Angel Oak Mortgage REIT Inc

Previous wording

The two-year and five-year Treasury yields were relatively flat in the second quarter, increasing by approximately six basis points and two basis points, respectively. Net of new loan purchases and securitizations, we observed an increase of approximately 216 basis points in the weighted average price of our residential whole loans portfolio since the end of first quarter 2024. Additionally, we have increased the weighted average coupon of our residential whole loans portfolio by 60 basis points since the end of the first quarter 2024 to 7.71% as of the end of the second quarter of 2024. In April, we executed the AOMT 2024-4 securitization as the sole contributor of loans, contributing approximately $300 million in scheduled unpaid principal balance of residential mortgage loans. Additionally, we participated in the AOMT 2024-6 securitization in June, contributing approximately $22.9 million in scheduled unpaid principal balance of residential mortgage loans. During the second quarter of 2024, we purchased $114.4 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.93%, weighted average loan-to-value ratio (“LTV”) of 70.4% and weighted average credit score of 757.

Current wording

On the heels of inflation data and the Fed rate cuts, the two-year and five-year Treasury yields decreased by 112bps and 82bps, respectively, in the third quarter of 2024 compared to the end of June 2024. Net of new loan purchases and securitizations, we observed an increase of approximately 261 basis points in the weighted average price of our residential whole loans portfolio since the end of second quarter 2024. The weighted average coupon of our residential whole loans portfolio held relatively flat at 7.73% as of the end of the third quarter of 2024 compared to 7.71% as of the end of the second quarter of 2024. Subsequent to the end of the third quarter of 2024, in October, we executed the AOMT 2024-10 securitization as the sole contributor of loans, contributing approximately $316.8 million in scheduled unpaid principal balance of residential mortgage loans. During the third quarter of 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average loan-to-value ratio (“LTV”) of 70.0% and weighted average credit score of 754.

Previous wording

Subsequent to the end of the second quarter, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029 (the “Notes”). The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024. The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us. We intend to use the majority of the net proceeds from the offering for general corporate purposes, which may include the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform or other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used the net proceeds from the offering to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

Current wording

On July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029 (the “Notes”). The Notes bear interest at a rate of 9.500% per annum, payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on October 30, 2024. The Notes will mature on July 30, 2029, unless earlier redeemed or repurchased by us. We have deployed the majority of the net proceeds from the offering of the Notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used a portion of the net proceeds from the offering of the Notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million.

Previous wording

Net Interest Margin (“NIM”). Despite holding fewer target assets in the second quarter of 2024 as compared to the second quarter of 2023, an increase in the yield of our target assets generated greater interest income in the second quarter of 2024. Borrowings on our whole loan portfolio decreased as well, reducing our overall interest expense, despite continued high variable interest rates in the second quarter of 2024 compared to the second quarter of 2023.

Current wording

Net Interest Margin (“NIM”). An increase in both the balance and yield of our target assets generated greater interest income in the third quarter of 2024 as compared to the third quarter of 2023. Interest income growth outpaced the growth in interest expense, leading to higher NIM in the third quarter of 2024 compared to the third quarter of 2023.

Previous wording

Net realized loss. Our net realized loss for the quarter ended June 30, 2024 was primarily due to a realized loss on the sale of whole loans contributed into the AOMT 2024-6 securitization which was not consolidated into a VIE, as well as realized losses on loans held in securitization trusts associated with pay downs of underlying loans.

Current wording

Net realized loss. Our net realized loss for the quarter ended September 30, 2024 was primarily due to realized losses associated with rate hedge contracts, as well as paydowns on our residential loans and loans held in securitization trusts portfolios.

Previous wording

Net unrealized gain. Our net unrealized gain for the quarter ended June 30, 2024 was primarily due to an increase in the valuation of our residential whole loans and the net valuation of loans in securitization trust and non-recourse securitization obligation portfolios. Additionally, the reversal of the unrealized loss (and thereby the recognition of net realized loss discussed above) on the sale of residential mortgage loans into the AOMT 2024-6 securitization contributed to our unrealized gain.

Current wording

Net unrealized gain. Our net unrealized gain for the quarter ended September 30, 2024 was driven by an increase in the valuation of our residential whole loans and the net valuation of loans in securitization trust and non-recourse securitization obligation portfolios.

Previous wording

During the quarter ended June 30, 2024, we purchased $114.4 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.93%, weighted average loan-to-value ratio (“LTV”) of 70.4% and weighted average credit score of 757.

Current wording

During the quarter ended September 30, 2024, we purchased $264.8 million of newly-originated, current market coupon non-QM residential mortgage loans, with a weighted average coupon of 7.74%, weighted average LTV of 70.0% and weighted average credit score of 754.

Previous wording

We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized. See “Liquidity and Capital Resources” below for a full description of our financing arrangements. Our total borrowing capacity was $1.1 billion as of June 30, 2024. Highlights of whole loan financing facilities activity over the second quarter of 2024 are as follows:

Current wording

We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized. See “Liquidity and Capital Resources” below for a full description of our financing arrangements. Our total borrowing capacity was $1.1 billion as of September 30, 2024. Highlights of whole loan financing facilities activity over the third quarter of 2024 are as follows:

Previous wording

•During the quarter ended June 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin to 1.75% from 2.00% and (ii) amended our loan financing facility with Global Investment Bank 3 to allow for the financing of closed-end second position residential mortgage loans.

Current wording

•During the quarter ended September 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods.

Previous wording

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the management agreement that we and the Operating Partnership entered into with our Manager upon the completion of our IPO on June 21, 2021 and amended and restated on May 1, 2024 (as amended and restated, the “Management Agreement”). For information on the fees that are payable to our Manager under the Management Agreement, see “Note 10 –Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Current wording

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the management agreement that we and the Operating Partnership entered into with our Manager upon the completion of our initial public offering of common stock (“IPO”) on June 21, 2021 and amended and restated on May 1, 2024 (as amended and restated, the “Management Agreement”). For information on the fees that are payable to our Manager under the Management Agreement, see “Note 10 –Related Party Transactions” in our unaudited condensed consolidated financial statements included in this report.

Previous wording

Distributable Earnings were a loss of $2.3 million and a loss of $3.9 million for the three months ended June 30, 2024 and 2023, respectively. The primary drivers of this quarter’s Distributable Earnings as compared to GAAP net income are the adjustments to remove unrealized gains associated with our residential loans and residential loans in securitization trusts and non-recourse securitization obligation portfolios.

Current wording

Distributable Earnings were a loss of $3.4 million and a loss of $8.6 million for the three months ended September 30, 2024 and 2023, respectively. The primary drivers of this quarter’s Distributable Earnings as compared to GAAP net income are the adjustments to remove unrealized gains associated with our residential loans and residential loans in securitization trusts and non-recourse securitization obligation portfolios.

Previous wording

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and six months ended June 30, 2024 and 2023:

Current wording

The table below sets forth a reconciliation of net income (loss) allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the three and nine months ended September 30, 2024 and 2023:

Previous wording

Distributable Earnings Return on Average Equity is a non-GAAP measure and is defined as annual or annualized Distributable Earnings divided by average total stockholders’ equity. We believe that the presentation of Distributable Earnings Return on Average Equity provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. Additionally, we believe Distributable Earnings Return on Average Equity provides investors with additional detail on the Distributable Earnings generated by our invested equity capital. We believe Distributable Earnings Return on Average Equity as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings Return on Average Equity should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs. Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and six months ended June 30, 2024 and 2023:

Current wording

Distributable Earnings Return on Average Equity is a non-GAAP measure and is defined as annual or annualized Distributable Earnings divided by average total stockholders’ equity. We believe that the presentation of Distributable Earnings Return on Average Equity provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. Additionally, we believe Distributable Earnings Return on Average Equity provides investors with additional detail on the Distributable Earnings generated by our invested equity capital. We believe Distributable Earnings Return on Average Equity as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings Return on Average Equity should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs. Set forth below is our computation of Distributable Earnings Return on Average Equity for the three and nine months ended September 30, 2024 and 2023:

Previous wording

Net interest income for the six months ended June 30, 2024 and 2023 was $18.0 million and $13.3 million, respectively. Net interest income increased in the six months ended June 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loan portfolio (residential mortgage loan interest income less notes payable interest expense) during the six months ended June 30, 2024 . The net interest income associated with our residential mortgage loan portfolio was $2.2 million in the six months ended June 30, 2024 as compared to a loss of $(2.9) million in the comparable period of 2023.

Current wording

Net interest income for the three months ended September 30, 2024 and 2023 was $9.0 million and $7.4 million, respectively. Net interest income increased in the three months ended September 30, 2024 as compared to the same period in 2023, primarily due to higher net interest income from our residential mortgage loans portfolio (residential mortgage loan interest income less notes payable interest expense) during the three months ended September 30, 2024 . We observed net interest income associated with our residential mortgage loan portfolio of $1.8 million in the three months ended September 30, 2024 compared to $0.1 million in the comparable period of 2023. This was primarily driven by an increase in the weighted average coupon rate of our residential mortgage loans portfolio versus the comparative period, as well as holding more unlevered loans, resulting in a proportionally lower notes payable balance.

Previous wording

For the three months ended June 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in losses of $4.1 million and $3.8 million, respectively. During the three months ended June 30, 2024, losses on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the overall loss to our portfolio. During the three months ended June 30, 2023, losses were driven by declines in securitization, net of unrealized gain (loss) on non-recourse securitization obligation, whole pool agency RMBS, interest rate futures, and residential mortgage loans, and were partially offset by unrealized appreciation on interest rate futures.

Current wording

For the three months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in gains of $28.8 million and $5.3 million, respectively. During the three months ended September 30, 2024, gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as valuations increased during the quarter. Similarly, during the three months ended September 30, 2023 gains on securitization, net of unrealized gain (loss) on non-recourse securitization obligation drove the majority of the overall gain to our portfolio as well.

Previous wording

For the three months ended June 30, 2024 and 2023, our operating expenses were $1.3 million and $2.2 million, respectively. Our operating expenses decreased compared to the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loan portfolio.

Current wording

For the three months ended September 30, 2024 and 2023, our operating expenses were $1.3 million and $1.4 million, respectively. Our operating expenses decreased slightly compared to the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loan portfolio.

Previous wording

For the three months ended June 30, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.6 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat in the second quarter of 2024 compared to the same period of 2023.

Current wording

For the three months ended September 30, 2024 and 2023, our operating expenses incurred with affiliate were $0.5 million and $0.6 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased slightly in the third quarter of 2024 compared to the same period of 2023 as a result of additional cost savings actions.

Previous wording

For the three months ended June 30, 2024 and 2023, our due diligence and transaction costs were $359 thousand and $21 thousand, respectively. Our due diligence and transaction expenses increased over the comparative period due to accelerated purchases of whole loans during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024 and 2023, our due diligence and transaction costs were $254 thousand and $115 thousand, respectively. Our due diligence and transaction expenses increased over the comparative period due to increased purchases of whole loans during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

For the three months ended June 30, 2024 and 2023, our stock compensation expense was $0.6 million and $0.2 million, respectively. Our stock compensation expense increased for the three months ended June 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Current wording

For the three months ended September 30, 2024 and 2023, our stock compensation expense was $0.6 million and $0.4 million, respectively. Our stock compensation expense increased for the three months ended September 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Previous wording

For the three months ended June 30, 2024 and 2023, we incurred $1.4 million and $1.0 million of securitization costs, respectively. The expense incurred in both periods was a proportional allocation of expenses in conjunction with our share of the loans contributed to the AOMT 2024-4 and AOMT 2024-6 securitizations in the second quarter of 2024 and the AOMT 2023-4 securitization in the second quarter of 2023, respectively.

Current wording

For the three months ended September 30, 2024 and 2023, we incurred $0.0 million and $0.4 million of securitization costs, respectively. There was no securitization activity in the third quarter of 2024, and the securitization costs in the comparative period in 2023 were driven by our participation in the AOMT 2023-5 securitization.

Previous wording

For the three months ended June 30, 2024 and 2023, our management fee incurred with affiliate was $1.3 million and $1.5 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended June 30, 2024 as compared to the same period in 2023. The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP.

Current wording

For the three months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $1.2 million and $1.4 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the three months ended September 30, 2024 as compared to the same period in 2023. A key driver of the decrease in the three months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million shares of our common stock owned by Xylem Finance, LLC, an affiliate of Davidson Kempner Capital Management, LP, for an aggregate repurchase price of approximately $20 million. The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP.

Previous wording

The following table sets forth a summary of our results of operations for the six months ended June 30, 2024 and 2023:

Current wording

The following table sets forth a summary of our results of operations for the nine months ended September 30, 2024 and 2023:

Previous wording

The following table sets forth the components of net interest income for the six months ended June 30, 2024 and 2023:

Current wording

The following table sets forth the components of net interest income for the nine months ended September 30, 2024 and 2023:

Previous wording

The components of total realized and unrealized gains (losses), net for the six months ended June 30, 2024 and 2023 are set forth as follows:

Current wording

The components of total realized and unrealized gains (losses), net for the nine months ended September 30, 2024 and 2023 are set forth as follows:

Previous wording

For the six months ended June 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in a net gain of $5.2 million and a loss of $(4.4) million, respectively. During the six months ended June 30, 2024, gains on residential mortgage loans in securitization trust, net of non-recourse securitization obligation, residential mortgage loans, interest rate futures, and TBAs were offset by losses on RMBS and whole pool agency RMBS. In the six months ended June 30, 2023, the net realized and unrealized loss was primarily due to losses on residential mortgage loans in securitization trust, net of non-recourse securitization obligation and TBAs offset by gains on residential mortgage loans.

Current wording

For the nine months ended September 30, 2024 and 2023, total realized and unrealized gains (losses), net resulted in a net gain of $34 million and a loss of $0.8 million, respectively. During the nine months ended September 30, 2024, gains on residential mortgage loans in securitization trust, net of unrealized gain (loss) on non-recourse securitization obligation, residential mortgage loans, TBAs, and interest rate futures were offset by losses on RMBS and whole pool agency RMBS. In the nine months ended September 30, 2023, market volatility caused the valuation of our residential mortgage loans in securitization trust and whole pool agency RMBS to decrease, which was offset by gains in our residential mortgage loans portfolio and interest rate futures.

Previous wording

For the six months ended June 30, 2024 and 2023, our operating expenses were $3.3 million and $4.4 million, respectively. Our operating expenses decreased during the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loan portfolio.

Current wording

For the nine months ended September 30, 2024 and 2023, our operating expenses were $4.6 million and $5.8 million, respectively. Our operating expenses decreased during the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions, vendor contract negotiations, and a decrease in servicing fees associated with servicing our whole loan portfolio.

Previous wording

For the six months ended June 30, 2024 and 2023, our operating expenses incurred with affiliate were $1.0 million and $1.1 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, were relatively flat versus the comparative period.

Current wording

For the nine months ended September 30, 2024 and 2023, our operating expenses incurred with affiliate were $1.44 million and $1.7 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, decreased versus the comparative period as a result of additional cost savings actions.

Previous wording

For the six months ended June 30, 2024 and 2023, our due diligence and transaction costs were $409 thousand and $21 thousand, respectively. Our due diligence and transaction expenses increased versus the comparative period as we purchased more whole loans during the six months ended June 30, 2024 than the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024 and 2023, our due diligence and transaction costs were $663 thousand and $136 thousand, respectively. Our due diligence and transaction expenses increased versus the comparative period as we purchased more whole loans during the nine months ended September 30, 2024 than the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024 and 2023 our stock compensation expense was $1.3 million and $0.7 million, respectively. Stock compensation expense increased for the six months ended June 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Current wording

For the nine months ended September 30, 2024 and 2023 our stock compensation expense was $1.9 million and $1.2 million, respectively. Stock compensation expense increased for the nine months ended September 30, 2024 due to an increase in the estimated impact for outstanding performance-based restricted stock unit awards.

Previous wording

Securitization costs of $1.6 million were incurred for the six months ended June 30, 2024 in connection with the AOMT 2024-3, AOMT 2024-4, and AOMT 2024-6 securitization transactions. There were $1.9 million of securitization costs incurred for the comparable period in 2023, representing costs incurred in connection with the AOMT 2023-1 and AOMT 2023-4 securitizations.

Current wording

Securitization costs of $1.6 million were incurred for the nine months ended September 30, 2024 in connection with the AOMT 2024-3, AOMT 2024-4, and AOMT 2024-6 securitization transactions. There were $2.3 million of securitization costs incurred for the comparable period in 2023, representing costs incurred in connection with the AOMT 2023-1, AOMT 2023-4, and AOMT 2023-5 securitizations.

Previous wording

For the six months ended June 30, 2024 and 2023, our management fee incurred with affiliate was $2.6 million and $3.0 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the six months ended June 30, 2024 as compared to the same period in 2023. The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP.

Current wording

For the nine months ended September 30, 2024 and 2023, our management fee incurred with affiliate was $3.8 million and $4.5 million, respectively. The decrease is due to the decrease in our average Equity as defined in the Management Agreement for the nine months ended September 30, 2024 as compared to the same period in 2023. A key driver of the decrease in the nine months ended September 30, 2024 versus the comparative period of 2023 is the repurchase of 1,707,922 million shares of our common stock owned by Xylem Finance, LLC, an affiliate of Davidson Kempner Capital Management, LP, for an aggregate repurchase price of approximately $20 million. The calculation of Equity for the purposes of the Management Agreement includes the addition of Distributable Earnings, which is the primary departure from the calculation of equity in accordance with GAAP.

Previous wording

As of June 30, 2024, our portfolio consisted of approximately $1.9 billion of residential mortgage loans, RMBS, and other target assets. Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes and earthquakes may occasionally occur. We require all of our collateral to be adequately insured. The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans.

Current wording

As of September 30, 2024, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets. Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes and earthquakes may occasionally occur. We require all of our collateral to be adequately insured. The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans.

Previous wording

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $181.8 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”), and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliate, which is considered a target asset.

Current wording

(2) Other assets and liabilities presented is calculated as a net liability substantially comprised of $194.7 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”), and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliate, which is considered a target asset.

Previous wording

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of June 30, 2024, unless otherwise stated:

Current wording

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in such securitization transactions is set forth below as of September 30, 2024:

Previous wording

(4) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization.

Current wording

(5)Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization.

Previous wording

(2)The whole pool RMBS presented as of June 30, 2024 were purchased from a broker to whom the Company owes approximately $181.8 million, payable upon the settlement date of the trade. See Note 6 —Due to Brokerin our unaudited condensed consolidated financial statements included in this report.

Current wording

(2)The whole pool RMBS presented as of September 30, 2024 were purchased from a broker to whom the Company owes approximately $194.7 million, payable upon the settlement date of the trade. See Note 6 —Due to Brokerin our unaudited condensed consolidated financial statements included in this report.

Previous wording

(3)A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $142.2 million, are not reflected in the condensed consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets.

Current wording

(3)A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $143.5 million, are not reflected in the condensed consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its condensed consolidated balance sheets.

Previous wording

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of June 30, 2024:

Current wording

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the period ended September 30, 2024:

Previous wording

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2023:

Current wording

The following table sets forth information with respect to our RMBS ending balances, at fair value, for the year ended December 31, 2023:

Previous wording

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs. Our financing sources currently include payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, and securitizations of our whole loans. Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029, the proceeds of which we intend to use for general corporate purposes and a portion of which was used to fund the repurchase of shares of our common stock as described in more detail under “—Trends and Recent Developments—Notes offering” in this report. Our financing sources historically have included the foregoing, as well as capital contributions from our investors prior to our IPO, and the proceeds from our IPO and concurrent private placement (which capital has all been deployed). Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others. We may also seek to raise additional capital through public or private offerings of equity, equity-related, or debt securities, depending upon market conditions. The use of any particular source of capital and funds will depend on market conditions, availability of these sources, and the investment opportunities available to us.

Current wording

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs. Our financing sources currently include payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, securitizations of our whole loans, and our ATM Program (as defined below). Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 9.500% Senior Notes due 2029. We have deployed the majority of the net proceeds from the offering of the Notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets primarily sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used the net proceeds from the offering of the Notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million. See “—Trends and Recent Developments—Notes offering” in this report. Our financing sources historically have included the foregoing, as well as capital contributions from our investors prior to our IPO, and the proceeds from our IPO and concurrent private placement (which capital has all been deployed). Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others. We may also seek to raise additional capital through public or private offerings of equity, equity-related, or debt securities, depending upon market conditions. The use of any particular source of capital and funds will depend on market conditions, availability of these sources, and the investment opportunities available to us.

Previous wording

As of June 30, 2024, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion. During the quarter ended June 30, 2024, we (i) renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods simultaneously decreasing the interest rate pricing margin and (ii) amended our loan financing facility with Global Investment Bank 3 to allow for the financing of closed-end second position residential mortgage loans. Borrowings under warehouse loan financing lines (in general, each a “loan financing facility”) may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.

Current wording

As of September 30, 2024, we were a party to three warehouse loan financing lines, which permitted borrowings in an aggregate amount of up to $1.1 billion. During the quarter ended September 30, 2024, we renewed our loan financing facility with Multinational Bank 1 in accordance with the mechanism for six-month renewal periods. Subsequent to the end of the quarter, we (i) amended our loan financing facility with Global Investment Bank 2 to, among other changes, reduce the interest rate pricing spread to a range from 1.75% to 3.35% and (ii) amended our loan financing facility with Global Investment Bank 3 to, among other changes, extend the termination date to (a) November 1, 2025; (b) reduce the interest rate pricing spread to a range from 1.90% to 4.75% based on collateral type, loan status, dwell time and other factors; and (c) eliminate the 20 basis point index spread adjustment. Borrowings under warehouse loan financing lines (in general, each a “loan financing facility”) may be used to purchase whole loans for securitization or loans purchased for long‑term investment purposes.