What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 352 added, 171 removed, 680 unchanged (43% of the section changed)

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These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, returns, results of operations, plans, yields, objectives, the composition of our portfolio, actions by governmental entities, including the Federal Reserve, and the potential effects of actual and proposed legislation on us, and our views on certain macroeconomic trends.

When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements.

When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "could," "will," "may" or similar expressions, we intend to identify forward-looking statements.

These forward-looking statements are based upon information presently available to our management and are inherently subjective, uncertain and subject to change.

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

First Quarter 2024 Executive Summary

Second Quarter 2024 Executive Summary

Financial Highlights

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• 12.2x GAAP Leverage Ratio and 2.5x Economic Leverage Ratio;

• $0.18 dividend per common share declared.

• $0.19 dividend per common share declared, which represents a 5.6% increase over the prior quarter dividend of $0.18 per common share.

Investment Activity

• The table below summarizes the fair value of purchases and proceeds from sales of investments during the quarter ended March 31, 2024 (in thousands).

• The table below summarizes the fair value of purchases and proceeds from sales of investments during the quarter ended June 30, 2024 (in thousands).

Investment Purchases Sales

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(1) Includes sales of $8.3 million of Non-Agency RMBS sold from the legacy portfolio acquired from Western Asset Mortgage Capital Corporation ("WMC").

(2) During the quarter, we co-sponsored a rated securitization collateralized by $369.2 million of Agency-Eligible Loans.

As the co-sponsor, the Company retained an "eligible vertical interest" to comply with risk retention rules which consists of at least 5% of each class of securities issued in the securitization.

Upon evaluating our retained interest in the securitization trust, we determined we were not the primary beneficiary and, as a result, did not consolidate the securitization trust and recorded an investment of $18.1 million of Non-Agency RMBS.

• Subsequent to quarter end:

◦ Sold Non-Agency Loans for gross proceeds of $86.3 million.

These loans were recorded within the "Residential mortgage loans held for sale, at fair value" line item on the consolidated balance sheets as of June 30, 2024;

◦ On July 31, 2024, Arc Home, a residential mortgage loan originator which retains mortgage servicing rights ("MSRs") associated with certain loans it originates, sold substantially all of its MSR portfolio to an unrelated third-party consisting of $5.8 billion of unpaid principal balance.

As of June 30, 2024, the fair value of Arc Home's MSR portfolio was $88.2 million which collateralized related financing arrangements of $39.3 million.

We own an approximate 44.6% interest in Arc Home through our investment in AG Arc which is recorded within the "Investments in debt and equity of affiliates" line item on the consolidated balance sheets.

Financing Activity

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• Issued $65.0 million principal amount of 9.500% senior notes due 2029 in a public offering generating net proceeds of approximately $62.4 million.

• Repurchased $7.1 million of principal amount of outstanding Legacy WMC Convertible Notes.

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

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

As of March 31, 2024, our investment portfolio consisted of the following Residential Investments and Agency RMBS:

As of June 30, 2024, our investment portfolio consisted of the following Residential Investments and Agency RMBS:

Asset Class Description

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• Non-Agency Residential Mortgage-Backed Securities ("RMBS") represent fixed- and floating- rate RMBS issued by entities other than U.S.

GSEs or agencies of he U.S.

GSEs or agencies of the U.S.

Agency RMBS (2)

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Government such as Ginnie Mae.

(1) These investments are included in the "Securitized residential mortgage loans, at fair value" and "Residential mortgage loans, 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.

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On the Closing Date, WMC merged with and into AGMIT Merger Sub, LLC, a Delaware limited liability company and our wholly owned subsidiary ("Merger Sub"), with Merger Sub continuing as the surviving company (the "Merger").

As contemplated by the Agreement and Plan of Merger,

dated as of August 8, 2023 (the “Merger Agreement”), the certificate of merger was filed with the Secretary of State of the State of Delaware, and the Merger was effective at 8:15 a.m., Eastern Time, on the Closing Date (the "Effective Time").

As contemplated by the Agreement and Plan of Merger, dated as of August 8, 2023 (the “Merger Agreement”), the certificate of merger was filed with the Secretary of State of the State of Delaware, and the Merger was effective at 8:15 a.m., Eastern Time, on the Closing Date (the "Effective Time").

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each outstanding share of WMC common stock, par value $0.01 per share (“WMC Common Stock”), was converted into the right to receive the following (the “Per Share Merger Consideration”):

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Christian Mitchell and Lisa G.

Quateman, who were appointed to the our board of directors as of the Effective Time, the 2023 WMC Director Awards were equitably adjusted effective as of the Effective Time into awards relating to shares of our common stock that have the same value, vesting terms and other terms and conditions as applied to the corresponding WMC restricted stock units immediately prior to the Effective Time and (ii) for the other members of the WMC board of directors, the 2023 WMC Director Awards accelerated and vested pro-rata effective as of immediately prior to the Effective Time based on a fraction, the numerator of which was 166 (the number of days between the grant date and the Closing Date) and the denominator of which was 365, and the remaining unvested portion of such 2023 WMC Director Awards was cancelled without any consideration.

Quateman, who were appointed to our Board of Directors as of the Effective Time, the 2023 WMC Director Awards were equitably adjusted effective as of the Effective Time into awards relating to shares of our common stock that have the same value, vesting terms and other terms and conditions as applied to the corresponding WMC restricted stock units immediately prior to the Effective Time and (ii) for the other members of the WMC board of directors, the 2023 WMC Director Awards accelerated and vested pro-rata effective as of immediately prior to the Effective Time based on a fraction, the numerator of which was 166 (the number of days between the grant date and the Closing Date) and the denominator of which was 365, and the remaining unvested portion of such 2023 WMC Director Awards was cancelled without any consideration.

The issuance of shares of our common stock to the former stockholders of WMC was registered under the Securities Act, pursuant to a registration statement on Form S-4 (File No.

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Market Conditions

The first quarter of 2024 experienced a consistent theme of volatility in the financial markets due to the overall market uncertainty related to inflation, the path of monetary policy and interest rates.

The Federal Reserve continued to hold the federal funds target rate steady at the March 2024 Federal Open Market Committee meeting after raising the short-term federal funds rate eleven times between March 2022 and July 2023.

The March Consumer Price Index indicated inflation was 3.5% year over year which increased from prior monthly readings.

In addition, the U.S.

Economy continues to show signs of durability with a strong March employment report issued by the U.S.

Bureau of Labor Statistics and the unemployment rate remaining low at 3.8%.

As a result of the overall strong first quarter inflation and employment reports, the 10-year U.S.

treasury yield increased by approximately 33 basis points from 3.88% as of December 2023 to 4.21% as of the end of the first quarter and the 30-year fixed rate mortgage increased by approximately 20 basis points to 6.8% from the start of the year.

Furthermore, treasury yields continued to increase during April 2024.

Although at the end of 2023 market participants began pricing in rate cuts as soon as March 2024, the recent inflation reading has indicated the timing of any potential rate cuts would likely be pushed towards the back half of 2024 causing market participants to adjust expectations once again.

