What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 276 added, 218 removed, 725 unchanged (41% of the section changed)

11 unchanged sentences

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

• the persistence of labor shortages, supply chain imbalances, Russia’s invasion of Ukraine, inflation, lingering impact of the COVID-19 pandemic, and the potential for an economic recession;

• the persistence of labor shortages, supply chain imbalances, the Israel-Hamas conflict, Russia’s invasion of Ukraine, inflation, lingering impact of the COVID-19 pandemic, and the potential for an economic recession;

• changes in our business and investment strategy;

18 unchanged sentences

• our ability to successfully complete our proposed merger with Western Asset Mortgage Capital Corporation and/or realize all of the expected benefits or that such benefits may take longer to realize than expected (including because we incur significant costs associated with such merger).

We caution investors not to rely unduly on any forward-looking statements, which speak only as of the date made, and urge you to carefully consider the risks noted above and identified under the captions "Risk Factors," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent filings.

New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

1 unchanged sentence

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

Second Quarter 2023 Executive Summary

Third Quarter 2023 Executive Summary

Financial Highlights

• $11.37 Book Value per share and $11.00 Adjusted Book Value per share;

• $(0.33) of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.10 of Earnings Available for Distribution per diluted common share;

• 9.7x GAAP Leverage Ratio and 1.2x Economic Leverage Ratio;

• $0.18 dividend per common share declared.

Investment Activity

2 unchanged sentences

• Sold Non-Agency Loans for gross proceeds of $73.8 million;

Capital Activity

• As of June 30, 2023, we have $16.5 million of capacity remaining under our authorized common stock repurchase programs.

◦ Repurchased 187,020 shares of common stock for $1.1 million during the three months ended June 30, 2023, representing a weighted average cost of $5.93 per share.

Repurchases resulted in approximately 0.4% accretion to March 31, 2023 adjusted book value per share.

• Sold Re/Non-Performing Loans for gross proceeds of $68.7 million;

• Sold Agency RMBS for gross proceeds of $149.1 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 Agency-Eligible Loans with a total unpaid principal balance of $318.3 million;

◦ Securitized Non-Agency Loans with a total unpaid principal balance of $406.4 million;

• Utilized proceeds from the sale of Re/Non-Performing Loans to pay off $50.6 million of Securitized Debt;

◦ Generated net proceeds of approximately $28.5 million from the sale of Re/Non-Performing Loans, paydown of the associated Securitized Debt, and financing arrangements obtained on the retained interest in the remaining collateral.

Strategic Acquisition

• Entered into an Agreement and Plan of Merger with Western Asset Mortgage Capital Corporation ("WMC"), pursuant to which WMC will merge with and into AGMIT Merger Sub, LLC, a wholly owned subsidiary of ours ("Merger Sub"), with Merger Sub surviving.

The Merger is expected to close in the fourth quarter of 2023.

For additional information, see "—Proposed Western Asset Mortgage Capital Corporation Merger" below.

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.

9 unchanged sentences

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

As of June 30, 2023, the Company's investment portfolio consisted of the following:

As of September 30, 2023, the Company's investment portfolio consisted of the following:

Asset Class Description

16 unchanged sentences

Government such as Ginnie Mae.

(1) These investments are included in the "Securitized residential mortgage loans, at fair value," "Securitized residential mortgage loans held for sale, 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.

(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.

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

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

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

6 unchanged sentences

Proposed Western Asset Mortgage Capital Corporation Merger

As previously announced, on August 8, 2023, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Western Asset Mortgage Capital Corporation, a Delaware corporation ("WMC"), AGMIT Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company ("Merger Sub"), and, solely for the purposes set forth in the Merger Agreement, our Manager.

On August 8, 2023, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with WMC, Merger Sub and, solely for the purposes set forth in the Merger Agreement, our Manager.

Pursuant to, and subject to the terms and conditions set forth in the Merger Agreement, WMC will merge with and into Merger Sub, with Merger Sub surviving (the "Merger").

The execution by the Company, Merger Sub, WMC and our Manager of the Merger Agreement was concurrent with the termination by WMC of the Agreement and Plan of Merger, dated as of June 27, 2023, by and among WMC, Maverick Merger Sub, LLC and Terra Property Trust, Inc.

(the "TPT Merger Agreement"), on August 8, 2023, in accordance with its terms.

On August 8, 2023, concurrently with the termination by WMC of the TPT Merger Agreement, we, on behalf of WMC, paid to Terra Property Trust, Inc.

a termination fee of $3.0 million as required by the TPT Merger Agreement (the "TPT Termination Fee").

On November 7, 2023, our stockholders approved the issuance of our common stock in connection with the Merger with WMC at a special stockholders meeting.

No further approval by our stockholders is required for the Merger.

On November 7, 2023, WMC announced it adjourned its special stockholders meeting relating to the Merger until December 5, 2023, at 9:00 a.m., Pacific Time, online in a virtual-only meeting format, due to a lack of quorum and to allow further solicitation of proxies from WMC common stockholders for the approval of the Merger at such special stockholders meeting.

The Merger is expected to close in the fourth quarter of 2023, subject to the satisfaction of certain customary conditions, including approval of WMC's common stockholders.

Under the terms of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding share of WMC common stock will be converted into the right to receive the following (the "Per Share Merger Consideration"):

(i) 1.50 shares, or 9.2 million shares in aggregate, of the Company's common stock pursuant to a fixed exchange ratio (subject to adjustment for transaction expenses);

and (ii) the per share portion of a cash payment from our Manager equal to the lesser of $7.0 million or approximately 9.9% of the aggregate Per Share Merger Consideration (any difference between $7.0 million and the approximately 9.9% cap will be used to benefit the combined company post-closing by offsetting reimbursable expenses that would otherwise be payable to our Manager).

Additionally, our Manager, which will be the manager of the combined company, will waive $2.4 million of management fees owed to it in the first year post-closing.

Cash will be paid in lieu of any fractional shares of the Company's common stock that would otherwise have been received as a result of the Merger.

For purposes of the transaction expenses adjustment, WMC's transaction expenses exclude (i) a $7.0 million termination fee payable by WMC to its existing manager in connection with the termination of the existing WMC management agreement, (ii) accrued but unpaid management fees and unreimbursed expenses owed to WMC's manager, (iii) transfer taxes, (iv) the costs of a D&O tail policy and (v) the TPT Termination Fee.

Additionally, at the Effective Time, M.

(i) 1.498 shares, or approximately 9.2 million shares in aggregate, of our common stock;

and (ii) the per share portion of a cash payment from our Manager equal to the lesser of $7.0 million or approximately 9.9% of the aggregate Per Share Merger Consideration.

Cash will be paid in lieu of any fractional shares of our common stock that would otherwise have been received as a result of the Merger.

In addition, on August 8, 2023, we and our Manager entered into an amendment (the “MITT Management Agreement Amendment”) to the existing management agreement, pursuant to which (i) the base management fee will be reduced by $0.6 million for the first four quarters (i.e., resulting in an aggregate $2.4 million waiver of base management fees) following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurs, and (ii) our Manager will waive its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to the excess, if any, of $7.0 million over the aggregate cash portion of the Per Share Merger Consideration paid by our Manager to the holders of WMC common stock in the Merger.

The MITT Management Agreement Amendment will become effective automatically upon the closing of the Merger, and will have no force and effect if the Merger does not close.

Further, in the Merger Agreement, we have agreed to take all necessary corporate action so that upon and after the Effective Time, the size of our Board of Directors will be increased by two members, and M.

Christian Mitchell and Lisa G.

Quateman (together, the "WMC Director Designees"), each an independent director currently serving on WMC's board of directors, will be appointed to our Board of Directors.

We have further agreed to nominate the WMC Director Designees to our Board of Directors at the next annual stockholder meeting following the Effective Time.

The Merger is expected to close in the fourth quarter of 2023, subject to the respective approvals by our stockholders and WMC's stockholders and other customary closing conditions set forth in the Merger Agreement.

Quateman (the "WMC Director Designees") will be appointed to our Board of Directors.

We have further agreed to nominate the WMC Director Designees to our Board of Directors at the next annual meeting following the Effective Time.

Concurrently with the execution of the Merger Agreement, WMC terminated its merger agreement (the "TPT Merger Agreement") with Terra Property Trust, Inc.

In connection with such termination, we, on behalf of WMC, paid to TPT a termination fee of $3.0 million as required by the TPT Merger Agreement (the "TPT Termination Fee").

Our Manager and Angelo Gordon

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

We are externally managed by our Manager, a subsidiary of Angelo Gordon, a diversified credit and real estate investing platform within TPG Inc.

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

3 unchanged sentences

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

On November 1, 2023, TPG completed the previously announced acquisition of Angelo Gordon (the "TPG Transaction"), pursuant to which Angelo Gordon, including our Manager, became indirect subsidiaries of TPG.

Pursuant to our management agreement, the closing of the TPG Transaction resulted in an assignment of the management agreement.

Our independent directors unanimously consented to such assignment on July 31, 2023 in advance of the TPG Transaction closing.

There were no changes to the management agreement in connection with the TPG Transaction and the assignment of the management agreement became effective upon the closing of the TPG Transaction.

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

2 unchanged sentences

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.

On May 15, 2023, Angelo Gordon announced that it and certain of its affiliated entities entered into a transaction agreement (the "Transaction Agreement") with TPG Inc.

("TPG") and certain of its affiliated entities pursuant to which TPG has agreed to acquire Angelo Gordon on the terms and subject to the conditions set forth in the Transaction Agreement (the "TPG Transaction").

Following the TPG Transaction, Angelo Gordon, including our Manager, will be indirect subsidiaries of TPG.

Our investment strategy and team remains unchanged, and the TPG Transaction is not expected to have a material impact on our operations.

The TPG Transaction is expected to close in the fourth quarter of 2023, subject to customary closing conditions, including Hart-Scott-Rodino Act filings, international regulatory approvals, and other client and third-party consents.

Pursuant to the management agreement with our Manager, the closing of the TPG Transaction will result in an assignment of the management agreement.

On July 31, 2023, our independent directors unanimously consented to such assignment.

There will be no changes to the management agreement in connection with the TPG Transaction and the assignment of the management agreement will become effective upon the closing of the TPG Transaction.

Market Conditions

Financial markets continued to manage volatility during the second quarter of 2023 due to multiple factors including the impacts of inflation, the path of monetary policy and interest rates, the regional banking crisis, the U.S.

debt ceiling, market uncertainty from the ongoing conflict in Ukraine and other geopolitical risks, and the lingering impact of the COVID-19 pandemic.

While the regional banking crisis appears to have been contained, banks that failed were taken over by the FDIC and their assets continue to be liquidated into the third quarter of 2023.

In early June 2023, Congress approved legislation that suspended the U.S.

debt ceiling until 2025, and risk sentiment in the markets began to improve.

However, benchmark interest rates continued to increase during the second quarter further exacerbating the inverted yield curve as the Federal Reserve increased the Fed Funds rate by 25 basis point in May and again in July in an effort to slow inflation.

Credit spreads for the securitized residential debt sector tightened during the quarter, having benefited from fixed income fund inflows and an improvement in the risk sentiment of the broader market.

Financial markets continued to experience volatility during the third quarter of 2023 due to multiple factors including the impacts of inflation, the path of monetary policy and interest rates, the U.S.

debt ceiling, market uncertainty from the ongoing conflicts in Ukraine and Israel and other geopolitical risks.

The Federal Reserve has continued with monetary policy tightening resulting in benchmark interest rates increasing further during the third quarter.

From June through October, the 10-year U.S.

treasury yield increased more than 100 basis points and the 30-year fixed rate mortgage is currently at 7.8%.

The increase in longer-term U.S.

treasury yields support the restrictive monetary policy of the Federal Reserve, potentially reducing the need

for additional increases in short-term rates;

however, it is possible longer-term rates may remain elevated for much longer.

The second quarter ended with the spread between the 2-year and 10-year U.S.

treasury yields peaking at approximately 106 basis points inverted.

At the end of the third quarter, the curve inversion was only 48 basis points.

While the Federal Reserve’s policy tightening has slowed the U.S economy, growth in GDP, low unemployment and strength in consumer spending persist.

As such, it is unknown how long monetary policy will remain at the current restrictive levels.

RMBS spreads tightened during the third quarter, despite the broader weakness in risk markets.

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 spreads showed significant improvement during the second quarter 2023, with subordinate credit tranches tightening anywhere from 50 to 350 basis points depending on positioning in the capital structure.

In addition, senior Non-QM mortgage spreads tightened by approximately 15 basis points, and legacy RMBS spreads were 30 to 40 basis points tighter during the second quarter 2023.

As spreads remain wider than February 2022 levels, a material amount of capacity for additional tightening exists for RMBS.

RMBS issuance fell by approximately 19% to $15 billion in the second quarter 2023, compared to $18.6 billion in the first quarter 2023, with Non-QM comprising a large share of the decline.

Issuance fell sharply amid limited origination activity and higher securitization coupons.

Year to date issuance in 2023 was $33.5 billion, decreasing approximately 66% from 2022 levels.

Various reports from bank research departments expect issuance for the full year 2023 to be between $60 billion and $90 billion, down from $127 billion in 2022 and $213 billion in 2021.

After posting seven consecutive months of declines through February 2023, national home prices rose by 1.3% in each of March and April 2023, the latest data available.

With these increases through April 2023, home prices are over 2% higher year to date 2023 and only 2.4% below their June 2022 peak.

Mortgage rates ended the quarter at approximately 6.7%, which was less than the Q4 2022 peaks of over 7% and slightly higher than rates of 6.2% as of Q1 2023.

Amid persistently higher prevailing mortgage rates, home prices and activity have exceeded expectations with new home sales being a driving force, rising from 636 thousand in December 2022 to 763 thousand in May 2023.

On the other hand, existing home sales were hampered by persistently limited listings.

Total listings were 1.08 million in May 2023, which compares to 1.15 million in May 2022 and 1.91 million in 2019.

CRT tranches tightened sharply, with lower credit tranches tightening as much as 200 basis points while the middle of the capital structure contracted by up to 100 basis points.

Senior Non-QM spreads changed minimally while BBB Non-QM tightened by 25 basis points, and legacy RMBS spreads were approximately 10 basis points tighter.

Spreads are significantly tighter year-to-date as well, mostly by 50 to 100 basis points, though pockets of CRT tightened as much as 200 to 300 basis points or more.

Despite this positive performance over 2023, most of the sector remains up to 50 to 100 basis points wide of February 2022 levels, offering a runway for additional potential price improvement.

Although the third quarter experienced spread tightening, the risk-off sentiment of October 2023 has begun to drive widening across credit spreads.

Compared to the second quarter of 2023, RMBS issuance was roughly flat at $15.5 billion in the third quarter as a decline in CRT issuance was offset by increases in Jumbo 2.0 and Single-Family Rental production.

Year-over-year, issuance fell 47% from $29 billion in the third quarter of 2022.

Year-to-date activity in 2023 totaled $49.5 billion, down approximately 62% year-over-year amid limited origination activity and higher securitization coupons.

Various reports from bank research departments expect issuance for the full year 2023 to be between $60 to $70 billion, down from $127 billion in 2022 and $213 billion in 2021.

Home prices continued to rally as the national S&P/Case-Shiller Home Price Index was up 5.3% through the first seven months of the year, exceeding the prior peak in June 2022 by 0.6%, according to the latest available data.

Of the 20 markets tracked by Case-Shiller, 12 were at their all-time high, with most of the laggards from the west coast, including San Francisco and Seattle, which were below their peaks by 10.8% and 10.1%, respectively.

Prevailing mortgage rates ended October 2023 at 7.8%, reaching the highest level since 2000 and making the strength in home prices all the more remarkable.

That said, sentiment among home builders and home buyers declined off 2023 highs, particularly after the second breach of 7% mortgage rates this year.

The volatile new home sales index gained some share against existing homes throughout the year, however new sales fell from 739,000 to 675,000 in the latest data for August.

The current “lock-in effect”, or disincentive for existing homeowners to sell their homes because their current mortgage rate is well below current market rates, has hampered existing sales volume to 4 million units.

Total listings were 1.1 million in August, in-line with the previous few months but down significantly from pre-pandemic years, such as 1.91 million in 2019.

New listings, which offer a timelier view of current supply, have totaled only 2.95 million through August 2023, that compares to 3.6 to 4.1 million in the first eight months of 2018-2020 and 4.0 to 4.3 million in 2021 and 2022.

Despite prevailing mortgage rates at multi-decade highs, sufficient demand continues to exist to support the housing market.

The percentage of listings off the market within two weeks remains elevated at 38%, and the median days on market is within the range established over the last three years.

While homeownership affordability is near all-time lows, housing supply continues to be constrained and demand for housing remains evident as borrowers reset in a higher-rate environment.

4 unchanged sentences

This presentation of our investment portfolio is consistent with how our management team evaluates the business, and we believe this presentation, when considered with the GAAP presentation, provides supplemental information useful for investors in evaluating our investment portfolio and financial condition.

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

See Note 10 to the "Notes to Consolidated Financial Statements

(unaudited)" for a discussion of investments in debt and equity of affiliates.

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

2 unchanged sentences

◦ "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 RMBS collateralized by Non-Agency Loans and Agency-Eligible Loans.

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

1 unchanged sentence

• 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.

For a reconciliation of our Investment portfolio to our GAAP Investment portfolio, see the Investment Portfolio section below.

Book value and Adjusted book value per share

1 unchanged sentence

Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of quarter-end.

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Book value per common share $ 11.37 $ 11.39

6 unchanged sentences

Our primary source of net income or loss available to common stockholders is our net interest income, inclusive of our cost or benefit of hedging, which represents the difference between the interest earned on our investment portfolio and the costs of financing and economic hedges in place on our investment portfolio, as well as any income or losses from our equity investments in affiliates.

Three Months Ended June 30, 2023 compared to the Three Months Ended June 30, 2022

The table below presents certain information from our consolidated statements of operations for the three months ended June 30, 2023 and 2022 (in thousands).

Three Months Ended September 30, 2023 compared to the Three Months Ended September 30, 2022

The table below presents certain information from our consolidated statements of operations for the three months ended September 30, 2023 and 2022 (in thousands).

Three Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

September 30, 2023 September 30, 2022 Increase/(Decrease)

Statement of Operations Data:

20 unchanged sentences

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

Interest income increased from the three months ended June 30, 2022 to the three months ended June 30, 2023 due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period, as well as an increase in the weighted average yield.

The following table presents a summary of the weighted average amortized cost and the weighted average yield on our GAAP investment portfolio for the three months ended June 30, 2023 and 2022 ($ in millions).

Interest income increased from the three months ended September 30, 2022 to the three months ended September 30, 2023 due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period, as well as an increase in the weighted average yield.

The following table presents a summary of the weighted average amortized cost and the weighted average yield on our GAAP investment portfolio for the three months ended September 30, 2023 and 2022 ($ in millions).

Three Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

September 30, 2023 September 30, 2022 Increase/(Decrease)

Weighted average amortized cost of our GAAP investment portfolio

3 unchanged sentences

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 the three months ended June 30, 2022 to the three months ended June 30, 2023 due to an increase in the weighted average financing rate during the period resulting from increased interest rates and an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of securitized debt.

The following table presents a summary of the weighted average financing balance and the weighted average financing rate on our GAAP investment portfolio for the three months ended June 30, 2023 and 2022 ($ in millions).

Interest expense increased from the three months ended September 30, 2022 to the three months ended September 30, 2023 due to an increase in the weighted average financing rate during the period resulting from increased interest rates and an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of securitized debt.

Three Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

September 30, 2023 September 30, 2022 Increase/(Decrease)

Weighted average GAAP financing balance

3 unchanged sentences

Net interest component of interest rate swaps represents the net interest income received or expense paid on our interest rate swaps.

We recorded income on the net interest component of interest rate swaps during the three months ended June 30, 2023 as a result of our swap portfolio being in a net receive position during the period, compared with an expense for the three months ended June 30, 2022 as a result of our swap portfolio being in a net pay position during the period.

The following table presents a summary of our interest rate swap portfolio as of June 30, 2023 and 2022 ($ in millions).

June 30, 2023 June 30, 2022 Increase/(Decrease)

We recorded income on the net interest component of interest rate swaps during the three months ended September 30, 2023 as a result of our swap portfolio being in a net receive position during the entire period, compared with an expense for the three months ended September 30, 2022 as a result of our swap portfolio being in a net pay position during part of the period.

The following table presents a summary of our interest rate swap portfolio as of September 30, 2023 and 2022 ($ in millions).

September 30, 2023 September 30, 2022 Increase/(Decrease)

Interest rate swap notional value

6 unchanged sentences

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the three months ended June 30, 2023 and 2022 (in thousands).

The realized gain during the three months ended June 30, 2023 was driven by gains on the settlement of loans that were previously recorded as forward purchase commitments.

The following table presents a summary of Net realized gain/(loss) for the three months ended September 30, 2023 and 2022 (in thousands).

The realized gain during the three months ended September 30, 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.

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (1,061) $ 731

3 unchanged sentences

Net unrealized gain/(loss)

The following table presents a summary of net unrealized gain/(loss) for the three months ended June 30, 2023 and 2022 (in thousands).

During the three months ended June 30, 2023, unrealized losses on residential mortgage loans and real estate securities and unrealized gains on securitized debt and derivatives were primarily the result of rising interest rates during the period.

The following table presents a summary of net unrealized gain/(loss) for the three months ended September 30, 2023 and 2022 (in thousands).

During the three months ended September 30, 2023, unrealized losses on residential mortgage loans and real estate securities and unrealized gains on securitized debt were primarily the result of rising interest rates during the period.

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Residential mortgage loans $ (92,322) $ (154,563)

6 unchanged sentences

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 the three months ended June 30, 2022 to the three months ended June 30, 2023 primarily due to an increase in our Stockholder's Equity as calculated pursuant to our Management Agreement.

Management fees remained relatively consistent from the three months ended September 30, 2022 to the three months ended September 30, 2023.

Non-investment related expenses

2 unchanged sentences

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 June 30, 2023 and 2022 (in thousands).

The following table presents a summary of our non-investment related expenses for the three months ended September 30, 2023 and 2022 (in thousands).

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Affiliate reimbursement $ 1,400 $ 1,405

7 unchanged sentences

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 June 30, 2023 and 2022 (in thousands).

The following table presents a summary of our investment related expenses for the three months ended September 30, 2023 and 2022 (in thousands).

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Affiliate reimbursement $ 148 $ 261

5 unchanged sentences

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 decreased from the three months ended June 30, 2022 to the three months ended June 30, 2023 primarily due to less upfront expenses associated with securitizations.

We completed two securitizations during the three months ended June 30, 2022 and no securitizations during the three months ended June 30, 2023.

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

On August 8, 2023, we entered into a Merger Agreement with WMC and, as a result, we have incurred certain expenses related to the pending Merger during the current period.

Transaction related expenses increased from the three months ended September 30, 2022 to the three months ended September 30, 2023 primarily due to $4.9 million of expenses recorded related to the pending Merger with WMC, which includes the $3.0 million TPT Termination Fee we paid to TPT on WMC's behalf in connection with its termination of the TPT Merger Agreement.

Equity in earnings/(loss) from affiliates

3 unchanged sentences

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

MATT Non-QM Securities (1) $ 2,606 $ 1,413

4 unchanged sentences

$ 188 $ (1,626)

(1) For the three months ended September 30, 2023, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $1.1 million, interest expense of $(0.2) million, and net unrealized gains of $1.7 million.

For the three months ended September 30, 2022, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $1.0 million, interest expense of $(0.3) million, and net unrealized gains of $0.7 million.

(2) Refer to the table below for additional detail on the earnings/(loss) generated from our investment in AG Arc.

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

Three Months Ended

June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022

Interest income $ 1,410 $ 1,748

9 unchanged sentences

$ 188 $ (1,626)

(1) The earnings/(loss) at AG Arc during the three months ended June 30, 2023 were primarily the result of $0.4 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(0.1) million of losses related to Arc Home's lending and servicing operation.

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

(1) The earnings/(loss) at AG Arc during the three months ended September 30, 2023 were primarily the result of $(0.4) million of losses related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $0.3 million of income related to Arc Home's lending and servicing operation.

The earnings/(loss) at AG Arc during the three months ended September 30, 2022 were primarily the 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.

(2) As of September 30, 2023, the fair value of our investment in Arc Home was calculated using a valuation multiple of 0.89x of book value, which was reduced from 0.94x of book value as of June 30, 2023.

As of September 30, 2022, the fair value of our investment in Arc Home was calculated using a valuation multiple of 0.94x of book value, which was reduced from 0.96x of book value as of June 30, 2022.

(3) 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.

Six Months Ended June 30, 2023 compared to the Six Months Ended June 30, 2022

The table below presents certain information from our consolidated statements of operations for the six months ended June 30, 2023 and 2022 (in thousands).

Six Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

Nine Months Ended September 30, 2023 compared to the Nine Months Ended September 30, 2022

The table below presents certain information from our consolidated statements of operations for the nine months ended September 30, 2023 and 2022 (in thousands).

Nine Months Ended

September 30, 2023 September 30, 2022 Increase/(Decrease)

Statement of Operations Data:

19 unchanged sentences

Interest income

Interest income increased from the six months ended June 30, 2022 to the six months ended June 30, 2023 due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period, as well as an increase in the weighted average yield.

The following table presents a summary of the weighted average amortized cost and the weighted average yield on our GAAP investment portfolio for the six months ended June 30, 2023 and 2022 ($ in millions).

Six Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

Interest income increased from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 due to an increase in the size of our portfolio resulting from purchases of Non-Agency Loans and Agency-Eligible Loans during the period, as well as an increase in the weighted average yield.

The following table presents a summary of the weighted average amortized cost and the weighted average yield on our GAAP investment portfolio for the nine months ended September 30, 2023 and 2022 ($ in millions).

Nine Months Ended

September 30, 2023 September 30, 2022 Increase/(Decrease)

Weighted average amortized cost of our GAAP investment portfolio

2 unchanged sentences

Interest expense

Interest expense increased from the six months ended June 30, 2022 to the six months ended June 30, 2023 due to an increase in the weighted average financing rate during the period resulting from increased interest rates and an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of securitized debt.

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 six months ended June 30, 2023 and 2022 ($ in millions).

Six Months Ended

June 30, 2023 June 30, 2022 Increase/(Decrease)

Interest expense increased from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 due to an increase in the weighted average financing rate during the period resulting from increased interest rates and an increase in the amount of financing on our GAAP investment portfolio primarily resulting from the issuance of securitized debt.

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 nine months ended September 30, 2023 and 2022 ($ in millions).

Nine Months Ended

September 30, 2023 September 30, 2022 Increase/(Decrease)

Weighted average GAAP financing balance

2 unchanged sentences

Net interest component of interest rate swaps

We recorded income on the net interest component of interest rate swaps during the six months ended June 30, 2023 as a result of our swap portfolio being in a net receive position during the period compared with an expense for the six months ended June 30, 2022 as a result of our swap portfolio being in a net pay position during the period.

The following table presents a summary of our interest rate swap portfolio as of June 30, 2023 and 2022 ($ in millions).

June 30, 2023 June 30, 2022 Increase/(Decrease)

We recorded income on the net interest component of interest rate swaps during the nine months ended September 30, 2023 as a result of our swap portfolio being in a net receive position during the entire period, compared with an expense for the nine months ended September 30, 2022 as a result of our swap portfolio being in a net pay position during part of the period.

The following table presents a summary of our interest rate swap portfolio as of September 30, 2023 and 2022 ($ in millions).

September 30, 2023 September 30, 2022 Increase/(Decrease)

Interest rate swap notional value

7 unchanged sentences

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the six months ended June 30, 2023 and 2022 (in thousands).

The realized gain during the six months ended June 30, 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.

The following table presents a summary of Net realized gain/(loss) for the nine months ended September 30, 2023 and 2022 (in thousands).

The realized gain during the nine months ended September 30, 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.

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ (11,409) $ 696

3 unchanged sentences

Net unrealized gain/(loss)

The following table presents a summary of net unrealized gain/(loss) for the six months ended June 30, 2023 and 2022 (in thousands).

Six Months Ended

June 30, 2023 June 30, 2022

The following table presents a summary of net unrealized gain/(loss) for the nine months ended September 30, 2023 and 2022 (in thousands).

During the nine months ended September 30, 2023, unrealized losses on residential mortgage loans and real estate securities and unrealized gains on securitized debt were primarily the result of rising interest rates during the period.

The unrealized losses recorded on derivatives for the nine months ended September 30, 2023 primarily represent the reclassification of unrealized gains to realized gains related to unwinding interest rate swaps during the period.

Nine Months Ended

September 30, 2023 September 30, 2022

Residential mortgage loans $ (13,217) $ (451,532)

6 unchanged sentences

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 the six months ended June 30, 2022 to the six months ended June 30, 2023 primarily due to an increase in our Stockholder's Equity as calculated pursuant to our Management Agreement.

Management fees increased from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 primarily due to an increase in our Stockholder's Equity as calculated pursuant to our Management Agreement.

Non-investment related expenses

The following table presents a summary of our non-investment related expenses for the six months ended June 30, 2023 and 2022 (in thousands).

Six Months Ended

June 30, 2023 June 30, 2022

The following table presents a summary of our non-investment related expenses for the nine months ended September 30, 2023 and 2022 (in thousands).

Nine Months Ended

September 30, 2023 September 30, 2022

Affiliate reimbursement $ 4,200 $ 4,215

5 unchanged sentences

Investment related expenses

The following table presents a summary of our investment related expenses for the six months ended June 30, 2023 and 2022 (in thousands).

Six Months Ended

June 30, 2023 June 30, 2022

The following table presents a summary of our investment related expenses for the nine months ended September 30, 2023 and 2022 (in thousands).

Nine Months Ended

September 30, 2023 September 30, 2022

Affiliate reimbursement $ 360 $ 637

5 unchanged sentences

Transaction related expenses

Transaction related expenses decreased from the six months ended June 30, 2022 to the six months ended June 30, 2023 primarily due to less upfront expenses associated with securitizations.

We completed five securitizations during the six months ended June 30, 2022 and one securitization during the six months ended June 30, 2023.

On August 8, 2023, we entered into the Merger Agreement with WMC and, as a result, we have incurred certain expenses related to the pending Merger during the current period.

Transaction related expenses decreased from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 primarily due to less upfront expenses associated with securitizations.

We completed seven securitizations during the nine months ended September 30, 2022 and three securitizations during the nine months ended September 30, 2023.

This was offset by $4.9 million of expenses recorded during the nine months ended September 30, 2023 related to the pending Merger with WMC, which includes the $3.0 million TPT Termination Fee we paid to TPT on WMC's behalf in connection with its termination of the TPT Merger Agreement.

Equity in earnings/(loss) from affiliates

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

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

MATT Non-QM Securities (1) $ 4,580 $ 154

4 unchanged sentences

$ 642 $ (9,486)

(1) For the nine months ended September 30, 2023, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $3.2 million, interest expense of $(0.5) million, net unrealized gains of $2.1 million, and other operating expenses of $(0.2) million.

For the nine months ended September 30, 2022, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $2.6 million, interest expense of $(0.8) million, net unrealized losses of $(1.4) million, and other operating expenses of $(0.2) million.

(2) Refer to the table below for additional detail on the earnings/(loss) generated from our investment in AG Arc.

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

Six Months Ended

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023 September 30, 2022

Interest income $ 4,923 $ 4,899

11 unchanged sentences

$ 642 $ (9,486)

(1) The earnings/(loss) at AG Arc during the six months ended June 30, 2023 were primarily the result of $(1.2) million related to changes in the fair value of the MSR portfolio held by Arc Home coupled with $(0.8) million of losses related to Arc Home's lending and servicing operations.

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

(1) The earnings/(loss) at AG Arc during the nine months ended September 30, 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 $(0.5) 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, 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.

As of September 30, 2022, the fair value of our investment in Arc Home was calculated using a valuation multiple of 0.94x of book value, which was reduced from 1.06x of book value as of December 31, 2021.

(3) 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.

7 unchanged sentences

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

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.

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 as well as transaction related expenses incurred in connection with the pending Merger with WMC, (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.

2 unchanged sentences

EAD includes 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 and six months ended June 30, 2023 and 2022 is set forth below (in thousands, except per share data).

A reconciliation of "Net Income/(loss) available to common stockholders" to EAD for the three and nine months ended September 30, 2023 and 2022 is set forth below (in thousands, except per share data).

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023 June 30, 2022

Nine Months Ended

September 30, 2023

September 30, 2022

September 30, 2023 September 30, 2022

Net Income/(loss) available to common stockholders $ (6,751) $ (7,455) $ 4,673 $ (78,552)

8 unchanged sentences

Earnings available for distribution, per Diluted Share $ 0.10 $ (0.03) $ 0.21 $ 0.03

(1) For the three months ended June 30, 2023 and 2022, total transaction related expenses and deal related performance fees included $0.4 million and $3.8 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.

For the six months ended June 30, 2023 and 2022, total transaction related expenses and deal related performance fees included $2.1 million and $9.6 million, respectively, recorded within the "Transaction related expenses" line item and $0.2 million and $0.5 million, respectively, recorded within the "Interest expense" lie item, which relates to the amortization of deferred financing costs.

(2) For the three months ended June 30, 2023 and 2022, $1.4 million or $0.07 per share and $2.3 million or $0.10 per share, respectively;

and for the six months ended June 30, 2023 and 2022, $0.8 million or $0.04 per share and $6.8 million or $0.29 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives were excluded from EAD, net of deferred tax expense.

Additionally, for the three months ended June 30, 2023 and 2022, $0.0 million or $0.00 per share and $(2.7) million or $(0.12) per share, respectively;

and for the six months ended June 30, 2023 and 2022, $0.2 million or $0.01 per share and $(5.2) million or $(0.22) per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

(1) For the three months ended September 30, 2023 and 2022, total transaction related expenses and deal related performance fees included $7.6 million and $5.3 million, respectively, recorded within the "Transaction related expenses" line item and $9.4 thousand and $0.2 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, 2023 and 2022, total transaction related expenses and deal related performance fees included $9.7 million and $14.9 million, respectively, recorded within the "Transaction related expenses" line item and $0.2 million and $0.7 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, 2023 and 2022, $0.4 million or $0.02 per share and $2.4 million or $0.11 per share, respectively;

and for the nine months ended September 30, 2023 and 2022, $1.2 million or $0.06 per share and $9.2 million or $0.40 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 or benefit.

Additionally, for the three months ended September 30, 2023 and 2022, $(1.9) million or $(0.09) per share and $(1.2) million or $(0.05) per share, respectively;

and for the nine months ended September 30, 2023 and 2022, $(1.7) million or $(0.08) per share and $(6.4) million or $(0.28) 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 June 30, 2023 and 2022, we eliminated $0.3 million or $0.02 per share and $1.8 million or $0.07 per share, respectively.

For the six months ended June 30, 2023 and 2022, we eliminated $0.3 million or $0.02 per share and $4.1 million or $0.17 per share, respectively, of intra-entity profits recognized by Arc Home, and also decreased the cost basis of the underlying loans we purchased by the same amount.

For the three months ended September 30, 2023 and 2022, we eliminated $0.8 million or $0.04 per share and $1.8 million or $0.08 per share, respectively;

and for the nine months ended September 30, 2023 and 2022, we eliminated $1.1 million or $0.06 per share and $5.9 million or $0.25 per share, respectively, 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.

6 unchanged sentences

Our investment and capital allocation decisions depend on prevailing market conditions and compliance with Investment Company Act and REIT tests, among other factors, and may change over time in response to opportunities available in different economic and capital market environments.

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

As a result, in reacting to market conditions and taking into account a variety of

other factors, including liquidity, duration, and interest rate expectations, the mix of our assets changes over time as we deploy capital.

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

10 unchanged sentences

Investment portfolio

The following tables present a summary of our investment portfolio, inclusive of net interest margin and leverage ratios, as of June 30, 2023 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

June 30, 2023

The following tables present a summary of our investment portfolio, inclusive of net interest margin and leverage ratios, as of September 30, 2023 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

September 30, 2023

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage (d)

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Residential Investments:

5 unchanged sentences

Land Related Financing 493 493 14.50 % — — — — % 493 14.50 % N/A

Non-Agency 77,667 74,088 13.51 % — — 40,452 5.31 % 33,636 8.20 % 0.8x

Non-Agency RMBS 77,090 74,889 17.29 % — — 38,543 5.36 % 36,346 11.93 % 0.7x

Total Residential Investments $ 5,086,324 $ 4,558,036 5.52 % $ 4,261,337 $ 3,831,515 $ 450,183 4.81 % $ 276,338 0.71 % 1.6x

7 unchanged sentences

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage (d)

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Total Investment Portfolio $ 5,224,257 $ 4,693,038 5.54 % $ 4,261,337 $ 3,831,515 $ 582,487 4.81 % $ 279,036 0.73 % 1.9x

3 unchanged sentences

(b) Includes the cost (interest expense) or benefit (interest income) from our interest rate swap hedges.

The benefit of hedging as of June 30, 2023 was 0.20%.

(c) Allocated equity represents the investment fair value less the associated securitized debt and financing arrangements, where applicable.

The benefit of hedging as of September 30, 2023 was 0.12%.

(c) Allocated equity represents the investment fair value less the associated securitized debt at fair value and financing arrangements, where applicable.

(d) The leverage ratio on each asset class and on our investment portfolio represents Economic Leverage as defined below in the "Financing Activities" section and is calculated by dividing each investment type's total recourse financing arrangements less any cash posted as collateral by its equity invested inclusive of any cash collateral posted on financing arrangements.

10 unchanged sentences

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage (d)

Instrument Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Residential Investments:

5 unchanged sentences

Land Related Financing 10,688 10,688 14.50 % — — — — % 10,688 14.50 % N/A

Non-Agency 67,580 63,516 16.41 % — — 35,510 5.42 % 28,006 10.99 % 0.7x

Non-Agency RMBS 67,580 63,516 16.41 % — — 35,510 5.42 % 28,006 10.99 % 0.7x

Total Residential Investments $ 4,719,834 $ 4,202,801 5.13 % $ 3,666,829 $ 3,262,352 $ 627,839 4.31 % $ 312,610 0.82 % 1.9x

7 unchanged sentences

Investment Securitized Debt Cost of Funds (b) Allocated Equity (c) Net Interest Margin

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage (d)

Amortized Cost Fair Value Yield (a) Amortized Cost Fair Value Financing Arrangements Leverage Ratio (d)

Total Investment Portfolio $ 4,739,605 $ 4,221,925 5.14 % $ 3,666,829 $ 3,262,352 $ 642,002 4.31 % $ 317,571 0.83 % 1.9x

4 unchanged sentences

The benefit of hedging as of December 31, 2022 was 0.13%.

(c) Allocated equity represents the investment fair value less the associated securitized debt and financing arrangements, where applicable.

(c) Allocated equity represents the investment fair value less the associated securitized debt at fair value and financing arrangements, where applicable.

7 unchanged sentences

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

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of June 30, 2023 and December 31, 2022 ($ in thousands).

June 30, 2023

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of September 30, 2023 and December 31, 2022 ($ in thousands).

September 30, 2023

December 31, 2022

13 unchanged sentences

Non-Agency RMBS

Non-Agency Securities (5) 45,329 35,852 (3,457) 32,395 3.78 % 6.69 % 11.28 19,537

GCAT Non-Agency RMBS (5)

GCAT Non-Agency Securities (6) 14,894 14,720 (4,603) 10,117 4.35 % 4.66 % 10.92 9,859

GCAT Non-Agency RMBS Interest Only (6)(7) N/A 2,534 1,845 4,379 0.52 % 34.81 % 4.17 5,058

MATT Non-QM Securities (6)(7) 26,599 31,166 1,211 32,377 0.91 % 26.17 % 4.39 31,067

Re/Non-Performing Securities (7) 5,516 7,635 (334) 7,301 0.89 % 11.43 % 1.86 7,854

Non-Agency RMBS Interest Only (6)(7) N/A 2,647 945 3,592 0.38 % 26.62 % 3.25 5,058

Total GCAT Non-Agency RMBS 47,009 56,055 (1,881) 54,174 1.02 % 20.86 % 6.16 53,838

Non-Agency Securities (6) 30,313 21,035 (320) 20,715 3.78 % 7.93 % 12.91 9,678

Total Non-Agency RMBS 77,322 77,090 (2,201) 74,889 1.30 % 17.29 % 4.90 63,516

15 unchanged sentences

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

(5) GCAT Non-Agency RMBS are securities issued under Gold Creek Asset Trust ("GCAT"), which is the Angelo Gordon securitization shelf under which we or private funds under the management of Angelo Gordon securitize loans.

(6) Includes Non-Agency Securities collateralized by non-QM loans and agency-eligible loans.

1 unchanged sentence

The notional balance is used solely to determine interest distributions on the interest only classes of securities.

The MATT Non-QM Securities, Re/Non-Performing Securities, Non-Agency RMBS Interest Only, and Agency RMBS Interest Only line items include interest only classes with notional balances of $308.9 million, $26.4 million, $101.3 million, and $124.4 million, respectively.

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

The GCAT Non-Agency RMBS Interest Only, MATT Non-QM Securities, Re/Non-Performing Securities, and Agency RMBS Interest Only line items include interest only classes with notional balances of $98.9 million, $299.4 million, $25.2 million, and $79.9 million, respectively.

Residential mortgage loans

See Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for information on credit quality and a breakout of geographic concentration of credit risk within loans we include in the "Securitized residential mortgage loans, at fair value," "Securitized residential mortgage loans held for sale, at fair value," "Residential mortgage loans, at fair value," and "Residential mortgage loans held for sale, at fair value" line items on our consolidated balance sheets.

See Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for information on credit quality and a breakout of geographic concentration of credit risk within loans we include 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 our consolidated balance sheets.

Securitized Non-Agency Loans

10 unchanged sentences

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).

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Unpaid Principal Balance Fair Value Unpaid Principal Balance Fair Value

1 unchanged sentence

Securitized debt in Non-Agency VIEs (1) 4,208,500 3,718,992 3,527,304 3,078,593

Other assets (2) N/A 1,423 N/A —

Retained Certificates from Non-Agency VIEs (3)(4)(5)(6) $ 444,180 $ 357,608

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

Senior Bonds $ 14,575 $ 14,507 $ — $ —

Mezzanine Bonds 35,946 32,078 17,382 15,472

6 unchanged sentences

The notional balance is used solely to determine interest distributions on the interest only classes of securities.

As of June 30, 2023 and December 31, 2022, the Securitized debt in Non-Agency VIEs line item includes interest only classes with notional balances of $137.9 million and $144.3 million, respectively.

As of June 30, 2023 and December 31, 2022, the notional balance on Interest Only / Excess Servicing Bonds was $8.2 billion and $8.0 billion, respectively.

As of September 30, 2023 and December 31, 2022, the Securitized debt in Non-Agency VIEs line item includes interest only classes with notional balances of $135.7 million and $144.3 million, respectively.

As of September 30, 2023 and December 31, 2022, the notional balance on Interest Only / Excess Servicing Bonds was $9.3 billion and $8.0 billion, respectively.

(2) Represents the fair value of real estate owned within Non-Agency VIEs.

We record real estate owned at the lower of cost or fair value less estimated costs to sell.

As of September 30, 2023, we recorded real estate owned within our Non-Agency VIEs at $1.2 million.

(3) 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.

(3) As of June 30, 2023 and December 31, 2022, our equity at risk included bonds with a fair value of $228.0 million and $215.1 million, respectively, held in order to comply with Risk Retention Rules.

(4) As of September 30, 2023 and December 31, 2022, our equity at risk included bonds with a fair value of $257.6 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.

(4) As of June 30, 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 $80.5 million and $84.7 million, respectively.

(5) Excludes net other asset/(liabilities) held within the VIEs of $4.4 million and $4.4 million as of June 30, 2023 and December 31, 2022, respectively.

(5) As of September 30, 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 $87.5 million and $84.7 million, respectively.

(6) Excludes net other asset/(liabilities) held within the VIEs of $7.2 million and $4.4 million as of September 30, 2023 and December 31, 2022, respectively.

(7) 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 June 30, 2023 and December 31, 2022, there were no securitizations which met the criteria for an Optional Redemption.

As of September 30, 2023, there was one securitization with an unpaid principal balance of $125.7 million that met the criteria for an Optional Redemption.

As of 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 June 30, 2023 and December 31, 2022 (in thousands).

Credit Rating - Non-Agency RMBS (1) June 30, 2023 December 31, 2022

The following table presents the fair value of our Non-Agency RMBS by credit rating as of September 30, 2023 and December 31, 2022 (in thousands).

Credit Rating - Non-Agency RMBS (1) September 30, 2023 December 31, 2022

A $ 6,167 $ —

8 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

State Fair Value Percentage State Fair Value Percentage

9 unchanged sentences

Fair Value CPR (1)

Agency RMBS June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Agency RMBS September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

30 Year Fixed Rate $ 118,936 $ — 5.7 % — %

11 unchanged sentences

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 June 30, 2023 and December 31, 2022.

We had outstanding financing arrangements with six counterparties as of September 30, 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.

2 unchanged sentences

To the extent that we fail to comply with the covenants contained in these financing arrangements or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate amounts due under the associated agreement.

As of June 30, 2023, we are in compliance with all of our financial covenants.

As of September 30, 2023, we are in compliance with all of our financial covenants.

We also use securitized debt to finance our loan portfolio.

1 unchanged sentence

Recourse and non-recourse financing

The below table provides detail on the breakout between recourse and non-recourse financing as of June 30, 2023 and December 31, 2022 (in thousands).

June 30, 2023

The below table provides detail on the breakout between recourse and non-recourse financing as of September 30, 2023 and December 31, 2022 (in thousands).

September 30, 2023

December 31, 2022

11 unchanged sentences

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.

Financing arrangements are generally recourse to the Company whereas securitized debt used to finance our Non-Agency VIEs and RPL/NPL VIEs is generally non-recourse to the Company.

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

8 unchanged sentences

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

June 30, 2023 Leverage Stockholders’ Equity Leverage Ratio

September 30, 2023 Leverage Stockholders’ Equity Leverage Ratio

GAAP Securitized debt, at fair value $ 3,831,515

18 unchanged sentences

Subject to maintaining our qualification as a REIT and our Investment Company Act exemption, to the extent leverage is deployed, we may utilize derivative instruments in an effort to hedge the interest rate risk associated with the financing of our portfolio.

Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates.

Specifically, we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on

our investments and our borrowing costs caused by fluctuations in short-term interest rates.

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

8 unchanged sentences

Differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes, (vi) methods of depreciation and (vii) differences between GAAP income or losses in our TRSs’ and taxable income resulting from dividend distributions to the REIT from our TRSs'.

Undistributed taxable income is based on current estimates and is not finalized until we file our annual

tax return for that tax year, typically in October of the following year.

We did not have any undistributed taxable income as of June 30, 2023.

The following table details our common stock dividends declared during the six months ended June 30, 2023 and 2022.

Six Months Ended June 30, 2023

Six Months Ended June 30, 2022

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, 2023.

The following table details our common stock dividends declared during the nine months ended September 30, 2023 and 2022.

Nine Months Ended September 30, 2023

Nine Months Ended September 30, 2022

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

1 unchanged sentence

6/15/2023 6/30/2023 7/31/2023 0.18 6/15/2022 6/30/2022 7/29/2022 0.21

9/15/2023 9/29/2023 10/31/2023 0.18 9/15/2022 9/30/2022 10/31/2022 0.21

Total $ 0.54 Total $ 0.63

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 six months ended June 30, 2023 and 2022.

We announced that on October 24, 2023, our Board of Directors declared an interim fourth quarter 2023 common stock dividend on our common stock of $0.08 per share, made pursuant to the terms of the Merger Agreement in connection with the Merger with WMC.

The dividend was paid on November 8, 2023 to stockholders of record as of November 3, 2023.

2023 Cash Dividend Per Share

4 unchanged sentences

5/4/2023 5/31/2023 6/20/2023 0.51563 0.50 0.50

7/31/2023 8/31/2023 9/18/2023 0.51563 0.50 0.50

Total $ 1.54689 $ 1.50 $ 1.50

5 unchanged sentences

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

We announced that on November 3, 2023, our Board of Directors declared fourth quarter 2023 preferred stock dividends on our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock in the amount of $0.51563, $0.50 and $0.50 per share, respectively.

The dividends will be paid on December 18, 2023 to holders of record on November 30, 2023.

Liquidity and capital resources

4 unchanged sentences

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

At June 30, 2023, we had $80.3 million of liquidity, all of which was cash and cash equivalents.

At September 30, 2023, we had $118.7 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.

6 unchanged sentences

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

In seeking to effectively manage 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.

2 unchanged sentences

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.

6 unchanged sentences

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

The below details changes to our cash, cash equivalents, and restricted cash for the six months ended June 30, 2023 and 2022 ($ in thousands).

Six Months Ended

June 30, 2023 June 30, 2022 Change

The below details changes to our cash, cash equivalents, and restricted cash for the nine months ended September 30, 2023 and 2022 ($ in thousands).

Nine Months Ended

September 30, 2023 September 30, 2022 Change

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

4 unchanged sentences

Cash and cash equivalents and restricted cash, End of Period $ 139,262 $ 99,436 $ 39,826

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the six months ended June 30, 2023.

(2) Cash used in investing activities for the six months ended June 30, 2023 was primarily attributable to purchases of investments, offset by sales of investments and principal repayments on investments.

(3) Cash provided by financing activities for the six months ended June 30, 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.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the nine months ended September 30, 2023.

(2) Cash used in investing activities for the nine months ended September 30, 2023 was primarily attributable to purchases of investments, offset by sales of investments and principal repayments on investments.

(3) Cash provided by financing activities for the nine months ended September 30, 2023 was primarily attributable to the issuance of securitized debt, offset by principal repayments on securitized debt, net repayments of repurchase agreements, dividend payments, and common share repurchases.

Stock repurchase programs

6 unchanged sentences

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

As of the date of this filing, approximately $1.5 million of common stock remained authorized for future share repurchases under the 2022 Repurchase Program.

See Note 11 in the "Notes to Consolidated Financial Statements (unaudited)" for additional details on the shares repurchased under the 2022 Repurchase Program during the three and six months ended June 30, 2023.

As of the date of this filing, approximately $1.5 million of common stock remained authorized for future share repurchases under the 2022

Repurchase Program.

On May 4, 2023, our Board of Directors authorized a stock repurchase program (the "2023 Repurchase Program") to repurchase up to $15.0 million of our outstanding common stock on substantially the same terms as the 2022 Repurchase Program.

7 unchanged sentences

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.

We did not issue any shares of common stock under the Equity Distribution Agreements during the three and six months ended June 30, 2023.

We did not issue any shares of common stock under the Equity Distribution Agreements during the three and nine months ended September 30, 2023.

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.

4 unchanged sentences

The management agreement, as amended, provides for payment to the Manager of a management fee, an incentive fee, and reimbursements of certain expenses incurred by the Manager or its affiliates on behalf of us.

The closing of the TPG Transaction will result in an assignment of the management agreement.

On July 31, 2023, our independent directors unanimously consented to such assignment.

In connection with the proposed Merger with WMC, we and our Manager entered into an amendment (the "MITT Management Agreement Amendment") to the management agreement, pursuant to which (i) the Manager’s base management fee will be reduced by $0.6 million for the first four quarters following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurs, and (ii) the Manager will waive its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to the excess, if any, of $7.0 million over the aggregate cash portion of the Per Share Merger Consideration paid by the Manager to the holders of WMC common stock in

The amendment will become effective automatically upon the closing of the Merger, and will have no force and effect if the Merger does not close.

Pursuant to our management agreement, the closing of the TPG Transaction resulted in an assignment of the management agreement.

Our independent directors unanimously consented to such assignment on July 31, 2023 in advance of the TPG Transaction closing.

There were no changes to the management agreement in connection with the TPG Transaction and the assignment of the management agreement became effective upon the closing of the TPG Transaction.

In connection with the pending Merger with WMC, we and our Manager entered into the MITT Management Agreement Amendment, pursuant to which (i) the base management fee will be reduced by $0.6 million for the first four quarters (i.e., resulting in an aggregate $2.4 million waiver of base management fees) following the Effective Time, beginning with the fiscal quarter in which the Effective Time occurs, and (ii) our Manager will waive its right to seek reimbursement from us for any expenses otherwise reimbursable by us under the management agreement in an amount equal to the excess, if any, of $7.0 million over the aggregate cash portion of the Per Share Merger Consideration paid by our Manager to the holders of WMC common stock in the Merger.

The MITT Management Agreement Amendment will become effective automatically upon the closing of the Merger, and will have no force and effect if the Merger does not close.

Management fee

2 unchanged sentences

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 six months ended June 30, 2023 and 2022 (in thousands).

Three Months Ended Six Months Ended

The below table details the management fees incurred during the three and nine months ended September 30, 2023 and 2022 (in thousands).

Three Months Ended Nine Months Ended

Consolidated statements of operations line item:

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Management fee to affiliate $ 2,054 $ 2,064 $ 6,190 $ 5,984

As of June 30, 2023 and December 31, 2022, we have recorded management fees payable of $2.1 million and $2.1 million, respectively.

As of September 30, 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.

3 unchanged sentences

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.

During the three and six months ended June 30, 2023, we did not incur any incentive fee expense.

During the three and nine months ended September 30, 2023, we did not incur any incentive fee expense.

Expense Reimbursement

3 unchanged sentences

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 and six months ended June 30, 2023 and 2022 (in thousands).

Three Months Ended Six Months Ended

The below table details the expense reimbursement incurred during the three and nine months ended September 30, 2023 and 2022 (in thousands).

Three Months Ended Nine Months Ended

Consolidated statements of operations line item:

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Non-investment related expenses

4 unchanged sentences

Expense reimbursements to Manager or its affiliates $ 1,874 $ 2,404 $ 5,267 $ 7,336

As of June 30, 2023 and December 31, 2022, we recorded a reimbursement payable to our Manager or its affiliates of $2.2 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.

As of September 30, 2023 and December 31, 2022, we recorded a reimbursement payable to our Manager or its affiliates of $2.3 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

2 unchanged sentences

The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during any fiscal year, shall not exceed $300,000 in total value (calculating the value of any such awards based on the grant date fair value).

As of June 30, 2023, 520,182 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 June 30, 2023, we have granted an aggregate of 146,484 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

As of September 30, 2023, 505,933 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 September 30, 2023, we have granted an aggregate of 160,733 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

The AG Mortgage Investment Trust, Inc.

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

As of June 30, 2023, there were no shares or awards issued under the 2021 Manager Plan.

As of September 30, 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 June 30, 2023.

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of September 30, 2023.

Off-balance sheet arrangements

5 unchanged sentences

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

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of June 30, 2023, if applicable.

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

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of September 30, 2023, if applicable.

For additional information on our commitments as of September 30, 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

2 unchanged sentences

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

Although our estimates contemplate conditions as of June 30, 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.

Although our estimates contemplate conditions as of September 30, 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.

25 unchanged sentences

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