What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-06 · 302 added, 335 removed, 697 unchanged (48% 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," "could," "will," "may" or similar expressions, we intend to identify forward-looking statements.

When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "remain," "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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• our ability to realize all of the expected benefits of the acquisition of Western Asset Mortgage Capital Corporation ("WMC") or that such benefits may take longer to realize than expected (including because we incurred significant costs associated with such acquisition);

• our ability to refinance the remaining portion of the senior convertible notes assumed in the WMC acquisition in the manner anticipated or at all;

• changes in general economic conditions, in our industry and in the finance and real estate markets, including the impact on the value of our assets;

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

Second Quarter 2024 Executive Summary

Third Quarter 2024 Executive Summary

Financial Highlights

• $10.63 Book Value per share and $10.37 Adjusted Book Value per share;

• $10.58 Book Value per share;

◦ Book value per common share is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock divided by all outstanding common shares as of quarter-end;

• $0.40 of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.17 of Earnings Available for Distribution ("EAD") per diluted common share;

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• 11.8x GAAP Leverage Ratio and 1.5x Economic Leverage Ratio;

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

• $0.19 dividend per common share declared.

Investment Activity

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

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

Investment Purchases Sales

Non-Agency Loans $ 9,582 $ —

Agency-Eligible Loans $ 388,733 $ 73,614

Home Equity Loans 136,206 —

Non-Agency Loans — 86,349

Agency RMBS — 543,172

Non-Agency RMBS (1) (2) 51,047 2,215

CMBS (1) — 1,531

Total $ 575,986 $ 706,881

(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.

(1) Includes sales of $2.2 million and $1.5 million of Non-Agency RMBS and CMBS, respectively, sold from the legacy portfolio acquired in the WMC acquisition.

(2) During the third quarter, we co-sponsored a rated securitization collateralized by $360.7 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.

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• 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.

◦ On October 25, 2024, sold Home Equity Loans with an unpaid principal balance of $48.9 million.

These loans were recorded within the "Residential mortgage loans, at fair value" line item on the consolidated balance sheets as of September 30, 2024.

Financing Activity

• Executed a rated securitization of Agency-Eligible Loans with a total unpaid principal balance of $390.8 million, converting recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls;

• 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.

• The Company paid off the remaining $79.1 million principal amount outstanding of 6.75% convertible notes ("Legacy WMC Convertible Notes") at maturity in September 2024.

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

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

Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans.

On December 6, 2023, we acquired Western Asset Mortgage Capital Corporation, an externally managed mortgage REIT that focused on investing in, financing and managing a portfolio of residential mortgage loans, real estate related securities, and commercial real estate loans.

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

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

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

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

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

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

Asset Class Description

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

Home Equity Loans (1)

• Home Equity Loans are revolving lines of credit or closed-end loans secured primarily by a second lien on a residential mortgaged property which provide borrowers access to the equity in their home without the need to pay off their existing mortgage.

Home Equity Loans that are structured as revolving lines of credit generally have an initial draw period of 3 to 5 years, and after the initial draw period ends, the loans generally convert to 15- or 25-year amortizing loans.

Re- and Non-Performing Loans (1)

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Government such as Ginnie Mae.

(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.

(1) These investments are included in the "Securitized residential mortgage loans, at fair value" or "Residential mortgage loans, 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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Market Conditions

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 financial markets have been, and will likely continue to remain, volatile given the overall market uncertainty related to inflation, the U.S.

presidential election, and the path of monetary policy and interest rates.

Throughout 2024, markets have displayed a high level of sensitivity to the Federal Reserve’s interest rate decisions.

On September 18, 2024, the Federal Reserve lowered the target range for the Federal Funds Rate by 50 basis points to 4.75% to 5.00%, the first decline in four years.

The Federal Reserve noted that the decrease was supported by greater confidence that inflation is moving sustainably toward 2% with the risks to achieving its employment and inflation goals being roughly in balance.

As of September 2024, the Consumer Price Index report indicated inflation was 2.4% year over year with the unemployment rate remaining at 4.1%.

During the third quarter, the 10-year U.S.

treasury yield decreased by approximately 62 basis points to 3.79% and the 30-year mortgage rate decreased by approximately 78 basis points to 6.1%.

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

treasury yields at approximately 14 basis points positive sloping, re-establishing a normal yield curve.

Despite the decline in benchmark and mortgage rates during the third quarter, this momentum reversed in the months of October and November.

Upon the Republican party winning the U.S.

presidential election, stock markets experienced notable increases, the U.S.

dollar strengthened, and benchmark rates increased continuing the themes of market uncertainty and volatility which could impact our industry.

The latest Federal Open Market Committee member median projection for the path of the Federal Funds Rate indicates 50 basis points of further rate cuts across the remaining two Federal Open Market Committee meetings this year followed by 100 basis points of rate cuts in 2025.

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

RMBS spreads continued to tighten during the third quarter, and credit curves remained relatively flat.

Pricing dynamics have been supported by strong investor interest for mortgage credit assets given high quality underwriting, rising home values and low housing supply.

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

CRT tranches tightened by 10 to 35 basis points.

Senior and mezzanine (BBB) Non-QM tranches tightened by 5 basis points, while the subordinate BB rated tranches tightened by 20 basis points.

Primary RMBS market activity increased during the third quarter, totaling approximately $36 billion, an increase of 7% quarter-over-quarter and 88% against year-ago activity.

The Non-QM sector ($11 billion) and Prime Jumbo sector ($8 billion) collectively comprised over half of the quarter’s new issuance.

Additionally, issuance of RMBS backed by second liens and Home Equity Loans held steady, totaling over $3 billion, or 9% of the quarter’s activity, as focus has shifted to this rapidly expanding sector.

Residential Transition Loan RMBS totaled over $1.9 billion or 5% of third quarter issuance as well.

Year-to-date, primary RMBS activity is just below $100 billion, surpassing all of 2023.

The rise in the S&P CoreLogic Case-Shiller U.S.

National Home Price Index persisted through July 2024.

The Index was higher by 5% both year-to-date and year-over-year, but regionally, home price performance has been somewhat varied.

Amid the rise in actual home prices, national home price expectations from third party research has generally reset higher with the average of the 2024 forecasts now approximating +3.5% and an average forecast for 2025 of +3%.

Prevailing mortgage rates fell sharply in the third quarter near 6% before rebounding to 6.4% in mid-October.

Rates rose back above 7% during the second quarter of 2024 but descended quickly in August and September, according to Freddie Mac Primary Mortgage Market Survey.

The effective mortgage rate outstanding was 3.92% as of June 2024, the latest data available, and remains well below prevailing rates.

However, the “lock-in effect,” or disincentive for existing homeowners to sell their homes because their current mortgage rate is well below current market rates, is starting to show signs of decay as the effective mortgage rate has risen approximately 60 basis points since March 2022.

Total existing home listings continued to rise to 1.35 million in August, the highest reading since the fourth quarter of 2020.

However, new listings are trending short of annual activity in 2015 through 2019, as well as the pandemic-affected years of 2020 through 2022.

From January 1, 2024 through August of 2024, approximately 3.1 million new listings came to market, almost 900 thousand fewer new listings than the same periods in 2015 through 2022.

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

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

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

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

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

Book value and Adjusted book value per share

The below table details book value and adjusted book value per common share.

Book value per share

The below table details book value per common share.

Book value is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock.

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Book value per common share $ 10.58 $ 10.20

Net proceeds of preferred stock less liquidation preference of preferred stock per common share (1) (0.26) (0.26)

Adjusted book value per common share $ 10.37 $ 10.20

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

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

Results of Operations

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

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

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

Three Months Ended

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

September 30, 2024 September 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 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).

Interest income increased from the three months ended September 30, 2023 to the three months ended September 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 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 ($ in millions).

Three Months Ended

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

September 30, 2024 September 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 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.

Interest expense increased from the three months ended September 30, 2023 to the three months ended September 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.

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

The following table presents a summary of the weighted average financing balance and the weighted average financing rate on our GAAP investment portfolio ($ in millions).

Three Months Ended

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

September 30, 2024 September 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 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)

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

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

September 30, 2024 September 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 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.

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

The realized loss during the three months ended September 30, 2024 was primarily driven by losses on unwinding pay-fix, receive-variable interest rate swaps which were held at unrealized losses, offset by gains on the sales of Agency RMBS.

Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 124 $ (1,061)

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Net unrealized gain/(loss)

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.

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

During the three months ended September 30, 2024, there were unrealized gains on our residential mortgage loans and Non-Agency RMBS which were offset by unrealized losses on securitized debt and interest rate swaps.

Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Residential mortgage loans $ 192,918 $ (92,322)

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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 June 30, 2024, the base management fee was reduced by $0.6 million.

During the three months ended September 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 June 30, 2024 and 2023 (in thousands).

The following table presents a summary of our non-investment related expenses (in thousands).

Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

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

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Total Non-investment related expenses $ 2,750 $ 2,454

(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.

(1) For the three months ended September 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, $0.2 million remains outstanding as of September 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 June 30, 2024 and 2023 (in thousands).

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 investment related expenses.

The following table presents a summary of our investment related expenses (in thousands).

Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Affiliate reimbursement $ 194 $ 148

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Total Investment related expenses $ 3,411 $ 2,347

(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 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.

Transaction related expenses decreased from the three months ended September 30, 2023 to the three months ended September 30, 2024 primarily due to less expenses associated with securitizations and, for the three months ended September 30, 2023, we incurred $4.9 million of transaction expenses attributable to the WMC acquisition.