As a result, it remains unclear when the Federal Reserve will initiate rate cuts and it is possible longer-term rates may remain elevated for longer than anticipated.

The second quarter of 2024 continued to experience volatility in the financial markets due to the overall market uncertainty related to inflation, the path of monetary policy and interest rates and the recent developments of the upcoming U.S.

presidential election.

The quarter began with the March Consumer Price Index report indicating inflation was 3.5% year over year, increasing from prior monthly readings.

This report, coupled with the unemployment rate remaining low at 3.8%, resulted in the 10-year U.S.

treasury yield increasing by approximately 48 basis points during April 2024 to 4.69% and the 30-year fixed rate mortgage increasing by approximately 43 basis points to 7.2%.

As the quarter progressed, the May and June Consumer Price Index reports showed signs of inflation softening with the year over year Consumer Price Index declining to 3.3% and 3.0%, respectively, and the unemployment rate increasing to 4.1%.

The increase in benchmark and mortgage rates experienced during April then began to reverse its course with the 10-year U.S.

treasury yield decreasing 29 basis points to 4.4% and the 30-year fixed rate mortgage ending the quarter only 7 basis points higher than the start of the quarter.

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

treasury yields at approximately 43 basis points inverted, a slight increase from 37 basis points to end 2023.

While the Federal Reserve’s policy tightening has slowed, the Federal Reserve has indicated that it will continue to seek economic data that will provide greater confidence that inflation is moving sustainably toward the target rate of 2% to support future rate reductions.

Although benchmark rates increased during the first quarter 2024, RMBS spreads tightened sharply during this period amid strong investor appetite for U.S.

treasury yields at approximately 37 basis points inverted, a slight decrease from 43 basis points inverted in March 2024.

After quarter end, the Federal Reserve acknowledged at the July 2024 Federal Open Market Committee meeting that they have seen significant progress in bringing down inflation toward their target rate of 2%.

Jerome Powell, the Federal Reserve Chair, noted that a broad set of indicators suggest that conditions in the labor market have returned to approximately where they were pre-pandemic.

With the balance of risks moving back into equilibrium, Powell also offered that if the broad set of labor and inflation data continued to cooperate, that a reduction of the policy rate could be considered as soon as the September meeting.

This was shortly followed by the July employment report issued by the U.S.

Bureau of Labor Statistics noting a moderation in the labor market and the unemployment rate increasing to 4.3%, the highest level since October 2021.

As a result, benchmark rates retraced at a significant rate in the first week of August 2024 and, as of August 6, 2024, market

participants are pricing in approximately 110 basis points of rate cuts before year end.

Overall, the Federal Reserve continues to monitor available economic data to determine if they will initiate rate cuts and to what extent rates will decline;

however, the recent economic data has been more supportive of a reduction in the Federal Funds Rate.

RMBS spreads mostly tightened during the second quarter as there continues to be a strong investor appetite for U.S.

housing and mortgage credit.

This theme has been well-supported by stable collateral fundamentals, sound underwriting criteria and rising home values, though pockets of weakness have been slowly emerging from specific cohorts in the Non-QM sector.

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

CRT tranches were tighter by 50 to 200 basis points and the sector’s credit curve significantly flattened.

Senior Non-QM spreads were around 40 basis points tighter during the first quarter 2024, and BBB- and BB- rated Non-QM spreads were 70 and 120 basis points tighter, respectively.

First quarter 2024 total returns were between 2% and 4% for mezzanine CRT tranches, 4% and 6% for subordinate CRT tranches, and 1% to 2% for legacy RMBS.

Primary RMBS issuance was off to a strong start during the first quarter 2024, totaling nearly $30 billion, an increase of 56% and 73% against the first quarter 2023 and the fourth quarter 2023, respectively.

Securitizations backed by Non-QM and Prime Jumbo collateral collectively comprised over half of the issuances during the quarter.

Second-lien collateral, including closed-end loans and Home Equity Lines of Credit, totaled $2.6 billion, or 9% of new issuance, and CRT made up approximately 11% of the activity.

Primary issuance in 2023 totaled just $69 billion, amid a lull in mortgage origination activity after almost $140 billion of new bonds were issued in 2022.

CRT tranches tightened by 10 to 20 basis points during the quarter ended June 30, 2024.

Senior Non-QM spreads were a few basis points wider during the quarter ended June 30, 2024 while lower Non-QM tranches such as BBB- and BB-rated bonds were 10 and 45 basis points tighter, respectively.

Primary RMBS markets remained active in the second quarter, with issuances totaling nearly $33 billion, an increase of 11% quarter-over-quarter and 73% year-over-year.

Almost half of the second quarter’s issuance came from Non-QM ($10 billion) and Prime Jumbo ($5.5 billion).

In addition, market focus on second liens and Home Equity Lines of Credit has been rapidly expanding as a source of high quality, newly originated mortgage credit.

During the first half of 2024, new RMBS issuance totaled $62 billion with Non-QM and Prime Jumbo constituting approximately half of that activity.

The S&P CoreLogic Case-Shiller U.S.

National Home Price Index was higher by 6% year over year in January 2024.

However, home prices were little changed over the last several months, with the Index just below its October 2023 peak and in-line with the prior peak in June 2022.

Home price performance remains mixed depending on geography.

Since June 2022, home price appreciation in certain west coast Metropolitan Statistical Areas (“MSAs”) as well as Phoenix, Dallas and Denver, was 6% to 12% lower while home price appreciation in MSAs such as Chicago, Detroit, Miami and New York City were 3% to 6% higher.

A survey of research shows varied home price expectations in 2024 ranging from a decline of 3% to an increase of 5.5%.

Prevailing mortgage rates slightly increased to 6.8% at the end of March 2024 and continued to rise in the first weeks of the second quarter 2024.

This is up from 6.6% at the end of December 2023 however still below the peak of 7.8% at the end of October 2023, the highest level since November 2000.

Nationally, the average effective mortgage rate outstanding was 3.8% as of December 2023, but has crept higher from 3.3% in March 2022, reflecting the inclusion of higher-rate originations in the second half of 2022 and during 2023.

The well-publicized “lock-in effect,” or disincentive for existing homeowners to sell their homes because their current mortgage rate is well below current market rates, remains in full force with most estimates showing a very small share of outstanding mortgages with an economic incentive to refinance.

According to the National Association of Realtors, total existing home listings were 1.07 million in February 2024, remaining in line with most of 2023 but down significantly from pre-pandemic years.

On a national level, new listings were slightly higher in February 2024 against levels in January and February 2023 but remain weak overall.

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

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.

National Home Price Index continued to rise through May 2024.

The Index was higher by 4% year-to-date and 6% year-over-year.

Home prices remain varied geographically.

Over the first five months of 2024, momentum in home price appreciation returned for 2022 and 2023 laggards, such as Seattle and San Francisco, while cities that had performed well in 2022 and 2023, such as New York City, Chicago and Miami, have since slowed in 2024.

Prevailing mortgage rates ended the second quarter just a few basis points higher near 6.9% but were as high as 7.2% in late April to early May, according to the Freddie Mac Primary Mortgage Market Survey.

Mortgage rates have been volatile over the last year, reaching 7.8% in October and November 2023 while having been as low as 6.6% in parts of the first quarter 2024.

The effective mortgage rate outstanding held steady at 3.8% as of March 2024, the latest data available, reflecting low housing turnover and limited mortgage originations.

Overall, the “lock-in-effect,” or disincentive for existing homeowners to sell their homes because their current mortgage rate is well below current market rates, remains a driving force of housing activity and pricing.

Total existing home listings moderately rose to 1.28 million in May 2024, the highest reading since July 2022 but still well-off pre-pandemic years.

On a national level, new listings were approximately 9% higher than levels from a year ago but remain weak overall.

Presentation of investment, financing and hedging activities

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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.

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Book value per common share $ 10.63 $ 10.46

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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 March 31, 2024 compared to the Three Months Ended March 31, 2023

The table below presents certain information from our consolidated statements of operations for the three months ended March 31, 2024 and 2023 (in thousands).

Three Months Ended June 30, 2024 compared to the Three Months Ended June 30, 2023

The table below presents certain information from our consolidated statements of operations for the three months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended

March 31, 2024 March 31, 2023 Increase/(Decrease)

June 30, 2024 June 30, 2023 Increase/(Decrease)

Statement of Operations Data:

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

Interest income increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily as a result of an increased investment portfolio resulting from the acquisition of WMC in December 2023 along with purchases of Non-Agency Loans and Agency-Eligible Loans during the period and an increase in the weighted average yield of our investment portfolio.

The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the three months ended March 31, 2024 and 2023 ($ in millions).

Interest income increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 primarily as a result of an increased investment portfolio resulting from the WMC acquisition in December 2023 along with purchases of residential mortgage loans and Agency RMBS during the period and an increase in the weighted average yield of our investment portfolio.

The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the three months ended June 30, 2024 and 2023 ($ in millions).

Three Months Ended

March 31, 2024 March 31, 2023 Increase/(Decrease)

June 30, 2024 June 30, 2023 Increase/(Decrease)

Weighted average amortized cost of our GAAP investment portfolio

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Interest expense is inclusive of our financing cost related to our financing arrangements on our GAAP investment portfolio, securitized debt, Legacy WMC Convertible Notes, and Senior Unsecured Notes.

Interest expense increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 due to an increase in the GAAP financing balance outstanding resulting from the assumption of financing through the acquisition of WMC in December 2023 along with the issuance of securitized debt during the period and an increase in the weighted average financing rate.

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 March 31, 2024 and 2023 ($ in millions).

Interest expense increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 due to an increase in the GAAP financing balance outstanding resulting from the assumption of financing through the WMC acquisition in December 2023 along with the issuance of securitized debt and Senior Unsecured Notes during the period and an increase in financing arrangements.

Additionally, there was an increase in the weighted average financing rate.

Three Months Ended

March 31, 2024 March 31, 2023 Increase/(Decrease)

June 30, 2024 June 30, 2023 Increase/(Decrease)

Weighted average GAAP financing balance

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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 March 31, 2024 and 2023 as a result of our swap portfolio being in a net receive position.

Interest income increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily as a result of an increase in the net weighted average receive rate during the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

The following table presents a summary of our interest rate swap portfolio as of March 31, 2024 and 2023 ($ in millions).

March 31, 2024 March 31, 2023 Increase/(Decrease)

We recorded income on the net interest component of interest rate swaps during the three months ended June 30, 2024 and 2023 as a result of our swap portfolio being in a net receive position.

Interest income increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 primarily as a result of an increase in the portfolio coupled with an increase in the net weighted average receive rate during the three months ended June 30, 2024 compared with the three months ended June 30, 2023.

The following table presents a summary of our interest rate swap portfolio as of June 30, 2024 and 2023 ($ in millions).

June 30, 2024 June 30, 2023 Increase/(Decrease)

Interest rate swap notional value

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Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the three months ended March 31, 2024 and 2023 (in thousands).

The realized loss during the three months ended March 31, 2024 was primarily driven by unwinding pay-fix, receive-variable interest rate swaps which were held at unrealized losses partially offset by gains on the sale of certain Non-Agency RMBS acquired in the WMC acquisition and gains on the settlement of forward purchase commitments.

The following table presents a summary of Net realized gain/(loss) for the three months ended June 30, 2024 and 2023 (in thousands).

The realized gain during the three months ended June 30, 2024 was primarily driven by gains on the sale of certain Non-Agency RMBS.

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 151 $ (446)

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Net unrealized gain/(loss)

The following table presents a summary of Net unrealized gain/(loss) for the three months ended March 31, 2024 and 2023 (in thousands).

During the three months ended March 31, 2024, there were unrealized gains on residential mortgage loans and derivatives offset by unrealized losses on securitized debt.

The following table presents a summary of Net unrealized gain/(loss) for the three months ended June 30, 2024 and 2023 (in thousands).

During the three months ended June 30, 2024, there were unrealized losses on our residential mortgage loan, Legacy WMC CMBS, and interest rate swap portfolios, as well as unrealized losses from the reversal of previous unrealized gains on Non-Agency RMBS sold during the period.

Unrealized losses were offset by unrealized gains on securitized debt.

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Residential mortgage loans $ (8,747) $ (18,096)

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In connection with the WMC acquisition, we and our Manager entered into the MITT Management Agreement Amendment pursuant to which the base management fee will be reduced by $0.6 million for the first four quarters following the transaction closing, beginning with the fiscal quarter in which the transaction closing occurs (i.e., resulting in an aggregate $2.4 million waiver of base management fees).

During the three months ended March 31, 2024, the base management fee was reduced by $0.6 million.

During the three months ended June 30, 2024, the base management fee was reduced by $0.6 million.

This was offset by an increase in stockholders' equity as calculated pursuant to the management agreement as a result of the WMC acquisition.

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

The following table presents a summary of our non-investment related expenses for the three months ended March 31, 2024 and 2023 (in thousands).

The following table presents a summary of our non-investment related expenses for the three months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Affiliate reimbursement (1) $ 1,636 $ 1,400

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Total Non-investment related expenses $ 2,746 $ 2,574

(1) For the three months ended March 31, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.3 million pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

(1) For the three months ended June 30, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.3 million pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

Of the $1.3 million expense reimbursement waiver agreed upon in connection with the Merger, $0.5 million remains outstanding as of June 30, 2024.

Investment related expenses

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We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf associated with our investment portfolio.

The following table presents a summary of our investment related expenses for the three months ended March 31, 2024 and 2023 (in thousands).

The following table presents a summary of our investment related expenses for the three months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Affiliate reimbursement $ 87 $ 110

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Total Investment related expenses $ 3,491 $ 2,232

(1) The acquisition of WMC in December 2023 resulted in an increase in our residential mortgage loan portfolio of $1.1 billion of unpaid principal balance, which contributed to an increase in servicing fees and other residential loan related expenses.

(1) The WMC acquisition in December 2023 resulted in an increase in our residential mortgage loan portfolio of $1.1 billion of unpaid principal balance, which contributed to an increase in servicing fees and other residential loan related expenses.

Transaction related expenses

Historically, transaction related expenses have included expenses primarily associated with purchasing and securitizing residential mortgage loans as well as certain other transaction and performance related fees associated with assets we invest in.

Transaction related expenses decreased from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily due to less expenses associated with the securitization executed in the first quarter of 2024 compared to the securitization executed in the first quarter of 2023.

Transaction related expenses increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 primarily due to more upfront expenses associated with securitizations, offset by the release of a previously accrued deal related reserve.

Equity in earnings/(loss) from affiliates

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Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

MATT Non-QM Securities (1) $ (828) $ 349

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Equity in earnings/(loss) from affiliates

(1) For the three months ended March 31, 2024, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $0.8 million, net unrealized gains of $1.5 million, and other expenses of $(0.1) million.

For the three months ended March 31, 2023, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of net interest income of $0.9 million, net unrealized gains of $0.8 million, and other expenses of $(0.1) million.

(1) For the three months ended June 30, 2024, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $0.8 million and net unrealized losses of $(1.6) million.

For the three months ended June 30, 2023, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of net interest income of $0.9 million, net unrealized losses of $(0.5) million, and other expenses of $(0.1) million.

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

1 unchanged sentence

Three Months Ended

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023

Interest income $ 1,050 $ 1,753

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Equity in earnings/(loss) from affiliates

(1) The earnings/(loss) at AG Arc during the three months ended March 31, 2024 were primarily the result of $(0.2) million of losses related to Arc Home's lending and servicing operations, offset by $0.1 million related to changes in the fair value of the MSR portfolio held by Arc Home.

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

(1) The earnings/(loss) at AG Arc during the three months ended June 30, 2024 were primarily the result of $0.6 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(0.3) million of losses related to Arc Home's lending and servicing operations.

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 operations.

(2) During the three months ended June 30, 2024, the valuation multiple of AG Arc increased from 0.89x of book value as of March 31, 2024 to 0.94x of book as of June 30, 2024.

(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, 2024 compared to the Six Months Ended June 30, 2023

The table below presents certain information from our consolidated statements of operations for the six months ended June 30, 2024 and 2023 (in thousands).

Six Months Ended

June 30, 2024 June 30, 2023 Increase/(Decrease)

Statement of Operations Data:

Net Interest Income

Interest income $ 195,387 $ 118,591 $ 76,796

Interest expense 161,827 95,617 66,210

Total Net Interest Income 33,560 22,974 10,586

Other Income/(Loss)

Net interest component of interest rate swaps 4,267 2,804 1,463

Net realized gain/(loss) 860 2,044 (1,184)

Net unrealized gain/(loss) 788 8,511 (7,723)

Total Other Income/(Loss) 5,915 13,359 (7,444)

Management fee to affiliate 3,494 4,136 (642)

Non-investment related expenses 5,860 5,394 466

Investment related expenses 6,774 4,558 2,216

Transaction related expenses 1,480 2,103 (623)

Total Expenses 17,608 16,191 1,417

Income/(loss) before equity in earnings/(loss) from affiliates 21,867 20,142 1,725

Equity in earnings/(loss) from affiliates 2,948 454 2,494

Net Income/(Loss) 24,815 20,596 4,219

Dividends on preferred stock (9,172) (9,172) —

Net Income/(Loss) Available to Common Stockholders $ 15,643 $ 11,424 $ 4,219

Interest income

Interest income increased from the six months ended June 30, 2023 to the six months ended June 30, 2024 primarily as a result of an increased investment portfolio resulting from the WMC acquisition in December 2023 along with purchases of residential mortgage loans and Agency RMBS during the period and an increase in the weighted average yield of our investment portfolio.

The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the six months ended June 30, 2024 and 2023 ($ in millions).

Six Months Ended

June 30, 2024 June 30, 2023 Increase/(Decrease)

Weighted average amortized cost of our GAAP investment portfolio

$ 6,631 $ 4,770 $ 1,861

Weighted average yield on our GAAP investment portfolio 5.89 % 4.97 % 0.92 %

Interest expense

Interest expense increased from the six months ended June 30, 2023 to the six months ended June 30, 2024 due to an increase in the GAAP financing balance outstanding resulting from the assumption of financing through the WMC acquisition in December 2023 along with the issuance of securitized debt and Senior Unsecured Notes during the period and an increase in our financing arrangements.

Additionally, there was an increase in the weighted average financing rate.

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 six months ended June 30, 2024 and 2023 ($ in millions).

Six Months Ended

June 30, 2024 June 30, 2023 Increase/(Decrease)

Weighted average GAAP financing balance

$ 6,220 $ 4,379 $ 1,841

Weighted average financing rate on our GAAP investment portfolio 5.20 % 4.37 % 0.83 %

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, 2024 and 2023 as a result of our swap portfolio being in a net receive position.

Interest income increased from the six months ended June 30, 2023 to the six months ended June 30, 2024 primarily as a result of an increase in the portfolio coupled with an increase in the net weighted average receive rate during the six months ended June 30, 2024 compared with the six months ended June 30, 2023.

The following table presents a summary of our interest rate swap portfolio as of June 30, 2024 and 2023 ($ in millions).

June 30, 2024 June 30, 2023 Increase/(Decrease)

Interest rate swap notional value

$ 818 $ 607 $ 211

Weighted average receive-variable rate

5.33 % 5.09 % 0.24 %

Weighted average pay-fix rate 3.95 % 3.75 % 0.20 %

Net weighted average (pay)/receive rate

1.38 % 1.34 % 0.04 %

Net realized gain/(loss)

The following table presents a summary of Net realized gain/(loss) for the six months ended June 30, 2024 and 2023 (in thousands).

The realized gain during the six months ended June 30, 2024 was primarily driven by gains on the sale of certain Non-Agency RMBS offset by losses from unwinding pay-fix, receive-variable interest rate swaps which were held at unrealized losses.

Six Months Ended

June 30, 2024 June 30, 2023

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 199 $ (10,348)

Sales of real estate securities 2,727 —

Settlement of derivatives and other instruments (2,066) 12,392

Total Net realized gain/(loss) $ 860 $ 2,044

Net unrealized gain/(loss)

The following table presents a summary of Net unrealized gain/(loss) for the six months ended June 30, 2024 and 2023 (in thousands).

During the six months ended June 30, 2024, there were unrealized gains on residential mortgage loans and interest rate swaps offset by unrealized losses on our Legacy WMC CMBS portfolio and securitized debt.

Six Months Ended

June 30, 2024 June 30, 2023

Residential mortgage loans $ 14,332 $ 79,105

Commercial loans 250 —

Real estate securities (4,814) 302

Securitized debt (16,358) (60,447)

Derivatives 7,378 (10,449)

Total Net unrealized gain/(loss) $ 788 $ 8,511

Management fee to affiliate

Our management fee is based upon a percentage of our Stockholders’ Equity.

See the "Contractual obligations" section of this Item 2 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity.

