis. Our financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions. Although specific to each financing arrangement, typical supplemental terms include requirements of minimum equity and liquidity, leverage ratios, and performance triggers. In addition, some of the financing arrangements contain cross default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders. To the extent that we fail to comply with the covenants contained in these financing arrangements or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement. Financings pursuant to repurchase agreements and revolving facilities are generally recourse to us. As of March 31, 2021, we are in compliance with all of our financial covenants. In response to declines in fair value of pledged assets due to changes in market conditions, lenders typically require us to post additional assets as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, referred to as margin calls. Refer to "Liquidity and capital resources" section below for more information. The balance on our financing arrangements can reasonably be expected to (i) increase as the size of our investment portfolio increases primarily through equity capital raises and as we increase our investment allocation to Non-QM Loans not held in securitized form and Agency RMBS and (ii) decrease as the size of our portfolio decreases through asset sales, principal paydowns, and as we increase our investment allocation to credit investments, excluding Non-QM Loans not held in securitized form. Due to their risk profile, credit investments generally have lower leverage ratios than Agency RMBS, which restricts our financing counterparties from providing as much financing to us and lowers the balance of our total financing. Forbearance and Reinstatement Agreements On March 20, 2020, we notified our financing counterparties that we did not expect to be in a position to fund the anticipated volume of future margin calls under our financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic. Subsequent to March 23, 2020, we received notifications of alleged events of default and deficiency notices from several of our financing counterparties. Subject to the terms of the applicable financing arrangement, if we had failed to deliver additional collateral or otherwise meet margin calls when due, the financing counterparties may have been able to demand immediate payment by us of the aggregate outstanding financing obligations owed to such counterparties, and if such financing obligations were not paid, may have been permitted to sell the financed assets and apply the proceeds to our financing obligations and/or take ownership of the assets securing our financing obligations. During this period of market upheaval, we engaged in discussions with our financing counterparties with regard to entering into forbearance agreements pursuant to which each counterparty would agree to forbear from exercising its rights and remedies with respect to an event of default under the applicable financing arrangement for an agreed-upon period. On April 10, 2020, we entered into a forbearance agreement for an initial 15 day period, on April 27, 2020, a second forbearance agreement for an extended period ending on June 1, 2020, and a third forbearance agreement on June 1, 2020 for an additional period ending June 15, 2020 (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties"). Pursuant to the terms of the Forbearance Agreement, the Participating Counterparties agreed to forbear from exercising any of their rights and remedies in respect of events of default and any and all other defaults under the applicable financing arrangement with us for the duration of the forbearance period specified in the Forbearance Agreement (the "Forbearance Period"). 63 On June 10, 2020, we and the Participating Counterparties entered into a Reinstatement Agreement, pursuant to which the parties agreed to terminate the Forbearance Agreement and each Participating Counterparty agreed to permanently waive all existing and prior events of default under its financing agreements with us (each, a "Bilateral Agreement" and to reinstate each Bilateral Agreement, as it may be amended by agreement between the Participating Counterparty and us. As a result of the termination of the Forbearance Agreement and entry into the Reinstatement Agreement, default interest on our outstanding borrowings under each Bilateral Agreements has ceased to accrue as of June 10, 2020 and the interest rate was the non-default rate of interest or pricing rate, as set forth in the applicable Bilateral Agreements, all cash margin has been applied to outstanding balances owed by us, and the DTC repo tracker coding for each Bilateral Agreement has been reinstated, thereby allowing principal and interest payments on the underlying collateral to flow to and be used by us, just as it was before the prior forbearance agreements were put in place. In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the various forbearance agreements have been terminated and released. We also agreed to pay the reasonable fees and out-of-pocket expenses of counsel and other professional advisors for the Participating Counterparties and the collateral agent. Additionally, the Reinstatement Agreement provided a set of financial covenants that override and replace the financial covenants in each Bilateral Agreement and sets forth various reporting requirements from us to the Participating Counterparties, releases, certain netting obligations and cross-default provisions. In connection with the negotiation and execution of the Reinstatement Agreement, we entered into certain amendments to the Bilateral Agreements with certain of the Participating Counterparties to reflect current market terms. In general, the amendments reflect increased haircuts and higher coupons. On June 10, 2020, we also entered a separate reinstatement agreement with JPMorgan Chase Bank (the "JPM Reinstatement Agreement") on substantially the same terms as those set forth in the Reinstatement Agreement. The Reinstatement Agreement and the JPM Reinstatement Agreement collectively cover all of our existing financing arrangements as of the date of this report. Refer to Note 12 in the "Notes to Consolidated Financial Statements (unaudited)" for more information on deficiencies that are now settled. Recourse and non-recourse financing We utilize both recourse and non-recourse debt to finance our portfolio. Non-recourse financing includes securitized debt and other non-recourse financing. Recourse financing includes the secured debt from our Manager, as further described in the "Contractual obligations–Secured debt" section below, and other recourse financing. The below table provides detail on the breakout between recourse and non-recourse financing as of March 31, 2021 and December 31, 2020 (in thousands): March 31, 2021 December 31, 2020 Recourse financing $ 1,167,731 $ 580,037 Non-recourse financing 422,896 466,294 Total (1) 1,590,627 1,046,331 Recourse financing - Investments in Debt and Equity of Affiliates 35,531 5,597 Non-recourse financing - Investments in Debt and Equity of Affiliates (2) 78,467 111,135 Total Investments in Debt and Equity of Affiliates 113,998 116,732 Total: GAAP Basis $ 1,476,629 $ 929,599 (1) As of March 31, 2021, total financing includes $1.2 billion of financing arrangements, collateralized by various asset types in our investment portfolio and $344.4 million of securitized debt, collateralized by Re/Non-Performing Loans. As of December 31, 2020, total financing includes $680.8 million of financing arrangements, collateralized by various asset types in our investment portfolio; $355.2 million of securitized debt, collateralized by Re/Non-Performing Loans; and $10.4 million of secured debt. (2) On January 29, 2021, we and private funds under the management of Angelo Gordon entered into an amendment with respect to our Restructured Financing Arrangement in MATT. The amendment serves to convert the existing financing to a mark-to-market facility with respect to margin calls that is recourse to us and the private funds managed by Angelo Gordon that invest in MATT up to our and each funds' allocation of the $50.0 million commitment to MATH, which is further described in the "Contractual Obligations–MATT Financing Arrangement Restructuring" section below and Note 12 to the "Notes of the Consolidated Financial Statements (unaudited)". 64 The following table presents a summary of the financing arrangements on our investment portfolio as of March 31, 2021 and December 31, 2020 ($ in thousands). March 31, 2021 December 31, 2020 Weighted Average Collateral (1)(2)(3) Carrying Value Stated Maturity Funding Cost Life (Years) Amortized Cost Basis Fair Value Carrying Value Repurchase Agreements Repurchase Agreements on Agency RMBS 30 Year Fixed Rate $ 874,612 Apr 2021 0.14 % 0.04 $ 944,627 $ 915,423 $ 435,893 Repurchase Agreements on Credit Investments Residential Non-Agency RMBS (4) 46,249 Apr 2021 2.40 % 0.10 80,402 92,579 37,744 Residential Loans (5)(6)(7) 205,326 Jun 2021 - Jan 2022 2.65 % 0.74 253,098 257,844 25,590 251,575 2.60 % 0.62 333,500 350,423 63,334 Commercial CMBS (8) 18,081 Apr 2021 2.29 % 0.02 35,419 29,439 24,881 Total Repurchase Agreements 1,144,268 0.71 % 0.17 1,313,546 1,295,285 524,108 Revolving Facilities (9) Commercial Real Estate Loans (10)(11) 25,950 Aug 2023 3.23 % 2.36 50,663 41,489 63,133 Residential Loans (5)(12)(13) 75,980 Jul 2021 - Jan 2022 2.84 % 0.82 97,252 98,555 93,528 Real Estate Owned — N/A — % — — — 9 Total Revolving Facilities 101,930 2.94 % 1.21 147,915 140,044 156,671 Total: Non-GAAP Basis $ 1,246,198 0.90 % 0.25 $ 1,461,461 $ 1,435,329 $ 680,779 Investments in Debt and Equity of Affiliates $ 113,998 2.73 % 0.58 $ 167,554 $ 176,383 $ 116,732 Total: GAAP Basis $ 1,132,200 0.71 % 0.22 $ 1,293,907 $ 1,258,946 $ 564,047 (1) We also had $6.1 million of cash pledged under repurchase agreements as of March 31, 2021, which included $44.2 thousand pledged under repurchase agreements held at Investments in Debt and Equity of Affiliates. (2) Under the terms of our financing agreements, our financing counterparties may, in certain cases, sell or re-hypothecate the pledged collateral. (3) Amounts pledged as collateral under Residential Loans include certain of our retained interests in securitizations. Refer to Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more information on the August 2019 VIE and September 2020 VIE. (4) Includes repurchase agreements on Prime, Alt-A/Subprime, Credit Risk Transfer, Interest-Only and Excess MSR, Re/Non-Performing Loans, and Non-QM Loans held in securitized form. (5) Includes financing on Re/Non-Performing Loans, and Non-QM Loans not held in securitized form. (6) Our Residential Loan financing arrangements include a maximum uncommitted borrowing capacity of $250 million on a facility used to finance Non-QM Loans. Subsequent to quarter end, we amended this financing arrangement to increase the maximum uncommitted borrowing capacity to $400 million. (7) The funding cost includes deferred financing costs. The stated rate on the Residential Loans repurchase agreements was 2.58% as of March 31, 2021. (8) Includes repurchase agreements on Conduit, Single-Asset/Single-Borrower, Freddie Mac K-Series, and Interest-Only investments. (9) All revolving facilities listed are interest only until maturity. (10) The funding cost includes deferred financing costs. The stated rate on the Commercial Real Estate Loans revolving facility was 2.19% as of March 31, 2021. (11) The maximum uncommitted borrowing capacity on the Commercial Real Estate Loans revolving facility is $100 million. (12) The funding cost includes deferred financing costs. The stated rate on the Residential Loans revolving facilities was 2.73% as of March 31, 2021. (13) The maximum uncommitted borrowing capacity on the Residential Loans revolving facility is $111.6 million. 65 Other financing transactions In addition to our financing arrangements, we also finance our Re/Non-performing loans with securitized debt. From time to time, we enter into securitization transactions of certain Re/Non-performing loans where special purpose entities ("SPEs") are created to facilitate the transactions. These SPEs are considered variable interest entities ("VIEs"), which should be consolidated under ASC 810-10. As of March 31, 2021 and December 31, 2020, we have recorded secured financing in connection with these VIEs of $344.4 million and $355.2 million, respectively, on the consolidated balance sheets in the "Securitized debt, at fair value" line item. See Note 2 and Note 4 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on securitized debt and our consolidated VIEs. Leverage We define GAAP leverage as the sum of (1) our GAAP financing arrangements, net of any restricted cash posted on such financing arrangements, (2) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled, and (3) securitized debt, at fair value. We define Economic Leverage, a non-GAAP metric, as the sum of: (i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, any adjustment related to unsettled trades as described in (2) in the previous sentence, and any non-recourse financing arrangements and (iii) our net TBA position (at cost), if any. The calculations in the tables below divide GAAP leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios. The following tables present a reconciliation of our Economic Leverage ratio back to GAAP ($ in thousands). March 31, 2021 Leverage Stockholders’ Equity Leverage Ratio GAAP Leverage $ 1,470,528 $ 455,305 3.2x Financing arrangements through affiliated entities 113,954 Non-recourse financing arrangements (422,896) Economic Leverage $ 1,161,586 $ 455,305 2.6x (1) Non-recourse financing arrangements include securitized debt and other non-recourse financing held within MATT. December 31, 2020 Leverage Stockholders’ Equity Leverage Ratio GAAP Leverage $ 979,303 $ 409,705 2.4x Financing arrangements through affiliated entities 116,688 Non-recourse financing arrangements (466,294) Economic Leverage $ 629,697 $ 409,705 1.5x (1) Non-recourse financing arrangements include securitized debt and other non-recourse financing held within MATT. Hedging activities Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we may utilize derivative instruments in an effort to hedge the interest rate risk associated with the financing of our portfolio. Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates. We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in U.S. Treasury securities. In addition, we may utilize Eurodollar Futures, U.S. Treasury Futures, British Pound Futures and Euro Futures (collectively, "Futures"). In utilizing leverage and interest rate derivatives, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a spread between the yield on our assets and the costs of our financing and hedging. Derivatives have not been designated as hedging instruments for GAAP. See Note 7 in the "Notes to Consolidated Financial Statements (unaudited)" for more information. Dividends Federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT ordinary taxable income, without regard to the deduction for dividends paid and excluding net capital gains and that it pay tax at regular corporate rates 66 to the extent that it annually distributes less than 100% of its net taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our financing arrangements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make required cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. As described above, our distribution requirements are based on taxable income rather than GAAP net income. Differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes and (vi) methods of depreciation. Undistributed taxable income is based on current estimates and is not finalized until we file our annual tax return for that tax year, typically in October of the following year. We did not have any undistributed taxable income as of March 31, 2021. Refer to the "Results of operations" section above for more detail. On March 27, 2020, we announced that our Board of Directors approved a suspension of our quarterly dividends on our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, beginning with the preferred dividend that would have been declared in May 2020, in order to conserve capital and improve its liquidity position during the market volatility due to the COVID-19 pandemic, as well as a suspension of the quarterly dividend on the common stock, beginning with the dividend that normally would have been declared in March 2020. Under the terms of the Articles Supplementary governing our series of preferred stock, we cannot pay cash dividends with respect to our common stock if dividends on our preferred stock are in arrears. On December 17, 2020, we paid our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock dividends that were in arrears as well as the full dividends payable on the preferred stock for the fourth quarter of 2020 in the amount of $1.54689, $1.50 and $1.50 per share, respectively. On December 22, 2020, our Board of Directors declared a dividend of $0.03 per common share for the fourth quarter 2020 which was paid on January 29, 2021 to shareholders of record at the close of business on December 31, 2020. During the first quarter of 2021, we declared its preferred and common dividends in the ordinary course of business. The following table details our common stock dividends declared during the three months ended March 31, 2021: 2021 Declaration Date Record Date Payment Date Cash Dividend Per Share 3/22/2021 4/1/2021 4/30/2021 $ 0.06 We did not declare any common stock dividends during the three months ended March 31, 2020. The following tables detail our preferred stock dividends declared and paid during the three months ended March 31, 2021 and March 31, 2020: 2021 Cash Dividend Per Share Declaration Date Record Date Payment Date 8.25% Series A 8.00% Series B 8.000% Series C 2/16/2021 2/26/2021 3/17/2021 $ 0.51563 $ 0.50 $ 0.50 2020 Cash Dividend Per Share Declaration Date Record Date Payment Date 8.25% Series A 8.00% Series B 8.000% Series C 2/14/2020 2/28/2020 3/17/2020 $ 0.51563 $ 0.50 $ 0.50 Liquidity and capital resources Our liquidity determines our ability to meet our cash obligations, including distributions to our stockholders, payment of our expenses, financing our investments and satisfying other general business needs. Our principal sources of cash as of March 31, 2021 consisted of borrowings under financing arrangements, principal and 67 interest payments we receive on our investment portfolio, cash generated from our operating results, and proceeds from capital market transactions. We typically use cash to repay principal and interest on our financing arrangements, to purchase real estate securities, loans and other real estate related assets, to make dividend payments on our capital stock, and to fund our operations. At March 31, 2021, we had $51.6 million of liquidity, which consisted entirely of cash. Refer to the "Contractual obligations" section of this Item 2 for additional obligations that could impact our liquidity. Margin requirements The fair value of our real estate securities and loans fluctuate according to market conditions. When the fair value of the assets pledged as collateral to secure a financing arrangement decreases to the point where the difference between the collateral fair value and the financing arrangement amount is less than the haircut, our lenders may issue a "margin call," which requires us to post additional collateral to the lender in the form of additional assets or cash. Under our repurchase facilities, our lenders have full discretion to determine the fair value of the securities we pledge to them. Our lenders typically value assets based on recent transactions in the market. Lenders also issue margin calls as the published current principal balance factors change on the pool of mortgages underlying the securities pledged as collateral when scheduled and unscheduled paydowns are announced monthly. We experience margin calls in the ordinary course of our business. In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and, when owned, unpledged Agency RMBS. We refer to this position as our "liquidity." The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities. Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls. There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness. We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in the residential mortgage market. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition. Further, an unexpected rise in interest rates and a corresponding fall in the fair value of our securities may also force us to liquidate assets under difficult market conditions, thereby harming our results of operations and financial condition, in an effort to maintain sufficient liquidity to meet increased margin calls. Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair value declines. This typically occurs when prevailing market rates change adversely, with the severity of the change also dependent on the terms of the derivatives involved. We may also receive margin calls on our derivatives based on the implied volatility of interest rates. Our posting of collateral with our counterparties can be done in cash or securities, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us. Refer to the "Liquidity risk – derivatives" section of Item 3 below for a further discussion on margin. Refer to the "Financing activities–Forbearance and Reinstatement Agreements" section above for information on the impact of COVID-19 on margin calls in 2020. 68 Cash Flows The below details changes to our cash, cash equivalents, and restricted cash for the three months ended March 31, 2021 and March 31, 2020 (in thousands). Three Months Ended March 31, 2021 March 31, 2020 Change Cash and cash equivalents and restricted cash, Beginning of Period $ 62,318 $ 125,369 $ (63,051) Net cash provided by (used in) operating activities (1) 6,477 7,431 (954) Net cash provided by (used in) investing activities (2) (526,454) 1,976,276 (2,502,730) Net cash provided by (used in) financing activities (3) 549,205 (1,975,294) 2,524,499 Net change in cash and cash equivalents and restricted cash 29,228 8,413 20,815 Effect of exchange rate changes on cash 9 (83) 92 Cash and cash equivalents and restricted cash, End of Period $ 91,555 $ 133,699 $ (42,144) (1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the three months ended March 31, 2021 and 2020, respectively. (2) Cash used in investing activities for the three months ended March 31, 2021 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments. Cash provided by investing activities for the three months ended March 31, 2020 was primarily attributable to sales of investments and principal repayments of investments, offset by purchases of investments. The difference period over period is primarily due to significant sales in 2020 as a result of the global COVID-19 pandemic. (3) Cash provided by financing activities for the three months ended March 31, 2021 was primarily attributable to borrowings under financing arrangements offset by repayments of financing arrangements and dividend payments. Cash used in financing activities for the three months ended March 31, 2020 was primarily attributable to repayments of financing arrangements offset by borrowings under financing arrangements. The difference period over period is primarily due to a reduction in financing arrangements as a result of significant sales in 2020 due to the global COVID-19 pandemic. Equity distribution agreements On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933. The Equity Distribution Agreements were amended on May 2, 2018 in conjunction with the filing of our shelf registration statement registering up to $750.0 million of our securities, including capital stock (the "2018 Registration Statement"). For the three months ended March 31, 2021, we issued 2.2 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $10.0 million. For the three months ended March 31, 2020, we did not issue any shares of common stock under the Equity Distribution Agreements. Since inception of the program, we have issued approximately 5.8 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $45.0 million. Exchange Offers On March 17, 2021, we agreed to issue an aggregate of 2,812,388 shares of our common stock in exchange for 153,325 shares of Series A Preferred Stock and 350,609 shares of Series B Preferred Stock, pursuant to a privately negotiated exchange agreement with existing holders of the preferred stock. After the transaction closed, the Series A Preferred Stock and Series B Preferred Stock exchanged pursuant to the exchange agreement were reclassified as authorized but unissued shares of preferred stock without designation as to class or series. As of March 31, 2021, we had outstanding 1,663,193 shares of Series A Preferred Stock, 3,814,119 shares of Series B Preferred Stock, and 3,883,178 shares of Series C Preferred Stock outstanding. 69 Common stock issuance to the Manager Refer to "Contractual obligations–Management agreement" below for more detail related to the Second Management Agreement Amendment. Forward-looking statements regarding liquidity Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses. Contractual obligations Management agreement On June 29, 2011, we entered into a management agreement with our Manager, pursuant to which our Manager is entitled to receive a management fee and the reimbursement of certain expenses. The management fee is calculated and payable quarterly in arrears in an amount equal to 1.50% of our Stockholders’ Equity, per annum. For purposes of calculating the management fee, "Stockholders’ Equity" means the sum of the net proceeds from any issuances of equity securities (including preferred securities) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance, and excluding any future equity issuance to the Manager), plus our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense or other non-cash items described below incurred in current or prior periods), less any amount that we pay for repurchases of our common stock, excluding any unrealized gains, losses or other non-cash items that have impacted stockholders’ equity as reported in our financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP, and certain other non-cash charges after discussions between the Manager and our independent directors and after approval by a majority of our independent directors. Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements. For the three months ended March 31, 2021 and 2020, we incurred management fees of approximately $1.7 million and $2.1 million, respectively. As of March 31, 2021 and December 31, 2020, we have recorded management fees payable of $1.7 million. Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel, who, notwithstanding that certain of them also are our officers, receive no compensation directly from us. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain salary expenses and other expenses relating to legal, accounting, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation; however, the reimbursement is subject to an annual budget process which combines guidelines from the Management Agreement with oversight by our Board of Directors and discussions with our Manager. Of the $4.0 million and $0.9 million of Other operating expenses for the three months ended March 31, 2021 and 2020, respectively, we have incurred $1.5 million and $2.0 million, respectively, representing a reimbursement of expenses. As of March 31, 2021 and December 31, 2020, we recorded a reimbursement payable to our Manager of $1.5 million and $1.8 million, respectively. For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $0.8 million. On April 6, 2020, we executed an amendment to the management agreement, pursuant to which the Manager agreed to defer our payment of the management fee and reimbursement of expenses, effective the first quarter of 2020 through September 30, 2020. All deferred expense reimbursements were paid as of September 30, 2020. On September 24, 2020, we executed an amendment (the "Second Management Agreement Amendment") to the management agreement, pursuant to which the Manager agreed to receive a portion of the deferred base management fee in shares of common stock. Pursuant to the Second Management Agreement Amendment, the Manager agreed to purchase (i) 1,215,370 shares of common stock in full satisfaction of the deferred base management fee of $3.8 million payable by us in respect to the first and second quarters of 2020 and (ii) 154,500 shares of common stock in satisfaction of $0.5 million of the base management fee payable by us in respect to the third quarter of 2020. The shares of common stock issued to the Manager were valued at $3.15 per share based on the midpoint of the estimated range of our book value per share as of August 31, 2020. The remaining third quarter 2020 management fee was paid in the normal course of business. 70 Secured debt On April 10, 2020, in connection with the first Forbearance Agreement, we issued a secured promissory note (the "Note") to the Manager evidencing a $10 million loan made by the Manager to us. Additionally, on April 27, 2020, in connection with the second Forbearance Agreement, we entered into an amendment to the Note to reflect an additional $10 million loan by the Manager to us. The $10 million loan made by the Manager on April 10, 2020 was repaid in full with interest when it matured on March 31, 2021, and the $10 million loan made on April 27, 2020 was repaid in full with interest when it matured on July 27, 2020. The unpaid balance of the Note accrued interest at a rate of 6.0% per annum. Interest on the Note was payable monthly in kind through the addition of such accrued monthly interest to the outstanding principal balance of the Note. The Note and accrued interest on the Note, when outstanding, were included within the due to affiliates amount, which is included within the "Other Liabilities" line item in the consolidated balance sheets. Share-based compensation Effective on April 15, 2020 upon the approval of our stockholders at our 2020 annual meeting of stockholders, the 2020 Equity Incentive Plan provides for 2,000,000 shares of common stock to be issued. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value). As of March 31, 2021, 1,857,350 shares of common stock were available to be awarded under the Equity Incentive Plan. Since our IPO, we have granted an aggregate of 105,794 and 142,650 shares of restricted common stock to our independent directors under our equity incentive plans, dated July 6, 2011 (the "2011 Equity Incentive Plans") and our 2020 Equity Incentive Plan, respectively. As of March 31, 2021, all shares of restricted common stock granted to our independent directors have vested. Further, since our IPO, we have issued 40,250 shares of restricted common stock and 120,000 restricted stock units to our Manager under our 2011 Equity Incentive Plans. As of July 1, 2020, all shares of restricted common stock and restricted stock units granted to our Manager have fully vested. Unfunded commitments See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of March 31, 2021. MATT Financing Arrangement Restructuring See Note 10 and Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on the MATT Restructured Financing Arrangement and our commitments as of March 31, 2021. Off-balance sheet arrangements Our investments in debt and equity of affiliates primarily consist of real estate securities, loans, and our interest in AG Arc. Investments in debt and equity of affiliates are accounted for using the equity method of accounting. See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates. In addition to our investments in debt and equity of affiliates described above, we also have commitments outstanding on certain loans. For additional information on our commitments as of March 31, 2021, refer to Note 12 of the "Notes to Consolidated Financial Statements (unaudited)." Exclusive of our investments in debt and equity of affiliates described above, we do not expect these commitments, taken as a whole, to be significant to, or to have a material impact on, our overall liquidity or capital resources or our operations. Critical accounting policies We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect 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. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate 71 conditions as of March 31, 2021 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in arriving at those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented. Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates that involve the exercise of judgment and the use of assumptions as to future uncertainties. A discussion of the critical accounting policies and the possible effects of changes in estimates on our consolidated financial statements is included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Note 2 to the "Notes to Consolidated Financial Statements (unaudited)." Our most critical accounting policies are believed to include (i) Valuation of financial instruments, (ii) Accounting for real estate securities, (iii) Accounting for loans, (iv) Interest income recognition, and (v) Financing arrangements. See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on these critical accounting policies. These policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our consolidated financial statements are based are reasonable at the time made and based upon information available to us at that time. We rely upon third-party pricing of our assets at each-quarter end to arrive at what we believe to be reasonable estimates of fair value, whenever available. For more information on our fair value measurements, see Note 5 to the "Notes to Consolidated Financial Statements (unaudited)". For a review of our significant accounting policies and the recent accounting pronouncements that may impact our results of operations, see Note 2 to the "Notes to Consolidated Financial Statements (unaudited)." Inflation Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Compliance with Investment Company Act and REIT tests We intend to conduct our business so as to maintain our exempt status under, and not to become regulated as an investment company for purposes, of the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis (the "40% Test"). "Investment securities" do not include, among other things, U.S. government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions). As of December 31, 2020 and for the three months ended March 31, 2021, we determined that we maintained compliance with the 40% test requirements. If we failed to comply with the 40% Test or another exemption under the Investment Company Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this Report. Accordingly, in order to maintain our exempt status, we monitor our subsidiaries' compliance with Section 3(c)(5)(C) of the Investment Company Act, which exempts from the definition of "investment company" entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The staff of the Securities and Exchange Commission, or the SEC, generally requires an entity relying on Section 3(c)(5)(C) to invest at least 55% of its portfolio in "qualifying assets" and at least another 25% in additional qualifying assets or in "real estate-related" assets (with no more than 20% comprised of miscellaneous assets). As of December 31, 2020 and for the three months ended March 31, 2021, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements. We calculate that at least 75% of our assets were real estate assets, cash and cash items and government securities for the year ended December 31, 2020. We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2020. Overall, we believe that we met the REIT income and asset tests. We also believe that we met all other REIT requirements, including the ownership of our stock and the 72 distribution of our taxable income. Therefore, for the year ended December 31, 2020, we believe that we qualified as a REIT under the Code. 73