Equity in earnings/(loss) from affiliates

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Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

MATT Non-QM Securities (1) $ (1,070) $ 2,606

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Equity in earnings/(loss) from affiliates

(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.

$ (849) $ 188

(1) For the three months ended September 30, 2024, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $0.6 million and net unrealized losses of $(1.7) million.

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

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

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Three Months Ended

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Interest income $ 924 $ 1,410

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Equity in earnings/(loss) from affiliates

(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.

$ (849) $ 188

(1) The earnings/(loss) at AG Arc during the three months ended September 30, 2024 were the result of $(0.1) million related to changes in the fair value of the MSR portfolio held by Arc Home and $(0.1) million of losses related to Arc Home's lending and servicing operations.

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

(2) As of September 30, 2024, the fair value of our investment in Arc Home was calculated using a valuation multiple of 0.95x of book value, which was increased from 0.94x of book value as of June 30, 2024.

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

(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)

Dividends on Preferred Stock

Holders of our Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock are entitled to receive cumulative cash dividends at their respective rates per annum on the $25.00 per share liquidation preference for each series.

Our Series A Preferred Stock and Series B Preferred Stock have fixed rates of 8.25% and 8.00%, respectively.

The initial dividend rate for our Series C Preferred Stock, from issuance through September 16, 2024, was 8.000%.

On and after September 17, 2024, dividends on the Series C Preferred Stock accumulate at an annual floating rate of three-month CME Term SOFR (plus a tenor spread adjustment of 0.26161%) plus a spread of 6.476%.

Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023

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

Nine Months Ended

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

Statement of Operations Data:

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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)

Interest income increased from the nine months ended September 30, 2023 to the nine months ended September 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 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 ($ in millions).

Nine Months Ended

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

Weighted average amortized cost of our GAAP investment portfolio

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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.

Interest expense increased from the nine months ended September 30, 2023 to the nine months ended September 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.

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)

The following table presents a summary of the weighted average financing balance and the weighted average financing rate on our GAAP investment portfolio ($ in millions).

Nine Months Ended

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

Weighted average GAAP financing balance

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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)

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

Interest income increased from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 as a result of an increase in the net weighted average notional balance along with an increase in the net weighted average receive rate during the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023.

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

September 30, 2024 September 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 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

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

The realized loss during the nine months ended September 30, 2024 was primarily driven by losses from unwinding pay-fix, receive-variable interest rate swaps which were held at unrealized losses, offset by gains on the sales of Agency RMBS and Non-Agency RMBS.

Nine Months Ended

September 30, 2024 September 30, 2023

Sales of residential mortgage loans and loans transferred to or sold from Other assets $ 323 $ (11,409)

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Net unrealized gain/(loss)

The following table presents a summary of Net unrealized gain/(loss) for the six months ended June 30, 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

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

During the nine months ended September 30, 2024, there were unrealized gains on residential mortgage loans and interest rate swaps offset by unrealized losses on our securitized debt.

Nine Months Ended

September 30, 2024 September 30, 2023

Residential mortgage loans $ 207,250 $ (13,217)

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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.

During the nine months ended September 30, 2024, the base management fee was reduced by $1.8 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

The following table presents a summary of our non-investment related expenses (in thousands).

Nine Months Ended

September 30, 2024 September 30, 2023

Affiliate reimbursement (1) $ 4,936 $ 4,200

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Total Non-investment related expenses $ 8,610 $ 7,848

(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.

(1) For the nine months ended September 30, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.9 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, $0.2 million remains outstanding as of September 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

The following table presents a summary of our investment related expenses (in thousands).

Nine Months Ended

September 30, 2024 September 30, 2023

Affiliate reimbursement $ 395 $ 360

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Total Investment related expenses $ 10,185 $ 6,905

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.

Transaction related expenses decreased from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 primarily due to less expenses associated with securitizations and, for the nine months ended September 30, 2023, we incurred $4.9 million of transaction expenses attributable to the WMC acquisition.

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

Nine Months Ended

September 30, 2024 September 30, 2023

MATT Non-QM Securities (1) $ 307 $ 4,580

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$ 2,099 $ 642

(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.

(1) For the nine months ended September 30, 2024, the earnings/(loss) generated from our investment in MATT Non-QM Securities consisted of interest income of $2.2 million, net unrealized losses of $(1.8) million, and other expenses of $(0.1) million.

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

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

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

Six Months Ended

June 30, 2024 June 30, 2023

Nine Months Ended

September 30, 2024 September 30, 2023

Interest income $ 3,055 $ 4,923

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$ 2,099 $ 642

(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.

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

The earnings/(loss) at AG Arc during the nine months ended September 30, 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 $(0.5) million of losses related to Arc Home's lending and servicing operations.

(2) As of September 30, 2024, the fair value of our investment in Arc Home was calculated using a valuation multiple of 0.95x of book value, which was increased from 0.89x of book value as of December 31, 2023.

(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.

Dividends on Preferred Stock

Our Series A Preferred Stock and Series B Preferred Stock have fixed rates of 8.25% and 8.00%, respectively.

The initial dividend rate for our Series C Preferred Stock, from issuance through September 16, 2024, was 8.000%.

Earnings Available for Distribution

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

Three Months Ended

Six Months Ended

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

Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Net Income/(loss) available to common stockholders $ 11,924 $ (6,751) $ 27,567 $ 4,673

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Earnings available for distribution, per Diluted Share $ 0.17 $ 0.10 $ 0.59 $ 0.21

(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.

(1) For the three months ended September 30, 2024 and 2023, total transaction related expenses and deal related performance fees included $0.7 million and $7.6 million, respectively, recorded within the "Transaction related expenses" line item and $25 thousand and $9 thousand, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

For the nine months ended September 30, 2024 and 2023, total transaction related expenses and deal related performance fees included $2.2 million and $9.7 million, respectively, recorded within the "Transaction related expenses" line item and $0.1 million and $0.2 million, respectively, recorded within the "Interest expense" line item, which relates to the amortization of deferred financing costs.

(2) For the three months ended September 30, 2024 and 2023, $32 thousand or $0.00 per share and $0.4 million or $0.02 per share, respectively;

and for the nine months ended September 30, 2024 and 2023, $1.6 million or $0.05 per share and $1.2 million or $0.06 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 September 30, 2024 and 2023, $0.8 million or $0.03 per share and $(1.9) million or $(0.09) per share, respectively;

and for the nine months ended September 30, 2024 and 2023, $2.5 million or $0.08 per share and $(1.7) million or $(0.08) per share, respectively, of unrealized changes in the fair value of our investment in Arc Home were excluded from EAD.

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

For the three months ended June 30, 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.

For the three months ended September 30, 2024 and 2023, we eliminated $0.4 million or $0.01 per share and $0.8 million or $0.04 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 nine months ended September 30, 2024 and 2023, we eliminated $1.0 million or $0.03 per share and $1.1 million or $0.06 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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The weighted average yield represents an effective interest rate on our cost basis, which utilizes all estimates of future cash flows and adjusts for actual prepayment and cash flow activity as of quarter-end.

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

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

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

GAAP and non-GAAP cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio and our investment portfolio, respectively, and the fair value of securitized debt at quarter-end.

GAAP and non-GAAP cost of funds are weighted by the outstanding financing arrangements on our GAAP investment portfolio and our investment portfolio, respectively, and the cost of securitized debt at quarter-end.

Our leverage ratio is determined by our portfolio mix as well as many additional factors, including the liquidity of our portfolio, the availability and price of our financing, the available capacity to finance our assets, and anticipated regulatory developments.

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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 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

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

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

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

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

Residential Investments

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Securitized Re/Non-Performing Loans 188,142 174,533 6.10 % 112,682 106,069 42,688 4.33 % 25,776 1.77 % 1.6x

Non-Agency Loans 101,484 102,338 7.16 % — — 79,705 6.26 % 22,633 0.90 % 3.5x

Agency-Eligible Loans 111,667 112,821 6.76 % — — 103,745 6.57 % 9,076 0.19 % 11.4x

Home Equity Loans 135,272 136,854 9.62 % — — 114,475 5.93 % 22,379 3.69 % 5.1x

Non-Agency Loans 13,770 13,405 4.52 % — — 7,674 5.04 % 5,731 (0.52) % 1.3x

Residential Whole Loans 860 1,967 111.21 % — — — — % 1,967 111.21 % N/A

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Agency RMBS 21,068 20,237 7.95 % — — 2,141 5.56 % 18,096 2.39 % 0.1x

Legacy WMC Commercial Investments (e)

Legacy WMC Commercial Investments (f)

Commercial Loans 66,458 66,875 9.63 % — — 47,222 8.13 % 19,653 1.50 % 2.4x

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

CMBS (g) 57,987 52,685 16.93 % — — 20,313 6.88 % 32,372 10.05 % 0.6x

Total Legacy WMC Commercial Investments 124,445 119,560 13.03 % — — 67,535 7.75 % 52,025 5.28 % 1.3x

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Total Investment Portfolio $ 6,972,893 $ 6,776,239 5.93 % $ 5,623,880 $ 5,497,552 $ 793,039 5.25 % $ 485,648 0.68 % 1.5x

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

Interest Rate Swaps (h) 24,120 1.38 %

Cash and Cash Equivalents (h) 102,532 4.82 %

Interest Rate Swaps (i) 7,956 1.68 %

Arc Home 30,967

Convertible Senior Unsecured Notes (78,849) (8.42) %

Senior Unsecured Notes (95,548) 10.61 %

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Total Stockholders' Equity $ 540,085 1.5x

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

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

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

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

Total Investment Portfolio $ 6,972,893 $ 6,776,239 5.93 % $ 5,623,880 $ 5,497,552 $ 793,039 5.25 % $ 485,648 0.68 % 1.5x

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

Investments in Debt and Equity of Affiliates 16,745 20,061 20.59 % — — 3,540 7.66 % 16,521 12.93 % (j)

GAAP Investment Portfolio $ 6,956,148 $ 6,756,178 5.90 % $ 5,623,880 $ 5,497,552 $ 789,499 5.25 % $ 469,127 0.65 % 11.8x

(a) Excludes any net TBA positions.

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

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.

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

(b) As of September 30, 2024, the weighted average yields are presented based on the amortized cost of the underlying loans and securities.

The weighted average yield of the Company's investment portfolio based on the fair value of the underlying loans and securities as of September 30, 2024 was 6.00%.

(c) The cost of funds related to the financing on our investment portfolio inclusive of the benefit of 0.08% from our interest rate hedges was 5.25%.

When including our Senior Unsecured Notes, the total cost of funds was 5.33%.

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

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

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

The leverage ratio on our GAAP Investment Portfolio represents GAAP leverage as defined below in the "Financing Activities" section.

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

(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.

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

(g) As of September 30, 2024, there are Legacy WMC CMBS with an unpaid principal balance of $23.5 million and a fair value of $6.3 million which are on non-accrual or cost recovery status.

(h) 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.

(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.

(i) 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.

(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

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

Coupon (2) Weighted

Average Yield Weighted Average

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

Residential Investments

Residential Mortgage Loans

Securitized Non-Agency Loans (4) $ 6,004,579 $ 5,989,663 $ (371,072) $ 5,618,591 5.44 % 5.70 % 9.01 $ 5,175,169

Securitized Re- and Non-Performing Loans 207,193 191,566 (18,311) 173,255 4.00 % 6.19 % 5.74 183,112

Non-Agency Loans 100,139 101,484 854 102,338 8.26 % 7.16 % 3.28 94,516

Agency-Eligible Loans 194,047 196,587 417 197,004 7.21 % 6.75 % 4.72 220,709

Re- and Non-Performing Loans 2,271 838 1,283 2,121 N/A 127.29 % 1.53 2,406

Total Residential Mortgage Loans 6,508,229 6,480,138 (386,829) 6,093,309 5.49 % 5.82 % 8.69 5,675,912

Non-Agency RMBS

GCAT Non-Agency RMBS (5)

GCAT Non-Agency Securities 43,794 41,727 (7,115) 34,612 4.68 % 6.08 % 8.92 32,542

GCAT Non-Agency RMBS Interest Only (6) N/A 2,362 1,865 4,227 0.54 % 34.55 % 4.62 4,991

MATT Non-QM Securities (6) 4,497 9,692 5,248 14,940 0.63 % 39.70 % 3.33 15,257

Re/Non-Performing Securities (6) 5,516 7,294 (48) 7,246 0.98 % 14.71 % 0.41 7,569

Total GCAT Non-Agency RMBS 53,807 61,075 (50) 61,025 1.32 % 17.31 % 3.95 60,359

Non-Agency Securities 35,912 30,820 1,453 32,273 5.72 % 7.43 % 11.16 51,006

Non-Agency RMBS Interest Only (6) N/A 488 28 516 0.33 % 27.70 % 5.96 1,083

Total Non-Agency RMBS 89,719 92,383 1,431 93,814 1.61 % 13.97 % 4.63 112,448

Total Residential Investments 6,597,948 6,572,521 (385,398) 6,187,123 5.28 % 5.94 % 8.37 5,788,360

30 Year Fixed Rate 540,198 543,816 (1,146) 542,670 5.89 % 5.78 % 8.36 —

Agency RMBS Interest Only (6) N/A 21,627 226 21,853 4.02 % 10.73 % 6.75 15,694

Total Agency RMBS 540,198 565,443 (920) 564,523 5.57 % 5.97 % 8.08 15,694

Legacy WMC Commercial Investments (7)

Commercial Loans 67,204 66,407 346 66,753 9.26 % 10.27 % 1.01 66,303

CMBS (8) 103,399 58,590 (6,020) 52,570 5.79 % 19.69 % 2.20 56,349

Total Legacy WMC Commercial Investments 170,603 124,997 (5,674) 119,323 7.16 % 14.42 % 1.73 122,652

Other Securities (9) N/A 1,077 131 1,208 N/A 21.06 % 7.19 1,156

Investment Portfolio $ 7,308,749 $ 7,264,038 $ (391,861) $ 6,872,177 5.35 % 6.09 % 8.20 $ 5,927,862

Investments in Debt and Equity of Affiliates

Non-Agency RMBS $ 10,013 $ 16,986 $ 5,200 $ 22,186 0.69 % 31.54 % 3.08 $ 22,826

GAAP Investment Portfolio $ 7,298,736 $ 7,247,052 $ (397,061) $ 6,849,991 5.46 % 6.01 % 8.42 $ 5,905,036

(1) Refer to Note 10 to the "Notes of the Consolidated Financial Statements (unaudited)" for more detail on what is included in our "Investments in debt and equity of affiliates" line item on our consolidated balance sheets.

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

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

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

Typically, actual maturities are shorter than stated contractual maturities.

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

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

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

(6) Interest Only have no principal balances and bear interest based on a notional value.

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

The GCAT Non-Agency RMBS Interest Only, MATT Non-QM Securities, Re/Non-Performing Securities, Non-Agency RMBS Interest Only, and Agency RMBS Interest Only line items include interest only classes with notional values of $89.2 million, $287.7 million, $22.4 million, $56.5 million, and $112.3 million, respectively.

(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.

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

Securitized Non-Agency Loans

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

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

June 30, 2024

Unpaid Principal Balance Fair Value

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Retained Certificates from Non-Agency VIEs, net of financing arrangements $ 296,830

(1) Interest Only have no principal balances and bear interest based on a notional value.

(1) Interest Only securities have no principal balances and bear interest based on a notional value.

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

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.

As of September 30, 2024, the Securitized debt in Non-Agency VIEs line item includes interest only classes with a notional value of $1.3 billion.

As of September 30, 2024, the notional value of Interest Only / Excess Servicing Bonds was $11.6 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 June 30, 2024, we recorded real estate owned within our Non-Agency VIEs at $2.4 million.

As of September 30, 2024, we recorded real estate owned within our Non-Agency VIEs at $0.7 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 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.

(4) As of September 30, 2024, our equity at risk included bonds with a fair value of $438.6 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 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.

(5) As of September 30, 2024, a portion of our equity at risk included bonds exposed to the first loss of the securitization with a fair value of $112.6 million.

(6) Excludes net other asset/(liabilities) held within the VIEs of $7.8 million as of September 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 June 30, 2024, there were three securitizations with an unpaid principal balance of $0.4 billion that met the criteria for an Optional Redemption.

As of September 30, 2024, there were four securitizations with an unpaid principal balance of $0.6 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).

The following table presents information regarding collateral characteristics of our residential mortgage loans as of September 30, 2024 ($ in thousands).

Unpaid Principal Balance Weighted Average (1)(2)

June 30, 2024

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

Loan Count (1) Original LTV Ratio (3) Current FICO (4) Coupon Life (Years) (5)

Securitized residential mortgage loans

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Residential mortgage loans

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

Agency-Eligible Loans $ 109,219 235 72.93 % 778 7.58 % 3.73

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

Home Equity Loans 130,652 1,725 65.33 % 742 10.72 % 4.25

Non-Agency Loans 14,018 25 65.88 % 644 7.57 % 3.61

Re- and Non-Performing Loans (1) 2,094 N/A N/A N/A N/A 1.46

Total Residential mortgage loans $ 255,983 1,985 68.63 % 749 9.19 % 3.97

Total as of June 30, 2024

Total as of September 30, 2024

$ 6,701,366 18,853 68.14 % 758 5.69 % 8.49

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

For Home Equity Loans, represents the combined LTV, which considers the loan balances on a borrower’s first mortgage and related Home Equity Loan.

(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.

Data is based on the latest available information.

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

Typically, actual maturities are shorter than stated contractual maturities.

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

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

See Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for information on the geographic concentration, collateral characteristics, LTV, and maturities of the loans we include in the "Commercial loans, at fair value" line item on our consolidated balance sheets.

See Note 3 to the "Notes to Consolidated Financial Statements (unaudited)" for information on the coupons, weighted average life, geographic concentration, collateral characteristics, LTV, and maturities of the loans we include in the "Commercial loans, at fair value" line item on our consolidated balance sheets.

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 June 30, 2024 (in thousands).

The following table presents the fair value, coupon, and weighted average life of our Non-Agency RMBS and Legacy WMC CMBS and Other Securities portfolios as of September 30, 2024 ($ in thousands).

Weighted Average

Instrument Current Face Fair Value Coupon (1) Life (Years) (2)

GCAT Non-Agency RMBS

GCAT Non-Agency Securities $ 43,794 $ 37,424 4.82 % 6.93

GCAT Non-Agency RMBS Interest Only (3) N/A 3,469 0.81 % 3.10

MATT Non-QM Securities (3) 4,497 13,050 0.45 % 3.11

Re/Non-Performing Securities (3) 5,516 7,011 1.01 % 0.15

Total GCAT Non-Agency RMBS 53,807 60,954 1.32 % 3.31

Non-Agency Securities 84,641 81,797 6.16 % 11.18

Non-Agency RMBS Interest Only (3) N/A 948 0.50 % 6.28

Total Non-Agency RMBS $ 138,448 $ 143,699 2.13 % 4.81

CMBS 100,896 52,685 5.37 % 2.14

Other Securities N/A 998 N/A 7.80

Total Non-Agency RMBS, CMBS, and Other Securities $ 239,344 $ 197,382 2.76 % 4.43

Investments in Debt and Equity of Affiliates $ 10,013 $ 20,061 0.54 % 2.85

Total GAAP Non-Agency RMBS and CMBS $ 229,331 $ 177,321 3.81 % 5.65

(1) Equity residual investments with a zero coupon rate are excluded from this calculation.

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

Typically, actual maturities are shorter than stated contractual maturities.

(3) Interest Only securities have no principal balances and bear interest based on a notional value.

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

As of September 30, 2024, the notional value of interest only classes included in t he GCAT Non-Agency RMBS Interest Only, MATT Non-QM Securities, Re/Non-Performing Securities, and Non-Agency RMBS Interest Only line items was $87.3 million, $274.8 million, $21.5 million, and $81.4 million, respectively.

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

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

AAA $ 30,886 $ — $ —

AA 18,426 — —

BBB 19,653 4,889 —

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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 June 30, 2024 (in thousands).

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

The following table presents the collateral type of our Non-Agency RMBS and Legacy WMC CMBS portfolio as of September 30, 2024 (in thousands).

Instrument Current Face Fair Value

Non-Agency RMBS

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Prime (1) 78,918 77,742

Credit Risk Transfer 2,000 2,183 5.67

Total Non-Agency RMBS $ 138,448 $ 143,699

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Total Legacy WMC CMBS $ 100,896 $ 52,685

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

Typically, actual maturities are shorter than stated contractual maturities.

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

(1) The current face on our Non-Agency RMBS excludes interest only classes which have no principal balances and bear interest based on a notional value.

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

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).

As of September 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 $362.1 million, $21.5 million, and $81.4 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 September 30, 2024 ($ in thousands).

Non-Agency RMBS Legacy WMC CMBS

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Texas 5.4 % 7,801 Texas 5.5 % 2,911

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

North Carolina 3.4 % 4,836 New York 3.0 % 1,600

Other 40.4 % 58,110 Other 15.6 % 8,169

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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 June 30, 2024 ($ in thousands).

Fair Value CPR (1)

30 Year Fixed Rate $ 542,670 7.4 %

The following table presents certain characteristics of our Agency RMBS portfolio as of September 30, 2024 ($ in thousands).

Weighted Average

Fair Value CPR (1) Coupon Life (2)

Agency RMBS Interest Only $ 20,237 4.6 % 4.06 % 5.70

Total/Weighted Average $ 564,523 7.1 %

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

(1) Represents the weighted average monthly Constant Prepayment Rates ("CPR") published during the period for our in-place portfolio.

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

Typically, actual maturities are shorter than stated contractual maturities.

Financing activities

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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 June 30, 2024 and December 31, 2023, respectively.

We had outstanding financing arrangements with six and seven counterparties as of September 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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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.

As of September 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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Through our acquisition of WMC, we assumed the Legacy WMC Convertible Notes.

In September 2024, we paid off the remaining principal amount outstanding of the Legacy WMC Convertible Notes at maturity.

See Note 6 to the "Notes to Consolidated Financial Statements (unaudited)" for additional information on the Legacy WMC Convertible Notes.

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Recourse and non-recourse financing

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

June 30, 2024

December 31, 2023

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

September 30, 2024

Recourse financing - Financing arrangements, including those in Investments in Debt and Equity of Affiliates $ 739,704

Recourse Financing - Legacy WMC Convertible Notes 78,849 85,266

Recourse Financing - Senior Unsecured Notes 95,548

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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) 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:

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) Senior Unsecured Notes, and (4) 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:

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

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

June 30, 2024 Leverage Stockholders’ Equity Leverage Ratio

September 30, 2024 Leverage Stockholders’ Equity Leverage Ratio

Securitized debt, at fair value $ 5,497,552

GAAP Financing arrangements 789,499

Convertible senior unsecured notes 78,849

Senior Unsecured Notes 95,548

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(1) Non-recourse financing arrangements include securitized debt and other non-recourse financing arrangements.

December 31, 2023 Leverage Stockholders' Equity Leverage Ratio

Securitized debt, at fair value $ 4,711,623

GAAP Financing arrangements 767,592

Convertible senior unsecured notes 85,266

Restricted cash posted on financing arrangements (1,696)

GAAP Leverage $ 5,562,785 $ 528,368 10.5x

Financing arrangements through affiliated entities 3,605

Non-recourse financing arrangements (1) (4,774,595)

Net TBA (receivable)/payable adjustment (9,163)

Economic Leverage $ 782,632 $ 528,368 1.5x

(1) Non-recourse financing arrangements include securitized debt and other non-recourse financing arrangements.

Hedging activities

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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 June 30, 2024.

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

During the nine months ended September 30, 2024, the Company declared common stock dividends of $0.56.

During the same period, the Company declared and paid preferred stock dividends on its Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock of $1.54689, $1.50, and $1.50, respectively.

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Our principal sources of cash consist of borrowings under financing arrangements, principal and interest payments we receive on our investment portfolio, cash generated from our operating results, and proceeds from capital market transactions.

We typically use cash to repay principal and interest on our financing arrangements, to purchase loans, real estate securities, and other real estate related assets, to make dividend payments on our capital stock, to repurchase our capital stock, and to fund our operations.

We typically use cash to repay principal and interest on our financing arrangements, to purchase loans, real estate securities, and other real

estate related assets, to make dividend payments on our capital stock, to repurchase our capital stock, and to fund our operations.

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

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

At 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.

At September 30, 2024, we had $119.7 million of liquidity, which consisted of $102.5 million of cash and cash equivalents and $17.2 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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We may also receive margin calls on our derivatives based on the implied volatility of interest rates.

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

be required to post collateral with us.

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

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

Six Months Ended

June 30, 2024 June 30, 2023 Change

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

Nine Months Ended

September 30, 2024 September 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 $ 114,218 $ 139,262 $ (25,044)

(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.

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

(2) Cash used in investing activities for the nine months ended September 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 nine months ended September 30, 2024 was primarily attributable to proceeds from the issuance of securitized debt and our Senior Unsecured Notes and net borrowings under financing agreements, offset by principal repayments on securitized debt, repurchases of the Legacy WMC Convertible Senior Unsecured Notes and the subsequent payoff of the Legacy WMC Convertible Senior Unsecured Notes at maturity, 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 and six months ended June 30, 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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Equity distribution agreements

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

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

we may sell up to $100.0 million aggregate offering price of shares of our common stock from time to time through the Sales Agents, under the Securities Act of 1933.

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

Effective November 6, 2024, the Company terminated the Equity Distribution Agreements and entered into new equity distribution agreements (the "2024 Equity Distribution Agreements") with each of BTIG, LLC, JonesTrading Institutional Services LLC, Keefe, Bruyette & Woods, Inc.

and Piper Sandler & Co.

(collectively, the "2024 Sales Agents").

Pursuant to the 2024 Equity Distribution Agreements, the Company may sell up to $75.0 million aggregate offering price of shares of its common stock from time to time through an "at the market" equity offering program under which the 2024 Sales Agents will act as sales agent and/or principal.

Forward-looking statements regarding liquidity

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

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

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

Three Months Ended Nine Months Ended

Consolidated statements of operations line item:

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

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Management fee to affiliate (1) $ 1,708 $ 2,054 $ 5,202 $ 6,190

(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.

(1) For the three and nine months ended September 30, 2024, the Manager agreed to waive its right to receive management fees of $0.6 million and $1.8 million, respectively, pursuant to the MITT Management Agreement Amendment executed in connection with the Merger.

As of September 30, 2024, all of the $2.4 million management fee waiver agreed upon in connection with the Merger has been utilized.

As of September 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 and six months ended June 30, 2024 and 2023, we did not incur any incentive fee expense.

During the three and nine months ended September 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 June 30, 2024 and December 31, 2023, no event of termination of the management agreement had occurred.

As of September 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 and six months ended June 30, 2024 and 2023 (in thousands).

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

Consolidated statements of operations line item:

June 30, 2024

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

September 30, 2024

September 30, 2023 September 30, 2024 September 30, 2023

Non-investment related expenses (1)

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Expense reimbursements to Manager or its affiliates $ 1,852 $ 1,874 $ 5,727 $ 5,267

(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.

(1) For the three and nine months ended September 30, 2024, the Manager agreed to waive its right to receive expense reimbursements of $0.3 million and $0.9 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, $0.2 million remains outstanding as of September 30, 2024.

As of September 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 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.

As of September 30, 2024, 406,539 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 September 30, 2024, we have granted an aggregate of 232,467 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 June 30, 2024, the two independent directors have also been granted an aggregate of 1,040 dividend equivalent units.

Through September 30, 2024, the two independent directors have also been granted an aggregate of 1,698 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.

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

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

As of September 30, 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 Plan.

Unfunded commitments

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

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

Refer to Note 7 to the "Notes to Consolidated Financial Statements (unaudited)" for additional detail on TBAs as of September 30, 2024, if applicable.

For additional information on our commitments as of September 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 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.

Although our estimates contemplate conditions as of September 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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"Investment securities" do not include, among other things, U.S.

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

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

certain investments.

government securities and securities issued by majority-owned subsidiaries that (i) are not investment

companies and (ii) are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act.

For example, these restrictions limit our and our subsidiaries’ ability to invest directly in Agency RMBS mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans or debt and equity tranches of Non-Agency RMBS (in each case to the extent such interest are not retained interest in securitizations consisting of mortgage loans that were owned by us and such securitizations were not sponsored by us in order to obtain financing to acquire additional mortgage loans), certain real estate companies and assets not related to real estate.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis