What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-08 · 332 added, 439 removed, 440 unchanged (64% of the section changed)

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We refer to our external manager, AG REIT Management, LLC, as our "Manager," and we refer to the direct parent company of our Manager, Angelo, Gordon & Co., L.P., as "Angelo Gordon."

The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Item 1 of this report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021, and any subsequent filings.

The following discussion contains forward looking statements and should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Item 1 of this report, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, and any subsequent filings.

Forward-Looking Statements

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Some, but not all, of the factors that might cause such a difference include, without limitation:

• the uncertainty and economic impact of the COVID-19 pandemic (including the impact of any significant variants) and of responsive measures implemented by various governmental authorities, businesses and other third parties, and the potential impact of COVID-19 on our personnel;

• the impact of the COVID-19 pandemic, labor shortages, supply chain imbalances, the conflict between Russia and Ukraine, inflation, bank failures, and the potential for an economic recession;

• the persistence of labor shortages, supply chain imbalances, Russia’s invasion of Ukraine, inflation, and the potential for an economic recession;

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Department of the Treasury, the Federal Reserve and other agencies and instrumentalities;

• 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;

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Executive Summary

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 third quarter 2022.

Investment Activity

• Purchased Non-Agency Loans with a fair value of $510.3 million, $288.8 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 $381.3 million, $67.2 million of which were purchased from Arc Home.

• Purchased Non-Agency Loans with a fair value of $23.0 million;

• Purchased RMBS collateralized by Non-Agency and Agency-Eligible Loans with a fair value of $10.9 million;

• Purchased Agency RMBS with a fair value of $264.8 million;

• Sold Non-Agency Loans for total proceeds of $46.9 million;

• Sold Agency-Eligible Loans for total proceeds of $18.5 million.

Financing Activity

• Executed two 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 $415.9 million;

◦ 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.

• Executed a rated securitization of Non-Agency Loans with a total unpaid principal balance of $271.2 million, converting financing from recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls.

◦ Loan portfolio financed through warehouse facilities declined to $127.6 million and our economic leverage ratio was 1.4x as of March 31, 2023.

Capital Activity

• 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.

• As of the date of this filing, we have $1.7 million of capacity remaining under our repurchase program authorized in 2022 (the "2022 Repurchase Program").

◦ Repurchased 923,261 shares of common stock for $5.2 million during the three months ended March 31, 2023, representing a weighted average cost of $5.68 per share.

Repurchases resulted in approximately 2% accretion to December 31, 2022 book value per share.

◦ Subsequent to quarter end, repurchased 144,772 shares of common stock for $0.8 million, representing a weighted average cost of $5.85 per share.

• Subsequent to quarter end, our Board of Directors authorized a new stock repurchase program (the "2023 Repurchase Program") to repurchase up to $15 million of our outstanding common stock.

This authorization is in addition to the amount remaining under the 2022 Repurchase Program.

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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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.

We finance our acquired loans through various financing lines on a short-term basis and utilize Angelo Gordon's 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.

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

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

As of March 31, 2023, the Company's investment portfolio consisted of the following:

Asset Class Description

Target Assets

Residential Investments

Non-Agency Loans (1)

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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").

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

Agency-Eligible Loans (1)

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

Other Residential Mortgage Related Assets

Re/Non-Performing Loans (1)(3)

• Agency-Eligible Loans are loans that are underwritten in accordance with GSE guidelines and are primarily secured by investment properties, but are not guaranteed by a GSE.

Although these loans are underwritten in accordance with GSE guidelines and can be delivered to Fannie Mae and Freddie Mac, we include these loans within our Non-Agency securitizations.

Re- and Non-Performing Loans (1)

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

Land Related Financing (3)

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

Non-Agency Residential Mortgage-Backed Securities ("RMBS") (2)

• Non-Agency RMBS represent fixed- and floating-rate RMBS issued by entities other than U.S.

GSEs or agencies of the U.S.

The mortgage loan collateral consists of either Non-Agency Loans or Agency-Eligible Loans.

Agency RMBS (2)

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Government such as Ginnie Mae.

(1) Loans held directly are included in the "Securitized residential mortgage loans, at fair value" or the "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.

(2) Non-Agency Loans and Agency-Eligible Loans held in securitized form, as well as Agency RMBS, are included in the "Real estate securities, at fair value" line item on our consolidated balance sheets.

(3) Investments held through our unconsolidated affiliates are included in the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

This includes Non-Agency Loans held indirectly through our investment in Mortgage Acquisition Trust I LLC ("MATT"), certain retained tranches from unconsolidated Re/Non-Performing Loan securitizations which we hold alongside other private funds under the management of Angelo Gordon, and Land Related Financing.

(1) These investments are included in the "Securitized residential mortgage loans, at fair value," "Residential mortgage loans, at fair value," and "Residential mortgage loans held for sale, at fair value" line items on the consolidated balance sheets.

(2) These investments are included in the "Real estate securities, at fair value" line item on the 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.

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

federal income taxes on our taxable income that we distribute 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 ("TRSs") 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").

We are externally managed by our Manager, a subsidiary of 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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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.

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

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 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.

Agency RMBS :

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 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.

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.

During the first quarter of 2023, the economy and financial markets continued to experience volatility due to multiple factors including the impacts of inflation, the path of monetary policy and interest rates, market uncertainty from the ongoing conflict in Ukraine and other geopolitical risks, and the lingering impact of the COVID-19 pandemic.

The broad macroeconomic outlook was already uncertain, and the recent regional bank failures, which included some of the largest bank failures in U.S.

history, only served to further cloud the path forward for growth, inflation, and monetary policy.

These bank failures, with the possibility of more to come, have highlighted the underlying asset liability management issue across the banking system in response to one of the most aggressive Federal Reserve tightening paths.

This has accelerated a deposit flight from regional banks in search of both greater stability and higher interest rates.

Reduced profitability and capital buffers, a smaller deposit base, and industry consolidation will likely constrict lending over time and weigh on economic activity.

This has an impact on the economy like that of the monetary policy tightening by the Federal Reserve, however the potential magnitude is still quite uncertain.

Although the Federal Deposit Insurance Corporation, U.S.

Treasury and Federal Reserve responded quickly to address the immediate risks, volatility across the entire rates market was and continues to be elevated from a historical perspective as narratives transform and positioning shifts.

After narrowing in January and February 2023, spreads for securitized residential debt sectors subsequently widened in March 2023 resulting in flat-to-tighter spreads during the first quarter as compared with the fourth quarter.

Trends in credit spreads on credit risk transfer ("CRT") assets are generally utilized by market participants as a proxy for evaluating credit related assets given the observability of transactions.

CRT tranches tightened up to 60 basis points, led by the subordinate bonds of the structures.

In addition, senior and mezzanine Non-QM mortgage spreads were volatile but ended the quarter roughly unchanged from the end of the fourth quarter and legacy RMBS spreads were approximately 30 basis points tighter.

However, RMBS spreads are still considerably wider than compared to the first quarter of 2022, particularly subordinate tranches which were wider by as much as 200 basis points.

During the first quarter of 2023, new RMBS issuance more than doubled to $15.9 billion from $7.1 billion in the fourth quarter of 2022, with issuances of CRT, Non-QM, and Jumbo contributing to the increase.

On a year-over-year basis, however, issuance fell sharply from $54.6 billion in the first quarter 2022.

Several factors have limited new-issue activity, including spreads that remain wide, higher mortgage rates, and overall muted housing activity.

Various reports from bank research departments expect issuance to be between $60 to $110 billion for the full-year 2023, down from $127 billion in 2022 and $213 billion in 2021.

Negative monthly home price readings continue to persist since reaching a peak in June of 2022.

The January 2023 S&P/CoreLogic Case-Shiller Index fell -0.55% on a non-seasonally adjusted basis.

The reading marked the seventh consecutive month of falling prices, bringing national home prices around 5% lower from their peak.

Home prices are expected to continue falling based on reduced affordability and increasing supply in certain areas, though overall supply continues to be constrained.

Mortgage rates ended the quarter at approximately 6.2%, down from the multi-decade high of 7.1% in October 2022, according to Freddie Mac.

Housing activity modestly benefited from the decline in mortgage rates which dipped below 6% at times during the quarter.

Existing home inventory increased in the second half of 2022 but has since stalled below 1 million for a third consecutive month in February.

Furthermore, Realtor.com estimates new listings are 20% lower year-over year and are at the lowest level since 2017.

While a shortage in home supply has supported national home prices, housing affordability remains at

a record low, according to the National Association of Realtors.

This is largely due to the rise in prevailing mortgage rates coupled with the rise in home prices.

In light of various market uncertainties for the U.S.

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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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◦ "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, as well as Agency-Eligible Loans held in securitized form.

◦ "Non-Agency RMBS" refer to the retained tranches from unconsolidated securitizations of Non-Agency Loans and Re/Non-Performing Loans, as well as RMBS collateralized by Non-Agency Loans and Agency-Eligible 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 excluding investments held within affiliated entities.

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

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

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.

Although market conditions have improved, 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.

Book value and Adjusted book value per share

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 as of quarter-end.

March 31, 2023 December 31, 2022

Book value per common share $ 11.85 $ 11.39

Net proceeds of preferred stock less liquidation preference of preferred stock per common share (1) (0.37) (0.36)

Adjusted book value per common share $ 11.48 $ 11.03

(1) Book value per common share is calculated using stockholders’ equity less net proceeds of $220.5 million on our issued and outstanding preferred stock as the numerator.

Adjusted book value per common share is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock as the numerator.

Results of Operations

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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 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 March 31, 2023 compared to the Three Months Ended March 31, 2022

The table below presents certain information from our consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands).

Three Months Ended

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

March 31, 2023 March 31, 2022 Increase/(Decrease)

Statement of Operations Data:

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Management fee to affiliate 2,075 1,962 113

Other operating expenses 4,083 2,997 1,086

Non-investment related expenses 2,820 2,674 146

Investment related expenses 2,326 2,021 305

Transaction related expenses 1,707 5,879 (4,172)

Servicing fees 986 849 137

Total Expenses 8,928 12,536 (3,608)

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

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 income increased from March 31, 2022 to March 31, 2023 primarily due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period.

This was coupled with an increase in the weighted average yield.

The following table presents a summary of the weighted average amortized cost of and

the weighted average yield on our GAAP investment portfolio for the three months ended March 31, 2023 and 2022 ($ in millions).

Three Months Ended

March 31, 2023 March 31, 2022 Increase/(Decrease)

Weighted average amortized cost of our GAAP investment portfolio

$ 4,693 $ 3,360 $ 1,333

Weighted average yield on our GAAP investment portfolio 4.93 % 3.98 % 0.95 %

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, 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.

Interest expense is calculated based on the actual financing rate and the outstanding financing balance, inclusive of our financing arrangements and securitized debt, on our GAAP investment portfolio.

Interest expense increased from March 31, 2022 to March 31, 2023 due to an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of $3.0 billion of securitized debt in 2022 and $234.8 million of securitized debt in the first quarter of 2023.

Additionally, there was an increase in the weighted average financing rate during the period resulting from increased interest rates.

The following table presents a summary of the weighted average financing balance of and the weighted average financing rate on our GAAP investment portfolio for the three months ended March 31, 2023 and 2022 ($ in millions).

Three Months Ended

March 31, 2023 March 31, 2022 Increase/(Decrease)

Weighted average GAAP financing balance

$ 4,288 $ 3,060 $ 1,228

Weighted average financing rate on our GAAP investment portfolio 4.31 % 2.11 % 2.20 %

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 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%.

We recorded income on the net interest component of interest rate swaps during the three months ended March 31, 2023, compared with an expense for the three months ended March 31, 2022.

The Company's swap portfolio was in a net receive position during the three months ended March 31, 2023 compared with being in a net pay position during the three months ended March 31, 2022, which resulted in interest earned during the three months ended March 31, 2023 compared with interest expensed during three months ended March 31, 2022.

The following table presents a summary of our interest rate swap portfolio as of March 31, 2023 and 2022 ($ in millions).

March 31, 2023 March 31, 2022 Increase/(Decrease)

Interest rate swap notional value

$ 468 $ 1,419 $ (951)

Weighted average receive-variable rate

4.87 % 0.30 % 4.57 %

Weighted average pay-fix rate

3.69 % 1.27 % 2.42 %

Net realized gain/(loss)

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.

The following table presents a summary of Net realized gain/(loss) for the three months ended March 31, 2023 and 2022 (in thousands).

The realized gain during the three months ended March 31, 2023 was driven by unwinding pay-fix, receive-variable 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 residential mortgage loans.

Three Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (9,902) $ (58)

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Settlement of derivatives and other instruments 10,002 25,681

Sales of commercial loans — 387

Total Net realized gain/(loss) $ 100 $ 8,783

Net unrealized gain/(loss)

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.

The following table presents a summary of net unrealized gain/(loss) for the three months ended March 31, 2023 and 2022 (in thousands).

During the three months ended March 31, 2023, unrealized gains on residential mortgage loans and real estate securities and unrealized losses on securitized debt and derivatives were the result of lower interest rates during the period

Three Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Residential mortgage loans $ 97,201 $ (158,147)

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Derivatives (19,969) 49,917

Commercial loans — 7,194

Excess mortgage servicing rights — 1,507

Total Net unrealized gain/(loss) $ 8,717 $ (22,420)

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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 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

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 Other operating expenses broken out between non-investment related expenses and investment related expenses for the three months ended September 30, 2022 and 2021 (in thousands).

Three Months Ended

September 30, 2022 September 30, 2021

Management fees increased from March 31, 2022 to March 31, 2023 primarily due to an increase in our Stockholder's Equity as calculated pursuant to our Management Agreement.

Non-investment related expenses

Affiliate expense reimbursement - Operating expenses (1) $ 1,405 $ 1,125

Non-investment related expenses is primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to our Manager or its affiliates.

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

The following table presents a summary of our non-investment related expenses for the three months ended March 31, 2023 and 2022 (in thousands).

Three Months Ended

March 31, 2023 March 31, 2022

Affiliate reimbursement $ 1,400 $ 1,405

Professional Fees 552 467

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Investment related expenses

Affiliate expense reimbursement - Deal related expenses 261 189

Investment related expenses is primarily comprised of servicing fees, asset management fees, and certain 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 associated with our investment portfolio.

The following table presents a summary of our investment related expenses for the three months ended March 31, 2023 and 2022 (in thousands).

Three Months Ended

March 31, 2023 March 31, 2022

Affiliate reimbursement $ 102 $ 135

Servicing fees 1,050 1,007

Residential mortgage loan asset management fees 635 544

Trustee and bank fees 375 142

Other 164 193

Total Investment related expenses $ 2,326 $ 2,021

Total Other operating expenses $ 4,083 $ 2,997

(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 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 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 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.

These fees decreased from the three months ended March 31, 2022 to the three months ended March 31, 2023 primarily due to upfront expenses associated with securitizations.

During the first quarter of 2022, the Company completed three securitizations as compared to one in the first quarter of 2023.

Equity in earnings/(loss) from affiliates

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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).

The below tables summarize the components of the "Equity in earnings/(loss) from affiliates" line item on our consolidated statements of operations (in thousands).

Three Months Ended

September 30, 2022 September 30, 2021

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

March 31, 2023 March 31, 2022

MATT Non-QM Securities $ 1,625 $ (889)

Land Related Financing 339 502

Re/Non-Performing Loans 927 6,553

Re/Non-Performing Securities 192 3

AG Arc (2,140) (1,670)

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Three Months Ended

September 30, 2022 September 30, 2021

Interest income $ 1,748 $ 15,607

Interest expense 314 437

Total Net Interest Income 1,434 15,170

Net realized gain/(loss) — 417

Net unrealized gain/(loss) 1,355 (8,822)

Total Other Income/(Loss) 1,355 (8,405)

After-tax earnings/(loss) at AG Arc (1) (1,303) 1,868

Net unrealized gain/(loss) on investment in AG Arc (1,208) 111

Elimination of gains on loans sold to MITT (2) (1,755) (1,580)

Total AG Arc Earnings/(Loss) (4,266) 399

Other operating expenses 149 282

Equity in earnings/(loss) from affiliates

$ (1,626) $ 6,882

(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.

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:

Net Interest Income

Interest income $ 123,017 $ 45,976 $ 77,041

Interest expense 73,994 16,552 57,442

Total Net Interest Income 49,023 29,424 19,599

Other Income/(Loss)

Net interest component of interest rate swaps (5,849) (3,498) (2,351)

Net realized gain/(loss) 60,072 (5,124) 65,196

Net unrealized gain/(loss) (123,032) 58,995 (182,027)

Other income/(loss), net — 37 (37)

Total Other Income/(Loss) (68,809) 50,410 (119,219)

Management fee to affiliate 5,984 5,014 970

Other operating expenses 11,594 10,128 1,466

Transaction related expenses 14,939 3,731 11,208

Servicing fees 3,005 2,136 869

Total Expenses 35,522 21,009 14,513

Income/(loss) before equity in earnings/(loss) from affiliates (55,308) 58,825 (114,133)

Equity in earnings/(loss) from affiliates (9,486) 34,496 (43,982)

Net Income/(Loss) (64,794) 93,321 (158,115)

Gain on Exchange Offers, net — 472 (472)

Dividends on preferred stock (13,758) (14,199) 441

Net Income/(Loss) Available to Common Stockholders $ (78,552) $ 79,594 $ (158,146)

Interest income

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 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

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 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

Sales of real estate securities (34,504) (9,677)

Settlement of derivatives and other instruments 93,880 (573)

Sales of commercial loans — (2,517)

Total Net realized gain/(loss) $ 60,072 $ (5,124)

Net unrealized gain/(loss)

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

Real estate securities 3,529 1,122

Securitized debt 306,302 (3,093)

Derivatives 18,669 14,781

Commercial loans — 16,148

Excess mortgage servicing rights — 1,399

Total Net unrealized gain/(loss) $ (123,032) $ 58,995

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 nine months ended September 30, 2022 and 2021 (in thousands).

Nine Months Ended

September 30, 2022 September 30, 2021

Non Investment Related Expenses

Affiliate expense reimbursement - Operating expenses (1) $ 4,215 $ 3,375

Professional fees 1,438 2,048

D&O insurance 963 1,137

Directors' compensation 505 504

Other 589 689

Total Non Investment Related Expenses 7,710 7,753

Investment Related Expenses

Affiliate expense reimbursement - Deal related expenses 637 518

Residential mortgage loan asset management fees 1,963 1,168

Other 1,284 689

Total Investment Related Expenses 3,884 2,375

Total Other operating expenses $ 11,594 $ 10,128

(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 waived reimbursable expenses is included within the "Affiliated expense reimbursement - Operating expenses" line item above.

Transaction related expenses

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 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).

Nine Months Ended

September 30, 2022 September 30, 2021

MATT Non-QM Loans $ 154 $ 15,277

Land Related Financing 1,248 1,848

Re/Non-Performing Loans 758 13,370

AG Arc (11,646) 4,033

Equity in earnings/(loss) from affiliates

$ (9,486) $ 34,496

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

Nine Months Ended

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Interest income $ 1,760 $ 1,449

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$ 16 $ (2,054)

(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.

(1) The earnings/(loss) at AG Arc during the three months ended March 31, 2023 were primarily the result of $(1.6) million of losses related to changes in the fair value of the MSR portfolio held by Arc Home, coupled with $(0.7) million of losses related to Arc Home's lending and servicing operations.

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.

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

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 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 nine months ended September 30, 2022.

Book value and Adjusted book value per share

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.

September 30, 2022 December 31, 2021

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

Adjusted book value per common share (2) 10.68 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

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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.

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 weighted average yield represents an effective interest rate on our cost basis, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end.

The calculation of weighted average yield is weighted on fair value at quarter-end.

The weighted average cost of funds is the sum of the weighted average funding costs on total financing arrangements outstanding at quarter-end, including all non-recourse financing arrangements, and our weighted average hedging cost, which is the weighted average of the net pay rate on our interest rate swaps.

GAAP and non-GAAP cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio and our investment portfolio, respectively, and the fair value of securitized debt 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, 2022 and September 30, 2021 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

September 30, 2022

The table below sets forth the net interest margin and leverage ratio on our investment portfolio as of March 31, 2023 and 2022 and a reconciliation to the net interest margin and leverage ratio on our GAAP investment portfolio.

March 31, 2023

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

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Leverage Ratio (d) 8.9x (e) 1.4x

September 30, 2021

March 31, 2022

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

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(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.

The benefit of hedging as of March 31, 2023 was 0.13% and the cost of hedging as of March 31, 2022 was 0.42%.

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

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

Core Earnings

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Core Earnings, as one of several metrics, to help measure our performance against this objective.

Earnings Available for Distribution

One of our objectives is to generate net income from net interest margin on the portfolio, and management uses Earnings Available for Distribution ("EAD"), as one of several metrics, to help measure our performance against this objective.

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

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

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

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

This non-GAAP measure should not be considered a substitute for, or superior to, Net Income/(loss) available to common stockholders or Net income/(loss) per diluted common share calculated in accordance with GAAP.

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.

We define EAD, 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 EAD, 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.

Management views the exclusion described in (iv) above to be consistent with how it calculates EAD on the remainder of its portfolio.

Management excludes all deferred taxes because it believes deferred taxes are not representative of current operations.

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 nine months ended September 30, 2022 and 2021 is set forth below (in thousands, except per share data).

EAD 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 EAD for the three months ended March 31, 2023 and 2022 is set forth below (in thousands, except per share data).

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022 September 30, 2021

March 31, 2023

March 31, 2022

Net Income/(loss) available to common stockholders $ 7,954 $ (17,788)

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Equity in (earnings)/loss from affiliates (16) 2,054

Net interest income and expenses from equity method investments (2)(3) (4,170) 15,000 (10,755) 24,861

Other (income)/loss, net — — — (14)

(Gains) from Exchange Offers, net — — — (472)

EAD from equity method investments (2)(3) (339) (2,550)

Dollar roll income/(loss) — (1,977)

Core Earnings $ (600) $ 15,481 $ 713 $ 18,985

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

(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 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.

Earnings available for distribution $ 582 $ (492)

Earnings available for distribution, per Diluted Share $ 0.03 $ (0.02)

(1) For the three months ended March 31, 2023 and 2022, total transaction related expenses and deal related performance fees included $1.7 million and $5.9 million, respectively, recorded within the "Transaction related expenses" line item and $0.1 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, 2023 and 2022, $(0.6) million or $(0.03) per share and $4.4 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 EAD, net of deferred tax expense.

Additionally, for the three months ended March 31, 2023 and 2022, $0.2 million or $0.01 per share and $(2.5) million or $(0.10) per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

(3) EAD 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 March 31, 2023 we did not eliminate any intra-entity profits recognized by Arc Home as we did not purchase any loans from Arc during the quarter.

For the three months ended March 31, 2022, we eliminated $2.4 million or $0.10 per share 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 10 to the "Notes to Consolidated Financial Statements (unaudited)" for more information on this accounting policy.

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

The following table presents a summary of the allocated equity of our investment portfolio as of March 31, 2023 and December 31, 2022 ($ in thousands).

Allocated Equity Percent of Equity

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

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

Residential Investments $ 404,937 $ 454,411 87.7 % 98.2 %

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Total $ 461,913 $ 462,800 100.0 % 100.0 %

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).

The following table presents a summary of our investment portfolio as of March 31, 2023 and December 31, 2022 and a reconciliation to our GAAP Investment Portfolio ($ in thousands).

Fair Value Percent of Investment Portfolio

Fair Value Leverage Ratio (a)

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

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

Residential Investments $ 4,185,478 $ 4,202,801 93.6 % 99.5 % 0.9x 1.3x

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

September 30, 2022

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of March 31, 2023 and December 31, 2022 ($ in thousands).

March 31, 2023

December 31, 2022

Instrument Current Face Amortized Cost Unrealized Mark-

to-Market Fair Value (1) Weighted Average

Instrument Current Face Amortized Cost Unrealized Mark-to-Market Fair Value (1) Weighted Average

Coupon (2) Weighted

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Residential Investments:

Residential Mortgage Loans

Securitized Non-Agency Loans (4) $ 4,049,191 $ 4,101,841 $ (405,098) $ 3,696,743 4.81 % 4.66 % 9.78 $ 3,436,201

Securitized Re- and Non-Performing Loans 319,949 284,879 (12,852) 272,027 3.76 % 6.57 % 6.37 270,945

Non-Agency Loans 121,885 121,843 805 122,648 7.23 % 6.86 % 3.56 371,161

Agency-Eligible Loans 5,084 5,168 (265) 4,903 5.44 % 5.01 % 4.75 46,862

1,377,367 1,369,518 (123,771) 1,245,747 4.00 % 4.23 % 9.59 440,837

MATT Non-QM Loans (4) 373,359 41,197 (2,373) 38,824 1.03 % 15.50 % 3.43 45,837

Re/Non-Performing Loans 373,913 305,438 (14,074) 291,364 3.83 % 8.17 % 4.69 360,131

Re- and Non-Performing Loans 3,291 1,446 1,744 3,190 N/A 79.62 % 1.90 3,428

Land Related Financing 10,814 10,814 — 10,814 14.50 % 14.50 % 0.33 10,688

Total Residential Mortgage Loans 4,510,214 4,525,991 (415,666) 4,110,325 4.82 % 4.93 % 9.34 4,139,285

Non-Agency RMBS

Non-Agency Securities (5) 45,452 35,766 (4,597) 31,169 3.78 % 6.70 % 12.18 19,537

MATT Non-QM Securities 343,784 31,632 (51) 31,581 1.01 % 21.13 % 3.68 31,067

Re/Non-Performing Securities 32,918 7,923 (138) 7,785 4.60 % 14.13 % 1.42 7,854

Non-Agency RMBS Interest Only (6) 105,786 2,753 1,865 4,618 0.38 % 32.86 % 4.29 5,058

Total Non-Agency RMBS 527,940 78,074 (2,921) 75,153 1.68 % 15.14 % 4.40 63,516

Total Residential Investments 5,038,154 4,604,065 (418,587) 4,185,478 4.62 % 5.12 % 8.82 4,202,801

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Investments in Debt and Equity of Affiliates

Residential Mortgage Loans $ 10,814 $ 10,814 $ — $ 10,814 14.50 % 14.50 % 0.33 $ 10,688

Non-Agency RMBS $ 376,702 $ 39,555 $ (189) $ 39,366 1.55 % 19.75 % 3.49 $ 38,921

GAAP Investment Portfolio $ 5,039,101 $ 4,837,761 $ (415,266) $ 4,422,495 4.75 % 5.00 % 8.86 $ 4,172,316

(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," and "Land Related Financing," line items above.

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

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

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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 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).

September 30, 2022 December 31, 2021

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

Non-Agency RMBS (2) 64,239 61,897

Total Residential Investments $ 4,286,474 $ 2,725,889

Residential mortgage loans in Investments in Debt and Equity of Affiliates 19,056 28,886

Non-Agency RMBS in Investments in Debt and Equity of Affiliates 38,926 43,140

Total GAAP Residential Investments $ 4,228,492 $ 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, Agency-Eligible Loans, and Re/Non-Performing Loans held in securitized form.

(4) Securitized Non-Agency Loans include loans that were considered to be Agency-Eligible prior to our securitization.

(5) Includes Non-Agency Securities collateralized by Non-QM loans and Agency-Eligible loans.

(6) Includes Non-Agency RMBS Interest Only securities collateralized by Non-QM loans.

Residential mortgage loans

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

Fair Value Original LTV Ratio Current FICO (4) Current 30-59 Days 60-89 Days 90+ Days Fair Value

Securitized Non-Agency Loans $ 4,049,191 $ 3,696,743 68.57 % 737 $ 3,978,280 $ 43,019 $ 11,220 $ 16,672 $ 3,436,201

Securitized Re- and Non-Performing Loans 319,949 272,027 79.67 % 644 218,839 37,673 10,230 53,207 270,945

Non-Agency Loans 121,885 122,648 70.04 % 724 118,670 — 1,130 2,085 371,161

Agency-Eligible Loans 5,084 4,903 73.70 % 751 5,084 — — — 46,862

MATT Non-QM Loans 8,477 8,110 60.41 % 677 6,308 — 746 1,423 11,839

Re/Non-Performing Loans 339,082 283,152 79.62 % 640 237,314 30,534 10,973 56,378 350,227

Re- and Non-Performing Loans (1) 3,291 3,190 N/A N/A N/A N/A N/A N/A 3,428

Land Related Financing (2) 10,814 10,814 N/A N/A N/A N/A N/A N/A 10,688

Total Residential mortgage loans $ 4,510,214 $ 4,110,325 69.41 % 730 $ 4,320,873 $ 80,692 $ 22,580 $ 71,964 $ 4,139,285

Residential mortgage loans in Investments in Debt and Equity of Affiliates 19,423 19,056 60.41 % 677 6,308 — 746 1,423 28,886

Residential mortgage loans in Investments in Debt and Equity of Affiliates 10,814 10,814 N/A N/A N/A N/A N/A N/A 10,688

Total GAAP Residential mortgage Loans $ 4,499,400 $ 4,099,511 69.41 % 730 $ 4,320,873 $ 80,692 $ 22,580 $ 71,964 $ 4,128,597

(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.

(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- and Non-Performing Loans.

There may be limited data available regarding the underlying collateral of the residual positions.

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

Data is as of February 28, 2023.

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 "Securitized residential mortgage loans, at fair value" and "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Securitized Non-Agency Loans

As noted above, our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans.

These securitization trusts ("Non-Agency VIEs") are collateralized by Non-Agency and Agency-Eligible Loans.

In each securitization transaction, we transfer a pool of loans to a wholly-owned subsidiary and the loans are deposited into a newly created securitization trust.

The securitization trust issues various classes of mortgage pass-through certificates backed by the cash flows from the underlying residential mortgage loans (the "Certificates").

When we sponsor a residential mortgage loan securitization, we are generally required to retain at least 5% of the fair value of the Certificates issued in the securitization ("Risk Retention Rules").

We can retain either an "eligible vertical interest" (which consists of at least 5% of each class of securities issued in the securitization), an "eligible horizontal residual interest" (which is the most subordinate class of securities with a fair value of at least 5% of the aggregate credit risk) or a combination of both totaling 5% (the "Required Credit Risk") .

In order to comply with the Risk Retention Rules in each securitization transaction, we generally purchase the most subordinated classes of Certificates and the excess cash flow Certificates.

We also purchase the Certificates entitled to excess servicing fees and may purchase other Certificates issued by the securitization trust, while typically selling the senior classes of Certificates to unrelated third parties.

If we are determined to be the primary beneficiary of these securitization transactions, we consolidate the respective VIE created to facilitate the transaction and record "Securitized residential mortgage loans" and "Securitized debt" on the consolidated balance sheets in accordance with U.S.

However, as noted above, our equity at risk represents certain Certificates from each securitization which we retain.

The following table summarizes our Securitized residential mortgage loans and Securitized debt, as well as the economic interest on retained Certificates related to our Non-Agency VIEs (in thousands).

March 31, 2023 December 31, 2022

Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value

Securitized residential mortgage loans in Non-Agency VIEs $ 4,049,191 $ 3,696,743 $ 3,841,265 $ 3,436,201

Securitized debt in Non-Agency VIEs 3,858,691 3,323,861 3,671,561 3,078,593

Retained Certificates from Non-Agency VIEs (1)(2)(3) $ 372,882 $ 357,608

Retained interests in Non-Agency VIEs Current Face Fair Value Current Face Fair Value

Mezzanine Bonds $ 23,348 $ 19,659 $ 17,382 $ 15,472

Subordinate Bonds 308,193 208,683 296,215 193,906

Interest Only / Excess Servicing Bonds (4) 8,401,138 144,540 8,049,995 148,230

Retained Certificates from Non-Agency VIEs (1)(2)(3) $ 372,882 $ 357,608

Financing arrangements on retained Certificates from Non-Agency VIEs 192,964 197,937

Retained Certificates from Non-Agency VIEs, net of financing arrangements $ 179,918 $ 159,671

(1) Maximum loss exposure from our involvement with VIEs pertains to the fair value of the Certificates retained from the VIEs.

We have no obligation to provide any other explicit or implicit support to the securitization trusts.

(2) As of March 31, 2023 and December 31, 2022, our equity at risk included bonds with a fair value of $227.3 million and $215.1 million, respectively, held in order to comply with Risk Retention Rules.

We are generally required to hold the Required Credit Risk until the later of (i) the fifth anniversary of the securitization closing date and (ii) the date on which the aggregate unpaid principal balance of the mortgage loans has been reduced to 25% of the aggregate unpaid principal balance of the mortgage loans as of the securitization closing date, but no longer than the seventh anniversary of the closing date.

(3) As of March 31, 2023 and December 31, 2022, a portion of our equity at risk included bonds exposed to the first loss of the securitization with a fair value of $82.0 million and $84.7 million, respectively.

(4) As the sponsor and depositor of each securitization, we may purchase all of the outstanding Certificates (an "Optional Redemption") following the earlier of (1) an applicable anniversary date (typically two or three years) of the respective securitization or (2) the date at which the unpaid principal balance of the applicable collateral has declined below a certain percentage (typically 10% to 30%) of the principal balance originally contributed to the securitization.

As of March 31, 2023 and December 31, 2022, there were no securitizations which met the criteria for an Optional Redemption.

Non-Agency RMBS

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

The following table presents the fair value of our Non-Agency RMBS by credit rating as of March 31, 2023 and December 31, 2022 (in thousands).

Credit Rating - Non-Agency RMBS (1) March 31, 2023 December 31, 2022

A $ 4,238 $ —

BBB 11,504 7,707

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Non-Agency RMBS $ 75,153 $ 63,516

Non-Agency RMBS in Investments in Debt and Equity of Affiliates 38,926 43,140

Investments in Debt and Equity of Affiliates $ 39,366 $ 38,921

GAAP Basis $ 35,787 $ 24,595

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

State Fair Value Percentage State Fair Value Percentage

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Florida 4,751 6.3 % Florida 3,955 6.2 %

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

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

Texas 2,786 3.7 % Texas 2,248 3.5 %

New Jersey 2,339 3.1 % New Jersey 1,912 3.0 %

Other 19,334 25.8 % Other 15,696 24.8 %

Total $ 75,153 100.0 % Total $ 63,516 100.0 %

Although our investment activities primarily include acquiring and securitizing newly-originated residential mortgage loans, from time to time we invest excess liquidity into Agency RMBS.

The following table presents the fair value and the Constant Prepayment Rate ("CPR") experienced on our GAAP Agency RMBS portfolio for the periods presented ($ in thousands).

Fair Value CPR (1)

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

Agency RMBS March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

30 Year Fixed Rate $ 268,516 $ — 0.6 % — %

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Total/Weighted Average $ 287,197 $ 19,124 1.3 % 11.0 %

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

Investments in debt and equity of affiliates

See Note 10 to the "Notes to Consolidated Financial Statements (unaudited)" for a breakout of the "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

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

Financing activities

We use leverage to finance the purchase of our investment portfolio.

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 of 30 to 90 days.

Our leverage has primarily been in the form of repurchase agreements and similar financing arrangements (which we refer to collectively as financing arrangements), and securitized debt.

Repurchase agreements involve the sale and a simultaneous agreement to repurchase the transferred assets or similar assets at a future date.

The amount borrowed generally is equal to the fair value of the assets pledged less an agreed-upon discount, referred to as a "haircut." The size of the haircut reflects the perceived risk associated with the pledged asset.

Haircuts may change as our financing arrangements mature or roll and are sensitive to governmental regulations.

Interest rates on borrowings are fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the borrowing at which time we may enter into a new borrowing arrangement at prevailing market rates with the same counterparty or repay that counterparty and negotiate financing with a different counterparty.

We have also used revolving facilities, which are typically longer term in nature than repurchase agreements, to finance loans.

Interest rates on these facilities are based on prevailing rates corresponding to the terms of the borrowings, and interest is paid on a monthly basis.

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 September 30, 2022 and December 31, 2021, respectively.

Interest rates for our financing arrangements are determined based on prevailing rates (typically a spread over a base rate) corresponding to the terms of the borrowings, and interest is paid on a monthly basis or, for shorter term arrangements, at the end of the term.

Repurchase agreements typically have a term of up to one year for loans and a term of 30 to 90 days for securities.

Repurchase agreements are generally mark-to-market with respect to margin calls and recourse to us.

We had outstanding financing arrangements with six counterparties as of March 31, 2023 and December 31, 2022.

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

As of March 31, 2023, 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 September 30, 2022 and December 31, 2021 (in thousands).

September 30, 2022

The below table provides detail on the breakout between recourse and non-recourse financing as of March 31, 2023 and December 31, 2022 (in thousands).

March 31, 2023

December 31, 2022

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GAAP Basis $ 4,134,987 $ 3,883,539

We use leverage to increase potential returns to our stockholders and to fund the acquisition of our investment portfolio.

Our financing strategy is designed to increase the size of our investment portfolio by borrowing against the fair value of the assets in our portfolio.

When acquiring residential mortgage loans and other assets, we finance our investments using repurchase agreements or similar financing arrangements, which we refer to collectively as "financing arrangements." Upon accumulating a targeted amount of residential mortgage loans, we finance these assets utilizing long-term, non-recourse, non-mark-to-market securitizations as market conditions permit.

Financing arrangements are generally recourse to the Company whereas securitized debt used to finance our Residential Mortgage Loan VIEs is generally non-recourse to the Company.

In addition to disclosing GAAP leverage, we also disclose Economic Leverage, which excludes non-recourse financing.

Management believes that this non-GAAP measure, when considered with our GAAP financial statements, provides supplemental information useful for investors to help evaluate our use of leverage and the related risk associated with our leverage profile.

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

This non-GAAP measure should not be considered a substitute for, or superior to, GAAP leverage calculated in accordance with GAAP.

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

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.

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

September 30, 2022 Leverage Stockholders’ Equity Leverage Ratio

March 31, 2023 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 3,505,529

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Restricted cash posted on Financing arrangements (1,081)

Purchase price payable on loans 794

GAAP Leverage $ 4,133,906 $ 461,913 8.9x

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Non-recourse financing arrangements (1) (3,520,739)

Net TBA (receivable)/payable adjustment 244

Economic Leverage $ 632,142 $ 461,913 1.4x

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Restricted cash posted on Financing arrangements (3,357)

Purchase price payable on loans 87

GAAP Leverage $ 3,880,182 $ 462,800 8.4x

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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 TRSs’ and taxable income resulting from dividend distributions to the REIT from our TRSs'.

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, 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 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

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

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

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

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

We did not have any undistributed taxable income as of March 31, 2023.

The following table details our common stock dividends declared during the three months ended March 31, 2023 and 2022.

Three Months Ended March 31, 2023

Three Months Ended March 31, 2022

Declaration Date Record Date Payment Date Cash Dividend Per Share Declaration Date Record Date Payment Date Cash Dividend Per Share

3/15/2023 3/31/2023 4/28/2023 $ 0.18 3/18/2022 3/31/2022 4/29/2022 $ 0.21

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

The following tables detail the dividends declared and paid on our 8.25% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock"), 8.00% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), and 8.000% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") (collectively, "preferred stock") during the three months ended March 31, 2023 and 2022.

2023 Cash Dividend Per Share

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2/16/2023 2/28/2023 3/17/2023 $ 0.51563 $ 0.50 $ 0.50

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

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

Liquidity and capital resources

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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.

At March 31, 2023, we had $87.9 million of liquidity, all of which was cash and cash equivalents.

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

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We experience margin calls in the ordinary course of our business.

In seeking to manage effectively the margin requirements established by our lenders, we maintain a position of cash and, when owned, unpledged Agency RMBS.

In seeking to effectively manage 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 assets.

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If our haircuts increase, our liquidity will proportionately decrease.

In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.

In addition, if

we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.

We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls but that also allows us to be substantially invested in the residential mortgage market.

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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 nine months ended September 30, 2022 and 2021 ($ in thousands).

Nine Months Ended

September 30, 2022 September 30, 2021 Change

The below details changes to our cash, cash equivalents, and restricted cash for the three months ended March 31, 2023 and 2022 ($ in thousands).

Three Months Ended

March 31, 2023 March 31, 2022 Change

Cash and cash equivalents and restricted cash, Beginning of Period $ 98,803 $ 100,229 $ (1,426)

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Net change in cash and cash equivalents and restricted cash 3,619 (4,058) 7,677

Effect of exchange rate changes on cash — 10 (10)

Cash and cash equivalents and restricted cash, End of Period $ 102,422 $ 96,171 $ 6,251

(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.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the three months ended March 31, 2023.

(2) Cash used in investing activities for the three months ended March 31, 2023 was primarily attributable to purchases of investments and the settlement of derivatives, offset by sales of investments and principal repayments on investments.

(3) Cash provided by financing activities for the three months ended March 31, 2023 was primarily attributable to the issuance of securitized debt and net borrowings under financing arrangements, offset by principal repayments on securitized debt, dividend payments, and common share repurchases.

Stock repurchase programs

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.

On November 3, 2015, our Board of Directors authorized a stock repurchase program (the "2015 Repurchase Program") to repurchase up to $25.0 million of our outstanding common stock.

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

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

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.

As of the date of this filing, approximately $1.7 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.

and 13 in the "Notes to Consolidated Financial Statements (unaudited)" for additional details on the shares repurchased under the 2022 Repurchase Program during the three months ended March 31, 2023 and subsequent to quarter end.

On May 4, 2023, our Board of Directors authorized the 2023 Repurchase Program to repurchase up to $15 million of our outstanding common stock on substantially the same terms as the 2022 Repurchase Program.

As of the date of this filing, the full $15 million authorized amount remains available for repurchase under the 2023 Repurchase Program.

This authorization is in addition to the amount remaining 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 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.

For the three months ended March 31, 2023 and 2022, we did not issue any shares of common stock under the Equity Distribution Agreements.

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.

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

Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operations and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.

Based upon our current portfolio, leverage and available borrowing arrangements, we believe the net proceeds of our common equity offerings, preferred equity offerings, and private placements, combined with cash flow from operating activities, financing activities, and our available borrowing capacity will be sufficient to enable us to meet our anticipated liquidity requirements, including funding our investment activities, paying fees under our management agreement, funding our distributions to stockholders and paying general corporate expenses.

Contractual obligations

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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.

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

The below table details the management fees incurred during the three months ended March 31, 2023 and 2022 (in thousands).

Three Months Ended

Consolidated statements of operations line item:

March 31, 2023 March 31, 2022

Management fee to affiliate $ 2,075 $ 1,962

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

As of March 31, 2023 and December 31, 2022, we have recorded management fees payable of $2.1 million and $2.1 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.

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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.

During the three months ended March 31, 2023, we did not incur any incentive fee expense.

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) $341.5 million and (ii) 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.

Expense Reimbursement

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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.

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

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.

The below table details the expense reimbursement incurred during the three months ended March 31, 2023 and 2022 (in thousands).

Three Months Ended

Consolidated statements of operations line item:

March 31, 2023 March 31, 2022

Non-investment related expenses

$ 1,400 $ 1,405

Investment related expenses

Transaction related expenses 63 971

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 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.

Expense reimbursements to Manager or its affiliates $ 1,565 $ 2,511

As of March 31, 2023 and December 31, 2022, we recorded a reimbursement payable to our Manager or its affiliates of $1.4 million and $1.3 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 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.

As of March 31, 2023, 535,530 shares of common stock were available to be awarded under the 2020 Equity Incentive Plan.

Since inception of the 2020 Equity Incentive Plan and through March 31, 2023, we have granted an aggregate of 131,136 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 September 30, 2022, there were no shares or awards issued under the 2021 Manager Plan.

As of March 31, 2023, 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 September 30, 2022.

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of March 31, 2023.

Off-balance sheet arrangements

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

Our investments in debt and equity of affiliates primarily consist of 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.

Certain of our investments in debt and equity of affiliates securitize residential mortgage loans and retain interests in the subordinated tranches of the transferred assets.

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

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

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.

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

We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of March 31, 2023, if applicable.

For additional information on our commitments as of March 31, 2023 , 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 and estimates

We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period.

These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting.

We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable.

Although our estimates contemplate 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.

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 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)."

Compliance with Investment Company Act and REIT Tests

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.

Although our estimates contemplate conditions as of March 31, 2023 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 and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented.

Our most critical accounting policies 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.

Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain and include (i), (iv), and (vi) above.

A discussion of critical accounting policies and estimates is included in our Form 10-K.

Our critical accounting policies and estimates have not materially changed since December 31, 2022.

REIT Qualification

We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code of 1986, as amended (the "Code").

Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares.

We believe that we are organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.

We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Code.

Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio.

As a REIT, we generally are not subject to U.S.

federal income tax on our REIT taxable income that we distribute currently to our stockholders.

If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S.

federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification.

Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and our ability to pay distributions, if any, to our stockholders.

Even if we qualify for taxation as a REIT, we may be subject to some U.S.

federal, state and local taxes on our income or property.

In addition, any income earned by a domestic taxable REIT subsidiary, or TRS, will be subject to corporate income taxation.

Investment Company Act Exemption

We conduct our operations so that we are not considered an investment company under Section 3(a)(1)(C) of the Investment Company Act.

Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an investment company if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (exclusive of U.S.

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"Investment securities" do not include, among other things, U.S.

government securities, and securities issued by majority-owned subsidiaries that (i) are not investment companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act (the so called "private investment company" exemptions).

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

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 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.

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.

We also calculate that a sufficient portion of our revenue qualifies for the 75% gross income test and for the 95% gross income test rules for the year ended December 31, 2021.

We believe we are currently in compliance with the REIT income and asset tests as well as all other REIT requirements including the ownership of our stock and the distribution of our taxable income.

Therefore, for the year ended December 31, 2021, we believe that we qualified as a REIT under the Code.

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.

Conducting our operations so as not to be considered an investment company under the Investment Company Act and the rules and regulations promulgated under the Investment Company Act and SEC staff interpretive guidance limits our ability to make certain investments.

For example, these restrictions limit our and our subsidiaries’ ability to invest directly in Agency RMBS mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans or debt and equity tranches of Non-Agency RMBS (in each case to the extent such interest are not retained interest in securitizations consisting of mortgage

loans that were owned by us and such securitizations were not sponsored by us in order to obtain financing to acquire additional mortgage loans), certain real estate companies and assets not related to real estate.

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