AG Mortgage Investment Trust Inc
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
MITT$4.45-10.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001514281-24-000118
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0001514281-24-000155
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 310 previous paragraphs and 304 current paragraphs.
191 unchanged; 90 reworded; 23 added; 22 removed; 7 previous and 0 current paragraphs rearranged.
Tables are not compared: 38 previous and 37 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (23)
Current report
Third Quarter 2024 Executive Summary
Current report
•$10.58 Book Value per share;
Current report
•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.
Current report
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 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.
Current report
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.
Current report
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%.
Current report
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.
Current report
Book value per share
Current report
(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.
Current report
Dividends on Preferred Stock
Current report
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%.
Current report
The following table presents a summary of our non-investment related expenses (in thousands).
Current report
(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.
Current report
(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. 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 December 31, 2022.
Current report
Dividends on Preferred Stock
Current report
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 $25.00 per share liquidation preference for each series. Our Series A Preferred Stock and Series B Preferred Stock have fixed rates of 8.25% and 8.00%, respectively. The initial dividend rate for our Series C Preferred Stock, from issuance through September 16, 2024, was 8.000%. On and after September 17, 2024, dividends on the Series C Preferred Stock accumulate at an annual floating rate of three-month CME Term SOFR (plus a tenor spread adjustment of 0.26161%) plus a spread of 6.476%.
Current report
(b)As of September 30, 2024, the weighted average yields are presented based on the amortized cost of the underlying loans and securities. The weighted average yield of the Company's investment portfolio based on the fair value of the underlying loans and securities as of September 30, 2024 was 6.00%.
Current report
(c)The cost of funds related to the financing on our investment portfolio inclusive of the benefit of 0.08% from our interest rate hedges was 5.25%. When including our Senior Unsecured Notes, the total cost of funds was 5.33%.
Current report
(f)We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.
Current report
The following table presents the fair value, coupon, and weighted average life of our Non-Agency RMBS and Legacy WMC CMBS and Other Securities portfolios as of September 30, 2024 ($ in thousands).
Current report
(2)Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities.
Current report
(2)Weighted average life is based on projected life. Typically, actual maturities are shorter than stated contractual maturities. .
Current report
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.
Removed paragraphs (22)
Previous report
•our ability to refinance the remaining portion of the senior convertible notes assumed in the WMC acquisition in the manner anticipated or at all;
Previous report
Second Quarter 2024 Executive Summary
Previous report
•$10.63 Book Value per share and $10.37 Adjusted Book Value per share;
Previous report
◦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.
Previous report
•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.
Previous report
The second quarter of 2024 continued to experience volatility in the financial markets due to the overall market uncertainty related to inflation, the path of monetary policy and interest rates and the recent developments of the upcoming U.S. presidential election. The quarter began with the March Consumer Price Index report indicating inflation was 3.5% year over year, increasing from prior monthly readings. This report, coupled with the unemployment rate remaining low at 3.8%, resulted in the 10-year U.S. treasury yield increasing by approximately 48 basis points during April 2024 to 4.69% and the 30-year fixed rate mortgage increasing by approximately 43 basis points to 7.2%. As the quarter progressed, the May and June Consumer Price Index reports showed signs of inflation softening with the year over year Consumer Price Index declining to 3.3% and 3.0%, respectively, and the unemployment rate increasing to 4.1%. The increase in benchmark and mortgage rates experienced during April then began to reverse its course with the 10-year U.S. treasury yield decreasing 29 basis points to 4.4% and the 30-year fixed rate mortgage ending the quarter only 7 basis points higher than the start of the quarter. The quarter ended with the spread between the 2-year and 10-year U.S. treasury yields at approximately 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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
Book value and Adjusted book value per share
Previous report
(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.
Previous report
The following table presents a summary of our non-investment related expenses for the six months ended June 30, 2024 and 2023 (in thousands).
Previous report
(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.
Previous report
The following table presents a summary of our investment related expenses for the six months ended June 30, 2024 and 2023 (in thousands).
Previous report
(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.
Previous report
(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%.
Previous report
(e)We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.
Previous report
(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.
Previous report
(4)Securitized Non-Agency Loans include loans that were considered to be Agency-Eligible prior to our securitization.
Previous report
(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.
Previous report
(7)We expect to either hold the Legacy WMC Commercial Investments until maturity or opportunistically exit these investments.
Previous report
(9)Other securities include residual interests in asset-backed securities which have no principal balance.
Reworded paragraphs (90)
Previous wording
We make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in this report that are subject to substantial known and unknown risks and uncertainties. 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.
Current wording
We make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in this report that are subject to substantial known and unknown risks and uncertainties. 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," "remain," "intend," "should," "could," "will," "may" or similar expressions, we intend to identify forward-looking statements.
Previous wording
(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.