During the six months ended June 30, 2024, the base management fee was reduced by $1.2 million in connection with the WMC acquisition.

This was offset by an increase in stockholders' equity as calculated pursuant to the management agreement as a result of the WMC acquisition.

Non-investment related expenses

The following table presents a summary of our non-investment related expenses for the six months ended June 30, 2024 and 2023 (in thousands).

Six Months Ended

June 30, 2024 June 30, 2023

Affiliate reimbursement (1) $ 3,300 $ 2,800

Professional Fees 772 1,062

D&O insurance 668 545

Directors' compensation 644 353

Other 476 634

Total Non-investment related expenses $ 5,860 $ 5,394

(1) For the six months ended June 30, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.6 million pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

Of the $1.3 million expense reimbursement waiver agreed upon in connection with the Merger, $0.5 million remains outstanding as of June 30, 2024.

Investment related expenses

The following table presents a summary of our investment related expenses for the six months ended June 30, 2024 and 2023 (in thousands).

Six Months Ended

June 30, 2024 June 30, 2023

Affiliate reimbursement $ 201 $ 212

Servicing fees (1) 3,774 2,045

Residential mortgage loan asset management fees 1,334 1,289

Trustee and bank fees 1,046 742

Other 419 270

Total Investment related expenses $ 6,774 $ 4,558

Transaction related expenses

Transaction related expenses decreased from the six months ended June 30, 2023 to the six months ended June 30, 2024 primarily due to less upfront expenses associated with securitizations, coupled with the release of a previously accrued deal related reserve.

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, 2024 June 30, 2023

MATT Non-QM Securities (1) $ 1,377 $ 1,974

Land Related Financing (2) — 741

Re/Non-Performing Securities 316 (89)

AG Arc (3) 1,255 (2,172)

Equity in earnings/(loss) from affiliates

$ 2,948 $ 454

(1) For the six months ended June 30, 2024, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $1.6 million, net unrealized losses of $(0.1) million, and other expenses of $(0.1) million.

For the six months ended June 30, 2023, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of net interest income of $1.8 million, net unrealized gains of $0.3 million, and other expenses of $(0.1) million.

(2) Decrease in Land Related Financing as assets held within LOTS paid off in full during 2023.

(3) 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, 2024 June 30, 2023

Interest income $ 2,131 $ 3,513

Interest expense 144 513

Total Net Interest Income 1,987 3,000

Net unrealized gain/(loss) (178) (85)

After-tax earnings/(loss) at AG Arc (1) 162 (2,006)

Net unrealized gain/(loss) on investment in AG Arc (2) 1,699 175

Elimination of gains on loans sold to MITT (3) (606) (341)

Total AG Arc Earnings/(Loss) 1,255 (2,172)

Other operating expenses 116 289

Equity in earnings/(loss) from affiliates

$ 2,948 $ 454

(1) The earnings/(loss) at AG Arc during the six months ended June 30, 2024 were primarily the result of $0.7 million related to changes in the fair value of the MSR portfolio held by Arc Home, offset by $(0.5) 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, 2023 were primarily the result of $(1.2) million related to changes in the fair value of the MSR portfolio held by Arc Home, along with $(0.8) million of losses related to Arc Home's lending and servicing operations.

(2) During the six months ended June 30, 2024, the valuation multiple of AG Arc increased from 0.89x of book value as of December 31, 2023 to 0.94x of book as of June 30, 2024.

(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.

Earnings Available for Distribution

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

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 WMC acquisition, (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 bargain purchase gains recognized.

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.

Items (i) through (vii) above include any amount related to those items held in affiliated entities.

Transaction related expenses referenced in (ii) above are primarily comprised of costs incurred prior to or at the time of executing our securitizations and acquiring or disposing of residential mortgage loans.

These costs are nonrecurring and may include underwriting fees, legal fees, diligence fees, and other similar transaction related expenses.

Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from earnings available for distribution.

Management considers the transaction related expenses to be similar to realized losses incurred at the acquisition, disposition, or securitization of an asset and does not view them as being part of its core operations.

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

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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 months ended March 31, 2024 and 2023 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 six months ended June 30, 2024 and 2023 is set forth below (in thousands, except per share data).

Three Months Ended

March 31, 2024 March 31, 2023

Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Net Income/(loss) available to common stockholders $ (661) $ 3,470 $ 15,643 $ 11,424

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Earnings available for distribution, per Diluted Share $ 0.21 $ 0.08 $ 0.42 $ 0.11

(1) For the three months ended March 31, 2024 and 2023, total transaction related expenses and deal related performance fees included $1.0 million and $1.7 million, respectively, recorded within the "Transaction related expenses" line item and $24 thousand and $0.1 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended March 31, 2024 and 2023, $0.9 million or $0.03 per share and $(0.6) million or $(0.03) 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 March 31, 2024 and 2023, $44 thousand or $0.00 per share and $0.2 million or $0.01 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 June 30, 2024 and 2023, total transaction related expenses and deal related performance fees included $0.5 million and $0.4 million, respectively, recorded within the "Transaction related expenses" line item and $22 thousand and $0.1 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

For the six months ended June 30, 2024 and 2023, total transaction related expenses and deal related performance fees included $1.5 million and $2.1 million, respectively, recorded within the "Transaction related expenses" line item and $46 thousand and $0.2 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended June 30, 2024 and 2023, $0.7 million or $0.02 per share and $1.4 million or $0.07 per share, respectively;

and for the six months ended June 30, 2024 and 2023, $1.6 million or $0.05 per share and $0.8 million or $0.04 per share, respectively, of realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and corresponding derivatives, and other asset impairments were excluded from EAD, net of deferred tax expense or benefit.

Additionally, for the three months ended June 30, 2024 and 2023, $1.7 million or $0.06 per share and $0.0 million or $0.00 per share, respectively;

and for the six months ended June 30, 2024 and 2023, $1.7 million or $0.06 per share and $0.2 million or $0.01 per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

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

For the three months ended March 31, 2024, we eliminated $0.2 million or $0.01 per share of intra-entity profits recognized by Arc Home, and also decreased the cost basis of the underlying loans we purchased by the same amount.

For the three months ended March 31, 2023 we did not eliminate any intra-entity profits recognized by Arc Home as we did not purchase any loans from Arc during the quarter.

For the three months ended June 30, 2024 and 2023, we eliminated $0.4 million or $0.01 per share and $0.3 million or $0.02 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 six months ended June 30, 2024 and 2023, we eliminated $0.6 million or $0.02 per share and $0.3 million or $0.02 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.

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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.

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

GAAP net interest margin and non-GAAP net interest margin, a non-GAAP financial measure, are calculated by subtracting the weighted average cost of funds from the weighted average yield for our GAAP investment portfolio and our investment

portfolio, respectively.

Net interest margin provides investors visibility into our profitability of interest income versus interest expense including the net effect of our interest rate swaps for insight into earnings available for distribution.

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

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Investment portfolio

The following tables present a summary of our investment portfolio, inclusive of net interest margin and leverage ratios, as of March 31, 2024 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

March 31, 2024

The following tables present a summary of our Investment Portfolio, inclusive of net interest margin and leverage ratios, as of June 30, 2024 and a reconciliation of these metrics on our Investment Portfolio to their respective metrics on our GAAP Investment Portfolio ($ in thousands).

June 30, 2024

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

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Commercial Loans 66,407 66,753 10.27 % — — 47,222 8.35 % 19,531 1.92 % 2.4x

CMBS 57,372 54,389 20.97 % — — 21,348 7.28 % 33,041 13.69 % 0.6x

CMBS (f) 58,590 52,570 19.69 % — — 21,889 7.10 % 30,681 12.59 % 0.7x

Total Legacy WMC Commercial Investments 124,997 119,323 14.42 % — — 69,111 7.95 % 50,212 6.47 % 1.4x

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Total Investment Portfolio $ 7,264,038 $ 6,872,177 6.09 % $ 5,415,940 $ 5,117,189 $ 1,239,364 5.25 % $ 515,624 0.84 % 2.3x

Cash and Cash Equivalents (f) 100,287 5.20 %

Interest Rate Swaps (g) 13,354 1.60 %

Cash and Cash Equivalents (g) 120,912 5.20 %

Interest Rate Swaps (h) 24,120 1.38 %

Arc Home 34,954

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Total Investment Portfolio $ 7,264,038 $ 6,872,177 6.09 % $ 5,415,940 $ 5,117,189 $ 1,239,364 5.25 % $ 515,624 0.84 % 2.3x

Investments in Debt and Equity of Affiliates 17,113 23,860 34.84 % — — 3,583 7.97 % 20,277 26.87 % (h)

Investments in Debt and Equity of Affiliates 16,986 22,186 31.54 % — — 3,559 7.98 % 18,627 23.56 % (i)

GAAP Investment Portfolio $ 7,247,052 $ 6,849,991 6.01 % $ 5,415,940 $ 5,117,189 $ 1,235,805 5.25 % $ 496,997 0.76 % 12.2x

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

The benefit of hedging as of March 31, 2024 was 0.12%.

The benefit of hedging as of June 30, 2024 was 0.17%.

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

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(e) We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

(f) Cash and cash equivalents may include a portion of cash invested in money market funds.

(f) As of June 30, 2024, there are Legacy WMC CMBS with an unpaid principal balance of $15.5 million and a fair value of $0.8 million which are on non-accrual status.

(g) Cash and cash equivalents may include a portion of cash invested in money market funds.

The yield represents the interest earned on money market funds as of period end.

(g) Interest rate swaps represents the sum of the net fair value of interest rate swaps and the margin posted on interest rate swaps as of period end.

(h) Interest rate swaps represents the sum of the net fair value of interest rate swaps and the margin posted on interest rate swaps as of period end.

Yield on interest rate swaps represents the weighted average net receive/(pay) rate as of period end.

The impact of the net interest component of interest rate swaps on the cost of funds is included within the respective investment portfolio asset line items.

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

The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of March 31, 2024 and December 31, 2023 ($ in thousands).

March 31, 2024

(i) 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, 2024 and December 31, 2023 ($ in thousands).

June 30, 2024

December 31, 2023

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(7) We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.

(8) As of June 30, 2024, there are Legacy WMC CMBS with an unpaid principal balance of $15.5 million and a fair value of $0.8 million which are on non-accrual status.

(9) Other securities include residual interests in asset-backed securities which have no principal balance.

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

March 31, 2024

June 30, 2024

Unpaid Principal Balance Fair Value

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

As of March 31, 2024, the Securitized debt in Non-Agency VIEs line item includes interest only classes with notional values of $131.3 million.

As of March 31, 2024, the notional values of Interest Only / Excess Servicing Bonds was $11.8 billion.

As of June 30, 2024, the Securitized debt in Non-Agency VIEs line item includes interest only classes with notional values of $621.6 million.

As of June 30, 2024, the notional values of Interest Only / Excess Servicing Bonds was $11.7 billion.

(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 March 31, 2024, we recorded real estate owned within our Non-Agency VIEs at $0.9 million.

As of June 30, 2024, we recorded real estate owned within our Non-Agency VIEs at $2.4 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.

(4) As of March 31, 2024, our equity at risk included bonds with a fair value of $405.0 million held in order to comply with Risk Retention Rules.

(4) As of June 30, 2024, our equity at risk included bonds with a fair value of $404.3 million 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.

(5) As of March 31, 2024, a portion of our equity at risk included bonds exposed to the first loss of the securitization with a fair value of $119.7 million.

(6) Excludes net other asset/(liabilities) held within the VIEs of $7.2 million as of March 31, 2024.

(5) As of June 30, 2024, a portion of our equity at risk included bonds exposed to the first loss of the securitization with a fair value of $117.6 million.

(6) Excludes net other asset/(liabilities) held within the VIEs of $7.3 million as of June 30, 2024.

(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 March 31, 2024, there were three securitizations with an unpaid principal balance of $0.4 billion that met the criteria for an Optional Redemption.

As of June 30, 2024, there were three securitizations with an unpaid principal balance of $0.4 billion that met the criteria for an Optional Redemption.

Securitized residential mortgage loans and Residential mortgage loans

The following table presents information regarding the original LTV and Current FICO scores of our residential mortgage loans as of June 30, 2024 (in thousands).

Unpaid Principal Balance Weighted Average (1)(2)

June 30, 2024

Loan Count (1) Original LTV Ratio (3) Current FICO (4)

Securitized residential mortgage loans

Non-Agency Loans $ 6,004,579 14,765 67.35 % 747

Re- and Non-Performing Loans 207,193 1,410 79.85 % 656

Total Securitized residential mortgage loans $ 6,211,772 16,175 67.77 % 744

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

Non-Agency Loans $ 100,139 191 74.39 % 719

Agency-Eligible Loans 194,047 494 72.96 % 774

Re- and Non-Performing Loans (1) 2,271 N/A N/A N/A

Total Residential mortgage loans $ 296,457 685 73.45 % 756

Total as of June 30, 2024

$ 6,508,229 16,860 68.03 % 745

(1) Loan count and weighted average excludes the Re- and Non-Performing Loans subcategory of Residential mortgage loans above as there may be limited data available regarding the underlying collateral of these residual positions.

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

(3) Represents the original LTV or, for Re- and Non-Performing Loans and Non-Agency Loans acquired from WMC, the LTV at acquisition.

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

Data is based on the latest available information, which is primarily as of May 31, 2024.

See Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for additional 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" and "Residential mortgage loans, at fair value" line items on our consolidated balance sheets.

Legacy WMC Commercial loans

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Non-Agency RMBS and Legacy WMC CMBS & Other Securities

The following table presents the fair value of our Non-Agency RMBS and Legacy WMC CMBS and Other Securities by credit rating as of March 31, 2024 (in thousands).

The following table presents the fair value of our Non-Agency RMBS and Legacy WMC CMBS and Other Securities by credit rating as of June 30, 2024 (in thousands).

Credit Rating (1) Non-Agency RMBS CMBS Other Securities

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

The following table presents certain characteristics of our Non-Agency RMBS and Legacy WMC CMBS portfolio as of March 31, 2024 (in thousands).

The following table presents certain characteristics of our Non-Agency RMBS and Legacy WMC CMBS portfolio as of June 30, 2024 (in thousands).

Instrument Current Face Fair Value Weighted Average Life (Years) (1)

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

As of March 31, 2024, the notional value of interest only classes included in the Non-QM Loans, Re-and Non-Performing Loans, and Prime line items was $396.4 million, $23.2 million, and $30.6 million, respectively.

The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS and Legacy WMC CMBS portfolios as of March 31, 2024 ($ in thousands).

As of June 30, 2024, the notional value of interest only classes included in the Non-QM Loans, Re-and Non-Performing Loans, and Prime line items was $376.9 million, $22.4 million, and $56.5 million, respectively.

The following table presents the geographic concentration of the underlying collateral for our Non-Agency RMBS and Legacy WMC CMBS portfolios as of June 30, 2024 ($ in thousands).

Non-Agency RMBS Legacy WMC CMBS

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Florida 7.0 % 6,555 Minnesota 11.0 % 5,781

Texas 4.1 % 3,880 Texas 5.4 % 2,843

New Jersey 3.0 % 2,816 New York 2.9 % 1,514

Texas 2.4 % 2,296 Florida 3.6 % 1,980

Other 30.2 % 28,302 Other 15.1 % 7,938

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

The following table presents the fair value and the Constant Prepayment Rate ("CPR") experienced on our Agency RMBS portfolio as of March 31, 2024 ($ in thousands).

The following table presents the fair value and the Constant Prepayment Rate ("CPR") experienced on our Agency RMBS portfolio as of June 30, 2024 ($ in thousands).

Fair Value CPR (1)

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

We had outstanding financing arrangements with six and seven counterparties as of March 31, 2024 and December 31, 2023, respectively.

We had outstanding financing arrangements with six and seven counterparties as of June 30, 2024 and December 31, 2023, respectively.

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

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In addition, some of the financing arrangements contain cross default features, whereby default under an agreement with one lender simultaneously causes default under agreements with other lenders.

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

As of March 31, 2024, we are in compliance with all of our financial covenants.

To the extent that we fail to comply with the covenants contained in these financing arrangements or are 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, 2024, we are in compliance with all of our financial covenants.

We also use securitized debt to finance our loan portfolio.

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On January 26, 2024, we issued $34.5 million principal amount of 9.500% senior notes due 2029.

On May 15, 2024, we issued $65.0 million principal amount of 9.500% senior notes due 2029.

See Note 6 to the "Notes to Consolidated Financial Statements (unaudited)" for additional information on the Senior Unsecured Notes.

Recourse and non-recourse financing

The below table provides detail on the breakout between recourse and non-recourse financing as of March 31, 2024 and December 31, 2023 (in thousands).

March 31, 2024

The below table provides detail on the breakout between recourse and non-recourse financing as of June 30, 2024 and December 31, 2023 (in thousands).

June 30, 2024

December 31, 2023

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

We define GAAP leverage as the sum of (1) GAAP Securitized debt, at fair value, (2) GAAP Financing arrangements, net of any restricted cash posted on such financing arrangements, (3) Convertible senior unsecured notes, (4) Senior unsecured notes, and (5) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled.

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

described in (4) in the previous sentence, and any non-recourse financing arrangements and (iii) our net TBA position (at cost), if any.

We define GAAP leverage as the sum of (1) GAAP Securitized debt, at fair value, (2) GAAP Financing arrangements, net of any restricted cash posted on such financing arrangements, (3) Legacy WMC Convertible Notes, (4) Senior Unsecured Notes, and (5) the amount payable on purchases that have not yet settled less the financing remaining on sales that have not yet settled.

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

(i) our GAAP leverage, exclusive of any fully non-recourse financing arrangements, (ii) financing arrangements held through affiliated entities, net of any restricted cash posted on such financing arrangements, exclusive of any financing utilized through AG Arc, inclusive of any adjustment related to unsettled trades as described in (5) in the previous sentence, and exclusive of any non-recourse financing arrangements and (iii) our net TBA position (at cost), if any.

The calculations in the tables below divide GAAP leverage and Economic Leverage by our GAAP stockholders’ equity to derive our leverage ratios.

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

March 31, 2024 Leverage Stockholders’ Equity Leverage Ratio

June 30, 2024 Leverage Stockholders’ Equity Leverage Ratio

Securitized debt, at fair value $ 5,117,189

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Non-recourse financing arrangements (1) (5,173,748)

Net TBA (receivable)/payable adjustment (32,552)

Economic Leverage $ 1,353,665 $ 533,502 2.5x

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As described above, our distribution requirements are based on taxable income rather than GAAP net income.

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

Differences between taxable income and GAAP net income include (i) unrealized gains and losses associated with investment and derivative portfolios which are marked-to-market in current income for GAAP purposes, but excluded from taxable income until realized or settled, (ii) temporary differences related to amortization of premiums and discounts paid on investments, (iii) the timing and amount of deductions related to stock-based compensation, (iv) temporary differences related to the recognition of realized gains and losses on sold investments and certain terminated derivatives, (v) taxes, and (vi) 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 March 31, 2024.

During the three months ended March 31, 2024, the Company declared common stock dividends of $0.18.

We did not have any undistributed taxable income as of June 30, 2024.

During the six months ended June 30, 2024, the Company declared common stock dividends of $0.37.

During the same period, the Company declared and paid preferred stock dividends on its 8.25% Series A Preferred Stock, 8.00% Series B Preferred Stock, and 8.000% Series C Preferred Stock of $1.03126, $1.00, and $1.00, respectively.

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

At March 31, 2024, we had $140.3 million of liquidity, which consisted of $100.3 million of cash and cash equivalents and $40.0 million of unencumbered Agency RMBS available to support our liquidity needs.

At June 30, 2024, we had $180.2 million of liquidity, which consisted of $120.9 million of cash and cash equivalents and $59.3 million of unencumbered Agency RMBS available to support our liquidity needs.

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

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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.

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

We refer to this position as our "liquidity." The level of liquidity we maintain to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our assets.

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

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

If our haircuts increase, our liquidity will proportionately decrease.

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

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

If our haircuts on existing financing arrangements increase, our liquidity will proportionately decrease.

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

We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which may force us to liquidate assets into potentially unfavorable market conditions and harm our results of operations and financial condition.

Further, an unexpected rise in interest rates and a corresponding fall in the fair value of our securities may also force us to liquidate assets under difficult market conditions, thereby harming our results of operations and financial condition, in an effort to maintain sufficient liquidity to meet increased margin calls.

Similar to the margin calls that we receive on our borrowing agreements, we may also receive margin calls on our derivative instruments when their fair value declines.

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

The below details changes to our cash, cash equivalents, and restricted cash for the three months ended March 31, 2024 and 2023 ($ in thousands).

Three Months Ended

March 31, 2024 March 31, 2023 Change

The below details changes to our cash, cash equivalents, and restricted cash for the six months ended June 30, 2024 and 2023 ($ in thousands).

Six Months Ended

June 30, 2024 June 30, 2023 Change

Cash and cash equivalents and restricted cash, Beginning of Period $ 125,573 $ 98,803 $ 26,770

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Cash and cash equivalents and restricted cash, End of Period $ 148,434 $ 105,364 $ 43,070

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the three months ended March 31, 2024.

(2) Cash used in investing activities for the three months ended March 31, 2024 was primarily attributable to purchases of investments, offset by principal repayments on investments and sales of investments.

(3) Cash provided by financing activities for the three months ended March 31, 2024 was primarily attributable to proceeds from the issuance of securitized debt and our Senior Unsecured Notes, offset by principal repayments on securitized debt, net repayments of financing arrangements, repurchases of the Convertible Senior Unsecured Notes, and dividend payments.

(1) Cash provided by operating activities is primarily attributable to net interest income less operating expenses for the six months ended June 30, 2024.

(2) Cash used in investing activities for the six months ended June 30, 2024 was primarily attributable to purchases of investments, offset by principal repayments on investments and sales of investments.

(3) Cash provided by financing activities for the six months ended June 30, 2024 was primarily attributable to proceeds from the issuance of securitized debt and our Senior Unsecured Notes, offset by principal repayments on securitized debt, net repayments of financing arrangements, repurchases of the Convertible Senior Unsecured Notes, and dividend payments.

Stock repurchase programs

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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 months ended March 31, 2024 and 2023.

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.

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On May 5, 2017, we entered into an equity distribution agreement with each of Credit Suisse Securities (USA) LLC and JMP Securities LLC (collectively, the "Sales Agents"), which we refer to as the "Equity Distribution Agreements," pursuant to which we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.

We did not issue any shares of common stock under the Equity Distribution Agreements during the three months ended March 31, 2024.

We did not issue any shares of common stock under the Equity Distribution Agreements during the three and six months ended June 30, 2024.

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

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Stockholders’ Equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders’ equity shown on our financial statements.

The below table details the management fees incurred during the three months ended March 31, 2024 and 2023 (in thousands).

Three Months Ended

The below table details the management fees incurred during the three and six months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended Six Months Ended

Consolidated statements of operations line item:

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Management fee to affiliate (1) $ 1,753 $ 2,061 $ 3,494 $ 4,136

(1) For the three months ended March 31, 2024, the Manager agreed to waive its right to receive management fees of $0.6 million pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

As of March 31, 2024 and December 31, 2023, we have recorded management fees payable of $1.7 million and $1.5 million, respectively.

(1) For the three and six months ended June 30, 2024, the Manager agreed to waive its right to receive management fees of $0.6 million and $1.2 million, respectively, pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

Of the $2.4 million management fee waiver agreed upon in connection with the Merger, $0.6 million remains outstanding as of June 30, 2024.

As of June 30, 2024 and December 31, 2023, we have recorded management fees payable of $1.7 million and $1.5 million, respectively.

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

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

During the three months ended March 31, 2024 and 2023, we did not incur any incentive fee expense.

During the three and six months ended June 30, 2024 and 2023, we did not incur any incentive fee expense.

Termination fee

Upon the occurrence of (i) our termination of the management agreement without cause or (ii) the Manager’s termination of the management agreement upon a breach by the Company of any material term of the management agreement, the Manager will be entitled to a termination fee equal to three times the average annual management fee during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter.

As of March 31, 2024 and December 31, 2023, no event of termination of the management agreement had occurred.

As of June 30, 2024 and December 31, 2023, no event of termination of the management agreement had occurred.

Expense reimbursement

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however, reimbursements are subject to an annual budget process which combines guidelines from the management agreement with oversight by our Board of Directors and discussions with our Manager.

The below table details the expense reimbursement incurred during the three months ended March 31, 2024 and 2023 (in thousands).

Three Months Ended

The below table details the expense reimbursement incurred during the three and six months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended Six Months Ended

Consolidated statements of operations line item:

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023 June 30, 2024 June 30, 2023

Non-investment related expenses (1)

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Investment related expenses

87 110 201 212

Transaction related expenses 306 318 374 381

Expense reimbursements to Manager or its affiliates $ 2,029 $ 1,828 $ 3,875 $ 3,393

As of March 31, 2024 and December 31, 2023, we recorded a reimbursement payable to our Manager or its affiliates of $1.8 million and $1.5 million, respectively The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" line item within the "Other liabilities" line item on the consolidated balance sheets.

(1) For the three and six months ended June 30, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.3 million and $0.6 million, respectively, pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

Of the $1.3 million expense reimbursement waiver agreed upon in connection with the Merger, $0.5 million remains outstanding as of June 30, 2024.

As of June 30, 2024 and December 31, 2023, we recorded a reimbursement payable to our Manager or its affiliates of $2.9 million and $1.5 million, respectively The reimbursement payable to the Manager or its affiliates is included within the "Due to affiliates" line item within the "Other liabilities" line item on the consolidated balance sheets.

Share-based compensation

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

As of March 31, 2024, 448,397 shares of common stock were available to be awarded under the 2020 Equity Incentive Plan.

Since inception of the 2020 Equity Incentive Plan and through March 31, 2024, we have granted an aggregate of 192,101 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

As of June 30, 2024, 426,456 shares of common stock remained available to be awarded under the 2020 Equity Incentive Plan.

Since inception of the 2020 Equity Incentive Plan and through June 30, 2024, we have granted an aggregate of 213,208 shares of restricted common stock to our independent directors under our 2020 Equity Incentive Plan, all of which have vested.

On December 6, 2023, in connection with the WMC acquisition, we granted an aggregate 25,962 restricted stock units to the two independent directors added to our Board of Directors who previously served on WMC's board of directors.

Through March 31, 2024, the two independent directors have also been granted an aggregate of 206 dividend equivalent units.These restricted stock units and associated dividend equivalent units will vest in full on June 23, 2024, and will be settled in shares of our common stock upon each of the independent director's separation from service with our Board of Directors.

Through June 30, 2024, the two independent directors have also been granted an aggregate of 1,040 dividend equivalent units.

These restricted stock units and associated dividend equivalent units vested in full on June 23, 2024, and will be settled in shares of our common stock upon each independent director's separation from service with our Board of Directors.

The AG Mortgage Investment Trust, Inc.

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

As of March 31, 2024, 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.

As of June 30, 2024, there were no shares or awards issued under the 2021 Manager Plan.

Unfunded commitments

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of March 31, 2024.

See Note 12 of the "Notes to Consolidated Financial Statements (unaudited)" for detail on our commitments as of June 30, 2024.

Off-balance sheet arrangements

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

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of March 31, 2024, if applicable.

For additional information on our commitments as of March 31, 2024 , 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 June 30, 2024, if applicable.

For additional information on our commitments as of June 30, 2024 , 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

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

Although our estimates contemplate conditions as of March 31, 2024 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 June 30, 2024 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, (vi) Investment consolidation, and (vii) Accounting for business combinations.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis