What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-05 · 360 added, 549 removed, 355 unchanged (72% of the section changed)

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• our ability to obtain and maintain financing arrangements on terms favorable to us or at all;

• our ability to enter into securitization transactions on the terms and pace anticipated 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;

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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 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;

• our ability to qualify for an exemption from registration under the Investment Company Act of 1940, as amended.

• our ability to qualify for an exemption from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act").

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, 2021 and any subsequent filings.

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All forward-looking statements that we make, or that are attributable to us, are expressly qualified by this cautionary notice.

Special Note Regarding COVID-19 Pandemic

In March 2020, the global pandemic associated with COVID-19 and the 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.

Refer to the "Financing activities–Forbearance and Reinstatement Agreements" section below for further details related to the impact these economic conditions had on us.

Although market conditions have improved during 2021, the COVID-19 pandemic is ongoing with new variants emerging despite growing vaccination rates.

As a result, the full impact of COVID-19 (including the impact of any significant variants) on the mortgage REIT industry, credit markets, and, consequently, on our financial condition and results of operations for future periods remains uncertain.

Future developments with respect to the COVID-19 pandemic, including among others, the emergence of new variants, the effectiveness and durability of current vaccines and government stimulus measures, could materially and adversely affect our business, operations, operating results, financial condition, liquidity, or capital levels.

Executive Summary

During the third quarter of 2021, we continued to focus our efforts on growing our portfolio of Residential Credit Investments, including investing in residential mortgage loans with the intent to securitize these assets as market conditions permit.

We completed one Non-QM securitization and continued to purchase Non-QM Loans.

In addition, we also began purchasing GSE Non-Owner Occupied Loans.

Our loan purchases have continued to be from both third-party originators as well as Arc Home.

During the quarter, we sold our remaining CMBS portfolio and also received full repayment on our remaining two Commercial Loans, completely exiting our Commercial Investments.

We also opportunistically repurchased shares of our common stock under our existing Repurchase Program.

The information presented below provides a summary of investment and capital activity during the third quarter.

Investment and Capital Activity

• Purchased $396.9 million of Non-QM Loans, $176.6 million of which were purchased from Arc Home, a licensed mortgage originator we invest in alongside other Angelo Gordon funds;

◦ Amended certain financing arrangements to increase the maximum uncommitted borrowing capacity to $1.1 billion to finance the acquisition of Non-QM Loans, of which $641.3 million of the maximum uncommitted borrowing capacity remains available as of September 30, 2021;

◦ Subsequent to quarter end, purchased an additional $281.3 million of Non-QM Loans, inclusive of $80.8 million purchased from Arc Home;

• Purchased $213.4 million of GSE Non-Owner Occupied Loans, $66.1 million of which were purchased from Arc Home;

◦ Entered into a financing arrangement with a maximum uncommitted borrowing capacity of $500 million to finance the acquisition of GSE Non-Owner Occupied Loans, of which $302.6 million of the maximum uncommitted borrowing capacity remains available as of September 30, 2021;

◦ Subsequent to quarter end, purchased an additional $105.1 million of GSE Non-Owner Occupied Loans, inclusive of $50.1 million purchased from Arc Home;

• Participated in a rated securitization in which Non-QM Loans with a fair value of $282.5 million were securitized, converting financing from recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

• Exited remaining commercial investments

◦ Received total proceeds of $74.1 million from the full repayment of our Commercial Loans, inclusive of all accrued or deferred interest outstanding;

◦ Sold our remaining CMBS portfolio for gross proceeds of $33.7 million;

• Sold remaining directly held Agency Excess MSR portfolio to Arc Home for proceeds of $2.7 million;

• Accretive repurchase of 258,755 shares of common stock for $2.8 million, representing a weighted average cost of $11.00 per share.

◦ Subsequent to quarter end, repurchased 61,104 shares of common stock for $0.7 million, representing a weighted average cost of $11.59 per share.

Approximately $11.0 million of common stock remained authorized for future share repurchases under the Repurchase Program after these repurchases.

We are a mortgage REIT that opportunistically invests in a diversified risk adjusted portfolio of Residential Investments and Agency RMBS.

The Company has an approximate 44.6% interest in Arc Home, an affiliate that originates residential mortgage loans and retains the mortgage servicing rights associated with the loans that it originates.

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.

During the first quarter of 2022, we continued to grow our portfolio of newly-originated residential mortgage loans and increase our pace of securitization activity in order to obtain long-term, non-recourse financing without mark-to-market margin calls.

We also reduced our exposure to Agency RMBS and ended the quarter with $137.9 million of liquidity to provide for continued growth and execution of our business strategy.

Total liquidity consisted of $50.5 million of cash, $48.5 million of unencumbered Agency RMBS that we held as of quarter end, and $38.9 million of unencumbered Agency RMBS which we sold during March 2022, but which settled in April 2022.

See below for detail on these activities during the first quarter 2022.

Investment Activity

• Purchased Non-Agency Loans with a fair value of $604.6 million, $329.2 million of which were purchased from Arc Home, our residential mortgage loan originator in which we own an approximate 44.6% interest;

• Purchased Agency-Eligible Loans with a fair value of $343.3 million, $57.3 million of which were purchased from Arc Home.

Financing Activity

• Executed three rated securitizations converting financing from recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

◦ Securitized Non-Agency Loans with a total unpaid principal balance of $681.8 million;

◦ Securitized Agency-Eligible Loans with a total unpaid principal balance of $464.3 million;

• Subsequent to quarter end, executed our second rated securitization of Agency-Eligible Loans, in which loans with an unpaid principal balance of $425.5 million were securitized.

We are a residential mortgage REIT with a focus on investing in a diversified risk-adjusted portfolio of residential mortgage-related assets in the U.S.

mortgage market.

Our objective is to provide attractive risk-adjusted returns to our stockholders over the long-term, primarily through dividends and capital appreciation.

We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the growing non-agency segment of the housing market.

We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners.

We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo, Gordon & Co., L.P.'s ("Angelo Gordon") proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit.

Through our ownership in Arc Home, we also have exposure to mortgage banking activities.

Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans while retaining the mortgage servicing rights associated with certain loans that it originates.

Our investment portfolio (which excludes our ownership in Arc Home) includes Residential Investments and Agency RMBS.

Currently, our Residential Investments primarily consist of newly originated Non-Agency Loans and Agency-Eligible Loans, which we refer to as our target assets.

In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.

As of March 31, 2022, the Company's investment portfolio consisted of the following:

Asset Class Description

Target Assets

Non-Agency Loans

• Non-Agency Loans are loans that do not conform to the underwriting guidelines of a government-sponsored enterprise ("GSE").

Non-Agency Loans consist of Qualified mortgage loans ("QM Loans") and Non-Qualified mortgage loans ("Non-QM Loans").

QM Loans are residential mortgage loans that comply with the Ability-To-Repay rules and related guidelines of the Consumer Finance Protection Bureau ("CFPB").

Non-QM Loans are residential mortgage loans that do not satisfy the requirements for QM Loans and are therefore not deemed to be a "qualified mortgage," under the rules of the CFPB.

◦ Non-Agency Loans are either held directly by us or held indirectly through our investment in Mortgage Acquisition Trust I LLC ("MATT").

◦ Non-Agency Loans held directly are included in the "Residential mortgage loans, at fair value" or the "Securitized residential mortgage loans, at fair value" line items on our consolidated balance sheets.

◦ Non-Agency Loans held indirectly through MATT are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

◦ Certain retained tranches from unconsolidated Non-Agency Loan securitizations are included in the "Real estate securities, at fair value" line item on our consolidated balance sheets.

Agency-Eligible Loans

• Agency-Eligible Loans are loans that are underwritten in accordance with GSE guidelines and are primarily secured by investment properties.

◦ Agency-Eligible Loans held directly are included in the "Residential mortgage loans, at fair value" or the "Securitized residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Other Residential Mortgage Related Assets

Re/Non-Performing Loans

• Performing, re-performing, and non-performing loans are residential mortgage loans collateralized by a first lien mortgaged property.

◦ Re/Non-Performing loans are primarily held through interests in certain consolidated trusts.

These investments are included in the "Securitized residential mortgage loans, at fair value" line item on our consolidated balance sheets.

◦ Certain retained tranches from unconsolidated Re/Non-Performing Loan securitizations which we hold alongside other private funds under the management of Angelo Gordon are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

Land Related Financing

• First mortgage loans originated to third-party land developers and home builders for purposes of the acquisition and horizontal development of land.

◦ These loans are held through our unconsolidated affiliates and are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

• Agency RMBS represent interests in pools of residential mortgage loans guaranteed by a GSE such as Fannie Mae or Freddie Mac, or an agency of the U.S.

Government such as Ginnie Mae.

◦ These investments are included in the "Real estate securities, at fair value" line item on our consolidated balance sheets.

Our primary sources of income are net interest income from our investment portfolio, changes in the fair value of our investments, and income from our investment in Arc Home.

Net interest income consists of the interest income we earn on investments less the interest expense we incur on borrowed funds and any costs related to hedging.

Income from our investment in Arc Home is generated through its mortgage banking activities which represents the origination and subsequent sale of residential mortgage loans and servicing income sourced from its portfolio of mortgage servicing rights.

We were incorporated in Maryland on March 1, 2011 and commenced operations in July 2011.

We conduct our operations to qualify and be taxed as a 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

Credit - 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.

• GSE Non-Owner Occupied Loans include loans that are underwritten in accordance with U.S.

government-sponsored entity ("GSE") guidelines and are secured by investment properties.

These investments are included in the "Residential mortgage loans, at fair value" 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 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.

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 GSE such as the Federal National Mortgage Association, or Fannie Mae, or the Federal Home Loan Mortgage Corporation, or Freddie Mac.

We refer to these securities as Agency RMBS ("Agency RMBS").

Our Agency RMBS includes fixed rate securities held as mortgage pass-through securities.

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.

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 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 Angelo Gordon.

See Note 10 to the "Notes to Consolidated Financial Statements (unaudited)" for additional financial information regarding transactions with affiliates.

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 business conducted in our domestic taxable REIT subsidiaries ("TRS") which are subject to corporate income tax.

We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act.

Our Manager and Angelo Gordon

We are externally managed by AG REIT Management, LLC (our "Manager"), a subsidiary of Angelo, Gordon & Co., L.P.

("Angelo Gordon"), pursuant to a management agreement.

Pursuant to the terms of our management agreement, our Manager provides us with our management team, including our officers, along with appropriate support personnel.

All of our officers are employees of Angelo Gordon or its affiliates.

We do not have any employees.

Our Manager is at all times subject to the supervision and oversight of our Board of Directors and has only such functions and authority as our Board of Directors delegates to it.

Our Manager has delegated to Angelo Gordon the overall responsibility with respect to our Manager’s day-to-day duties and obligations arising under our management agreement.

Through our relationship with our Manager, we benefit from the expertise and relationships that Angelo Gordon has established which provides us with resources to generate attractive risk-adjusted returns for our stockholders.

Our management has significant experience in the mortgage industry and expertise in structured credit investments.

We are able to leverage our Manager, along with our ownership interest in Arc Home, a vertically integrated origination platform, to access investment opportunities in the non-agency residential mortgage loan market.

This strategic advantage has enabled us to grow our investment portfolio and remain active in the securitization markets, utilizing Angelo Gordon's proprietary securitization platform to deliver non-agency investments to a diverse mix of investors.

Market conditions

The mortgage and housing markets remained well-supported during the third quarter of 2021 due to strong fundamentals, demand for risk assets and active new-issue markets.

Delinquency and forbearance rates continued to decline and home prices reached a record high, nearing a 20% rise year-over-year.

We expect that the mortgage and housing sectors will continue to benefit from these factors as well as in part to excess savings accrued from various federal stimulus disbursements.

As various relief programs sunset, the term-driven expiration of mortgage payment forbearance may lead to some near-term headwinds in mortgage and other consumer debt investments.

However we believe this risk should be offset by strong demand for labor, rising collateral prices and persistently tight new mortgage underwriting.

During the first quarter 2022, the financial markets were generally weaker and volatile amid the Federal Reserve rate-hike cycle, high inflation readings, the Ukraine-Russia war and the uncertainty as to whether the Federal Reserve can formulate and implement monetary policy that will avoid recession and generate a so called soft landing for the economy.

Notwithstanding the macro environment, mortgage fundamentals continued to be favorable, and some signs of normalization to pre-pandemic levels continued to emerge.

Prepayment speeds have declined and were 10% to 20% higher than pre-pandemic levels after having been as much as 150% higher.

The overall forbearance rate in the mortgage market continued to fall, and servicers began offering more modifications to cure delinquent statuses.

The latest reading from the S&P/CoreLogic Case-Shiller index showed home prices increased by 19.2% year over year in January 2022, while the CoreLogic Home Price Index rose 20% in February 2022.

Limited availability of homes against fundamentally strong housing demand has been a driving factor for persistent home price appreciation.

Non-Agency Loans and Securitizations :

Issuance continued to remain strong with almost $6 billion of Non-QM transactions pricing in the third quarter of 2021, on pace for well over $20 billion for 2021.

Agency-eligible mortgage loans backed by investment properties and second homes were also issued into the Private Label Securities ("PLS") market with over $7 billion of transactions pricing, as originators looked for liquidity away from the GSE’s as a result of amendments made to the Preferred Stock Purchase Agreement earlier in the year.

It is highly unlikely for that pace of issuance to continue, as the relevant amendments were subsequently suspended on September 14th allowing originators to sell their production directly to the GSE’s without limitation.

However, given the strength of the PLS execution demonstrated over the course of the quarter, some originators may still look to private capital to diversify their funding sources, leading to issuance volume well above the 2019 and 2020 levels of approximately $2 billion per year.

Appetite for securitized debt continued to remain strong, leading to loan pricing remaining relatively high throughout the quarter.

Nominal spreads on Agency RMBS widened in July as compared to benchmark rates, but stabilized throughout the remainder of the quarter.

While the Federal Reserve has strongly suggested that it will officially initiate the tapering of asset purchases at their November meeting, continued strong bank buying has supported valuations.

Payups on specified pools held up well as banks and money managers purchased specified pools over TBAs with dollar roll beginning to weaken as a result of the anticipated tapering from the Federal Reserve.

Expectations for the Federal Reserve to begin a cycle of tightening drove benchmark rates as well as credit spreads considerably higher throughout the quarter.

Generic new issue AAA Non-QM yields ended the quarter slightly above 4% compared to being just under 2% to at the end of 2021.

Credit spreads began the quarter approximately 100 basis points over benchmark rates and widened out steadily before finding some stability in the final weeks of the quarter, settling in at approximately 175 basis points over benchmark rates.

Originators and whole loan pricing were similarly negatively affected as mortgage rates rose materially where the Freddie Mac Primary Mortgage Market Survey ended 2021 at 3.11% and rose to 4.67% by March 31, 2022.

Some newly originated loan packages transacted in the quarter were priced at a discount as consumers were able to lock in lower interest rates prior to the recent increase experienced in the market.

Non-QM loans were hit particularly hard as securitization remains the primary means for monetization, whereas alternative sources of liquidity exists for other sectors through outlets such as the GSEs or banks.

Agency RMBS :

Nominal spreads on Agency MBS finally capitulated to the Federal Reserve’s recent focus on the rate-hike cycle with the spreads between current coupon and a blend of 5-year and 10-year US Treasury yields widening by roughly 40bps to levels not seen since 2014 outside of March of 2020.

While origination has fallen materially with the move in rates, significant rate volatility and uncertainty over the path of the Federal Reserve’s balance sheet reduction, with talk of outright sales of MBS, has reduced demand sharply from investors.

Spreads now incorporate an elevated risk premium, but continued uncertainty and rate volatility pose headwinds to a recovery near-term.

Non-Agency RMBS :

Spreads for securitized residential debt sectors were mixed during the third quarter, as most Credit Risk Transfer tranches tightened 10-20 basis points while other assets such as AAA Non-QM tranches and legacy mortgages were mostly unchanged.

Despite relatively minimal spread movement, many of the same themes that have supported the sector persisted during the quarter, including favorable collateral fundamentals, record high home prices, demand for yield, and continued employment gains.

Issuance of new RMBS fell approximately 15% to $46 billion in the third quarter and, for the first nine months of 2021, RMBS issuance totaled $140 billion, rising 66% from year-ago levels and 43% from the first nine months of 2019.

Comparisons to 2020 are considerably skewed by the issuance lull immediately following the outbreak of the COVID-19 pandemic.

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.

Spreads for securitized residential debt sectors were wider, sometimes sharply, during the first quarter amid broad-based risk-off sentiment and risk-free rate increase that occupied much of the tone to start the year.

Credit risk transfer ("CRT") tranches were as much 200 to 300 basis points wider to end the quarter.

As the quarter turned, CRT spreads started to reverse course as risk appetite increased with new issuances several times oversubscribed owing to relative value against corporate credit and additional demand generated by new investors to the CRT market.

Other mortgage credit sectors also widened during the quarter.

Seasoned RMBS widened by 80 basis points to around 200 to 230 basis points, and AAA rated tranches of Non-QM transactions also widened by 80 basis points to 170 basis points.

Quarterly new issuance of RMBS rose 24% year-over-year to $51 billion in the first quarter on higher Non-QM, CRT and agency-eligible issuance, and compared to the fourth quarter, RMBS new issuance was a little lower, falling from $64 billion at the end of 2021.

Non-QM and Jumbo

loans were the most active sectors during the first quarter, at $12.6 billion and $11.3 billion, respectively, followed by CRT at $9.1 billion.

In light of various market uncertainties, such as uncertainties of the COVID-19 pandemic for the U.S.

and global economy, geopolitical risks and interest rate volatility, 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.

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, we present information on our investment portfolio and the related financing arrangements inclusive of unconsolidated ownership interests in affiliates that are accounted for under GAAP using the equity method.

Our investment portfolio excludes our investment in Arc Home.

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 Notes 2 and 10 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates.

See below for further terms used when describing our investment portfolio.

• Our "Investment portfolio" includes our Residential Investments and Agency RMBS, inclusive of TBAs.

• Our "Residential Investments" refer to our residential mortgage loans and Non-Agency RMBS.

◦ "Residential mortgage loans" or "Loans" refer to our Non-Agency Loans, Agency-Eligible Loans, and Re/Non-Performing Loans (exclusive of retained tranches from unconsolidated securitizations) and Land Related Financing.

◦ "Non-Agency RMBS" refer to the retained tranches from unconsolidated securitizations of Non-Agency Loans and Re/Non-Performing Loans.

• "Real estate securities" refers to our Non-Agency RMBS and Agency RMBS, inclusive of TBAs.

• Our "GAAP Investment portfolio" includes our GAAP Residential Investments and Agency RMBS.

• Our "GAAP Residential Investments" refer to our Residential Investments exclusive of all 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.

Special Note Regarding COVID-19 Pandemic

The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints.

Although market conditions have improved, the COVID-19 pandemic is ongoing with new variants emerging despite growing vaccination rates.

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 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 September 30, 2021 compared to the Three Months Ended September 30, 2020

The table below presents certain information from our consolidated statements of operations for the three months ended September 30, 2021 and 2020 (in thousands):

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 mortgage loans in the marketplace, among other things, which can be impacted by unanticipated credit events, such as defaults, liquidations or delinquencies, experienced by borrowers whose residential 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 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, 2022 compared to the Three Months Ended March 31, 2021

The table below presents certain information from our consolidated statements of operations for the three months ended March 31, 2022 and 2021 (in thousands).

Three Months Ended

September 30, 2021 September 30, 2020 Increase/(Decrease)

March 31, 2022 March 31, 2021 Increase/(Decrease)

Statement of Operations Data:

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Other Income/(Loss)

Net realized gain/(loss) (5,460) (14,431) 8,971

Net interest component of interest rate swaps (2,270) (741) (1,529)

Unrealized gain/(loss), net 29,461 21,465 7,996

Net realized gain/(loss) 8,783 (4,038) 12,821

Net unrealized gain/(loss) (22,420) 19,849 (42,269)

Other income/(loss), net — 37 (37)

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Other operating expenses 3,688 4,150 (462)

Restructuring related expenses — 1,345 (1,345)

Transaction related expenses 5,879 (167) 6,046

Servicing fees 1,007 615 392

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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 increased from September 30, 2020 to September 30, 2021 primarily due to an increase in the size of our portfolio.

The weighted average amortized cost of our GAAP investment portfolio increased by $1.3 billion from $0.7 billion for the three months ended September 30, 2020 to $2.0 billion for the three months ended September 30, 2021.

The increase was primarily driven by purchases of Non-QM Loans, GSE Non-Owner Occupied Loans, and Agency RMBS during the period.

This increase was offset by a decrease of 1.24% in the weighted average yield of our GAAP investment portfolio from 5.22% for the three months ended September 30, 2020 to 3.98% for the three months ended September 30, 2021.

Interest income is calculated using the effective interest method for our GAAP investment portfolio.

Interest income increased from March 31, 2021 to March 31, 2022 primarily due to an increase in the size of our portfolio.

The weighted average amortized cost of our GAAP investment portfolio increased by $2.0 billion from $1.4 billion for the three months ended March 31, 2021 to $3.4 billion for the three months ended March 31, 2022.

The increase was primarily driven by purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

This increase was coupled with an increase of 0.59% in the weighted average yield of our GAAP investment portfolio from 3.39% for the three months ended March 31, 2021 to 3.98% for the three months ended March 31, 2022.

Interest expense

Interest expense is calculated based on the actual financing rate and the outstanding financing balance of our GAAP investment portfolio.

Interest expense increased from September 30, 2020 to September 30, 2021 primarily due to an increase in the amount of financing on our GAAP investment portfolio during the period.

The weighted average financing balance on our GAAP investment portfolio increased by $0.9 billion from $0.3 billion for the three months ended September 30, 2020 to $1.2 billion for the three months ended September 30, 2021.

This was offset by a decrease of 4.49% in the weighted average financing rate on our GAAP investment portfolio from 6.83% for the three months ended September 30, 2020 to 2.34% for the three months ended September 30, 2021.

Interest expense increased from March 31, 2021 to March 31, 2022 primarily due to an increase in the amount of financing on our GAAP investment portfolio, inclusive of securitized debt, during the period.

The weighted average financing balance on our GAAP investment portfolio, inclusive of securitized debt, increased by $1.9 billion from $1.2 billion for the three months ended March 31, 2021 to $3.1 billion for the three months ended March 31, 2022.

The increase was driven by the issuance of securitized debt as well as financing added on purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

This was coupled with an increase of 0.74% in the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, from 1.37% for the three months ended March 31, 2021 to 2.11% for the three months ended March 31, 2022.

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.

The net interest component of interest rate swap expense increased from March 31, 2021 to March 31, 2022 primarily due to an increase in the size of our interest rate swap portfolio and an increase in the net pay rate.

As of March 31, 2022, we held an interest rate swap portfolio with a notional value of $1.4 billion, a weighted average receive-variable rate of 0.30%, and a weighted average pay-fix rate of 1.27%.

As of March 31, 2021, we held an interest rate swap portfolio with a notional value of $1.1 billion, a weighted average receive-variable rate of 0.20%, and a weighted average pay-fix rate of 0.80%.

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the three months ended September 30, 2021 and 2020 (in thousands):

The following table presents a summary of net realized gain/(loss) for the three months ended March 31, 2022 and 2021 (in thousands).

Three Months Ended

September 30, 2021 September 30, 2020

March 31, 2022 March 31, 2021

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (58) $ (469)

Sales of real estate securities (16,840) (500)

Sales of loans and loans transferred to or sold from Other assets 640 (4,795)

Settlement of derivatives and other instruments 25,681 (165)

Sales of commercial loans — (2,904)

Total Net realized gain/(loss) $ 8,783 $ (4,038)

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 September 30, 2020 to September 30, 2021 primarily due to an increase in the size of our interest rate swap portfolio.

As of the September 30, 2021, we held an interest rate swap portfolio with a notional value of $720.0 million, a weighted average receive-variable rate of 0.13%, and a weighted average pay-fix rate of 0.73%.

As of the September 30, 2020, we held an interest rate swap portfolio with a notional value of $180.0 million, a weighted average receive-variable rate of 0.13%, and a weighted average pay-fix rate of 0.42%.

Unrealized gain/(loss), net

The following table presents a summary of Unrealized gain/(loss), net for the three months ended September 30, 2021 and 2020 (in thousands):

Net unrealized gain/(loss)

The following table presents a summary of net unrealized gain/(loss) for the three months ended March 31, 2022 and 2021 (in thousands).

Three Months Ended

September 30, 2021 September 30, 2020

March 31, 2022 March 31, 2021

Residential mortgage loans $ (158,147) $ 10,829

Real estate securities (11,425) (23,960)

Loans 20,662 10,214

Excess mortgage servicing rights 1,507 4,127

Derivatives 2,095 1,164

Securitized debt 97,235 (2,045)

Total Unrealized gain/(loss), net

$ 29,461 $ 21,465

Derivatives 49,917 28,484

Commercial loans — 6,473

Excess mortgage servicing rights — 68

Total Net unrealized gain/(loss) $ (22,420) $ 19,849

Management fee to affiliate

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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 remained relatively flat from September 30, 2020 to September 30, 2021.

Management fees increased from March 31, 2021 to March 31, 2022 primarily due to an increase in our Stockholder's Equity as calculated pursuant to our Management Agreement resulting from our November 2021 common stock offering.

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.

Other operating expenses is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related and investment related 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 compensation 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 September 30, 2021 and 2020 (in thousands):

The following table presents a summary of Other operating expenses broken out between non-investment related expenses and investment related expenses for the three months ended March 31, 2022 and 2021 (in thousands).

Three Months Ended

September 30, 2021 September 30, 2020

March 31, 2022 March 31, 2021

Non Investment Related Expenses

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Affiliate expense reimbursement - Deal related expenses 135 281

Affiliate expense reimbursement - Transaction related expenses 250 —

Residential mortgage loan related expenses 479 597

Transaction related expenses and deal related performance fees 1,763 1,590

Total Investment Expenses 2,749 2,926

Residential mortgage loan asset management fees 544 427

Other 335 249

Total Investment Related Expenses 1,014 957

Total Other operating expenses $ 3,688 $ 4,150

(1) For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $0.8 million.

For the three months ended September 30, 2021, $0.2 million of the reduction in reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

Restructuring related expenses

During the three months ended September 30, 2020, restructuring related expenses relate to legal and consulting fees primarily incurred in connection with restructuring our debt and capital structure.

For the three months ended March 31, 2021, $0.2 million of the waived reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

Transaction related expenses

Transaction related expenses are expenses associated with purchasing and securitizing residential mortgage loans as well as certain other transaction and performance related fees associated with assets we invest in.

These fees increased from the three months ended March 31, 2021 to the three months ended March 31, 2022 primarily as a result of the upfront expenses on the three securitizations transacted in the first quarter of 2022.

No securitizations were transacted during the first quarter of 2021.

Servicing fees

We incur servicing fee expenses in connection with the servicing of our residential mortgage loans.

As of September 30, 2021 and September 30, 2020, we owned residential mortgage loans with a fair value of $1.6 billion and $0.4 billion, respectively.

The increase in the fair value of residential mortgage loans was a result of net purchases of Non-QM Loans and GSE Non-Owner Occupied Loans in 2021.

As a result, servicing fees increased from the three months ended September 30, 2020 to the three months ended September 30, 2021.

The weighted average cost of our GAAP residential mortgage loan portfolio increased by $2.5 billion from $0.5 billion for the three months ended March 31, 2021 to $3.0 billion for the three months ended March 31, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.

As a result, servicing fees increased from the three months ended March 31, 2021 to the three months ended March 31, 2022.

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.

Substantially all of these investments are comprised of real estate securities, loans, and our investment in AG Arc.

Substantially all of these investments are comprised of real estate securities, loans, and our investment in AG Arc which holds our investment in Arc Home.

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

September 30, 2021 September 30, 2020

Non-QM Loans $ (644) $ 1,828

AG Arc (1) 399 13,407

March 31, 2022 March 31, 2021

MATT Non-QM Loans $ (889) $ 14,646

Land Related Financing 502 710

Other (2) 6,529 1,224

Equity in earnings/(loss) from affiliates

$ 6,882 $ 17,187

(1) The earnings/(loss) at AG Arc during the three months ended September 30, 2021 were primarily the result of $1.0 million of net income related to Arc Home's lending and servicing operations, offset by $(0.7) million related to changes in the fair value of the MSR portfolio held by Arc Home.

The earnings recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

For the three months ended September 30, 2021, we eliminated $1.6 million of intra-entity profits recognized by Arc Home and also decreased the cost basis of the underlying loans we purchased by the same amount.

Refer to Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more information on this accounting policy.

(2) The earnings for the three months ended September 30, 2021 were primarily the result of accelerated accretion as a result of paydowns on certain Re/Non-Performing Loans held at discounts.

Gain on Exchange Offers, net

We completed an exchange offer during the third quarter of 2020.

As a result of the exchange offer, we exchanged a total of 42,820 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 31,085 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), and 29,355 shares of our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") for a total of 172,100 shares of common stock.

We recognized a gain of $0.5 million in connection with the exchange offer, which is net of related expenses.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

The table below presents certain information from our consolidated statements of operations for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended

September 30, 2021 September 30, 2020 Increase/(Decrease)

Statement of Operations Data:

Net Interest Income

Interest income $ 45,976 $ 63,354 $ (17,378)

Interest expense 16,552 32,941 (16,389)

Total Net Interest Income 29,424 30,413 (989)

Other Income/(Loss)

Net realized gain/(loss) (5,124) (257,183) 252,059

Net interest component of interest rate swaps (3,498) 910 (4,408)

Unrealized gain/(loss), net 58,995 (186,567) 245,562

Other income/(loss), net 37 1,487 (1,450)

Total Other Income/(Loss) 50,410 (441,353) 491,763

Management fee to affiliate 5,014 5,525 (511)

Other operating expenses 13,859 11,416 2,443

Restructuring related expenses — 9,949 (9,949)

Excise tax — (815) 815

Servicing fees 2,136 1,685 451

Total Expenses 21,009 27,760 (6,751)

Income/(loss) before equity in earnings/(loss) from affiliates 58,825 (438,700) 497,525

Equity in earnings/(loss) from affiliates 34,496 (23,571) 58,067

Net Income/(Loss) from Continuing Operations 93,321 (462,271) 555,592

Net Income/(Loss) from Discontinued Operations — 361 (361)

Net Income/(Loss) 93,321 (461,910) 555,231

Gain on Exchange Offers, net 472 539 (67)

Dividends on preferred stock (14,199) (16,897) 2,698

Net Income/(Loss) Available to Common Stockholders $ 79,594 $ (478,268) $ 557,862

Interest income

Interest income decreased from September 30, 2020 to September 30, 2021 primarily due to a decrease in the weighted average yield of our portfolio.

The weighted average yield of our GAAP investment portfolio decreased by 1.16% from 4.72% for the nine months ended September 30, 2020 to 3.56% for the nine months ended September 30, 2021.

This decrease was coupled with a decrease of $0.1 billion in the weighted average amortized cost of our GAAP investment portfolio from $1.8 billion for the nine months ended September 30, 2020 to $1.7 billion for the nine months ended September 30, 2021.

Interest expense

Interest expense decreased from September 30, 2020 to September 30, 2021 primarily due to a decrease in the amount of financing on our GAAP investment portfolio during the period.

The weighted average financing balance on our GAAP investment portfolio during the period decreased by $0.2 billion from $1.3 billion for the nine months ended September 30,

2020 to $1.1 billion for the nine months ended September 30, 2021.

Additionally, the weighted average financing rate on our GAAP investment portfolio decreased by 1.41% from 3.45% for the nine months ended September 30, 2020 to 2.04% for the nine months ended September 30, 2021.

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended

September 30, 2021 September 30, 2020

Sales/Seizures of real estate securities (1) $ (9,677) $ (131,070)

Sales of loans and loans transferred to or sold from Other assets 5,126 (63,560)

Settlement of derivatives and other instruments (573) (62,553)

Total Net realized gain/(loss) $ (5,124) $ (257,183)

(1) Certain realized losses on real estate securities during the nine months ended September 30, 2020 were a result of financing counterparty seizures.

Net interest component of interest rate swaps

We recognized losses on net interest component of interest rate swaps for the nine months ended September 30, 2021 compared with gains for the nine months September 30, 2020 primarily due to the difference in terms on the outstanding interest rate swaps during the periods coupled with exiting our interest rate swap portfolio in the first quarter of 2020.

Unrealized gain/(loss), net

The following table presents a summary of Unrealized gain/(loss), net for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended

September 30, 2021 September 30, 2020

Real estate securities $ 1,122 $ (145,146)

Loans 44,786 (39,624)

Excess mortgage servicing rights 1,399 603

Derivatives 14,781 (10,915)

Securitized debt (3,093) 8,515

Total Unrealized gain/(loss), net

$ 58,995 $ (186,567)

Other income/(loss), net

Other income/(loss), net includes gains or losses on foreign currency pertaining 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 nine months ended September 30, 2020, the value of GBP relative to USD decreased, resulting in a gain on the liabilities held in foreign currencies.

As of September 30, 2021, we did not hold any positions denominated in foreign currencies.

Management fee to affiliate

Management fees decreased from September 30, 2020 to September 30, 2021 primarily due to a decrease in our Stockholders' Equity as calculated pursuant to our Management Agreement.

Other operating expenses

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 nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended

September 30, 2021 September 30, 2020

Non Investment Related Expenses

Affiliate expense reimbursement - Operating expenses (1) $ 3,375 $ 5,273

Professional fees 2,048 1,922

D&O insurance 1,137 669

Directors' compensation 504 529

Equity based compensation to affiliate — 163

Other 689 545

Total Non Investment Related Expenses 7,753 9,101

Investment Related Expenses

Affiliate expense reimbursement - Deal related expenses 518 967

Affiliate expense reimbursement - Transaction related expenses 330 —

Residential mortgage loan related expenses 1,729 2,176

Transaction related expenses and deal related performance fees (2) 3,401 (1,256)

Other 128 428

Total Investment Expenses 6,106 2,315

Total Other operating expenses $ 13,859 $ 11,416

(1) For the year ended December 31, 2021, the Manager agreed to waive its right to receive expense reimbursements of $0.8 million.

For the nine months ended September 30, 2021, $0.6 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 nine months ended September 30, 2020 to the nine months ended September 30, 2021 is the result of expenses incurred in 2021 in relation to securitizations of Non-QM Loans and the reversal of previously accrued deal related performance fees 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.

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.

During the nine months ended September 30, 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 nine months ended September 30, 2021.

Servicing fees

Servicing fees increased from the nine months ended September 30, 2020 to the nine months ended September 30, 2021 as a result of net purchases of Non-QM Loans and GSE Non-Owner Occupied Loans during 2021.

Equity in earnings/(loss) from affiliates

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).

Nine Months Ended

September 30, 2021 September 30, 2020

Non-QM Loans (1) $ 15,277 $ (33,016)

Re/Non-Performing Loans 3 4,623

AG Arc (1) (1,670) 6,340

Land Related Financing 1,848 1,865

Other (3) 13,338 (5,311)

Equity in earnings/(loss) from affiliates

$ (2,054) $ 26,336

(1) The earnings within MATT for the nine months ended September 30, 2021 were primarily the result of mark-to-market gains on its Non-QM Loan portfolio and net interest income, offset by expenses.

The losses generated within MATT for the nine months ended September 30, 2020 were primarily the result of mark-to-market losses on its Non-QM Loan portfolio and related financing, offset by net interest income.

(2) The earnings/(loss) at AG Arc during the nine months ended September 30, 2021 were primarily the result of $5.4 million of net income related to Arc Home's lending and servicing operations, offset by $(1.9) million related to changes in the fair value of the MSR portfolio held by Arc Home.

The earnings recognized by AG Arc also do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

For the nine months ended September 30, 2021, we eliminated $3.5 million of intra-entity profits recognized by Arc Home and also decreased the cost basis of the underlying loans we purchased by the same amount.

(1) The earnings/(loss) at AG Arc during the three months ended March 31, 2022 were primarily the result of $3.1 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(2.4) million of losses related to Arc Home's lending and servicing operations.

The earnings recognized by AG Arc do not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

For the three months ended March 31, 2022 and 2021 , we eliminated $2.4 million and $0.5 million of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount, respectively.

Refer to Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more information on this accounting policy.

(3) The earnings for the nine months ended September 30, 2021 were primarily the result of accelerated accretion as a result of paydowns on certain Re/Non-Performing Loans held at discounts.

Gain on Exchange Offers, net

We completed two privately negotiated exchange offers during the nine months ended September 30, 2021.

As a result of the exchange offers, we exchanged 153,325 shares of our Series A Preferred Stock, 437,087 shares of our Series B Preferred Stock, and 154,383 shares of our Series C Preferred Stock for a total of 1,367,264 shares of common stock.

We recognized a gain of $0.5 million in connection with the offers.

During the nine months ended September 30, 2020, we completed an exchange offer whereby a total of 42,820 shares of Series A Preferred Stock, 31,085 shares of Series B Preferred Stock, and 29,355 shares of Series C Preferred Stock were exchanged for a total of 172,100 shares of common stock.

We recognized a gain of $0.5 million in connection with the exchange offer.

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 937,462 shares of common stock.

We recognized a gain of $0.4 million in connection with the offer.

There were no exchange offers transacted during the three months ended March 31, 2022.

Book value and Adjusted book value per share

On July 12, 2021, we announced a one-for-three reverse stock split of our outstanding shares of common stock.

The reverse stock split was effected following the close of business on July 22, 2021.

All per share amounts and common shares outstanding for all periods presented have been adjusted on a retroactive basis to reflect the one-for-three reverse stock split.

The below table details book value and adjusted book value per common 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 September 30, 2021, the net proceeds for the Series A Preferred Stock, Series B Preferred Stock, and our Series C Preferred Stock were $40.1 million, $90.2 million, and $90.2 million, respectively.

As of September 30, 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, $93.2 million, and $93.2 million, respectively.

As of September 30, 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 $16.92 and $12.40, respectively.

As of September 30, 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 $16.45 and $11.81, 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.

See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments in debt and equity of affiliates.

March 31, 2022 December 31, 2021

Book value per common share (1) $ 13.68 $ 14.64

Adjusted book value per common share (2) 13.37 14.32

(1) Calculated using stockholders’ equity less net proceeds of $220.5 million on our issued and outstanding preferred stock as the numerator.

(2) Calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock as the numerator.

Net interest margin and leverage ratio

Net interest margin and leverage ratio are metrics that management believes should be considered when evaluating the performance of our investment portfolio.

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 and 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 weighted average yield 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.

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See the "Financing activities" section below for more detail on our leverage ratio.

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of September 30, 2021 and September 30, 2020 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio:

September 30, 2021

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of March 31, 2022 and March 31, 2021 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

March 31, 2022

Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a)

3 unchanged sentences

Leverage Ratio (c) 5.8x (d) 2.7x

September 30, 2020

March 31, 2021

Weighted Average GAAP Investment Portfolio Investments in Debt and Equity of Affiliates Investment Portfolio (a)

3 unchanged sentences

Leverage Ratio (c) 3.2x (d) 2.6x

(a) Excludes net TBA position, if any.

(a) Excludes any net TBA positions.

(b) Includes cost of non-recourse financing arrangements.

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Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our financial performance.

However, management also believes that our definition of Core Earnings has important

limitations as it does not include certain earnings or losses our management team considers in evaluating our financial performance.

However, management also believes that our definition of Core Earnings has important limitations as it does not include certain earnings or losses our management team considers in evaluating our financial performance.

Our presentation of Core Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations.

1 unchanged sentence

Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

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.

We define Core Earnings, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, 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, disposition, or securitization of our investments, (iii) accrued deal-related performance fees payable to 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, and (vi) any gains/(losses) associated with exchange transactions on our common and preferred stock.

Items (i) through (vi) 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, disposition, or securitization 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.

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Core Earnings include the net interest income and other income earned on our investments on a yield adjusted basis, including TBA dollar roll income/(loss) or any other investment activity that may earn or pay net interest or its economic equivalent.

The below table includes Core Earnings for the three and nine months ended September 30, 2020.

However, during those periods, we determined that Core Earnings did not appropriately capture our business, liquidity, results of operations, financial condition, or our ability to make distributions to our stockholders due to the impact of COVID-19 on our business.

Refer to the "Results of Operations" section above for a detailed discussion of our GAAP financial results.

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the three and nine months ended September 30, 2021 and 2020 is set forth below (in thousands, except per share data):

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the three months ended March 31, 2022 and 2021 is set forth below (in thousands, except per share data).

Three Months Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021 September 30, 2020

March 31, 2022

March 31, 2021

Net Income/(loss) available to common stockholders $ (17,788) $ 38,683

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Net realized (gain)/loss (8,783) 4,038

Unrealized (gain)/loss, net (29,461) (21,465) (58,995) 186,567

Net unrealized (gain)/loss 22,420 (19,849)

Transaction related expenses and deal related performance fees (1) 6,132 (12)

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Net interest income and expenses from equity method investments (2)(3) (2,550) 7,322

Net (income)/loss from discontinued operations — — — (361)

Other (income)/loss, net — (14)

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Core Earnings, per Diluted Share (4) $ (0.02) $ 0.25

(1) For the three months ended September 30, 2021 and 2020, total transaction related expenses and deal related performance fees included $2.0 million and $1.6 million, respectively, recorded within the "Other operating expenses" line item and $0.5 million and $0.6 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

For the nine months ended September 30, 2021 and 2020, total transaction related expenses and deal related performance fees included $3.7 million and $(1.3) million, respectively, recorded within the "Other operating expenses" line item and $0.8 million and $0.6 million, respectively, recorded

within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended September 30, 2021 and 2020, $0.2 million or $0.01 per share and $1.8 million or $0.16 per share, respectively;

and for the nine months ended September 30, 2021 and 2020, $1.3 million or $0.08 per share and $(3.2) million or $(0.29) 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.

(1) For the three months ended March 31, 2022 and 2021, total transaction related expenses and deal related performance fees included $5.9 million and $(0.2) million, respectively, recorded within the "Transaction related expenses" line item and $0.2 million and $0.2 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended March 31, 2022 and 2021, $4.4 million or $0.18 per share and $2.6 million or $0.18 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from Core Earnings, net of deferred tax expense.

Additionally, for the three months ended March 31, 2022 and 2021, $(2.5) million or $(0.10) per share and $0.6 million or $0.04 per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from Core Earnings.

(3) Core income or loss recognized by AG Arc does not include our portion of gains recorded by Arc Home in connection with the sale of residential mortgage loans to us.

For the three and nine months ended September 30, 2021, we eliminated $1.6 million and $3.5 million of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.

We did not eliminate any intra-entity profits for the three and nine months ended September 30, 2020.

For the three months ended March 31, 2022 and 2021, we eliminated $2.4 million or $0.10 per share and $0.5 million or $0.03 per share of intra-entity profits recognized by Arc Home, respectively, and also decreased the cost basis of the underlying loans we purchased by the same amount.

Refer to Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for more information on this accounting policy.

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We aim to allocate capital to investment opportunities with attractive risk/return profiles in our target asset classes.

We recently have focused our efforts on growing our portfolio of Residential Credit Investments, investing in residential mortgage loans with the intent to securitize these assets as market conditions permit.

We are also currently investing in 30 Year Fixed Rate Agency RMBS to utilize excess liquidity.

Our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans.

We finance our acquired loans through various financing lines on a short-term basis and securitize the loans to obtain long-term, non-recourse, non-mark-to-market financing as market conditions permit.

We are also currently investing in Agency RMBS to utilize excess liquidity.

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.

As a result, in reacting to market conditions and taking into account a variety of other factors, including liquidity, duration, and interest rate expectations, the mix of our assets changes over time as we opportunistically deploy capital.

We actively evaluate our investments based on factors including, among others, the characteristics of the underlying collateral, geography, expected return, expected future prepayment trends, supply of and demand for our investments, costs of financing, costs of hedging, expected future interest rate volatility, and the overall shape of the U.S.

Treasury and interest rate swap yield curves.

The following table presents a detailed break-down of our investment portfolio as of September 30, 2021 and December 31, 2020 and a reconciliation to our GAAP Investment Portfolio ($ in thousands):

We allocate our equity by investment type 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, 2022 and December 31, 2021 ($ in thousands).

Allocated Equity Percent of Equity

March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

Residential Investments $ 467,053 $ 459,058 85.3 % 80.5 %

Agency RMBS 80,597 111,322 14.7 % 19.5 %

Total $ 547,650 $ 570,380 100.0 % 100.0 %

The following table presents a summary of our investment portfolio as of March 31, 2022 and December 31, 2021 and a reconciliation to our GAAP Investment Portfolio ($ in thousands).

Fair Value Percent of Investment Portfolio

Fair Value Leverage Ratio (a)

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

Residential Investments $ 3,354,298 $ 2,725,889 89.9 % 84.6 % 2.5x 2.1x

Commercial Investments — 182,296 — % 13.1 % — 0.9x

Agency RMBS 377,493 495,713 10.1 % 15.4 % 4.0x 3.7x

Investment Portfolio $ 3,731,791 $ 3,221,602 100.0 % 100.0 % 2.7x 2.4x

Investments in Debt and Equity of Affiliates (b) $ 102,949 $ 217,964 N/A N/A (c) (c)

Investments in Debt and Equity of Affiliates $ 62,884 $ 72,026 N/A N/A (b) (b)

TBAs $ 150,270 $ — N/A N/A (b) (b)

GAAP Investment Portfolio $ 3,518,637 $ 3,149,576 N/A N/A 5.8x 4.9x

(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 and includes any net receivables or payables on TBA.

The Economic Leverage Ratio excludes any fully non-recourse financing arrangements and includes any net receivables or payables on TBAs.

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.

We allocate our equity by investment type using the fair value of our investment portfolio, less any associated leverage, inclusive of any long TBA position (at cost).

The following table presents a summary of the allocated equity of our investment portfolio as of September 30, 2021 and December 31, 2020 ($ in thousands):

Allocated Equity Percent of Equity

September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

Residential Investments $ 380,817 $ 229,183 77.8 % 56.0 %

Commercial Investments — 99,668 — % 24.3 %

Agency RMBS 108,932 80,854 22.2 % 19.7 %

Total $ 489,749 $ 409,705 100.0 % 100.0 %

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of September 30, 2021 and December 31, 2020 ($ in thousands):

September 30, 2021

(b) Refer to the "Financing activities" section below for an aggregate breakout of leverage.

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of March 31, 2022 and December 31, 2021 ($ in thousands).

March 31, 2022

December 31, 2021

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Life (Years) (3) Fair Value (1)

Credit Investments:

Residential Investments

Non-QM Loans (4) $ 975,501 $ 1,014,231 $ 15,768 $ 1,029,999 5.02 % 3.64 % 4.10 $ —

GSE Non-Owner Occupied Loans

Non-Agency Loans $ 2,261,800 $ 2,332,131 $ (86,211) $ 2,245,920 4.78 % 4.12 % 6.17 $ 1,858,798

Agency-Eligible Loans

745,978 762,270 (47,190) 715,080 3.62 % 3.27 % 8.53 440,837

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Land Related Financing 13,569 13,569 — 13,569 14.50 % 14.50 % 0.53 16,891

Prime 6,966 2,272 421 2,693 3.50 % 15.06 % 10.04 8,665

Alt-A/Subprime — — — — — % — % — 11,496

Credit Risk Transfer — — — — — % — % — 13,308

RMBS — — — — — % — % — 3,100

Interest Only and Excess MSR 26,698 187 (117) 70 N/A 7.22 % 3.67 320

Non-Agency RMBS Interest Only (5) 139,080 3,301 1,564 4,865 0.38 % 31.33 % 2.72 3,395

Total Residential Investments 3,997,067 3,486,841 (132,543) 3,354,298 4.12 % 4.27 % 6.05 2,725,889

Total Commercial Investments — — — — — % — % — 182,296

Total Credit Investments 2,587,741 1,679,979 33,560 1,713,539 3.70 % 5.05 % 3.45 873,774

30 Year Fixed Rate 223,604 229,908 (18,059) 211,849 2.50 % 2.08 % 8.11 495,713

Excess MSR — — — — — % — % — 3,491

Interest Only 103,290 15,655 (281) 15,374 3.00 % 6.46 % 6.30 —

Fixed Rate 30 Year TBA (6) 150,000 150,481 (211) 150,270 3.50 % N/A N/A —

Total Agency RMBS 476,894 396,044 (18,551) 377,493 2.92 % 2.38 % 7.54 495,713

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Investments in Debt and Equity of Affiliates $ 479,513 $ 65,000 $ (2,116) $ 62,884 2.13 % 7.43 % 1.35 $ 72,026

TBAs $ 150,000 $ 150,481 $ (211) $ 150,270 3.50 % N/A N/A $ —

GAAP Investment Portfolio $ 3,844,448 $ 3,667,404 $ (148,767) $ 3,518,637 4.14 % 4.09 % 6.76 $ 3,149,576

(1) Refer to Note 10 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 "MATT Non-QM Loans," "Re/Non-Performing Loans," "Land Related Financing," and "Excess MSR" line items above.

(2) Equity residuals, principal only securities, and Excess MSRs with a zero coupon rate are excluded from this calculation.

Our assets held through Investments in debt and equity of affiliates are included in the "MATT Non-QM Loans," "Re/Non-Performing Loans," and "Land Related Financing," line items above.

(2) Equity residuals with a zero coupon rate are excluded from this calculation.

(3) Weighted average life is based on projected life.

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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) As of September 30, 2021, this line item primarily includes retained tranches from securitizations.

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):

September 30, 2021 December 31, 2020

Residential loans (1) $ 1,637,165 $ 563,263

Commercial real estate loans — 125,508

Total loans 1,637,165 688,771

(4) As of March 31, 2022 and December 31, 2021, this line item primarily includes retained tranches from securitizations.

(5) As of March 31, 2022 and December 31, 2021, this line item includes Non-QM interest-only bonds.

(6) Represents long positions in Fixed Rate 30 Year TBA.

Residential Investments

The following table presents the fair value of the loans and securities in our residential investments and a reconciliation to our GAAP residential portfolio (in thousands).

March 31, 2022 December 31, 2021

Residential mortgage loans (1) $ 3,295,621 $ 2,663,992

Non-Agency RMBS (2) 58,677 61,897

CMBS (3) — 56,788

Total Credit securities 76,374 185,003

Total Credit Investments $ 1,713,539 $ 873,774

Investments in Debt and Equity of Affiliates $ 102,949 $ 217,547

Total GAAP Credit Portfolio $ 1,610,590 $ 656,227

(1) Includes Re/Non-Performing Loans, Non-QM Loans,GSE Non-Owner Occupied 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):

September 30, 2021 December 31, 2020

Total Residential Investments $ 3,354,298 $ 2,725,889

Residential mortgage loans in Investments in Debt and Equity of Affiliates $ 22,988 $ 28,886

Non-Agency RMBS in Investments in Debt and Equity of Affiliates $ 39,896 $ 43,140

Total GAAP Residential Investments $ 3,291,414 $ 2,653,863

(1) Includes Non-Agency Loans, Agency-Eligible Loans, Re/Non-Performing Loans, and Land Related Financing not held in securitized form.

(2) Includes Non-Agency Loans and Re/Non-Performing Loans held in securitized form.

Residential mortgage loans

The following tables present certain information regarding credit quality for certain categories within our Residential mortgage loan portfolio ($ in thousands).

March 31, 2022 December 31, 2021

Unpaid Principal Balance Weighted Average (1)(2) Aging by Unpaid Principal Balance (1)(2)

Fair Value Current LTV Ratio Current FICO (3) Current 30-59 Days 60-89 Days 90+ Days Fair Value

Non-QM Loans $ 975,501 $ 1,029,999 68.49 % 738 $ 966,612 $ 6,995 $ 1,192 $ 702 $ —

GSE Non-Owner Occupied Loans 207,801 214,633 64.25 % 757 207,411 390 — — —

Fair Value Original LTV Ratio Current FICO (3) Current 30-59 Days 60-89 Days 90+ Days Fair Value

Non-Agency Loans $ 2,246,908 $ 2,232,589 69.32 % 733 $ 2,199,543 $ 29,453 $ 3,734 $ 14,178 $ 1,844,198

Agency-Eligible Loans 745,978 715,080 64.73 % 757 738,216 5,840 539 1,383 440,837

MATT Non-QM Loans 9,243 9,365 60.65 % 668 5,005 595 — 3,643 11,839

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Land Related Financing 13,569 13,569 N/A N/A N/A N/A N/A N/A 16,891

Total Residential loans $ 1,612,602 $ 1,637,165 71.46 % 709 $ 1,438,622 $ 44,230 $ 15,929 $ 88,986 $ 563,263

Investments in Debt and Equity of Affiliates 29,572 30,099 59.41 % 679 5,771 809 — 5,332 127,822

Total GAAP Residential Loans $ 1,583,030 $ 1,607,066 71.56 % 709 $ 1,432,851 $ 43,421 $ 15,929 $ 83,654 $ 435,441

Total Residential mortgage loans $ 3,385,827 $ 3,295,621 69.36 % 727 $ 3,186,104 $ 66,452 $ 19,954 $ 93,771 $ 2,663,992

Residential mortgage loans in Investments in Debt and Equity of Affiliates 22,861 22,988 60.70 % 668 5,005 595 — 3,692 28,886

Total GAAP Residential mortgage Loans $ 3,362,966 $ 3,272,633 69.39 % 728 $ 3,181,099 $ 65,857 $ 19,954 $ 90,079 $ 2,635,106

(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.

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(3) Weighted average current FICO excludes borrowers where FICO scores were not available.

See Note 3 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.

Credit securities

The following table presents the fair value of our credit securities portfolio by credit rating as of September 30, 2021 and December 31, 2020 (in thousands):

Credit Rating - Credit Securities (1) September 30, 2021 (2)(3) December 31, 2020 (2)(3)

AAA $ — $ 630

BB 5,706 9,037

Non-Agency RMBS

The following table presents the fair value of our Non-Agency RMBS by credit rating as of March 31, 2022 and December 31, 2021 (in thousands).

Credit Rating - Non-Agency RMBS (1) March 31, 2022 December 31, 2021

B $ 9,804 $ 10,528

Below B — 17,046

Not Rated 48,873 51,369

Credit Securities $ 76,374 $ 185,003

Investments in Debt and Equity of Affiliates $ 72,850 $ 89,725

Non-Agency RMBS $ 58,677 $ 61,897

Non-Agency RMBS in Investments in Debt and Equity of Affiliates $ 39,896 $ 43,140

GAAP Basis $ 18,781 $ 18,757

(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 September 30, 2021 and December 31, 2020, includes $0.1 million of credit Excess MSRs.

The following tables present the geographic concentration of the underlying collateral for our Non-Agency RMBS portfolio ($ in thousands).

September 30, 2021 December 31, 2020

The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS portfolio ($ in thousands).

March 31, 2022 December 31, 2021

State Fair Value Percentage State Fair Value Percentage

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Florida 3,515 6.0 % Florida 3,661 5.9 %

New Jersey 2,188 2.9 % Texas 4,216 3.4 %

Pennsylvania 1,672 2.2 % New Jersey 4,028 3.2 %

New Jersey 1,846 3.1 % New Jersey 1,684 2.7 %

Texas 1,639 2.8 % Texas 1,511 2.4 %

Other 11,789 20.1 % Other 12,469 20.2 %

Total $ 58,677 100.0 % Total $ 61,897 100.0 %

(1) As of September 30, 2021, Non-Agency RMBS fair value includes $0.1 million of credit Excess MSRs.

(2) As of December 31, 2020, 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 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)

Agency RMBS September 30, 2021 December 31, 2020 September 30, 2021 December 31, 2020

Agency RMBS March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

30 Year Fixed Rate $ 211,849 $ 495,713 11.2 % 6.1 %

Interest Only 15,374 — 12.9 % — %

Total/Weighted Average $ 227,223 $ 495,713 11.3 % 6.1 %

(1) Represents the weighted average monthly CPRs published during the period for our in-place portfolio.

Investments in debt and equity of affiliates

The below table details our investments in debt and equity of affiliates as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021 December 31, 2020

The below table details our investments in debt and equity of affiliates as of March 31, 2022 and December 31, 2021 (in thousands).

March 31, 2022 December 31, 2021

Assets Liabilities Equity Assets Liabilities Equity

MATT Non-QM Loans (1) $ 41,270 $ (28,086) $ 13,184 $ 45,837 $ (30,471) $ 15,366

Re/Non-Performing Loans (2) 12,107 (5,185) 6,922 41,523 (5,588) 35,935

Land Related Financing (2) 13,569 — 13,569 16,891 — 16,891

Total Residential Investments 102,949 (50,871) 52,078 217,547 (116,723) 100,824

Excess MSR — — — 417 — 417

Re/Non-Performing Loans 8,045 (5,408) 2,637 9,298 (5,538) 3,760

Total Investments excluding AG Arc 62,884 (33,494) 29,390 72,026 (36,009) 36,017

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Investments in debt and equity of affiliates $ 121,345 $ (34,259) $ 87,086 $ 129,159 $ (37,136) $ 92,023

(1) As of September 30, 2021 and December 31, 2020, Non-QM Loans excluded loans with an unpaid principal balance of $8.2 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.

(2) Certain Re/Non-Performing Loans held in securitized form are presented net of non-recourse securitized debt.

(3) Includes financing arrangements of $(9.4) thousand on real estate owned as of December 31, 2020.

(1) As of March 31, 2022 and December 31, 2021, MATT primarily holds retained tranches from past securitizations which continue to reduce in size due to ongoing principal repayments and we do not expect to acquire additional investments within this equity method investment.

(2) Land Related Financing continues to reduce in size due to ongoing principal repayments and we do not expect to originate new loans within this equity method investment.

Financing activities

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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 and typically have a term 30 to 90 days.

Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date and typically have a term of 30 to 90 days.

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.

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Repurchase agreements and revolving facilities, which we refer to as our financing arrangements, are generally mark-to-market with respect to margin calls and recourse to us.

We had outstanding financing arrangements with five counterparties as of September 30, 2021 and December 31, 2020.

We had outstanding financing arrangements with five counterparties as of March 31, 2022 and December 31, 2021.

Our financing arrangements generally include customary representations, warranties, and covenants, but may also contain more restrictive supplemental terms and conditions.

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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.

As of September 30, 2021, we are in compliance with all of our financial covenants.

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.

As of March 31, 2022, we are in compliance with all of our financial covenants.

We also use securitized debt to finance our loan portfolio.

Securitized debt is generally non-mark-to-market with respect to margins calls and non-recourse to us.

Forbearance and Reinstatement Agreements

In connection with the market disruption created by the COVID-19 pandemic, in March 2020, we received notifications of alleged events of default and deficiency notices from several of our financing counterparties.

We engaged in discussions with our financing counterparties and, as a result, entered into a series of forbearance agreements (collectively, the "Forbearance Agreement") with certain of our financing counterparties (the "Participating Counterparties") pursuant to which each Participating Counterparty agreed to forbear from exercising its rights and remedies with respect to events of default and any and all other defaults under the applicable financing arrangement (each, a "Bilateral Agreement") for the period ending June 15, 2020.

On June 10, 2020, we and the Participating Counterparties entered into a reinstatement agreement (the "Reinstatement Agreement"), pursuant to which the Forbearance Agreement was terminated and each Participating Counterparty permanently waived all existing and prior events of default under the applicable Bilateral Agreements.

Pursuant to the Reinstatement Agreement, the Bilateral Agreements were reinstated with certain amendments to reflect current market terms (i.e., increased haircuts and higher coupons), updated financial covenants, and various reporting requirements from us to the Participating Counterparties, releases, certain netting obligations and cross-default provisions.

As a result of the Reinstatement Agreement, default interest on our outstanding borrowings under the Bilateral Agreements ceased to accrue as of June 10, 2020, all cash margin was applied to outstanding balances owed by us, and principal and interest payments on the underlying collateral were permitted to flow to and be used by us, just as it was prior to the Forbearance Agreements.

In addition, pursuant to the terms of the Reinstatement Agreement, the security interests granted to Participating Counterparties as additional collateral under the Forbearance Agreement 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.

Concurrently, on June 10, 2020, we entered a separate reinstatement agreement with one of our financing counterparties on substantially the same terms as those set forth in the Reinstatement Agreement.

Refer to Note 12 in the "Notes to Consolidated Financial Statements (unaudited)" for more information on deficiencies that are now settled.

Securitized debt is generally non-mark-to-market with respect to margin calls and non-recourse to us.

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 September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021

The below table provides detail on the breakout between recourse and non-recourse financing as of March 31, 2022 and December 31, 2021 (in thousands).

March 31, 2022

December 31, 2021

Recourse financing - Financing arrangements $ 1,424,503 $ 1,791,596

Recourse financing - Secured debt — 10,393

Non-recourse financing - Securitized debt, at fair value 1,859,917 999,215

Non-recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates 20,484 22,156

Total 1,919,811 1,046,331

Total Financing 3,304,904 2,812,967

Recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates 13,010 13,853

Non-recourse financing - Financing arrangements included in Investments in Debt and Equity of Affiliates 20,484 22,156

Total Investments in Debt and Equity of Affiliates 50,871 116,732

Total Financing in Investments in Debt and Equity of Affiliates 33,494 36,009

GAAP Basis $ 3,271,410 $ 2,776,958

(1) 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)."

See Note 6 to the "Notes to Consolidated Financial Statements (unaudited)" for a breakout of the "Financing arrangements" line item on our consolidated balance sheets.

See Note 2 and Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for more detail on securitized debt and our consolidated variable interest entities.

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 GAAP leverage as the sum of (1) GAAP Securitized debt, at fair value, (2) our GAAP Financing arrangements, net of any restricted cash posted on such financing arrangements, and (3) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled.

We define Economic Leverage, a non-GAAP metric, as the sum of:

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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).

September 30, 2021 Leverage Stockholders’ Equity Leverage Ratio

The following tables present a reconciliation of our Economic Leverage ratio to GAAP Leverage ($ in thousands).

March 31, 2022 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 1,859,917

GAAP Financing arrangements 1,411,493

Restricted cash posted on Financing arrangements (5,399)

Financing arrangements on sales that have not yet settled (66,352)

GAAP Leverage $ 3,199,659 $ 547,650 5.8x

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December 31, 2021 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 999,215

GAAP Financing arrangements 1,777,743

Restricted cash posted on Financing arrangements (4,951)

Purchase price payable on Agency-Eligible Loans 87

GAAP Leverage $ 2,772,094 $ 570,380 4.9x

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Non-recourse financing arrangements (1) (1,021,371)

Net TBA receivable/(payable) adjustment (394,212)

Economic Leverage $ 1,392,255 $ 570,380 2.4x

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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, TBAs, 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").

We may utilize interest rate swaps, swaption agreements, and other financial instruments such as short positions in to-be-announced securities.

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.

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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, (vi) methods of depreciation and (vii) differences between GAAP income or losses in our TRS’s and taxable income resulting from dividend distributions to the REIT from our TRS’s.

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, (vi) methods of depreciation and (vii) differences between GAAP income or losses in our TRSs’ and taxable income resulting from dividend distributions to the REIT from our TRSs'.

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 September 30, 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, 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, in order to conserve capital and improve its liquidity position during the market volatility due to the COVID-19 pandemic.

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 $0.09 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 through third quarters of 2021, we declared its preferred and common dividends in the ordinary course of business.

We did not have any undistributed taxable income as of March 31, 2022.

On July 12, 2021, we announced a one-for-three reverse stock split of our outstanding shares of common stock.

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All per share amounts and common shares outstanding for all periods presented have been adjusted on a retroactive basis to reflect the one-for-three reverse stock split.

The following table details our common stock dividends declared during the nine months ended September 30, 2021:

The following table details our common stock dividends declared during the three months ended March 31, 2022 and 2021.

Declaration Date Record Date Payment Date Cash Dividend Per Share

3/18/2022 3/31/2022 4/29/2022 $ 0.21

6/15/2021 6/30/2021 7/30/2021 0.21

Declaration Date Record Date Payment Date Cash Dividend Per Share

3/22/2021 4/1/2021 4/30/2021 $ 0.18

We did not declare any common stock dividends during the nine months ended September 30, 2020.

The following tables detail our preferred stock dividends declared and paid during the nine months ended September 30, 2021 and 2020:

The following tables detail our preferred stock dividends declared and paid during the three months ended March 31, 2022 and 2021.

2022 Cash Dividend Per Share

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2/18/2022 2/28/2022 3/17/2022 $ 0.51563 $ 0.50 $ 0.50

5/17/2021 5/28/2021 6/17/2021 0.51563 0.50 0.50

7/30/2021 8/31/2021 9/17/2021 0.51563 0.50 0.50

Total $ 1.54689 $ 1.50 $ 1.50

2021 Cash Dividend Per Share

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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 September 30, 2021 consisted of borrowings under financing arrangements, principal and 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 September 30, 2021, we had $143.6 million of liquidity, which consisted of $101.7 million of cash and $41.9 million of unencumbered assets available to support our liquidity needs.

Our principal sources of cash consist of borrowings under financing arrangements, principal and 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 loans, real estate securities, and other real estate related assets, to make dividend payments on our capital stock, and to fund our operations.

At March 31, 2022, we had $137.9 million of liquidity, which consisted of $50.5 million of cash, $48.5 million of unencumbered Agency RMBS that we held as of quarter end, and $38.9 million of unencumbered Agency RMBS which we sold during March 2022, but which settled in April 2022.

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.

The fair value of our loans and real estate securities 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.

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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.

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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.

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.

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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.

The below details changes to our cash, cash equivalents, and restricted cash for the nine months ended September 30, 2021 and 2020 (in thousands).

Nine Months Ended

September 30, 2021 September 30, 2020 Change

The below details changes to our cash, cash equivalents, and restricted cash for the three months ended March 31, 2022 and 2021 ($ in thousands).

Three Months Ended

March 31, 2022 March 31, 2021 Change

Cash and cash equivalents and restricted cash, Beginning of Period $ 100,229 $ 62,318 $ 37,911

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Cash and cash equivalents and restricted cash, End of Period $ 96,171 $ 91,555 $ 4,616

(1) Cash provided by or used in operating activities is primarily attributable to net interest income less operating expenses for the nine months ended September 30, 2021 and 2020, respectively.

(2) Cash used in investing activities for the nine months ended September 30, 2021 was primarily attributable to purchases of investments less sales of investments and principal repayments of investments.

Cash provided by investing activities for the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the three months ended March 31, 2022.

(2) Cash used in investing activities for the three months ended March 31, 2022 was primarily attributable to purchases of investments, offset by sales of investments and principal repayments on investments.

(3) Cash provided by financing activities for the three months ended March 31, 2022 was primarily attributable to issuance of securitized debt, offset by net repayments of financing arrangements and dividend payments.

Stock repurchase programs

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The cost of the acquisition of shares of our own stock in excess of the aggregate par value of the shares first reduces additional paid-in capital, to the extent available, with any residual cost applied against retained earnings.

We repurchased 0.3 million shares under the Repurchase Program during the three and nine months ended September 30, 2021.

We did not repurchase shares under the Repurchase Program during the three and nine months ended September 30, 2020.

Approximately $11.8 million of common stock remained authorized for future share repurchases under the Repurchase Program as of September 30, 2021.

We did not repurchase any shares under the Repurchase Program during the three months ended March 31, 2022 and 2021.

Approximately $11.0 million of common stock remained authorized for future share repurchases under the Repurchase Program as of March 31, 2022.

On February 22, 2021, our Board of Directors authorized a stock repurchase program pursuant to which our Board of Directors granted a repurchase authorization to acquire shares of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock having an aggregate value of up to $20.0 million.

No share repurchases under the Preferred Repurchase Program have been made since its authorization.

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.

For the three months ended September 30, 2021, we did not issue any shares of common stock under the Equity Distribution Agreements.

For the nine months ended September 30, 2021, we issued 1.0 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $13.1 million.

For the three and nine months ended September 30, 2020, we sold 0.1 million and 0.5 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $1.2 million and $4.7 million, respectively.

For the three months ended March 31, 2022, we did not issue any shares of common stock under the Equity Distribution Agreements.

For the three months ended March 31, 2021, we issued 0.7 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $10.0 million.

Since inception of the program, we have issued approximately 2.2 million shares of common stock under the Equity Distribution Agreements for gross proceeds of $48.3 million.

Exchange Offers

The below details the privately negotiated exchange agreements with existing holders of our preferred shares exchanged for common shares during the nine months ended September 30, 2021.

Subsequent to each transaction closed, the Preferred Stock exchanged pursuant to the exchange agreement was reclassified as authorized but unissued shares of preferred stock without designation as to class or series ($ in thousands).

Preferred Shares Exchanged

Date Shares of Series A Preferred Stock Shares of Series B Preferred Stock Shares of Series C Preferred Stock Total Preferred Stock Par Value Common Shares Exchanged

March 17, 2021

153,325 350,609 — $ 12,598 937,462

June 14, 2021 — 86,478 154,383 6,022 429,802

As of September 30, 2021, we had outstanding 1,663,193 shares of Series A Preferred Stock, 3,727,641 shares of Series B Preferred Stock, and 3,728,795 shares of Series C Preferred Stock.

Common stock issuance to the Manager

Refer to "Contractual obligations–Management agreement" below for more detail related to the Second Management Agreement Amendment.

Common stock offering

On November 22, 2021, we completed a public offering of 7.0 million shares of our common stock and subsequently issued an additional 1.1 million shares pursuant to the underwriters' exercise of their over-allotment option at a price of $9.98 per share.

Net proceeds to us from the offering were approximately $80.0 million, after deducting offering expenses.

Forward-looking statements regarding liquidity

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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 and nine months ended September 30, 2021, we incurred management fees of approximately $1.7 million and $5.0 million, respectively.

For the three and nine months ended September 30, 2020, we incurred management fees of approximately $1.7 million and $5.5 million, respectively.

As of September 30, 2021 and December 31, 2020, we have recorded management fees payable of $1.7 million and $1.7 million, respectively.

For the three months ended March 31, 2022 and 2021, we incurred management fees of approximately $2.0 million and $1.7 million, respectively.

As of March 31, 2022 and December 31, 2021, we have recorded management fees payable of $2.0 million and $1.8 million, respectively.

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.

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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 $5.0 million and $13.9 million of Other operating expenses for the three and nine months ended September 30, 2021, respectively, we have incurred $1.6 million and $4.2 million, respectively, representing a reimbursement of expenses.

Of the $5.9 million and $11.4 million of Other operating expenses for the three and nine months ended September 30, 2020, respectively, we incurred $2.3 million and $6.2 million, respectively, representing a reimbursement of expenses.

As of September 30, 2021 and December 31, 2020, we recorded a reimbursement payable to the Manager of $1.6 million and $1.8 million, respectively.

For the three months ended March 31, 2022 and 2021, we have incurred $2.5 million and $1.5 million, respectively, representing a reimbursement of expenses which are recorded within the "Other operating expenses" and "Transaction related expenses" line items on the consolidated statements of operations.

As of March 31, 2022 and December 31, 2021, we recorded a reimbursement payable to the Manager of $1.9 million and $2.1 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) 405,123 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) 51,500 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 $9.45 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.

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.

For the three months ended March 31, 2021, we reduced our expense reimbursement amount by $0.2 million.

Incentive fee

In connection with our common stock offering in November 2021, including the Manager's purchase of 700,000 shares in the offering, on November 22, 2021, we and the Manager executed an amendment (the "Third Amendment") to the management agreement, pursuant to which we will pay the Manager an annual incentive fee in addition to the base management fee.

Pursuant to the Third Amendment, the Manager waived the annual incentive fee with respect to the fiscal years ending December 31, 2021 and December 31, 2022, and the annual incentive fee will first be payable with respect to the fiscal year ending December 31, 2023.

The annual incentive fee with respect to each applicable fiscal year will be equal to 15% of the amount by which our cumulative adjusted net income from the date of the Third Amendment exceeds the cumulative hurdle amount, which represents an 8% return (cumulative, but not compounding) on an equity hurdle base consisting of the sum of (i) our adjusted book value (calculated in the manner described in our public filings) as of October 31, 2021, (ii) $80.0 million, and (iii) the gross proceeds of any subsequent public or private common stock offerings by us.

The annual incentive fee will be payable in cash, or, at the option of our Board of Directors, shares of our common stock or a combination of cash and shares.

In addition, pursuant to the Third Amendment, the term of the management agreement was extended until June 30, 2023, unless earlier terminated in accordance with its terms.

Thereafter, the management agreement will continue to renew automatically each year for an additional one-year period, unless the Company or the Manager exercise its respective termination rights.

All other terms and conditions of the management agreement continued without change.

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 666,666 shares of common stock to be issued.

The AG Mortgage Investment Trust, Inc.

2020 Equity Incentive Plan, which became effective on April 15, 2020 following the approval of our stockholders at our 2020 annual meeting of stockholders, provides for a maximum of 666,666 shares of common stock that may be issued under the plan.

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 September 30, 2021, 606,372 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since our IPO, we have granted an aggregate of 35,264 and 60,294 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 September 30, 2021, all shares of restricted common stock granted to our independent directors have vested.

Following approval of our stockholders at our 2021 annual meeting of stockholders, the AG Mortgage Investment Trust, Inc.

2021 Manager Equity Incentive Plan (the "2021 Manager Plan") became effective on April 7, 2021 and provides for a maximum of 573,425 shares of common stock to be issued to our Manager.

As of September 30, 2021, there were no shares or awards issued under the 2021 Manager Plan.

Further, since our IPO, we have issued 13,416 shares of restricted common stock and 40,000 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.

As of March 31, 2022, 591,532 shares of common stock were available to be awarded under the Equity Incentive Plan.

As of March 31, 2022, we have granted an aggregate of 75,134 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

The AG Mortgage Investment Trust, Inc.

2021 Manager Equity Incentive Plan (the "2021 Manager Plan"), which became effective on April 7, 2021 following the approval of our stockholders at our 2021 annual meeting of stockholders, provides for a maximum of 573,425 shares of common stock that may be subject to awards thereunder to our Manager.

As of March 31, 2022, there were no shares or awards issued under the 2021 Manager Plan.

Following the execution of the third amendment to our management agreement in November 2021 related to the incentive fee, the Company's compensation committee no longer expects to continue its historical practice of making periodic equity grants to the Manager pursuant to the 2021 Manager Equity Incentive Plan.

Unfunded commitments

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of September 30, 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 September 30, 2021.

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of March 31, 2022.

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.

Our investments in debt and equity of affiliates primarily consist of loans, real estate securities, and our interest in AG Arc.

Investments in debt and equity of affiliates are accounted for using the equity method of accounting.

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These retained interests are included in the MATT Non-QM Loans and Re/Non-Performing Loans line items of our investment portfolio.

See Note 2 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments i n debt and equity of affiliates.

We have entered into TBA positions in connection with purchases of GSE Non-Owner Occupied Loans .

See Notes 2 and 10 to the "Notes to Consolidated Financial Statements (unaudited)" for a discussion of investments i n debt and equity of affiliates.

We record TBA purchases and sales on the trade date and present the purchase or receipt net of the corresponding payable or receivable until the settlement date of the transaction.

As of September 30, 2021, we had a net short TBA position with a net receivable amount of $318.3 million and fair market valu e of $316.9 million.

We recorded $1.4 million in the "Other assets" line item on our consolidated balance sheets.

In addition to our investments in debt and equity of affiliates and TBA positions described above, we also have commitments outstanding on certain loans.

For additional information on our commitments as of September 30, 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.

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of March 31, 2022.

For additional information on our commitments as of March 31, 2022 , 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

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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 conditions as of September 30, 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.

Although our estimates contemplate conditions as of March 31, 2022 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.

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, 2021 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 loans, (iii) Accounting for real estate securities, (iv) Interest income recognition, (v) Financing arrangements, and (vi) Investment consolidation.

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 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)."

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.

We 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.

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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 September 30, 2021, we determined that we maintained compliance with the 40% test requirements.

As of December 31, 2021 and for the three months ended March 31, 2022, 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 September 30, 2021, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.

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" (the "55% Test") and at least another 25% in additional qualifying assets or in "real estate-related" assets (with no more than 20% comprised of miscellaneous assets) (the "80% Test").

As of December 31, 2021 and for the three months ended March 31, 2022, we determined that our subsidiaries maintained compliance with both the 55% Test and the 80% Test requirements.

We intend to conduct our business so as to maintain our qualification as a REIT under the Code by satisfying the asset, income, distribution and other REIT 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, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis