What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-08 compared with 2022-08-05 · 225 added, 204 removed, 654 unchanged (40% of the section changed)

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Executive Summary

During the second quarter of 2022, we continued to grow our portfolio of newly-originated residential mortgage loans and completed two securitizations in order to obtain long-term, non-recourse financing without mark-to-market margin calls.

During the third quarter of 2022, we continued to grow our portfolio of newly-originated residential mortgage loans and completed two securitizations in order to obtain long-term, non-recourse financing without mark-to-market margin calls.

We also repurchased shares of our common stock under our repurchase program authorized in 2022 (the "2022 Repurchase Program").

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

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

Investment Activity

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• Purchased Agency-Eligible Loans with a fair value of $381.3 million, $67.2 million of which were purchased from Arc Home.

• Sold our remaining 30 Year Fixed Rate Agency RMBS for proceeds of $209.2 million.

Financing Activity

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◦ Securitized Agency-Eligible Loans with a total unpaid principal balance of $422.7 million.

• Subsequent to quarter end, executed a rated securitization of Non-Agency Loans with $457.4 million of unpaid principal balance, converting financing from recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls.

Capital Activity

• Utilized the remaining capacity under our 2015 Repurchase Program to repurchase 1.4 million shares of common stock for $11.0 million, representing a weighted average cost of $7.70 per share;

• Subsequent to quarter end, our Board of Directors authorized a new stock repurchase program (the "2022 Repurchase Program") to repurchase up to $15 million of our outstanding common stock.

• Repurchased 0.4 million shares of common stock for $2.3 million, representing a weighted average cost of $6.08 per share.

• Subsequent to quarter end, repurchased 0.1 million shares of common stock for $0.3 million, representing a weighted average cost of $4.32 per share.

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.

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

As of June 30, 2022, the Company's investment portfolio consisted of the following:

As of September 30, 2022, the Company's investment portfolio consisted of the following:

Asset Class Description

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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.

("Angelo Gordon").

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

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Market Conditions

During the second quarter 2022, the financial markets were generally weaker due to the impact of and market perceptions about sustained inflation, Federal Reserve rate hikes, and recession, all of which helped to create volatile conditions.

As a result, market liquidity decreased and credit spreads widened across structured credit products driving asset prices down.

As mortgage rates continued to increase, borrower demand and origination volumes began to fall and prepayment rates for pre-pandemic securities continued to decline.

Home price appreciation remained strong during the second quarter as the latest reading from the S&P/CoreLogic Case-Shiller Index showed home prices increased 20.4% year-over-year in April 2022.

The persistently limited availability of homes against fundamentally strong housing demand continued to be a driving factor for these elevated readings, but the present conditions created by 5% and 6% prevailing 30-year fixed mortgage rates may not be reflected in the data until later in the year.

During the third quarter 2022, the financial markets continued to be volatile due to the impact of sustained inflation, higher benchmark rates and elevated interest rate volatility.

Credit spreads tightened at the start of the third quarter before reversing to end unchanged compared to the previous quarter.

The 30-year fixed-rate mortgage according to Freddie Mac’s Primary Mortgage Market Survey ended the third quarter at 6.70% reaching multi-decade highs.

As we continue to see an unprecedented sharp rise in mortgage rates, mortgage prepayments are nearing a plateau as the pipeline of refinance candidates has significantly declined.

Mortgage underwriting remains very tight, similar to 2013 levels according to the Mortgage Bankers Association and is particularly tight for conforming balance agency mortgages which are a primary benchmark in underwriting new mortgages across other product sets.

Home ownership affordability is historically low and in line with 1986 and 2006 readings, according to the National Association of Realtors.

Year-to-date home price appreciation was 10.8% as of July 2022, according to the latest data from Case-Shiller;

however, month over month home price readings have turned negative in the most recent data.

Home prices in July fell -0.33%, or close to -4% when annualized, according to Case-Shiller data, while the CoreLogic index reported a -0.7% monthly decline a month later in August, more than -8% annualized.

Non-Agency Loans and Securitizations :

Market conditions weakened throughout the second quarter with Non-QM AAA credit spreads widening from around 170 basis points over comparable maturity benchmark rates at the end of March 2022 to 220-250 basis points at the end of the second quarter.

This compares with credit spreads of around 100 basis points in December 2021.

Some of this spread widening can be attributed to issuers securitizing loans that are well below the prevailing market rate for comparable products as mortgage rates continue to rise.

Freddie Mac’s Primary Mortgage Market Survey ended the first quarter at 4.67% compared with 5.70% at the end of the second quarter, indicative of how quickly rates have risen as the Federal Reserve continues with its monetary tightening in an effort to slow inflation.

Originators faced considerable margin pressure with the significant reduction in non-cash out refinance activity, resulting in layoffs across the industry.

Reports of closures of mortgage originators in weaker financial positions have begun to surface as well.

Market conditions continued to weaken in the third quarter with Non-QM AAA credit spreads widening from around low to mid 200 basis points over comparable maturity benchmark rates at the end of June 2022 to mid to high 200 basis points at the end of the third quarter.

There was a brief recovery in spreads in the month of August, with deals pricing in the mid 100 basis point area, but that trend quickly reversed as markets reacted negatively to Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium which took place in the end of August.

The 30-year fixed-rate mortgage ended the third quarter at 6.70% compared with 5.70% at the end of the second quarter, indicative of how quickly rates have risen as the Federal Reserve continues with its policy of monetary tightening in an effort to slow inflation.

Originators faced considerable margin pressure with the significant reduction in non-cash out refinance activity, resulting in right-sizing across the industry.

Conversely, the increase in mortgage rates on new production should provide for attractive reinvestment opportunities into higher yielding assets for market participants with capital available to deploy.

Non-Agency RMBS :

Spreads for securitized residential debt sectors also continued to widen during the second quarter, reflecting the broader-market sentiment and the sharp rise in prevailing mortgage rates.

The sharp rise in mortgage rates removed the option for nearly all active borrowers to refinance existing mortgages and extended durations across mortgage sub-sectors.

Credit risk transfer tranches were as much as 100-250 basis points wider to end the second quarter with the most pronounced widening occurring at the bottom of the capital structure.

An abundance of new issuance against declining refinance activity weighed on market participants over concerns that higher prevailing mortgage rates, and ultimately less refinancing activity, would extend durations of recently originated collateral pools.

Quarterly new issuance of RMBS fell to $37 billion, down approximately 28% from the first quarter and 33% from a year ago.

Prime jumbo and Agency-eligible investor loan issuance were each lower by around 60% quarter-over-quarter, falling to $4.7 billion and $2.4 billion, respectively.

Despite the quarterly decline, year-to-date primary RMBS volume fell only around 8% against 2021, the most active year since the great financial crisis, and is up 67% compared to the first half of 2019.

Agency RMBS :

Nominal spreads on Agency mortgage-backed securities continued to widen in the second quarter alongside the Federal Reserve’s pivot to fighting inflation with a 75 basis point increase in policy rates.

While supply slowed materially in response to the sharp rise in borrowing rates, elevated interest rate volatility, low levels of macroeconomic conviction, and fixed income mutual fund outflows all combined to keep buyers sidelined.

Nominal spreads on Agency mortgage-backed securities continued to widen in the third quarter alongside the Federal Reserve’s continued aggressive policy actions to bring down inflation.

Mortgage loan supply continues to slow in response to the sharp rise in borrowing rates, but elevated interest rate volatility, low levels of macroeconomic conviction, and fixed income mutual fund outflows all continue to keep buyers sidelined.

The spread between current coupon and a blend of 5-year and 10-year U.S.

Treasury yields widened by an additional 25 basis points during the quarter to levels not seen except during March 2020, since the great financial crisis.

Treasury yields widened by an additional 36 basis points during the quarter, rivaling spreads experienced during March 2020.

Despite attractive asset valuations, uncertainty in the macroeconomic landscape and interest rate volatility continue to pose headwinds to a recovery near-term.

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

Non-Agency RMBS :

Spreads for securitized residential debt sectors were volatile during the third quarter but ultimately saw little quarter-over-quarter change.

While that held for credit risk transfer spreads, specific pockets of risk were changed by 30-40 basis points in both directions.

Spreads for senior Non-QM tranches rallied from around 250 basis points at the end of the second quarter to as tight as around 175 basis points before reversing back to 250 basis points by quarter-end.

Quarterly new issuance of RMBS fell to $20 billion, down about 47% from the second quarter and 62% from year-ago levels, bringing year-to-date volume to $109 billion.

The sharpest declines came from prime jumbo and agency-eligible investor loans, which were lower by 80-90% quarter-over-quarter as deal sponsors were reluctant to issue amid sharply higher all-in costs from rising benchmark yields and wider spreads.

Primary issuance of Non-QM fell 27% to $7.8 billion, and credit risk transfer activity halved to around $4 billion.

Primary RMBS volume is unlikely to reach levels achieved in 2021 when over $210 billion of activity was recorded, a post Great Financial Crisis peak.

However, this year’s issuance has matched 2020 volume of $110 billion and may eclipse 2019 volume of $137 billion.

In light of various market uncertainties 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.

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.

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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 June 30, 2022 compared to the Three Months Ended June 30, 2021

The table below presents certain information from our consolidated statements of operations for the three months ended June 30, 2022 and 2021 (in thousands).

Three Months Ended September 30, 2022 compared to the Three Months Ended September 30, 2021

The table below presents certain information from our consolidated statements of operations for the three months ended September 30, 2022 and 2021 (in thousands).

Three Months Ended

June 30, 2022 June 30, 2021 Increase/(Decrease)

September 30, 2022 September 30, 2021 Increase/(Decrease)

Statement of Operations Data:

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Net Income/(Loss) (2,869) 34,579 (37,448)

Gain on Exchange Offers, net — 114 (114)

Dividends on preferred stock (4,586) (4,586) —

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

Interest income increased from June 30, 2021 to June 30, 2022 primarily due to an increase in the size of our portfolio.

The weighted average amortized cost of our GAAP investment portfolio increased by $1.9 billion from $1.7 billion for the three months ended June 30, 2021 to $3.6 billion for the three months ended June 30, 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 1.03% in the weighted average yield of our GAAP investment portfolio from 3.32% for the three months ended June 30, 2021 to 4.35% for the three months ended June 30, 2022.

Interest income increased from September 30, 2021 to September 30, 2022 primarily due to an increase in the size of our portfolio driven by purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

The weighted average amortized cost of our GAAP investment portfolio increased by $2.3 billion from $2.0 billion for the three months ended September 30, 2021 to $4.3 billion for the three months ended September 30, 2022.

This increase was coupled with an increase of 0.69% in the weighted average yield of our GAAP investment portfolio from 3.98% for the three months ended September 30, 2021 to 4.67% for the three months ended September 30, 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 June 30, 2021 to June 30, 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 $1.8 billion from $1.5 billion for the three months ended June 30, 2021 to $3.3 billion for the three months ended June 30, 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 1.41% in the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, from 1.41% for the three months ended June 30, 2021 to 2.82% for the three months ended June 30, 2022.

Interest expense increased from September 30, 2021 to September 30, 2022 due to an increase in the amount of financing on our GAAP investment portfolio, inclusive of securitized debt, and an increase in the weighted average financing rate during the period.

We issued $2.7 billion of securitized debt during 2022, which contributed to an increase of $2.2 billion in the weighted average financing balance on our GAAP investment portfolio, inclusive of securitized debt, from $1.8 billion for the three months ended September 30, 2021 to $4.0 billion for the three months ended September 30, 2022.

Additionally, the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, increased by 1.88% from 1.61% for the three months ended September 30, 2021 to 3.49% for the three months ended September 30, 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 June 30, 2021 to June 30, 2022 primarily due to an increase in the size of our interest rate swap portfolio as well as an increase in the net pay rate.

As of June 30, 2022, we held an interest rate swap portfolio with a notional value of $1.4 billion, a weighted average receive-variable rate of 1.42%, and a weighted average pay-fix rate of 1.84%.

As of June 30, 2021, we held an interest rate swap portfolio with a notional value of $0.8 billion, a weighted average receive-variable rate of 0.17%, and a weighted average pay-fix rate of 0.74%.

The net interest component of interest rate swap expense decreased from September 30, 2021 to September 30, 2022 primarily as a result of our interest rate swap portfolio being in a net pay position in 2021 compared with the portfolio transitioning into a net receive position during the three months ended September 30, 2022 as a result of rising interest rates during the period.

As of September 30, 2022, we held an interest rate swap portfolio with a notional value of $0.7 billion, a weighted average receive-variable rate of 2.98%, and a weighted average pay-fix rate of 2.65%.

As of September 30, 2021, we held an interest rate swap portfolio with a notional value of $0.7 billion, a weighted average receive-variable rate of 0.13%, and a weighted average pay-fix rate of 0.73%.

Net realized gain/(loss)

The following table presents a summary of net realized gain/(loss) for the three months ended June 30, 2022 and 2021 (in thousands).

The following table presents a summary of net realized gain/(loss) for the three months ended September 30, 2022 and 2021 (in thousands).

The realized gain during the three months ended September 30, 2022 was driven by unwinding pay-fix, receive-float interest rate swaps which were previously held at unrealized gains as a result of rising interest rates.

Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 731 $ 253

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Settlement of derivatives and other instruments 50,082 (1,305)

Sales of commercial loans — 387

Total Net realized gain/(loss) $ 50,981 $ (5,460)

Net unrealized gain/(loss)

The following table presents a summary of net unrealized gain/(loss) for the three months ended June 30, 2022 and 2021 (in thousands).

The following table presents a summary of net unrealized gain/(loss) for the three months ended September 30, 2022 and 2021 (in thousands).

During the three months ended September 30, 2022, unrealized losses on residential mortgage loans and unrealized gains on securitized debt were the result of rising interest rates and credit spread widening during the period.

Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Residential mortgage loans $ (154,563) $ 13,468

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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 increased from June 30, 2021 to June 30, 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.

Management fees increased from September 30, 2021 to September 30, 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

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Refer to the "Contractual obligations" section below for more detail on certain expenses reimbursable to the Manager.

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 June 30, 2022 and 2021 (in thousands).

Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Non Investment Related Expenses

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(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 June 30, 2021, $0.2 million of the waived reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

For the three months ended September 30, 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 June 30, 2021 to the three months ended June 30, 2022 primarily as a result of the upfront expenses on the two securitizations completed in the second quarter of 2022, as compared with one completed in the second quarter of 2021.

These fees increased from the three months ended September 30, 2021 to the three months ended September 30, 2022 primarily as a result of the upfront expenses on the two securitizations completed in the third quarter of 2022, as compared with upfront expenses on one securitization completed in the third quarter of 2021.

Additionally, for the three months ended September 30, 2022, we accrued expenses on a securitization which settled in October 2022.

Servicing fees

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

Servicing fees increased from the three months ended June 30, 2021 to the three months ended June 30, 2022 primarily due to an increase in the weighted average cost of our GAAP residential mortgage loan portfolio.

The weighted average cost of our GAAP residential mortgage loan portfolio increased by $2.8 billion from $0.8 billion for the three months ended June 30, 2021 to $3.6 billion for the three months ended June 30, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.

Servicing fees increased from the three months ended September 30, 2021 to the three months ended September 30, 2022 primarily due to an increase in our GAAP residential mortgage loan portfolio.

The weighted average cost of our GAAP residential mortgage loan portfolio increased by $3.0 billion from $1.3 billion for the three months ended September 30, 2021 to $4.3 billion for the three months ended September 30, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.

Equity in earnings/(loss) from affiliates

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Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

MATT Non-QM Loans $ 1,413 $ (644)

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Three Months Ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Interest income $ 1,748 $ 15,607

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$ (1,626) $ 6,882

(1) The earnings/(loss) at AG Arc during the three months ended June 30, 2022 were primarily the result of $(1.6) million of losses related to Arc Home's lending and servicing operations, offset by $0.4 million related to changes in the fair value of the MSR portfolio held by Arc Home.

The earnings/(loss) at AG Arc during the three months ended June 30, 2021 were primarily the result of $(2.8) million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $1.7 million of net income related to Arc Home's lending and servicing operations.

(1) The earnings/(loss) at AG Arc during the three months ended September 30, 2022 were primarily the result of $(1.9) million of losses related to Arc Home's lending and servicing operations, offset by $0.6 million related to changes in the fair value of the MSR portfolio held by Arc Home.

The earnings/(loss) at AG Arc during the three months ended September 30, 2021 were primarily the result of $2.6 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.

(2) 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.

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

Gain on Exchange Offers, net

We completed a privately negotiated exchange offer during the three months ended June 30, 2021.

As a result of the exchange offer, we exchanged 86,478 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock") and 154,383 shares of our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") for a total of 429,802 shares of common stock.

We recognized a gain of $0.1 million in connection with the offer.

There were no exchange offers completed during the three months ended June 30, 2022.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

The table below presents certain information from our consolidated statements of operations for the six months ended June 30, 2022 and 2021 (in thousands).

Six Months Ended

June 30, 2022 June 30, 2021 Increase/(Decrease)

Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 2021

The table below presents certain information from our consolidated statements of operations for the nine months ended September 30, 2022 and 2021 (in thousands).

Nine Months Ended

September 30, 2022 September 30, 2021 Increase/(Decrease)

Statement of Operations Data:

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Interest income

Interest income increased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily due to an increase in the size of our portfolio.

The weighted average amortized cost of our GAAP investment portfolio increased by $1.9 billion from $1.6 billion for the six months ended June 30, 2021 to $3.5 billion for the six months ended June 30, 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 0.82% in the weighted average yield of our GAAP investment portfolio from 3.35% for the six months ended June 30, 2021 to 4.17% for the six months ended June 30, 2022.

Interest income increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 primarily due to an increase in the size of our portfolio driven by purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

The weighted average amortized cost of our GAAP investment portfolio increased by $2.1 billion from $1.7 billion for the nine months ended September 30, 2021 to $3.8 billion for the nine months ended September 30, 2022.

This increase was coupled with an increase of 0.80% in the weighted average yield of our GAAP investment portfolio from 3.56% for the nine months ended September 30, 2021 to 4.36% for the nine months ended September 30, 2022.

Interest expense

Interest expense increased from the six months ended June 30, 2021 to the six months ended June 30, 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 $1.3 billion for the six months ended June 30, 2021 to $3.2 billion for the six months ended June 30, 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 1.09% in the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, from 1.39% for the six months ended June 30, 2021 to 2.48% for the six months ended June 30, 2022.

Interest expense increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 due to an increase in the amount of financing on our GAAP investment portfolio, inclusive of securitized debt, and an increase in the weighted average financing rate during the period.

We issued $2.7 billion of securitized debt during 2022, which contributed to an increase of $1.9 billion in the weighted average financing balance on our GAAP investment portfolio, inclusive of securitized debt, from $1.5 billion for the nine months ended September 30, 2021 to $3.4 billion for the nine

months ended September 30, 2022.

Additionally, the weighted average financing rate on our GAAP investment portfolio, inclusive of securitized debt, increased 1.39% from 1.48% for the nine months ended September 30, 2021 to 2.87% for the nine months ended September 30, 2022.

Net interest component of interest rate swaps

As of June 30, 2022, we held an interest rate swap portfolio with a notional value of $1.4 billion, a weighted average receive-variable rate of 1.42%, and a weighted average pay-fix rate of 1.84%.

As of June 30, 2021, we held an interest rate swap portfolio with a notional value of $0.8 billion, a weighted average receive-variable rate of 0.17%, and a weighted average pay-fix rate of 0.74%.

The net interest component of interest rate swap expense increased from September 30, 2021 to September 30, 2022 primarily due to the weighted average swap notional value increasing by $0.3 billion from $0.8 billion for the nine months ended September 30, 2021 to $1.1 billion for the nine months ended September 30, 2022.

Net realized gain/(loss)

The following table presents a summary of net realized gain/(loss) for the six months ended June 30, 2022 and 2021 (in thousands).

Six Months Ended

June 30, 2022 June 30, 2021

The following table presents a summary of net realized gain/(loss) for the nine months ended September 30, 2022 and 2021 (in thousands).

The realized gain during the nine months ended September 30, 2022 was driven by unwinding pay-fix, receive-float interest rate swaps which were previously held at unrealized gains as a result of rising interest rates.

This was offset by realized losses on sales of Agency RMBS.

Nine Months Ended

September 30, 2022 September 30, 2021

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 696 $ 7,643

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Net unrealized gain/(loss)

The following table presents a summary of net unrealized gain/(loss) for the six months ended June 30, 2022 and 2021 (in thousands).

Six Months Ended

June 30, 2022 June 30, 2021

The following table presents a summary of net unrealized gain/(loss) for the nine months ended September 30, 2022 and 2021 (in thousands).

During the nine months ended September 30, 2022, unrealized losses on residential mortgage loans and unrealized gains on securitized debt were the result of rising interest rates and credit spread widening during the period.

Nine Months Ended

September 30, 2022 September 30, 2021

Residential mortgage loans $ (451,532) $ 28,638

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Management fee to affiliate

Other operating expenses

The following table presents a summary of Other operating expenses broken out between non-investment related expenses and investment related expenses for the six months ended June 30, 2022 and 2021 (in thousands).

Six Months Ended

June 30, 2022 June 30, 2021

The following table presents a summary of Other operating expenses broken out between non-investment related expenses and investment related expenses for the nine months ended September 30, 2022 and 2021 (in thousands).

Nine Months Ended

September 30, 2022 September 30, 2021

Non Investment Related Expenses

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(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 six months ended June 30, 2021, $0.4 million of the waived reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

For the nine months ended September 30, 2021, $0.6 million of the waived reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

Transaction related expenses

Transaction related expenses increased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily as a result of the upfront expenses on the five securitizations completed during the six months ended June 30, 2022, as compared with one completed during the six months ended June 30, 2021.

Transaction related expenses increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 primarily as a result of the upfront expenses on the seven securitizations completed during the nine months ended September 30, 2022, as well as expenses accrued on a securitization which settled in October 2022.

This is compared with upfront expenses on two securitizations completed during the nine months ended September 30, 2021.

Servicing fees

Servicing fees increased from the six months ended June 30, 2021 to the six months ended June 30, 2022 primarily due to an increase in the weighted average cost of our GAAP residential mortgage loan portfolio.

The weighted average cost of our GAAP residential mortgage loan portfolio increased by $2.7 billion from $0.6 billion for the six months ended June 30, 2021 to $3.3 billion for the six months ended June 30, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.

Servicing fees increased from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 primarily due to an increase in our GAAP residential mortgage loan portfolio.

The weighted average cost of our GAAP residential mortgage loan portfolio increased by $2.7 billion from $0.9 billion for the nine months ended September 30, 2021 to $3.6 billion for the nine months ended September 30, 2022 resulting from purchases of Non-Agency Loans and Agency-Eligible Loans.

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).

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

MATT Non-QM Loans $ 154 $ 15,277

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The below table further disaggregates our "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

Interest income $ 4,899 $ 25,480

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$ (9,486) $ 34,496

(1) The earnings/(loss) at AG Arc during the six months ended June 30, 2022 were primarily the result of $3.5 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(1.6) million of losses related to Arc Home's lending and servicing operations.

The earnings/(loss) at AG Arc during the six months ended June 30, 2021 were primarily the result of $6.3 million of net income related to Arc Home's lending and servicing operations, offset by $(1.2) million related to changes in the fair value of the MSR portfolio held by Arc Home.

(1) The earnings/(loss) at AG Arc during the nine months ended September 30, 2022 were primarily the result of $4.1 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(3.5) million of losses related to Arc Home's lending and servicing operations.

The earnings/(loss) at AG Arc during the nine months ended September 30, 2021 were primarily the result of $8.8 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.

(2) 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.

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Gain on Exchange Offers, net

We completed two privately negotiated exchange offers during the six months ended June 30, 2021.

As a result of the exchange offers, we exchanged 153,325 shares of our 8.25% Series A Cumulative Redeemable Preferred Stock ("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 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 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 437,087 shares of our 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), and 154,383 shares of our 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("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.

There were no exchange offers completed during the six months ended June 30, 2022.

There were no exchange offers completed during the nine months ended September 30, 2022.

Book value and Adjusted book value per share

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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.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Book value per common share (1) $ 11.02 $ 14.64

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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 June 30, 2022 and June 30, 2021 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

June 30, 2022

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of September 30, 2022 and September 30, 2021 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

September 30, 2022

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

Yield 4.92 % 15.57 % 5.06 %

Cost of Funds (b) 3.53 % 3.70 % 3.52 %

Cost of Funds (b)(c) 3.92 % 4.76 % 3.93 %

Net Interest Margin 1.00 % 10.81 % 1.13 %

Leverage Ratio (c) 7.0x (d) 2.7x

June 30, 2021

Leverage Ratio (d) 8.5x (e) 2.0x

September 30, 2021

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

Yield 3.60 % 18.69 % 4.30 %

Cost of Funds (b) 1.66 % 3.11 % 1.70 %

Cost of Funds (b)(c) 1.92 % 3.16 % 1.96 %

Net Interest Margin 1.68 % 15.53 % 2.34 %

Leverage Ratio (c) 3.4x (d) 2.2x

Leverage Ratio (d) 3.8x (e) 1.8x

(a) Excludes any net TBA positions.

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

(c) As of September 30, 2022, Cost of Funds related to our GAAP investment portfolio includes 3.75% on our securitized debt and 4.74% on our financing arrangements.

As of September 30, 2021, Cost of Funds related to our GAAP investment portfolio includes 1.94% on our securitized debt and 1.54% on our financing arrangements.

(d) The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage.

The leverage ratio on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section.

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

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

Core Earnings

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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 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.

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.

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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.

A reconciliation of "Net Income/(loss) available to common stockholders" to Core Earnings for the three and six months ended June 30, 2022 and 2021 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 and nine months ended September 30, 2022 and 2021 is set forth below (in thousands, except per share data).

Three Months Ended

Six Months Ended

June 30, 2022

June 30, 2021

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022 September 30, 2021

Net Income/(loss) available to common stockholders $ (7,455) $ 29,993 $ (78,552) $ 79,594

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Core Earnings, per Diluted Share (4) $ (0.03) $ 0.96 $ 0.03 $ 1.24

(1) For the three months ended June 30, 2022 and 2021, total transaction related expenses and deal related performance fees included $3.8 million and $1.9 million, respectively, recorded within the "Transaction related expenses" line item and $0.2 million and $0.1 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

For the six months ended June 30, 2022 and 2021, total transaction related expenses and deal related performance fees included $9.6 million and $1.7 million, respectively, recorded within the "Transaction related expenses" line item and $0.5 million and $0.3 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended June 30, 2022 and 2021, $2.3 million or $0.10 per share and $(1.5) million or $(0.10) per share, respectively;

and for the six months ended June 30, 2022 and 2021, $6.8 million or $0.29 per share and $1.1 million or $0.07 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 June 30, 2022 and 2021, $(2.7) million or $(0.12) per share and $(0.1) million or $(0.01) per share, respectively;

and for the six months ended June 30, 2022 and 2021, $(5.2) million or $(0.22) per share and $0.4 million or $0.03 per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from Core Earnings.

(1) For the three months ended September 30, 2022 and 2021, total transaction related expenses and deal related performance fees included $5.3 million and $2.0 million, respectively, recorded within the "Transaction related expenses" line item and $0.2 million and $0.5 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, 2022 and 2021, total transaction related expenses and deal related performance fees included $14.9 million and $3.7 million, respectively, recorded within the "Transaction related expenses" line item and $0.7 million and $0.8 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, 2022 and 2021, $2.4 million or $0.11 per share and $0.2 million or $0.01 per share, respectively;

and for the nine months ended September 30, 2022 and 2021, $9.2 million or $0.40 per share and $1.3 million or $0.08 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 September 30, 2022 and 2021, $(1.2) million or $(0.05) per share and $0.1 million or $0.01 per share, respectively;

and for the nine months ended September 30, 2022 and 2021, $(6.4) million or $(0.28) 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 months ended June 30, 2022 and 2021, we eliminated $1.8 million or $0.07 per share and $1.4 million or $0.09 per share, and for the six months ended June 30, 2022 and 2021, we eliminated $4.1 million or $0.17 per share and $1.9 million or $0.13 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.

For the three months ended September 30, 2022 and 2021, we eliminated $1.8 million or $0.08 per share and $1.6 million or $0.10 per share, and for the nine months ended September 30, 2022 and 2021, we eliminated $5.9 million or $0.25 per share and $3.5 million or $0.23 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.

(4) All per share amounts for all periods presented have been adjusted to reflect the one-for-three reverse stock split.

(4) Per share amounts presented have been adjusted to reflect the one-for-three reverse stock split effected July 22, 2021, where applicable.

Investment activities

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We may also invest 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.

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 deploy capital.

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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 June 30, 2022 and December 31, 2021 ($ in thousands).

The following table presents a summary of the allocated equity of our investment portfolio as of September 30, 2022 and December 31, 2021 ($ in thousands).

Allocated Equity Percent of Equity

June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

Residential Investments $ 457,719 $ 459,058 98.6 % 80.5 %

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Total $ 464,296 $ 570,380 100.0 % 100.0 %

The following table presents a summary of our investment portfolio as of June 30, 2022 and December 31, 2021 and a reconciliation to our GAAP Investment Portfolio ($ in thousands).

The following table presents a summary of our investment portfolio as of September 30, 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)

June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

Residential Investments $ 4,286,474 $ 2,725,889 99.5 % 84.6 % 2.0x 2.1x

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Investments in Debt and Equity of Affiliates $ 57,982 $ 72,026 N/A N/A (b) (b)

TBAs $ 399,459 $ — N/A N/A (b) (b)

GAAP Investment Portfolio $ 4,248,035 $ 3,149,576 N/A N/A 8.5x 4.9x

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(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 June 30, 2022 and December 31, 2021 ($ in thousands).

June 30, 2022

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of September 30, 2022 and December 31, 2021 ($ in thousands).

September 30, 2022

December 31, 2021

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Interest Only 130,457 20,333 (790) 19,543 2.97 % 7.48 % 6.69 —

Fixed Rate 30 Year TBA (6) 400,000 401,496 (2,037) 399,459 4.38 % N/A N/A —

Total Agency RMBS 130,457 20,333 (790) 19,543 2.97 % 7.48 % 6.69 495,713

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Investments in Debt and Equity of Affiliates $ 419,136 $ 60,136 $ (2,154) $ 57,982 1.92 % 15.57 % 3.20 $ 72,026

TBAs $ 400,000 $ 401,496 $ (2,037) $ 399,459 4.38 % N/A N/A $ —

GAAP Investment Portfolio $ 4,890,246 $ 4,675,205 $ (427,170) $ 4,248,035 4.59 % 4.92 % 8.68 $ 3,149,576

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Maturities are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.

(4) As of June 30, 2022 and December 31, 2021, this line item primarily includes retained tranches from securitizations.

(5) As of June 30, 2022 and December 31, 2021, this line item includes Non-QM interest-only bonds.

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

(4) As of September 30, 2022 and December 31, 2021, this line item primarily includes retained tranches from securitizations.

(5) As of September 30, 2022 and December 31, 2021, this line item includes Non-QM interest-only bonds.

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).

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Residential mortgage loans (1) $ 4,222,235 $ 2,663,992

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Unpaid Principal Balance Weighted Average (1)(2)(3) Aging by Unpaid Principal Balance (1)(2)

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(2) Weighted average and aging data excludes Land Related Financing.

(3) Amounts are weighted based on unpaid principal balance.

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

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Non-Agency RMBS

The following table presents the fair value of our Non-Agency RMBS by credit rating as of June 30, 2022 and December 31, 2021 (in thousands).

Credit Rating - Non-Agency RMBS (1) June 30, 2022 December 31, 2021

A $ 4,663 $ —

The following table presents the fair value of our Non-Agency RMBS by credit rating as of September 30, 2022 and December 31, 2021 (in thousands).

Credit Rating - Non-Agency RMBS (1) September 30, 2022 December 31, 2021

BBB $ 8,122 $ 4,074

BB 8,196 7,709

B 12,843 15,018

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GAAP Basis $ 25,313 $ 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.

(1) Represents the minimum rating for rated assets of S&P, Moody, Morningstar, and Fitch credit ratings, stated in terms of the S&P equivalent.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

State Fair Value Percentage State Fair Value Percentage

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Florida 4,050 6.3 % Florida 3,661 5.9 %

Washington 3,214 4.1 % New Jersey 1,684 2.7 %

Texas 3,149 4.1 % Texas 1,511 2.4 %

Texas 2,289 3.6 % New Jersey 1,684 2.7 %

New Jersey 2,028 3.2 % Texas 1,511 2.4 %

Other 16,242 25.2 % Other 12,469 20.2 %

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Fair Value CPR (1)

Agency RMBS June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

Agency RMBS September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021

30 Year Fixed Rate $ — $ 495,713 — % 6.1 %

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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 six and five counterparties as of June 30, 2022 and December 31, 2021, respectively.

We had outstanding financing arrangements with six and five counterparties as of September 30, 2022 and December 31, 2021, respectively.

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

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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 June 30, 2022, we are in compliance with all of our financial covenants.

As of September 30, 2022, we are in compliance with all of our financial covenants.

We also use securitized debt to finance our loan portfolio.

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Recourse and non-recourse financing

The below table provides detail on the breakout between recourse and non-recourse financing as of June 30, 2022 and December 31, 2021 (in thousands).

June 30, 2022

The below table provides detail on the breakout between recourse and non-recourse financing as of September 30, 2022 and December 31, 2021 (in thousands).

September 30, 2022

December 31, 2021

Recourse financing - Financing arrangements $ 914,749 $ 1,791,596

Recourse financing - Financing arrangements, including those in Investments in Debt and Equity of Affiliates $ 947,366 $ 1,791,596

Non-recourse financing - Securitized debt, at fair value 3,025,128 999,215

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Total Financing in Investments in Debt and Equity of Affiliates 29,226 36,009

Total Financing:

GAAP Basis $ 3,960,893 $ 2,776,958

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

June 30, 2022 Leverage Stockholders’ Equity Leverage Ratio

September 30, 2022 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 3,025,128

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Non-recourse financing arrangements (1) (3,042,753)

Net TBA (receivable)/payable adjustment 402,418

Economic Leverage $ 946,787 $ 464,296 2.0x

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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 June 30, 2022.

We did not have any undistributed taxable income as of September 30, 2022.

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 following table details our common stock dividends declared during the six months ended June 30, 2022 and 2021.

All per share amounts and common shares outstanding for all applicable 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, 2022 and 2021.

Declaration Date Record Date Payment Date Cash Dividend Per Share

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6/15/2022 6/30/2022 7/29/2022 0.21

9/15/2022 9/30/2022 10/31/2022 0.21

Declaration Date Record Date Payment Date Cash Dividend Per Share

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

The following tables detail our preferred stock dividends declared and paid during the six months ended June 30, 2022 and 2021.

9/15/2021 9/30/2021 10/29/2021 0.21

The following tables detail our preferred stock dividends declared and paid during the nine months ended September 30, 2022 and 2021.

2022 Cash Dividend Per Share

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5/2/2022 5/31/2022 6/17/2022 0.51563 0.50 0.50

8/3/2022 8/31/2022 9/19/2022 0.51563 0.50 0.50

Total $ 1.54689 $ 1.50 $ 1.50

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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

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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 June 30, 2022, we had $94.2 million of liquidity, which consisted of $88.6 million of cash and $5.6 million of unencumbered Agency RMBS.

We may also generate liquidity when restricted cash that was pledged as collateral for clearing and executing trades, derivatives, and financing arrangements becomes unrestricted when the related collateral requirements are exceeded or at the maturity of the derivative or financing arrangement.

Refer to "—Margin requirements" below discussing instances where we may use liquidity to meet margin requirements.

At September 30, 2022, we had $79.7 million of liquidity, which consisted of $77.6 million of cash and cash equivalents and $2.1 million of unencumbered Agency RMBS.

At October 31, 2022, total liquidity was $103.8 million, which consisted of $101.7 million of cash and cash equivalents and $2.1 million of unencumbered Agency RMBS.

Refer to the "Contractual obligations" section of this Item 2 for additional obligations that could impact our liquidity.

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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 assets.

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.

Typically, if interest rates increase or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will need to use our liquidity to meet the margin calls.

There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls.

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We may also receive margin calls on our derivatives based on the implied volatility of interest rates.

Our posting of collateral with our counterparties can be done in cash or securities, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us.

Our posting of collateral with our counterparties can be done in cash or assets, and is generally bilateral, which means that if the fair value of our interest rate hedges increases, our counterparty will be required to post collateral with us.

Refer to the "Liquidity risk – derivatives" section of Item 3 below for a further discussion on margin.

The below details changes to our cash, cash equivalents, and restricted cash for the six months ended June 30, 2022 and 2021 ($ in thousands).

Six Months Ended

June 30, 2022 June 30, 2021 Change

The below details changes to our cash, cash equivalents, and restricted cash for the nine months ended September 30, 2022 and 2021 ($ in thousands).

Nine Months Ended

September 30, 2022 September 30, 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 $ 99,436 $ 128,836 $ (29,400)

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the six months ended June 30, 2022.

(2) Cash used in investing activities for the six months ended June 30, 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 six months ended June 30, 2022 was primarily attributable to issuance of securitized debt, offset by net repayments of financing arrangements and dividend payments.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the nine months ended September 30, 2022.

(2) Cash used in investing activities for the nine months ended September 30, 2022 was primarily attributable to purchases of investments, offset by sales of investments, principal repayments on investments, and the settlement of derivatives.

(3) Cash provided by financing activities for the nine months ended September 30, 2022 was primarily attributable to issuance of securitized debt, offset by net repayments of financing arrangements and dividend payments.

Stock repurchase programs

During the three and six months ended June 30, 2022, we repurchased 1.4 million shares for $11.0 million under the 2015 Repurchase Program.

No shares were repurchased under the 2015 Repurchase Program during the three and six months ended June 30, 2021.

As of June 30, 2022, the amount authorized under the 2015 Repurchase Program was fully utilized.

During the nine months ended September 30, 2022, we repurchased 1.4 million shares for $11.0 million under the common stock repurchase program authorized by our Board of Directors on November 3, 2015 (the "2015 Repurchase Program").

During the three and nine months ended September 30, 2021, we repurchased 0.3 million shares for $2.8 million under the 2015 Repurchase Program.

As of June 30, 2022, the $25.0 million maximum repurchase amount authorized under the 2015 Repurchase Program was fully utilized.

On August 3, 2022, our Board of Directors authorized the 2022 Repurchase Program to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2015 Repurchase Program.

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We may repurchase shares of our common stock from time to time in compliance with SEC regulations and other legal requirements.

The extent to which we repurchases our shares, and the timing, manner, price, and amount of any such repurchases, will depend upon a variety of factors including market conditions and other corporate considerations as determined by management, as well as the limits of the 2022 Repurchase Program and our liquidity and business strategy.

The extent to which we repurchase our shares, and the timing, manner, price, and amount of any such repurchases, will depend upon a variety of factors including market conditions and other corporate considerations as determined by management, as well as the limits of the 2022 Repurchase Program and our liquidity and business strategy.

The 2022 Repurchase Program does not obligate us to acquire any particular amount of shares and may be modified or discontinued at any time.

As of the date of this report, the full $15 million

authorized amount remains available for repurchase under the 2022 Repurchase Program.

During the three and nine months ended September 30, 2022, we repurchased 0.4 million shares for $2.3 million under the 2022 Repurchase Program.

As of September 30, 2022, approximately $12.7 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.

On February 22, 2021, our Board of Directors authorized a stock repurchase program (the "Preferred 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.

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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 and six months ended June 30, 2022, we did not issue any shares of common stock under the Equity Distribution Agreements.

For the three months ended June 30, 2021, we issued 0.2 million shares of common stock under the Equity Distribution Agreements for net proceeds of approximately $3.1 million.

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

For the three months ended September 30, 2021, we did not issue any shares 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.

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.

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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 six months ended June 30, 2022, we incurred management fees of $2.0 million and $3.9 million, respectively.

For the three and six months ended June 30, 2021, we incurred management fees of $1.7 million and $3.3 million, respectively.

As of June 30, 2022 and December 31, 2021, we have recorded management fees payable of $2.0 million and $1.8 million, respectively.

The below table details the management fees incurred during the three and nine months ended September 30, 2022 and 2021 (in thousands).

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Management fee to affiliate $ 2,064 $ 1,693 $ 5,984 $ 5,014

As of September 30, 2022 and December 31, 2021, we have recorded management fees payable of $2.1 million and $1.8 million, respectively.

The management fee payable is included within the "Due to affiliates" item within the "Other liabilities" line item on the consolidated balance sheets.

Incentive fee

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Our reimbursement obligation is not subject to any dollar limitation;

however, reimbursements are 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.

For the three and six months ended June 30, 2022, we incurred $2.4 million and $4.9 million, respectively, representing reimbursements of expenses which are recorded within the "Other operating expenses" and "Transaction related expenses" line items on the consolidated statements of operations.

For the three and six months ended June 30, 2021, we incurred $1.1 million and $2.7 million, respectively, representing reimbursements of expenses which are recorded within the "Other operating expenses" and "Transaction related expenses" line items on the consolidated statements of operations.

As of June 30, 2022 and December 31, 2021, we recorded reimbursements payable to our Manager or its affiliates of $2.0 million and $2.1 million, respectively.

however, reimbursements are 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.

We record expenses reimbursed to our Manager or its affiliates within the "Other operating expenses" and "Transaction related expenses" line items on the consolidated statements of operations.

The below table details the expense reimbursement incurred during the three and nine months ended September 30, 2022 and 2021 (in thousands).

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Operating expenses (1) $ 1,405 $ 1,125 $ 4,215 $ 3,375

Deal related expenses (1) 261 189 637 518

Transaction related expenses (2) 738 251 2,484 331

Expense reimbursements to affiliates $ 2,404 $ 1,565 $ 7,336 $ 4,224

(1) Included in the "Other operating expenses" line item on the consolidated statement of operations.

(2) Included in the "Transaction related expenses" line item on the consolidated statement of operations.

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

For the three and six months ended June 30, 2021, we reduced our expense reimbursement amount by $0.2 million and $0.4 million, respectively.

For the three and nine months ended September 30, 2021, we reduced our expense reimbursement amount by $0.2 million and $0.6 million, respectively.

As of September 30, 2022 and December 31, 2021, we recorded reimbursements payable to our Manager or its affiliates of $2.5 million and $2.1 million, respectively.

The Reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" item within the "Other liabilities" line item on the consolidated balance sheets.

Share-based compensation

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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 June 30, 2022, 582,820 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since inception of the 2020 Equity Incentive Plan and through June 30, 2022, we have granted an aggregate of 83,846 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

As of September 30, 2022, 570,901 shares of common stock were available to be awarded under the Equity Incentive Plan.

Since inception of the 2020 Equity Incentive Plan and through September 30, 2022, we have granted an aggregate of 95,765 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 June 30, 2022, there were no shares or awards issued under the 2021 Manager Plan.

As of September 30, 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, our 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 June 30, 2022.

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of September 30, 2022.

Off-balance sheet arrangements

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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.

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of June 30, 2022.

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

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of September 30, 2022, if applicable.

For additional information on our commitments as of September 30, 2022 , refer to Note 12 of the "Notes to Consolidated Financial Statements (unaudited)." 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 June 30, 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.

Although our estimates contemplate conditions as of September 30, 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.

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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

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)."

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We closely monitor our holdings to ensure continuing and ongoing compliance with the 40% Test.

As of December 31, 2021 and June 30, 2022, we determined that we maintained compliance with the 40% Test requirements.

As of December 31, 2021 and September 30, 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 closely monitor our subsidiaries' holdings to ensure continuing and ongoing 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" (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 June 30, 2022, 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 September 30, 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.

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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