Current wording
◦Book value per common share is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock divided by all outstanding common shares as of quarter-end;
Previous wording
•$(0.02) of Net Income/(Loss) Available to Common Stockholders per diluted common share and $0.21 of Earnings Available for Distribution ("EAD") per diluted common share;
Current wording
•$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;
Previous wording
•12.2x GAAP Leverage Ratio and 2.5x Economic Leverage Ratio; and
Current wording
•11.8x GAAP Leverage Ratio and 1.5x Economic Leverage Ratio; and
Previous wording
•$0.19 dividend per common share declared, which represents a 5.6% increase over the prior quarter dividend of $0.18 per common share.
Current wording
•$0.19 dividend per common share declared.
Previous wording
(1)Includes sales of $8.3 million of Non-Agency RMBS sold from the legacy portfolio acquired from Western Asset Mortgage Capital Corporation ("WMC").
Current wording
(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.
Previous wording
(2)During the quarter, we co-sponsored a rated securitization collateralized by $369.2 million of Agency-Eligible Loans. As the co-sponsor, the Company retained an "eligible vertical interest" to comply with risk retention rules which consists of at least 5% of each class of securities issued in the securitization. Upon evaluating our retained interest in the securitization trust, we determined we were not the primary beneficiary and, as a result, did not consolidate the securitization trust and recorded an investment of $18.1 million of Non-Agency RMBS.
Current wording
(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. Upon evaluating our retained interest in the securitization trust, we determined we were not the primary beneficiary and, as a result, did not consolidate the securitization trust and recorded an investment of $51.0 million of Non-Agency RMBS.
Previous wording
◦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; and
Current wording
◦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.
Previous wording
•Executed a rated securitization of Agency-Eligible Loans with a total unpaid principal balance of $309.8 million, converting recourse financing with mark-to-market margin calls to non-recourse financing without mark-to-market margin calls; and
Current wording
•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; and
Previous wording
We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market. We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners. We finance our acquired loans through various financing lines on a short-term basis and utilize TPG Angelo Gordon's proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities. 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.
Current wording
We focus our investment activities primarily on acquiring and securitizing newly-originated residential mortgage loans within the non-agency segment of the housing market. We obtain our assets through Arc Home, LLC ("Arc Home"), our residential mortgage loan originator in which we own an approximate 44.6% interest, and through other third-party origination partners. We finance our acquired loans through various financing lines on a short-term basis and utilize TPG Angelo Gordon's proprietary securitization platform to secure long-term, non-recourse, non-mark-to-market financing as market conditions permit. Through our ownership in Arc Home, we also have exposure to mortgage banking activities. Arc Home is a multi-channel licensed mortgage originator and servicer primarily engaged in the business of originating and selling residential mortgage loans.
Previous wording
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. In addition, we may also invest in other types of residential mortgage loans and other mortgage related assets.
Current wording
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, 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.
Previous wording
(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.
Current wording
(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.
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. 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)"
Current wording
Our investment portfolio and the related financing arrangements are presented along with a reconciliation to GAAP. 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 below for further terms used when describing our investment portfolio.
Previous wording
◦"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).
Current wording
◦"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).
Previous wording
The below table details book value and adjusted book value per common share. Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of quarter-end.
Current wording
The below table details book value per common share. Book value is calculated using stockholders’ equity less the liquidation preference of $228.0 million on our issued and outstanding preferred stock. Per share amounts for book value are calculated using all outstanding common shares in accordance with GAAP as of quarter-end.
Previous wording
Interest income increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 primarily as a result of an increased investment portfolio resulting from the WMC acquisition in December 2023 along with purchases of residential mortgage loans and Agency RMBS during the period and an increase in the weighted average yield of our investment portfolio. The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the three months ended June 30, 2024 and 2023 ($ in millions).
Current wording
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).
Previous wording
Interest expense increased from the three months ended June 30, 2023 to the three months ended June 30, 2024 due to an increase in the GAAP financing balance outstanding resulting from the assumption of financing through the WMC acquisition in December 2023 along with the issuance of securitized debt and Senior Unsecured Notes during the period and an increase in financing arrangements. Additionally, there was an increase in the weighted average financing rate. 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).
Current wording
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 ($ in millions).
Previous wording
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).
Current wording
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).
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
Non-investment related expenses are primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to our Manager or its affiliates. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services. 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).
Current wording
Non-investment related expenses are primarily comprised of professional fees, directors’ and officers’ ("D&O") insurance, directors’ compensation, and certain non-investment related expenses reimbursable to our Manager or its affiliates. We are required to reimburse our Manager or its affiliates for operating expenses incurred by our Manager or its affiliates on our behalf, including certain compensation expenses and other expenses relating to legal, accounting, and other services. 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 (in thousands).
Previous wording
(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.
Current wording
(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.
Previous wording
Investment related expenses are primarily comprised of servicing fees, asset management fees, trustee fees, and certain investment related expenses reimbursable to the Manager or its affiliates. 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).
Current wording
Investment related expenses are primarily comprised of servicing fees, asset management fees, trustee fees, and certain investment related expenses reimbursable to the Manager or its affiliates. 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 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).
Previous wording
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.
Current wording
Historically, transaction related expenses have included expenses primarily associated with purchasing and securitizing residential mortgage loans as well as certain other transaction and performance related fees associated with assets we invest in. Transaction related expenses decreased from the three months ended 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.
Previous wording
(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.
Current wording
(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.
Previous wording
(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.
Current wording
(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 $0.3 million of income related to Arc Home's lending and servicing operations.
Previous wording
Six Months Ended June 30, 2024 compared to the Six Months Ended June 30, 2023
Current wording
Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023
Previous wording
The table below presents certain information from our consolidated statements of operations for the six months ended June 30, 2024 and 2023 (in thousands).
Current wording
The table below presents certain information from our consolidated statements of operations for the nine months ended September 30, 2024 and 2023 (in thousands).
Previous wording
Interest income increased from the six months ended June 30, 2023 to the six months ended June 30, 2024 primarily as a result of an increased investment portfolio resulting from the WMC acquisition in December 2023 along with purchases of residential mortgage loans and Agency RMBS during the period and an increase in the weighted average yield of our investment portfolio. The following table presents a summary of the weighted average amortized cost of and the weighted average yield on our GAAP investment portfolio for the six months ended June 30, 2024 and 2023 ($ in millions).
Current wording
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).
Previous wording
Interest expense increased from the six months ended June 30, 2023 to the six months ended June 30, 2024 due to an increase in the GAAP financing balance outstanding resulting from the assumption of financing through the WMC acquisition in December 2023 along with the issuance of securitized debt and Senior Unsecured Notes during the period and an increase in our financing arrangements. Additionally, there was an increase in the weighted average financing rate. The following table presents a summary of the weighted average financing balance and the weighted average financing rate on our GAAP investment portfolio for the six months ended June 30, 2024 and 2023 ($ in millions).
Current wording
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 ($ in millions).
Previous wording
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).
Current wording
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).
Previous wording
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.
Current wording
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.
Previous wording
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.
Current wording
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.
Previous wording
Our management fee is based upon a percentage of our Stockholders’ Equity. See the "Contractual obligations" section of this Item 2 for further detail on the calculation of our management fee and for the definition of Stockholders’ Equity. During the six months ended June 30, 2024, the base management fee was reduced by $1.2 million in connection with the WMC acquisition. This was offset by an increase in stockholders' equity as calculated pursuant to the management agreement as a result of the WMC acquisition.
Current wording
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.
Previous wording
(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.
Current wording
The following table presents a summary of our investment related expenses (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.
Previous wording
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.
Current wording
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.
Previous wording
(1)For thesix 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 thesix 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.
Current wording
(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.
Previous wording
(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.
Current wording
(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.
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Previous report — wording carried elsewhere
for a discussion of investments in debt and equity of affiliates. See below for further terms used when describing our investment portfolio.
Previous report — wording carried elsewhere
(1)The WMC acquisition in December 2023 resulted in an increase in our residential mortgage loan portfolio of $1.1 billion of unpaid principal balance, which contributed to an increase in servicing fees and other residential loan related expenses.
Previous report — wording carried elsewhere
We define EAD, a non-GAAP financial measure, as Net Income/(loss) available to common stockholders excluding (i) (a) unrealized gains/(losses) on loans, real estate securities, derivatives and other investments, inclusive of our investment in AG Arc, and (b) net realized gains/(losses) on the sale or termination of such instruments, (ii) any transaction related expenses incurred in connection with the acquisition, disposition, or securitization of our investments as well as transaction related expenses incurred in connection with the WMC acquisition, (iii) accrued deal-related performance fees payable to third party operators to the extent the primary component of the accrual relates to items that are excluded from EAD, such as unrealized and realized gains/(losses), (iv) realized and unrealized changes in the fair value of Arc Home's net mortgage servicing rights and the derivatives intended to offset changes in the fair value of those net mortgage servicing rights, (v) deferred taxes recognized at our taxable REIT subsidiaries, if any, (vi) any bargain purchase gains recognized, and (vii) certain other nonrecurring gains or losses.
Previous report — wording carried elsewhere
The following table presents a reconciliation of our Investment Portfolio to our GAAP Investment Portfolio as of June 30, 2024 and December 31, 2023 ($ in thousands).
Previous report — wording carried elsewhere
(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.
Previous report — wording carried elsewhere
(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.
Previous report — wording carried elsewhere
(1) Non-recourse financing arrangements include securitized debt and other non-recourse financing arrangements.