~~00014658856/~~00014658859/30/2020false12/3160,812,7012020Q21,9751,756,917197,326292,61340,46680,0311,124,0511,375,86024,17133,26925,37134,897323,474350,213——765,945681,64343,904142,905496470.010.01500,000,000500,000,00059,458,61753,523,8760.010.01100,000,000100,000,000——100,000—1,124,0511,375,86023,03731,74825,37134,89772,33590,788765,945681,64343,904142,905496473921,106255634443.014.003.014.004.015.004.015.005.016.005.016.006.017.006.017.007.018.007.018.001,124,0511,375,86023,03731,74825,37134,8977.019.009.0111.0011.0113.0017.0119.009.0111.0011.0113.0013.0115.0015.0117.0017.0119.0022312020Q31,8531,756,917182,125292,61341,05580,0311,096,9971,375,86016,33333,26916,82834,897323,651350,213001,636,460681,643207,852142,9056606470.010.01500,000,000500,000,00060,812,70153,523,8760.010.01100,000,000100,000,00000100,00001,096,9971,375,86015,31931,74816,82834,89772,69990,7881,636,460681,643207,852142,9056606472,647964520344083.014.003.014.004.015.004.015.005.016.005.016.006.017.006.017.007.018.007.018.001,124,0511,375,86015,31931,74816,82834,8977.019.009.0111.0011.0113.0017.0119.009.0111.0011.0113.0013.0115.0015.0117.0017.0119.0022 months, 2 days0025 months, 24 days5 months, 18 days2005 months, 18 ~~days4.54.759.253.023.753.753.754.854.254.04.10.00008319471.762.001.261.50P1Y6767300333333~~days4.54.759.253.023.753.753.754.854.254.04.10.0000831947P1Y67673003333330001465885srt:HotelMemberwmc:InterestOnlyFirstMortgageMemberwmc:SecuritizedCommercialLoanMemberwmc:CRENineMemberwmc:CRELLCAndCREMezzMember2020-09-30

~~lUNITED~~UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~June~~September 30, 2020


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-35543

Western Asset Mortgage Capital Corporation

(Exact name of Registrant as specified in its charter)


Delaware						27-0298092
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification Number)

Western Asset Mortgage Capital Corporation

385 East Colorado Boulevard

Pasadena, California 91101

(Address of Registrant’s principal executive offices)

(626) 844-9400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Securities Exchange Act of 1934). Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

WMC

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

As of ~~August 6,~~November 4, 2020 there were 60,812,701 shares, par value $0.01, of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Table of Contents

Part I

ITEM I. Financial Statements

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(in thousands—except share and per share data)

(Unaudited)


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Assets:	Assets:					Assets:
Cash and cash equivalents	Cash and cash equivalents	$	19,363	$	31,331	Cash and cash equivalents	$	27,459	$	31,331
Restricted cash	Restricted cash	26,430		52,948		Restricted cash	95,579		52,948
Agency mortgage-backed securities, at fair value ($1,975 and $1,756,917 pledged as collateral, at fair value, respectively)		1,975		1,795,255
Non-Agency mortgage-backed securities, at fair value ($197,326 and $292,613 pledged as collateral, at fair value, respectively)		216,288		361,833
Other securities, at fair value ($40,466 and $80,031 pledged as collateral, at fair value, respectively)		40,466		80,161
Residential Whole Loans, at fair value ($1,124,051 and $1,375,860 pledged as collateral, at fair value, respectively)		1,124,051		1,375,860
Residential Bridge Loans ($24,171 and $33,269 at fair value and $25,371 and $34,897 pledged as collateral, respectively)		26,505		36,419
Agency mortgage-backed securities, at fair value ($1,853 and $1,756,917 pledged as collateral, at fair value, respectively)						Agency mortgage-backed securities, at fair value ($1,853 and $1,756,917 pledged as collateral, at fair value, respectively)	1,853		1,795,255
Non-Agency mortgage-backed securities, at fair value ($182,125 and $292,613 pledged as collateral, at fair value, respectively)						Non-Agency mortgage-backed securities, at fair value ($182,125 and $292,613 pledged as collateral, at fair value, respectively)	207,137		361,833
Other securities, at fair value ($41,055 and $80,031 pledged as collateral, at fair value, respectively)						Other securities, at fair value ($41,055 and $80,031 pledged as collateral, at fair value, respectively)	41,055		80,161
Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)						Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)	1,096,997		1,375,860
Residential Bridge Loans ($16,333 and $33,269 at fair value and $16,828 and $34,897 pledged as collateral, respectively)						Residential Bridge Loans ($16,333 and $33,269 at fair value and $16,828 and $34,897 pledged as collateral, respectively)	17,841		36,419
Securitized commercial loans, at fair value	Securitized commercial loans, at fair value	465,694		909,040		Securitized commercial loans, at fair value	1,687,545		909,040
Commercial Loans, at fair value ($323,474 and $350,213 pledged as collateral, at fair value, respectively)		323,474		370,213
Commercial Loans, at fair value ($325,651 and $350,213 pledged as collateral, at fair value, respectively)						Commercial Loans, at fair value ($325,651 and $350,213 pledged as collateral, at fair value, respectively)	325,651		370,213

Investment related receivable	Investment related receivable	12,029		19,931		Investment related receivable	18,861		19,931
Interest receivable	Interest receivable	11,595		19,413		Interest receivable	14,101		19,413
Due from counterparties	Due from counterparties	5,177		98,947		Due from counterparties	1,192		98,947
Derivative assets, at fair value	Derivative assets, at fair value	714		5,111		Derivative assets, at fair value	481		5,111
Other assets	Other assets	6,262		4,509		Other assets	4,418		4,509
Total Assets⁽¹⁾	Total Assets⁽¹⁾	$	2,280,023	$	5,160,971	Total Assets (1)	$	3,540,170	$	5,160,971

Liabilities and Equity:	Liabilities and Equity:					Liabilities and Equity:
Liabilities:	Liabilities:					Liabilities:
Repurchase agreements, net	Repurchase agreements, net	$	369,096	$	2,824,801	Repurchase agreements, net	$	358,525	$	2,824,801
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	198,669		197,299		Convertible senior unsecured notes, net	194,510		197,299
Securitized debt, net ($424,217 and $681,643 at fair value and $43,904 and $142,905 held by affiliates, respectively)		1,458,236		1,477,454
Interest payable (includes $49 and $647 on securitized debt held by affiliates, respectively)		7,710		15,001
Securitized debt, net ($1,636,460 and $681,643 at fair value and $207,852 and $142,905 held by affiliates, respectively)						Securitized debt, net ($1,636,460 and $681,643 at fair value and $207,852 and $142,905 held by affiliates, respectively)	2,602,909		1,477,454
Interest payable (includes $660 and $647 on securitized debt held by affiliates, respectively)						Interest payable (includes $660 and $647 on securitized debt held by affiliates, respectively)	8,840		15,001

Due to counterparties	Due to counterparties	16		709		Due to counterparties	17		709
Derivative liability, at fair value	Derivative liability, at fair value	943		6,370		Derivative liability, at fair value	1,166		6,370
Accounts payable and accrued expenses	Accounts payable and accrued expenses	4,082		3,188		Accounts payable and accrued expenses	3,992		3,188
Payable to affiliate	Payable to affiliate	4,701		2,148		Payable to affiliate	3,255		2,148
Dividend payable	Dividend payable	—		16,592		Dividend payable	3,041		16,592
Other liabilities	Other liabilities	47,856		52,948		Other liabilities	116,124		52,948
Total Liabilities ⁽²⁾	Total Liabilities ⁽²⁾	2,091,309		4,596,510		Total Liabilities (2)	3,292,379		4,596,510

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock: $0.01 par value, 500,000,000 shares authorized, 59,458,617 and 53,523,876 outstanding, respectively		595		535
Common stock: $0.01 par value, 500,000,000 shares authorized, 60,812,701 and 53,523,876 outstanding, respectively						Common stock: $0.01 par value, 500,000,000 shares authorized, 60,812,701 and 53,523,876 outstanding, respectively	609		535
Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	—		—		Preferred stock, $0.01 par value, 100,000,000 shares authorized and no shares outstanding	0		0
Treasury stock, at cost, 100,000 and 0 shares held, respectively	Treasury stock, at cost, 100,000 and 0 shares held, respectively	(578)		—		Treasury stock, at cost, 100,000 and 0 shares held, respectively	(578)		0
Additional paid-in capital	Additional paid-in capital	911,488		889,227		Additional paid-in capital	915,258		889,227
Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(722,793)		(325,301)		Retained earnings (accumulated deficit)	(667,500)		(325,301)
Total Stockholders’ Equity	Total Stockholders’ Equity	188,712		564,461		Total Stockholders’ Equity	247,789		564,461
Non-controlling interest	Non-controlling interest	2		—		Non-controlling interest	2		0
Total Equity	Total Equity	188,714		564,461		Total Equity	247,791		564,461
Total Liabilities and Equity	Total Liabilities and Equity	$	2,280,023	$	5,160,971	Total Liabilities and Equity	$	3,540,170	$	5,160,971

See notes to unaudited consolidated financial statements.

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Balance Sheets (Continued)

(in thousands—except share and per share data)

(Unaudited)


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
⁽¹⁾ Assets of consolidated VIEs included in the total assets above:	⁽¹⁾ Assets of consolidated VIEs included in the total assets above:					(1) Assets of consolidated VIEs included in the total assets above:
Cash and cash equivalents	Cash and cash equivalents	$	—	$	7,589	Cash and cash equivalents	$	0	$	7,589
Restricted cash	Restricted cash	26,430		52,948		Restricted cash	95,579		52,948
Residential Whole Loans, at fair value ($1,124,051 and $1,375,860 pledged as collateral, at fair value, respectively)		1,124,051		1,375,860
Residential Bridge Loans ($23,037 and $31,748 at fair value and $25,371 and $34,897 pledged as collateral, respectively)		25,371		34,897
Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)						Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)	1,096,997		1,375,860
Residential Bridge Loans ($15,319 and $31,748 at fair value and $16,828 and $34,897 pledged as collateral, respectively)						Residential Bridge Loans ($15,319 and $31,748 at fair value and $16,828 and $34,897 pledged as collateral, respectively)	16,828		34,897
Securitized commercial loans, at fair value	Securitized commercial loans, at fair value	465,694		909,040		Securitized commercial loans, at fair value	1,687,545		909,040
Commercial Loans, at fair value ($72,335 and $90,788 pledged as collateral, at fair value, respectively)		72,335		90,788
Commercial Loans, at fair value ($72,699 and $90,788 pledged as collateral, at fair value, respectively)						Commercial Loans, at fair value ($72,699 and $90,788 pledged as collateral, at fair value, respectively)	72,699		90,788
Investment related receivable	Investment related receivable	12,029		19,138		Investment related receivable	18,817		19,138
Interest receivable	Interest receivable	8,640		10,829		Interest receivable	11,287		10,829
Other assets	Other assets	92		90		Other assets	92		90
Total assets of consolidated VIEs	Total assets of consolidated VIEs	$	1,734,642	$	2,501,179	Total assets of consolidated VIEs	$	2,999,844	$	2,501,179

⁽²⁾ Liabilities of consolidated VIEs included in the total liabilities above:	⁽²⁾ Liabilities of consolidated VIEs included in the total liabilities above:					(2) Liabilities of consolidated VIEs included in the total liabilities above:
Securitized debt, net ($424,217 and $681,643 at fair value and $43,904 and $142,905 held by affiliates, respectively)		$	1,458,236	$	1,477,454
Interest payable (includes $49 and $647 on securitized debt held by affiliates, respectively)		3,144		3,886
Securitized debt, net ($1,636,460 and $681,643 at fair value and $207,852 and $142,905 held by affiliates, respectively)						Securitized debt, net ($1,636,460 and $681,643 at fair value and $207,852 and $142,905 held by affiliates, respectively)	$	2,602,909	$	1,477,454
Interest payable (includes $660 and $647 on securitized debt held by affiliates, respectively)						Interest payable (includes $660 and $647 on securitized debt held by affiliates, respectively)	7,681		3,886
Accounts payable and accrued expenses	Accounts payable and accrued expenses	118		185		Accounts payable and accrued expenses	410		185
Other liabilities	Other liabilities	26,430		52,948		Other liabilities	95,579		52,948
Total liabilities of consolidated VIEs	Total liabilities of consolidated VIEs	$	1,487,928	$	1,534,473	Total liabilities of consolidated VIEs	$	2,706,579	$	1,534,473

See notes to unaudited consolidated financial statements.

Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(in thousands—except share and per share data)

(Unaudited)


		For the three months ended June 30, 2020		For the three months ended June 30, 2019		For the six months ended June 30, 2020		For the six months ended June 30, 2019			For the three months ended September 30, 2020		For the three months ended September 30, 2019		For the nine months ended September 30, 2020		For the nine months ended September 30, 2019
Net Interest Income	Net Interest Income									Net Interest Income
Interest income	Interest income	$	31,494	$	53,818	$	86,340	$	105,851	Interest income	$	43,970	$	55,652	$	130,310	$	161,503
Interest expense (includes $392, $1,106, $2,556 and $3,444 on securitized debt held by affiliates, respectively)		22,959		37,958		59,064		74,358
Interest expense (includes $2,647, $964, $5,203 and $4,408 on securitized debt held by affiliates, respectively)										Interest expense (includes $2,647, $964, $5,203 and $4,408 on securitized debt held by affiliates, respectively)	33,853		39,082		94,376		113,440
Net Interest Income	Net Interest Income	8,535		15,860		27,276		31,493		Net Interest Income	10,117		16,570		35,934		48,063

Other Income (Loss)	Other Income (Loss)									Other Income (Loss)
Realized gain (loss) on investments, net		(6,960)		(8)		82,226		(5,113)
Realized gain (loss), net										Realized gain (loss), net	718		21,399		82,944		16,286
Other than temporary impairment	Other than temporary impairment	—		(3,295)		—		(4,527)		Other than temporary impairment	0		(1,819)		0		(6,346)
Unrealized gain (loss), net	Unrealized gain (loss), net	16,040		74,614		(280,071)		125,395		Unrealized gain (loss), net	54,690		35,030		(225,381)		160,425
Gain (loss) on derivative instruments, net	Gain (loss) on derivative instruments, net	(8,143)		(71,530)		(197,834)		(98,678)		Gain (loss) on derivative instruments, net	(88)		(47,056)		(197,922)		(145,734)
Other, net	Other, net	(45)		532		416		768		Other, net	(31)		918		385		1,686
Other Income (Loss)	Other Income (Loss)	892		313		(395,263)		17,845		Other Income (Loss)	55,289		8,472		(339,974)		26,317

Expenses	Expenses									Expenses
Management fee to affiliate	Management fee to affiliate	464		1,832		1,503		3,567		Management fee to affiliate	1,513		1,800		3,016		5,367
Financing fee	Financing fee	20,540		—		20,540		—		Financing fee	0		0		20,540		0
Other operating expenses	Other operating expenses	796		1,253		1,796		2,851		Other operating expenses	1,198		1,589		2,994		4,440
General and administrative expenses:	General and administrative expenses:									General and administrative expenses:
Compensation expense	Compensation expense	692		705		1,354		1,249		Compensation expense	716		671		2,070		1,920
Professional fees	Professional fees	1,541		761		3,021		1,976		Professional fees	827		973		3,848		2,949
Other general and administrative expenses	Other general and administrative expenses	772		530		1,125		715		Other general and administrative expenses	1,138		344		2,263		1,059
Total general and administrative expenses	Total general and administrative expenses	3,005		1,996		5,500		3,940		Total general and administrative expenses	2,681		1,988		8,181		5,928
Total Expenses	Total Expenses	24,805		5,081		29,339		10,358		Total Expenses	5,392		5,377		34,731		15,735

Income (loss) before income taxes	Income (loss) before income taxes	(15,378)		11,092		(397,326)		38,980		Income (loss) before income taxes	60,014		19,665		(338,771)		58,645
Income tax provision		255		478		162		490
Income tax provision (benefit)										Income tax provision (benefit)	205		(55)		367		435
Net income (loss)	Net income (loss)	(15,633)		10,614		(397,488)		38,490		Net income (loss)	59,809		19,720		(339,138)		58,210
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	2		—		4		—		Net income attributable to non-controlling interest	2		0		6		0
Net income (loss) attributable to common stockholders and participating securities	Net income (loss) attributable to common stockholders and participating securities	$	(15,635)	$	10,614	$	(397,492)	$	38,490	Net income (loss) attributable to common stockholders and participating securities	$	59,807	$	19,720	$	(339,144)	$	58,210

Net income (loss) per Common Share — Basic	Net income (loss) per Common Share — Basic	$	(0.29)	$	0.21	$	(7.35)	$	0.78	Net income (loss) per Common Share — Basic	$	0.98	$	0.37	$	(6.02)	$	1.15
Net income (loss) per Common Share — Diluted	Net income (loss) per Common Share — Diluted	$	(0.29)	$	0.21	$	(7.35)	$	0.78	Net income (loss) per Common Share — Diluted	$	0.98	$	0.37	$	(6.02)	$	1.15

See notes to unaudited consolidated financial statements.

Table of Contents

Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Equity

(in thousands—except shares and share data)

(Unaudited)

Three Months Ended June 30, 2020
Common Stock Outstanding Additional
Paid-In Capital Retained
Earnings
(Accumulated Deficit) Treasury Stock Total Stockholders' Equity Non-Controlling Interest Total Equity
Shares Par
Balance at March 31, 2020 53,423,876 $ 535 $ 889,392 $ (707,158) $ (578) $ 182,191 $ 42 $ 182,233
Proceeds from public offerings of common stock 6,034,741 60 22,297 — — 22,357 — 22,357
Offering costs — — (371) — — (371) — (371)
Proceeds from non-controlling interest, net of offering costs — — — — — — (40) (40)
Vesting of restricted stock — — 170 — — 170 — 170
Net income — — — (15,635) — (15,635) 2 (15,633)
Dividends declared on non-controlling interest — — — — — — (2) (2)
Balance at June 30, 2020 59,458,617 $ 595 $ 911,488 $ (722,793) $ (578) $ 188,712 $ 2 $ 188,714


	Three Months Ended September 30, 2020
	Common Stock Outstanding			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest		Total Equity
	Shares	Par
Balance at June 30, 2020, as Revised	59,458,617	$	595	$	911,488	$	(724,252)	$	(578)	$	187,253	$	2	$	187,255




Exchange of convertible senior notes	1,354,084	14		3,574		—		—		3,588		—		3,588

Vesting of restricted stock	—	—		182		—		—		182		—		182

Net income	—	—		—		59,807		—		59,807		2		59,809
Dividends declared on non-controlling interest	—	—		—		—		—		—		(2)		(2)
Dividends declared on common stock	—	—		14		(3,055)		—		(3,041)		—		(3,041)
Balance at September 30, 2020	60,812,701	$	609	$	915,258	$	(667,500)	$	(578)	$	247,789	$	2	$	247,791


		Three Months Ended June 30, 2019																																Three Months Ended September 30, 2019
		Common Stock Outstanding					Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest				Total Equity	Common Stock Outstanding				Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock				Total Stockholders' Equity		Non-Controlling Interest			Total Equity
		Shares	Par																																	Non-Controlling Interest			Total Equity
Balance at March 31, 2019		48,224,379	$	482	$	833,915	$	(318,391)	$	—	$	516,006	$	—	$	516,006
Proceeds from public offerings of common stock		5,000,000	50		49,600		—		—		49,650		—		49,650
Balance at June 30, 2019																	Balance at June 30, 2019	53,224,379		$	532	$	883,417	$	(324,323)	$	0			$	559,626			$	0		$	559,626

Offering costs	Offering costs	—	—		(309)		—		—		(309)		—		(309)		Offering costs	—		—		(41)		—		—		(41)				—		(41)
Equity component of convertible senior unsecured notes																	Equity component of convertible senior unsecured notes	—		—		1,390		—		—		1,390				—		1,390

Vesting of restricted stock	Vesting of restricted stock	—	—		165		—		—		165		—		165		Vesting of restricted stock	—		—		164		—		—		164				—		164

Net income	Net income	—	—		—		10,614		—		10,614		—		10,614		Net income	—		—		—		19,720		—		19,720				—		19,720
Dividends declared on common stock	Dividends declared on common stock	—	—		46		(16,546)		—		(16,500)		—		(16,500)		Dividends declared on common stock	—		—		48		(16,547)		—		(16,499)				—		(16,499)
Balance at June 30, 2019		53,224,379	$	532	$	883,417	$	(324,323)	$	—	$	559,626	$	—	$	559,626
Balance at September 30, 2019																	Balance at September 30, 2019	53,224,379		$	532	$	884,978	$	(321,150)	$	0	$	564,360			$	0	$	564,360

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		Six Months Ended June 30, 2020																																			Nine Months Ended September 30, 2020
		Common Stock Outstanding					Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest				Common Stock Outstanding						Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Total Stockholders' Equity			Non-Controlling Interest
		Shares	Par																		Total			Shares			Par			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)			Treasury Stock			Total Stockholders' Equity	Non-Controlling Interest	Total
Balance at December 31, 2019	Balance at December 31, 2019	53,523,876	$	535	$	889,227	$	(325,301)	$	—	$	564,461	$	—	$	564,461	Balance at December 31, 2019	53,523,876	$	535		$	889,227		$	(325,301)		$	0		$	564,461		$	0		$	564,461
Proceeds from public offerings of common stock	Proceeds from public offerings of common stock	6,034,741	60		22,297		—		—		22,357		—		22,357		Proceeds from public offerings of common stock	6,034,741	60			22,297			—			—			22,357			—			22,357
Offering costs	Offering costs	—	—		(371)		—		—		(371)		—		(371)		Offering costs	—	—			(371)			—			—			(371)			—			(371)
Proceeds from non-controlling interest, net of offering costs	Proceeds from non-controlling interest, net of offering costs	—	—		—		—		—		—		2		2		Proceeds from non-controlling interest, net of offering costs	—	—			—			—			—			—			2			2

Exchange of convertible senior notes																	Exchange of convertible senior notes	1,354,084	14			3,574			—			—			3,588			—			3,588

Vesting of restricted stock	Vesting of restricted stock	—	—		335		—		—		335		—		335		Vesting of restricted stock	—	—			517			—			—			517			—			517
Treasury stock	Treasury stock	(100,000)	—		—		—		(578)		(578)		—		(578)		Treasury stock	(100,000)	—			—			—			(578)			(578)			—			(578)
Net loss	Net loss	—	—		—		(397,492)		—		(397,492)		4		(397,488)		Net loss	—	—			—			(339,144)			—			(339,144)			6			(339,138)
Dividends declared on non-controlling interest	Dividends declared on non-controlling interest	—	—		—		—		—		—		(4)		(4)		Dividends declared on non-controlling interest	—	—			—			—			—			—			(6)			(6)

Balance at June 30, 2020		59,458,617	$	595	$	911,488	$	(722,793)	$	(578)	$	188,712	$	2	$	188,714
Dividends declared on common stock																	Dividends declared on common stock	—	—			14			(3,055)			—			(3,041)			—			(3,041)
Balance at September 30, 2020																	Balance at September 30, 2020	60,812,701	$	609		$	915,258		$	(667,500)		$	(578)		$	247,789		$	2		$	247,791

Six Months Ended June 30, 2019
Common Stock Outstanding Additional
Paid-In Capital Retained
Earnings
(Accumulated Deficit) Treasury Stock Total Stockholders' Equity Non-Controlling Interest
Shares Par Total
Balance at December 31, 2018 48,116,379 $ 481 $ 833,810 $ (331,282) $ — $ 503,009 $ — $ 503,009
Proceeds from public offerings of common stock 5,000,000 50 49,600 — — 49,650 — 49,650
Offering costs — — (309) — — (309) — (309)
Grants of restricted stock 108,000 1 (1) — — — — —
Vesting of restricted stock — — 235 — — 235 — 235
Net income — — — 38,490 — 38,490 — 38,490
Dividends declared on common stock — — 82 (31,531) — (31,449) — (31,449)
Balance at June 30, 2019 53,224,379 $ 532 $ 883,417 $ (324,323) $ — $ 559,626 $ — $ 559,626


	Nine Months Ended September 30, 2019
	Common Stock Outstanding			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Stockholders' Equity		Non-Controlling Interest
	Shares	Par												Total
Balance at December 31, 2018	48,116,379	$	481	$	833,810	$	(331,282)	$	0	$	503,009	$	0	$	503,009
Proceeds from public offerings of common stock	5,000,000	50		49,600		—		—		49,650		—		49,650
Offering costs	—	—		(350)		—		—		(350)		—		(350)
Equity component of convertible senior unsecured notes	—	—		1,390		—		—		1,390		—		1,390
Grants of restricted stock	108,000	1		(1)		—		—		—		—		0
Vesting of restricted stock	—	—		399		—		—		399		—		399

Net income	—	—		—		58,210		—		58,210		—		58,210
Dividends declared on common stock	—	—		130		(48,078)		—		(47,948)		—		(47,948)
Balance at September 30, 2019	53,224,379	$	532	$	884,978	$	(321,150)	$	0	$	564,360	$	0	$	564,360

See notes to unaudited consolidated financial statements.

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Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)


		For the six months ended June 30, 2020		For the six months ended June 30, 2019			For the nine months ended September 30, 2020		For the nine months ended September 30, 2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(397,488)	$	38,490	Net income (loss)	$	(339,138)	$	58,210
Adjustments to reconcile net income (loss) to net cash used in operating activities:	Adjustments to reconcile net income (loss) to net cash used in operating activities:					Adjustments to reconcile net income (loss) to net cash used in operating activities:
Premium amortization and (discount accretion), net	Premium amortization and (discount accretion), net	3,890		2,360		Premium amortization and (discount accretion), net	5,291		5,165

Interest income earned added to principal of investments						Interest income earned added to principal of investments	(647)		0
Amortization of deferred financing costs	Amortization of deferred financing costs	1,361		483		Amortization of deferred financing costs	2,165		942
Amortization of discount on convertible senior notes		546		275
Amortization of discount on convertible senior unsecured notes						Amortization of discount on convertible senior unsecured notes	830		461
Restricted stock amortization	Restricted stock amortization	335		235		Restricted stock amortization	517		399

Interest payments and basis recovered on MAC interest rate swaps	Interest payments and basis recovered on MAC interest rate swaps	202		3,204		Interest payments and basis recovered on MAC interest rate swaps	202		4,870
Premium on purchase of Residential Whole Loans	Premium on purchase of Residential Whole Loans	(3,858)		(4,882)		Premium on purchase of Residential Whole Loans	(3,858)		(6,940)

Premium on purchase of securitized commercial loans	Premium on purchase of securitized commercial loans	—		(3,769)		Premium on purchase of securitized commercial loans	0		(3,769)
Unrealized (gain) loss, net	Unrealized (gain) loss, net	280,071		(125,395)		Unrealized (gain) loss, net	225,381		(160,425)
Realized gain on exchange of convertible senior notes for common stock						Realized gain on exchange of convertible senior notes for common stock	(1,258)		0
Realized loss on sale of real estate owned ("REO")	Realized loss on sale of real estate owned ("REO")	407		—		Realized loss on sale of real estate owned ("REO")	680		33
Unrealized (gain) loss on derivative instruments, net	Unrealized (gain) loss on derivative instruments, net	3,834		(794)		Unrealized (gain) loss on derivative instruments, net	4,122		(3,293)
Other than temporary impairment	Other than temporary impairment	—		4,527		Other than temporary impairment	0		6,346
Realized (gain) loss on investments, net	Realized (gain) loss on investments, net	(82,633)		5,113		Realized (gain) loss on investments, net	(82,366)		(16,319)
Loss on derivatives, net	Loss on derivatives, net	13,287		1,777		Loss on derivatives, net	13,133		2,068

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Decrease in interest receivable	Decrease in interest receivable	7,818		2,546		Decrease in interest receivable	5,312		3,158
(Increase) decrease in other assets	(Increase) decrease in other assets	(2,846)		857		(Increase) decrease in other assets	(1,933)		267
(Decrease) increase in interest payable	(Decrease) increase in interest payable	(7,291)		3,450		(Decrease) increase in interest payable	(6,161)		1,202
Increase (decrease) in accounts payable and accrued expenses	Increase (decrease) in accounts payable and accrued expenses	894		(961)		Increase (decrease) in accounts payable and accrued expenses	804		(134)
Increase (decrease) in payable to affiliate	Increase (decrease) in payable to affiliate	2,553		(1,788)		Increase (decrease) in payable to affiliate	1,107		(2,589)
Increase in other liabilities	Increase in other liabilities	20,540		—		Increase in other liabilities	20,540		0
Net cash used in operating activities	Net cash used in operating activities	(158,378)		(74,272)		Net cash used in operating activities	(155,277)		(110,348)
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of securities	Purchase of securities	(320,996)		(1,093,542)		Purchase of securities	(320,996)		(1,468,473)
Proceeds from sale of securities	Proceeds from sale of securities	2,216,874		221,875		Proceeds from sale of securities	2,216,830		808,440
Proceeds from sale of REO	Proceeds from sale of REO	1,705		—		Proceeds from sale of REO	2,491		219
Principal repayments and basis recovered on securities	Principal repayments and basis recovered on securities	29,986		55,175		Principal repayments and basis recovered on securities	32,401		85,980
Purchase of Residential Whole Loans	Purchase of Residential Whole Loans	(109,480)		(244,317)		Purchase of Residential Whole Loans	(109,480)		(323,003)
Proceeds from sale of Residential Whole Loans	Proceeds from sale of Residential Whole Loans	144,258		—		Proceeds from sale of Residential Whole Loans	144,258		0
Principal repayments on Residential Whole Loans	Principal repayments on Residential Whole Loans	139,589		87,615		Principal repayments on Residential Whole Loans	210,097		165,224
Purchase of commercial loans	Purchase of commercial loans	—		(171,188)		Purchase of commercial loans	0		(300,919)
Principal repayments on commercial loans	Principal repayments on commercial loans	37,637		76,000		Principal repayments on commercial loans	37,728		76,000
Purchase of securitized commercial loans	Purchase of securitized commercial loans	—		(900,000)		Purchase of securitized commercial loans	0		(900,000)
Principal repayments on securitized commercial loans	Principal repayments on securitized commercial loans	178,644		1,113,884		Principal repayments on securitized commercial loans	211,205		1,214,583

Principal repayments on Residential Bridge Loans	Principal repayments on Residential Bridge Loans	10,399		143,992		Principal repayments on Residential Bridge Loans	16,759		186,989
Payment of premium for option derivatives	Payment of premium for option derivatives	—		(302)		Payment of premium for option derivatives	0		(780)
Premium received from option derivatives	Premium received from option derivatives	—		862		Premium received from option derivatives	0		2,157
Premium for credit default swaps, net	Premium for credit default swaps, net	(14,279)		(367)		Premium for credit default swaps, net	(14,028)		3,884
Net settlements of TBAs	Net settlements of TBAs	(2,430)		—		Net settlements of TBAs	(2,430)		0
(Payments on) Proceeds from termination of futures, net	(Payments on) Proceeds from termination of futures, net	—		(10,338)		(Payments on) Proceeds from termination of futures, net	0		(6,718)

Interest payments and basis recovered on MAC interest rate swaps	Interest payments and basis recovered on MAC interest rate swaps	(202)		(3,204)		Interest payments and basis recovered on MAC interest rate swaps	(202)		(4,870)
Due from counterparties	Due from counterparties	2,600		—		Due from counterparties	2,160		(3,720)

Premium for interest rate swaptions, net	Premium for interest rate swaptions, net	80		(332)		Premium for interest rate swaptions, net	80		(332)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	2,314,385		(724,187)		Net cash provided by (used in) investing activities	2,426,873		(465,339)

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Western Asset Mortgage Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Continued) (in thousands)

(Unaudited)

For the six months ended June 30, 2020 For the six months ended June 30, 2019
Cash flows from financing activities:
Proceeds from issuance of common stock 22,357 49,650
Payment of offering costs (374) (405)
Repurchase of common stock (578) —
Proceeds from issuance of convertible senior notes 2 —
Proceeds from repurchase agreement borrowings 8,262,555 10,821,699
Repayments of repurchase agreement borrowings (10,718,271) (10,639,316)
Proceeds from securitized debt 460,787 1,757,464
Repayments of securitized debt (266,417) (1,083,560)
Payments made for deferred financing costs (2,803) (5,786)
Due from counterparties, net 91,170 (15,896)
Due to counterparties, net (693) 4,248
(Decrease) increase in other liabilities (25,632) 31,331
Dividends paid on common stock (16,592) (29,865)
Dividends paid to non-controlling interest (4) —
Net cash (used in) provided by financing activities (2,194,493) 889,564
Net (decrease) increase in cash, cash equivalents and restricted cash (38,486) 91,105
Cash, cash equivalents and restricted cash, beginning of period 84,279 77,795
Cash, cash equivalents and restricted cash, end of period $ 45,793 $ 168,900
Supplemental disclosure of operating cash flow information:
Interest paid $ 63,457 $ 72,231
Income taxes paid $ — $ 48
Supplemental disclosure of non-cash financing/investing activities:
Underwriting and offering costs payable $ — $ 81
Securities purchased, not settled $ — $ (99,534)
Assets of deconsolidated VIE $ (150,804) $ —
Liabilities of deconsolidated VIE $ 143,952 $ —
Mortgage-backed securities recorded upon deconsolidation $ 6,852 $ —
Dividends and distributions declared, not paid $ — $ 16,500
Principal payments of Residential Whole Loans, not settled $ 11,780 $ 20,535
Principal payments of Residential Bridge Loans, not settled $ 249 $ 15,244
Other assets - Transfer of Bridge Loans to REO $ 419 $ —
Financing fee payable $ (20,540) $ —
Reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets:
Cash and cash equivalents $ 19,363 $ 81,761
Restricted cash 26,430 87,139
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 45,793 $ 168,900


	For the nine months ended September 30, 2020		For the nine months ended September 30, 2019

Cash flows from financing activities:
Proceeds from issuance of common stock	22,357		49,650
Payment of offering costs	(374)		(490)
Repurchase of common stock	(578)		0

Proceeds from issuance of convertible senior notes	0		40,000
Proceeds from offering to non-controlling interest, net of offering costs	2		0
Proceeds from repurchase agreement borrowings	9,149,204		16,401,124
Repayments of repurchase agreement borrowings	(11,615,203)		(16,294,853)

Proceeds from securitized debt	460,787		1,757,464
Repayments of securitized debt	(366,828)		(1,233,153)


Payments made for deferred financing costs	(3,145)		(7,023)
Due from counterparties, net	95,595		(46,813)
Due to counterparties, net	(692)		(15,685)
(Decrease) increase in other liabilities	42,634		(19,351)
Dividends paid on common stock	(16,592)		(46,365)
Dividends paid to non-controlling interest	(4)		0
Net cash (used in) provided by financing activities	(2,232,837)		584,505



Net (decrease) increase in cash, cash equivalents and restricted cash	38,759		8,818
Cash, cash equivalents and restricted cash, beginning of period	84,279		77,795
Cash, cash equivalents and restricted cash, end of period	$	123,038	$	86,613

Supplemental disclosure of operating cash flow information:
Interest paid	$	90,885	$	113,746
Income taxes paid	$	810	$	454
Supplemental disclosure of non-cash financing/investing activities:
Underwriting and offering costs payable	$	0	$	38
Principal payments of securities, not settled	$	44	$	0

Securities purchased, not settled	$	0	$	(71,146)
Assets of deconsolidated VIE	$	(150,804)	$	0
Liabilities of deconsolidated VIE	$	143,952	$	0
Mortgage-backed securities recorded upon deconsolidation	$	6,852	$	0

Assets of consolidated VIE	$	1,245,287	$	0
Liabilities of consolidated VIE	$	(1,231,549)	$	0
Mortgage-backed securities derecognized upon VIE consolidation	$	(13,737)	$	0
Dividends and distributions declared, not paid	$	3,041	$	16,499
Dividends to non-controlling interest, not paid	$	2	$	0
Principal payments of Residential Whole Loans, not settled	$	16,097	$	21,621
Principal payments of Residential Bridge Loans, not settled	$	2,720	$	10,412

Other assets - Transfer of Bridge Loans to REO	$	419	$	3,536
Financing fee payable	$	(20,540)	$	0
Exchange of convertible senior notes for commons stock	$	3,588	$	0

Reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets:
Cash and cash equivalents	$	27,459	$	50,157
Restricted cash	95,579		36,456
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows	$	123,038	$	86,613

See notes to unaudited consolidated financial statements.

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Western Asset Mortgage Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

(in thousands- except share and per share data)

The following defines certain of the commonly used terms in these Notes to Consolidated Financial Statements: “Agency” or “Agencies” refer to a federally chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”), or an agency of the U.S. Government, such as the Government National Mortgage Association (“Ginnie Mae” or “GNMA”); references to “MBS” refer to mortgage backed securities, including residential mortgage-backed securities or “RMBS,” commercial mortgage-backed securities or “CMBS,” and “Interest-Only Strips” (as defined herein); “Agency MBS” refer to RMBS, CMBS and Interest-Only Strips issued or guaranteed by the Agencies while “Non-Agency MBS” refer to RMBS, CMBS and Interest-Only Strips that are not issued or guaranteed by the Agencies; references to “ARMs” refers to adjustable rate mortgages; references to “Interest-Only Strips” refer to interest-only (“IO”) and inverse interest-only (“IIO”) securities issued as part of or collateralized with MBS; references to “TBA” refer to To-Be-Announced Securities; and references to “Residential Whole Loans,” “Residential Bridge Loans” and “Commercial Loans” (collectively “Whole Loans”) refer to individual mortgage loans secured by single family, multifamily and commercial properties.

Note 1 — Organization

Western Asset Mortgage Capital Corporation, a Delaware corporation, and its subsidiaries (the “Company”), commenced operations in May 2012. The Company invests in, finances and manages a diversified portfolio of real estate related securities, Whole Loans and other financial assets. The Company’s current portfolio is comprised of Non-Qualified Residential Whole Loans ("Non-QM"), Commercial Loans, Non-Agency CMBS and to a lesser extent Agency RMBS, Non-Agency RMBS, Residential Bridge Loans, GSE Risk Transfer Securities and asset-backed securities (“ABS”) investments secured by a portfolio of private student loans. The Company’s investment strategy is based on Western Asset Management Company, LLC’s (the “Manager”) perspective of which mix of portfolio assets it believes provides the Company with the best risk-reward opportunities at any given time. The Manager will vary the allocation among various asset classes subject to maintaining the Company’s qualification as a REIT and maintaining its exemption from the Investment Company Act of 1940, as amended (the “1940 Act”). These restrictions limit the Company’s ability to invest in non-qualifying MBS, non-real estate assets and/or assets which are not secured by real estate. Accordingly, the Company’s portfolio will continue to be principally invested in qualifying MBS, Whole Loans and other real estate related assets.

The Company is externally managed by the Manager, an investment advisor registered with the Securities and Exchange Commission (“SEC”). The Manager is a wholly-owned subsidiary of Franklin Resources, Inc. (“Franklin”), which on July 31, 2020 acquired the Manager's previous parent Legg Mason Inc. The Company operates and has elected to be taxed as a real estate investment trust or “REIT” commencing with its taxable year ended December 31, 2012.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited financial statements and related notes have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting in accordance with Article 10 of Regulation S-X and the instructions to Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary have been made to state fairly the Company’s financial position, results of operations and cash flows. The results of operations for the period ended ~~June~~September 30, 2020, are not necessarily indicative of the results to be expected for the full year or any future period. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2020.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities (“VIEs”) in which it is considered the primary beneficiary. All intercompany amounts between the Company and its subsidiaries and consolidated VIEs have been eliminated in consolidation.

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Variable Interest Entities

VIEs are defined as entities that by design either lack sufficient equity for the entity to finance its activities without additional subordinated financial support or are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. The Company evaluates all of its interests in VIEs for consolidation. When the interests are determined to be variable interests, the Company assesses whether it is deemed the primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, it considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes: first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers isare deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, it considers all of its economic interests. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company.

In instances where the Company and its related parties have variable interests in a VIE, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE and no further analysis is needed. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group requires significant judgment. The analysis is based upon qualitative as well as quantitative factors, such as the relationship of the VIE to each of the members of the related-party group, as well as the significance of the VIE's activities to those members, with the objective of determining which party is most closely associated with the VIE.

Ongoing assessments of whether an enterprise is the primary beneficiary of a VIE are required.

Revision of Previously Issued Quarterly Financial Statements

During the third quarter 2020, as part of the close process, the Company discovered an under accrual related to one of its financing arrangements for $1.5 million. The Company has evaluated the impact of this error and has concluded that individually and in the aggregate, the error was not material to the previously issued June 30, 2020 Form 10-Q. However, the Company has decided to revise the June 30, 2020 financial statements. The below tables summarize the effects of the revision of the interest expense under accrual on the originally reported amounts:


	As of June 30, 2020
Dollars in thousands	As Originally Reported	Adjustments	Revised	Change %
Consolidated Balance Sheets (effect on individual line items)
Interest payable	7,710	1,459	9,169	18.9	%
Total Liabilities	2,091,309	1,459	2,092,768	0.1	%
Total Stockholders' Equity	188,712	(1,459)	187,253	(0.8)	%
Total Equity	188,714	(1,459)	187,255	(0.8)	%

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	For the three months ended June 30, 2020
Dollars in thousands (except per share data)	As Originally Reported	Adjustments	Revised	Change %
Consolidated Statements of Operations (effect on individual line items)
Interest expense	22,959	1,459	24,418	6.4	%
Net Interest Income	8,535	(1,459)	7,076	(17.1)	%
Income (loss) before income taxes	(15,378)	(1,459)	(16,837)	9.5	%
Net income (loss)	(15,633)	(1,459)	(17,092)	9.3	%
Net income (loss) attributable to common shareholders and participating securities	(15,635)	(1,459)	(17,094)	9.3	%
Net income (loss) per Common Share - Basic	(0.29)	(0.02)	(0.31)	6.9	%
Net income (loss) per Common Share - Diluted	(0.29)	(0.02)	(0.31)	6.9	%


	For the six months ended June 30, 2020
Dollars in thousands (except per share data)	As Originally Reported	Adjustments	Revised	Change %
Consolidated Statements of Operations (effect on individual line items)
Interest expense	59,064	1,459	60,523	2.5	%
Net Interest Income	27,276	(1,459)	25,817	(5.3)	%
Income (loss) before income taxes	(397,326)	(1,459)	(398,785)	0.4	%
Net income (loss)	(397,488)	(1,459)	(398,947)	0.4	%
Net income (loss) attributable to common shareholders and participating securities	(397,492)	(1,459)	(398,951)	0.4	%
Net income (loss) per Common Share - Basic	(7.35)	(0.03)	(7.38)	0.4	%
Net income (loss) per Common Share - Diluted	(7.35)	(0.03)	(7.38)	0.4	%

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Impact of the COVID-19 Pandemic

The outbreak of COVID-19, which the World Health Organization designated a pandemic, created unprecedented market disruption and dislocation across fixed income markets. The conditions caused by the pandemic created an extreme lack of liquidity in mortgage markets, combined with forced selling led to swift and dramatic price declines. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. InDuring late March 2020 and April 2020, the significant decline in value of the Company's investment portfolio resulted in substantial margin calls from its repurchase agreement counterparties. In order to satisfy the margin calls, the Company sold a significant portion of its investments resulting in a material adverse impact on book value, earnings and financial position. During the third quarter our portfolio has experienced improved valuations and the Company did not have significant asset sales or margin calls during the quarter.

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The full impact of COVID-19 on the mortgage REIT industry, the credit markets and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to (i) the uncertainty around the severity, duration and

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spread of the outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, including the availability of a treatment or vaccination for COVID-19, (v) the impact of government interventions, and (vi) the negative impact on our borrowers, asset values and cost of capital.

Significant Accounting Policies

There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2019, other than the below new accounting policy.

As of January 1, 2020, the Company has adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments or CECL in the first quarter of 2020. The standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through the income statement. The standard replaced the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. Because the Company elected the Fair Value Option on most of its investments, an allowance is recorded rather than reduce the carrying amount, as was done under the “other than temporary impairment model”. The difference between the amortized cost basis and the fair value ~~are~~is recorded in the “Unrealized, gain (loss), net”. The Company performs both qualitative and quantitative analysis factors to determine if a credit loss exist. The qualitative analysis includes assessing the security’s collateral, industry, geographic area, credit enhancement, payment structure, and credit rating. Solely for the purposes of calculating interest income the Company maintains a “shadow allowance”. The shadow allowance is determined for purposes of ensuring subsequent improvements in cash flows would first reduce the “shadow allowance” and then be treated as prospective yield adjustments. The “shadow allowance” is an operational account for the purposes of determining and calculating accretable yield and accretable basis and would not be recorded in the Company’s financial statements.

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Recently adopted accounting pronouncements

Description

Adoption Date

Effect on Financial Statements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard significantly changes how an entity will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through the income statement. The standard will replace the current "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost. For available for sale debt securities, entities will be required to record an allowance rather than reduce the carrying amount, as is currently done under the other than temporary impairment model. It also simplifies the accounting model for purchased credit impaired debt securities and loans. In November 2018, the FASB issued ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." This update was issued related to ASU 2016-13 to increase the stakeholders' awareness of the amendments to scope and transition and effective date requirements and to expedite the improvements. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses." The amendments in this update clarify or address stakeholders' specific issues about certain aspects of the amendments in Update 2016-13.

First quarter 2020.

The adoption of this standard did not have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this update modify the disclosure requirements on fair value measurements including the consideration of costs and benefits.

First quarter 2020.

The adoption of this standard did not have a material impact on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." The amendments in this update represent changes to clarify, correct errors in, or improve the Codification. The amendments should make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarification.

First quarter 2020.

The adoption of this standard did not have a material impact on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326)." The amendments in this Update provide entities that have certain instruments within the scope of Subtopic 326-20 with an option to irrevocably elect the fair value option in the Subtopic 825-10, Financial Instruments-Overall, upon adoption of Topic 326. An entity that elects the fair value option should subsequently apply the guidance in Subtopic 820-10, Fair Value Measurement-Overall, and 825-10.

First quarter 2020.

The adoption of this standard did not have a material impact on its consolidated financial statements.

Recently issued accounting pronouncements

Description

Effective Date

Effect on Financial Statements

In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investment-Equity Method and Joint Ventures (Topic 323, and Derivatives and Hedging (Topic 815).” The amendments in this Update clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchase options accounted for under Topic 815.

First quarter 2021.

The Company is evaluating the impact this
standard may have on its consolidated
financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

March 12, 2020 through December 31, 2022

The Company is evaluating the impact this
standard may have on its consolidated
financial statements.

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Note 3 — Fair Value of Financial Instruments

The following tables present the Company’s financial instruments carried at fair value as of ~~June~~September 30, 2020 and December 31, 2019, based upon the valuation hierarchy (dollars in thousands):


		June 30, 2020															September 30, 2020
		Fair Value															Fair Value
		Level I		Level II		Level III		Total			Level I		Level II		Level III		Total
Assets	Assets									Assets

Agency RMBS Interest-Only Strips	Agency RMBS Interest-Only Strips	$	—	$	—	$	180	$	180	Agency RMBS Interest-Only Strips	$	0	$	0	$	153	$	153
Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		—		1,795		1,795		Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	0		0		1,700		1,700
Subtotal Agency MBS	Subtotal Agency MBS	—		—		1,975		1,975		Subtotal Agency MBS	0		0		1,853		1,853
Non-Agency CMBS	Non-Agency CMBS	—		182,304		7,013		189,317		Non-Agency CMBS	0		172,391		8,930		181,321
Non-Agency RMBS	Non-Agency RMBS	—		—		21,693		21,693		Non-Agency RMBS	0		0		21,568		21,568
Non-Agency RMBS Interest-Only Strips	Non-Agency RMBS Interest-Only Strips	—		—		5,278		5,278		Non-Agency RMBS Interest-Only Strips	0		0		4,248		4,248

Subtotal Non-Agency MBS	Subtotal Non-Agency MBS	—		182,304		33,984		216,288		Subtotal Non-Agency MBS	0		172,391		34,746		207,137

Other securities	Other securities	—		31,771		8,695		40,466		Other securities	0		32,542		8,513		41,055
Total mortgage-backed securities and other securities	Total mortgage-backed securities and other securities	—		214,075		44,654		258,729		Total mortgage-backed securities and other securities	0		204,933		45,112		250,045

Residential Whole Loans	Residential Whole Loans	—		—		1,124,051��		1,124,051		Residential Whole Loans	0		0		1,096,997		1,096,997
Residential Bridge Loans	Residential Bridge Loans	—		—		24,171		24,171		Residential Bridge Loans	0		0		16,333		16,333
Securitized commercial loans	Securitized commercial loans	—		—		465,694		465,694		Securitized commercial loans	0		0		1,687,545		1,687,545
Commercial Loans	Commercial Loans	—		—		323,474		323,474		Commercial Loans	0		0		325,651		325,651
Derivative assets	Derivative assets	—		714		—		714		Derivative assets	0		481		0		481
Total Assets	Total Assets	$	—	$	214,789	$	1,982,044	$	2,196,833	Total Assets	$	0	$	205,414	$	3,171,638	$	3,377,052

Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	—	$	943	$	—	$	943	Derivative liabilities	$	0	$	1,166	$	0	$	1,166
Securitized debt	Securitized debt	—		424,186		31		424,217		Securitized debt	0		1,619,093		17,367		1,636,460

Total Liabilities	Total Liabilities	$	—	$	425,129	$	31	$	425,160	Total Liabilities	$	0	$	1,620,259	$	17,367	$	1,637,626

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		December 31, 2019															December 31, 2019
		Fair Value															Fair Value
		Level I		Level II		Level III		Total			Level I		Level II		Level III		Total
Assets	Assets									Assets

Agency CMBS	Agency CMBS	$	—	$	1,435,477	$	—	$	1,435,477	Agency CMBS	$	0	$	1,435,477	$	0	$	1,435,477

Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS	Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		3,092		—		3,092		Agency CMBS Interest-Only Strips accounted for as derivatives, included in MBS	0		3,092		0		3,092
Agency RMBS	Agency RMBS	—		340,771		—		340,771		Agency RMBS	0		340,771		0		340,771
Agency RMBS Interest-Only Strips	Agency RMBS Interest-Only Strips	—		—		10,343		10,343		Agency RMBS Interest-Only Strips	0		0		10,343		10,343
Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	—		—		5,572		5,572		Agency RMBS Interest-Only Strips accounted for as derivatives, included in MBS	0		0		5,572		5,572
Subtotal Agency MBS	Subtotal Agency MBS	—		1,779,340		15,915		1,795,255		Subtotal Agency MBS	0		1,779,340		15,915		1,795,255

Non-Agency CMBS	Non-Agency CMBS	—		316,019		—		316,019		Non-Agency CMBS	0		316,019		0		316,019
Non-Agency RMBS	Non-Agency RMBS	—		—		38,131		38,131		Non-Agency RMBS	0		0		38,131		38,131
Non-Agency RMBS Interest-Only Strips	Non-Agency RMBS Interest-Only Strips	—		—		7,683		7,683		Non-Agency RMBS Interest-Only Strips	0		0		7,683		7,683

Subtotal Non-Agency MBS	Subtotal Non-Agency MBS	—		316,019		45,814		361,833		Subtotal Non-Agency MBS	0		316,019		45,814		361,833

Other securities	Other securities	—		62,965		17,196		80,161		Other securities	0		62,965		17,196		80,161
Total mortgage-backed securities and other securities	Total mortgage-backed securities and other securities	—		2,158,324		78,925		2,237,249		Total mortgage-backed securities and other securities	0		2,158,324		78,925		2,237,249

Residential Whole Loans	Residential Whole Loans	—		—		1,375,860		1,375,860		Residential Whole Loans	0		0		1,375,860		1,375,860
Residential Bridge Loans	Residential Bridge Loans	—		—		33,269		33,269		Residential Bridge Loans	0		0		33,269		33,269
Securitized commercial loan	Securitized commercial loan	—		—		370,213		370,213		Securitized commercial loan	0		0		370,213		370,213
Commercial Loans	Commercial Loans	—		—		909,040		909,040		Commercial Loans	0		0		909,040		909,040
Derivative assets	Derivative assets	—		5,111		—		5,111		Derivative assets	0		5,111		0		5,111
Total Assets	Total Assets	$	—	$	2,163,435	$	2,767,307	$	4,930,742	Total Assets	$	0	$	2,163,435	$	2,767,307	$	4,930,742

Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	—	$	6,370	$	—	$	6,370	Derivative liabilities	$	0	$	6,370	$	0	$	6,370
Securitized debt	Securitized debt	—		680,586		1,057		681,643		Securitized debt	0		680,586		1,057		681,643
Total Liabilities	Total Liabilities	$	—	$	686,956	$	1,057	$	688,013	Total Liabilities	$	0	$	686,956	$	1,057	$	688,013

When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will use independent pricing services and if the independent pricing service cannot price a particular asset or liability, the Company will obtain third party broker quotes. The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the third party broker quotes by comparing the broker quotes for reasonableness to alternate sources when available. If independent pricing services or third party broker quotes, are not available, the Company determines the fair value of the securities using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and when applicable, estimates of prepayments and credit losses.

In instances when the Company is required to consolidate a VIE that is determined to be a qualifying collateralized financing entity ("CFE"), under GAAP and if the Company has elected the fair value option for the securitized debt, the Company will measure both the financial assets and financial liabilities of the VIE using the fair value of either the VIE’s financial assets or financial liabilities, whichever is more observable.

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Mortgage-backed securities and other securities

In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Agency CMBS, given the amount of available observable market data, generally are classified in Level II. For newly issued Agency CMBS securities that have not settled at period end and do not have a CUSIP yet, the Company utilizes a broker quote due to lack of observable market data. Accordingly these securities are classified in Level III. For Agency IOs, Non-Agency RMBS, CMBS and other securities, to determine whether a security should be a Level II, the securities are grouped by security type and the Manager reviews the internal trade history, for the quarter, for each security type. If there is sufficient trade data above a predetermined threshold of a security type, the Manager determines it has sufficient observable market data and the security will be categorized as a Level II; otherwise, the security is classified as a Level III.

Values for the Company’s securities are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments, and are designed to produce a pricing process that is responsive to market conditions. Depending on the type of asset and the underlying collateral, the primary inputs to the model include yields for TBAs, Agency RMBS, the U.S. Treasury market and floating rate indices such as LIBOR, the Constant Maturity Treasury rate and the prime rate as a benchmark yield. In addition, the model may incorporate the current weighted average maturity and additional pool level information such as prepayment speeds, default frequencies and default severities, if applicable. When the third party pricing service cannot adequately price a particular security, the Company utilizes a broker’s quote which is reviewed for reasonableness by the Manager’s pricing group.

Residential Whole Loans and Residential Bridge Loans

Values for the Company's Non-QM Residential Whole Loans and Bridge Loans are based upon prices obtained from an independent third party pricing service that specializes in loan valuation, utilizing a discounted cash flow valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Residential Whole Loans and Residential Bridge Loans. The key loan inputs include loan balance, interest rate, loan to value, delinquencies and fair value of the collateral for collateral dependent loans. The assumptions made by the independent third party pricing service includes the ~~market discount rate,~~ yield, default assumption and loss severity. Other inputs and assumptions relevant to the pricing of Residential Whole Loans include FICO scores and prepayment speeds.

In the third quarter of 2020 there was very limited, if any residential whole loans sale transactions. As a result the independent third party pricing service used recent residential whole loans securitization transactions, which was very active, to form their opinion on the appropriate discount rate. To arrive at the appropriate discount rate for residential whole loans, the vendor made adjustments for deal cost and liquidity premium.

The values for the Conforming Residential Whole Loan Portfolio were based on a third party pricing service valuation model that assigns a loan value using TBA prices, adjusted for delivery to Fannie Mae using Fannie Mae's loan-level price adjustment matrix. In addition to pricing the underlying mortgages, the third party pricing service uses a service release premium valuation representing the sale of the right to service the mortgages. Together, the TBA price and service release premium price form the "All-In" price for these ~~mortgages. As~~mortgages. During the second quarter of ~~June 30,~~ 2020, the Company sold its Conforming Residential Whole Loan portfolio and as of September 30, 2020, holds no ~~longer holds~~ Conforming Residential Whole Loans in its investment portfolio. ~~The Company sold this portfolio in the second quarter 2020.~~

The Company reviews the analysis provided by pricing service as well as the key assumptions made available to the Company. Due to the inherent uncertainty of such valuation, the fair values established for residential loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's loans are classified as Level III.

Commercial Loans

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Values for the Company's Commercial Loans are based upon prices obtained from an independent third party pricing service that specializes in loan valuation, utilizing a valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Company's Commercial Loans. The assumptions made by the independent third party pricing vendor include a market discount rate, default assumption and loss severity. The Company reviews the analysis provided by pricing service as well as the key assumptions. Due to the inherent uncertainty of such valuation, the fair

~~Table of Contents~~

values established for commercial loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's commercial loans are classified as a Level III.

Securitized commercial loans

Values for the Company’s securitized commercial loans are based on the CFE valuation methodology. Since there is an extremely limited market for the securitized commercial loans, the Company determined the securitized debt is more actively traded and therefore was more observable. Due to the inherent uncertainty of the securitized commercial ~~loan's~~loans' valuation, the Company classifies its securitized commercial loans as Level III.

Securitized debt

Values for the Company's securitized debt that the Company elected the fair value option are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments. In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Since the securitized debt represents traded debt securities, the Manager's pricing team reviews the trade activity during the quarter for each security to determine the appropriate level within the fair value hierarchy. If there is sufficient trade data above a predetermined volume threshold, the Manager determines it has sufficient observable market data and the debt security will be categorized as a Level II. If there is not sufficient observable market data the debt security will be categorized as a Level III.

Derivatives

Values for the Company's derivatives are based upon prices from third party pricing services, whose pricing is subject to review by the Manager’s pricing committee. In valuing its over-the-counter interest rate derivatives, such as swaps and swaptions, its currency derivatives, such as swaps and forwards and credit derivatives such as total return swaps, the Company considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement, from the perspective of both the Company and its counterparties. NaN credit valuation adjustment was made in determining the fair value of interest rate derivatives and/or futures contracts for the periods ended ~~June~~September 30, 2020 and December 31, 2019.

Third Party Pricing Data Review

The Company performs quarterly reviews of the independent third party pricing data. These reviews may include a review of the valuation methodology used by third party valuation specialists and review of the daily change in the prices provided by the independent pricing vendor which exceed established tolerances or comparisons to executed transaction prices, utilizing the Manager’s pricing group. The Manager’s pricing group, which functions independently from its portfolio management personnel, reviews the price differences or changes in price by comparing the vendor price to alternate sources including other independent pricing services or broker quotations. If the price change or difference cannot be corroborated, the Manager’s pricing group consults with the portfolio management team for market color in reviewing such pricing data as warranted. To the extent that the Manager has information, typically in the form of broker quotations that would indicate that a price received from the independent pricing service is outside of a tolerance range, the Manager generally challenges the independent pricing service price.

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The following tables present a summary of the available quantitative information about the significant unobservable inputs used in the fair value measurement of financial instruments for which the Company has utilized Level III inputs to determine fair value as of ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		Fair Value at			Range									Fair Value at				Range
		June 30, 2020	Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average			September 30, 2020	Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average


Residential Whole-Loans	Residential Whole-Loans	1,124,051	Discounted Cash Flow	Yield	3.9	%	8.0	%		5.7	%	Residential Whole-Loans	1,096,997	Discounted Cash Flow	Yield	2.0	%	7.5	%		4.0	%
				Weighted Average Life	1.4		7.6			3.0					Weighted Average Life	1.2		6.4			2.7
Residential Bridge Loans	Residential Bridge Loans	24,171	Discounted Cash Flow	Yield	8.0	%	43.9	%	⁽¹⁾	16.4	%	Residential Bridge Loans	16,333	Discounted Cash Flow	Yield	8.0	%	36.9	%	(1)	14.9	%
				Weighted Average Life	0.3		2.1			0.8					Weighted Average Life	0.3		2.3			1.0

Commercial Loans	Commercial Loans	323,474	Discounted Cash Flow	Yield	6.5	%	14.7	%		9.4	%	Commercial Loans	325,651	Discounted Cash Flow	Yield	6.3	%	14.7	%		9.3	%
				Weighted Average Life	0.9		2.4			1.2					Weighted Average Life	0.7		2.2			0.9


	Fair Value at			Range
	December 31, 2019	Valuation Technique	Unobservable Input	Minimum		Maximum			Weighted Average






Residential Whole-Loans(2)	1,200,566	Discounted Cash Flow	Yield	3.4	%	7.0	%		3.7	%
			Weighted Average Life	1.4		7.8			3.0
Residential Bridge Loans	33,269	Discounted Cash Flow	Yield	7.5	%	27.0	%	(1)	9.8	%
			Weighted Average Life	0.3		1.8			0.8

Commercial Loans	370,213	Discounted Cash Flow	Yield	4.7	%	10.9	%		7.5	%
			Weighted Average Life	0.4		2.9			1.6

(1) Yield to maturity is the total return on the loan expressed as an annual rate. Delinquent Bridge Loans that are nearing maturity and with fair value that is significantly less than the principal amount have a higher yield to maturity, some of which are greater than 100%.

(2) As of December 31, 2019, excludes $175.3 million of Conforming Residential Whole Loans, which were valued using TBA prices, adjusted for delivery to Fannie Mae using Fannie Mae's loan-level price adjustment matrix. As of December 31, 2019, the TBA prices used for valuing the conforming loans range from $101.39 to $107.63.

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The following tables present additional information about the Company’s financial instruments which are measured at fair value on a recurring basis for which the Company has utilized Level III inputs to determine fair value:

Three months ended June 30, 2020
$ in thousands Agency MBS Non-Agency MBS Other Securities Residential
Whole Loans Residential
Bridge Loans Commercial Loans Securitized
commercial
loans Securitized debt
Beginning balance $ 14,442 $ 33,162 $ 7,371 $ 1,309,795 $ 26,050 $ 320,308 $ 477,131 $ 161
Transfers into Level III from Level II — — — — — — — —
Transfers from Level III into Level II — — — — — — — —
Sales and settlements (11,529) — — (144,258) — — — —
Transfers to REO — — — — 70 — — —
Principal repayments — (166) — (51,969) (1,471) — (23,943) —
Total net gains / losses included in net income
Realized gains/(losses), net on assets 1,528 — — (10,511) 28 — — —
Realized (gains)/losses, net on liabilities — — — — — — — —
Unrealized gains/(losses), net on assets⁽¹⁾
(2,122) 1,253 1,282 21,800 (483) 3,050 12,921 —
Unrealized (gains)/losses, net on liabilities⁽²⁾
— — — — — — — (177)
Premium and discount amortization, net (344) (265) 42 (806) (23) 116 (415) 47
Ending balance $ 1,975 $ 33,984 $ 8,695 $ 1,124,051 $ 24,171 $ 323,474 $ 465,694 $ 31
Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾
$ (306) $ 1,253 $ 1,282 $ 10,278 $ (495) $ 3,050 $ 12,774 $ —
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾
$ — $ — $ — $ — $ — $ — $ — $ 46

~~Table of Contents~~


		Three months ended June 30, 2019																															Three months ended September 30, 2020
$ in thousands	$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt		$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loans		Securitized debt
Beginning balance	Beginning balance	$	19,108	$	48,392	$	17,380	$	1,267,163	$	144,170	$	337,578	$	929,474	$	3,769	Beginning balance	$	1,975	$	33,984	$	8,695	$	1,124,051	$	24,171	$	323,474	$	465,694	$	31
Transfers into Level III from Level II	Transfers into Level III from Level II	—		—		—		—		—		—		—		—		Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	Transfers from Level III into Level II	—		—		—		—		—		—		—		—		Transfers from Level III into Level II	—		—		—		—		—		—		—		—
Purchases		39,856		—		—		—		—		50,000		—		—

Transfers to REO																		Transfers to REO	—		—		—		—		0		—		—		—
VIE consolidation																		VIE consolidation	—		—		—		—		—		—		1,245,287		17,960

Loan modifications / capitalized interest																		Loan modifications / capitalized interest	—		—		—		607		—		33		—		—
Principal repayments	Principal repayments	—		(274)		(185)		(69,312)		(56,650)		(75,835)		(125,170)		—		Principal repayments	—		(97)		—		(74,818)		(7,942)		(91)		(32,560)		—
Total net gains / losses included in net income	Total net gains / losses included in net income					0												Total net gains / losses included in net income
Realized gains/(losses), net on assets	Realized gains/(losses), net on assets	—		—		—		—		(162)		—		—		—		Realized gains/(losses), net on assets	0		—		—		0		(288)		—		—		—
Realized (gains)/losses, net on liabilities																		Realized (gains)/losses, net on liabilities	—		—		—		—		—		—		—		—

Other than temporary impairment		(4)		(936)		—		—		—		—		—		—
Unrealized gains/(losses), net on assets⁽¹⁾	Unrealized gains/(losses), net on assets⁽¹⁾	984		716		697		9,170		291		(59)		572		—		Unrealized gains/(losses), net on assets(1)	61		950		(188)		48,108		412		2,195		4,567		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(47)		Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		—		122
Premium and discount amortization, net	Premium and discount amortization, net	(1,027)		(711)		(95)		(801)		(247)		348		(742)		(846)		Premium and discount amortization, net	(183)		(91)		6		(951)		(20)		40		4,557		(746)
Ending balance	Ending balance	$	58,917	$	47,187	$	17,797	$	1,206,220	$	87,402	$	312,032	$	804,134	$	2,876	Ending balance	$	1,853	$	34,746	$	8,513	$	1,096,997	$	16,333	$	325,651	$	1,687,545	$	17,367

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	984	$	716	$	697	$	9,869	$	(27)	$	127	$	572	$	—	Unrealized gains/(losses), net on assets held at the end of the period(1)	$	61	$	950	$	(188)	$	45,948	$	29	$	2,195	$	4,567	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	47	Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	(122)

Table of Contents

Six months ended June 30, 2020
$ in thousands Agency MBS Non-Agency MBS Other Securities Residential
Whole-Loans Residential
Bridge Loans Commercial Loans Securitized
commercial
loan Securitized debt
Beginning balance $ 15,915 $ 45,814 $ 17,196 $ 1,375,860 $ 33,269 $ 370,213 $ 909,040 $ 1,057
Transfers into Level III from Level II — — — — — — — —
Transfers from Level III into Level II — — (6,482) — — — — —
Purchases — — — 110,150 — — — —
Sales and settlements (11,529) (12,702) — (144,258) — — — —
Transfers to REO — — — — (419) — — —
VIE deconsolidation — 6,852 — — — — (150,804) —
Principal repayments — (486) (154) (131,035) (7,879) (37,638) (178,644) —
Total net gains / losses included in net income
Realized gains/(losses), net on assets 1,528 (16) — (10,511) (57) — — —
Unrealized gains/(losses), net on assets⁽¹⁾
(2,656) (4,583) (1,837) (74,071) (702) (9,412) (114,250) —
Unrealized (gains)/losses, net on liabilities⁽²⁾
— — — — — — — (554)
Premium and discount amortization, net (1,283) (895) (28) (2,084) (41) 311 352 (472)
Ending balance $ 1,975 $ 33,984 $ 8,695 $ 1,124,051 $ 24,171 $ 323,474 $ 465,694 $ 31
Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾
$ (663) $ (4,353) $ (487) $ (68,797) $ (919) $ (9,412) $ (55,084) $ —
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾
$ — $ — $ — $ — $ — $ — $ — $ 564


	Three months ended September 30, 2019
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	$	58,917	$	47,187	$	17,797	$	1,206,220	$	87,402	$	312,032	$	804,134	$	2,876
Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	(43,686)		—		—		—		—		—		—		—
Purchases	68,633		—		—		80,725		—		129,730		—		—
Sales and settlements	(401)		—		—		—		—		—		—		0
Transfers to REO	—		—		—		—		(2,677)		—		—		—
Principal repayments	0		(311)		(253)		(78,672)		(36,978)		0		(100,700)		—
Total net gains / losses included in net income					0
Realized gains/(losses), net on assets	—		—		—		—		(195)		—		—		—

Other than temporary impairment	(193)		(27)		—		—		—		—		—		—
Unrealized gains/(losses), net on assets(1)	2,256		970		305		1,875		569		204		(845)		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		—		(71)
Premium and discount amortization, net	(983)		(564)		(74)		(911)		(67)		66		(754)		(829)
Ending balance	$	84,543	$	47,255	$	17,775	$	1,209,237	$	48,054	$	442,032	$	701,835	$	1,976

Unrealized gains/(losses), net on assets held at the end of the period(1)	$	844	$	970	$	305	$	3,239	$	(41)	$	204	$	(845)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	71

Table of Contents


		Six months ended June 30, 2019																															Nine months ended September 30, 2020
$ in thousands	$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole-Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt		$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole-Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	Beginning balance	$	19,837	$	50,555	$	8,951	$	1,041,885	$	211,999	$	216,123	$	1,013,511	$	2,286	Beginning balance	$	15,915	$	45,814	$	17,196	$	1,375,860	$	33,269	$	370,213	$	909,040	$	1,057
Transfers into Level III from Level II	Transfers into Level III from Level II	—		—		8,386		—		—		—		—		—		Transfers into Level III from Level II	—		—		—		—		—		—		—		—
Transfers from Level III into Level II	Transfers from Level III into Level II	—		—		—		—		—		—		—		—		Transfers from Level III into Level II	—		—		(6,482)		—		—		—		—		—
Purchases	Purchases	39,856		—		—		244,274		—		95,379		903,770		—		Purchases	—		—		—		103,758		—		—		—		—
Sales and settlements	Sales and settlements	—		—		—		—		—		—		—		3,769		Sales and settlements	(11,529)		(12,658)		—		(144,259)		—		—		—		—
Transfers to REO	Transfers to REO	—		—		—		—		—		—		—		—		Transfers to REO	—		—		—		—		(419)		—		—		—
VIE consolidation																		VIE consolidation	—		—		—		—		—		—		1,245,287		17,960
VIE deconsolidation																		VIE deconsolidation	—		6,852		—		—		—		—		(150,804)		—
Loan modifications / capitalized interest																		Loan modifications / capitalized interest	—		—		—		614		—		33		—		—
Principal repayments	Principal repayments	—		(525)		(185)		(94,101)		(123,262)		—		(1,113,884)		—		Principal repayments	—		(628)		(154)		(199,655)		(15,821)		(37,728)		(211,204)		—
Total net gains / losses included in net income	Total net gains / losses included in net income																	Total net gains / losses included in net income
Realized gains/(losses), net on assets	Realized gains/(losses), net on assets	—		—		—		—		(249)		—		—		—		Realized gains/(losses), net on assets	1,528		(60)		—		(10,511)		(346)		—		—		—
Realized (gains)/losses, net on liabilities		—		—		—		—		—		—		—		—
Other than temporary impairment		(29)		(1,177)		—		—		—		—		—		—

Unrealized gains/(losses), net on assets⁽¹⁾	Unrealized gains/(losses), net on assets⁽¹⁾	1,371		(477)		818		15,149		(489)		164		1,921		—		Unrealized gains/(losses), net on assets(1)	(2,594)		(3,633)		(2,025)		(25,766)		(290)		(7,218)		(109,683)		—
Unrealized (gains)/losses, net on liabilities⁽²⁾	Unrealized (gains)/losses, net on liabilities⁽²⁾	—		—		—		—		—		—		—		(2,017)		Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		—		(432)
Premium and discount amortization, net	Premium and discount amortization, net	(2,118)		(1,189)		(173)		(987)		(597)		366		(1,184)		(1,162)		Premium and discount amortization, net	(1,467)		(941)		(22)		(3,044)		(60)		351		4,909		(1,218)
Ending balance	Ending balance	$	58,917	$	47,187	$	17,797	$	1,206,220	$	87,402	$	312,032	$	804,134	$	2,876	Ending balance	$	1,853	$	34,746	$	8,513	$	1,096,997	$	16,333	$	325,651	$	1,687,545	$	17,367

Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	Unrealized gains/(losses), net on assets held at the end of the period⁽¹⁾	$	1,371	$	(477)	$	818	$	15,859	$	(997)	$	164	$	1,949	$	—	Unrealized gains/(losses), net on assets held at the end of the period(1)	$	(601)	$	(3,403)	$	(675)	$	(18,880)	$	(618)	$	(7,218)	$	(50,517)	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	Unrealized gains/(losses), net on liabilities held at the end of the period⁽²⁾	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	19	Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	432

Table of Contents


	Nine months ended September 30, 2019
$ in thousands	Agency MBS		Non-Agency MBS		Other Securities		Residential Whole-Loans		Residential Bridge Loans		Commercial Loans		Securitized commercial loan		Securitized debt
Beginning balance	$	19,837	$	50,555	$	8,951	$	1,041,885	$	211,999	$	216,123	$	1,013,511	$	2,286
Transfers into Level III from Level II	—		—		8,386		—		—		—		—		—
Transfers from Level III into Level II	—		—		—		—		—		—		—		—
Purchases	66,641		—		—		318,130		—		225,109		903,770		—
Sales and settlements	(401)		—		—		—		—		—		—		3,769
Transfers to REO	—		—		—		—		(2,677)		—		—		—
Principal repayments	—		(837)		(439)		(166,015)		(160,240)		0		(1,214,584)		—
Total net gains / losses included in net income
Realized gains/(losses), net on assets	—		—		—		—		(444)		—		—		—
Realized (gains)/losses, net on liabilities	—		—		—		—		—		—		—		—
Other than temporary impairment	(222)		(1,204)		—		—		—		—		—		—
Unrealized gains/(losses), net on assets(1)	1,776		494		1,123		17,281		80		368		1,076		—
Unrealized (gains)/losses, net on liabilities(2)	—		—		—		—		—		—		—		(2,088)
Premium and discount amortization, net	(3,088)		(1,753)		(246)		(2,044)		(664)		432		(1,938)		(1,991)
Ending balance	$	84,543	$	47,255	$	17,775	$	1,209,237	$	48,054	$	442,032	$	701,835	$	1,976

Unrealized gains/(losses), net on assets held at the end of the period(1)	$	1,771	$	494	$	1,123	$	18,247	$	(678)	$	368	$	1,104	$	—
Unrealized gains/(losses), net on liabilities held at the end of the period(2)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	90

(1)Gains and losses are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

(2)Gains and losses on securitized debt are included in "Unrealized gain (loss), net" in the Consolidated Statements of Operations.

Transfers between hierarchy levels for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 were based on the availability of sufficient observable inputs. Movements from Level II to Level III was based on the back-testing of historical sales transactions performed by the Manager, which did not provide sufficient observable data to meet Level II versus Level III criteria, resulting in the movement from Level II to Level III. Movements from Level III to Level II was based on information received from a third party pricing service which, along with the back-testing of historical sales transactions performed by the Manager, which provided the sufficient observable data for the movement from Level III to Level II. The Company did not have transfers between either Level I and Level II or Level I and Level III for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019.

2021

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Other Fair Value Disclosures

Certain Residential Bridge Loans, repurchase agreement borrowings, convertible senior unsecured notes and securitized debt are not carried at fair value in the consolidated financial statements. The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value as of ~~June~~September 30, 2020 and December 31, 2019 in the consolidated financial statements (dollars in thousands):


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value			Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets	Assets									Assets
Residential Bridge Loans	Residential Bridge Loans	$	2,334	$	2,248	$	3,150	$	3,148	Residential Bridge Loans	$	1,508	$	1,501	$	3,150	$	3,148
Total	Total	$	2,334	$	2,248	$	3,150	$	3,148	Total	$	1,508	$	1,501	$	3,150	$	3,148

Liabilities	Liabilities									Liabilities
Borrowings under repurchase agreements	Borrowings under repurchase agreements	$	369,096	$	372,874	$	2,824,801	$	2,829,093	Borrowings under repurchase agreements	$	358,525	$	361,421	$	2,824,801	$	2,829,093
Convertible senior unsecured notes	Convertible senior unsecured notes	198,669		146,319		197,299		209,172		Convertible senior unsecured notes	194,510		172,430		197,299		209,172
Securitized debt⁽¹⁾	Securitized debt⁽¹⁾	1,041,597		1,056,094		801,109		810,914		Securitized debt(1)	973,680		995,536		801,109		810,914
Total	Total	$	1,609,362	$	1,575,287	$	3,823,209	$	3,849,179	Total	$	1,526,715	$	1,529,387	$	3,823,209	$	3,849,179

^{(1) Carrying value excludes $7.6$7.2 million and $5.3 million of deferred financing costs as of JuneSeptember 30, 2020 and December 31, 2019, respectively.}

"Due from counterparties" and "Due to counterparties" in the Company’s Consolidated Balance Sheets are reflected at cost which approximates fair value.

Residential Bridge Loans

Values for the Company's Bridge Loans are based upon prices obtained from an independent third party pricing service that specializes in loan valuation, utilizing a discounted cash flow valuation model that is calibrated to recent loan trade execution. Their valuation methodology incorporates commonly used market pricing methods, which include the inputs considered most significant to the determination of fair value of the Residential Bridge Loans. The key loan inputs include loan balance, interest rate, loan to value, FICO score, debt to income ratio and delinquencies. The assumption made by the independent third party pricing service includes the market discount rate, prepayment, default assumption and loss severity. The Company reviews the analysis provided by pricing service as well as the key assumptions made available to the Company. Due to the inherent uncertainty of such valuation, the fair values established for residential loans held by the Company may differ from the fair values that would have been established if a readily available market existed for these loans. Accordingly, the Company's loans are classified as Level III.

Borrowings under repurchase agreements

The fair values of the borrowings under repurchase agreements are based on a net present value technique. This method discounts future estimated cash flows using rates the Company determined best estimates current market interest rates that would be offered for loans with similar characteristics and credit quality. The use of different market assumptions or estimation methodologies could have a material effect on the fair value amounts. This fair value measurement is based on observable inputs, and as such, are classified as Level II.

Convertible senior unsecured notes

The fair value of the convertible senior unsecured notes is based on quoted market prices. Accordingly, the Company's convertible senior unsecured notes are classified as Level I.

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Table of Contents

Securitized debt

Values for the Company's securitized debt, related to the securitization of a portion of its Residential Whole Loans, are based upon prices obtained from independent third party pricing services. The valuation methodology of the third party pricing services incorporates market information and commonly used market pricing methods, which include actual trades and quoted prices for similar or identical instruments. In determining the proper fair value hierarchy or level, the Company considers the amount of available observable market data for each security. Since the securitized debt represents traded debt securities, the Manager's pricing team reviews the trade activity during the quarter for each security to determine the appropriate level within the fair value hierarchy. If there is sufficient trade data above a predetermined threshold, the Manager determines it has sufficient observable market data and the debt security will be categorized as a Level II. If there is not sufficient observable market data the debt security will be categorized as a Level III. At ~~June~~September 30, 2020, there was not sufficient observable market data for the debt to be classified as a Level II, accordingly it was classified as a Level III.

Note 4 – Mortgage-Backed Securities and other securities

The following tables present certain information about the Company’s investment portfolio at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020																									September 30, 2020
		Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon			Principal Balance		Unamortized Premium (Discount), net		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon

Agency RMBS Interest-Only Strips ⁽¹⁾⁽²⁾	Agency RMBS Interest-Only Strips ⁽¹⁾⁽²⁾	N/A		N/A		$	142	$	38	$	—	$	180	2.6	%	Agency RMBS Interest-Only Strips (1)(2)	N/A		N/A		$	105	$	48	$	0	$	153	2.4	%
Agency RMBS Interest-Only Strips, accounted for as derivatives ^{(1) (2)}	Agency RMBS Interest-Only Strips, accounted for as derivatives ^{(1) (2)}	N/A		N/A		N/A		N/A		N/A		1,795		2.6	%	Agency RMBS Interest-Only Strips, accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		1,700		3.0	%
Subtotal Agency RMBS		—		—		142		38		—		1,975		2.6	%

Total Agency MBS	Total Agency MBS	—		—		142		38		—		1,975		2.6	%	Total Agency MBS	0		0		105		48		0		1,853		2.9	%

Non-Agency RMBS	Non-Agency RMBS	38,863		(15,215)		23,648		446		(2,401)		21,693		4.6	%	Non-Agency RMBS	38,447		(15,018)		23,429		427		(2,288)		21,568		4.5	%
Non-Agency RMBS Interest- Only Strips ⁽¹⁾	Non-Agency RMBS Interest- Only Strips ⁽¹⁾	N/A		N/A		6,847		3		(1,572)		5,278		0.5	%	Non-Agency RMBS Interest- Only Strips (1)	N/A		N/A		6,530		0		(2,282)		4,248		0.5	%

Subtotal Non-Agency RMBS	Subtotal Non-Agency RMBS	38,863		(15,215)		30,495		449		(3,973)		26,971		0.9	%	Subtotal Non-Agency RMBS	38,447		(15,018)		29,959		427		(4,570)		25,816		0.9	%
Non-Agency CMBS	Non-Agency CMBS	274,267		(28,383)		245,884		89		(56,656)		189,317		5.2	%	Non-Agency CMBS	256,450		(26,058)		230,392		2,718		(51,789)		181,321		5.2	%
Total Non-Agency MBS	Total Non-Agency MBS	313,130		(43,598)		276,379		538		(60,629)		216,288		2.6	%	Total Non-Agency MBS	294,897		(41,076)		260,351		3,145		(56,359)		207,137		2.6	%

Other securities⁽³⁾	Other securities⁽³⁾	51,668		(8,370)		51,489		76		(11,099)		40,466		4.4	%	Other securities (3)	51,586		(8,305)		50,417		220		(9,582)		41,055		4.4	%
Total	Total	$	364,798	$	(51,968)	$	328,010	$	652	$	(71,728)	$	258,729	2.7	%	Total	$	346,483	$	(49,381)	$	310,873	$	3,413	$	(65,941)	$	250,045	2.8	%

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		December 31, 2019																															December 31, 2019
		Principal Balance		Unamortized Premium (Discount), net		Discount Designated as Credit Reserve and OTTI		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon			Principal Balance		Unamortized Premium (Discount), net		Discount Designated as Credit Reserve and OTTI		Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Net Weighted Average Coupon

Agency CMBS	Agency CMBS	$	1,347,929	$	26,514	$	—	$	1,374,443	$	66,832	$	(5,798)	$	1,435,477	3.4 %		Agency CMBS	$	1,347,929	$	26,514	$	—	$	1,374,443	$	66,832	$	(5,798)	$	1,435,477	3.4 %

Agency CMBS Interest-Only Strips accounted for as derivatives ^{(1) (2)}	Agency CMBS Interest-Only Strips accounted for as derivatives ^{(1) (2)}	N/A		N/A		N/A		N/A		N/A		N/A		3,092		0.4 %		Agency CMBS Interest-Only Strips accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		N/A		3,092		0.4 %
Subtotal Agency CMBS	Subtotal Agency CMBS	1,347,929		26,514		—		1,374,443		66,832		(5,798)		1,438,569		3.1	%	Subtotal Agency CMBS	1,347,929		26,514		—		1,374,443		66,832		(5,798)		1,438,569		3.1	%
Agency RMBS	Agency RMBS	327,814		5,473		—		333,287		7,484		—		340,771		3.5 %		Agency RMBS	327,814		5,473		—		333,287		7,484		0		340,771		3.5 %
Agency RMBS Interest-Only Strips ⁽¹⁾	Agency RMBS Interest-Only Strips ⁽¹⁾	N/A		N/A		N/A		$	8,661	$	1,820	$	(138)	$	10,343	2.8 %		Agency RMBS Interest-Only Strips (1)	N/A		N/A		N/A		$	8,661	$	1,820	$	(138)	$	10,343	2.8 %
Agency RMBS Interest-Only Strips, accounted for as derivatives ^{(1) (2)}	Agency RMBS Interest-Only Strips, accounted for as derivatives ^{(1) (2)}	N/A		N/A		N/A		N/A		N/A		N/A		5,572		3.0 %		Agency RMBS Interest-Only Strips, accounted for as derivatives (1) (2)	N/A		N/A		N/A		N/A		N/A		N/A		5,572		3.0 %
Subtotal Agency RMBS	Subtotal Agency RMBS	327,814		5,473		—		341,948		9,304		(138)		356,686		3.3 %		Subtotal Agency RMBS	327,814		5,473		—		341,948		9,304		(138)		356,686		3.3 %
Total Agency MBS	Total Agency MBS	1,675,743		31,987		—		1,716,391		76,136		(5,936)		1,795,255		3.1	%	Total Agency MBS	1,675,743		31,987		—		1,716,391		76,136		(5,936)		1,795,255		3.1	%

Non-Agency RMBS	Non-Agency RMBS	52,767		4,492		(20,256)		37,003		1,388		(260)		38,131		4.8 %		Non-Agency RMBS	52,767		4,492		(20,256)		37,003		1,388		(260)		38,131		4.8 %
Non-Agency RMBS Interest- Only Strips ⁽¹⁾	Non-Agency RMBS Interest- Only Strips ⁽¹⁾	N/A		N/A		N/A		7,705		636		(658)		7,683		0.6 %		Non-Agency RMBS Interest- Only Strips (1)	N/A		N/A		N/A		7,705		636		(658)		7,683		0.6 %

Subtotal Non-Agency RMBS	Subtotal Non-Agency RMBS	52,767		4,492		(20,256)		44,708		2,024		(918)		45,814		1.0	%	Subtotal Non-Agency RMBS	52,767		4,492		(20,256)		44,708		2,024		(918)		45,814		1.0	%
Non-Agency CMBS	Non-Agency CMBS	354,458		(17,909)		(22,016)		314,533		6,359		(4,873)		316,019		5.1 %		Non-Agency CMBS	354,458		(17,909)		(22,016)		314,533		6,359		(4,873)		316,019		5.1 %
Total Non-Agency MBS	Total Non-Agency MBS	407,225		(13,417)		(42,272)		359,241		8,383		(5,791)		361,833		2.7	%	Total Non-Agency MBS	407,225		(13,417)		(42,272)		359,241		8,383		(5,791)		361,833		2.7	%

Other securities⁽³⁾	Other securities⁽³⁾	71,896		(2,437)		(6,203)		73,975		6,392		(206)		80,161		6.7 %		Other securities (3)	71,896		(2,437)		(6,203)		73,975		6,392		(206)		80,161		6.7 %
Total	Total	$	2,154,864	$	16,133	$	(48,475)	$	2,149,607	$	90,911	$	(11,933)	$	2,237,249	3.1	%	Total	$	2,154,864	$	16,133	$	(48,475)	$	2,149,607	$	90,911	$	(11,933)	$	2,237,249	3.1	%

(1) IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on interest-only class of securities. At ~~June~~September 30, 2020, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIO and Agency RMBS IOs and IIOs, accounted for as derivatives was ~~$4.4~~$4.0 million, ~~$383.1~~$347.5 million and ~~$24.8~~$23.4 million, respectively. At December 31, 2019, the notional balance for Agency RMBS IOs and IIOs, Non-Agency RMBS IOs and IIOs, Agency RMBS IOs and IIOs, accounted for as derivatives and Agency CMBS IOs and IIOs, accounted for as derivatives was $121.7 million, $442.4 million, $64.8 million, and $160.2 million, respectively.

(2) Interest on these securities is reported as a component of "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations.

(3) Other securities include residual interests in asset-backed securities which have 0 principal balance and an amortized cost of approximately ~~$8.2~~$7.1 million and $10.7 million, as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

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As of ~~June~~September 30, 2020 and December 31, 2019 the weighted average expected remaining term of the MBS and other securities investment portfolio was ~~4.3~~4.7 years and 7.9 years, respectively.

Prior to the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” on January 1, 2020, the Company recorded Other Than Temporary Impairment ("OTTI") when the credit quality of the underlying collateral of the beneficial interest deteriorates and or the scheduled payments are faster than previously projected. ~~Accordingly, as~~As of January 1, 2020, a credit loss adjustment, if any, would be reflected in the fair value of these securities and reported as "Unrealized gain (loss), net in the Consolidated Statements of Operations.

The following table presents the changes in the components of the Company’s purchase discount and amortizable premium on its Non-Agency RMBS, Non-Agency CMBS and other securities for the three and ~~six~~nine months ended ~~June~~September 30, 2019 (dollars in thousands):


		Three months ended June 30, 2019							Three months ended September 30, 2019
		Discount Designated as Credit Reserve and OTTI		Accretable Discount⁽¹⁾		Amortizable Premium⁽¹⁾			Discount Designated as Credit Reserve and OTTI		Accretable Discount(1)		Amortizable Premium(1)
Balance at beginning of period	Balance at beginning of period	$	(50,087)	$	(27,632)	$	14,661	Balance at beginning of period	$	(48,824)	$	(28,582)	$	14,441
Accretion of discount	Accretion of discount	—		1,043		—		Accretion of discount	—		1,032		—
Amortization of premium	Amortization of premium	—		—		(135)		Amortization of premium	—		—		(220)
Realized credit losses	Realized credit losses	1,752		—		—		Realized credit losses	831		—		—
Purchases	Purchases	—		(3,106)		287		Purchases	0		(3,493)		473
Sales	Sales	3,340		—		(1,088)		Sales	18,388		—		(17,905)
Net impairment losses recognized in earnings	Net impairment losses recognized in earnings	(2,000)		—		—		Net impairment losses recognized in earnings	(1,587)		—		—
Transfers/release of credit reserve⁽²⁾	Transfers/release of credit reserve⁽²⁾	(1,829)		1,113		716		Transfers/release of credit reserve(2)	(19,567)		1,130		18,437
Balance at end of period	Balance at end of period	$	(48,824)	$	(28,582)	$	14,441	Balance at end of period	$	(50,759)	$	(29,913)	$	15,226


		Six months ended June 30, 2019							Nine months ended September 30, 2019
		Discount Designated as Credit Reserve and OTTI		Accretable Discount⁽¹⁾		Amortizable Premium⁽¹⁾			Discount Designated as Credit Reserve and OTTI		Accretable Discount(1)		Amortizable Premium(1)
Balance at beginning of period	Balance at beginning of period	$	(53,523)	$	(29,465)	$	14,928	Balance at beginning of period	$	(53,523)	$	(29,465)	$	14,928
Accretion of discount	Accretion of discount	—		2,320		—		Accretion of discount	—		3,352		—
Amortization of premium	Amortization of premium	—		—		(616)		Amortization of premium	—		—		(836)
Realized credit losses	Realized credit losses	4,753		—		—		Realized credit losses	5,584		—		—
Purchases	Purchases	—		(3,106)		287		Purchases	0		(6,599)		760
Sales	Sales	6,034		—		(1,611)		Sales	24,422		0		(19,516)
Net impairment losses recognized in earnings	Net impairment losses recognized in earnings	(2,966)		—		—		Net impairment losses recognized in earnings	(4,553)		—		—
Transfers/release of credit reserve⁽²⁾	Transfers/release of credit reserve⁽²⁾	(3,122)		1,669		1,453		Transfers/release of credit reserve(2)	(22,689)		2,799		19,890
Balance at end of period	Balance at end of period	$	(48,824)	$	(28,582)	$	14,441	Balance at end of period	$	(50,759)	$	(29,913)	$	15,226

(1) Together with coupon interest, accretable purchase discount and amortizable premium is recognized as interest income over the life of the security.

(2) Subsequent reductions of a security’s non-accretable discount results in a corresponding reduction in its amortizable premium.

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The following tables present the fair value and contractual maturities of the Company’s investment securities at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020																			September 30, 2020
		< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total			< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total

Agency RMBS Interest-Only Strips	Agency RMBS Interest-Only Strips	$	—	$	—	$	180	$	—	$	180	Agency RMBS Interest-Only Strips	$	0	$	0	$	153	$	0	$	153
Agency RMBS Interest-Only Strips accounted for as derivatives	Agency RMBS Interest-Only Strips accounted for as derivatives	—		1,795		—		—		1,795		Agency RMBS Interest-Only Strips accounted for as derivatives	0		1,700		0		0		1,700
Subtotal Agency	Subtotal Agency	—		1,795		180		—		1,975		Subtotal Agency	0		1,700		153		0		1,853

Non-Agency CMBS	Non-Agency CMBS	57,556		79,515		51,476		770		189,317		Non-Agency CMBS	58,500		67,286		54,978		557		181,321
Non-Agency RMBS	Non-Agency RMBS	—		—		7,991		13,702		21,693		Non-Agency RMBS	0		0		8,008		13,560		21,568
Non-Agency RMBS Interest- Only Strips	Non-Agency RMBS Interest- Only Strips	—		—		981		4,297		5,278		Non-Agency RMBS Interest- Only Strips	0		0		628		3,620		4,248

Subtotal Non-Agency	Subtotal Non-Agency	57,556		79,515		60,448		18,769		216,288		Subtotal Non-Agency	58,500		67,286		63,614		17,737		207,137

Other securities	Other securities	6,421		4,827		18,338		10,880		40,466		Other securities	6,668		5,092		18,517		10,778		41,055
Total	Total	$	63,977	$	86,137	$	78,966	$	29,649	$	258,729	Total	$	65,168	$	74,078	$	82,284	$	28,515	$	250,045


		December 31, 2019																			December 31, 2019
		< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total			< or equal to 10 years		> 10 years and < or equal to 20 years		> 20 years and < or equal to 30 years		> 30 years		Total
Agency CMBS	Agency CMBS	$	973,189	$	462,288	$	—	$	—	$	1,435,477	Agency CMBS	$	973,189	$	462,288	$	0	$	0	$	1,435,477

Agency CMBS Interest-Only Strips, accounted for as derivatives	Agency CMBS Interest-Only Strips, accounted for as derivatives	—		—		—		3,092		3,092		Agency CMBS Interest-Only Strips, accounted for as derivatives	0		0		0		3,092		3,092
Agency RMBS	Agency RMBS	—		—		340,771		—		340,771		Agency RMBS	0		0		340,771		0		340,771
Agency RMBS Interest-Only Strips	Agency RMBS Interest-Only Strips	2,413		1,966		5,964		—		10,343		Agency RMBS Interest-Only Strips	2,413		1,966		5,964		0		10,343
Agency RMBS Interest-Only Strips accounted for as derivatives	Agency RMBS Interest-Only Strips accounted for as derivatives	669		3,893		1,010		—		5,572		Agency RMBS Interest-Only Strips accounted for as derivatives	669		3,893		1,010		0		5,572
Subtotal Agency	Subtotal Agency	976,271		468,147		347,745		3,092		1,795,255		Subtotal Agency	976,271		468,147		347,745		3,092		1,795,255

Non-Agency CMBS	Non-Agency CMBS	89,782		125,282		92,610		8,345		316,019		Non-Agency CMBS	89,782		125,282		92,610		8,345		316,019
Non-Agency RMBS	Non-Agency RMBS	—		—		8,966		29,165		38,131		Non-Agency RMBS	0		0		8,966		29,165		38,131
Non-Agency RMBS Interest- Only Strips	Non-Agency RMBS Interest- Only Strips	—		—		1,716		5,967		7,683		Non-Agency RMBS Interest- Only Strips	0		0		1,716		5,967		7,683

Subtotal Non-Agency	Subtotal Non-Agency	89,782		125,282		103,292		43,477		361,833		Subtotal Non-Agency	89,782		125,282		103,292		43,477		361,833

Other securities	Other securities	25,824		31,823		2,768		19,746		80,161		Other securities	25,824		31,823		2,768		19,746		80,161
Total	Total	$	1,091,877	$	625,252	$	453,805	$	66,315	$	2,237,249	Total	$	1,091,877	$	625,252	$	453,805	$	66,315	$	2,237,249

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The following tables present the gross unrealized losses and estimated fair value of the Company’s MBS and other securities by length of time that such securities have been in a continuous unrealized loss position at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020																														September 30, 2020
		Less than 12 Months									12 Months or More										Total							Less than 12 Months					12 Months or More	Total
		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities

Non-Agency CMBS	Non-Agency CMBS	$	164,522	$	(54,189)	36	$	17,744	$	(2,467)	5	$	182,266	$	(56,656)	41	Non-Agency CMBS	$	142,229	$	(43,839)	25	$	28,946	$	(7,950)	13	$	171,175	$	(51,789)	38
Non-Agency RMBS	Non-Agency RMBS	19,542		(2,401)		5	—		—		—	19,542		(2,401)		5	Non-Agency RMBS	18,304		(2,288)		4	0		0		0	18,304		(2,288)		4
Non-Agency RMBS Interest-Only Strips	Non-Agency RMBS Interest-Only Strips	3,862		(411)		2	981		(1,161)		1	4,843		(1,572)		3	Non-Agency RMBS Interest-Only Strips	3,620		(854)		3	628		(1,428)		1	4,248		(2,282)		4
Subtotal Non-Agency	Subtotal Non-Agency	187,926		(57,001)		43	18,725		(3,628)		6	206,651		(60,629)		49	Subtotal Non-Agency	164,153		(46,981)		32	29,574		(9,378)		14	193,727		(56,359)		46

Other securities	Other securities	29,096		(11,099)		10	—		—		—	29,096		(11,099)		10	Other securities	33,016		(9,582)		9	0		0		0	33,016		(9,582)		9
Total	Total	$	217,022	$	(68,100)	53	$	18,725	$	(3,628)	6	$	235,747	$	(71,728)	59	Total	$	197,169	$	(56,563)	41	$	29,574	$	(9,378)	14	$	226,743	$	(65,941)	55


		December 31, 2019																														December 31, 2019
		Less than 12 Months									12 Months or More										Total							Less than 12 Months					12 Months or More	Total
		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities
Agency CMBS	Agency CMBS	$	214,084	$	(5,798)	16	$	—	$	—	—	$	214,084	$	(5,798)	16	Agency CMBS	$	214,084	$	(5,798)	16	$	0	$	0	0	$	214,084	$	(5,798)	16

Agency RMBS Interest-Only Strips	Agency RMBS Interest-Only Strips	1,376		(43)		4	1,828		(95)		7	3,204		(138)		11	Agency RMBS Interest-Only Strips	1,376		(43)		4	1,828		(95)		7	3,204		(138)		11
Subtotal Agency	Subtotal Agency	215,460		(5,841)		20	1,828		(95)		7	217,288		(5,936)		27	Subtotal Agency	215,460		(5,841)		20	1,828		(95)		7	217,288		(5,936)		27

Non-Agency CMBS	Non-Agency CMBS	171,650		(4,302)		31	18,069		(571)		4	189,719		(4,873)		35	Non-Agency CMBS	171,650		(4,302)		31	18,069		(571)		4	189,719		(4,873)		35
Non-Agency RMBS	Non-Agency RMBS	13,214		(260)		1	—		—		—	13,214		(260)		1	Non-Agency RMBS	13,214		(260)		1	0		0		0	13,214		(260)		1
Non-Agency RMBS Interest-Only Strips	Non-Agency RMBS Interest-Only Strips	1,716		(658)		1	—		—		—	1,716		(658)		1	Non-Agency RMBS Interest-Only Strips	1,716		(658)		1	0		0		0	1,716		(658)		1
Subtotal Non-Agency	Subtotal Non-Agency	186,580		(5,220)		33	18,069		(571)		4	204,649		(5,791)		37	Subtotal Non-Agency	186,580		(5,220)		33	18,069		(571)		4	204,649		(5,791)		37

Other securities	Other securities	10,512		(206)		2	—		—		—	10,512		(206)		2	Other securities	10,512		(206)		2	0		0		0	10,512		(206)		2
Total	Total	$	412,552	$	(11,267)	55	$	19,897	$	(666)	11	$	432,449	$	(11,933)	66	Total	$	412,552	$	(11,267)	55	$	19,897	$	(666)	11	$	432,449	$	(11,933)	66

The following table presents the OTTI the Company recorded on its securities portfolio for the three and ~~six~~nine months ended ~~June~~September 30, 2019 (dollars in thousands):


		Three months ended June 30, 2019		Six months ended June 30, 2019			Three months ended September 30, 2019		Nine months ended September 30, 2019
Agency RMBS⁽¹⁾	Agency RMBS⁽¹⁾	$	—	$	25	Agency RMBS(1)	$	49	$	74
Non-Agency CMBS	Non-Agency CMBS	1,952		2,918		Non-Agency CMBS	1,588		4,506
Non-Agency RMBS	Non-Agency RMBS	936		1,177		Non-Agency RMBS	27		1,204
Other securities	Other securities	407		407		Other securities	155		562
Total	Total	$	3,295	$	4,527	Total	$	1,819	$	6,346

⁽¹⁾ Other-than-temporary impairment on Agency RMBS includes impairments on Agency RMBS IOs and unrealized loss on Agency RMBS securities that we had the intent to sell at the end of the period, if applicable.

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The following tables present components of interest income on the Company’s MBS and other securities for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively (dollars in thousands):


		Three months ended June 30, 2020										Three months ended June 30, 2019											Three months ended September 30, 2020				Three months ended September 30, 2019
		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income			Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income
Agency CMBS	Agency CMBS	$	413	$	(48)	$	365	$	12,567	$	(733)	$	11,834	Agency CMBS	$	0	$	0	$	0	$	14,544	$	(764)	$	13,780
Agency RMBS	Agency RMBS	173		(112)		61		2,795		(620)		2,175		Agency RMBS	25		(17)		8		4,723		(981)		3,742
Non-Agency CMBS	Non-Agency CMBS	3,960		1,772		5,732		3,168		1,322		4,490		Non-Agency CMBS	3,500		1,686		5,186		3,696		1,048		4,744
Non-Agency RMBS	Non-Agency RMBS	582		(367)		215		1,385		(711)		674		Non-Agency RMBS	616		(154)		462		1,120		(564)		556
Other securities	Other securities	2,037		(1,333)		704		3,070		(1,758)		1,312		Other securities	1,723		(1,013)		710		2,924		(1,636)		1,288
Total	Total	$	7,165	$	(88)	$	7,077	$	22,985	$	(2,500)	$	20,485	Total	$	5,864	$	502	$	6,366	$	27,007	$	(2,897)	$	24,110


		Six months ended June 30, 2020										Six months ended June 30, 2019											Nine months ended September 30, 2020				Nine months ended September 30, 2019
		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income			Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income		Coupon Interest		Net (Premium Amortization/Amortization Basis) Discount Amortization		Interest Income
Agency CMBS	Agency CMBS	$	11,336	$	(636)	$	10,700	$	23,556	$	(789)	$	22,767	Agency CMBS	$	11,336	$	(636)	$	10,700	$	38,100	$	(1,553)	$	36,547
Agency RMBS	Agency RMBS	2,929		(954)		1,975		3,666		(1,275)		2,391		Agency RMBS	2,954		(971)		1,983		8,389		(2,256)		6,133
Non-Agency CMBS	Non-Agency CMBS	8,757		2,740		11,497		6,279		2,246		8,525		Non-Agency CMBS	12,257		4,426		16,683		9,975		3,294		13,269
Non-Agency RMBS	Non-Agency RMBS	1,733		(1,008)		725		2,592		(1,188)		1,404		Non-Agency RMBS	2,349		(1,162)		1,187		3,712		(1,752)		1,960
Other securities	Other securities	4,842		(2,797)		2,045		5,959		(3,349)		2,610		Other securities	6,565		(3,810)		2,755		8,883		(4,985)		3,898
Total	Total	$	29,597	$	(2,655)	$	26,942	$	42,052	$	(4,355)	$	37,697	Total	$	35,461	$	(2,153)	$	33,308	$	69,059	$	(7,252)	$	61,807

The following tables present the sales and realized gain (loss) of the Company’s MBS and other securities for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively (dollars in thousands):


		Three months ended June 30, 2020														Three months ended June 30, 2019															Three months ended September 30, 2020				Three months ended September 30, 2019
		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)			Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Agency CMBS	Agency CMBS	$	409,117	$	22,156	$	(32)	$	22,124	$	—	$	—	$	—	$	—	Agency CMBS	$	0	$	0	$	0	$	0	$	356,967	$	20,268	$	0	$	20,268
Agency RMBS	Agency RMBS	9,512		2,132		(468)		1,664		—		—		—		—		Agency RMBS	0		0		0		0		205,310		1,560		0		1,560
Non-Agency CMBS	Non-Agency CMBS	42,646		—		(13,901)		(13,901)		6,165		183		(25)		158		Non-Agency CMBS	0		0		0		0		24,288		134		(210)		(76)
Non-Agency RMBS																		Non-Agency RMBS	(44)		0		(44)		(44)		0		0		0		0

Other securities		18,211		—		(6,223)		(6,223)		—		—		—		—
Total	Total	$	479,486	$	24,288	$	(20,624)	$	3,664	$	6,165	$	183	$	(25)	$	158	Total	$	(44)	$	0	$	(44)	$	(44)	$	586,565	$	21,962	$	(210)	$	21,752


		Six months ended June 30, 2020															Six months ended June 30, 2019															Nine months ended September 30, 2020				Nine months ended September 30, 2019
		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains			Gross Losses		Net Gain (Loss)			Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Agency CMBS	Agency CMBS	$	1,668,149	$	116,463	$	(6,486)	$	109,977	$	206,710	$	—		$	(4,189)	$	(4,189)	Agency CMBS	$	1,668,149	$	116,463	$	(6,486)	$	109,977	$	563,677	$	20,268	$	(4,189)	$	16,079
Agency RMBS	Agency RMBS	400,948		12,552		(506)		12,046		—		—			—		—		Agency RMBS	400,948		12,552		(506)		12,046		205,310		1,560		0		1,560
Non-Agency CMBS	Non-Agency CMBS	94,586		1		(22,703)		(22,702)		15,165		183			(854)		(671)		Non-Agency CMBS	94,586		1		(22,703)		(22,702)		39,453		317		(1,064)		(747)
Non-Agency RMBS	Non-Agency RMBS	12,702		—		(16)		(16)		—		—		��	—		—		Non-Agency RMBS	12,658		0		(60)		(60)		0		0		0		0
Other securities	Other securities	35,957		113		(6,223)		(6,110)		—		—			—		—		Other securities	35,957		113		(6,223)		(6,110)		0		0		0		0
Total	Total	$	2,212,342	$	129,129	$	(35,934)	$	93,195	$	221,875	$	183		$	(5,043)	$	(4,860)	Total	$	2,212,298	$	129,129	$	(35,978)	$	93,151	$	808,440	$	22,145	$	(5,253)	$	16,892

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Unconsolidated CMBS VIEs

The Company’s economic interests held in unconsolidated CMBS VIEs are limited in nature to those of a passive holder of CMBS issued by securitization trusts; the Company was not involved in the design or creation of the securitization trusts. The Company evaluates its CMBS holdings, for potential consolidation of the securitized trust, in which it owns the most subordinate tranche or a portion of the controlling class. As of ~~June~~September 30, 2020 and December 31, 2019, the Company held 8 and 10 variable interests in unconsolidated CMBS VIEs, respectively, in which it either owned the most subordinate class or a portion of the controlling class. The Company determined it was not the primary beneficiary and accordingly, the CMBS VIEs were not consolidated in the Company’s consolidated financial statements. As of ~~June~~September 30, 2020 and December 31, 2019, the Company’s maximum exposure to loss from these variable interests did not exceed the carrying value of these investments of ~~$64.7~~$65.2 million and $117.7 million, respectively. These investments are classified in "Non-Agency mortgage-backed securities, at fair value" in the Company’s Consolidated Balance Sheets. Further, as of ~~June~~September 30, 2020 and December 31, 2019, the Company did not guarantee any obligations of unconsolidated entities or enter into any commitment or intent to provide funding to any such entities.

Note 5 — Residential Whole Loans and Bridge Loans

Residential Whole-Loan Trust

The consolidated financial statements include the consolidation of Revolving Mortgage Investment Trust 2015-1QR2 ("RMI 2015 Trust") since it met the definition of a VIE and the Company determined that it was the primary beneficiary of the trust because it was involved in the design of the trust, has oversight rights on defaulted assets and has other significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. RMI 2015 Trust has issued a trust certificate that is wholly-owned by the Company and represents the entire beneficial interest in pools of Non-QM Residential Whole Loans held by the trust. As of ~~June~~September 30, 2020 and December 31, 2019, the Company financed the trust certificate with ~~$23.6~~$20.8 million and $209.9 million, respectively, on long-term financing facility. The financing liability is held outside the trust. The Company classifies the underlying Residential Whole Loans owned by the trust in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets and has eliminated the intercompany trust certificate in consolidation.

In August 2018, the Company formed Revolving Mortgage Investment Trust 2018-RCR ("RCR Trust") to acquire Conforming Residential Whole Loans. The Company determined that RCR Trust was a VIE and that the Company was the primary beneficiary of the trust because it was involved in the design of the trust, has oversight rights on defaulted assets and has other significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. As of December 31, 2019, the Company financed the trust certificate with $164.3 million of repurchase agreements, which is a liability held outside the trust. The Company classifies the underlying conforming mortgages owned by the trust in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany trust certificate in consolidation. In May 2020, the conforming mortgages held by RCR Trust were sold and the trust was ~~terminated~~terminated.

In September 2018, the Company formed Revolving Mortgage Investment Trust 2018-RNR ("RNR Trust") to acquire Non-QM Residential Whole Loans. The Company determined that RNR Trust was a VIE and that the Company was the primary beneficiary because it was involved in the design of the trust, has oversight rights on defaulted assets and has other significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. As of December 31, 2019, the Company's trust certificate was financed with $8.1 million of repurchase agreements, which is a liability held outside the trust. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany trust certificate in consolidation. In April 2020, the RNR Trust was terminated following the transfer of the Non-QM Residential Whole Loans it held to RMI 2015 Trust.

In May 2019, the Company completed a residential mortgage-backed securitization comprised of a portion of its Residential Whole Loan portfolio. During the securitization, RMI 2015 Trust and RNR Trust collectively transferred $945.5 million of Non-QM Residential Whole Loans, to a wholly-owned subsidiary of the Company, Arroyo Mortgage Trust 2019-2 ("Arroyo Trust"). The Company issued $919.0 million of mortgage-backed notes and retained all the subordinate and residual

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debt securities ("Owner Certificates"), which includes the required ~~the~~ 5% eligible risk retention. Refer to Note 7 - "Financings" for details on the associated securitized debt. The Company determined that Arroyo Trust was a VIE and that the Company was also the primary beneficiary because the Manager was involved in the design of the trust and the Company has significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the Arroyo Trust that could potentially be significant to the trust. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany Owner Certificates in consolidation.

In November 2019, the Company formed Revolving Mortgage Investment Trust 2019-RBR ("RBR Trust") to acquire Non-QM Residential Whole Loans. The Company determined that RBR Trust was a VIE and that the Company was the primary beneficiary because it was involved in the design of the trust, has oversight rights on defaulted assets and has other significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. As of December 31, 2019, the Company's trust certificate was financed with $91.7 million of repurchase agreements, which is a liability held outside the trust. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany trust certificate in consolidation. In April 2020, the RBR Trust was terminated following the transfer of the Non-QM Residential Whole Loans it held to RMI 2015 Trust.

In June 2020, the Company completed a residential mortgage-backed securitization comprised of a portion of its Residential Whole Loan portfolio. During the securitization, RMI 2015 Trust transferred $355.8 million of Non-QM Residential Whole Loans, to a wholly-owned subsidiary of the Company, Arroyo Mortgage Trust 2020-1 ("Arroyo Trust 2020"). The Company issued $341.7 million of mortgage-backed notes and retained all the subordinate and residual debt securities, which includes the required ~~the~~ 5% eligible risk retention. Refer to Note 7 - "Financings" for details on the associated securitized debt. The Company determined that Arroyo Trust 2020 was a VIE and that the Company was also the primary beneficiary because the Manager was involved in the design of the trust and the Company has significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the Arroyo Trust 2020 that could potentially be significant to the trust. The Company classifies the underlying Non-QM Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany Owner Certificates in consolidation.

Residential Bridge Loan Trust

In February 2017, The Company formed Revolving Mortgage Investment Trust 2017-BRQ1 ("RMI 2017 Trust") and acquired the trust certificate, which represents the entire beneficial interest in pools of Residential Bridge Loans and certain Residential Whole Loans held by the trust. Residential Bridge Loans are mortgage loans secured by residences, typically short-term. The Company determined that RMI Trust was a VIE and that the Company was the primary beneficiary because it was involved in the design of the trust, has oversight rights on defaulted assets and has other significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. As of ~~June~~September 30, 2020 and December 31, 2019, the Company financed the trust certificate with ~~$23.3~~$18.2 million and $32.1 million, respectively, of repurchase agreement borrowings, which is a liability held outside the trust. The Company classifies both the underlying Residential Bridge Loans carried at amortized cost and the Residential Bridge Loans that it elected the fair value option in "Residential Bridge Loans" and the Residential Whole Loans in "Residential Whole Loans, at fair value" in the Consolidated Balance Sheets. The Company has eliminated the intercompany trust certificate in consolidation.

Consolidated Residential Whole-Loan and Residential Bridge Loan Trusts

The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment. The three consolidated Residential Whole-Loan trusts collectively hold ~~2,858~~2,701 Residential Whole Loans and the consolidated Bridge Loan Trust holds 4733 Residential Bridge Loans and 9 Residential Whole Loans as of ~~June~~September 30, 2020.

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The following table presents a summary of the assets and liabilities of the consolidated residential whole loan trusts and residential bridge loan trust included in the Consolidated Balance Sheets as of ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Cash and cash equivalents	Cash and cash equivalents	$	—	$	1,811	Cash and cash equivalents	$	0	$	1,811
Residential Whole Loans, at fair value ($1,124,051 and $1,375,860 pledged as collateral, at fair value, respectively)		1,124,051		1,375,860
Residential Bridge Loans ($23,037 and $31,748 at fair value and $25,371 and $34,897 pledged as collateral, respectively)		25,371		34,897
Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)						Residential Whole Loans, at fair value ($1,096,997 and $1,375,860 pledged as collateral, at fair value, respectively)	1,096,997		1,375,860
Residential Bridge Loans ($15,319 and $31,748 at fair value and $16,828 and $34,897 pledged as collateral, respectively)						Residential Bridge Loans ($15,319 and $31,748 at fair value and $16,828 and $34,897 pledged as collateral, respectively)	16,828		34,897

Investment related receivable	Investment related receivable	12,029		19,138		Investment related receivable	18,817		19,138
Interest receivable	Interest receivable	7,585		7,840		Interest receivable	5,123		7,840
Other assets	Other assets	92		90		Other assets	92		90
Total assets	Total assets	$	1,169,128	$	1,439,636	Total assets	$	1,137,857	$	1,439,636
Securitized debt, net	Securitized debt, net	$	1,034,019	$	795,811	Securitized debt, net	$	966,449	$	795,811
Interest payable	Interest payable	2,554		2,367		Interest payable	2,394		2,367
Accounts payable and accrued expenses	Accounts payable and accrued expenses	114		173		Accounts payable and accrued expenses	109		173

Total liabilities	Total liabilities	$	1,036,687	$	798,351	Total liabilities	$	968,952	$	798,351

The Company’s risk with respect to its investment in each residential loan trust is limited to its direct ownership in the trust. The Residential Whole Loans, Residential Bridge Loans and Commercial Loan held by the consolidated trusts are held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The Company is not contractually required and has not provided any additional financial support to the trusts for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019.

The following table presents the components of the carrying value of Residential Whole Loans and Residential Bridge Loans as of ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		Residential Whole Loans, at Fair Value						Residential Bridge Loans, at Fair Value⁽¹⁾						Residential Bridge Loans, at Amortized Cost⁽¹⁾								Residential Whole Loans, at Fair Value				Residential Bridge Loans, at Fair Value(1)		Residential Bridge Loans, at Amortized Cost(1)
		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019				September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Principal balance	Principal balance	$	1,147,860	$	1,325,443	$	25,685	$	34,041	$	2,343	$	3,155		Principal balance	$	1,073,648	$	1,325,443	$	17,455	$	34,041	$	1,518	$	3,155
Unamortized premium	Unamortized premium	27,518		28,588		25		79		3		6			Unamortized premium	26,113		28,588		4		79		0		6
Unamortized discount	Unamortized discount	(2,119)		(2,839)		—		(13)		(12)		(11)			Unamortized discount	(1,864)		(2,839)		0		(13)		(10)		(11)
Amortized cost	Amortized cost	1,173,259		1,351,192		25,710		34,107		2,334		3,150			Amortized cost	1,097,897		1,351,192		17,459		34,107		1,508		3,150
Gross unrealized gains	Gross unrealized gains	422		26,363		—		10		N/A		N/A			Gross unrealized gains	8,872		26,363		24		10		N/A		N/A
Gross unrealized losses	Gross unrealized losses	(49,630)		(1,695)		(1,539)		(848)		N/A		N/A			Gross unrealized losses	(9,772)		(1,695)		(1,150)		(848)		N/A		N/A
Fair value	Fair value	$	1,124,051	$	1,375,860	$	24,171	$	33,269	N/A		N/A			Fair value	$	1,096,997	$	1,375,860	$	16,333	$	33,269	N/A		N/A

(1) These loans are classified in "Residential Bridge Loans" in the Consolidated Balance Sheets.

Residential Whole Loans

The Residential Whole Loans have low LTV's and are comprised of ~~2,858~~2,701 Non-QM adjustable rate mortgages and 9 investor fixed rate mortgages. The following tables present certain information about the Company’s Residential Whole Loan investment portfolio at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):

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June 30, 2020
September 30, 2020												September 30, 2020
					Weighted Average																Weighted Average
Current Coupon Rate	Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Original FICO Score⁽¹⁾	Expected Life (years)⁽²⁾	Contractual Maturity (years)	Coupon Rate		Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Original FICO Score(1)	Expected Life (years)	Contractual Maturity (years)	Coupon Rate
3.01 – 4.00%	3.01 – 4.00%	31	$	11,165	58.7	%	701	4.4	24.4	3.9	%	3.01 – 4.00%	73	$	25,295	57.0	%	708	3.6	23.7	3.8	%
4.01– 5.00%	4.01– 5.00%	1,369	481,540		61.8	%	752	2.9	28.2	4.9	%	4.01– 5.00%	1,287	448,466		61.8	%	751	2.5	27.9	4.9	%
5.01 – 6.00%	5.01 – 6.00%	1,422	639,070		64.2	%	740	3.1	27.9	5.4	%	5.01 – 6.00%	1,310	585,577		64.3	%	740	2.7	27.8	5.4	%
6.01 – 7.00%	6.01 – 7.00%	43	15,572		67.1	%	721	3.4	27.4	6.3	%	6.01 – 7.00%	38	13,798		67.4	%	723	3.0	27.3	6.3	%
7.01 - 8.00%	7.01 - 8.00%	2	513		73.2	%	753	4.7	28.1	7.1	%	7.01 - 8.00%	2	512		73.2	%	753	4.0	27.9	7.1	%

Total	Total	2,867	$	1,147,860	63.2	%	745	3.1	28.0	5.2	%	Total	2,710	$	1,073,648	63.1	%	744	2.7	27.7	5.1	%

(1)The original FICO score is not available for ~~262~~249 loans with a principal balance of approximately ~~$88.1~~$79.5 million at ~~June~~September 30, 2020. The Company has excluded these loans from the weighted average computations.

~~(2)Excludes the expected lives of the conforming Residential Whole Loans held by RCR Trust.~~


December 31, 2019
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV	Original FICO Score(1)	Expected Life (years)(2)	Contractual Maturity (years)	Coupon Rate
3.01 – 4.00%	53	$	17,284	61.7 %	736	2.4	28.0	3.9 %
4.01– 5.00%	1,689	557,144		61.4 %	744	2.8	28.5	4.8 %
5.01 – 6.00%	1,682	713,397		62.0 %	736	3.0	28.3	5.4 %
6.01 – 7.00%	103	37,102		54.1 %	727	3.8	25.3	6.2 %
7.01 - 8.00%	2	516		73.2 %	753	4.7	28.6	7.1 %
Total	3,529	$	1,325,443	61.5 %	739	3.0	28.3	5.2 %

(1)The original FICO score is not available for 286 loans with a principal balance of approximately $94.6 million at December 31, 2019. The Company has excluded these loans from the weighted average computations.

(2)Excludes the expected lives of the conforming Residential Whole Loans held by RCR Trust.

The following table presents the various states across the United States in which the collateral securing the Company’s Residential Whole Loans at ~~June~~September 30, 2020 and December 31, 2019, based on principal balance, is located (dollars in thousands):


June 30, 2020									December 31, 2019
September 30, 2020											September 30, 2020					December 31, 2019
State	State	State Concentration		Principal Balance		State	State Concentration		Principal Balance		State	State Concentration		Principal Balance		State	State Concentration		Principal Balance
California	California	64.9	%	$	744,993	California	66.1	%	$	875,738	California	65.4	%	$	702,352	California	66.1	%	$	875,738
New York	New York	18.0	%	206,592		New York	16.2	%	214,141		New York	17.9	%	192,458		New York	16.2	%	214,141
Georgia	Georgia	3.5	%	39,906		Georgia	3.4	%	45,189		Georgia	3.4	%	35,969		Georgia	3.4	%	45,189
Florida	Florida	2.7	%	31,096		Florida	2.8	%	36,641		Florida	2.7	%	29,268		Florida	2.8	%	36,641
New Jersey	New Jersey	2.4	%	27,349		New Jersey	2.3	%	30,450		New Jersey	2.5	%	26,642		New Jersey	2.3	%	30,450
Other	Other	8.5	%	97,924		Other	9.2	%	123,284		Other	8.1	%	86,959		Other	9.2	%	123,284
Total	Total	100.0	%	$	1,147,860	Total	100.0	%	$	1,325,443	Total	100.0	%	$	1,073,648	Total	100.0	%	$	1,325,443

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Residential Bridge Loans

The Residential Bridge Loans are comprised of short-term non-owner occupied fixed rate loans secured by single or multi-unit residential properties, with LTVs generally not to exceed 85%. The following tables present certain information about the Company’s Residential Bridge Loan investment portfolio at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


June 30, 2020
September 30, 2020										September 30, 2020
c	c				Weighted Average								c				Weighted Average
Current Coupon Rate	Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)⁽¹⁾	Coupon Rate		Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)(1)	Coupon Rate

7.01 – 9.00%	7.01 – 9.00%	23	$	16,604	68.3	%	2.0	8.5	%	7.01 – 9.00%	15	$	10,430	69.5	%	1.8	8.6	%
9.01 – 11.00%	9.01 – 11.00%	21	8,308		74.4	%	1.9	10.1	%	9.01 – 11.00%	18	7,714		74.8	%	3.2	10.1	%
11.01 – 13.00%	11.01 – 13.00%	6	2,167		64.3	%	0.0	11.7	%	11.01 – 13.00%	3	705		69.8	%	0.0	11.4	%

17.01 – 19.00%	17.01 – 19.00%	2	949		75.0	%	0.0	18.0	%	17.01 – 19.00%	1	124		75.0	%	0.0	18.0	%

Total	Total	52	$	28,028	70.0	%	2.0	9.5	%	Total	37	$	18,973	71.7	%	2.2	9.4	%


December 31, 2019
				Weighted Average
Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)(1)	Coupon Rate

7.01 – 9.00%	36	$	22,409	70.2 %		5.8	8.4 %
9.01 – 11.00%	28	9,972		74.0 %		5.6	10.1 %
11.01 – 13.00%	9	2,741		63.1 %		2.0	11.7 %
13.01 – 15.00%	1	1,125		75.0 %		0.0	13.5 %

17.01 – 19.00%	2	949		75.0	%	0.0	18.0	%


Total	76	37,196		71.0	%	5.6	9.5	%

(1) Non-performing loans that are past their maturity date are excluded from the calculation of the weighted average contractual maturity. The weighted average contractual maturity for these loans is zero.

The following table presents the U.S. states in which the collateral securing the Company’s Residential Bridge Loans at ~~June~~September 30, 2020 and December 31, 2019, based on principal balance, is located (dollars in thousands):


June 30, 2020									December 31, 2019
September 30, 2020											September 30, 2020					December 31, 2019
State	State	Concentration		Principal Balance		State	Concentration		Principal Balance		State	Concentration		Principal Balance		State	Concentration		Principal Balance
California	California	48.2	%	$	13,508	California	50.4	%	$	18,763	California	37.8	%	$	7,163	California	50.4	%	$	18,763
New York	New York	15.4	%	4,323		Washington	13.1	%	4,863		New York	17.7	%	3,365		Washington	13.1	%	4,863
Washington	Washington	13.4	%	3,748		New York	12.1	%	4,518		Washington	17.7	%	3,361		New York	12.1	%	4,518
Florida	Florida	9.4	%	2,626		Florida	8.9	%	3,296		Florida	12.6	%	2,384		Florida	8.9	%	3,296
New Jersey	New Jersey	3.6	%	1,004		New Jersey	3.8	%	1,424		New Jersey	4.4	%	843		New Jersey	3.8	%	1,424
Other	Other	10.0	%	2,819		Other	11.7	%	4,332		Other	9.8	%	1,857		Other	11.7	%	4,332
Total	Total	100.0	%	$	28,028	Total	100.0	%	$	37,196	Total	100.0	%	$	18,973	Total	100.0	%	$	37,196

Non-performing Loans

The following table presents the aging of the Residential Whole Loans and Bridge Loans as of ~~June~~September 30, 2020 (dollars in thousands):

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		Residential Whole Loans								Bridge Loans									Residential Whole Loans				Bridge Loans
		# of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value ⁽¹⁾			No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value (1)
Current(2)	Current(2)	2,571	$	992,016	$	975,530	15	$	8,617	$	8,582	Current(2)	2,655	$	1,038,836	$	1,063,022	10	$	4,501	$	4,486
1-30 days	1-30 days	58	25,240		24,585		4	1,193		1,153		1-30 days	24	10,330		10,472		2	1,430		1,412
31-60 days	31-60 days	157	83,172		79,411		2	1,334		1,307		31-60 days	3	1,303		1,281		3	2,080		2,038
61-90 days	61-90 days	63	34,035		31,885		2	3,614		3,391		61-90 days	7	7,266		6,978		0	0		0
90+ days	90+ days	18	13,397		12,640		29	13,270		12,072		90+ days	21	15,913		15,244		22	10,962		9,904
Total	Total	2,867	$	1,147,860	$	1,124,051	52	$	28,028	$	26,505	Total	2,710	$	1,073,648	$	1,096,997	37	$	18,973	$	17,840

(1) Includes ~~$2.3~~$1.5 million loans carried at amortized cost.

(2) Includes loans in forbearance with unpaid principal balance of approximately $109.6 million.

COVID-19 has materially disrupted business operations, resulting in significantly higher levels of unemployment or underemployment. As a result, some of its Residential Whole Loan borrowers have experienced financial hardship, making it difficult to meet their payment obligations to the Company, leading to requests for forbearance and higher levels of delinquency and potentially defaults. The Company maintains a strong relationship with its servicers and has utilized these relationships to manage the impacts of COVID-19 pandemic on the Company's Non-QM loans. As of ~~June~~September 30, 2020, the Company had ~~390~~252 Non-QM loans in forbearance. Under the forbearance agreement, the borrower can generally elect to defer the principal and interest payments for 3 to 5 months. At the end of the forbearance period, the borrower can either repay the deferred principal and interest in full, capitalize the deferred principal and interest to the loan balance and calculate a new ~~amortization~~amortization payment or request an extension. Loans under a forbearance agreement are treated as "Current" in the above table. These loans are carried at fair value and had an unpaid principal balance of approximately ~~$180.6~~$109.6 million, ~~and~~ a fair value of ~~$173.5 million. These loans~~$110.3 million, a weighted average original LTV of 63.7%, and represent approximately ~~15.7%~~10.2% of the total outstanding principal balance ~~and have a weighted average original LTV~~ of ~~62.6%.~~

the Company's

Residential Whole Loans

As of December 31, 2019, there were 12 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately $7.1 million and a fair value of approximately $6.7 million. These nonperforming loans represent approximately 0.5% of the total outstanding principal balance. These loans are collateral dependent with a weighted average original LTV of 62.1%.

These loans are carried at fair value, and accordingly no allowance for credit losses or credit loss expense was recorded, since the adjustment for credit losses, if any, would be reflected in the fair value of these loans as a component of "Unrealized gain (loss), net in the Consolidated Statements of Operations. The Company stops accruing interest income for these loans when they became contractually 90 days delinquent.

Residential Bridge Loans

As of ~~June��~~September 30, 2020, there ~~were 3~~was 1 Residential Bridge Loans carried at amortized cost in non-accrual status with an unpaid principal balance of approximately ~~$1.1 million~~$124 thousand and 2621 Residential Bridge Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately ~~$12.2~~$10.8 million and a fair value of ~~$11.0~~$9.8 million. These nonperforming loans represent approximately ~~47.3%~~57.8% of the total outstanding Bridge Loans principal balance of ~~$28.0~~$19.0 million. These loans are collateral dependent with a weighted average original LTV of ~~72.0%~~72.8%.

As of December 31, 2019, there were 27 Residential Bridge Loans carried at fair value in non-accrual status with an unpaid principal balance of $12.1 million and a fair value of $11.4 million. These nonperforming loans represented approximately 32.6% of the total outstanding Bridge Loans principal balance of $37.2 million. These loans are collateral dependent with a weighted average original LTV of 72.1%.

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The Company concluded that an allowance for credit losses was not necessary for loans carried at amortized costs as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 since the fair value of the collateral balance less the cost to sell was in excess of the outstanding principal and interest balances. For loans carried at fair value, no allowance for credit losses or credit loss expense was recorded since the adjustment for credit losses, if any, would be reflected in the fair value of these loans as a component of "Unrealized gain (loss), net in the Consolidated Statements of Operations. The Company stops accruing interest income for these loan when they became contractually 90 days delinquent.

As of ~~June~~September 30, 2020, the Company had real estate owned ("REO") properties with an aggregate carrying value of ~~$2.2~~$1.3 million related to foreclosed Bridge Loans. The REO properties are held for sale and accordingly carried at the lower of cost or fair value less cost to sell. The REO properties are classified in "Other assets" in the Consolidated Balance Sheets.

Note 6 — Commercial Loans

Securitized Commercial Loans

Securitized commercial loans is comprised of commercial loans from consolidated third party sponsored CMBS VIE's. At ~~June~~September 30, 2020, the Company had variable interests in 1 2 third party sponsored CMBS ~~VIE,~~VIEs, RETL 2019-RVP and CSMC Trust 2014-USA, that it determined it was the primary beneficiary and was required to consolidate. The commercial loans that serve as collateral for the securitized debt issued by ~~this VIE~~these VIEs can only be used to settle the securitized debt. Refer to Note 7 - "Financings" for details on the associated securitized debt. The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation assessment.

CSMC Trust 2015 - Longhouse MZ

In November 2015, the Company acquired a $14.0 million interest in the trust certificate issued by CSMC Trust 2015 - Longhouse MZ (“CSMC Trust”). The Company determined that CSMC Trust was a VIE and that the Company was the primary beneficiary because it was involved in certain aspects of the design of the trust, has certain oversight rights on defaulted assets and has other significant decision making powers. As the primary beneficiary, the Company was required to consolidate CSMC Trust and accordingly its investment in CSMC Trust was eliminated in consolidation. The CSMC Trust holds a mezzanine loan collateralized by interests in commercial real estate. The mezzanine loan serves as collateral for the trust certificates. In June 2020, the variable interest the Company acquired was paid off and, accordingly the CSMC Trust is no longer consolidated.

RETL 2019-RVP

RETL 2018 was refinanced with a new securitization RETL 2019-RVP ("RETL 2019 Trust") in March 2019. The Company acquired a $65.3 million interest in the trust certificates issued by the RETL 2019 Trust, including $45.3 million which represents the 5% eligible risk retention certificate. The Company determined that RETL 2019 Trust was a VIE and that the Company was also the primary beneficiary because the Manager was involved in certain aspects of the design of the trust and the Company together with other related party entities own more than 50% of the controlling class. As the primary beneficiary, the Company consolidated RETL 2019 Trust and its investment in the trust certificates (HRR class and a portion of the C class) of RETL 2019 Trust were eliminated in the consolidation. The RETL 2019 Trust holds a commercial loan collateralized by first mortgages, deeds of trusts and interests in commercial real estate. The outstanding principal balance on this commercial loan is ~~$519.7~~$488.9 million as of ~~June~~September 30, 2020. The loan's stated maturity date is March 15, 2021 (subject to the borrower's option to extend the initial stated maturity date for two successive one-year terms) and bears an interest rate of one month LIBOR plus 2.30%. As of September 30, 2020, the RETL HRR bonds are held in WMC RETL LLC, which is a wholly owned subsidiary of the Company.

MRCD 2019-PRKC Mortgage Trust

In December 2019, the Company acquired a $161.4 million interest in the trust certificates issued by the MRCD 2019-PRKC Mortgage Trust ("MRCD Trust"), including $10.5 million which represents the initial controlling class (HRR class). The Company determined that MRCD Trust was a VIE and that the Company was also the primary beneficiary because the

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Manager was involved in certain aspects of the design of the trust and the Company owns the controlling class. As the primary

~~Table of Contents~~

beneficiary, the Company consolidated MRCD Trust and its investment in the trust certificates (HRR class and a portion of the A class) of MRCD Trust were eliminated in the consolidation.

On March 24, 2020, the Company sold its investments in the A Class certificates of the MRCD Trust. Shortly after the sale, the Company entered into an agreement to irrevocably assign the controlling rights and appointed one of the buyers as the new Directing Holder. As a result, the assets and liabilities of the MRCD Trust were deconsolidated, since the Company no longer has the power to direct the activities that significantly impact the economic performance of the MRCD Trust.

MRCD qualified as a CFE under GAAP and the Company measured both the financial assets and financial liabilities using the fair value of the financial liabilities, since it was more observable. The Company recognized an unrealized loss of $43.7 million in earnings, related to the periodic change in fair value of MRCD's assets and liabilities in March 2020 and prior to deconsolidation. Also, the Company retained the HRR certificates, which were measured at fair value at the date of deconsolidation and is included in the "Non-Agency mortgage-backed securities, at fair value" in the Consolidated Balance Sheets.

CSMC Trust 2014-USA

The Company together with other related party entities own more than 50% of the controlling class of CSMC Trust 2014-USA ("CSMC USA"). As of September 30, 2020, the Company held $14.9 million or 8.8% interest in the trust certificates issued by CSMC USA. The Company performs ongoing reassessment of its CMBS VIE holdings for potential consolidation of the securitized trust in which it owns a portion of the controlling class. Since the ownership of the controlling financial interest is held within a related party group, the Company must determine whether it is the primary beneficiary under the related party tie-breaker rule, which requires the evaluation the following considerations: (1) the principal-agency relationship between parties; (2) relationship and significance of the VIE's activities to the variable interest holders; (3) variable interest holder's exposure to VIE's expected losses and (4) the design of the VIE. As a result of the Company's evaluation, it was determined that the Company is the primary beneficiary of CSMC USA, and effective on August 1, 2020, consolidated CSMC USA. The Company’s investment in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. . The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of September 30, 2020. The loan's stated maturity date is September 11, 2025 and bears a fixed interest rate of 4.38%. The Company elected the fair value option for the commercial loan as well as the associated securitized debt.

Commercial Loans

In January 2019, WMC CRE LLC ("CRE LLC"), a wholly-owned subsidiary of the Company, and WMC CRE Mezzanine Loan Subsidiary LCC ("CRE Mezz"), a wholly-owned subsidiary of CRE LLC, were formed for the purpose of acquiring commercial loans.

The following table presents the commercial loans held by CRE LLC and CRE Mezz as of ~~June~~September 30, 2020 (dollars in thousands):

Loan Acquisition Date Loan Type Principal Balance Fair Value Original LTV Interest Rate Maturity Date Extension Option Collateral
CRE 1 June 2018 Interest-Only First Mortgage 30,000 28,885 65% 1-Month LIBOR plus 4.5% 6/9/2021 None Hotel
CRE 2 June 2019 Principal & Interest First Mortgage 50,000 49,283 75% 1-Month LIBOR plus 4.75% 1/11/2022 Two One-Year Extensions Nursing Facilities
CRE 3 August 2019 Interest-Only Mezzanine loan 90,000 86,702 58% 1-Month LIBOR plus 9.25% 6/29/2021 Two-Year First Extension and One-Year Second Extension Entertainment and Retail
CRE 4 September 2019 Interest-Only First Mortgage 40,000 38,705 63% 1-Month LIBOR plus 3.02% 8/6/2021 Two One-Year Extensions Retail
CRE 5 December 2019 Interest-Only First Mortgage 24,535 23,508 62% 1-Month LIBOR plus 3.75% 11/6/2021 Three One-Year Extensions Hotel
CRE 6 December 2019 Interest-Only First Mortgage 13,207 12,653 62% 1-Month LIBOR plus 3.75% 11/6/2021 Three One-Year Extensions Hotel
CRE 7 December 2019 Interest-Only First Mortgage 7,259 6,955 62% 1-Month LIBOR plus 3.75% 11/6/2021 Three One-Year Extensions Hotel
CRE 8 December 2019 Interest-Only First Mortgage 4,425 4,448 79% 1-Month LIBOR plus 4.85% 12/6/2022 None Assisted Living
$ 259,426 $ 251,139

Table of Contents

Loan

Acquisition Date

Loan Type

Principal Balance

Fair Value

Original LTV

Interest Rate

Maturity Date

Extension Option

Collateral

CRE 1

June 2018

Interest-Only First Mortgage

30,000

29,177

65%

1-Month LIBOR plus 4.5%

6/9/2021

None

Hotel

CRE 2

June 2019

Principal & Interest First Mortgage

49,909

49,314

75%

1-Month LIBOR plus 4.75%

1/11/2022

Two One-Year Extensions

Nursing Facilities

CRE 3

August 2019

Interest-Only Mezzanine loan

90,000

87,522

58%

1-Month LIBOR plus 9.25%

6/29/2021

Two-Year First Extension and One-Year Second Extension

Entertainment and Retail

CRE 4

September 2019

Interest-Only First Mortgage

40,000

39,001

63%

1-Month LIBOR plus 3.02%

8/6/2021

Two One-Year Extensions

Retail

CRE 5

December 2019

Interest-Only First Mortgage

24,535

23,695

62%

1-Month LIBOR plus 3.75%

11/6/2021

Three One-Year Extensions

Hotel

CRE 6

December 2019

Interest-Only First Mortgage

13,207

12,754

62%

1-Month LIBOR plus 3.75%

11/6/2021

Three One-Year Extensions

Hotel

CRE 7

December 2019

Interest-Only First Mortgage

7,259

7,010

62%

1-Month LIBOR plus 3.75%

11/6/2021

Three One-Year Extensions

Hotel

CRE 8

December 2019

Interest-Only First Mortgage

4,458

4,479

79%

1-Month LIBOR plus 4.85%

12/6/2022

None

Assisted Living

259,368

252,952

Commercial Loan Trust

In March 2018, the Company formed the Revolving Small Balance Commercial Trust 2018-1 ("RSBC Trust") to acquire commercial real estate mortgage loans. The Company determined that the wholly-owned RSBC Trust was a VIE and that the Company was the primary beneficiary because it was involved in the design of the trust and holds significant decision making powers. In addition, the Company has the obligation to absorb losses to the extent of its ownership interest and the right to receive benefits from the trust that could potentially be significant to the trust. As of ~~June~~September 30, 2020, the Company financed the trust certificate with $36.6 million of repurchase agreements, which is a liability held outside the trust.

~~Table of Contents~~

The following table presents the commercial real estate loans held by RSBC Trust as of ~~June~~September 30, 2020 (dollars in thousands):

Loan

Acquisition Date

Loan Type

Principal Balance

Fair Value

LTV

Interest Rate

Maturity Date

Extension Option

Collateral

Loan

Acquisition Date

Loan Type

Principal Balance

Fair Value

LTV

Interest Rate

Maturity Date

Extension Option

Collateral

SBC 1

July 2018

Interest-Only First Mortgage

45,188

44,690

74%

One-Month LIBOR plus 4.25% ⁽¹⁾

7/1/2020

Two One-Year Extensions

Nursing Facilities

SBC 1

July 2018

Interest-Only First Mortgage

45,188

44,852

74%

One-Month LIBOR plus 4.25% (1)

8/1/2021

One-Year Extension

Nursing Facilities

SBC 2

January 2019

Interest-Only First Mortgage

13,600

13,429

84%

One-Month LIBOR plus 4.0% ⁽²⁾

12/1/2021

One-Year Extension

Apartment Complex

SBC 2

January 2019

Interest-Only First Mortgage

13,600

13,554

84%

One-Month LIBOR plus 4.0% (2)

12/1/2021

One-Year Extension

Apartment Complex

SBC 3

January 2019

Interest-Only First Mortgage

14,362

14,216

49%

One-Month LIBOR plus 4.1%

7/1/2021

None

Nursing Facilities

SBC 3

January 2019

Interest-Only First Mortgage

14,362

14,293

49%

One-Month LIBOR plus 4.1%

7/1/2021

None

Nursing Facilities

73,150

72,335

73,150

72,699

(1) Subject to LIBOR floor of 1.25%.

(2) Subject to LIBOR floor of 2%.

Consolidated Securitized Commercial Loan Trusts and Commercial Loan Trust

The Company assesses modifications to VIEs on an ongoing basis to determine if a significant reconsideration event has occurred that would change the Company’s initial consolidation ~~assessment.~~assessment. The 23 consolidated trusts, RETL 2019 Trust, CSMC USA and RSBC Trust, collectively hold 45 commercial loans as of ~~June~~September 30, 2020.

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The following table presents a summary of the assets and liabilities of the 23 consolidated trusts included in the Consolidated Balance Sheets as of ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Cash	Cash	$	—	$	5,778	Cash	$	0	$	5,778
Restricted cash	Restricted cash	26,430		52,948		Restricted cash	95,579		52,948
Securitized commercial loans, at fair value	Securitized commercial loans, at fair value	465,694		909,040		Securitized commercial loans, at fair value	1,687,545		909,040
Commercial Loans, at fair value	Commercial Loans, at fair value	72,335		90,788		Commercial Loans, at fair value	72,699		90,788
Interest receivable	Interest receivable	1,055		2,989		Interest receivable	6,164		2,989
Total assets	Total assets	$	565,514	$	1,061,543	Total assets	$	1,861,987	$	1,061,543
Securitized debt, at fair value	Securitized debt, at fair value	$	424,217	$	681,643	Securitized debt, at fair value	$	1,636,460	$	681,643
Interest payable	Interest payable	590		1,519		Interest payable	5,287		1,519
Accounts payable and accrued expenses	Accounts payable and accrued expenses	4		12		Accounts payable and accrued expenses	301		12
Other liabilities	Other liabilities	26,430		52,948		Other liabilities	95,579		52,948
Total liabilities	Total liabilities	$	451,241	$	736,122	Total liabilities	$	1,737,627	$	736,122

The Company’s risk with respect to its investment in each commercial loan trust is limited to its direct ownership in the trust. The commercial loans held by the consolidated trusts are held solely to satisfy the liabilities of the trust, and creditors of the trust have no recourse to the general credit of the Company. The assets of a consolidated trust can only be used to satisfy the obligations of that trust. The Company is not contractually required and has not provided any additional financial support to the trusts for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019.

The following table presents the components of the carrying value of the securitized commercial ~~real estate~~loans commercial loans as of ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):

~~Table of Contents~~


		CSMC Trust Securitized Commercial Loan, at Fair Value						RETL Trust Securitized Commercial Loan, at Fair Value						RSBC Trust Commercial Loans, at Fair Value								Commercial Loans, at Fair Value					CSMC Trust Securitized Commercial Loan, at Fair Value				RETL Trust Securitized Commercial Loan, at Fair Value				CSMC USA Trust Securitized Commercial Loan, at Fair Value				RSBC Trust Commercial Loans, at Fair Value	Commercial Loans, at Fair Value
		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Principal balance	Principal balance	$	—	$	24,048	$	519,735	$	674,331	$	73,150	$	90,788	$	259,426	$	279,425	Principal balance	$	0	$	24,048	$	488,922	$	674,331	$	1,389,276	$	0	$	73,150	$	90,788	$	259,368	$	279,425
Unamortized premium	Unamortized premium	—		—		774		1,836		—		—		—		—		Unamortized premium	0		0		553		1,836		0		0		0		0		0		0
Unamortized discount	Unamortized discount	—		—		—		—		(69)		(215)		(129)		(294)		Unamortized discount	0		0		0		0		(140,959)		0		(65)		(215)		(91)		(294)
Amortized cost	Amortized cost	—		24,048		520,509		676,167		73,081		90,573		259,297		279,131		Amortized cost	0		24,048		489,475		676,167		1,248,317		0		73,085		90,573		259,277		279,131
Gross unrealized gains	Gross unrealized gains	—		9		—		269		—		215		22		294		Gross unrealized gains	0		9		0		269		0		0		0		215		21		294
Gross unrealized losses	Gross unrealized losses	—		—		(54,815)		—		(746)		—		(8,180)		—		Gross unrealized losses	0		0		(34,810)		0		(15,437)		0		(386)		0		(6,346)		0
Fair value	Fair value	$	—	$	24,057	$	465,694	$	676,436	$	72,335	$	90,788	$	251,139	$	279,425	Fair value	$	0	$	24,057	$	454,665	$	676,436	$	1,232,880	$	0	$	72,699	$	90,788	$	252,952	$	279,425

Non-Performing Commercial Loans

The following table presents the aging of the Commercial Loans as of ~~June~~September 30, 2020 (dollars in thousands):

Commercial Loans
No of Loans Principal Fair Value
Current 10 $ 302,576 $ 294,589
1-30 days — — —
31-60 days — — —
61-90 days — — —
90+ days 1 30,000 28,885
Total 11 $ 332,576 $ 323,474

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	Commercial Loans
	No of Loans	Principal		Fair Value
Current	10	$	302,518	$	296,474
1-30 days	0	0		0
31-60 days	0	0		0
61-90 days	0	0		0
90+ days	1	30,000		29,177
Total	11	$	332,518	$	325,651

The impact of COVID-19 pandemic has adversely impacted a broad range of industries in which the commercial loan borrowers operate and could impair their ability to fulfill their financial obligations to the Company, most significantly hospitality and retail asset. The Company believes its CRE loan sponsors are well capitalized and generally committed to supporting the assets collateralizing its loans. The low average original LTV of the Company's commercial loan portfolio of 65.5% ~~as of June 30, 2020~~ reflects significant equity value that the sponsors are motivated to protect through the COVID-19 disruption. AsAs of ~~June~~September 30, 2020, ~~As of June 30, 2020, we~~the Company had ~~one~~1 delinquent borrower with a total loan principal balance of $30.0 million. The Company has filed a notice of default with respect to this loan and is currently exploring various workout ~~strategies~~strategies.

Note 7— Financings

Repurchase Agreements

The Company has primarily financed its investment acquisitions with repurchase agreements. The repurchase agreements bear interest at a contractually agreed-upon rate and historically had terms ranging from one month to ~~twelve~~18 months. The Company’s repurchase agreement borrowings are accounted for as secured borrowings when the Company maintains effective control of the financed assets. Under these repurchase agreements, the respective counterparties retain the right to determine the fair value of the underlying collateral. A reduction in the value of pledged assets requires the Company to post additional securities as collateral, pay down borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, and is referred to as a margin call. The inability of the Company to post adequate collateral for a margin call by a counterparty, in a timeframe as short as the close of the same business day, could result in a condition of default under the Company’s repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by the Company, which may have a material adverse effect on the Company’s financial position, results of operations and cash flows.

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The market disruptions surrounding COVID-19 resulted in the decline of the Company's asset values making it challenging to obtain repurchase agreement financing with favorable terms or at all. The Company's repurchase agreement counterparties have increased borrowing rates and increased haircuts. In the second quarter in order to manage the severe market conditions and the resulting large margin demands from lenders and pressure on the Company’s liquidity, the Company entered into two longer term financing arrangements ~~as it sort~~ to reduce its exposure to short-term financings with daily mark to market exposure. Below is a summary of each of the these financing ~~arrangements;~~arrangements.

Residential Whole Loan Facility

On April 21, 2020, the Company entered into amendments with respect to certain of its loan warehouse facilities. These amendments mainly served to convert an existing residential whole loan facility into a term facility by removing any mark to market margin requirements, and to consolidate the Company’s Non-Qualified Mortgage loans, which were previously financed by 3 separate, unaffiliated counterparties, into a single facility.

The target advance rate under the amended and restated facility is approximately 84% of the aggregate unpaid principal balance of the loans. The original facility ~~matures~~matured on October 20, 2021. All principal payments and income generated by the loans during the term of the facility ~~will be~~w used to pay principal and interest on the facility. Upon the securitization or sale by the Company of any whole loan subject to this amended and restated facility, the counterparty is entitled to receive a recapture premium fee of 30% of all realized value on any whole loans above such counterparty’s amortized basis as well as an exit fee of 0.50% of the loan amount in circumstances where the counterparty iswas not involved in the disposition of the loans. The

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financing cost of this facility was reflective of the challenging market conditions, at such time, when we entered into the agreement.

Initially, the Company’s aggregate borrowings under this facility with respect to its Residential Whole Loans was approximately $385.0 million and the market value of such loans was approximately $430.0 million. On June 29, 2020, the Company securitized approximately $355.8 million of the Residential Whole Loans and paid down the facility by approximately $339.4 million (see "Securitized Debt" below for additional details). As noted above part of the financing arrangements the Company agreed to pay the lender a fee of 30% of all realized value on the Residential Whole Loans above the counterparty's amortized basis upon securitization or sale. As a result of refinancing the Residential Whole Loans through a securitization, the Company accrued a premium recapture fee of approximately $20.5 million, which is payable at the maturity of the facility, and is recorded in "Financing fees" in the Consolidated Statements of Operations. ~~Approximately $74.4~~As of September 30, 2020, approximately $72.7 million inof non QM loans remain in the facility which are also subject to the recapture premium at sale or securitization and the amount of such liability is contingent on the realizable value at time of sale or securitization. Subsequent to the end of the quarter the facility was further amended. See Note 16- "Subsequent Events"

Non-Agency CMBS and Non-Agency RMBS Facility

On May 4, 2020, the Company supplemented one of its existing securities repurchase facilities to consolidate most of its CMBS and RMBS assets, which were financed by multiple counterparties, into a single term facility with limited mark to market margin requirements. Pursuant to the agreement, a margin deficit will not occur until such time as the loan to value ratio surpasses a certain threshold (the “LTV Trigger”), on a weighted average basis per asset type, calculated on a portfolio level. If this threshold is reached, the Company may elect to provide cash margin or sell certain assets to the extent necessary to lower the ratio. The term of this facility is 12 months, subject to 12 month extensions at the counterparty’s option. All interest income generated by the assets during the term of the facility will be paid to the Company no less often than monthly. Interest on the facility is due from the Company at a rate of three-month LIBOR plus 5.00% payable quarterly in arrears. Half of all principal repayments on the underlying assets will be applied to repay the obligations owed to the counterparty, with the remainder paid to the Company, unless the LTV Trigger has occurred, in which case all principal payments will be applied to repay the obligations.

Certain of the repurchase agreements provide the counterparty with the right to terminate the agreement if the Company does not maintain certain equity, liquidity and leverage metrics, the most restrictive of which include a limit on leverage based on the composition of the Company’s portfolio. For all the repurchase agreements with outstanding borrowings, the Company was in compliance with the terms of such financial tests as of ~~June~~September 30, 2020.

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As of ~~June~~September 30, 2020, the Company had borrowings under 6 of its master repurchase agreements. The following table summarizes certain characteristics of the Company’s repurchase agreements at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):

June 30, 2020 December 31, 2019
Securities Pledged Repurchase Agreement Borrowings Weighted Average Interest Rate on Borrowings Outstanding at end of period Weighted Average Remaining Maturity (days) Repurchase Agreement Borrowings Weighted Average Interest Rate on Borrowings Outstanding at end of period Weighted Average Remaining Maturity (days)
Short Term Borrowings:
Agency CMBS $ — — % 0 $ 1,352,248 2.05 % 26
Agency RMBS 1,491 1.41 % 60 348,274 1.99 % 52
Non-Agency CMBS 9,118 3.69 % 10 190,390 3.05 % 35
Non-Agency RMBS — — % 0 30,481 3.56 % 9
Residential Whole Loans ⁽¹⁾
16,075 5.18 % 11 266,294 3.14 % 202
Residential Bridge Loans ⁽¹⁾
21,159 3.04 % 36 29,869 3.93 % 28
Commercial Loans ⁽¹⁾
36,575 3.42 % 78 62,746 4.04 % 28
Securitized commercial loans ⁽¹⁾
— — % 0 116,087 3.93 % 49
Other securities 2,496 5.49 % 7 56,762 3.23 % 34
Subtotal 86,914 3.71 % 46 2,453,151 2.44 % 51
Long Term Borrowings:
Non-Agency CMBS 78,033 5.50 % 280 N/A N/A N/A
Non-Agency RMBS 15,515 5.50 % 219 N/A N/A N/A
Residential Whole Loans ^{(1) (2)}
23,627 5.50 % 478 209,878 3.55 % 1358
Commercial Loans ⁽²⁾
150,581 2.32 % 456 161,848 3.88 % 590
Other securities 14,491 5.50 % 310 — — % 0
Subtotal 282,247 3.80 % 389 371,726 3.70 % 1024
Repurchase agreements borrowings $ 369,161 3.78 % 308 $ 2,824,877 2.61 % 179
Less unamortized debt issuance costs 65 N/A N/A 76 N/A N/A
Repurchase agreements borrowings, net $ 369,096 3.79 % 308 $ 2,824,801 2.61 % 179

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	September 30, 2020					December 31, 2019
Securities Pledged	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)	Repurchase Agreement Borrowings		Weighted Average Interest Rate on Borrowings Outstanding at end of period		Weighted Average Remaining Maturity (days)
Short Term Borrowings:
Agency CMBS	$	0	0	%	0	$	1,352,248	2.05 %		26
Agency RMBS	1,438		1.46	%	59	348,274		1.99 %		52
Non-Agency CMBS	9,119		3.28	%	13	190,390		3.05 %		35
Non-Agency RMBS	0		0	%	0	30,481		3.56 %		9
Residential Whole Loans (1)	19,215		4.72	%	23	266,294		3.14	%	202
Residential Bridge Loans (1)	15,763		2.75	%	36	29,869		3.93 %		28
Commercial Loans (1)	36,575		3.34	%	77	62,746		4.04 %		28
Securitized Commercial Loans (1)(4)	0		0	%	0	116,087		3.93 %		49
Membership Interest	18,845		2.90	%	29	N/A		N/A		N/A
Other Securities	2,599		4.50	%	21	56,762		3.23 %		34
Subtotal	103,554		3.42	%	45	2,453,151		2.44	%	51
Long Term Borrowings:
Non-Agency CMBS (2)	74,145		5.25	%	218	N/A		N/A		N/A
Non-Agency RMBS	14,742		5.25	%	218	N/A		N/A		N/A
Residential Whole Loans (1) (3)	20,846		5.22	%	386	209,878		3.55	%	1358
Commercial Loans (3)	131,822		2.20	%	377	161,848		3.88 %		590

Other Securities	13,769		5.25	%	218	N/A		N/A		N/A
Subtotal	255,324		3.67	%	314	371,726		3.70	%	1024
Repurchase Agreements Borrowings	$	358,878	3.60	%	236	$	2,824,877	2.61	%	179
Less Unamortized Debt Issuance Costs	353		N/A		N/A	76		N/A		N/A
Repurchase Agreements Borrowings, net	$	358,525	3.60	%	236	$	2,824,801	2.61	%	179

(1)Repurchase agreement borrowings on loans owned are through trust certificates. The trust certificates are eliminated upon consolidation.

(2)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(3)Certain Residential Whole Loans and Commercial Loans were financed under 2 longer term repurchase agreements. The Residential Whole facility is 18 months and the Commercial Loan facility automatically rolls until such time as they are terminated or until certain conditions of default. The weighted average remaining maturity days was calculated using expected weighted life of the underlying collateral.

(4)Repurchase agreement borrowings on subordinate securities owned in the consolidated securitizations are reflected in Non-Agency CMBS for the nine months ended September 30, 2020

At ~~June~~September 30, 2020 and December 31, 2019, repurchase agreements collateralized by investments had the following remaining maturities:


(dollars in thousands)	September 30, 2020		December 31, 2019

1 to 29 days	$	47,864	$	1,480,286
30 to 59 days	18,195		552,786
60 to 89 days	37,495		255,814

Greater than or equal to 90 days	255,324		535,991
Total	$	358,878	$	2,824,877

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(dollars in thousands) June 30, 2020 December 31, 2019
1 to 29 days $ 31,716 $ 1,480,286
30 to 59 days 31,080 552,786
60 to 89 days 37,532 255,814
Greater than or equal to 90 days 268,833 535,991
Total $ 369,161 $ 2,824,877

At ~~June~~September 30, 2020, the following table reflects amounts of collateral at risk under its repurchase agreements greater than 10% of the Company's equity with any counterparty (dollars in thousands):


		June 30, 2020									September 30, 2020
Counterparty	Counterparty	Amount of Collateral at Risk, at fair value		Weighted Average Remaining Maturity (days)	Percentage of Stockholders’ Equity		Counterparty	Amount of Collateral at Risk, at fair value		Weighted Average Remaining Maturity (days)	Percentage of Stockholders’ Equity
Credit Suisse AG, Cayman Islands Branch	Credit Suisse AG, Cayman Islands Branch	$	152,774	425	81.0	%	Credit Suisse AG, Cayman Islands Branch	$	202,428	312	81.7	%
Citigroup Global Markets Inc.	Citigroup Global Markets Inc.	113,770		275	60.3	%	Citigroup Global Markets Inc.	109,454		218	44.2	%
Nomura Securities International, Inc.	Nomura Securities International, Inc.	41,108		62	21.8	%	Nomura Securities International, Inc.	37,999		63	15.3	%

Collateral for Borrowings under Repurchase Agreements

The following table summarizes the Company’s collateral positions, with respect to its borrowings under repurchase agreements at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020										December 31, 2019											September 30, 2020				December 31, 2019
		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest			Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest		Assets Pledged		Accrued Interest		Assets Pledged and Accrued Interest
Assets pledged for borrowings under repurchase agreements:	Assets pledged for borrowings under repurchase agreements:													Assets pledged for borrowings under repurchase agreements:
Agency CMBS, at fair value	Agency CMBS, at fair value	$	—	$	—	$	—	$	1,400,230	$	3,916	$	1,404,146	Agency CMBS, at fair value	$	0	$	0	$	0	$	1,400,230	$	3,916	$	1,404,146
Agency RMBS, at fair value	Agency RMBS, at fair value	1,975		58		2,033		356,687		1,336		358,023		Agency RMBS, at fair value	1,853		61		1,914		356,687		1,336		358,023
Non-Agency CMBS, at fair value(1)	Non-Agency CMBS, at fair value(1)	170,355		747		171,102		246,797		951		247,748		Non-Agency CMBS, at fair value(1)	165,699		734		166,433		246,797		951		247,748
Non-Agency RMBS, at fair value	Non-Agency RMBS, at fair value	26,971		308		27,279		45,816		414		46,230		Non-Agency RMBS, at fair value	25,817		277		26,094		45,816		414		46,230
Residential Whole Loans, at fair value⁽¹⁾⁽²⁾	Residential Whole Loans, at fair value⁽¹⁾⁽²⁾	88,603		2,321		90,924		529,495		3,704		533,199		Residential Whole Loans, at fair value⁽¹⁾⁽²⁾	105,059		564		105,623		529,495		3,704		533,199
Residential Bridge Loans⁽¹⁾⁽²⁾	Residential Bridge Loans⁽¹⁾⁽²⁾	25,371		437		25,808		34,897		471		35,368		Residential Bridge Loans⁽¹⁾⁽²⁾	16,828		301		17,129		34,897		471		35,368
Commercial Loans, at fair value⁽¹⁾⁽⁶⁾	Commercial Loans, at fair value⁽¹⁾⁽⁶⁾	323,474		1,853		325,327		350,213		1,855		352,068		Commercial Loans, at fair value⁽¹⁾⁽⁶⁾	325,651		1,817		327,468		350,213		1,855		352,068
Securitized commercial loans, at fair value ⁽¹⁾⁽²⁾	Securitized commercial loans, at fair value ⁽¹⁾⁽²⁾	—		—		—		171,640		674		172,314		Securitized commercial loans, at fair value ⁽¹⁾⁽²⁾	0		0		0		171,640		674		172,314
Membership interest(5)														Membership interest(5)	33,495		n/a		33,495		0		n/a		0
Other securities, at fair value	Other securities, at fair value	40,466		56		40,522		80,031		128		80,159		Other securities, at fair value	41,055		55		41,110		80,031		128		80,159
Cash ⁽²⁾		4,927		—		4,927		43,499		—		43,499
Cash (3)														Cash (3)	502		—		502		43,499		—		43,499
Total	Total	$	682,142	$	5,780	$	687,922	$	3,259,305	$	13,449	$	3,272,754	Total	$	715,959	$	3,809	$	719,768	$	3,259,305	$	13,449	$	3,272,754

(1)Includes securities eliminated upon VIE consolidation.

(2)Loans owned through trust certificates are pledged as collateral. The trust certificates are eliminated upon consolidation.

~~(2)~~(3)Cash posted as collateral is included in "Due from counterparties" in the Company’s Consolidated Balance Sheets.

(4)Included in the Non-Agency CMBS securities pledged is the Company’s investment in the trust certificate of CSMC USA (F Class). As of September 30, 2020, the fair value of this investment is $9.4 million which is eliminated in the consolidation.

(5)The pledged amount relates to the Company's non-controlling membership interest in its wholly owned subsidiary WMC RETL LLC, which was financed under a repurchase agreement. The membership interest is eliminated in consolidation.

(6)The assets pledged as collateral are the subordinate interests in the securitization. For the none months ended September 30, 2020 the assets pledged are reflected in Agency CMBS instead of securitized commercial loans.

A reduction in the value of pledged assets typically results in the repurchase agreement counterparties initiating a margin call. At ~~June~~September 30, 2020 and December 31, 2019, investments held by counterparties as security for repurchase agreements totaled approximately ~~$677.2~~$715.5 million and $3.2 billion, respectively. Cash collateral held by counterparties at ~~June~~September 30, 2020 and December 31, 2019 was approximately ~~$4.9 million~~$502 thousand and $43.5 million, respectively. Cash posted by repurchase agreement counterparties at ~~June~~September 30, 2020 and December 31, 2019, was approximately $16 thousand and $709 thousand, respectively.

Convertible Senior Unsecured Notes

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~~Convertible Senior Unsecured Notes~~

At ~~June~~September 30, 2020, the Company had ~~$205.0~~$200.0 million aggregate principal amount of 6.75% convertible senior unsecured notes outstanding through three issuances. Interest on the notes is paid semiannually. The notes are convertible into, at the Company's election, cash, shares of the Company's common stock or a combination of both, subject to the satisfaction of certain conditions and during specified periods. The conversion rate is subject to adjustment upon the occurrence of certain specified events and the holders may require the Company to repurchase all or any portion of their notes for cash equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if the Company undergoes a fundamental change as specified in the agreement. The initial conversion rate was 83.1947 shares of common stock per $1,000 principal amount of notes and represented a conversion price of $12.02 per share of common stock. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by us except during the final three months prior to maturity. ~~See also Note 16 - "Subsequent Events" for information related to the Company's~~

On July 1, 2020, ~~convertible notes~~the Company issued an aggregate of 1,354,084 shares of its common stock, par value $0.01 per share (the “Common Stock”), in exchange for $5.0 million aggregate principal amount of its 6.75% Convertible Senior Notes due 2022 (the “Notes”) pursuant to separate privately negotiated exchange agreements entered into on July 1, 2020 (collectively, the “Exchange Agreement”) between the Company and certain holders of the Notes. The Company did not receive any cash proceeds as a result of the Exchange Agreement, and the Notes exchanged pursuant to the Exchange Agreement were retired and cancelled. The common stock was issued in reliance upon the exemption set forth in Section 3(a)(9) of the Securities Act of 1933 for securities exchanged by the Company and an existing security holder where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting such exchange.

Securitized Debt

Commercial Mortgage-Backed Notes

RETL 2019 Trust

The following table summarizes RETL 2019 Trust's commercial mortgage pass-through certificates at ~~June~~September 30, 2020 (dollars in thousands):


Classes	Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity	Classes	Principal Balance		Coupon	Fair Value		Contractual Maturity
Class A	Class A	$	64,835	1.3%	$	61,678	3/15/2021	Class A	$	34,022	1.3%	$	34,024	3/15/2021
Class B	Class B	101,200		1.7%	91,382		3/15/2021	Class B	101,200		1.7%	96,085		3/15/2021
Class C	Class C	308,400		2.3%	271,126		3/15/2021	Class C	308,400		2.3%	282,831		3/15/2021
Class HRR		45,300		8.7%	41,477		3/15/2021

Class X-EXT⁽¹⁾	Class X-EXT⁽¹⁾	N/A		1.2	31		3/15/2021	Class X-EXT(1)	N/A		1.2%	31		3/15/2021
		$	519,735		$	465,694			$	443,622		$	412,971

(1) Class X-EXT is an interest-only class with an initial notional balance of $308.4 million.

At ~~June~~September 30, 2020, the Company owned the entire class of HRR certificates ~~principal,~~with a fair value of $41.7 million, which is eliminated in consolidation and the remaining RETL debt with a fair value of ~~$424.2~~$413.0 million is recorded in "Securitized debt, net" in the Consolidated Balance Sheets. ~~Of the remaining~~The outstanding principal balance of ~~$474.4~~the Securitized debt of $443.6 million, excluding the interest-only debt securities, ~~$49.6~~$47.5 million is owned by related parties and ~~$424.8~~$396.1 million is owned by third parties. The securitized debt of the RETL 2019 Trust can only be settled with the commercial loan with an outstanding principal balance of approximately ~~$519.7~~$488.9 million at ~~June~~September 30, 2020, that serves as collateral for the securitized debt and is non-recourse to the Company. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the periodic change in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

CSMC 2014 USA

The following table summarizes CSMC 2014 USA's commercial mortgage pass-through certificates at September 30, 2020 (dollars in thousands):

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Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	124,076		3.3	%	124,648		9/11/2025
Class A-2	531,700		4.0	%	541,905		3/15/2021
Class B	136,400		4.2	%	122,802		9/11/2025
Class C	94,500		4.3	%	80,348		9/11/2025
Class D	153,950		4.4	%	117,058		9/11/2025
Class E	180,150		4.4	%	122,585		9/11/2025
Class F	153,600		4.4	%	96,808		9/11/2025
Class X-1(1)	n/a		0.5	%	14,638		9/11/2025
Class X-2(1)	n/a		0.4	%	2,697		9/11/2025
	$	1,374,376			$	1,223,489

(1) Class X-1 and X-2 are interest-only classes with notional balances of $655.8 million and $733.5 million as of September 30, 2020, respectively.

At September 30, 2020, the Company owned $14.9 million of the class F certificates principal with a fair value of $9.4 million, which is eliminated in consolidation and the remaining CSMC USA debt with a fair value of $1.2 billion is recorded in "Securitized debt, net" in the Consolidated Balance Sheets. Of the remaining outstanding principal balance of $1.4 billion, $208.2 million is owned by related parties and $1.2 billion is owned by third parties. The securitized debt of the CSMC USA can only be settled with the commercial loan with an outstanding principal balance of approximately $1.4 billion at September 30, 2020, that serves as collateral for the securitized debt and is non-recourse to the Company. The Company has chosen to make the fair value election pursuant to ASC 825 for the debt and accordingly the periodic change in fair value are recorded in current period earnings in the Consolidated Statements of Operations as a component of "Unrealized gain (loss), net."

Residential Mortgage-Backed Notes

Arroyo Trust 2019

In May 2019, the Company completed a residential mortgage-backed securitization comprised of $945.5 million of Non-QM Residential Whole Loans, issuing $919.0 million of mortgage-backed notes. The Company did not elect the fair value option for these notes and accordingly they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust's residential mortgage pass-through certificates at ~~June~~September 30, 2020 (dollars in thousands):

~~Table of Contents~~


Classes	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:	Offered Notes:							Offered Notes:
Class A-1	Class A-1	$	592,742	3.3%	$	592,740	4/25/2049	Class A-1	$	552,779	3.3%	$	552,777	4/25/2049
Class A-2	Class A-2	31,760		3.5%	31,759		4/25/2049	Class A-2	29,619		3.5%	29,618		4/25/2049
Class A-3	Class A-3	50,317		3.8%	50,315		4/25/2049	Class A-3	46,925		3.8%	46,924		4/25/2049
Class M-1	Class M-1	25,055		4.8%	25,055		4/25/2049	Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	Subtotal	$	699,874		$	699,869		Subtotal	$	654,378		$	654,374
Less: Unamortized Deferred Financing Costs	Less: Unamortized Deferred Financing Costs	N/A			4,851			Less: Unamortized Deferred Financing Costs	N/A			4,625
Total	Total	$	699,874		$	695,018		Total	$	654,378		$	649,749

The Company retained the non-offered securities in the securitization, which include the class B, Class A-IO-S and Class XS certificates. These non-offered securities ~~are~~with an estimated fair value of $43.7 million at September 30, 2020 were eliminated in the consolidation. The securitized debt of the Arroyo Trust can only be settled with the residential loans that serve

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as collateral for the securitized debt and is non-recourse to the Company. At ~~June~~September 30, 2020, Residential Whole Loans, with an outstanding principal balance of approximately ~~$717.7~~$668.7 million, serve as collateral for the Arroyo Trust's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or ii) the date on which the aggregate collateral balance is 20% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Arroyo Trust 2020

In June 2020, the Company completed a residential mortgage-backed securitization comprised of $355.8 million of Non-QM Residential Whole Loans, issuing $341.7 million of mortgage-backed notes. The Company did not elect the fair value option for these notes and accordingly they are recorded at their principal balance less unamortized deferred financing cost and classified in "Securitized debt, net" in the Consolidated Balance Sheets. The following table summarizes the issued Arroyo Trust 2020's residential mortgage pass-through certificates at ~~June~~September 30, 2020 (dollars in thousands):


Classes	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Offered Notes:	Offered Notes:							Offered Notes:
Class A-1A	Class A-1A	$	266,790	1.7%	$	266,843	3/25/2055	Class A-1A	$	246,807	1.7%	$	246,801	3/25/2055
Class A-1B	Class A-1B	31,658		2.1%	31,658		3/25/2055	Class A-1B	29,287		2.1%	29,286		3/25/2055
Class A-2	Class A-2	13,518		2.9%	13,521		3/25/2055	Class A-2	13,518		2.9%	13,517		3/25/2055
Class A-3	Class A-3	17,963		3.3%	17,967		3/25/2055	Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	Class M-1	11,739		4.3%	11,739		3/25/2055	Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	Subtotal	$	341,668		$	341,728		Subtotal	$	319,314		$	319,306
Less: Unamortized Deferred Financing Costs	Less: Unamortized Deferred Financing Costs	N/A			2,727			Less: Unamortized Deferred Financing Costs	N/A			2,606
Total	Total	$	341,668		$	339,001		Total	$	319,314		$	316,700

The Company retained the non-offered securities in the securitization, which include the Class B, Class A-IO-S and Class XS certificates. These non-offered securities with an estimated fair value of $29.5 million at September 30, 2020 were eliminated in the consolidation. The securitized debt of the Arroyo Trust 2020 can only be settled with the residential loans that serve as collateral for the securitized debt and is non-recourse to the Company. At ~~June~~September 30, 2020, Residential Whole Loans, with an outstanding principal balance of approximately ~~$353.2~~$329.7 million serve as collateral for the Arroyo Trust 2020's securitized debt. The Company may redeem the offered notes on or after the earlier of (i) the three-year anniversary of the closing date or ii) the date on which the aggregate collateral balance is equal to or less than 30% of the original principal balance. The notes are redeemable at their face value plus accrued interest.

Note 8 — Derivative Instruments

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The Company’s derivatives may include interest rate swaps, swaptions, options, futures contracts, TBAs, Agency and Non-Agency Interest-Only Strips that are classified as derivatives, credit default swaps and total return swaps.

In March 2020, the Company terminated fixed-pay interest rate swaps with a notional value of approximately $3.1 billion and variable-pay interest rate with a notional value of approximately $1.9 billion to reduce hedging costs and associated margin volatility.

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The following table summarizes the Company’s derivative instruments at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


				June 30, 2020						December 31, 2019									September 30, 2020					December 31, 2019
Derivative Instrument	Derivative Instrument	Accounting Designation	Consolidated Balance Sheets Location	Notional Amount		Fair Value		Notional Amount		Fair Value		Derivative Instrument	Accounting Designation	Consolidated Balance Sheets Location	Notional Amount		Fair Value			Notional Amount		Fair Value
Interest rate swaps, asset	Interest rate swaps, asset	Non-Hedge	Derivative assets, at fair value	$	—	$	—	$	2,701,000	$	3,017	Interest rate swaps, asset	Non-Hedge	Derivative assets, at fair value	$	0	$	0		$	2,701,000	$	3,017

Credit default swaps, asset	Credit default swaps, asset	Non-Hedge	Derivative assets, at fair value	3,520		714		60,100		948		Credit default swaps, asset	Non-Hedge	Derivative assets, at fair value	2,030		481			60,100		948
TBA securities, asset	TBA securities, asset	Non-Hedge	Derivative assets, at fair value	—		—		1,000,000		1,146		TBA securities, asset	Non-Hedge	Derivative assets, at fair value	0		0			1,000,000		1,146
Total derivative instruments, assets	Total derivative instruments, assets					714				5,111		Total derivative instruments, assets					481					5,111

Interest rate swaps, liability	Interest rate swaps, liability	Non-Hedge	Derivative liability, at fair value	—		—		1,255,000		(501)		Interest rate swaps, liability	Non-Hedge	Derivative liability, at fair value	0		0			1,255,000		(501)

Credit default swaps, liability	Credit default swaps, liability	Non-Hedge	Derivative liability, at fair value	4,140		(943)		90,900		(3,795)		Credit default swaps, liability	Non-Hedge	Derivative liability, at fair value	4,140		(1,166)			90,900		(3,795)
TBA securities, liability	TBA securities, liability	Non-Hedge	Derivative liability, at fair value	—		—		1,000,000		(2,074)		TBA securities, liability	Non-Hedge	Derivative liability, at fair value	0		0			1,000,000		(2,074)
Total derivative instruments, liabilities	Total derivative instruments, liabilities					(943)				(6,370)		Total derivative instruments, liabilities					(1,166)					(6,370)
Total derivative instruments, net	Total derivative instruments, net					$	(229)			$	(1,259)	Total derivative instruments, net					$	(685)				$	(1,259)

The following tables summarize the effects of the Company’s derivative positions, including Interest-Only Strips characterized as derivatives and TBAs, which are reported in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars in thousands):


		Realized Gain (Loss), net															Realized Gain (Loss), net
Description	Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net⁽¹⁾		Total		Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended June 30, 2020
Three months ended September 30, 2020														Three months ended September 30, 2020

Interest rate swaptions		$	80	$	—	$	—	$	(181)	$	—	$	(101)

Interest-Only Strips— accounted for as derivatives	Interest-Only Strips— accounted for as derivatives	(940)		—		(271)		256		340		(615)		Interest-Only Strips— accounted for as derivatives	$	0	$	—	$	(166)	$	71	$	200	$	105

Credit default swaps	Credit default swaps	(8,401)		—		—		974		—		(7,427)		Credit default swaps	166		—		—		(359)		—		(193)
TBAs		(3,924)		—		—		3,924		—		—

Total	Total	$	(13,185)	$	—	$	(271)	$	4,973	$	340	$	(8,143)	Total	$	166	$	0	$	(166)	$	(288)	$	200	$	(88)

Three months ended June 30, 2019
Three months ended September 30, 2019														Three months ended September 30, 2019
Interest rate swaps	Interest rate swaps	$	(588)	$	(58,600)	$	1,676	$	(10,832)	$	2,174	$	(66,170)	Interest rate swaps	$	(123)	$	(56,121)	$	1,655	$	3,289	$	60	$	(51,240)
Interest rate swaptions	Interest rate swaptions	—		—		—		(176)		—		(176)		Interest rate swaptions	(332)		—		—		176		—		(156)
Interest-Only Strips— accounted for as derivatives	Interest-Only Strips— accounted for as derivatives	—		—		(655)		19		819		183		Interest-Only Strips— accounted for as derivatives	—		—		(590)		(420)		723		(287)
Options	Options	—		—		—		470		—		470		Options	1,378		—		—		(470)		—		908
Futures contracts	Futures contracts	(5,837)		—		—		—		—		(5,837)		Futures contracts	3,620		—		—		(710)		—		2,910

Credit default swap														Credit default swap	175		—		—		634		—		809

Total	Total	$	(6,425)	$	(58,600)	$	1,021	$	(10,519)	$	2,993	$	(71,530)	Total	$	4,718	$	(56,121)	$	1,065	$	2,499	$	783	$	(47,056)

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		Realized Gain (Loss), net															Realized Gain (Loss), net
Description	Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net⁽¹⁾		Total		Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Six months ended June 30, 2020
Nine months ended September 30, 2020														Nine months ended September 30, 2020
Interest rate swaps	Interest rate swaps	$	(262)	$	(179,759)	$	262	$	(2,515)	$	(1,395)	$	(183,669)	Interest rate swaps	$	(262)	$	(179,759)	$	262	$	(2,515)	$	(1,395)	$	(183,669)
Interest rate swaptions	Interest rate swaptions	80		—		—		—		—		80		Interest rate swaptions	80		—		—		0		—		80
Interest-Only Strips— accounted for as derivatives	Interest-Only Strips— accounted for as derivatives	(940)		—		(816)		(583)		976		(1,363)		Interest-Only Strips— accounted for as derivatives	(940)		—		(982)		(512)		1,176		(1,258)

Credit default swaps	Credit default swaps	(9,716)		—		—		(1,664)		—		(11,380)		Credit default swaps	(9,550)		—		—		(2,023)		—		(11,573)
TBAs	TBAs	(2,430)		—		—		928		—		(1,502)		TBAs	(2,430)		—		—		928		—		(1,502)
Total	Total	$	(13,268)	$	(179,759)	$	(554)	$	(3,834)	$	(419)	$	(197,834)	Total	$	(13,102)	$	(179,759)	$	(720)	$	(4,122)	$	(219)	$	(197,922)

Six months ended June 30, 2019
Nine months ended September 30, 2019														Nine months ended September 30, 2019
Interest rate swaps	Interest rate swaps	$	(591)	$	(96,438)	$	3,204	$	(3,742)	$	4,929	$	(92,638)	Interest rate swaps	$	(714)	$	(152,559)	$	4,859	$	(453)	$	4,989	$	(143,878)
Interest rate swaptions	Interest rate swaptions	—		—		—		(176)		—		(176)		Interest rate swaptions	(332)		—		—		0		—		(332)
Interest-Only Strips— accounted for as derivatives	Interest-Only Strips— accounted for as derivatives	—		—		(1,250)		(40)		1,603		313		Interest-Only Strips— accounted for as derivatives	—		—		(1,840)		(460)		2,326		26
Options	Options	—		—		—		470		—		470		Options	1,378		—		—		0		—		1,378
Futures contracts	Futures contracts	(10,340)		—		—		4,657		—		(5,683)		Futures contracts	(6,720)		—		—		3,947		—		(2,773)

Credit default swap	Credit default swap	(589)		—		—		(375)		—		(964)		Credit default swap	(414)		—		—		259		—		(155)

Total	Total	$	(11,520)	$	(96,438)	$	1,954	$	794	$	6,532	$	(98,678)	Total	$	(6,802)	$	(152,559)	$	3,019	$	3,293	$	7,315	$	(145,734)

At ~~June~~September 30, 2020 and December 31, 2019, the Company had cash pledged as collateral for derivatives of approximately ~~$250~~$690 thousand and $55.4 million, respectively, which is reported in "Due from counterparties" in the Consolidated Balance Sheets.

Interest rate swaps and interest rate swaptions

The Company enters into interest rate swaps and interest rate swaptions to mitigate its exposure to higher short-term interest rates in connection with its repurchase agreements. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. Notwithstanding the foregoing, in order to manage its hedge position with regard to its liabilities, the Company on occasion will enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. The Company also enters into forward starting swaps and interest rate swaptions to help mitigate the effects of changes in interest rates on a portion of its borrowings under repurchase agreements. Interest rate swaptions provide the Company the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company generally enters into MAC (Market Agreed Coupon) interest rate swaps in which it may receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, these interest rate swaps are also subject to margin requirements.

The Company has not elected to account for its interest rate swaps as “hedges” under GAAP, accordingly the change in fair value of the interest rate swaps not designated in hedging relationships are recorded together with periodic net interest settlement amounts in "Gain (loss) on derivatives instruments, net" in the Consolidated Statements of Operations.

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Interest Rate Swaps

The Company did not have any interest rate swaps in its holdings at ~~June~~September 30, 2020. The following tables provide additional information on our fixed pay interest rate swaps and the variable pay interest rate swap as of December 31, 2019 (dollars in thousands):


	December 31, 2019
Fixed Pay Interest Rate Swap Remaining Term	Notional Amount		Average Fixed Pay Rate	Average Floating Receive Rate	Average Maturity (Years)
1 year or less	$	200,000	1.8 %	1.9 %	0.4

Greater than 3 years and less than 5 years	622,400		2.6 %	1.9 %	4.1
Greater than 5 years	1,728,600		2.1 %	2.0 %	8.9
Total	$	2,551,000	2.2 %	2.0 %	7.1


	December 31, 2019
Variable Pay Interest Rate Swap Remaining Term	Notional Amount		Average Variable Pay Rate	Average Fixed Receive Rate	Average Maturity (Years)
Greater than 1 year and less than 3 years	$	810,000	2.0 %	2.0 %	1.6
Greater than 3 years and less than 5 years	550,000		1.9 %	1.6 %	5.0
Greater than 5 years	45,000		1.9 %	2.3 %	19.5
Total	$	1,405,000	2.0 %	1.9 %	3.5

Interest Rate Swaptions

The Company did not have any swaptions in its derivative holdings as of ~~June~~September 30, 2020 and December 31, 2019.

Futures Contracts

From time to time, the Company may enter into Eurodollar, Volatility Index, and U.S. Treasury futures. As of ~~June~~September 30, 2020 and December 31, 2019, the Company had no open futures contracts.

To-Be-Announced Securities

The Company purchased or sold TBAs during the ~~six~~nine months ended ~~June~~September 30, 2020 and the year ended December 31, ~~2019.The~~2019. The following is a summary of the Company's TBA positions as of ~~June~~September 30, 2020 and December 31, 2019, reported in "Derivative assets, at fair value" and "Derivative liability, at fair value" in the Consolidated Balance Sheets (dollars in thousands):


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Notional Amount		Fair Value		Notional Amount		Fair Value			Notional Amount		Fair Value		Notional Amount		Fair Value
Purchase contracts, asset	Purchase contracts, asset	$	—	$	—	$	1,000,000	$	1,146	Purchase contracts, asset	$	0	$	0	$	1,000,000	$	1,146

Sale contracts, liability	Sale contracts, liability	—		—		(1,000,000)		(2,074)		Sale contracts, liability	0		0		(1,000,000)		(2,074)

TBA securities, net	TBA securities, net	$	—	$	—	$	—	$	(928)	TBA securities, net	$	0	$	0	$	0	$	(928)

The following table presents additional information about the Company's contracts to purchase and sell TBAs for the ~~six~~nine months ended ~~June~~September 30, 2020 (dollars in thousands):

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		Notional Amount				Settlement, Termination,		Notional Amount			Notional Amount				Settlement, Termination,		Notional Amount
		December 31, 2019		Additions		Expiration or Exercise		June 30, 2020			December 31, 2019		Additions		Expiration or Exercise		September 30, 2020
Purchase of TBAs	Purchase of TBAs	$	1,000,000	$	5,257,000	$	(6,257,000)	$	—	Purchase of TBAs	$	1,000,000	$	5,257,000	$	(6,257,000)	$	0
Sale of TBAs	Sale of TBAs	$	1,000,000	$	5,257,000	$	(6,257,000)	$	—	Sale of TBAs	$	1,000,000	$	5,257,000	$	(6,257,000)	$	0

Interest-Only Strips

The Company also invests in Interest-Only Strips. In determining the classification of its holdings of Interest-Only Strips, the Company evaluates the securities to determine if the nature of the cash flows has been altered from that of the underlying mortgage collateral. Generally, Interest-Only Strips for which the security represents a strip off of a mortgage pass through security will be considered a hybrid instrument classified as an MBS investment in the Consolidated Balance Sheets utilizing the fair value option. Alternatively, those Interest-Only Strips, for which the underlying mortgage collateral has been included into a structured security that alters the cash flows from the underlying mortgage collateral, are accounted for as derivatives at fair value with changes recognized in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations, along with any interest received. The carrying value of these Interest-Only Strips is included in "Agency mortgage-backed securities, at fair value" in the Consolidated Balance Sheets.

Credit Default Swaps

The Company entered into credit default swaps and, in the future, may continue to enter into these types of credit derivatives. Under these instruments, the buyer makes a monthly premium payment over the term of the contract in exchange for the seller making a payment for losses of the reference securities, upon the occurrence of a specified credit event.

Note 9 — Offsetting Assets and Liabilities

The following tables present information about certain assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset in the Company’s Consolidated Balance Sheets at ~~June~~September 30, 2020 and December 31, 2019 (dollars in thousands):


		June 30, 2020																											September 30, 2020
		Gross Amounts		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets								Net Amount			Gross Amounts		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
Description	Description											Financial Instruments⁽¹⁾			Cash Collateral ⁽¹⁾										Net Amounts of Assets presented in the Consolidated Balance Sheets			Financial Instruments(1)				Net Amount
Derivative Assets and Receivable under Reverse Repurchase Agreements	Derivative Assets and Receivable under Reverse Repurchase Agreements														Derivative Assets and Receivable under Reverse Repurchase Agreements
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	1,795	$	—	$	1,795	$	(1,795)	$	—		$	—	Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS		$	1,700	$	0	$	1,700	$	(1,700)		$	0		$	0
Derivative asset, at fair value	Derivative asset, at fair value	714		—		714		(714)		—			—		Derivative asset, at fair value		481		0		481		(481)			0			0

Total assets	Total assets	$	2,509	$	—	$	2,509	$	(2,509)	$	—		$	—	Total assets		$	2,181	$	0	$	2,181	$	(2,181)		$	0		$	0

Derivative Liabilities and Repurchase Agreements	Derivative Liabilities and Repurchase Agreements														Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value⁽²⁾	Derivative liability, at fair value⁽²⁾	$	943	$	—	$	943	$	(714)	$	(229)		$	—	Derivative liability, at fair value(2)		$	1,166	$	0	$	1,166	$	(481)		$	(685)		$	0
Repurchase Agreements⁽³⁾	Repurchase Agreements⁽³⁾	369,096		—		369,096		(369,096)		—			—		Repurchase Agreements(3)		358,525		0		358,525		(358,525)			0			0
Total liabilities	Total liabilities	$	370,039	$	—	$	370,039	$	(369,810)	$	(229)		$	—	Total liabilities		$	359,691	$	0	$	359,691	$	(359,006)		$	(685)		$	0

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liabilities. In addition, the Financial Instruments column includes reverse repurchase agreement receivables that are available to be offset against repurchase agreement liabilities. Amounts disclosed in the Cash Collateral column of the tables above represents amounts pledged or received as collateral against derivative transactions.

(2)Cash collateral pledged against the Company’s derivative counterparties was approximately ~~$250~~$690 thousand as of ~~June~~September 30, 2020.

(3)The carrying value of investments pledged against the Company’s repurchase agreements was approximately ~~$677.2~~$715.5 million as of ~~June~~September 30, 2020.


		December 31, 2019																											December 31, 2019
		Gross Amounts		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets								Net Amount			Gross Amounts		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
												Financial Instruments⁽¹⁾			Cash Collateral ⁽¹⁾										Net Amounts of Assets presented in the Consolidated Balance Sheets			Financial Instruments(1)				Net Amount
Derivative Assets	Derivative Assets														Derivative Assets
Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS	$	8,665	$	—	$	8,665	$	(8,665)	$	—		$	—	Agency and Non-Agency Interest-Only Strips, accounted for as derivatives included in MBS		$	8,665	$	0	$	8,665	$	(8,665)		$	0		$	0
Derivative asset, at fair value⁽²⁾	Derivative asset, at fair value⁽²⁾	5,111		—		5,111		(2,576)		—			2,535		Derivative asset, at fair value(2)		5,111		0		5,111		(2,576)			0			2,535
Total derivative assets	Total derivative assets	$	13,776	$	—	$	13,776	$	(11,241)	$	—		$	2,535	Total derivative assets		$	13,776	$	0	$	13,776	$	(11,241)		$	0		$	2,535

Derivative Liabilities and Repurchase Agreements	Derivative Liabilities and Repurchase Agreements														Derivative Liabilities and Repurchase Agreements
Derivative liability, at fair value⁽²⁾⁽³⁾	Derivative liability, at fair value⁽²⁾⁽³⁾	$	6,370	$	—	$	6,370	$	(2,576)	$	(2,819)		$	975	Derivative liability, at fair value(2)(3)		$	6,370	$	0	$	6,370	$	(2,576)		$	(2,819)		$	975
Repurchase Agreements⁽⁴⁾	Repurchase Agreements⁽⁴⁾	2,824,801		—		2,824,801		(2,824,801)		—			—		Repurchase Agreements(4)		2,824,801		0		2,824,801		(2,824,801)			0			0
Total derivative liability	Total derivative liability	$	2,831,171	$	—	$	2,831,171	$	(2,827,377)	$	(2,819)		$	975	Total derivative liability		$	2,831,171	$	0	$	2,831,171	$	(2,827,377)		$	(2,819)		$	975

(1)Amounts disclosed in the Financial Instruments column of the tables above represent securities, Whole Loans and securitized commercial loan collateral pledged and derivative assets that are available to be offset against liability balances associated with repurchase agreement and derivative liabilities. Amounts disclosed in the Cash Collateral Pledged column of the tables above represents amounts pledged as collateral against derivative transactions.

(2)Derivative asset, at fair value and Derivative liability, at fair value includes interest rate swaps, credit default swaps and futures contracts.

(3)Cash collateral pledged against the Company’s derivative counterparties was approximately $55.4 million as of December 31, 2019.

(4)The carrying value of investments pledged against the Company’s repurchase agreements was approximately $3.2 billion as of December 31, 2019.

Certain of the Company’s repurchase agreement and derivative transactions are governed by underlying agreements that generally provide for a right of set-off in the event of default or in the event of a bankruptcy of either party to the transaction.

Note 10 — Related Party Transactions

Management Agreement

In connection with the Company’s initial public offering ("IPO") in May 2012, the Company entered into a management agreement (the “Management Agreement”) with the Manager, which describes the services to be provided by the Manager and compensation for such services. The Manager is responsible for managing the Company’s operations, including: (i) performing all of its day-to-day functions; (ii) determining investment criteria in conjunction with the Board of Directors; (iii) sourcing, analyzing and executing investments, asset sales and financings; (iv) performing asset management duties; and (v) performing financial and accounting management, subject to the direction and oversight of the Company’s Board of Directors. Pursuant to the terms of the Management Agreement, the Manager is paid a management fee equal to 1.50% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. For purposes of calculating the management fee, “stockholders’ equity” means the sum of the net proceeds from any issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus retained earnings, calculated in accordance with GAAP, at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount paid for repurchases of the Company’s shares of common stock, excluding any

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unrealized gains or losses on our investments and derivatives and other non-cash items (excluding OTTI) that have impacted

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stockholders' equity as reported in the Company’s consolidated financial statements prepared in accordance with GAAP, regardless of whether such items are included in other comprehensive income or loss, or in net income, and excluding one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between the Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. However, if the Company’s stockholders’ equity for any given quarter is negative based on the calculation described above, the Manager will not be entitled to receive any management fee for that quarter.

In addition, the Company may be required to reimburse the Manager for certain expenses as described below, and shall reimburse the Manager for the compensation paid to the Company’s chief financial officer, controller and their staff. Expense reimbursements to the Manager are made in cash on a regular basis. The Company’s reimbursement obligation is not subject to any dollar limitation. Because the Manager’s personnel perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, the Manager may be paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis.

The Management Agreement may be amended, supplemented or modified by agreement between the Company and the Manager. The Management Agreement expires on May 16, 2021. It is automatically renewed for one-year terms on each May 15th unless previously terminated as described below. The Company’s independent directors review the Manager’s performance and any fees payable to the Manager annually and, the Management Agreement may be terminated annually upon the affirmative vote of at least two-thirds (2/3) of the Company’s independent directors, based upon: (i) the Manager’s unsatisfactory performance that is materially detrimental to the Company; or (ii) the Company’s determination that any fees payable to the Manager are not fair, subject to the Manager’s right to prevent such termination due to unfair fees by accepting a reduction of management fees agreed to by at least two-thirds (2/3) of the Company’s independent directors. The Company will provide the Manager 180 days prior notice of any such termination. Unless terminated for cause, the Company will pay the Manager a termination fee equal to three times the average annual management fee earned by the Manager during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Company may also terminate the Management Agreement at any time, without the payment of any termination fee, with 30 days prior written notice from the Company’s Board of Directors for cause, which will be determined by at least two-thirds (2/3) of the Company’s independent directors, which is defined as: (i) the Manager’s continued material breach of any provision of the Management Agreement (including the Manager’s failure to comply with the Company’s investment guidelines); (ii) the Manager’s fraud, misappropriation of funds, or embezzlement against the Company; (iii) the Manager’s gross negligence in the performance of its duties under the Management Agreement; (iv) the occurrence of certain events with respect to the bankruptcy or insolvency of the Manager, including an order for relief in an involuntary bankruptcy case or the Manager authorizing or filing a voluntary bankruptcy petition; (v) the Manager is convicted (including a plea of nolo contendere) of a felony; or (vi) the dissolution of the Manager.

For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company incurred approximately ~~$464 thousand~~$1.5 million and approximately $1.8 million in management fees, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company incurred approximately ~~$1.5~~$3.0 million and approximately ~~$3.6~~$5.4 million in management fees, respectively. The Manager waived the management fee for March 2020 through May 2020 because of the unprecedented market disruption and dislocation across fixed income markets surrounding the uncertainty related to the COVID-19 pandemic. Future waivers, if any, will be at the Manager's discretion.

In addition to the management fee, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company as defined in the Management Agreement. For the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company recorded expenses included in general and administrative expenses totaling approximately ~~$999~~$211 thousand and approximately ~~$959~~$210 thousand, respectively, related to reimbursable employee costs. For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company recorded expenses included in general and administrative expenses totaling approximately ~~$1.2~~$1.4 million and approximately ~~$1.2~~$1.4 million, respectively, related to reimbursable employee costs. Any such expenses incurred by the Manager and reimbursed by the Company, including the employee compensation expense, are typically included in the Company’s general and administrative expenses in the Consolidated Statements of Operations. At ~~June~~September 30, 2020 and December 31, 2019, approximately ~~$3.5~~$2.0 million and

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approximately $2.0 million, respectively, for management fees incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance

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Sheets. In addition, at ~~June~~September 30, 2020 and December 31, 2019, approximately ~~$1.2~~$1.3 million and approximately $181 thousand, respectively, of reimbursable costs incurred but not yet paid was included in "Payable to affiliate" in the Consolidated Balance Sheets.

Note 11 — Share-Based Payments

In conjunction with the Company’s IPO and concurrent private placement, the Company’s Board of Directors approved the Western Asset Mortgage Capital Corporation Equity Plan (the “Equity Plan”) and the Western Asset Manager Equity Plan (the “Manager Equity Plan” and collectively the “Equity Incentive Plans”). The Equity Incentive Plans include provisions for grants of restricted common stock and other equity-based awards to the Manager, its employees and employees of its affiliates and to the Company’s directors, officers and employees. The Company can issue up to 3.0% of the total number of issued and outstanding shares of its common stock (on a fully diluted basis) at the time of each award (other than any shares previously issued or subject to awards made pursuant to one of the Company’s Equity Incentive Plans) under these Equity Incentive Plans. Upon the completion of the Company's most recent secondary public offerings, the number of shares of common stock available under the Equity Incentive Plans increased to ~~1,763,636.~~1,804,258. Approximately 1,022,452 shares have been issued under the Equity Plans with ~~741,184~~781,806 shares available for issuance, as of ~~June~~September 30, 2020.

Under the Equity Plan, the Company made the following grants during the ~~six~~nine months ended ~~June~~September 30, 2020 and the year ended December 31, 2019:

On March 28, 2019, the Company granted 108,000 shares of restricted common stock to the Manager under the Manager Equity Plan. One-third of the shares vested on March 28, 2020, one-third will vest on March 28, 2021 and the remaining one-third will vest on March 28, 2022.

On June 6, 2019, the Company granted a total of 28,780 shares (7,195 each) of restricted common stock under the Equity Plan to the Company’s 4 independent directors. These restricted shares vested in full on June 6, 2020, the first anniversary of the grant date. Each of the independent directors has elected to defer the shares granted to him under the Company’s Director Deferred Fee Plan (the “Director Deferred Fee Plan”). The Director Deferred Fee Plan permits eligible members of the Company's board of directors to defer certain stock awards made under its director compensation programs. The Director Deferred Fee Plan allows directors to defer issuance of their stock awards and therefore defer payment of any tax liability until the deferral is terminated, pursuant to the election form executed each year by each eligible director.

On June 19, 2020, the Company granted a total of 127,275 shares (25,455 each) of restricted common stock under the Equity Plan to the Company’s ~~five~~5 independent directors. These restricted shares will vest in full on June 19, 2021, the first anniversary of the grant date. Each of the independent directors has elected to defer the shares granted under the Director Deferred Fee Plan.

During the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, 67,480 and 29,200 restricted common shares vested, respectively, including shares whose issuance has been deferred under the Director Deferred Fee Plan. The Company recognized stock-based compensation expense of approximately ~~$170~~$182 thousand and approximately ~~$165~~$164 thousand for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. The Company recognized stock-based compensation expense of approximately ~~$335~~$517 thousand and approximately ~~$235~~$399 thousand for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. In addition, the Company had unamortized compensation expense of ~~$983~~$801 thousand and $968 thousand for equity awards at ~~June~~September 30, 2020 and December 31, 2019, respectively.

All restricted common shares granted, other than those whose issuance has been deferred pursuant to the Director Deferred Fee Plan, possess all incidents of ownership, including the right to receive dividends and distributions currently, and the right to vote. Dividend equivalent payments otherwise allocable to restricted common shares under the Company's Director Deferred Fee Plan are deemed to purchase additional phantom shares of the Company’s common stock that are credited to each participant’s deferral account. The award agreements include restrictions whereby the restricted shares cannot be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of prior to the lapse of restrictions under the respective award agreement. The restrictions lapse on the unvested restricted shares awarded when vested, subject to the grantee’s continuing to provide services to the Company as of the vesting date. Unvested restricted shares and rights to dividends thereon are forfeited upon termination of the grantee.

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The following is a summary of restricted common stock vesting dates as of ~~June~~September 30, 2020 and December 31, 2019, including shares whose issuance has been deferred under the Director Deferred Fee Plan:


		June 30, 2020	December 31, 2019		September 30, 2020	December 31, 2019
Vesting Date	Vesting Date	Shares Vesting	Shares Vesting	Vesting Date	Shares Vesting	Shares Vesting

March 2020	March 2020	—	36,000	March 2020	0	36,000
June 2020	June 2020	—	30,592	June 2020	0	30,592
March 2021	March 2021	36,000	36,000	March 2021	36,000	36,000
June 2021	June 2021	127,275	—	June 2021	127,275	0
March 2022	March 2022	36,000	36,000	March 2022	36,000	36,000
		199,275	138,592		199,275	138,592

The following table presents information with respect to the Company’s restricted stock for the ~~six~~nine months ended ~~June~~September 30, 2020 and September 30, 2019, respectively, including shares whose issuance has been deferred under the Director Deferred Fee Plan:


		June 30, 2020				June 30, 2019						September 30, 2020			September 30, 2019
		Shares of Restricted Stock	Weighted Average Grant Date Fair Value ⁽¹⁾		Shares of Restricted Stock	Weighted Average Grant Date Fair Value ⁽¹⁾			Shares of Restricted Stock	Weighted Average Grant Date Fair Value (1)		Shares of Restricted Stock	Weighted Average Grant Date Fair Value (1)
Outstanding at beginning of period	Outstanding at beginning of period	894,289	$	15.76	753,973	$	16.77	Outstanding at beginning of period	894,289	$	15.76	753,973	$	16.77
Granted ⁽²⁾	Granted ⁽²⁾	128,163	2.80		138,504	10.34		Granted (2)	128,163	2.80		139,380	10.34
Cancelled/forfeited	Cancelled/forfeited	—	—		—	—		Cancelled/forfeited	0	0		0	0
Outstanding at end of period	Outstanding at end of period	1,022,452	14.13		892,477	15.77		Outstanding at end of period	1,022,452	14.13		893,353	15.76
Unvested at end of period	Unvested at end of period	199,275	$	5.55	136,780	$	10.35	Unvested at end of period	199,275	$	5.55	137,656	$	10.34

(1)The grant date fair value of restricted stock awards is based on the closing market price of the Company’s common stock at the grant date.

(2)Includes 888 and ~~1,724~~2,600 shares of restricted stock attributed to dividends on restricted stock under the Director Deferred Fee Plan for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively.

Note 12 — Stockholders’ Equity

At-The-Market Program

In March 2017, the Company entered into an equity distribution agreement with JMP Securities LLC, which was amended on June 5, 2020, under which the Company may offer and sell up to $100.0 million shares of common stock in an At-The-Market equity offering. During the ~~six~~nine months ended ~~June~~September 30, 2020, the Company sold 6,034,741 shares under this amended agreement with an average price of $3.70 per share for a total net proceeds of $22.0 million. During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company did not sell any shares under the amended agreement.

Stock Repurchase Program

On December 19, 2019, the Board of Directors of the Company reauthorized its repurchase program of up to 2,700,000 shares of its common stock through December 31, 2021. The previous reauthorization announced on December 21, 2017 of the Company's repurchase program of up to 2,100,000 shares of its common stock expired on December 31, 2019. Purchases made pursuant to the program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rules 10b5-1 and 10b-18 of the Securities and Exchange Act of 1934, as amended. The authorization does not obligate the Company to acquire any particular amount of common shares and the program may be suspended or discontinued at the Company’s discretion without prior notice. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market ~~conditions, stock price, applicable legal requirements and other factors. In March 2020, the Company repurchased 100,000~~

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conditions, stock price, applicable legal requirements and other factors. In March 2020, the Company repurchased 100,000 shares of common stock pursuant to the authorization. The repurchased stock was not retired and will be accounted for as treasury stock.

Convertible Notes Exchange

On July 1, 2020, the Company issued an aggregate of 1,354,084 shares of its common stock in exchange for $5.0 million aggregate principal amount of its 6.75% Convertible Senior Notes due 2022. See Note 7 - "Financings" for information related to the convertible notes agreement.

Dividends

To preserve liquidity, the Company suspended its first and second quarter of 2020 common stock dividends given extraordinary market volatility driven by uncertainty surrounding the COVID-19 pandemic. In the third quarter of 2020, the Company resumed its quarterly dividend after making progress strengthening its balance sheet and improving liquidity and earnings power of its investment portfolio.

The following table presents cash dividends declared and paid by the Company on its common stock:

Declaration Date

Record Date

Payment Date

Amount per Share

Tax Characterization

2020

Septemer 22, 2020

October 2, 2020

October 26, 2020

0.05

Not yet determined

June 23, 2020

N/A

—0

N/A

March 27, 2020

N/A

—0

N/A

2019

December 19, 2019

December 30, 2019

January 24, 2020

0.31

Ordinary income

September 19, 2019

September 30, 2019

October 25, 2019

0.31

Ordinary income

June 20, 2019

July 1, 2019

July 26, 2019

0.31

Ordinary income

March 21, 2019

April 1, 2019

April 26, 2019

0.31

Ordinary income

Note 13 — Net Income per Common Share

The table below presents basic and diluted net income per share of common stock using the two-class method for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars, other than shares and per share amounts, in thousands):

For the three months ended June 30, 2020 For the three months ended June 30, 2019 Six months ended June 30, 2020 Six months ended June 30, 2019
Numerator:

Net income (loss) attributable to common stockholders and participating securities for basic and diluted earnings per share $ (15,635) $ 10,614 $ (397,492) $ 38,490
Less:
Dividends and undistributed earnings allocated to participating securities — 76 — 138
Net income (loss) allocable to common stockholders — basic and diluted $ (15,635) $ 10,538 $ (397,492) $ 38,352
Denominator:

Weighted average common shares outstanding for basic earnings per share 54,688,338 50,588,906 54,045,482 49,359,473
Weighted average common shares outstanding for diluted earnings per share 54,688,338 50,588,906 54,045,482 49,359,473
Basic earnings (loss) per common share $ (0.29) $ 0.21 $ (7.35) $ 0.78
Diluted earnings (loss) per common share $ (0.29) $ 0.21 $ (7.35) $ 0.78

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	For the three months ended September 30, 2020		For the three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
Numerator:
Net income (loss) attributable to common stockholders and participating securities for basic and diluted earnings per share	$	59,807	$	19,720	$	(339,144)	$	58,210
Less:
Dividends and undistributed earnings allocated to participating securities	353		96		16		236
Net income (loss) allocable to common stockholders — basic and diluted	$	59,454	$	19,624	$	(339,160)	$	57,974

Denominator:
Weighted average common shares outstanding for basic earnings per share	60,740,701		53,116,379		56,293,512		50,625,537
Weighted average common shares outstanding for diluted earnings per share	60,740,701		53,116,379		56,293,512		50,625,537
Basic earnings (loss) per common share	$	0.98	$	0.37	$	(6.02)	$	1.15
Diluted earnings (loss) per common share	$	0.98	$	0.37	$	(6.02)	$	1.15

For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company excluded the effects of the convertible senior unsecured notes from the computation of diluted earnings per share since the average market value per share of the Company’s common stock was below the exercise price of the convertible senior unsecured notes.

Note 14 — Income Taxes

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As a REIT, the Company is not subject to federal income tax to the extent that it makes qualifying distributions to its stockholders and satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income and stock ownership tests.

Based on the Company’s analysis of any potential uncertain income tax positions, the Company concluded that it does not have any uncertain tax positions that meet the recognition or measurement criteria as of ~~June~~September 30, 2020. The Company files U.S. federal and state income tax returns. As of ~~June~~September 30, 2020, U.S. federal tax ~~returns~~returns filed by the Company for 2019, 2018 ~~2017~~ and ~~2016~~2017 and state tax returns filed for 2019, 2018, 2017, 2016 and 2015 are open for examination pursuant to ~~relevant~~relevant statutes of limitation. In the event that the Company incurs income tax related interest and penalties, the Company’s policy is to classify them as a component of its provision for income taxes.

Income Tax Provision

Subject to the limitation under the REIT asset test rules, the Company is permitted to own up to 100% of the stock of one or more taxable REIT subsidiaries ("TRS"). Currently, the Company owns one TRS that is taxable as a corporation and is subject to federal, state and local income tax on its net income at the applicable corporate rates. The TRS, which was formed in Delaware on July 28, 2014, is a limited liability company and a wholly-owned subsidiary of the Company. During the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company recorded a federal and state tax provision of ~~$255~~$205 thousand and tax ~~provision~~benefit of ~~$478~~$55 thousand, respectively, which is recorded in "Income tax provision (benefit) ~~provision"~~" in the Consolidated Statements of Operations. During the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, the Company recorded a federal and state tax provision of ~~$162~~$367 thousand and tax provision of ~~$490~~$435 thousand, respectively,

Deferred Tax Asset

As of ~~June~~September 30, 2020 and December 31, 2019, the Company recorded a deferred tax asset of approximately $21.6 million and $8.5 million, respectively, relating to capital loss carryforward and temporary differences as a result of the timing of income recognition of certain investments held in the TRS. The capital loss carryforwards may only be recognized to the extent

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of capital gains. There is uncertainty as to the TRS ability to recognize capital gains in the future. As a result, the Company has concluded it is more likely than not the deferred tax asset will not be realized and has recorded a valuation allowance of $21.6 million and $8.5 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

In addition, the REIT generated net operating losses ("NOLs") during the ~~six~~nine months ended ~~June~~September 30, 2020 and the year ended December 31, 2017, related to its interest rate swap terminations, and for its California return a portion of the NOL's is apportioned to the TRS. The Company recorded a deferred tax asset relating to the NOLs of ~~$22.1~~$21.9 million and $6.0 million in the REIT and $2.3 million and $1.3 million in the TRS as of ~~June~~September 30, 2020 and December 31, 2019, respectively. The TRS can carryback the NOLs generated during the three months ended ~~June~~September 30, 2020 to each of the five preceding years and the NOLs generated during the year ended December 31, 2017 can be carried back to each of the two preceding years to request a refund for taxes paid. As of ~~June~~September 30, 2020 and December 31, 2019, the Company has concluded it is more likely than not the deferred tax asset relating to the NOLs will not be realized, with the exception of the TRS carryback to 2015, and has recorded a combined valuation allowance of ~~$24.4~~$24.3 million and $6.9 million, respectively. The Company also recorded a deferred federal tax liability of $85 thousand as of December 31, 2019 in anticipation of the receipt of the state tax refund as a result of the carryback of the California NOL. The state tax refund was received during the three months ended March 31, 2020.

Effective Tax Rate

The Company's effective tax rate differs from its combined federal and state income tax rate primarily due to its valuation allowance and the deduction of dividends distributions to be paid under Code Section 857(a).

Note 15 — Contingencies

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any material contingencies at ~~June~~September 30, 2020.

Note 16- Subsequent Events

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~~Convertible Notes Exchange~~

On ~~July 1,~~October 6, 2020, the Company issued an aggregate of 1,354,084 shares of its common stock, par value $0.01 per share (the “Common Stock”), in exchange for $5,000,000 aggregate principal amount of its 6.75% Convertible Senior Notes due 2022 (the “Notes”) pursuant to separate privately negotiated exchange agreements entered into an amendment with respect to its residential loan warehouse facility. The amendment serves to convert the existing residential loan facility to a limited mark to market margin facility that bears an interest rate of LIBOR plus 2.75%, with a LIBOR floor 0.25%. The target advance rate under the amended facility is 85% and the facility matures on ~~July 1, 2020 (collectively,~~October 5, 2021. The premium recapture fee was eliminated for investments financed under the ~~“Exchange Agreement”) between~~facility. With the amendment the Company ~~and certain holders~~paid $12 million of the ~~Notes. The Company will not receive any cash proceeds as a result~~accrued premium recapture fee with the balance of the ~~Exchange Agreement, and the Notes exchanged pursuant to the Exchange Agreement will be retired and cancelled. The common stock was issued in reliance~~$8.5 million due upon the ~~exemption set forth in Section 3(a)(9)~~maturity of the Securities Act of 1933 for securities exchanged by the Company and an existing security holder where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting such exchange.facility.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING INFORMATION

The Company makes forward-looking statements herein and will make forward-looking statements in future filings with the Securities and Exchange Commission (the “SEC”), press releases or other written or oral communications 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”). For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally and the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity.

These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When the Company uses the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, the Company intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: market trends in the Company’s industry, interest rates, real estate values, the debt securities markets, the U.S. housing and the U.S. and foreign commercial real estate markets or the general economy or the market for residential and/or commercial mortgage loans; the Company’s business and investment strategy; the Company’s projected operating results; changes in interest rates and the market value of the Company’s target assets; credit risks; servicing - related risks, including those associated with foreclosure and liquidation; the state of the U.S. and to a lesser extent, international economy generally or in specific geographic regions; economic trends and economic recoveries; the Company’s ability to obtain and maintain financing arrangements, including under the Company’s repurchase agreements, a form of secured financing, and securitizations; the current potential return dynamics available in residential mortgage-backed securities (“RMBS”), and commercial mortgage-backed securities (“CMBS” and collectively with RMBS, “MBS”); the level of government involvement in the U.S. mortgage market; the anticipated default rates on CMBS and Commercial Loans; the loss severity on Non-Agency MBS; the general volatility of the securities markets in which the Company participates; changes in the value of the Company’s assets; the Company’s expected portfolio of assets; the Company’s expected investment and underwriting process; interest rate mismatches between the Company’s target assets and any borrowings used to fund such assets; changes in prepayment rates on the Company’s target assets; effects of hedging instruments on the Company’s target assets; rates of default or decreased recovery rates on the Company’s target assets; the degree to which the Company’s hedging strategies may or may not protect the Company from interest rate volatility; the impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; the Company’s ability to maintain the Company’s qualification as a real estate investment trust for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended (the “1940 Act”); the availability of opportunities to acquire Agency RMBS, Non-Agency RMBS, CMBS, Residential and Commercial Whole Loans, Residential and Commercial Bridge Loans and other mortgage assets; the availability of qualified personnel; estimates relating to the Company’s ability to make distributions to its stockholders in the future; the Company’s understanding of its competition; and the uncertainty and economic impact of pandemics, epidemics or other public health emergencies, such as the ongoing outbreak of COVID-19.

The forward-looking statements are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company. Some of these factors, are described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 6, 2019. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that the Company files with the SEC, could cause its actual results to differ materially from those included in any forward-looking statements the Company makes. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect the Company. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview

Western Asset Mortgage Capital Corporation, a Delaware corporation, and its Subsidiaries (the “Company” unless otherwise indicated or except where the context otherwise requires “we,” “us” or “our”) commenced operations in May 2012, focused on investing in, financing and managing a diversified portfolio of real estate related securities, whole loans and other financial assets, which we collectively refer to as our target assets. We are externally managed by Western Asset Management Company, LLC (our “Manager”) pursuant to the terms of a management agreement. We conduct our operations to qualify and be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes. Accordingly, we generally will not be subject to U.S. federal income taxes on our taxable income that we distribute currently to our stockholders as long as we maintain our intended qualification as a REIT. However, certain activities that we may perform may cause us to earn income which will not be qualifying income for REIT purposes. We have designated a subsidiary as a taxable REIT subsidiary, or TRS, to engage in such activities. We also intend to operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended (the "1940 Act"). Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol "WMC."

Our objective is to provide attractive risk adjusted returns to our stockholders primarily through an attractive dividend, supported with sustainable core earnings, as well as the potential for higher returns through capital appreciation. Our investment strategy is based on our Manager's perspective of which mix of our target assets it believes provides us with the best risk-reward opportunities at any given time. We also deploy leverage as part of our investment strategy to increase potential returns.

Impact of the COVID-19 Pandemic

The outbreak of COVID-19, which the World Health Organization designated a pandemic, has created extensive disruptions to the global economy and the lives of individuals throughout the world. Governments, businesses, and the public have taken and are continuing to take unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. The scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known. The pandemic and related efforts to contain the COVID-19 have disrupted global economic activity, impacted interest rates, increased economic and market uncertainty, disrupted trade and supply chains, and created unprecedented financial market conditions and disruptions. This rapid disruption in the fixed income markets specifically in mortgage markets had an adverse impact on our book value, liquidity, results of operations, and financial position.

The extreme lack of liquidity in mortgage markets combined with forced selling led to swift and dramatic price declines in late March 2020. The illiquidity was exacerbated by inadequate demand for MBS among primary dealers due to balance sheet constraints. On March 23, 2020, the significant decrease in our asset values resulted in margin calls of approximately $116.5 million from our repurchase agreement counterparties. Additional margin calls occurred in the following days. Failure to have posted adequate collateral for these margin calls would have given counterparties the right to call events of default under our repurchase agreements. Under an event of default the counterparty could sell or take ownership of the collateral to satisfy our repurchase agreement obligation and we would be liable for any shortfall. To meet the margin calls it was necessary to sell a material portion of our investment portfolio. In response to the unprecedented market volatility, during the first two quarters of 2020 we implemented measures to ~~increase~~improve our balance sheet by increasing liquidity, reduce leverage, and seek financing arrangements as an alternative to short term repurchase agreements with daily margin requirements to preserve long-term shareholder value. ~~As of June 30, 2020, these~~These measures included, but were not limited to, the following:

•Suspended our first quarter and second quarter common dividends to preserve liquidity.

•~~Sold~~In March 2020 terminated all interest rate hedges and further reduced margin call volatility.

•To meet margin calls and reduce our exposure to short-term mark to market financing, we old approximately $2.1 billion of Agency MBS, $107.3 million of Non-Agency MBS and $144.3 million of conforming residential whole loans.

•~~Reduced our repurchase agreement financings by 86.9% to $369.1 million.~~

•~~Terminated all interest rate hedges and further reduced margin call volatility.~~

•Our Manager waived management fees from March 2020 through May 2020.

•WeIn April 2020, we closed an 18 month term financing arrangement without margin requirements for our entire non-QM loan portfolio. The impact of this financing was to reduce our exposure to repurchase agreement financing by $385 million and the associated margin calls from such agreements.

•In May 2020, we closed a 12 month term financing arrangement for Non-Agency RMBS and Non-Agency CMBS, significantly mitigating exposure to margin volatility. The aggregate financing provided by the counterparty with respect to the assets covered under this confirmation is approximately $108.8 million and the market value of such assets is approximately $182.7 million.

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•In June 2020, we completed a residential mortgage-backed securitization of $355.8 million of our Residential Whole Loan investments, enabling the Company to secure $341.7 million of long-term financing at a weighted average interest rate of 2.0%.

~~While~~These above actions enabled us to strengthening our balance sheet, stabilizing our financing arrangements. In the third quarter of 2020, we implemented the the following measure to further reduced leverage, improve liquidity, shareholders equity and the earnings power of the portfolio. These measures included, but were not limited to, the following:

•In July, the Company retired $5.0 million of its 6.75% Convertible Senior Notes at a 25% discount to par value, in exchange for the issuance of 1.4 million shares of our common stock.

•In the third quarter 2020, we reduced leverage on our commercial loan portfolio by 21.9%, which were financed under our commercial warehouse facility.

•In October 2020, we amended our existing residential loan facility to reduce borrowing costs. The amended facility has a 12 month term bearing an interest rate of one month LIBOR plus 2.75%.

•Also, for the nine months ended September 30, 2020, we reduced our repurchase agreement financings by 87.3% to $358.5 million.

For the three months ended September 30, 2020, we had improved financial results, which included significant recovery in asset valuations and improved net interest margin on our investments. With mortgage credit markets railing during the quarter, valuations on both our Residential Whole Loan portfolio and our commercial investments benefited meaningfully. Also, because of the continued improvement in the underlying performance of our portfolio, we were able to reinstate our dividend in the third quarter, an important step for the Company and our shareholders.

Our Manager's view is ~~that~~ the ~~economic impact of COVID-19~~road ahead will be ~~transitory, there is no assurance the impact will not be more lasting and severe.~~a long hard slog. The full impact of COVID-19 on our results of operations, financial position and cost of capital is still uncertain as it depends on several factors beyond our ~~control including, but not limited to~~control. Our Manager outlook is that (i) ~~the uncertainty around the severity, duration~~COVID-19 related growth setbacks have meaningful reduced global and ~~spread of the outbreak,~~U.S. growth, (ii) the ~~effectiveness of the United States public health response,~~medical battle will take time and prolonged efforts but recent developments are encouraging (iii) ~~the pandemic’s impact on the~~ U.S. and global ~~economies,~~inflation are expected to be very subdued, (iv) ~~the timing, scope and effectiveness of additional governmental responses~~Fiscal policy will need to ~~the pandemic, including the availability of a treatment or vaccination for COVID-19,~~remain supportive, and (v) ~~the negative impact on our borrowers, asset values and cost of capital.~~after recovery begins central banks are expected to keep rates ultra low. We continue to operate with a defensive stance to preserve liquidity, reduce our exposure to short-term repurchase agreement financings, and reduce expenses.

Our Investment Strategy

Our Manager’s investment philosophy, which developed from a singular focus in fixed-income asset management over a variety of credit cycles and conditions, is to provide clients with a diversified, long-term value-oriented portfolio. We benefit from the breadth and depth of our Manager’s overall investment philosophy, which focuses on a macroeconomic analysis as well as an in-depth analysis of individual assets and their relative value. In making investment decisions on our behalf, our Manager seeks to identify assets across the broad mortgage universe with attractive risk adjusted returns, which incorporates its view on the outlook for the mortgage markets, including relative valuation, supply and demand trends, the level of interest rates, the shape of the yield curve, prepayment rates, financing and liquidity, commercial and residential real estate prices, delinquencies, default rates, recovery of various segments of the economy and vintage of collateral, subject to maintaining our REIT qualification and our exemption from registration under the 1940 Act.

Our Target Assets

Residential Whole Loans. — Residential Whole Loans are mortgages secured by single family residences held directly by us or through consolidated trusts with us holding the beneficial interest in the trusts. Our Residential Whole Loans are mainly adjustable rate mortgages that do not qualify for the Consumer Finance Protection Bureau’s (or CFPB) safe harbor provision for “qualified mortgages” ("Non QM" mortgages). Our Manager’s review, relating to Non QM mortgages, includes an analysis of the loan originator’s procedures and documentation for compliance with Ability to Repay requirements. As discussed in Note 7 "Financing," we have and may continue to securitize whole loan interests, selling more senior interests in the pool of loans and retaining residual portions. The characteristics of our Residential Whole Loans may vary going forward.

Commercial Whole Loans. — Commercial Whole Loans are generally loans ranging from, $5 million to $125 million, secured by commercial real estate typically short-term loans. The collateral types may include hospitality, senior care living

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facilities, multifamily, office retail and industrial properties. These loans may be held directly by us or through consolidated trusts with us holding the beneficial interest in the trust.

Commercial Mezzanine Loans. —Commercialmezzanine loans are generally structured to represent a senior position in the borrower’s equity in, and subordinate to a first mortgage loan, on a property. These loans are generally secured by pledges of ownership interests, in whole or in part, in entities that directly or indirectly own the real property. At times, mezzanine loans may be secured by additional collateral, including letters of credit, personal guarantees, or collateral unrelated to the property. Mezzanine loans may be structured to carry either fixed or floating interest rates as well as carry a right to participate in a percentage of gross revenues and a percentage of the increase in the fair market value of the property securing the loan. Mezzanine loans may also contain prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns to the lender. Mezzanine loans usually have maturities that match the maturity of the related mortgage loan but may have shorter or longer terms. Depending on the structure of a transaction, Commercial Mezzanine loans may or may not qualify as "qualifying real estate interests" for purposes of the 1940 Act.

Agency RMBS. — Agency RMBS, which are RMBS for which the principal and interest payments are guaranteed by a U.S. Government agency, such as the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), or a U.S. Government-sponsored entity ("GSE"), such as the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). The Agency RMBS we acquire can be secured by fixed-rate mortgages, adjustable-rate mortgages or hybrid adjustable-rate mortgages. Fixed-rate mortgages have interest rates that are fixed for the term of the loan and do not adjust. The interest rates on adjustable-rate mortgages generally adjust annually (although some may adjust more frequently) to an increment over a specified interest rate index. Hybrid adjustable-rate mortgages have interest rates that are fixed for a specified period of time (typically three, five, seven or ten years) and, thereafter, adjust to an increment over a specified interest rate index. Adjustable-rate mortgages and hybrid adjustable-rate mortgages generally have periodic and lifetime constraints on the amount by which the loan interest rate can change on any predetermined interest rate reset date.

~~Agency CMBS.~~ — Fixed and floating rate CMBS, for which the principal and interest payments are guaranteed by a U.S. Government agency or U.S. Government-sponsored entity, but for which the underlying mortgage loans are secured by real property other than single family residences. These may include, but are not limited to Fannie Mae DUS (Delegated Underwriting and Servicing) MBS, Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools, and/or CMOs structured from such collateral. These securities generally have prepayment protection in the form of defeasance, yield maintenance or points.

Non-Agency RMBS. — RMBS that are not guaranteed by a U.S. Government agency or U.S. Government-sponsored entity. The mortgage loan collateral for Non-Agency RMBS consists of residential mortgage loans that do not generally conform to underwriting guidelines issued by a U.S. Government agency or U.S. Government-sponsored entity due to certain factors, including mortgage balances in excess of Agency underwriting guidelines, borrower characteristics, loan characteristics and/or level of documentation, and therefore are not issued or guaranteed by a U.S. Government agency or U.S. Government-sponsored entity. The mortgage loan collateral may be classified as subprime, Alternative-A or prime depending on the borrower’s credit rating and the underlying level of documentation. Non-Agency RMBS collateral may also include reperforming loans, which are conventional mortgage loans that were current at the time of the securitization, but had been delinquent in the past. Non-Agency RMBS may be secured by fixed-rate mortgages, adjustable-rate mortgages or hybrid adjustable-rate mortgages.

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Non-Agency CMBS. — Fixed and floating rate CMBS for which the principal and interest payments are not guaranteed by a U.S. Government agency or U.S. Government-sponsored entity. We do not have an established minimum current rating requirement for such investments.

~~Non U.S.~~ Agency CMBS. — Fixed and floating rate CMBS, for which ~~is not~~the principal and interest payments are guaranteed by a U.S. Government agency or U.S. Government-sponsored entity, ~~and~~but for which isthe underlying mortgage loans are secured by ~~commercial~~ real estate located outside of the U.S. Although our Manager believes that these investments can provide attractive risk-reward opportunities and offer additional asset diversification, investing in international real estate has a number of additional risks, includingproperty other than single family residences. These may include, but are not limited to ~~currency risk, political risk~~Fannie Mae DUS (Delegated Underwriting and Servicing) MBS, Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools, and/or CMOs structured from such collateral. These securities generally have prepayment protection in the ~~legal risk~~form of ~~investing in jurisdictions with varying laws and regulations and potential tax implications.~~ defeasance, yield maintenance or points.

GSE Risk Sharing Securities Issued by Fannie Mae and Freddie Mac. — From time to time we have and may in the future continue to invest in risk sharing securities issued by Fannie Mae and Freddie Mac. Principal and interest payments on these securities are based on the performance of a specified pool of Agency residential mortgages. The payments due on these securities, however, are not secured by the referenced mortgages. The payments due are full faith and credit obligations of Fannie Mae or Freddie Mac respectively, but neither agency guarantees full payment of the underlying mortgages. Investments in these securities generally are not qualifying assets for purposes of the 75% real estate asset test applicable to REITs and

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generally do not generate qualifying income for purposes of the 75% real estate income test applicable to REITs. As a result, we may be limited in our ability to invest in such assets.

TBAs. — We may utilize TBAs, in order to invest in Agency RMBS. Pursuant to these TBAs, we agree to purchase (or deliver), for future settlement, Agency RMBS with certain principal and interest terms and certain underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. Our ability to invest in Agency RMBS through TBAs may be limited by the 75% real estate income and asset tests applicable to REITs.

Mortgage pass-through certificates. — Mortgage pass-through certificates are securities representing interests in “pools” of mortgage loans secured by residential real property where payments of both interest and scheduled principal, plus pre-paid principal, on the underlying loan pools are made monthly to holders of the securities, in effect “passing through” monthly payments made by the individual borrowers on the mortgage loans that underlie the securities, net of fees paid to the issuer/guarantor of the securities and servicers of the underlying mortgages.

Interest-Only Strips or IOs. — This type of security entitles the holder only to payments of interest based on a notional principal balance. The yield to maturity of Interest-Only Strips is extremely sensitive to the rate of principal payments (particularly prepayments) on the underlying pool of mortgages. We invest in these types of securities primarily to take advantage of particularly attractive prepayment-related or structural opportunities in the MBS markets, as well as to help manage the duration of our overall portfolio.

Inverse Interest-Only Strips or IIOs. — This type of security has a coupon with an inverse relationship to its index and is subject to caps and floors. Inverse Interest-Only MBS entitles the holder to interest only payments based on a notional principal balance, which is typically equal to a fixed rate of interest on the notional principal balance less a floating rate of interest on the notional principal balance that adjusts according to an index subject to set minimum and maximum rates. The current yield of Inverse Interest-Only MBS will generally decrease when its related index rate increases and increase when its related index rate decreases.

Agency and Non-Agency CMBS IO and IIO Securities. — Interest-Only and Inverse Interest-Only securities for which the underlying collateral is commercial mortgages the principal and interest on which may or may not be guaranteed by a U.S Government agency or U.S. Government-sponsored entity. Unlike single family residential mortgages in which the borrower, generally, can prepay at any time, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection. Common restrictions include yield maintenance and prepayment penalties, the proceeds of which are generally at least partially allocable to these securities, as well as, defeasance.

Principal-Only Strips or POs. — This type of security generally only entitles the holder to receive cash flows that are derived from principal repayments of an underlying loan pool, but in the case of Non-Agency Principal-Only Strips will also include cash flows from default recoveries and excess interest. The yield to maturity of Principal-Only Strips is extremely sensitive to the rate of principal payments (particularly prepayments) on the underlying pool of mortgages. We invest in these types of securities primarily to take advantage of structural opportunities in the MBS markets.

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~~Residential Whole Loans.~~ — Residential Whole Loans are mortgages secured by single family residences held directly by us or through consolidated trusts with us holding the beneficial interest in the trusts. Our Residential Whole Loans include conforming fixed rate mortgages and adjustable rate mortgages that do not qualify for the Consumer Finance Protection Bureau’s (or CFPB) safe harbor provision for “qualified mortgages” ("Non QM" mortgages). Our Manager’s review, relating to Non QM mortgages, includes an analysis of the loan originator’s procedures and documentation for compliance with Ability to Repay requirements. As discussed in Note 7 "Financing," we have and may continue to securitize whole loan interests, selling more senior interests in the pool of loans and retaining residual portions. The characteristics of our Residential Whole Loans may vary going forward.

~~Residential Bridge Loans.~~ —Residential Bridge Loans are mortgages secured by non owner occupied single family and multi-family residences, typically short-term, held directly by us or through structured Non-Agency RMBS programs crafted specifically for us and other clients of our Manager. These loans are held in a consolidated trust with us holding the beneficial interest in the trust.

~~Commercial Whole Loans.~~ — Commercial Whole Loans are generally loans ranging from, $5 million to $125 million, secured by commercial real estate typically short-term loans. The collateral types may include hospitality, senior care living facilities, multifamily, office retail and industrial properties. These loans may be held directly by us or through consolidated trusts with us holding the beneficial interest in the trust.

~~Commercial Mezzanine Loans.~~ —~~Commercial~~mezzanine loans are generally structured to represent a senior position in the borrower’s equity in, and subordinate to a first mortgage loan, on a property. These loans are generally secured by pledges of ownership interests, in whole or in part, in entities that directly or indirectly own the real property. At times, mezzanine loans may be secured by additional collateral, including letters of credit, personal guarantees, or collateral unrelated to the property. Mezzanine loans may be structured to carry either fixed or floating interest rates as well as carry a right to participate in a percentage of gross revenues and a percentage of the increase in the fair market value of the property securing the loan. Mezzanine loans may also contain prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns to the lender. Mezzanine loans usually have maturities that match the maturity of the related mortgage loan but may have shorter or longer terms. Depending on the structure of a transaction, Commercial Mezzanine loans may or may not qualify as "qualifying real estate interests" for purposes of the 1940 Act.

Collateralized Mortgage Obligations or CMOs. — These are securities, which can be Agency or Non-Agency, that are structured from residential and/or commercial pass-through certificates, which receive monthly payments of principal and interest. CMOs divide the cash flows which come from the underlying mortgage pass-through certificates into different classes of securities that may have different maturities and different weighted average lives than the underlying pass-through certificates.

ABS. — Debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, credit cards, equipment, franchises, recreational vehicles and student loans. Investments in ABS generally are not qualifying assets for purposes of the 75% real estate asset test applicable to REITs and generally do not generate qualifying income for purposes of the 75% real estate income test applicable to REITs. As a result, we may be limited in our ability to invest in such assets.

Other investments. — In addition to MBS, our principal investment, and ABS from time to time, we may also make other investments in securities, which our Manager believes will assist us in meeting our investment objective and are consistent with our overall investment policies. These investments will normally be limited by the REIT requirements that 75%

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our assets be real estate assets and that 75% of our income be generated from real estate, thereby limiting our ability to invest in such assets.

Our Investment Portfolio

Our investment portfolio composition at ~~June~~September 30, 2020.

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Our Financing Strategy

The uncertainties created by the COVID-19 pandemic have made it challenging to obtain financing arrangements on favorable terms, including our repurchase agreements, term financings, and securitizations. We expect to continue to seek financing arrangements as an alternative to short term repurchase agreements with daily margin requirements, including but not limited to term financing, securitization and ~~converitble~~convertible senior unsecured notes, as market ~~permit..~~permit. The amount of leverage we use for our portfolio depends upon a variety of factors, such as, general economic, political and financial market conditions, the anticipated liquidity and price volatility of our assets, the availability and cost of financing the assets, the creditworthiness of financing counterparties and the health of the U.S. residential and commercial mortgage markets. We are not required to maintain any particular leverage ratio. We expect to maintain a debt-to-equity ratio of ~~three~~two to six times the amount of our stockholders’ equity, depending on our investment composition.

~~In the second quarter in order to manage the severe market conditions and the resulting large margin demands from lenders and pressure on the our liquidity,~~ See Financing Activity for details of financing arrangements we recently entered into ~~two longer term financing arrangements as our sort~~ to reduce our exposure to short-term financings with daily mark to market exposure. ~~See Financing Activity for details on these financing arrangements.~~

Repurchase Agreements

We have primarily financed our investment acquisitions with repurchase agreements. The repurchase agreements bear interest at a contractually agreed-upon rate and historically had terms ranging from one month to twelve months. Our repurchase agreement borrowings are accounted for as secured borrowings when we maintain effective control of the financed assets. Under these repurchase agreements, the respective counterparties retain the right to determine the fair value of the underlying collateral. A reduction in the value of pledged assets requires us to post additional securities as collateral, pay down

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borrowings or establish cash margin accounts with the counterparties in order to re-establish the agreed-upon collateral requirements, and is referred to as a margin call. Our inability to post adequate collateral for a margin call by a counterparty, in a timeframe as short as the close of the same business day, could result in a condition of default under our repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by us, which may have a material adverse effect on our financial position, results of operations and cash flows.

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Our repurchase agreement counterparties generally require collateral in excess of the loan amount, or haircuts. As of ~~June~~September 30, 2020, the ranges of the haircuts on our investments were as follows:


Collateral	Collateral	Minimum	Maximum (excluding IOs and IIOs)	Maximum (including IOs and IIOs)	Collateral	Minimum	Maximum (excluding IOs and IIOs)	Maximum (including IOs and IIOs)
Agency RMBS	Agency RMBS	25.0%	n/a	25.0%	Agency RMBS	25.0%	n/a	25.0%

Non-Agency RMBS	Non-Agency RMBS	32.5%	35.0%	35.0%	Non-Agency RMBS	32.5%	35.0%	35.0%
Non-Agency CMBS	Non-Agency CMBS	30.0%	45.0%	n/a	Non-Agency CMBS	30.0%	45.0%	n/a
Other securities	Other securities	32.5%	60.0%	n/a	Other securities	32.5%	60.0%	n/a
Residential Whole Loans⁽¹⁾	Residential Whole Loans⁽¹⁾	20.0%	80.0%	n/a	Residential Whole Loans(1)	20.0%	80.0%	n/a
Commercial Loans⁽²⁾	Commercial Loans⁽²⁾	20.0%	60.0%	n/a	Commercial Loans(2)	22.0%	67.2%	n/a

⁽¹⁾Includes Residential Bridge Loans.

⁽²⁾ Includes Securitized commercial loans.

Our Hedging Strategy

Our overall portfolio strategy is designed to generate attractive returns to our investors through various economic cycles. We believe our broad approach to investing in the real estate mortgage markets, which considers all categories of real estate assets, allows us to invest in a diversified portfolio and help mitigate our portfolio from risks that arise from investing in a single or limited collateral type. In connection with our risk management activities, we may enter into a variety of derivative and non-derivative instruments. When purchased, our primary objective for acquiring these derivatives and non-derivative instruments is to mitigate our exposure to future events that are outside our control. Our derivative instruments are designed to mitigate the effects market risk and cash flow volatility associated with interest rate risk, including prepayment risk. As part of our hedging strategy, we may enter into, interest rate swaps, including forward starting swaps, interest rate swaptions, U.S. Treasury options, future contracts, TBAs, total return swaps, credit default swaps, foreign current swaps and forwards and other similar instruments. There can be no assurance that appropriate hedging strategies will be available or that if implemented they will be successful.

Critical Accounting Policies

The consolidated financial statements include our accounts, those of our wholly-owned subsidiaries and certain VIEs in which we are the primary beneficiary. All intercompany amounts have been eliminated in consolidation. In accordance with GAAP, our consolidated financial statements require the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. In accordance with SEC guidance, the following discussion addresses the accounting policies that we currently apply. Our most critical accounting policies will involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our consolidated financial statements have been based were reasonable at the time made and based upon information available to us at that time. For a review of recent accounting pronouncements that may impact our results of operations, see Note 2 of our “Notes to Consolidated Financial Statements (Unaudited)”.

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There have been no significant changes to our critical accounting policies that are disclosed in our most recent Annual Report on Form 10-K for the year ended December 31, 2019, other than the new accounting policy adopted described in Note 2 to the Consolidated Financial Statements.

2020 Activity

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Investment Activity

The COVID-19 pandemic has created unprecedented market disruption and dislocation. The extreme lack of liquidity in mortgage markets combined with forced selling led to swift and dramatic price declines. ~~The~~During the first quarter of 2020 and the early part of the second quarter, the significant decline in asset values resulted in us having to sell assets in order to meet margin calls by our repurchase agreement counterparties. By the end of the second quarter and into the third quarter the equity and credit markets rallied, driven by improved liquidity. Our portfolio has experienced improved valuations and we did not have significant asset sales or margin calls during the third quarter.

The following table presents our investing activity for the ~~six~~nine months ended ~~June~~September 30, 2020 (dollars in thousands):


		Balance at				Principal Payments and Basis Recovery		Proceeds from Sales		Transfers to REO		Realized Gain/(Loss)		Unrealized Gain/(loss)		Premium and discount amortization, net		VIE Deconsolidation		Balance at				Balance at				Loan Modification/Capitalized Interest		Principal Payments and Basis Recovery		Proceeds from Sales		Transfers to REO		Realized Gain/(Loss)		Unrealized Gain/(loss)		Premium and discount amortization, net			VIE Consolidation / Deconsolidation, net		Balance at
Investment Type	Investment Type	December 31, 2019		Purchases																						Loan Modification/Capitalized Interest																Proceeds from Sales			Transfers to REO		Realized Gain/(Loss)	Unrealized Gain/(loss)	Premium and discount amortization, net			VIE Consolidation / Deconsolidation, net	September 30, 2020
Agency RMBS and Agency RMBS IOs	Agency RMBS and Agency RMBS IOs	$	356,686	$	64,008	$	(17,243)	$	(402,965)	n/a		$	11,543	$	(9,773)	$	(281)			$	—	$	1,975		Agency RMBS and Agency RMBS IOs			$	356,686	$	64,008	$	—	$	(17,425)	$	(402,965)	n/a		$	11,543		$	(9,713)						$	(281)		$	—
Non-Agency RMBS	Non-Agency RMBS	45,814		—		(1,344)		(12,702)		n/a		(16)		(4,632)		(149)		—		26,971		Non-Agency RMBS		45,814		—		—		(1,802)		(12,658)		n/a		(60)		(5,491)		13			—		25,816
Agency CMBS and Agency CMBS IOs	Agency CMBS and Agency CMBS IOs	1,438,569		185,082		(920)		(1,670,664)		n/a		109,539		(60,970)		(636)		—		—		Agency CMBS and Agency CMBS IOs		1,438,569		185,082		—		(920)		(1,670,664)		n/a		109,539		(60,970)		(636)			—		—
Non-Agency CMBS	Non-Agency CMBS	316,019		48,505		(9,457)		(94,586)		n/a		(22,702)		(58,053)		2,739		6,852		189,317		Non-Agency CMBS		316,019		48,505		—		(11,276)		(94,586)		n/a		(22,702)		(52,179)		4,425			(6,885)		181,321
Other securities⁽¹⁾	Other securities⁽¹⁾	80,161		23,401		(1,022)		(35,957)		n/a		(6,110)		(17,210)		(2,797)		—		40,466		Other securities(1)		80,161		23,401		—		(1,022)		(35,957)		n/a		(6,110)		(15,608)		(3,810)			—		41,055
Total MBS and other securities	Total MBS and other securities	2,237,249		320,996		(29,986)		(2,216,874)		n/a		92,254		(150,638)		(1,124)		6,852		258,729		Total MBS and other securities		2,237,249		320,996		—		(32,445)		(2,216,830)		n/a		92,210		(143,961)		(289)			(6,885)		250,045
Residential Whole Loans	Residential Whole Loans	1,375,860		113,338		(134,114)		(144,258)		—		(10,511)		(73,875)		(2,389)		—		1,124,051		Residential Whole Loans		1,375,860		113,338		614		(208,940)		(144,258)		—		(10,511)		(25,568)		(3,538)			—		1,096,997
Residential Bridge Loans	Residential Bridge Loans	36,419		—		(8,699)		—		(419)		(50)		(699)		(47)		—		26,505		Residential Bridge Loans		36,419		—		—		(17,530)		—		(419)		(273)		(289)		(67)			—		17,841
Commercial Loans	Commercial Loans	370,213		—		(37,638)		—		—		—		(9,412)		311		—		323,474		Commercial Loans		370,213		—		33		(37,729)		—		—		—		(7,218)		352			—		325,651
Securitized commercial loans	Securitized commercial loans	909,040		—		(178,644)		—		—		—		(114,250)		352		(150,804)		465,694		Securitized commercial loans		909,040		—		—		(211,204)		—		—		—		(109,683)		4,909			1,094,483		1,687,545
Total Investments	Total Investments	$	4,928,781	$	434,334	$	(389,081)	$	(2,361,132)	$	(419)	$	81,693	$	(348,874)	$	(2,897)	$	(143,952)	$	2,198,453	Total Investments		$	4,928,781	$	434,334	$	647	$	(507,848)	$	(2,361,088)	$	(419)	$	81,426	$	(286,719)	$	1,367		$	1,087,598	$	3,378,079

(1) Other securities include ~~$33.6~~$34.1 million of GSE CRTs and ~~$6.9~~$7.0 million of ABS at ~~June~~September 30, 2020.

Table of Contents

Portfolio Characteristics

Our Agency Portfolio

The following table summarizes our Agency portfolio by investment category as of ~~June~~September 30, 2020 (dollars in thousands):


		Principal Balance		Amortized Cost		Fair Value		Net Weighted Average Coupon			Principal Balance		Amortized Cost		Fair Value		Net Weighted Average Coupon

Agency RMBS IOs and IIOs ⁽¹⁾	Agency RMBS IOs and IIOs ⁽¹⁾	N/A		$	142	$	180	2.6	%	Agency RMBS IOs and IIOs (1)	N/A		$	105	$	153	2.4	%
Agency RMBS IOs and IIOs accounted for as derivatives ⁽¹⁾	Agency RMBS IOs and IIOs accounted for as derivatives ⁽¹⁾	N/A		N/A		1,795		2.6	%	Agency RMBS IOs and IIOs accounted for as derivatives (1)	N/A		N/A		1,700		3.0	%
Total Agency RMBS	Total Agency RMBS	—		142		1,975		2.6	%	Total Agency RMBS	—		105		1,853		2.9	%
Total	Total	$	—	$	142	$	1,975	2.6	%	Total	$	—	$	105	$	1,853	2.9	%

(1)IOs and IIOs have no principal balances and bear interest based on a notional balance. The notional balance is used solely to determine interest distributions on the interest-only class of securities.

~~Table of Contents~~

Credit Sensitive Portfolio

The following table presents information by vintage⁽¹⁾ as it relates to our credit sensitive investment portfolio at ~~June~~September 30, 2020:


Credit Sensitive Securities	Credit Sensitive Securities	Pre 2011		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Total		Credit Sensitive Securities	Pre 2011		2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Total
Non-Agency RMBS	Non-Agency RMBS	0.1	%	—	%	—	%	—	%	—	%	—	%	—	%	0.5	%	0.4	%	—	%	—	%	1.0	%	Non-Agency RMBS	0.1	%	—	%	—	%	—	%	—	%	—	%	—	%	0.3	%	0.2	%	—	%	—	%	0.6	%
Non-Agency RMBS IOs	Non-Agency RMBS IOs	—	%	—	%	—	%	—	%	—	%	—	%	—	%	0.2	%	—	%	—	%	—	%	0.2	%	Non-Agency RMBS IOs	—	%	—	%	—	%	—	%	—	%	—	%	—	%	0.1	%	—	%	—	%	—	%	0.1	%

Non-Agency CMBS	Non-Agency CMBS	0.4	%	1.3	%	—	%	—	%	1.1	%	0.4	%	0.5	%	0.2	%	1.7	%	2.8	%	0.2	%	8.6	%	Non-Agency CMBS	0.2	%	0.9	%	—	%	—	%	0.4	%	0.3	%	0.3	%	0.1	%	1.0	%	1.9	%	0.2	%	5.3	%
Other securities	Other securities	—	%	—	%	—	%	—	%	0.1	%	0.2	%	0.1	%	0.2	%	0.7	%	—	%	0.6	%	1.9	%	Other securities	—	%	—	%	—	%	—	%	0.1	%	0.1	%	0.1	%	0.1	%	0.5	%	—	%	0.4	%	1.3	%
Residential Whole Loans	Residential Whole Loans	0.1	%	0.2	%	0.2	%	1.8	%	0.9	%	—	%	1.3	%	3.9	%	24.5	%	18.1	%	0.2	%	51.2	%	Residential Whole Loans	0.1	%	0.1	%	0.1	%	1.1	%	0.6	%	—	%	0.8	%	2.5	%	15.5	%	11.5	%	0.1	%	32.4	%
Residential Bridge Loans	Residential Bridge Loans	—	%	—	%	—	%	—	%	—	%	—	%	—	%	0.3	%	0.9	%	—	%	—	%	1.2	%	Residential Bridge Loans	—	%	—	%	—	%	—	%	—	%	—	%	—	%	0.1	%	0.4	%	—	%	—	%	0.5	%
Securitized commercial loans	Securitized commercial loans	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%	21.2	%	—	%	—	%	21.2	%	Securitized commercial loans	—	%	—	%	—	%	—	%	36.5	%	—	%	—	%	—	%	13.6	%	—	%	—	%	50.1	%
Commercial Loans	Commercial Loans	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%	3.3	%	11.4	%	—	%	14.7	%	Commercial Loans	—	%	—	%	—	%	—	%	—	%	—	%	—	%	—	%	2.2	%	7.5	%	—	%	9.7	%
Total	Total	0.6	%	1.5	%	0.2	%	1.8	%	2.1	%	0.6	%	1.9	%	5.3	%	52.7	%	32.3	%	1.0	%	100	%	Total	0.4	%	1.0	%	0.1	%	1.1	%	37.6	%	0.4	%	1.2	%	3.2	%	33.4	%	20.9	%	0.7	%	100	%

(1) Based on carrying amount of the investments.

Non-Agency RMBS

The following table presents the fair value and weighted average purchase price for each of our Non-agency RMBS categories, including IOs accounted for as derivatives, together with certain of their respective underlying loan collateral attributes and current performance metrics as of ~~June~~September 30, 2020 (fair value dollars in thousands):


				Weighted Average																					Weighted Average
Category	Category	Fair Value		Purchase Price		Life (Years)	Original LTV		Original FICO	60+ Day Delinquent		6-Month CPR		Category	Fair Value		Purchase Price		Life (Years)	Original LTV		Original FICO	60+ Day Delinquent		6-Month CPR
Prime	Prime	$	8,972	$	68.29	11.8	68.9	%	769	3.8	%	15.0	%	Prime	$	8,636	$	71.26	11.8	68.9	%	769	4.0	%	15.0	%
Alt-A	Alt-A	17,999		46.04		5.7	80.6	%	665	19.9	%	9.0	%	Alt-A	17,180		47.49		12.0	80.6	%	665	20.9	%	9.0	%

Total	Total	$	26,971	$	53.44	7.7	76.7	%	699	14.5	%	11.0	%	Total	$	25,816	$	55.44	12.0	76.7	%	700	15.3	%	11.0	%

Non-Agency CMBS

Table of Contents

The following table presents certain characteristics of our Non-Agency CMBS portfolio as of ~~June~~September 30, 2020 (dollars in thousands):


			Principal				Weighted Average							Principal			Weighted Average
Type	Type	Vintage	Balance		Fair Value		Life (Years)	Original LTV		Type	Vintage	Balance		Fair Value		Life (Years)	Original LTV
Conduit:	Conduit:									Conduit:
		2006-2009	$	16,687	$	7,972	2.5	72.7	%		2006-2009	$	14,126	$	6,735	1.1	72.5	%
		2010-2020	94,107		47,848		3.8	61.6	%		2010-2020	94,107		52,252		3.7	61.6	%
			110,794		55,820		3.6	63.2	%			108,233		58,987		3.4	62.9	%
Single Asset:	Single Asset:									Single Asset:
		2010-2020	163,473		133,497		2.9	65.4	%		2010-2020	148,217		122,334		2.2	66.2	%
Total	Total		$	274,267	$	189,317	3.1	64.8	%	Total		$	256,450	$	181,321	2.6	65.1	%

Residential Whole Loans

~~Table of Contents~~

The Residential Whole Loans have low LTV's and are comprised of ~~2,858~~2,701 Non-QM adjustable ~~rate mortgages, 0 conforming fixed~~ rate mortgages and nine investor fixed rate mortgages. The following table presents certain information about our Residential Whole Loans investment portfolio at ~~June~~September 30, 2020 (dollars in thousands):


					Weighted Average																Weighted Average
Current Coupon Rate	Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Original FICO Score⁽¹⁾	Expected Life (years)⁽²⁾	Contractual Maturity (years)	Coupon Rate		Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Original FICO Score(1)	Expected Life (years)	Contractual Maturity (years)	Coupon Rate
3.01 – 4.00%	3.01 – 4.00%	31	$	11,165	58.7	%	701	4.4	24.4	3.9	%	3.01 – 4.00%	73	$	25,295	57.0	%	708	3.6	23.7	3.8	%
4.01– 5.00%	4.01– 5.00%	1,369	481,540		61.8	%	752	2.9	28.2	4.9	%	4.01– 5.00%	1,287	448,466		61.8	%	751	2.5	27.9	4.9	%
5.01 – 6.00%	5.01 – 6.00%	1,422	639,070		64.2	%	740	3.1	27.9	5.4	%	5.01 – 6.00%	1,310	585,577		64.3	%	740	2.7	27.8	5.4	%
6.01 – 7.00%	6.01 – 7.00%	43	15,572		67.1	%	721	3.4	27.4	6.3	%	6.01 – 7.00%	38	13,798		67.4	%	723	3.0	27.3	6.3	%
7.01 - 8.00%	7.01 - 8.00%	2	513		73.2	%	753	4.7	28.1	7.1	%	7.01 - 8.00%	2	512		73.2	%	753	4.0	27.9	7.1	%

Total	Total	2,867	$	1,147,860	63.2	%	745	3.1	28.0	5.2	%	Total	2,710	$	1,073,648	63.1	%	744	2.7	27.7	5.1	%

(1)The original FICO score is not available for ~~262~~249 loans with a principal balance of approximately ~~$88.1~~$79.5 million at ~~June~~September 30, 2020. We have excluded those loans from the weighted average computation.

~~(2)Excludes the expected lives of the conforming Residential Whole Loans held by RCR Trust.~~

Residential Bridge Loans

Our Residential Bridge Loans are comprised of short-term fixed rate mortgages secured by non-owner occupied single and multi-family residences with low LTVs, generally up to 85%. The following table presents certain information about our Residential Bridge Loans investment portfolio at ~~June~~September 30, 2020 (dollars in thousands):


					Weighted Average												Weighted Average
Current Coupon Rate	Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)⁽¹⁾	Coupon Rate		Current Coupon Rate	Number of Loans	Principal Balance		Original LTV		Contractual Maturity (months)(1)	Coupon Rate

7.01 – 9.00%	7.01 – 9.00%	23	$	16,604	68.3	%	2.0	8.5	%	7.01 – 9.00%	15	$	10,430	69.5	%	1.8	8.6	%
9.01 – 11.00%	9.01 – 11.00%	21	8,308		74.4	%	1.9	10.1	%	9.01 – 11.00%	18	7,714		74.8	%	3.2	10.1	%
11.01 – 13.00%	11.01 – 13.00%	6	2,167		64.3	%	0.0	11.7	%	11.01 – 13.00%	3	705		69.8	%	0.0	11.4	%

17.01 – 19.00%	17.01 – 19.00%	2	949		75.0	%	0.0	18.0	%	17.01 – 19.00%	1	124		75.0	%	0.0	18.0	%

Total	Total	52	$	28,028	70.0	%	2.00	9.5	%	Total	37	$	18,973	71.7	%	2.2	9.4	%

Table of Contents

Non-performing Residential Loans

The following table presents the aging of the Residential Whole Loans and Bridge Loans as of ~~June~~September 30, 2020 (dollars in thousands):

~~Table of Contents~~


		Residential Whole Loans								Bridge Loans									Residential Whole Loans				Bridge Loans
		No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value ⁽¹⁾			No of Loans	Principal		Fair Value		No of Loans	Principal		Fair Value (1)
Current(2)	Current(2)	2,571	$	992,016	$	975,530	15	$	8,617	$	8,582	Current(2)	2,655	$	1,038,836	$	1,063,022	10	$	4,501	$	4,486
1-30 days	1-30 days	58	25,240		24,585		4	1,193		1,153		1-30 days	24	10,330		10,472		2	1,430		1,412
31-60 days	31-60 days	157	83,172		79,411		2	1,334		1,307		31-60 days	3	1,303		1,281		3	2,080		2,038
61-90 days	61-90 days	63	34,035		31,885		2	3,614		3,391		61-90 days	7	7,266		6,978		—	—		—
90+ days	90+ days	18	13,397		12,640		29	13,270		12,072		90+ days	21	15,913		15,244		22	10,962		9,904
Total	Total	2,867	$	1,147,860	$	1,124,051	52	$	28,028	$	26,505	Total	2,710	$	1,073,648	$	1,096,997	37	$	18,973	$	17,840

(1) Includes ~~$2.3~~$1.5 million loans carried at amortized cost.

(2) Includes loans in forbearance with unpaid principal balance of approximately $109.6 million.

COVID-19 has materially disrupted business operations, resulting in significantly higher levels of unemployment or underemployment. As a result, some of its Residential Whole Loan borrowers have experienced financial hardship, making it difficult to meet their payment obligations to the Company, leading to requests for forbearance and higher levels of delinquency and potentially defaults. The Company maintains a strong relationship with its servicers and has utilized these relationships to manage the impacts of COVID-19 pandemic on the Company's Non-QM loans. As of ~~June~~September 30, 2020, the Company had ~~390~~252 Non-QM loans in forbearance. Under the forbearance agreement, the borrower can generally elect to defer the principal and interest payments for 3 to 5 months. At the end of the forbearance period, the borrower can either repay the deferred principal and interest in full, capitalize the deferred principal and interest to the loan balance and calculate a new amortization payment or request an extension. Loans in forbearance are treated as "Current" in the above chart. These loans are carried at fair value and had an unpaid principal balance of approximately ~~$180.6~~$109.6 million, ~~and~~ a fair value of ~~$173.5 million. These loans represent approximately 15.7% of the total outstanding principal balance and have~~ $110.3 million, a weighted average original LTV of ~~62.6%~~63.7%., and represent approximately 10.2% of the total outstanding principal balance.

Residential Whole Loans

As of ~~June~~September 30, 2020, there were 1821 Residential Whole Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately ~~$13.4~~$15.9 million and a fair value of ~~$12.6~~$15.2 million. These nonperforming loans represent approximately ~~1.2%~~1.5% of the total outstanding principal balance. No allowance or provision for credit losses was recorded as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 since the valuation adjustment, if any, would be reflected in the fair value of these loans. We stopped accruing interest income for these loans when they became contractually 90 days delinquent.

As of ~~June~~September 30, 2020, there were ~~three~~one Residential Bridge Loans carried at amortized cost in non-accrual status with an unpaid principal balance of approximately ~~$1.1 million~~$123.8 thousand and 2621 Residential Bridge Loans carried at fair value in non-accrual status with an unpaid principal balance of approximately ~~$12.2~~$10.8 million and a fair value of ~~$11.0~~$9.8 million. These nonperforming Residential Bridge Loans represent approximately ~~47.3%~~57.8% of the total outstanding principal balance. We reviewed the estimated fair value of the collateral to determine if an allowance and provision of credit loss was required for loans carried at amortized costs. Based upon our evaluation, no allowance and provision for credit losses was recorded for loans carried at amortized cost as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 since the fair value of the collateral balance less the cost to sell was in excess of the outstanding principal and interest balances. No allowance and provision for credit losses was recorded for loans carried at fair value as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2020 since valuation adjustments, if any, would be reflected in the fair value of these loans. We stopped accruing interest income for these loans when they became contractually 90 days delinquent.

Table of Contents

As of ~~June~~September 30, 2020, we had real estate owned ("REO") properties with an aggregate carrying value of ~~$2.2~~$1.3 million related to foreclosed Bridge Loans. The REO properties are held for sale and accordingly carried at the lower of cost or fair value less cost to sell. The REO properties are classified in "Other assets" in the Consolidated Balance Sheets.

Commercial Real Estate Investments

Securitized Commercial Loans

~~Table of Contents~~

In November 2015, we acquired a $14.0 million variable interest in CSMC Trust, which is a VIE that we were required to consolidate. In June 2020, the variable interest we acquired was paid off and accordingly, the CSMC Trust is no longer consolidated.

RETL 2018 was refinanced with a new securitization RETL 2019-RVP ("RETL 2019 Trust") in March 2019. We acquired a $65.3 million variable interest in the trust certificates issued by RETL 2019 Trust, including $45.3 million which represents the 5% eligible risk retention certificate. Please refer to Note 6 - "Commercial Real Estate Investments" for details. The RETL 2019 Trust holds a commercial loan collateralized by first mortgages, deeds of trusts and interests in commercial real estate located throughout the United States and Puerto Rico. The outstanding principal balance on this commercial loan is ~~$519.7~~$488.9 million as of ~~June~~September 30, 2020. The commercial loan served as collateral for the ~~$519.7~~$488.9 million securitized debt issued by RETL 2019 ~~Trust.~~Trust and the securitized debt is non-recourse to us. Refer to Note 7 - "Financings" for details on the associated securitized debt.

In December 2019, we acquired a $161.4 million interest in the trust certificates issued by the MRCD 2019-PRKC Mortgage Trust ("MRCD Trust"), including $10.5 million which represents the initial controlling class (HRR class). We determined that MRCD Trust was a VIE and that we were also the primary beneficiary because the Manager was involved in certain aspects of the design of the trust and we ow the controlling class. As the primary beneficiary, we consolidated MRCD Trust and its investment in the trust certificates (HRR class and a portion of the A class) of MRCD Trust were eliminated in the consolidation.

In March 2020, we sold our investments in the A Class certificates of MRCD Trust, and shortly after the sale, we entered into an agreement to assign our controlling rights and appoint one of the buyers as the new Directing Holder. As a result, the assets and liabilities of MRCD Trust were ~~deconsolidated~~unconsolidated since we no longer have the power to direct the activities that significantly impact the economic performance of the MRCD Trust.

MRCD qualified as a CFE under GAAP and we measured both the financial assets and financial liabilities using the fair value of the financial liabilities, since it was more observable. We recognized an unrealized loss of $43.7 million in earnings, related to the periodic change in fair value of MRCD's assets and liabilities in March 2020 and prior to deconsolidation. Also, we retained the HRR certificates, which were measured at fair value at the date of deconsolidation and is included in the "Non-Agency mortgage-backed securities, at fair value" in the Consolidated Balance Sheets.

On August 1, 2020 we consolidated CSMC USA as a result of our ongoing reassessment of our CMBS VIE holdings for potential consolidation of the securitized trust. Our $14.9 million or 8.8% interest in the trust certificate of CSMC USA (F Class) was eliminated in the consolidation. Please refer to Note 6 - "Commercial Real Estate Investments" for details. The CSMC USA holds a commercial loan secured by a first mortgage lien on the borrowers’ fee and leasehold interests in a portion of a super-regional mall. The outstanding principal balance on this commercial loan is $1.4 billion as of September 30, 2020. The loan's stated maturity date is September 11, 2025 and bears a fixed interest rate of 4.38%. The commercial loan served as collateral for the $1.4 billion securitized debt issued by CMSC USA and the securitized debt is non-recourse to us. Refer to Note 7 - "Financings" for details on the associated securitized debt.

Non-Performing Commercial Loans

The impact of COVID-19 pandemic has adversely impacted a broad range of industries in which our commercial loan borrowers operate and could impair their ability to fulfill their financial obligations to us, most significantly hospitality asset. We believe our CRE loan sponsors are well capitalized and generally committed to supporting the assets collateralizing our loans. Our portfolio’s low ~~average~~average LTV of 65.5% as of ~~June~~September 30, 2020 reflects significant equity value that our sponsors

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are motivated to protect through the COVID-19 disruption. As of ~~June~~September 30, 2020, we had one delinquent borrower with a total loan principal balance ofof $30.0 million. The Company is currently exploring various workout strategies.

The following table presents the aging of the Commercial Loans as of ~~June~~September 30, 2020 (dollars in thousands):


		Commercial Loans									Commercial Loans
		No of Loans	Principal		Fair Value			No of Loans	Principal		Fair Value
Current	Current	10	$	302,576	$	294,589	Current	10	$	302,518	$	296,474
1-30 days	1-30 days	—	—		—		1-30 days	—	—		—
31-60 days	31-60 days	—	—		—		31-60 days	—	—		—
61-90 days	61-90 days	—	—		—		61-90 days	—	—		—
90+ days	90+ days	1	30,000		28,885		90+ days	1	30,000		29,177
Total	Total	11	$	332,576	$	323,474	Total	11	$	332,518	$	325,651

Geographic Concentration

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The mortgages underlying our Non-Agency RMBS and Non-Agency CMBS are located in various states across the United States and other countries. The following table presents the five largest concentrations by location for the mortgages collateralizing our Non-Agency RMBS and Non-Agency CMBS as of ~~June~~September 30, 2020, based on fair value (dollars in thousands):


		Non-Agency RMBS							Non-Agency CMBS							Non-Agency RMBS					Non-Agency CMBS
		Concentration		Fair Value			Concentration		Fair Value			Concentration		Fair Value			Concentration		Fair Value
California	California	29.6	%	$	7,973	California	23.5	%	$	44,541	California	29.4	%	$	7,602	California	25.7	%	$	46,533
Florida	Florida	8.5	%	2,301		Illinois	11.9	%	22,454		Florida	8.5	%	2,199		Illinois	11.3	%	20,545
New York	New York	7.2	%	1,944		Nevada	10.3	%	19,569		New York	7.4	%	1,913		Nevada	10.9	%	19,754
Maryland	Maryland	4.4	%	1,196		Bahamas	6.1	%	11,555		Maryland	4.2	%	1,092		Bahamas	6.5	%	11,728
Georgia	Georgia	4.3	%	1,168		Minnesota	6.0	%	11,276		Georgia	4.1	%	1,068		Kansas	5.3	%	9,664

The following table presents the various states across the United States in which the collateral securing our Residential Whole Loans and Residential Bridge Loans at ~~June~~September 30, 2020, based on principal balance, is located (dollars in thousands):


		Residential Whole Loans							Residential Bridge Loans							Residential Whole Loans					Residential Bridge Loans
		State Concentration		Principal Balance			State Concentration		Principal Balance			State Concentration		Principal Balance			State Concentration		Principal Balance
California	California	64.9	%	$	744,993	California	48.2	%	$	13,508	California	65.4	%	$	702,352	California	37.8	%	$	7,163
New York	New York	18.0	%	206,592		New York	15.4	%	4,323		New York	17.9	%	192,458		New York	17.7	%	3,365
Georgia	Georgia	3.5	%	39,906		Washington	13.4	%	3,748		Georgia	3.4	%	35,969		Washington	17.7	%	3,361
Florida	Florida	2.7	%	31,096		Florida	9.4	%	2,626		Florida	2.7	%	29,268		Florida	12.6	%	2,384
New Jersey	New Jersey	2.4	%	27,349		New Jersey	3.6	%	1,004		New Jersey	2.5	%	26,642		New Jersey	4.4	%	843
Other	Other	8.5	%	97,924		Other	10.0	%	2,819		Other	8.1	%	86,959		Other	9.8	%	1,857
Total	Total	100.0	%	$	1,147,860	Total	100.0	%	$	28,028	Total	100.0	%	$	1,073,648	Total	100.0	%	$	18,973

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Financing Activity

The market disruptions surrounding COVID-19 resulted in the decline of our asset values making it more difficult to obtain repurchase agreement financing with favorable terms or at all. Our repurchase agreement counterparties have increased borrowing rates and increased haircuts. We ~~expect to~~will continue to expand and diversify our financing sources, especially those sources that provide an alternative to short term repurchase agreements with daily margin ~~requirements,~~requirements. Our amended Residential Whole Loan facility and supplemented Non-Agency CMBS and RMBS facility has significantly reducing our exposure to margin volatility.

Repurchase Agreements

Residential Whole Loan Facility

On April 21, 2020, we entered into amendments with respect to certain of its loan warehouse facilities. These amendments mainly served to convert an existing residential whole loan facility into a term facility by removing any mark to market margin requirements, and to consolidate the ~~Company’s~~our Non-Qualified Mortgage loans onto a single facility, which were previously financed by three separate, unaffiliated ~~counterparties, into a single facility.~~counterparties.

The target advance rate under the amended and restated facility is approximately 84% of the aggregate unpaid principal balance of the loans. The original maturity date for the facility ~~matures on~~was October 20, 2021. All principal payments and income generated by the loans during the term of the facility will be used to pay principal and interest on the facility. Upon the securitization or sale by us of any whole loan subject to this amended and restated facility, the counterparty is entitled to receive a recapture premium fee of 30% of all realized value on any whole loans above such counterparty’s amortized basis as well as an exit fee of 0.50% of the loan amount in circumstances where the counterparty ~~is not~~was involved in the disposition of the loans. The financing cost of this facility was reflective of the challenging market conditions, at such time, when we entered into the agreement.

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Initially, the aggregate borrowings under this facility with respect to its Residential Whole Loans was approximately $385.0 million and the market value of such loans was approximately $430.0 million. On June 29, 2020, we securitized approximately $355.8 million of the Residential Whole Loans and paid down the facility by approximately $339.4 million (see "Securitized Debt" below for additional details). As noted above part of the financing arrangements ~~the Company~~we agreed to pay the lender a fee of 30% of all realized value on the Residential Whole Loans above the counterparty's amortized basis upon securitization or sale. As a result of refinancing the Residential Whole Loans through a securitization, ~~the Company~~we accrued a premium recapture fee of approximately $20.5 million, which is payable at the maturity of the facility, and iswas recorded in "Financing fees" in the Consolidated Statements of Operations. ~~Approximately $74.4~~In October 2020, in connection with the amendment to the facility discussed above we paid $12.0 million of the premium recapture fee and the balance of $8.5 million is payable at the maturity of the amended facility, October 5, 2021.

As of September 30, 2020, approximately $72.7 million in non QM loans remain in the facility which are also subject to the recapture premium at sale or securitization and the amount of such liability is contingent on the realizable value at time of sale or securitization.

On October 6, 2020 the Company entered into an amendment with respect to its residential loan warehouse facility. The amendment serves to convert the existing residential loan facility to a limited mark to market margin facility that bears an interest rate of LIBOR plus 2.75%, with a LIBOR floor of 0.25%. The target advance rate under the amended facility is 85% and the facility matures on October 5, 2021. As part of the amendment, the premium recapture fee was eliminated for investments financed under the amended facility.

Non-Agency CMBS and Non-Agency RMBS Facility

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the ratio. The term of this facility is 12 months, subject to 12 month extensions at the counterparty’s option. All interest income generated by the assets during the term of the facility will be paid to the Company no less often than monthly. Interest on the facility is due from the Company at a rate of three-month LIBOR plus 5.00% payable quarterly in arrears. Half of all principal repayments on the underlying assets will be applied to repay the obligations owed to the counterparty, with the remainder paid to the Company, unless the LTV Trigger has occurred, in which case all principal payments will be applied to repay the obligations.

At ~~June~~September 30, 2020, we had outstanding borrowings under six of our repurchase agreements. The following table summarizes our financing activity under our repurchase agreements for the ~~six~~nine months ended ~~June~~September 30, 2020 (dollars in thousands):


		Balance at						Balance at			Balance at						Balance at
Collateral	Collateral	December 31, 2019		Proceeds		Repayments		June 30, 2020		Collateral	December 31, 2019		Proceeds		Repayments		September 30, 2020
Agency CMBS	Agency CMBS	$	1,352,248	$	2,931,690	$	(4,283,938)	$	—	Agency CMBS	$	1,352,248	$	2,931,690	$	(4,283,938)	$	—
Agency RMBS	Agency RMBS	348,274		213,039		(559,822)		1,491		Agency RMBS	348,274		214,477		(561,313)		1,438
Non-Agency CMBS(1)	Non-Agency CMBS(1)	190,390		634,857		(738,096)		87,151		Non-Agency CMBS(1)	190,390		718,121		(825,247)		83,264
Non-Agency RMBS	Non-Agency RMBS	30,481		65,832		(80,798)		15,515		Non-Agency RMBS	30,481		80,574		(96,313)		14,742
Residential Whole Loans⁽¹⁾⁽²⁾	Residential Whole Loans⁽¹⁾⁽²⁾	476,172		2,490,910		(2,927,380)		39,702		Residential Whole Loans⁽¹⁾⁽²⁾	476,172		2,632,792		(3,068,903)		40,061
Residential Bridge Loans⁽¹⁾⁽²⁾	Residential Bridge Loans⁽¹⁾⁽²⁾	29,869		179,637		(188,347)		21,159		Residential Bridge Loans⁽¹⁾⁽²⁾	29,869		263,038		(277,144)		15,763
Commercial loans⁽¹⁾⁽²⁾	Commercial loans⁽¹⁾⁽²⁾	224,594		1,426,502		(1,463,940)		187,156		Commercial loans⁽¹⁾⁽²⁾	224,594		1,943,521		(1,999,718)		168,397
Securitized commercial loans⁽¹⁾⁽²⁾	Securitized commercial loans⁽¹⁾⁽²⁾	116,087		179,649		(295,736)		—		Securitized commercial loans⁽¹⁾⁽²⁾	116,087		179,649		(295,736)		—
Membership interest										Membership interest	—		18,845		—		18,845
Other securities	Other securities	56,762		140,439		(180,214)		16,987		Other securities	56,762		166,497		(206,891)		16,368
Borrowings under repurchase agreements	Borrowings under repurchase agreements	2,824,877		8,262,555		(10,718,271)		369,161		Borrowings under repurchase agreements	2,824,877		9,149,204		(11,615,203)		358,878
Less unamortized debt issuance costs	Less unamortized debt issuance costs	76		—		—		65		Less unamortized debt issuance costs	76		—		—		353
Borrowings under repurchase agreements, net	Borrowings under repurchase agreements, net	$	2,824,801	$	8,262,555	$	(10,718,271)	$	369,096	Borrowings under repurchase agreements, net	$	2,824,801	$	9,149,204	$	(11,615,203)	$	358,525

~~Table of Contents~~(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

~~(1)~~(2)The borrowings and collateral pledged attributed to loans owned through trust certificates. The trust certificates are eliminated upon consolidation.

At ~~June~~September 30, 2020, we had outstanding repurchase agreement borrowings with the following counterparties:


(dollars in thousands) Repurchase Agreement Counterparties	(dollars in thousands) Repurchase Agreement Counterparties	Amount Outstanding		Percent of Total Amount Outstanding		Company Investments Held as Collateral		Counterparty Rating⁽¹⁾	(dollars in thousands) Repurchase Agreement Counterparties	Amount Outstanding		Percent of Total Amount Outstanding		Company Investments Held as Collateral		Counterparty Rating(1)
Credit Suisse AG, Cayman Islands Branch ⁽²⁾	Credit Suisse AG, Cayman Islands Branch ⁽²⁾	$	188,167	50.9	%	$	337,205	A+	Credit Suisse AG, Cayman Islands Branch (2)	$	188,296	52.5	%	$	388,909	A+
Citigroup Global Markets Inc.	Citigroup Global Markets Inc.	108,039		29.3	%	216,705		A+	Citigroup Global Markets Inc.	102,656		28.6	%	211,414		A+
Nomura Securities International, Inc. ⁽³⁾	Nomura Securities International, Inc. ⁽³⁾	59,849		16.2	%	100,243		Unrated ⁽³⁾	Nomura Securities International, Inc. (3)	54,770		15.3	%	92,123		Unrated (3)
Barclays Capital Inc.	Barclays Capital Inc.	9,119		2.5	%	14,230		A	Barclays Capital Inc.	9,119		2.5	%	14,196		A

All other counterparties ⁽⁴⁾	All other counterparties ⁽⁴⁾	3,987		1.1	%	8,832			All other counterparties (4)	4,037		1.1	%	8,815
Total	Total	$	369,161	100.0	%	$	677,215		Total	$	358,878	100.0	%	$	715,457

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(1)The counterparty ratings presented above are the long-term issuer credit ratings as rated at ~~June~~September 30, 2020 by S&P.

(2)Includes master repurchase agreements in which the buyer includes Alpine Securitization LTD., a Credit Suisse sponsored asset-backed commercial paper conduit.

(3) Nomura Holdings, Inc., the parent company of Nomura Securities International, Inc., is rated BBB+ by S&P at ~~June~~September 30, 2020.

(4) Represents amount outstanding with two counterparties, which each holds collateral valued less than 5% of our stockholders’ equity as security for our obligations under the applicable repurchase agreements as of ~~June~~September 30, 2020.

The following table presents our average repurchase agreement borrowings, excluding unamortized debt issuance costs, by type of collateral pledged for the three and ~~six~~nine months ended ~~June~~September 30, 2020 (dollars in thousands):


Collateral	Collateral	Three Months Ended June 30, 2020		Six months ended June 30, 2020		Collateral	Three Months Ended September 30, 2020		Nine months ended September 30, 2020
Agency RMBS	Agency RMBS	$	21,181	$	137,954	Agency RMBS	$	1,473	$	91,960
Agency CMBS	Agency CMBS	100,068		736,198		Agency CMBS	—		488,102
Non-Agency RMBS	Non-Agency RMBS	13,004		14,129		Non-Agency RMBS	15,044		14,438
Non-Agency CMBS(1)	Non-Agency CMBS(1)	125,366		176,658		Non-Agency CMBS(1)	84,785		182,661
Residential Whole Loans	Residential Whole Loans	472,323		493,043		Residential Whole Loans	38,161		339,749
Commercial loans	Commercial loans	177,621		195,860		Commercial loans	170,291		187,259
Securitized commercial loans		6,665		55,752

Residential Bridge Loans	Residential Bridge Loans	26,660		27,488		Residential Bridge Loans	21,644		25,519
Membership interest						Membership interest	410		138
Other securities	Other securities	25,555		40,092		Other securities	16,552		32,159
Total	Total	$	968,443	$	1,877,174	Total	$	348,360	$	1,361,985
Maximum borrowings during the period⁽¹⁾		$	1,006,425	$	3,006,550
Maximum borrowings during the period(2)						Maximum borrowings during the period(2)	$	369,727	$	3,006,550

(1)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(2)Amount represents the maximum borrowings at month-end during each of the respective periods.

Securitized Debt

Commercial Mortgage-Backed Notes

We ~~acquired~~hold a controlling financial variable interest in RETL 2019 Trust and CSMC USA and were required to consolidate the CMBS ~~VIE.~~VIEs. Refer to Note 7 - "Financings" for details.

The following table summarizes the consolidated RETL 2019 Trust's commercial mortgage pass-through certificates at ~~June~~September 30, 2020 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):

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Classes	Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity	Classes	Principal Balance(1)		Coupon		Fair Value		Contractual Maturity
Class A	Class A	$	64,835	1.3	%	$	61,678	3/15/2021	Class A	$	34,022	1.3	%	$	34,024	3/15/2021
Class B	Class B	101,200		1.7	%	91,382		3/15/2021	Class B	101,200		1.7	%	96,085		3/15/2021
Class C	Class C	308,400		2.3	%	271,126		3/15/2021	Class C	308,400		2.3	%	282,831		3/15/2021

Class X-EXT⁽¹⁾⁽²⁾	Class X-EXT⁽¹⁾⁽²⁾	N/A		1.2		31		3/15/2021	Class X-EXT⁽¹⁾⁽²⁾	N/A		1.2	%	31		3/15/2021
		$	474,435			$	424,217			$	443,622			$	412,971

(1) Excluded the principal and fair value of classes owned by us that are eliminated in the Consolidated Balance Sheets.

(2) Class X-EXT is an interest-only class with an initial notional balance of $308.4 million.

The above table does not reflect the class HRR bond held by us because the bond is eliminated in consolidation The HRR Class bonds had a fair value of $41.7 million as of September 30, 2020 and our exposure to loss is limited to our ownership interest in this bond..

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The following table summarizes the consolidated 2014 CSMC USA's commercial mortgage pass-through certificates at September 30, 2020 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):


Classes	Principal Balance		Coupon		Fair Value		Contractual Maturity
Class A-1	124,076		3.3	%	124,648		9/11/2025
Class A-2	531,700		4.0	%	541,905		3/15/2021
Class B	136,400		4.2	%	122,802		9/11/2025
Class C	94,500		4.3	%	80,348		9/11/2025
Class D	153,950		4.4	%	117,058		9/11/2025
Class E	180,150		4.4	%	122,585		9/11/2025
Class F	153,600		4.4	%	96,808		9/11/2025
Class X-1(1)	n/a		0.5	%	14,638		9/11/2025
Class X-2(1)	n/a		0.4	%	2,697		9/11/2025
	$	1,374,376			$	1,223,489

(1) Class X-1 and X-2 are interest-only classes with notional balances of $655.8 million and $733.5 million as of September 30, 2020, respectively.

The above table does not reflect the portion of the class F bond held by us because the bond is eliminated in consolidation. The Company's ownership interest in the F bonds represents a controlling financial interest, which resulted in consolidation of the trust, during the quarter. The bond had a fair market value of $9.4 million at September 30, 2020, and our exposure to loss is limited to our ownership interest in this bond..

Residential Mortgage-Backed Notes

In May 2019, we completed a residential mortgage-backed securitization comprised of a portion of our Residential Whole Loan portfolio. RMI 2015 Trust and RNR Trust collectively transferred $945.5 million of Non-QM Residential Whole Loans, to our wholly owned subsidiary, Arroyo Trust. Arroyo Trust issued $919.0 million of mortgage-backed notes and we retained the subordinate ~~Non-Offered Securities.~~non-offered securities. These non-offered securities with an estimated fair value of $43.7 million at September 30, 2020 were eliminated in the consolidation. At ~~June~~September 30, 2020, Residential Whole Loans, with an outstanding principal balance of approximately ~~$717.7~~$668.7 million, serve as collateral for the Arroyo Trust's securitized debt.

The following table summarizes the consolidated Arroyo Trust's issued mortgage-backed notes at ~~June~~September 30, 2020 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):


Classes	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Issued Mortgage-Backed Notes	Issued Mortgage-Backed Notes							Issued Mortgage-Backed Notes
Class A-1	Class A-1	$	592,742	3.3%	$	592,740	4/25/2049	Class A-1	$	552,779	3.3%	$	552,777	4/25/2049
Class A-2	Class A-2	31,760		3.5%	31,759		4/25/2049	Class A-2	29,619		3.5%	29,618		4/25/2049
Class A-3	Class A-3	50,317		3.8%	50,315		4/25/2049	Class A-3	46,925		3.8%	46,924		4/25/2049
Class M-1	Class M-1	25,055		4.8%	25,055		4/25/2049	Class M-1	25,055		4.8%	25,055		4/25/2049
Subtotal	Subtotal	699,874			$	699,869		Subtotal	654,378			$	654,374
Less: Unamortized deferred financing costs	Less: Unamortized deferred financing costs	N/A			4,851			Less: Unamortized deferred financing costs	N/A			4,625
Total	Total	$	699,874		$	695,018		Total	$	654,378		$	649,749

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2020 were eliminated in the consolidation. At ~~June~~September 30, 2020, Residential Whole Loans, with an outstanding principal balance of approximately ~~$353.2~~$329.7 million, serve as collateral for the Arroyo Trust 2020's securitized debt.

The following table summarizes the consolidated Arroyo Trust 2020's issued mortgage-backed notes at ~~June~~September 30, 2020 which is classified in "Securitized debt, net" in the Consolidated Balance Sheets (dollars in thousands):

~~Table of Contents~~


Classes	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Issued Mortgage-Backed Notes	Issued Mortgage-Backed Notes							Issued Mortgage-Backed Notes
Class A-1A	Class A-1A	$	266,790	1.7%	$	266,843	3/25/2055	Class A-1A	$	246,807	1.7%	$	246,801	3/25/2055
Class A-1B	Class A-1B	31,658		2.1%	31,658		3/25/2055	Class A-1B	29,287		2.1%	29,286		3/25/2055
Class A-2	Class A-2	13,518		2.9%	13,521		3/25/2055	Class A-2	13,518		2.9%	13,517		3/25/2055
Class A-3	Class A-3	17,963		3.3%	17,967		3/25/2055	Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	Class M-1	11,739		4.3%	11,739		3/25/2055	Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	Subtotal	341,668			$	341,728		Subtotal	319,314			$	319,306
Less: Unamortized deferred financing costs	Less: Unamortized deferred financing costs	N/A			2,727			Less: Unamortized deferred financing costs	N/A			2,606
Total	Total	$	341,668		$	339,001		Total	$	319,314		$	316,700

Convertible Senior Unsecured Notes

As of ~~June~~September 30, 2020, we had ~~$205.0~~$200.0 million of 6.75% convertible senior unsecured notes outstanding. The notes mature on October 1, 2022, unless earlier converted, redeemed or repurchased by the holders pursuant to their terms, and are not redeemable by us except during the final three months prior to maturity. On July 1, 2020, we issued an aggregate of 1,354,084 shares of our common stock in exchange for $5.0 million of our 6.75% convertible senior unsecured notes pursuant to separate privately negotiated exchange agreements entered into on July 1, 2020 (collectively, the “Exchange Agreement”) between us and certain holders of the Notes. We ~~will~~did not receive any cash proceeds as a result of the Exchange Agreement, and the notes exchanged pursuant to the Exchange Agreement ~~will be~~were retired and cancelled. See Note 167 – ~~“Subsequent Events.~~“Financings.”

Hedging Activity

In March 2020, we effectively terminated fixed-pay interest rate swaps with a notional value of approximately $3.1 billion and variable-pay interest rate with a notional value of approximately $1.9 billion to reduce hedging costs and associated market volatility. The effect of the termination is reflected in the table below for the ~~six~~nine months ended ~~June~~September 30, 2020 in Settlements, Terminations or Expirations.

The following tables summarize the hedging activity during the ~~six~~nine months ended ~~June~~September 30, 2020 (dollars in thousands):


		Notional Amount at				Settlements, Terminations or Expirations		Notional Amount at			Notional Amount at						Settlements, Terminations or Expirations			Notional Amount at
Derivative Instrument	Derivative Instrument	December 31, 2019		Acquisitions						June 30, 2020		Derivative Instrument	December 31, 2019			Acquisitions			Settlements, Terminations or Expirations			September 30, 2020
Fixed pay interest rate swaps	Fixed pay interest rate swaps	$	2,551,000	$	783,000	$	(3,334,000)	$	—	Fixed pay interest rate swaps	$	2,551,000		$	783,000		$	(3,334,000)		$	—
Variable pay interest rate swaps	Variable pay interest rate swaps	1,405,000		794,800		(2,199,800)		—		Variable pay interest rate swaps	1,405,000			794,800			(2,199,800)			—
Interest rate swaptions	Interest rate swaptions	—		305,000		(305,000)		—		Interest rate swaptions	—			305,000			(305,000)			—

Credit default swaps	Credit default swaps	151,000		164,000		(307,340)		7,660		Credit default swaps	151,000			164,000			(308,830)			6,170
TBA securities - long positions	TBA securities - long positions	1,000,000		5,257,000		(6,257,000)		—		TBA securities - long positions	1,000,000			5,257,000			(6,257,000)			—
TBA securities - short positions	TBA securities - short positions	1,000,000		5,257,000		(6,257,000)		—		TBA securities - short positions	1,000,000			5,257,000			(6,257,000)			—
Total derivative instruments	Total derivative instruments	$	6,107,000	$	12,560,800	$	(18,660,140)	$	7,660	Total derivative instruments	$	6,107,000		$	12,560,800		$	(18,661,630)		$	6,170

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		Fair Value at		Acquisitions		Settlements, Terminations or Expirations		Realized Gains / Losses		Mark-to-market		Fair Value at			Fair Value at		Acquisitions				Settlements, Terminations or Expirations		Realized Gains / Losses				Mark-to-market			Fair Value at
Derivative Instrument	Derivative Instrument	December 31, 2019																	June 30, 2020	Derivative Instrument									Realized Gains / Losses			Mark-to-market	September 30, 2020
Fixed pay interest rate swaps	Fixed pay interest rate swaps	$	3,001	$	(32,894)	$	241,939	$	(209,046)	$	(3,000)	$	—	Fixed pay interest rate swaps	$	3,001	$	(32,894)			$	241,939			$	(209,046)				$	(3,000)
Variable pay interest rate swaps	Variable pay interest rate swaps	(485)		7,608		(36,633)		29,025		485		—		Variable pay interest rate swaps	(485)		7,608				(36,633)		29,025				485			—
Interest rate swaptions	Interest rate swaptions	—		—		(80)		80		—		—		Interest rate swaptions	—		—				(80)		80				—			—

Credit default swaps	Credit default swaps	(2,847)		2,526		11,753		(9,997)		(1,664)		(229)		Credit default swaps	(2,847)		2,526				11,502		(9,843)				(2,023)			(685)
TBA securities	TBA securities	(928)		—		2,430		(2,430)		928		—		TBA securities	(928)		—				2,430		(2,430)				928			—
Total derivative instruments	Total derivative instruments	$	(1,259)	$	(22,760)	$	219,409	$	(192,368)	$	(3,251)	$	(229)	Total derivative instruments	$	(1,259)	$	(22,760)			$	219,158	$	(192,214)			$	(3,610)		$	(685)

As of ~~June~~September 30, 2020, we had no fixed pay rate interest rate swaps or variable pay rate interest rate swaps.

Capital Markets Activity

The following is a summary of activity during 2020:

~~Dividends~~

~~As previously announced, due to the turmoil in the financial markets resulting from the COVID-19 pandemic, we suspended the first and second quarter dividend to preserve liquidity.~~

Stock Repurchase

On December 19, 2019, our Board of Directors reauthorized the repurchase program of up to 2,700,000 shares of our common stock through December 31, 2021. In March 2020, pursuant to the repurchase plan we acquired 100,000 shares with an average price, including commission, of $5.78 per share, totaling approximately $578 thousand.

At-The-Market Program

In March 2017, we entered into an equity distribution agreement with JMP Securities LLC, which was amended on June 5, ~~202,~~2020, under which we may offer and sell up to $100.0 million shares of common stock in an At-The-Market equity offering. During the ~~six~~nine months ended ~~June~~September 30, 2020, we sold 6,034,741 shares under this amended agreement with an average price of $3.70 per share for total net proceeds of $22.0 million.

Convertible Notes Exchange

On July 1, 2020, we issued an aggregate of 1,354,084 shares of our common stock in exchange for $5.0 million aggregate principal amount of our 6.75% Convertible Senior Notes due 2022. See Note 7 - "Financings" for information related to the convertible notes exchange.

Dividends

To preserve liquidity, we suspended our first and second quarter of 2020 common stock dividends in light of extraordinary market volatility driven by uncertainty surrounding the COVID-19 pandemic.

In the third quarter of 2020, we resumed our quarterly dividend after making progress strengthening our balance sheet and improving liquidity and earnings power of our investment portfolio. For the quarter ended September 30, 2020, we declared a $0.05 dividend per share generating a dividend yield of approximately 9.8% based on the stock closing price of $2.04 at September 30, 2020.

Book Value

The following chart reflects our book value per common share basic and diluted over five consecutive quarters:

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The COVID-19 pandemic has created unprecedented market disruption and dislocation, requiring us to sell asset to meet margin calls. We have implemented measures to increase liquidity, reduce leverage, and seek alternative financing arrangements to preserve long-term shareholder value. In the second quarter in order to manage the severe market conditions and the resulting large margin demands from lenders and pressure on our liquidity, we entered into two longer term financing arrangements, a Residential Whole Loan Facility and a Non-Agency CMBS and Non-Agency RMBS Facility, as we sought to reduce our exposure to short-term financings with daily mark to market exposure. See Financing Activity for details.

We had improved financial results during the third quarter, which included significant recovery in asset valuations. The Residential Whole loan facility included a recapture premium fee of 30% of all realized value on any whole loans above such counterparty’s amortized basis upon the securitization or sale. On June 29, 2020, we refinanced $355.8 million of Residential Whole Loans through a securitization and accordingly in June we accrued a premium recapture fee of 20.5 million, which is payable to the counterparty coupon termination or maturity of the facility. The accrual of this feeimproved asset valuations resulted in the ~~decrease~~increase in book value of ~~7.0%~~29.2% to ~~$3.17~~$4.07 at ~~June~~September 30, 2020 when compared to our ~~March 31,~~June 30, 2020 book value of ~~$3.41.~~$3.15.

Results of Operations

Comparison of the three months ended ~~June~~September 30, 2020 to the three months ended ~~June~~September 30, 2019.

General

Our results of operations were adversely impacted by the COVID-19 pandemic, which created unprecedented market disruption and dislocation. During the first quarter of 2020, the uncertainty surrounding the pandemic created an extreme lack of liquidity in mortgage markets and when combined with forced selling led to swift and dramatic price declines. The significant decline in value of our investment portfolio resulted in substantial margin calls from our repurchase agreement counterparties. In order to satisfy the margin calls, we sold a significant portion of our investments. We also terminated our interest rate hedges because they were ineffective in the low interest rate environment and it further reduced margin call volatility. During the third quarter ending September 30, 2020, our portfolio experienced improved valuations and earnings, and we did not have significant asset sales or margin calls during the quarter.

The full impact of COVID-19 on our results of operations is still uncertain as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, (v) the timing and speed of economic recovery,

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including the availability of a treatment or vaccination for COVID-19 and (vi) the negative impact on our borrowers, asset values and cost of capital.

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Due to the significant amount of investment sales, resulting from the market volatility created by the COVID-19 pandemic, our results of operations for the three and nine months ended ~~June~~September 30, 2020 and 2019 are not comparable.

During the ~~second~~third quarter of 2020, we ~~worked toward stabilizing~~continued to make progress towards strengthening our ~~portfolio~~balance sheet, improving liquidity, shareholders equity and ~~our financing sources.~~the earnings power of the portfolio. For the three months ended ~~June~~September 30, 2020, we generated net ~~loss~~income of ~~$15.6~~$59.8 million, or ~~$0.29~~$0.98 per basic and diluted weighted common share. The increase in net ~~loss~~income was mainly attributable to ~~a one-time financing fee described in "Financing Fee"~~improved asset valuations across our portfolio . For the three months ended ~~June~~September 30, ~~2019and~~2019 we generated net income of ~~$10.6~~$19.7 million, or ~~$0.21~~$0.37 per basic and diluted weighted common share.

Net Interest Income

The following tables set forth certain information regarding our net interest income on our investment portfolio for the three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars in thousands):


Three Months Ended June 30, 2020		Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Three Months Ended September 30, 2020								Three Months Ended September 30, 2020	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets

Investments	Investments							Investments
Agency CMBS		$	53,224	$	365	2.76	%

Agency RMBS	Agency RMBS	1,534		61		15.99	%	Agency RMBS	$	136	$	8	23.40	%
Non-Agency CMBS	Non-Agency CMBS	257,635		5,732		8.95	%	Non-Agency CMBS	244,082		5,186		8.45	%
Non-Agency RMBS	Non-Agency RMBS	29,163		215		2.97	%	Non-Agency RMBS	30,355		462		6.05	%
Residential Whole Loans	Residential Whole Loans	1,301,974		13,891		4.29	%	Residential Whole Loans	1,137,905		12,698		4.44	%
Residential Bridge Loans	Residential Bridge Loans	29,006		331		4.59	%	Residential Bridge Loans	24,328		325		5.31	%
Commercial loans	Commercial loans	332,263		5,711		6.91	%	Commercial loans	332,348		5,390		6.45	%
Securitized commercial loans	Securitized commercial loans	543,245		4,484		3.32	%	Securitized commercial loans	1,329,556		19,191		5.74	%
Other securities	Other securities	44,692		704		6.34	%	Other securities	51,475		710		5.49	%
Total investments	Total investments	$	2,592,736	$	31,494	4.89	%	Total investments	$	3,150,185	$	43,970	5.55	%

		Average Carrying Value		Total Interest Expense		Average Cost of Funds⁽¹⁾			Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings	Borrowings							Borrowings
Repurchase agreements	Repurchase agreements	$	968,443	$	7,833	3.25	%	Repurchase agreements	$	348,360	$	3,503	4.00	%
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	198,441		4,144		8.40	%	Convertible senior unsecured notes, net	194,281		4,062		8.32	%
Securitized debt	Securitized debt	1,306,260		10,982		3.38	%	Securitized debt	2,264,800		26,288		4.62	%
Total borrowings	Total borrowings	$	2,473,144	$	22,959	3.73	%	Total borrowings	$	2,807,441	$	33,853	4.80	%

Net interest income and net interest margin⁽²⁾	Net interest income and net interest margin⁽²⁾			$	8,535	1.32	%	Net interest income and net interest margin(2)			$	10,117	1.28	%

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Three Months Ended June 30, 2019		Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets
Three Months Ended September 30, 2019								Three Months Ended September 30, 2019	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets

Investments	Investments							Investments
Agency CMBS	Agency CMBS	$	1,410,093	$	11,834	3.37	%	Agency CMBS	$	1,734,681	$	13,780	3.15	%
Agency RMBS	Agency RMBS	239,104		2,175		3.65	%	Agency RMBS	462,431		3,742		3.21	%
Non-Agency CMBS	Non-Agency CMBS	184,379		4,490		9.77	%	Non-Agency CMBS	241,580		4,744		7.79	%
Non-Agency RMBS	Non-Agency RMBS	48,051		674		5.63	%	Non-Agency RMBS	46,133		556		4.78	%
Residential Whole Loans	Residential Whole Loans	1,234,272		14,881		4.84	%	Residential Whole Loans	1,186,261		13,953		4.67	%
Residential Bridge Loans	Residential Bridge Loans	131,955		2,144		6.52	%	Residential Bridge Loans	83,208		1,362		6.49	%
Commercial Loans	Commercial Loans	302,389		6,160		8.17	%	Commercial Loans	372,802		7,612		8.10	%
Securitized commercial loan	Securitized commercial loan	890,502		10,148		4.57	%	Securitized commercial loan	736,542		8,615		4.64	%
Other securities	Other securities	63,453		1,312		8.29	%	Other securities	73,997		1,288		6.91	%
Total investments	Total investments	$	4,504,198	$	53,818	4.79	%	Total investments	$	4,937,635	$	55,652	4.47	%

		Average Carrying Value		Total Interest Expense		Average Cost of Funds⁽¹⁾			Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings	Borrowings							Borrowings
Repurchase agreements	Repurchase agreements	$	2,810,510	$	23,925	3.41	%	Repurchase agreements	$	2,990,018	$	22,054	2.93	%
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	110,609		2,270		8.23	%	Convertible senior unsecured notes, net	135,951		2,653		7.74	%
Securitized debt	Securitized debt	1,380,415		11,763		3.42	%	Securitized debt	1,505,784		14,375		3.79	%
Total borrowings	Total borrowings	$	4,301,534	$	37,958	3.54	%	Total borrowings	$	4,631,753	$	39,082	3.35	%

Net interest income and net interest margin⁽²⁾	Net interest income and net interest margin⁽²⁾			$	15,860	1.41	%	Net interest income and net interest margin(2)			$	16,570	1.33	%

(1) Average cost of funds does not include the interest expense related to our derivatives. In accordance with GAAP, such costs are included in "Gain (loss) on derivative instruments, net" in the Consolidated Statements of Operations.

(2) Since we do not apply hedge accounting, our net interest margin in this table does not reflect the benefit /cost of our interest rate swaps. See Non-GAAP Financial Measure section for net investment income table that includes the benefit/cost from our interest rate swaps.

~~Interest Income~~

For the three months ended June 30, 2020 and June 30, 2019, we earned interest income on our investments of approximately $31.5 million and $53.8 million, respectively, a decrease of approximately $22.3 million. The decrease was driven by the sales of a significant portion of our investment portfolio to meet margin calls. During the first six months of the year, mainly in March and April 2020, we sold $2.4 billion of investments. The majority of the impact of these sales were reflected in interest income in the second quarter of 2020.

For the three months ended June 30, 2020 the weighted average yield on our portfolio increased to 4.89% for the three months ended June 30, 2020 from 4.79% for the three months ended June 30, 2020. While it is difficult to predict the future impact of COVID-19, our principal and interest payments through June 30, 2020 have not been materially impacted.

~~Interest~~ ~~Expense~~

Interest expense decreased from $38.0 million for the three months ended June 30, 2019 to $23.0 million for the three months ended June 30, 2020. The decrease was a result of reduced leverage associated with the sale of $2.4 billion of investments, mainly in March and April 2020. During the second quarter of 2020, we entered into two new financing facilities to limit our exposure to short-term mark to market financings. Also, we completed a securitization of approximately $355.8 million of our Residential Whole Loans, reducing our recourse leverage by $339.4 million or 46.0%.

~~Other income (loss), net~~

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~~Realized gain (loss) on investments, net~~

Realized gain (loss) on investments represents the net gain (loss) on sales or settlements from our investment portfolio. To further improve liquidity, reduce our repurchase agreement borrowing and satisfy our margin calls during the second quarter of 2020, we sold an additional $624.0 million in investments. These sales generated $7.0 million in net realized losses.

~~The following table presents the realized gains (losses) of our investments for each of the three months ended June 30, 2020 and June 30, 2019 (dollars in thousands):~~

For the three months ended June 30, 2020 For the three months ended June 30, 2019
Proceeds Gross Gains Gross Losses Net Gain (Loss) Proceeds Gross Gains Gross Losses Net Gain (Loss)
Agency CMBS $ 409,117 $ 22,156 $ (32) $ 22,124 $ — $ — $ — $ —
Agency RMBS 9,512 2,132 (468) 1,664 — — — —
Non-Agency CMBS 42,646 — (13,901) (13,901) 6,165 183 (25) 158
Other securities 18,211 — (6,223) (6,223) — — — —
Residential Whole-Loans 144,259 — (10,511) (10,511) — — — —
Loans transferred to REO⁽¹⁾
(70) 28 — 28 — — — —
Disposition of REO 358 — (141) (141) — — — —
Total $ 624,033 $ 24,316 $ (31,276) $ (6,960) $ 6,165 $ 183 $ (25) $ 158

~~(1)Realized gains/losses recognized on the transfer of Residential Bridge Loans to REO. Proceeds represent the fair value less estimated selling costs of the real estate on the date of transfer.~~

~~Unrealized gain (loss), net~~

~~The following table presents the net unrealized gains (losses) we recorded on our investments and securitized debt (dollars in thousands):~~

Three months ended June 30, 2020 Three months ended June 30, 2019
Agency CMBS $ (26,229) $ 55,264
Agency RMBS (1,814) 5,796
Non-Agency CMBS (2,744) 2,990
Non-Agency RMBS 1,206 716
Residential Whole Loans 22,097 9,232
Residential Bridge Loans (484) 286
Commercial loans 3,050 (59)
Securitized commercial loans 12,921 572
Other securities 18,824 416
Securitized debt (10,662) (656)
REO (125) —
Other liabilities — 57
Total $ 16,040 $ 74,614

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~~Gain (loss) on derivatives, net~~

~~In March 2020, we effectively terminated all of our fixed-pay interest rate swaps and our variable-pay interest rate to reduce hedging costs and associated margin volatility.~~

~~The following table presents the components of gain (loss) on derivatives for the three months ended June 30, 2020 and June 30, 2019 (dollars in thousands):~~

Realized Gain (Loss), net
Description Other Settlements / Expirations Variation Margin Settlement Return (Recovery) of Basis Mark-to-Market
Contractual interest income (expense), net⁽¹⁾
Total
Three months ended June 30, 2020
Interest rate swaptions $ 80 $ — $ — $ (181) $ — $ (101)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives (940) — (271) 256 340 (615)
Credit default swaps (8,401) — — 974 — (7,427)
TBAs (3,924) — — 3,924 — —
Total $ (13,185) $ — $ (271) $ 4,973 $ 340 $ (8,143)
Three months ended June 30, 2019
Interest rate swaps $ (588) $ (58,600) $ 1,676 $ (10,832) $ 2,174 $ (66,170)
Interest rate swaptions — — — (176) — (176)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives — — (655) 19 819 183
Options — — — 470 — 470
Futures contracts (5,837) — — — — (5,837)
Total $ (6,425) $ (58,600) $ 1,021 $ (10,519) $ 2,993 $ (71,530)

~~(1)Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.~~

~~Other, net~~

For the three months ended June 30, 2020 and June 30, 2019, "Other, net" was a loss of $45.0 thousand and income of $532 thousand, respectively. The balance is mainly comprised of income on cash balances, miscellaneous net interest income (expense) on cash collateral for our repurchase agreements, and derivatives and miscellaneous fees and expenses on residential mortgage loans.

~~Expenses~~

~~Management Fee~~

We incurred management fee expense of approximately $464 thousand and $1.8 million for the three months ended June 30, 2020 and June 30, 2019, respectively. Pursuant to the terms of the Management Agreement, our Manager is paid a management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. The decrease was mainly attributable to our Manager waiving the management fee for April and May 202 as a result of the impact of COVID-19 and the disruption in the mortgage markets. Future waivers, if any, are at the Manager's discretion.

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~~. Future waivers, if any, are at the Manager's discretion.~~

The management fees, expense reimbursements and the relationship between our Manager and us are discussed further in Note 10, “Related Party Transactions” to the financial statements contained in this Quarterly Report on Form 10-Q.

~~Financing Fee~~

~~In the second quarter in order to manage the severe market conditions and the resulting large margin demands from lenders and pressure on our liquidity, we~~ ~~entered into a longer term financing arrangement for our Residential Whole Loans, as our sort to reduce our exposure to short-term financings with daily mark to market exposure.~~ Under this agreement, we are required to pay the counterparty a 30% premium recapture fee of all realized value on any residential whole loans above such counterparty’s amortized basis upon the securitization or sale.

~~Other Operating Expenses~~

We incurred other operating expenses of approximately $796 thousand and $1.3 million for the three months ended June 30, 2020 and June 30, 2019, respectively. Other operating cost is comprised of derivative transaction costs, custody, and asset management/loan servicing fees for loans acquired serving released. The decrease was primarily a result of a smaller bridge loan portfolio, which were acquired servicing released, thereby decreasing the associated third party asset management/ loan servicing fees by approximately $362 thousand. Also there was a decrease of approximately $95 thousand in transaction costs related to derivatives, trustee fees and acquisitions.

~~General and Administrative Expenses~~

General and administrative expenses for three months ended June 30, 2020 was $3.0 million, an increase of $1.0 million from the three months ended June 30, 2019. The increase was attributable to additional legal fees incurred.

~~Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019.~~

~~General~~

Our results of operations for the six months ended June 30, 2020 were adversely impacted by the COVID-19 pandemic, which created unprecedented market disruption and dislocation. The uncertainty surrounding the pandemic created an extreme lack of liquidity in mortgage markets and when combined with forced selling led to swift and dramatic price declines. The significant decline in value of our investment portfolio resulted in substantial margin calls from our repurchase agreement counterparties. In order to satisfy the margin calls, we sold a significant portion of our investments. We also terminated our interest rate hedges because they were ineffective in the low interest rate environment and it further reduced margin call volatility. The full impact of COVID-19 on our results of operations is still uncertain as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, (v) the timing and speed of economic recovery, including the availability of a treatment or vaccination for COVID-19 and (vi) the negative impact on our borrowers, asset values and cost of capital.

Due to the significant amount of investment sales resulting from the market volatility created by the COVID-19 pandemic, our results of operations for the six months ended June 30, 2020 and June 30, 2019 are not comparable. While in the second quarter of 2020 we stabilized our portfolio and our financing sources, we generated a net loss of $397.5 million, or

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$7.35 per basic and diluted weighted common share for the six months ended June 30, 2020, and generated net income of $38.5 million, or $0.78 per basic and diluted weighted common share, for the six months ended June 30, 2019.

~~Net Interest Income~~

~~The following tables set forth certain information regarding our net interest income on our investment portfolio for the six months ended June 30, 2020 and June 30, 2019 (dollars in thousands):~~

Six months ended June 30, 2020 Average Amortized
Cost of Assets Total Interest Income Yield on Average Assets
Investments
Agency CMBS $ 691,025 $ 10,700 3.11 %
Agency RMBS 117,830 1,975 3.37 %
Non-Agency CMBS 290,531 11,497 7.96 %
Non-Agency RMBS 35,743 725 4.08 %
Residential Whole Loans 1,347,957 30,194 4.50 %
Residential Bridge Loans 31,869 1,217 7.68 %
Commercial loans 344,303 12,387 7.23 %
Securitized commercial loans 706,500 15,600 4.44 %
Other securities 60,909 2,045 6.75 %
Total investments $ 3,626,667 $ 86,340 4.79 %
Average Carrying Value Total Interest Expense
Average Cost of Funds⁽¹⁾
Borrowings
Repurchase agreements $ 1,877,174 $ 26,258 2.81 %
Convertible senior unsecured notes, net 198,098 8,289 8.41 %
Securitized debt 1,342,736 24,517 3.67 %
Total borrowings $ 3,418,008 $ 59,064 3.48 %
Net interest income and net interest margin⁽²⁾
$ 27,276 1.51 %

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Six months ended June 30, 2019 Average Amortized
Cost of Assets Total Interest Income Yield on Average Assets
Investments
Agency CMBS $ 1,375,870 $ 22,767 3.34 %
Agency RMBS 126,247 2,391 3.82 %
Non-Agency CMBS 186,093 8,525 9.24 %
Non-Agency RMBS 48,786 1,404 5.80 %
Residential Whole Loans 1,177,591 28,866 4.94 %
Residential Bridge Loans 166,001 5,800 7.05 %
Commercial loans 291,442 11,780 8.15 %
Securitized commercial loan 911,021 21,708 4.81 %
Other securities 60,157 2,610 8.75 %
Total investments $ 4,343,208 $ 105,851 4.91 %
Average Carrying Value Total Interest Expense
Average Cost of Funds⁽¹⁾
Borrowings
Repurchase agreements $ 2,784,482 $ 48,898 3.54 %
Convertible senior unsecured notes, net 110,444 4,540 8.29 %
Securitized debt 1,130,148 20,920 3.73 %
Total borrowings $ 4,025,074 $ 74,358 3.73 %
Net interest income and net interest margin⁽²⁾
$ 31,493 1.46 %

Interest Income

For the ~~six~~three months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, we earned interest income on our investments of approximately ~~$86.3~~$44.0 million and ~~$105.9~~$55.7 million, respectively, a decrease of approximately ~~$19.5~~$11.7 million. The decrease was driven by the sales of a significant portion of our investment portfolio to meet margin calls. During the first six months of the year, mainly in March and April 2020, we sold $2.4 billion of investments. The ~~majority of the~~full impact of these sales were reflected in interest income in the ~~second~~third quarter of 2020.

For the three months ended September 30, 2020 the weighted average yield on our portfolio increased to 5.55% for the three months ended September 30, 2020 from 4.47% for the three months ended September 30, 2020. While it is difficult to predict the future impact of COVID-19, our principal and interest payments through ~~June~~September 30, 2020 have not been materially impacted.

Interest Expense

Interest expense decreased from ~~$74.4~~$39.1 million for the ~~six~~three months ended ~~June~~September 30, 2019 to ~~$59.1~~$33.9 million for the ~~six~~three months ended ~~June~~September 30, 2020. The decrease was a result of reduced leverage associated with the sale of $2.4 billion of investments, mainly in March and April 2020. During the second quarter of 2020, we entered into two new financing facilities to limit our exposure to short-term mark to market financings. Also, we completed a securitization of approximately $355.8 million of our Residential Whole Loans, reducing our recourse leverage by $339.4 million or 46.0%.

Other income (loss), net

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Realized gain (loss) on investments, net

Realized gain (loss) on investments represents the net gain (loss) on sales or settlements from our investment portfolio. Our portfolio experienced improved valuations and we did not have significant asset sales during the third quarter.

The following table presents the realized gains (losses) of our investments for each of the three months ended September 30, 2020 and September 30, 2019 (dollars in thousands):


	For the three months ended September 30, 2020								For the three months ended September 30, 2019
	Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Agency CMBS	$	—	$	—	$	—	$	—	$	356,967	$	20,268	$	—	$	20,268
Agency RMBS	—		—		—		—		205,310		1,560		—		1,560
Non-Agency CMBS	—		—		—		—		24,288		134		(210)		(76)
Non-Agency RMBS	(44)		—		(44)		(44)		—		—		—		—


Residential Bridge Loans(1)	—		—		(225)		(225)		—		107		(474)		(367)
Loans transferred to REO(1)	—		—		—		—		3,536		399		(352)		47
Disposition of REO	786		—		(271)		(271)		219		—		(33)		(33)
Total	$	742	$	—	$	(540)	$	(540)	$	590,320	$	22,468	$	(1,069)	$	21,399

(1)Realized gains/losses recognized on the transfer of Residential Bridge Loans to REO. Proceeds represent the fair value less estimated selling costs of the real estate on the date of transfer.

Unrealized gain (loss), net

The following table presents the net unrealized gains (losses) we recorded on our investments and securitized debt (dollars in thousands):


	Three months ended September 30, 2020		Three months ended September 30, 2019
Agency CMBS	$	—	$	25,603
Agency RMBS	(9)		1,772
Non-Agency CMBS	5,873		3,405
Non-Agency RMBS	(856)		971
Residential Whole Loans	48,307		2,141
Residential Bridge Loans	410		569
Commercial loans	2,194		135
Securitized commercial loans	4,567		(845)
Other securities	1,602		534
Securitized debt	(7,523)		745
REO	125		—

Total	$	54,690	$	35,030

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Gain (loss) on derivatives, net

In March 2020, we effectively terminated all of our fixed-pay interest rate swaps and our variable-pay interest rate to reduce hedging costs and associated margin volatility.

The following table presents the components of gain (loss) on derivatives for the three months ended September 30, 2020 and September 30, 2019 (dollars in thousands):


	Realized Gain (Loss), net
Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Three months ended September 30, 2020


Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	$	—	$	—	$	(166)	$	71	$	200	$	105





Credit default swaps	166		—		—		(359)		—		(193)

Total	$	166	$	—	$	(166)	$	(288)	$	200	$	(88)

Three months ended September 30, 2019
Interest rate swaps	$	(123)	$	(56,121)	$	1,655	$	3,289	$	60	$	(51,240)
Interest rate swaptions	(332)		—		—		176		—		(156)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(590)		(420)		723		(287)
Options	1,378		—		—		(470)		—		908
Futures contracts	3,620		—		—		(710)		—		2,910


Credit default swaps	175		—		—		634		—		809

Total	$	4,718	$	(56,121)	$	1,065	$	2,499	$	783	$	(47,056)

(1)Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.

Other, net

For the three months ended September 30, 2020 and September 30, 2019, "Other, net" was a loss of $31 thousand and income of $918 thousand, respectively. The balance is mainly comprised of income on cash balances, miscellaneous net interest income (expense) on cash collateral for our repurchase agreements, and derivatives and miscellaneous fees and expenses on residential mortgage loans.

Expenses

Management Fee

We incurred management fee expense of approximately $1.5 million and $1.8 million for the three months ended September 30, 2020 and September 30, 2019, respectively. Pursuant to the terms of the Management Agreement, our Manager is paid a management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. The decrease was mainly attributable to a decline in stockholders' equity, as defined in the agreement, as a result of losses recognized in connection with the asset sales and interest rate swap terminations in March and April 2020.

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Other Operating Expenses

We incurred other operating expenses of approximately $1.2 million and $1.6 million for the three months ended September 30, 2020 and September 30, 2019, respectively. Other operating cost is comprised of derivative transaction costs, custody, and asset management/loan servicing fees for loans acquired serving released. The decrease was primarily a result of a a reduction in acquisition transaction costs due to no acquisitions in the quarter ended September 30, 2020 , a smaller bridge loan portfolio, which were acquired servicing released, thereby decreasing the associated third party asset management/ loan servicing fees by approximately $362 thousand. Also there was a decrease of approximately $95 thousand in transaction costs related to derivatives, trustee fees and acquisitions.

General and Administrative Expenses

General and administrative expenses for three months ended September 30, 2020 was $2.7 million, an increase of $693 thousand from the three months ended September 30, 2019. The increase was mainly attributable to an increase in the cost of our D&O insurance.

Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019.

General

Our results of operations for the nine months ended September 30, 2020 were adversely impacted by the COVID-19 pandemic, which created unprecedented market disruption and dislocation. The uncertainty surrounding the pandemic created an extreme lack of liquidity in mortgage markets and when combined with forced selling led to swift and dramatic price declines. The significant decline in value of our investment portfolio resulted in substantial margin calls from our repurchase agreement counterparties. In order to satisfy the margin calls, we sold a significant portion of our investments. We also terminated our interest rate hedges because they were ineffective in the low interest rate environment and it further reduced margin call volatility. The full impact of COVID-19 on our results of operations is still uncertain as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on the U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, (v) the timing and speed of economic recovery, including the availability of a treatment or vaccination for COVID-19 and (vi) the negative impact on our borrowers, asset values and cost of capital.

Due to the significant amount of investment sales resulting from the market volatility created by the COVID-19 pandemic, our results of operations for the nine months ended September 30, 2020 and September 30, 2019 are not comparable. Although, we continued to make progress towards strengthening our balance sheet, improving liquidity, shareholders equity and the earnings power of the portfolio, we generated a net loss of $339.1 million, or $6.02 per basic and diluted weighted common share for the nine months ended September 30, 2020. We generated net income of $58.2 million, or $1.15 per basic and diluted weighted common share, for the nine months ended September 30, 2019.

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Net Interest Income

The following tables set forth certain information regarding our net interest income on our investment portfolio for the nine months ended September 30, 2020 and September 30, 2019 (dollars in thousands):


Nine months ended September 30, 2020	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets

Investments
Agency CMBS	$	458,152	$	10,700	3.12	%
Agency RMBS	78,167		1,983		3.39	%
Non-Agency CMBS	274,878		16,683		8.11	%
Non-Agency RMBS	33,928		1,187		4.67	%
Residential Whole Loans	1,277,263		42,892		4.49	%
Residential Bridge Loans	29,311		1,542		7.03	%
Commercial loans	340,184		17,777		6.98	%
Securitized commercial loans	846,243		34,791		5.49	%
Other securities	57,730		2,755		6.37	%
Total investments	$	3,395,856	$	130,310	5.13	%

	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	1,361,985	$	31,220	3.06	%
Convertible senior unsecured notes, net	196,826		12,351		8.38	%
Securitized debt	1,650,091		50,805		4.11	%
Total borrowings	$	3,208,902	$	94,376	3.93	%

Net interest income and net interest margin(2)			$	35,934	1.41	%

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Nine months ended September 30, 2019	Average Amortized Cost of Assets		Total Interest Income		Yield on Average Assets

Investments
Agency CMBS	$	1,495,011	$	36,547	3.27	%
Agency RMBS	239,969		6,133		3.42	%
Non-Agency CMBS	204,068		13,269		8.69	%
Non-Agency RMBS	48,292		1,960		5.43	%
Residential Whole Loans	1,176,978		42,819		4.86	%
Residential Bridge Loans	138,100		7,162		6.93	%
Commercial loans	318,673		19,392		8.14	%
Securitized commercial loan	852,621		30,323		4.75	%
Other securities	65,950		3,898		7.90	%
Total investments	$	4,539,662	$	161,503	4.76	%

	Average Carrying Value		Total Interest Expense		Average Cost of Funds(1)
Borrowings
Repurchase agreements	$	2,853,746	$	70,952	3.32	%
Convertible senior unsecured notes, net	118,946		7,193		8.09	%
Securitized debt	1,255,360		35,295		3.76	%
Total borrowings	$	4,228,052	$	113,440	3.59	%

Net interest income and net interest margin(2)			$	48,063	1.42	%

Interest Income

For the nine months ended September 30, 2020 and September 30, 2019, we earned interest income on our investments of approximately $130.3 million and $161.5 million, respectively, a decrease of approximately $31.2 million. The decrease was driven by the sales of a significant portion of our investment portfolio to meet margin calls. We sold $2.4 billion of investments, mainly in March and April 2020. The majority of the impact of these sales were reflected in interest income in the second and third quarter of 2020. Our portfolio experienced improved valuations and we did not have significant asset sales during the third quarter. While it is difficult to predict the future impact of COVID-19, our principal and interest payments through September 30, 2020 have not been materially impacted.

Interest Expense

Interest expense decreased from $113.4 million for the nine months ended September 30, 2019 to $94.4 million for the nine months ended September 30, 2020. The decrease was a result of the significant reduction in leverage associated with the sale of $2.4 billion of investments, mainly in March and April 2020. During the second quarter of 2020, we entered into two new financing facilities to limit our exposure to short-term mark to market financings. Also, we completed a securitization of approximately $355.8 million of our Residential Whole Loans, reducing our recourse leverage by $339.4 million or 46.0%.

Other income (loss), net

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Realized gain (loss) on investments, net

Realized gain (loss) on investments represents the net gain (loss) on sales or settlements from our investment portfolio. To improve liquidity, reduce our repurchase agreement borrowing and satisfy our margin calls, ~~for the six months ended June 30, 2020,~~ we sold $2.4 billion in ~~investments.~~investments mainly in March and April 2020. These sales generated ~~$82.2~~$81.7 million in realized gains. Our portfolio experienced improved valuations and we did not have significant asset sales during the third quarter.

The following table presents the realized gains (losses) of our investments for each of the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars in thousands):


		For the six months ended June 30, 2020														For the six months ended June 30, 2019															For the nine months ended September 30, 2020				For the nine months ended September 30, 2019
		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)			Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)		Proceeds		Gross Gains		Gross Losses		Net Gain (Loss)
Agency CMBS	Agency CMBS	$	1,668,149	$	116,463	$	(6,486)	$	109,977	$	206,710	$	—	$	(4,189)	$	(4,189)	Agency CMBS	$	1,668,149	$	116,463	$	(6,486)	$	109,977	$	563,677	$	20,268	$	(4,189)	$	16,079
Agency RMBS	Agency RMBS	400,948		12,552		(506)		12,046		—		—		—		—		Agency RMBS	400,948		12,552		(506)		12,046		205,310		1,560		—		1,560
Non-Agency CMBS	Non-Agency CMBS	94,586		1		(22,703)		(22,702)		15,165		183		(854)		(671)		Non-Agency CMBS	94,586		1		(22,703)		(22,702)		39,453		317		(1,064)		(747)
Non-Agency RMBS	Non-Agency RMBS	12,702		—		(16)		(16)		—		—		—		—		Non-Agency RMBS	12,658		—		(60)		(60)		—		—		—		—
Other securities	Other securities	35,957		113		(6,223)		(6,110)		—		—		—		—		Other securities	35,957		113		(6,223)		(6,110)		—		—		—		—
Residential Whole-Loans	Residential Whole-Loans	144,259		—		(10,511)		(10,511)		—		—		—		—		Residential Whole-Loans	144,259		—		(10,511)		(10,511)		—		—		—		—
Residential Bridge Loans⁽¹⁾	Residential Bridge Loans⁽¹⁾	—		8		(151)		(143)		—		—		—		—		Residential Bridge Loans(1)	—		8		(376)		(368)		—		142		(762)		(620)
Loan transferred to REO⁽²⁾	Loan transferred to REO⁽²⁾	419		126		(32)		94		—		—		—		—		Loan transferred to REO(2)	419		126		(32)		94		3,536		399		(352)		47
Disposition of REO	Disposition of REO	977		18		(427)		(409)		—		—		—		—		Disposition of REO	1,763		18		(698)		(680)		219		—		(33)		(33)
Total	Total	$	2,357,997	$	129,281	$	(47,055)	$	82,226	$	221,875	$	183	$	(5,043)	$	(4,860)	Total	$	2,358,739	$	129,281	$	(47,595)	$	81,686	$	812,195	$	22,686	$	(6,400)	$	16,286

(1)Realized gains/losses recognized on the final settlement of the loans.

(2)Realized gains/losses recognized on the transfer of Residential Bridge Loans to REO. Proceeds represent the fair value less estimated selling costs of the real estate on the date of transfer.

Unrealized gain (loss), net

Our investments, and securitized debt, for which we have elected the fair value option are recorded at fair value with the periodic changes in fair value being recorded in earnings. The change in unrealized gain (loss) is directly attributable to changes in market pricing on the underlying investments and securitized debt during the period. The extreme lack of liquidity in mortgage markets combined with forced selling led to swift and dramatic price declines in the first quarter of 2020. While we have seen ~~some~~ price recovery of ~~certain~~ investments in the second ~~quarter,~~and third quarters, the recovery was not sufficient to significantly reduce the substantial unrealized loss from the dramatic price declines in the first quarter of 2020.

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The following table presents the net unrealized gains (losses) we recorded on our investments and securitized debt (dollars in thousands):


		Six months ended June 30, 2020		Six months ended June 30, 2019			Nine months ended September 30, 2020		Nine months ended September 30, 2019
Agency CMBS	Agency CMBS	$	(61,034)	$	104,067	Agency CMBS	$	(61,034)	$	129,670
Agency RMBS	Agency RMBS	(9,129)		6,151		Agency RMBS	(9,138)		7,923
Non-Agency CMBS	Non-Agency CMBS	(58,053)		(436)		Non-Agency CMBS	(52,180)		2,969
Non-Agency RMBS	Non-Agency RMBS	(4,634)		(477)		Non-Agency RMBS	(5,490)		494
Residential Whole Loans	Residential Whole Loans	(73,875)		15,119		Residential Whole Loans	(25,568)		17,260
Residential Bridge Loans	Residential Bridge Loans	(699)		(386)		Residential Bridge Loans	(289)		183
Commercial loans	Commercial loans	(9,412)		164		Commercial loans	(7,218)		299
Securitized commercial loans	Securitized commercial loans	(114,250)		1,921		Securitized commercial loans	(109,683)		1,076
Other securities	Other securities	(17,210)		1,098		Other securities	(15,608)		1,632
Securitized debt	Securitized debt	68,350		(2,051)		Securitized debt	60,827		(1,306)
REO		(125)		—

Other liabilities	Other liabilities	—		225		Other liabilities	—		225
Total	Total	$	(280,071)	$	125,395	Total	$	(225,381)	$	160,425

Gain (loss) on derivatives, net

In March 2020, we effectively terminated all of our fixed-pay interest rate swaps and variable-pay interest rate swaps to reduce hedging costs and associated margin volatility. The effects of the termination is reflected in the table below for the ~~six~~nine months ended ~~June~~September 30, 2020 in Realized Gain (Loss), net.

The following table presents the components of gain (loss) on derivatives for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars in thousands):

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		Realized Gain (Loss), net															Realized Gain (Loss), net
Description	Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net⁽¹⁾		Total		Description	Other Settlements / Expirations		Variation Margin Settlement		Return (Recovery) of Basis		Mark-to-Market		Contractual interest income (expense), net(1)		Total
Six months ended June 30, 2020
Nine months ended September 30, 2020														Nine months ended September 30, 2020
Interest rate swaps	Interest rate swaps	$	(262)	$	(179,759)	$	262	$	(2,515)	$	(1,395)	$	(183,669)	Interest rate swaps	$	(262)	$	(179,759)	$	262	$	(2,515)	$	(1,395)	$	(183,669)
Interest rate swaptions	Interest rate swaptions	80		—		—		—		—		80		Interest rate swaptions	80		—		—		—		—		80
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	(940)		—		(816)		(583)		976		(1,363)		Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	(940)		—		(982)		(512)		1,176		(1,258)

Credit default swaps	Credit default swaps	(9,716)		—		—		(1,664)		—		(11,380)		Credit default swaps	(9,550)		—		—		(2,023)		—		(11,573)
TBAs	TBAs	(2,430)		—		—		928		—		(1,502)		TBAs	(2,430)		—		—		928		—		(1,502)
Total	Total	$	(13,268)	$	(179,759)	$	(554)	$	(3,834)	$	(419)	$	(197,834)	Total	$	(13,102)	$	(179,759)	$	(720)	$	(4,122)	$	(219)	$	(197,922)

Six months ended June 30, 2019
Nine months ended September 30, 2019														Nine months ended September 30, 2019
Interest rate swaps	Interest rate swaps	$	(591)	$	(96,438)	$	3,204	$	(3,742)	$	4,929	$	(92,638)	Interest rate swaps	$	(714)	$	(152,559)	$	4,859	$	(453)	$	4,989	$	(143,878)
Interest rate swaptions	Interest rate swaptions	—		—		—		(176)		—		(176)		Interest rate swaptions	(332)		—		—		—		—		(332)
Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(1,250)		(40)		1,603		313		Agency and Non-Agency Interest-Only Strips— accounted for as derivatives	—		—		(1,840)		(460)		2,326		26
Options	Options	—		—		—		470		—		470		Options	1,378		—		—		—		—		1,378
Futures contracts	Futures contracts	(10,340)		—		—		4,657		—		(5,683)		Futures contracts	(6,720)		—		—		3,947		—		(2,773)

Credit default swaps	Credit default swaps	(589)		—		—		(375)		—		(964)		Credit default swaps	(414)		—		—		259		—		(155)

Total	Total	$	(11,520)	$	(96,438)	$	1,954	$	794	$	6,532	$	(98,678)	Total	$	(6,802)	$	(152,559)	$	3,019	$	3,293	$	7,315	$	(145,734)

(1)Contractual interest income (expense), net on derivative instruments includes interest settlement paid or received.

Other, net

For the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, "Other, net" was income of ~~$416~~$385 thousand and ~~$768 thousand,~~$1.7 million, respectively. The balance is mainly comprised of income on cash balances, miscellaneous net interest income (expense) on cash collateral for our repurchase agreements and derivatives and miscellaneous fees collected on residential mortgage loans.

Expenses

Management Fee

We incurred management fee expense of approximately ~~$1.5~~$3.0 million and ~~$3.6~~$5.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. Pursuant to the terms of the Management Agreement, our Manager is paid a management fee equal to 1.5% per annum of our stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. The decrease was mainly attributable to our Manager waiving the management fee from March 2020 to May 2020 as a result of the impact of COVID-19 and the disruption in the mortgage markets. Future waivers, if any, are at the Manager's discretion. In addition, asset sales mainly in March and April 2020 resulted in losses that reduced stockholders' equity that is used to calculate the management fee.

Financing Fee

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In the second quarter in order to manage the severe market conditions and the resulting large margin demands from lenders and pressure on our liquidity, we entered into a longer term financing arrangement for our Residential Whole Loans, as our sort to reduce our exposure to short-term financings with daily mark to market exposure. Under this agreement, we are required to pay the counterparty a 30% premium recapture fee of all realized value on any residential whole loans above such counterparty’s amortized basis upon the securitization or sale.

On June 29, 2020, we securitized approximately $355.8 million of the Residential Whole Loans and paid down the facility by approximately $339.4 million (see "Securitized Debt" below for additional details). As noted above, as part of the financing arrangements, we agreed to pay the lender a fee of 30% of all realized value on the Residential Whole Loans above the counterparty's amortized basis upon securitization or sale. As a result of refinancing the Residential Whole Loans through a securitization, we accrued a premium recapture fee of approximately $20.5 million, which is payable at the maturity of the facility. However, in connection with an amendment to this facility effective October 6, 2020, we paid $12 million of the fee with the balance of $8.5 million due on the new maturity if the facility on October 5, 2021. The amendment also eliminated the the premium recapture fee for assets financed under the amended facility.

Other Operating Expenses

We incurred other operating expenses of approximately ~~$1.8~~$3.0 million and ~~$2.9~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. Other operating cost is comprised of derivative transaction costs, custody, and asset management/loan servicing fees for loans acquired serving released. The decrease was primarily a result of a smaller bridge loan portfolio, which were acquired servicing released, thereby decreasing the associated third party asset management/loan servicing fees by approximately ~~$949 thousand.~~

$1.0 million. In addition we incurred lower acquisition transaction costs, due to no acquisitions in the second and third quarters and lower derivative derivative commissions and fees due to no new derivative transactions since we terminated our interest rate swaps in March 2020.

General and Administrative Expenses

General and administrative expenses for ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$5.5~~$8.2 million, an increase of ~~$1.6~~$2.3 million from ~~$3.9~~$5.9 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The increase was attributable to an increase in D&O insurance and legal fees incurred.

Non-GAAP Financial Measures

We believe that our non-GAAP measures (described below), when considered with GAAP, provide supplemental information useful to investors in evaluating the results of our operations. Our presentations of such non-GAAP measures may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, such non-GAAP measures should not be considered as substitutes for our GAAP net income, as measures of our financial performance or any measure of our liquidity under GAAP.

Core Earnings

Core Earnings is a non-GAAP financial measure that is used by us to approximate cash yield or income associated with our portfolio and is defined as GAAP net income (loss) as adjusted, excluding: (i) net realized gain (loss) on investments and termination of derivative contracts; (ii) net unrealized gain (loss) on investments and debt; (iii) net unrealized gain (loss) resulting from mark-to-market adjustments on derivative contracts; (iv) other than temporary impairment; (v) provision for income taxes; (vi) non-cash stock-based compensation expense; (vii) non-cash amortization of the convertible senior unsecured notes discount; (viii) one-time charges such as acquisition costs and impairment on loans; and (ix) one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between us, our Manager and our independent directors and after approval by a majority of our independent directors.

We utilize Core Earnings as a key metric to evaluate the effective yield of the portfolio. Core Earnings allows us to reflect the net investment income of our portfolio as adjusted to reflect the net interest rate swap interest expense. Core Earnings allows us to isolate the interest expense associated with our interest rate swaps in order to monitor and project our borrowing costs and interest rate spread.

~~During the first six months~~

Table of ~~the year, mainly in~~Contents

In March and April 2020, we sold $2.4 billion of investments. The majority of the impact of these sales were reflected in net income in the second ~~quarter~~and third quarters of 2020. Due to the significant amount of investment sales, resulting from the market volatility created by the COVID-19 pandemic, our core earnings for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 are not comparable.

~~Table of Contents~~

The table below reconciles Net Income to Core Earnings for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019:


(dollars in thousands)	(dollars in thousands)	Three months ended June 30, 2020		Three months ended June 30, 2019		Six months ended June 30, 2020		Six months ended June 30, 2019		(dollars in thousands)	Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
Net income (loss) attributable to common stockholders and participating securities	Net income (loss) attributable to common stockholders and participating securities	$	(15,635)	$	10,614	$	(397,492)	$	38,490	Net income (loss) attributable to common stockholders and participating securities	$	59,807	$	19,720	$	(339,144)	$	58,210
Income tax (benefit) provision	Income tax (benefit) provision	255		478		162		490		Income tax (benefit) provision	205		(55)		367		435
Net income (loss) before income taxes	Net income (loss) before income taxes	(15,380)		11,092		(397,330)		38,980		Net income (loss) before income taxes	60,012		19,665		(338,777)		58,645

Adjustments:	Adjustments:									Adjustments:
Investments:	Investments:									Investments:
Unrealized (gain) loss on investments, securitized debt and other liabilities	Unrealized (gain) loss on investments, securitized debt and other liabilities	(16,040)		(74,614)		280,071		(125,395)		Unrealized (gain) loss on investments, securitized debt and other liabilities	(54,690)		(35,030)		225,381		(160,425)
Other than temporary impairment	Other than temporary impairment	—		3,295		—		4,527		Other than temporary impairment	—		1,819		—		6,346
Realized (gain) loss on sale of investments	Realized (gain) loss on sale of investments	6,960		8		(82,226)		5,113		Realized (gain) loss on sale of investments	(718)		(21,399)		(82,944)		(16,286)

One-time transaction costs	One-time transaction costs	20,652		130		20,932		399		One-time transaction costs	57		531		20,989		930

Derivative Instruments:	Derivative Instruments:									Derivative Instruments:
Net realized (gain) loss on derivatives	Net realized (gain) loss on derivatives	13,152		65,025		193,308		107,910		Net realized (gain) loss on derivatives	(154)		51,577		193,154		159,487
Net unrealized (gain) loss on derivatives	Net unrealized (gain) loss on derivatives	(4,973)		10,519		3,834		(794)		Net unrealized (gain) loss on derivatives	288		(2,499)		4,122		(3,293)

Amortization of discount on convertible senior unsecured notes	Amortization of discount on convertible senior unsecured notes	273		138		546		275		Amortization of discount on convertible senior unsecured notes	284		186		830		461
Other non-cash adjustments	Other non-cash adjustments	988		—		988		—		Other non-cash adjustments	1,130		—		2,118		—
Non-cash stock-based compensation expense	Non-cash stock-based compensation expense	170		165		335		235		Non-cash stock-based compensation expense	182		164		517		399
Total adjustments	Total adjustments	21,182		4,666		417,788		(7,730)		Total adjustments	(53,621)		(4,651)		364,167		(12,381)
Core Earnings	Core Earnings	$	5,802	$	15,758	$	20,458	$	31,250	Core Earnings	$	6,391	$	15,014	$	25,390	$	46,264

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Alternatively, our Core Earnings can also be derived as presented in the table below by starting with Adjusted net interest income, which includes interest income on Interest-Only Strips accounted for as derivatives and other derivatives, and net interest expense incurred on interest rate swaps and foreign currency swaps and forwards (a Non-GAAP financial measure) subtracting Total expenses, adding Non-cash stock based compensation, adding one-time transaction costs, adding amortization of discount on convertible senior notes and adding interest income on cash balances and other income (loss), net:


(dollars in thousands)	(dollars in thousands)	Three months ended June 30, 2020		Three months ended June 30, 2019		Six months ended June 30, 2020		Six months ended June 30, 2019		(dollars in thousands)	Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
Net interest income	Net interest income	$	8,535	$	15,859	$	27,276	$	31,492	Net interest income	$	10,117	$	16,570	$	35,934	$	48,063
Interest income from IOs and IIOs accounted for as derivatives	Interest income from IOs and IIOs accounted for as derivatives	69		165		160		353		Interest income from IOs and IIOs accounted for as derivatives	34		133		194		486
Net interest (expense) income from interest rate swaps	Net interest (expense) income from interest rate swaps	—		3,850		(1,133)		8,134		Net interest (expense) income from interest rate swaps	—		1,715		(1,133)		9,848
Adjusted net interest income	Adjusted net interest income	8,604		19,874		26,303		39,979		Adjusted net interest income	10,151		18,418		34,995		58,397
Total expenses	Total expenses	(24,805)		(5,081)		(29,339)		(10,358)		Total expenses	(5,392)		(5,377)		(34,731)		(15,735)
Other non-cash adjustments	Other non-cash adjustments	988		—		988		—		Other non-cash adjustments	1,130		—		2,118		—
Non-cash stock-based compensation	Non-cash stock-based compensation	170		165		335		235		Non-cash stock-based compensation	182		164		517		399
One-time transaction costs	One-time transaction costs	20,652		130		20,932		399		One-time transaction costs	57		531		20,989		930
Amortization of discount on convertible unsecured senior notes	Amortization of discount on convertible unsecured senior notes	273		138		546		275		Amortization of discount on convertible unsecured senior notes	284		186		830		461
Interest income on cash balances and other income (loss), net	Interest income on cash balances and other income (loss), net	(78)		532		697		720		Interest income on cash balances and other income (loss), net	(19)		1,092		678		1,812
Income attributable to non-controlling interest	Income attributable to non-controlling interest	(2)		—		(4)		—		Income attributable to non-controlling interest	(2)		—		(6)		—
Core Earnings	Core Earnings	$	5,802	$	15,758	$	20,458	$	31,250	Core Earnings	$	6,391	$	15,014	$	25,390	$	46,264

Revision of Core Earnings for the three and six months ended June 30, 2020

As discussed further in Note 2 - "Basis of Presentation and Summary of Significant Accounting Policies", we have elected to revise our presentation of Core Earnings for the three and six months ended June 30, 2020 in this quarterly financial statements on Form 10-Q to correct this errors.

The following tables reflect the effect of these error on individual line items of the reconciliation of Net Income (Loss) to Core Earnings:


	For the three months ended June 30, 2020
Dollars in thousands	As Originally Reported	Adjustments	Revised	Change %
Core Earnings (effect on individual line items)
Net income (loss) attributable to common shareholders and participating securities	(15,635)	(1,459)	(17,094)	9.3	%
Net income (loss) before income taxes	(15,380)	(1,459)	(16,839)	9.5	%
Core Earnings	5,802	(1,459)	4,343	(25.1)	%

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	For the six months ended June 30, 2020
Dollars in thousands	As Originally Reported	Adjustments	Revised	Change %
Core Earnings (effect on individual line items)
Net income (loss) attributable to common shareholders and participating securities	(397,492)	(1,459)	(398,951)	0.4	%
Net income (loss) before income taxes	(397,330)	(1,459)	(398,789)	0.4	%
Core Earnings	20,458	(1,459)	18,999	(7.1)	%

Reconciliation of GAAP Book Value to Non-GAAP Economic Book Value

"Economic book value" is a non-GAAP financial measure of our financial position on an unconsolidated basis. The Company owns certain securities that represent a controlling variable interest, which under GAAP requires consolidation; however, the Company's economic exposure to these variable interests is limited to the fair value of the individual investments. Economic book value is calculated by taking the GAAP book value and 1) adding the fair value of the retained interest or acquired security of the VIEs held by the Company and 2) removing the asset and liabilities associated with each of consolidated trusts (RETL 2019, CSMC USA, Arroyo 2019-2 and Arroyo 2020-1). Management considers that Economic book value provides investors with a useful supplemental measure to evaluate our financial position as it reflects the actual financial interest of these investments irrespective of the variable interest consolidation model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for Stockholders' Equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The table below is a reconciliation of the GAAP Book Value to Non-GAAP Economic Book Value:

$ Amount Per Share
GAAP Book Value at June 30, 2020 $ 188,712 $ 3.17
Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets (1,555,962) (26.17)
Deconsolidation VIEs liabilities 1,486,107 25.00
Interest in securities of VIEs owned, at fair value 121,315 2.04
Economic Book Value at June 30, 2020 $ 240,172 $ 4.04

~~Table of Contents~~


	$ Amount		Per Share



















GAAP Book Value at September 30, 2020	$	247,789	$	4.07

Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets	(2,827,360)		(46.48)
Deconsolidation of VIEs liabilities	2,705,246		44.48
Interest in securities of VIEs owned, at fair value	124,309		2.04
Economic Book Value at September 30, 2020	$	249,984	$	4.11

Net Interest Income and Net Interest Margin

The following tables set forth certain information regarding our net investment income for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 (dollars in thousands):

Three Months Ended June 30, 2020
Average Amortized
Cost of Assets⁽¹⁾
Total Interest Income⁽²⁾
Yield on Average Assets
Investments
Agency CMBS $ 54,092 $ 402 2.99 %
Agency RMBS 3,670 93 10.19 %
Non-Agency CMBS 257,635 5,732 8.95 %
Non-Agency RMBS 29,163 215 2.97 %
Residential Whole Loans 1,301,974 13,891 4.29 %
Residential Bridge Loans 29,006 331 4.59 %
Commercial loans 332,263 5,711 6.91 %
Securitized commercial loans 543,245 4,484 3.32 %
Other securities 44,692 704 6.34 %
Total investments 2,595,740 31,563 4.89 %
Adjustments:
Securitized commercial loans from consolidated VIEs (543,245) (4,484) 3.32 %
Investments in consolidated VIEs eliminated in consolidation 56,690 1,254 8.90 %
Adjusted total investments $ 2,109,185 $ 28,333 5.40 %
Average Carrying Value
Total Interest Expense⁽³⁾
Average Effective Cost of Funds
Borrowings
Repurchase agreements $ 968,443 $ 7,833 3.25 %
Convertible senior unsecured notes, net 198,441 4,144 8.40 %
Securitized debt 1,306,260 10,982 3.38 %
Interest rate swaps n/a — — %
Total borrowings 2,473,144 22,959 3.73 %
Adjustments:
Securitized debt from consolidated VIEs⁽⁴⁾
(478,739) (4,661) 3.92 %
Adjusted total borrowings $ 1,994,405 $ 18,298 3.69 %
Adjusted net interest income and net interest margin $ 10,035 1.91 %

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Three Months Ended June 30, 2019		Average Amortized Cost of Assets⁽¹⁾		Total Interest Income⁽²⁾		Yield on Average Assets
Three Months Ended September 30, 2020								Three Months Ended September 30, 2020	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets

Investments	Investments							Investments
Agency CMBS		$	1,414,206	$	11,859	3.36	%

Agency RMBS	Agency RMBS	245,206		2,314		3.79	%	Agency RMBS	$	1,680	$	42	9.95	%
Non-Agency CMBS	Non-Agency CMBS	184,379		4,490		9.77	%	Non-Agency CMBS	244,082		5,186		8.45	%
Non-Agency RMBS	Non-Agency RMBS	48,051		674		5.63	%	Non-Agency RMBS	30,355		462		6.05	%
Residential Whole Loans	Residential Whole Loans	1,234,272		14,881		4.84	%	Residential Whole Loans	1,137,905		12,698		4.44	%
Residential Bridge Loans	Residential Bridge Loans	131,955		2,144		6.52	%	Residential Bridge Loans	24,328		325		5.31	%
Commercial loans	Commercial loans	302,389		6,160		8.17	%	Commercial loans	332,348		5,390		6.45	%
Securitized commercial loans	Securitized commercial loans	890,502		10,148		4.57	%	Securitized commercial loans	1,329,556		19,191		5.74	%
Other securities	Other securities	63,453		1,312		8.29	%	Other securities	51,475		710		5.49	%

Total investments	Total investments	4,514,413		53,982		4.80	%	Total investments	3,151,729		44,004		5.55	%
Adjustments:	Adjustments:							Adjustments:
Securitized commercial loans from consolidated VIEs	Securitized commercial loans from consolidated VIEs	(890,502)		(10,148)		4.57	%	Securitized commercial loans from consolidated VIEs	(1,329,556)		(19,191)		5.74	%
Investments in consolidated VIEs eliminated in consolidation	Investments in consolidated VIEs eliminated in consolidation	80,206		1,806		9.03	%	Investments in consolidated VIEs eliminated in consolidation	54,437		1,172		8.56	%
Adjusted total investments	Adjusted total investments	$	3,704,117	$	45,640	4.94	%	Adjusted total investments	$	1,876,610	$	25,985	5.51	%

		Average Carrying Value		Total Interest Expense⁽³⁾		Average Effective Cost of Funds			Average Carrying Value		Total Interest Expense(3)		Average Effective Cost of Funds
Borrowings	Borrowings							Borrowings
Repurchase agreements	Repurchase agreements	$	2,810,510	$	23,925	3.41	%	Repurchase agreements	$	348,360	$	3,503	4.00	%
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	110,609		2,270		8.23	%	Convertible senior unsecured notes, net	194,281		4,062		8.32	%
Securitized debt	Securitized debt	1,380,415		11,763		3.42	%	Securitized debt	2,264,800		26,288		4.62	%
Interest rate swaps		n/a		(3,850)		(0.36)	%

Total borrowings	Total borrowings	4,301,534		34,108		3.18	%	Total borrowings	2,807,441		33,853		4.80	%
Adjustments:	Adjustments:							Adjustments:
Securitized debt from consolidated VIEs⁽⁴⁾	Securitized debt from consolidated VIEs⁽⁴⁾	(773,592)		(8,215)		4.26	%	Securitized debt from consolidated VIEs(4)	(1,268,471)		(18,597)		5.83	%
Adjusted total borrowings	Adjusted total borrowings	$	3,527,942	$	25,893	2.94	%	Adjusted total borrowings	$	1,538,970	$	15,256	3.94	%

Adjusted net interest income and net interest margin	Adjusted net interest income and net interest margin			$	19,747	2.14	%	Adjusted net interest income and net interest margin			$	10,729	2.27	%

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Six Months Ended June 30, 2020		Average Amortized Cost of Assets⁽¹⁾		Total Interest Income⁽²⁾		Yield on Average Assets
Three Months Ended September 30, 2019								Three Months Ended September 30, 2019	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets

Investments	Investments							Investments
Agency CMBS	Agency CMBS	$	693,117	$	10,751	3.12	%	Agency CMBS	$	1,738,553	$	13,803	3.15	%
Agency RMBS	Agency RMBS	121,421		2,084		3.45	%	Agency RMBS	468,099		3,852		3.26	%
Non-Agency CMBS	Non-Agency CMBS	290,531		11,497		7.96	%	Non-Agency CMBS	241,580		4,744		7.79	%
Non-Agency RMBS	Non-Agency RMBS	35,743		725		4.08	%	Non-Agency RMBS	46,133		556		4.78	%
Residential Whole-Loans		1,347,957		30,194		4.50	%
Residential Whole Loans								Residential Whole Loans	1,186,261		13,953		4.67	%
Residential Bridge Loans	Residential Bridge Loans	31,869		1,217		7.68	%	Residential Bridge Loans	83,208		1,362		6.49	%
Commercial loans	Commercial loans	344,303		12,387		7.23	%	Commercial loans	372,802		7,612		8.10	%
Securitized commercial loans	Securitized commercial loans	706,500		15,600		4.44	%	Securitized commercial loans	736,542		8,615		4.64	%
Other securities	Other securities	60,909		2,045		6.75	%	Other securities	73,997		1,288		6.91	%
Total return swaps		—		—		—
Total investments	Total investments	3,632,350		86,500		4.79	%	Total investments	4,947,175		55,785		4.47	%
Adjustments:	Adjustments:							Adjustments:
Securitized commercial loans from consolidated VIEs	Securitized commercial loans from consolidated VIEs	(706,500)		(15,600)		4.44	%	Securitized commercial loans from consolidated VIEs	(736,542)		(8,615)		4.64	%
Investments in consolidated VIEs eliminated in consolidation	Investments in consolidated VIEs eliminated in consolidation	135,895		6,294		9.31	%	Investments in consolidated VIEs eliminated in consolidation	86,956		1,863		8.50	%
Adjusted total investments	Adjusted total investments	$	3,061,745	$	77,194	5.07	%	Adjusted total investments	$	4,297,589	$	49,033	4.53	%

		Average Carrying Value		Total Interest Expense⁽³⁾		Average Effective Cost of Funds			Average Carrying Value		Total Interest Expense(3)		Average Effective Cost of Funds
Borrowings	Borrowings							Borrowings
Repurchase agreements	Repurchase agreements	$	1,877,174	$	26,258	2.81	%	Repurchase agreements	$	2,990,018	$	22,054	2.93	%
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	198,098		8,289		8.41	%	Convertible senior unsecured notes, net	135,951		2,653		7.74	%
Securitized debt	Securitized debt	1,342,736		24,517		3.67	%	Securitized debt	1,505,784		14,375		3.79	%
Interest rate swaps	Interest rate swaps	n/a		1,133		0.07	%	Interest rate swaps	n/a		(1,715)		(0.15)	%
Total borrowings	Total borrowings	3,418,008		60,197		3.54	%	Total borrowings	4,631,753		37,367		3.20	%
Adjustments:	Adjustments:							Adjustments:
Securitized debt from consolidated VIEs⁽⁴⁾	Securitized debt from consolidated VIEs⁽⁴⁾	(546,685)		(11,415)		4.20	%	Securitized debt from consolidated VIEs(4)	(631,219)		(6,657)		4.18	%
Adjusted total borrowings	Adjusted total borrowings	$	2,871,323	$	48,782	3.42	%	Adjusted total borrowings	$	4,000,534	$	30,710	3.05	%

Adjusted net interest income and net interest margin	Adjusted net interest income and net interest margin			$	28,412	1.87	%	Adjusted net interest income and net interest margin			$	18,323	1.69	%

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Six Months Ended June 30, 2019		Average Amortized Cost of Assets⁽¹⁾		Total Interest Income⁽²⁾		Yield on Average Assets
Nine Months Ended September 30, 2020								Nine Months Ended September 30, 2020	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets

Investments	Investments							Investments
Agency CMBS	Agency CMBS	$	1,380,176	$	22,823	3.33	%	Agency CMBS	$	459,539	$	10,751	3.13	%
Agency RMBS	Agency RMBS	132,785		2,688		4.08	%	Agency RMBS	81,068		2,126		3.50	%
Non-Agency CMBS	Non-Agency CMBS	186,093		8,525		9.24	%	Non-Agency CMBS	274,878		16,683		8.11	%
Non-Agency RMBS	Non-Agency RMBS	48,786		1,404		5.80	%	Non-Agency RMBS	33,928		1,187		4.67	%
Residential Whole-Loans	Residential Whole-Loans	1,177,591		28,866		4.94	%	Residential Whole-Loans	1,277,263		42,892		4.49	%
Residential Bridge Loans	Residential Bridge Loans	166,001		5,800		7.05	%	Residential Bridge Loans	29,311		1,542		7.03	%
Commercial loans	Commercial loans	291,442		11,780		8.15	%	Commercial loans	340,184		17,777		6.98	%
Securitized commercial loans	Securitized commercial loans	911,021		21,708		4.81	%	Securitized commercial loans	846,243		34,791		5.49	%
Other securities	Other securities	60,157		2,610		8.75	%	Other securities	57,730		2,755		6.37	%
Total return swaps		—		—		—

Total investments	Total investments	4,354,052		106,204		4.92	%	Total investments	3,400,144		130,504		5.13	%
Adjustments:	Adjustments:							Adjustments:
Securitized commercial loans from consolidated VIEs	Securitized commercial loans from consolidated VIEs	(911,021)		(21,708)		4.81	%	Securitized commercial loans from consolidated VIEs	(846,243)		(34,791)		5.49	%
Investments in consolidated VIEs eliminated in consolidation	Investments in consolidated VIEs eliminated in consolidation	68,709		3,396		9.97	%	Investments in consolidated VIEs eliminated in consolidation	107,663		7,466		9.26	%
Adjusted total investments	Adjusted total investments	$	3,511,740	$	87,892	5.05	%	Adjusted total investments	$	2,661,564	$	103,179	5.18	%

		Average Carrying Value		Total Interest Expense⁽³⁾		Average Effective Cost of Funds			Average Carrying Value		Total Interest Expense(3)		Average Effective Cost of Funds
Borrowings	Borrowings							Borrowings
Repurchase agreements	Repurchase agreements	$	2,784,482	$	48,898	3.54	%	Repurchase agreements	$	1,361,985	$	31,220	3.06	%
Convertible senior unsecured notes, net	Convertible senior unsecured notes, net	110,444		4,540		8.29	%	Convertible senior unsecured notes, net	196,826		12,351		8.38	%
Securitized debt	Securitized debt	1,130,148		20,920		3.73	%	Securitized debt	1,650,091		50,805		4.11	%
Interest rate swaps	Interest rate swaps	n/a		(8,133)		(0.41)	%	Interest rate swaps	n/a		1,133		0.05	%
Total borrowings	Total borrowings	4,025,074		66,225		3.32	%	Total borrowings	3,208,902		95,509		3.98	%
Adjustments:	Adjustments:							Adjustments:
Securitized debt from consolidated VIEs⁽⁴⁾	Securitized debt from consolidated VIEs⁽⁴⁾	(826,737)		(17,372)		4.24	%	Securitized debt from consolidated VIEs(4)	(787,280)		(30,012)		5.09	%
Adjusted total borrowings	Adjusted total borrowings	$	3,198,337	$	48,853	3.08	%	Adjusted total borrowings	$	2,421,622	$	65,497	3.61	%

Adjusted net interest income and net interest margin	Adjusted net interest income and net interest margin			$	39,039	2.24	%	Adjusted net interest income and net interest margin			$	37,682	1.89	%

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Nine Months Ended September 30, 2019	Average Amortized Cost of Assets(1)		Total Interest Income(2)		Yield on Average Assets

Investments
Agency CMBS	$	1,499,301	$	36,626	3.27	%
Agency RMBS	246,505		6,540		3.55	%
Non-Agency CMBS	204,068		13,269		8.69	%
Non-Agency RMBS	48,292		1,960		5.43	%
Residential Whole-Loans	1,176,978		42,819		4.86	%
Residential Bridge Loans	138,100		7,162		6.93	%
Commercial loans	318,673		19,392		8.14	%
Securitized commercial loans	852,621		30,323		4.75	%
Other securities	65,950		3,898		7.90	%
Total return swaps	—		—		—
Total investments	4,550,488		161,989		4.76	%
Adjustments:
Securitized commercial loans from consolidated VIEs	(852,621)		(30,323)		4.75	%
Investments in consolidated VIEs eliminated in consolidation	74,858		5,259		9.39	%
Adjusted total investments	$	3,772,725	$	136,925	4.85	%

	Average Carrying Value		Total Interest Expense(3)		Average Effective Cost of Funds
Borrowings
Repurchase agreements	$	2,853,746	$	70,952	3.32	%
Convertible senior unsecured notes, net	118,946		7,193		8.09	%
Securitized debt	1,255,360		35,295		3.76	%
Interest rate swaps	n/a		(9,848)		(0.31)	%
Total borrowings	4,228,052		103,592		3.28	%
Adjustments:
Securitized debt from consolidated VIEs(4)	(761,564)		(24,029)		4.22	%
Adjusted total borrowings	$	3,466,488	$	79,563	3.07	%

Adjusted net interest income and net interest margin			$	57,362	2.03	%

(1)Includes Agency and Non-Agency Interest-Only Strips accounted for as derivatives.

(2)Refer to below table for components of interest income.

(3)Includes the net amount paid, including accrued amounts and premium amortization for MAC interest rate swaps during the periods included in gain/loss on derivative instruments for GAAP.

(4)Includes only the third-party sponsored securitized debt from RETL Trust and CSMC ~~Trust.~~USA.

The following table reconciles total interest income to adjusted interest income, which includes interest income on Agency and Non-Agency Interest-Only Strips classified as derivatives (Non-GAAP financial measure) for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019:

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(dollars in thousands)	(dollars in thousands)	Three months ended June 30, 2020		Three months ended June 30, 2019		Six months ended June 30, 2020		Six months ended June 30, 2019		(dollars in thousands)	Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
Coupon interest income:	Coupon interest income:									Coupon interest income:
Agency CMBS	Agency CMBS	$	413	$	12,567	$	11,336	$	23,556	Agency CMBS	$	—	$	14,544	$	11,336	$	38,100
Agency RMBS	Agency RMBS	173		2,795		2,929		3,666		Agency RMBS	25		4,723		2,954		8,389
Non-Agency CMBS	Non-Agency CMBS	3,960		3,168		8,757		6,279		Non-Agency CMBS	3,500		3,696		12,257		9,975
Non-Agency RMBS	Non-Agency RMBS	582		1,385		1,733		2,592		Non-Agency RMBS	616		1,120		2,349		3,712
Residential Whole Loans	Residential Whole Loans	14,993		15,745		32,583		29,927		Residential Whole Loans	13,847		15,129		46,430		45,056
Residential Bridge Loans	Residential Bridge Loans	355		2,360		1,264		6,468		Residential Bridge Loans	345		1,429		1,609		7,897
Commercial loans	Commercial loans	5,595		5,812		12,076		11,224		Commercial loans	5,349		7,477		17,425		18,701
Securitized commercial loans	Securitized commercial loans	4,899		10,890		15,248		22,892		Securitized commercial loans	14,634		9,369		29,882		32,261
Other Securities	Other Securities	2,037		3,070		4,842		5,959		Other Securities	1,723		2,924		6,565		8,883
Subtotal coupon interest	Subtotal coupon interest	33,007		57,792		90,768		112,563		Subtotal coupon interest	40,039		60,411		130,807		172,974
Premium accretion, discount amortization and amortization of basis, net:	Premium accretion, discount amortization and amortization of basis, net:									Premium accretion, discount amortization and amortization of basis, net:
Agency CMBS	Agency CMBS	(48)		(733)		(636)		(789)		Agency CMBS	—		(764)		(636)		(1,553)
Agency RMBS	Agency RMBS	(112)		(620)		(954)		(1,275)		Agency RMBS	(17)		(981)		(971)		(2,256)
Non-Agency CMBS	Non-Agency CMBS	1,772		1,322		2,740		2,246		Non-Agency CMBS	1,686		1,048		4,426		3,294
Non-Agency RMBS	Non-Agency RMBS	(367)		(711)		(1,008)		(1,188)		Non-Agency RMBS	(154)		(564)		(1,162)		(1,752)
Residential Whole Loans	Residential Whole Loans	(1,102)		(864)		(2,389)		(1,061)		Residential Whole Loans	(1,149)		(1,176)		(3,538)		(2,237)
Residential Bridge Loans	Residential Bridge Loans	(24)		(216)		(47)		(668)		Residential Bridge Loans	(20)		(67)		(67)		(735)
Commercial loans	Commercial loans	116		348		311		556		Commercial loans	41		135		352		691
Securitized commercial loans	Securitized commercial loans	(415)		(742)		352		(1,184)		Securitized commercial loans	4,557		(754)		4,909		(1,938)
Other Securities	Other Securities	(1,333)		(1,758)		(2,797)		(3,349)		Other Securities	(1,013)		(1,636)		(3,810)		(4,985)
Subtotal accretion and amortization	Subtotal accretion and amortization	(1,513)		(3,974)		(4,428)		(6,712)		Subtotal accretion and amortization	3,931		(4,759)		(497)		(11,471)
Interest income	Interest income	$	31,494	$	53,818	$	86,340	$	105,851	Interest income	$	43,970	$	55,652	$	130,310	$	161,503
Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives⁽¹⁾:	Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives⁽¹⁾:									Contractual interest income, net of amortization of basis on Agency and Non-Agency Interest-Only Strips, classified as derivatives(1):
Coupon interest income	Coupon interest income	$	340	$	819	$	976	$	1,603	Coupon interest income	$	200	$	723	$	1,176	$	2,326
Amortization of basis	Amortization of basis	(271)		(655)		(816)		(1,250)		Amortization of basis	(166)		(590)		(982)		(1,840)

Subtotal	Subtotal	69		164		160		353		Subtotal	34		133		194		486
Total adjusted interest income	Total adjusted interest income	$	31,563	$	53,982	$	86,500	$	106,204	Total adjusted interest income	$	44,004	$	55,785	$	130,504	$	161,989

(1)Reported in "Gain (loss) on derivative instruments, net" in our Consolidated Statements of Operations.

Effective Cost of Funds includes the net interest component related to our interest rate swaps, as well as the impact of our foreign currency swaps and forwards. While we have not elected hedge accounting for these instruments, such derivative instruments are viewed by us as an economic hedge against increases in future market interest rates on our liabilities and changes in foreign currency exchange rates on our assets and liabilities and are characterized as hedges for purposes of satisfying the REIT requirements and therefore the Effective Cost of Funds reflects interest expense adjusted to include the realized gain/loss (i.e., the interest income/expense component) for all of our interest rate swaps and the impact of our foreign currency swaps and forwards.

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The following table reconciles the Effective Cost of Funds (Non-GAAP financial measure) with interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019:


		Three months ended June 30, 2020						Three months ended June 30, 2019						Six months ended June 30, 2020							Six months ended June 30, 2019							Three months ended September 30, 2020				Three months ended September 30, 2019				Nine months ended September 30, 2020	Nine months ended September 30, 2019
(dollars in thousands)	(dollars in thousands)	Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		(dollars in thousands)	Reconciliation			Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs		Reconciliation		Cost of Funds/ Effective Borrowing Costs
Interest expense	Interest expense	$	22,959	3.73	%	$	37,958	3.54	%	$	59,064	3.48	%	$	74,358	3.73	%	Interest expense	$	33,853		4.80	%	$	39,082	3.35	%	$	94,376	3.93	%	$	113,440	3.59	%
Adjustments:	Adjustments:																	Adjustments:
Interest expense on Securitized debt from consolidated VIEs	Interest expense on Securitized debt from consolidated VIEs	(4,661)		(3.92)	%	(8,215)		(4.26)	%	(11,415)		(4.20)	%	(17,372)		(4.24)	%	Interest expense on Securitized debt from consolidated VIEs	(18,597)			(5.83)	%	(6,657)		(4.18)	%	(30,012)		(5.09)	%	(24,029)		(4.22)	%
Net interest (received) paid - interest rate swaps	Net interest (received) paid - interest rate swaps	—		—	%	(3,850)		(0.36)	%	1,133		0.07	%	(8,133)		(0.41)	%	Net interest (received) paid - interest rate swaps	—			—	%	(1,715)		(0.15)	%	1,133		0.05	%	(9,848)		(0.31)	%
Effective Borrowing Costs	Effective Borrowing Costs	$	18,298	3.69	%	$	25,893	2.94	%	$	48,782	3.42	%	$	48,853	3.08	%	Effective Borrowing Costs	$	15,256		3.94	%	$	30,710	3.05	%	$	65,497	3.61	%	$	79,563	3.07	%
Weighted average borrowings	Weighted average borrowings	$	1,994,405			$	3,527,942			$	2,871,323			$	3,198,337			Weighted average borrowings	$	1,538,970				$	4,000,534			$	2,421,622			$	3,466,488

Liquidity and Capital Resources

General

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders, and other general business needs. To maintain our REIT qualifications under the Internal Revenue Code, we must distribute annually at least 90% of our taxable income, excluding capital gains and, such distributions requirements limit our ability to retain earnings and increase capital for operations.

Our liquidity and capital resources are managed on a daily basis to ensure that we have sufficient liquidity to absorb market events that could negatively impact collateral valuations and result in margin calls as well as to ensure that we have the flexibility to manage our investment portfolio to take advantage of market opportunities. As of ~~June~~September 30, 2020, our principal sources of cash consist of borrowings under repurchase agreements, payments of principal and interest on our investment portfolio and cash generated from operations and, if market conditions permit, secondary public stock offerings.

While under normal market conditions we believe that our significant capital resources and access to financing will provide us with financial flexibility at levels sufficient to meet current and anticipated capital requirements, recent market conditions resulting from the COVID 19 pandemic resulted in significant decline in liquidity. In response to the unprecedented market conditions, we implemented measures to increase liquidity, reduce leverage, and seek alternative financing arrangements. AsWe made further progress towards strengthening our balance sheet in the third quarter by reducing debt and leverage, while improving liquidity, shareholders equity and the earnings power of ~~June 30, 2020, these measures~~the portfolio.We had improved financial results during the third quarter, which included ~~but are not limited to, the following:~~significant recovery in asset valuations.

•~~Suspended our first quarter and second quarter common dividends to preserve liquidity.~~

•~~Sold approximately $2.1 billion of Agency MBS, $107.3 million of Non-Agency MBS and $144.3 million of conforming residential mortgages.~~

•~~Reduced our repurchase agreement financings by 86.9% to $369.1 million.~~

•~~Terminated all interest rate hedges and further reduced margin call volatility.~~

•~~Our Manager suspended management fees for March 2020, April 2020 and May 2020.~~

•~~Satisfied all margin calls~~

Financing Arrangements

On April 21, 2020, we entered into amendments with respect to certain of our residential loan warehouse facilities. These amendments mainly served to convert an existing residential whole loan facility into a term facility by removing any mark to

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market margin requirements, and to consolidate our Non-Qualified Mortgage loans, which were previously financed by three separate, unaffiliated counterparties, into a single facility. See "Note 7 - Financings" for details.

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and the facility matures on October 5, 2021. The premium recapture fee was eliminated for holdings that had not yet been sold or otherwise disposed of. See "Note 7 - Financings " for details.

On May 4, 2020, we supplemented one of our existing securities repurchase facilities to confirm terms pursuant to which we will consolidate most of our CMBS and RMBS assets, which are currently financed by multiple counterparties, into a single term facility with limited mark to market margin requirements. See "Note 7 - Financings " for details.

Based on the ~~above~~ measures taken by us during these difficult market conditions, we believe we have sufficient current liquidity and access to additional liquidity to meet financial obligations for at least the next 12 months.

Sources of Liquidity

Principal Sources of Cash

We held cash of approximately ~~$19.4~~$27.5 million and $81.8 million at ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. Our primary sources of cash currently consist of investment income, principal repayments on investments, financings and the proceeds from debt and equity offerings, to the extent available in the capital markets. In the future, we expect our primary sources of liquidity to consist of payments of principal and investment income, unused borrowing capacity under our financing sources and future issuances of equity and debt securities to the extent available.

Repurchase Agreements

As of ~~June~~September 30, 2020, we had borrowings under six of our master repurchase agreements of approximately ~~$369.2~~$358.9 million. The following tables present our repurchase agreement borrowings by type of collateral pledged, as of ~~June~~September 30, 2020 and ~~June~~September 30, 2019, and the respective effective cost of funds (Non-GAAP financial measure) for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. See “Non-GAAP Financial Measures” (dollars in thousands):


		June 30, 2020										Three months ended June 30, 2020								Six months ended June 30, 2020							September 30, 2020						Three months ended September 30, 2020		Nine months ended September 30, 2020
Collateral	Collateral	Borrowings Outstanding		Value of Collateral Pledged		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)⁽¹⁾		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)⁽¹⁾		Weighted Average Haircut end of period		Collateral	Borrowings Outstanding		Value of Collateral Pledged		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Haircut end of period
Agency CMBS, at fair value	Agency CMBS, at fair value	$	—	$	—	—	%	2.52	%	2.52	%	2.20	%	2.20	%	—	%	Agency CMBS, at fair value	$	—	$	—	—	%	—	%	—	%	2.21	%	2.21	%	—	%
Agency RMBS, at fair value	Agency RMBS, at fair value	1,491		1,975		1.41	%	1.97	%	1.97	%	2.00	%	2.00	%	25.00	%	Agency RMBS, at fair value	1,438		1,853		1.46	%	1.62	%	1.62	%	2.00	%	2.00	%	25.00	%
Non-Agency CMBS, at fair value(2)	Non-Agency CMBS, at fair value(2)	87,151		170,355		5.31	%	4.27	%	4.27	%	3.47	%	3.47	%	41.27	%	Non-Agency CMBS, at fair value(2)	83,264		165,699		5.02	%	5.26	%	5.26	%	3.86	%	3.86	%	41.21	%
Non-Agency RMBS, at fair value	Non-Agency RMBS, at fair value	15,515		26,971		5.50	%	5.29	%	5.29	%	4.16	%	4.16	%	33.33	%	Non-Agency RMBS, at fair value	14,742		25,817		5.25	%	5.45	%	5.45	%	4.61	%	4.61	%	33.33	%
Residential Whole Loans, at fair value⁽²⁾	Residential Whole Loans, at fair value⁽²⁾	39,702		88,603		5.37	%	3.08	%	3.08	%	3.17	%	3.17	%	61.21	%	Residential Whole Loans, at fair value(2)	40,061		105,059		4.98	%	5.95	%	5.95	%	3.85	%	3.85	%	59.21	%
Residential Bridge Loans⁽²⁾	Residential Bridge Loans⁽²⁾	21,159		25,371		3.04	%	3.09	%	3.09	%	3.64	%	3.64	%	20.00	%	Residential Bridge Loans(2)	15,763		16,828		2.75	%	2.90	%	2.90	%	3.43	%	3.43	%	20.00	%
Commercial loans, at fair value	Commercial loans, at fair value	187,156		323,474		2.53	%	3.12	%	3.12	%	3.49	%	3.49	%	35.61	%	Commercial loans, at fair value	168,397		325,651		2.45	%	2.84	%	2.84	%	3.29	%	3.29	%	35.53	%
Securitized commercial loan, at fair value⁽²⁾		—		—		—	%	7.00	%	7.00	%	3.98	%	3.98	%	—	%

Membership interest																		Membership interest	18,845		33,495		2.90	%	3.88	%	3.88	%	3.87	%	3.87	%	35.00	%
Other securities, at fair value	Other securities, at fair value	16,987		40,466		5.50	%	4.44	%	4.44	%	3.63	%	3.63	%	36.54	%	Other securities, at fair value	16,368		41,055		5.13	%	5.34	%	5.34	%	3.93	%	3.93	%	36.87	%
Interest rate swaps	Interest rate swaps	n/a		n/a		n/a		n/a		—	%	n/a		0.12	%	n/a		Interest rate swaps	n/a		n/a		n/a		n/a		—	%	—		0.11	%	n/a
Total	Total	$	369,161	$	677,215	3.78	%	3.25	%	3.25	%	2.81	%	2.93	%	38.47	%	Total	$	358,878	$	715,457	3.60	%	4.00	%	4.00	%	3.06	%	3.17	%	38.44	%

(1)The effective cost of funds for the period presented is calculated on an annualized basis and includes interest expense for the period and net periodic interest payments on interest rate swaps, net of premium amortization on MAC swaps, of ~~approximately $0~~zero and $1.1 million paid for the three and ~~six~~nine months ended ~~June~~September 30, 2020, respectively. While interest rate swaps are not accounted for using hedge accounting, such instruments are viewed by us as an economic hedge against increases in interest rates on our liabilities and are treated as hedges for purposes of satisfying the REIT requirements. See “Non-GAAP Financial Measures”.

(2)Includes repurchase agreement borrowings on securities eliminated upon VIE consolidation.

(3)Repurchase agreement borrowings collateralized by Whole Loans, Bridge Loans and securitized commercial loans owned through trust certificates. The trust certificates are eliminated upon consolidation.

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		June 30, 2019										Three months ended June 30, 2019								Six months ended June 30, 2019							September 30, 2019						Three months ended September 30, 2019		Nine months ended September 30, 2019
Collateral	Collateral	Borrowings Outstanding		Fair Value of Collateral Pledged⁽³⁾		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)⁽²⁾		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)⁽¹⁾		Weighted Average Haircut end of period		Collateral	Borrowings Outstanding		Fair Value of Collateral Pledged(3)		Weighted Average Interest Rate end of period		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(2)		Weighted Average Cost of Funds		Weighted Average Effective Cost of Funds (Non-GAAP)(1)		Weighted Average Haircut end of period
Agency CMBS	Agency CMBS	$	1,673,902	$	1,783,953	2.62	%	2.69	%	2.69	%	2.72	%	2.72	%	5.02	%	Agency CMBS	$	1,640,190	$	1,739,015	2.36	%	2.50	%	2.50	%	2.63	%	2.63	%	5.11	%
Agency RMBS	Agency RMBS	573,771		604,384		2.65	%	2.70	%	2.70	%	2.73	%	2.73	%	4.63	%	Agency RMBS	366,488		379,998		2.31	%	2.55	%	2.55	%	2.61	%	2.61	%	5.18	%
Non-Agency CMBS	Non-Agency CMBS	146,629		200,511		3.79	%	3.99	%	3.99	%	4.08	%	4.08	%	24.40	%	Non-Agency CMBS	201,751		270,434		3.28	%	3.52	%	3.52	%	3.85	%	3.85	%	22.74	%
Non-Agency RMBS	Non-Agency RMBS	11,488		14,435		3.86	%	4.09	%	4.09	%	4.16	%	4.16	%	22.74	%	Non-Agency RMBS	31,071		47,256		3.67	%	3.78	%	3.78	%	4.05	%	4.05	%	36.03	%
Residential Whole Loans, at fair value⁽²⁾	Residential Whole Loans, at fair value⁽²⁾	238,546		247,539		3.66	%	4.22	%	4.22	%	4.27	%	4.27	%	5.25	%	Residential Whole Loans, at fair value(2)	282,741		300,551		3.69	%	3.85	%	3.85	%	4.22	%	4.22	%	6.75	%
Residential Bridge Loans⁽²⁾	Residential Bridge Loans⁽²⁾	89,241		90,606		4.59	%	4.71	%	4.71	%	4.73	%	4.73	%	20.00	%	Residential Bridge Loans(2)	50,092		50,675		4.26	%	4.44	%	4.44	%	4.67	%	4.67	%	20.00	%
Commercial loans, at fair value	Commercial loans, at fair value	194,821		292,032		4.65	%	5.00	%	5.00	%	5.17	%	5.17	%	33.08	%	Commercial loans, at fair value	262,821		422,032		4.31	%	4.66	%	4.66	%	4.97	%	4.97	%	35.17	%
Securitized commercial loan, at fair value⁽²⁾	Securitized commercial loan, at fair value⁽²⁾	19,708		23,187		3.28	%	3.63	%	3.63	%	3.81	%	3.81	%	15.00	%	Securitized commercial loan, at fair value(2)	32,893		44,244		3.13	%	3.30	%	3.30	%	3.57	%	3.57	%	22.20	%
Other securities, at fair value	Other securities, at fair value	53,114		76,483		3.93	%	4.12	%	4.12	%	4.22	%	4.22	%	29.29	%	Other securities, at fair value	57,061		82,875		3.55	%	3.77	%	3.77	%	4.04	%	4.04	%	28.94	%
Interest rate swaps	Interest rate swaps	n/a		n/a		n/a		n/a		(0.55)	%	n/a		(0.59)	%	n/a		Interest rate swaps	n/a		n/a		n/a		n/a		(0.23)	%	n/a		(0.46)	%	n/a
Total	Total	$	3,001,220	$	3,333,130	2.99	%	3.41	%	2.87	%	3.54	%	2.95	%	8.75	%	Total	$	2,925,108	$	3,337,080	2.80	%	2.93	%	2.70	%	3.32	%	2.86	%	10.45	%

(1)The effective cost of funds for the period presented is calculated on an annualized basis and includes interest expense for the period and net periodic interest payments on interest rate swaps, net of premium amortization on MAC swaps, of approximately ~~$3.9~~$1.7 million and ~~$8.1~~$9.8 million received for the three and ~~six~~nine months ended ~~June~~September 30, 2019. While interest rate swaps are not accounted for using hedge accounting, such instruments are viewed by us as an economic hedge against increases in interest rates on our liabilities and are treated as hedges for purposes of satisfying the REIT requirements. See “Non-GAAP Financial Measures”.

(2)Repurchase agreement borrowings collateralized by Whole Loans, Bridge Loans and securitized commercial loan owned through trust certificates. The trust certificates are eliminated upon consolidation.

We are also required to pledge cash or securities as collateral as part of a margin arrangement for our derivative contracts, calculated daily, subject either to the terms of individual agreements for bilateral agreements and the clearinghouse rules in the case of cleared swaps. The amount of margin that we are required to post will vary and generally reflects collateral posted with respect to swaps that are in an unrealized loss position to us and a percentage of the aggregate notional amount of swaps per counterparty as well as margin posted with our clearing broker, pursuant to clearinghouse rules and practices, for cleared swaps. We have significantly reduced our exposure to margin volatility by terminating our interest rate hedge positions, as well as the majority of our bilateral derivative contracts. Conversely, if our bilateral swaps and swaptions are in an unrealized gain position, our counterparties are required to post collateral with us, under the same terms that we post collateral with them. We may enter into a MAC interest rate swap in which we may receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, these interest rate swaps are also subject to margin requirements.

At-The-Market Program

In March 2017, we entered into an equity distribution agreement with JMP Securities LLC, or "JMP", which was amended on June 5, 2020, under which we may offer and sell up to $100.0 million shares of common stock in an At-The-Market equity offering from time to time through JMP. During the ~~six~~nine months ended ~~June~~September 30, 2020, we sold 6,034,741 shares under this amended agreement with an average price of $3.70 per share for total net proceeds of $22.0 million.

Securitized Debt

In June 2020, we completed a residential mortgage-backed securitization comprised of a portion of our Residential Whole Loan portfolio. RMI 2015 Trust transferred $355.8 million of Non-QM Residential Whole Loans, to our wholly owned subsidiary, Arroyo Trust 2020. Arroyo Trust 2020 issued $341.7 million of mortgage-backed notes and we retained the subordinate Non-Offered Securities. These non-offered securities with an estimated fair value of $29.5 million at September 30, 2020 were eliminated in the consolidation. At ~~June~~September 30, 2020, Residential Whole Loans, with an outstanding principal balance of approximately ~~$353.2~~$329.7 million, serve as collateral for the Arroyo Trust 2020's securitized debt.

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Classes	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity	Classes	Principal Balance		Coupon	Carrying Value		Contractual Maturity
Issued Mortgage-Backed Notes	Issued Mortgage-Backed Notes							Issued Mortgage-Backed Notes
Class A-1A	Class A-1A	$	266,790	1.7%	$	266,843	3/25/2055	Class A-1A	$	246,807	1.7%	$	246,801	3/25/2055
Class A-1B	Class A-1B	31,658		2.1%	31,658		3/25/2055	Class A-1B	29,287		2.1%	29,286		3/25/2055
Class A-2	Class A-2	13,518		2.9%	13,521		3/25/2055	Class A-2	13,518		2.9%	13,517		3/25/2055
Class A-3	Class A-3	17,963		3.3%	17,967		3/25/2055	Class A-3	17,963		3.3%	17,963		3/25/2055
Class M-1	Class M-1	11,739		4.3%	11,739		3/25/2055	Class M-1	11,739		4.3%	11,739		3/25/2055
Subtotal	Subtotal	$	341,668		$	341,728		Subtotal	$	319,314		$	319,306
Less: Unamortized deferred financing costs	Less: Unamortized deferred financing costs	N/A			2,727			Less: Unamortized deferred financing costs	N/A			2,606
Total	Total	$	341,668		$	339,001		Total	$	319,314		$	316,700

Cash Generated from Operations

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash used in operating activities was approximately ~~$158.4~~$155.3 million. T~~his~~This was primarily ~~attributable margin settlements of interest rate swaps~~, ~~operating expenses, general and administrative expenses which was offset by~~ ~~the net~~ ~~interest income we earned on our investments. For the six months ended June 30, 2019, net cash used in operating activities was approximately $74.3 million,~~ attributable margin settlements of interest rate swaps, operating expenses, general and administrative expenses which was offset by the net interest income we earned on our investments. For the nine months ended September 30, 2019, net cash used in operating activities was approximately $110.3 million, this was attributable to the net interest income we earned on our investments less operating expenses, general and administrative expenses and margin settlements of interest rate swaps.

Cash Provided by and Used in Investing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash provided by investing activities was approximately ~~$2.3~~$2.4 billion. This was primarily attributable to proceeds from sales to meet the margin calls and receipts of principal payments and payoffs on our investments, which was partially offset by our investment acquisitions. For the ~~six~~nine months ended ~~June~~September 30, 2019, net cash used in investing activities was approximately ~~$724.2~~$465.3 million. This was primarily attributable to investment acquisitions, including an investment from a consolidated CMBS VIE, which was partially offset by proceeds from sales and receipts of principal payments and payoffs on our ~~investments investment.~~investments.

Cash Provided by and Used in Financing Activities

For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash used in financing activities was approximately $2.2 billion. This was attributable to net repayments of our repurchase agreement borrowings to reduce our exposure to short term financings and repayment of securitized debt related to consolidated VIEs which was offset net proceeds from the Arroyo 2020-1 that closed during this quarter. For the ~~six~~nine months ended ~~June~~September 30, 2019, net cash provided by financing activities was approximately ~~$889.6~~$584.5 million. This was attributable to net proceeds from financings during the quarter and a secondary public offering. Our net cash provided by financing activities was partially offset by dividends paid on our common stock.

Contractual Obligations and Commitments

Our contractual obligations as of ~~June~~September 30, 2020 are as follows (dollars in thousands):

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		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total			Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
Borrowings under repurchase agreements	Borrowings under repurchase agreements	$	242,414	$	126,747	$	—	$	—	$	369,161	Borrowings under repurchase agreements	$	266,145	$	92,733	$	—	$	—	$	358,878
Contractual interest on repurchase agreements	Contractual interest on repurchase agreements	10,852		1,279		—		—		12,131		Contractual interest on repurchase agreements	8,563		462		—		—		9,025
Convertible senior unsecured notes	Convertible senior unsecured notes	—		205,000		—		—		205,000		Convertible senior unsecured notes	—		200,000		—		—		200,000
Contractual interest on convertible senior unsecured notes	Contractual interest on convertible senior unsecured notes	13,838		20,756		—		—		34,594		Contractual interest on convertible senior unsecured notes	6,750		20,250		—		—		27,000
Securitized debt⁽²⁾	Securitized debt⁽²⁾	474,435		—		—		1,041,542		1,515,977		Securitized debt(2)	443,622		—		1,374,376		973,692		2,791,690
Contractual interest on securitized debt⁽³⁾	Contractual interest on securitized debt⁽³⁾	38,407		62,150		62,235		780,678		943,470		Contractual interest on securitized debt(3)	89,560		169,953		169,953		714,207		1,143,673

Total: GAAP Basis - Excluding TBA - long positions	Total: GAAP Basis - Excluding TBA - long positions	779,946		415,932		62,235		1,822,220		3,080,333		Total: GAAP Basis - Excluding TBA - long positions	814,640		483,398		1,544,329		1,687,899		4,530,266
TBA - long positions	TBA - long positions	—		—		—		—		—		TBA - long positions	—		—		—		—		—
Total	Total	$	779,946	$	415,932	$	62,235	$	1,822,220	$	3,080,333	Total	$	814,640	$	483,398	$	1,544,329	$	1,687,899	$	4,530,266

(1)The table above does not include amounts due under the Management Agreement (as defined herein) with our Manager, as those obligations do not have fixed and determinable payments.

(2)The securitized debt is non-recourse to us and can only be settled with the loans that serve as collateral. The collateral for the securitized debt has a principal balance of ~~$1.6~~$2.9 billion. Assumes entire outstanding principal balance at ~~June~~September 30, 2020 is paid at maturity.

(3)For variable rate debt, the one month LIBOR rate as of ~~June~~September 30, 2020 of 0.2% was used to calculate the contractual interest.

Management Agreement

On May 9, 2012, we entered into a management agreement (the “Management Agreement”) with our Manager which describes the services to be provided by our Manager and compensation for such services. Our Manager is responsible for managing our operations, including: (i) performing all of our day-to-day functions; (ii) determining investment criteria in conjunction with our Board of Directors; (iii) sourcing, analyzing and executing investments, asset sales and financings; (iv) performing asset management duties; and (v) performing financial and accounting management, subject to the direction and oversight of our Board of Directors. Pursuant to the terms of the Management Agreement, our Manager is paid a management fee equal to 1.50% per annum of our stockholders’ equity, (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears. The Manager waived the management fee for March 2020 through May 2020 because of the unprecedented market disruption and dislocation across fixed income markets surrounding the uncertainty related to COVID-19 pandemic. Future waivers, if any, are at the Manager's discretion.

Off-Balance Sheet Arrangements

We do not have any relationships with any entities or financial partnerships, such as entities often referred to as structured investment vehicles, or special purpose or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Further, other than guaranteeing certain obligations of our wholly-owned taxable REIT subsidiary or TRS and the obligations of our wholly-owned subsidiary, WMC CRE LLC, we have not guaranteed any obligations of any entities or entered into any commitment to provide additional funding to any such entities.

Dividends

To preserve liquidity, we suspended our first and second quarter common stock dividends given extraordinary market volatility driven by uncertainty surrounding the COVID-19 pandemic. In the third quarter of 2020, the Company resumed its quarterly dividend after making progress strengthening its balance sheet and improving liquidity and earnings power of its investment portfolio. We will continue to evaluate each subsequent quarter to determine our ability to pay a dividends to our stockholders based on our net taxable income if and to the extent authorized by our Board of Directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service payments. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

We seek to manage the risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market values while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns from our assets through ownership of our common stock. While we do not seek to avoid risk completely, our Manager seeks to actively manage risk for us, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.

Credit Risk

We are subject to varying degrees of credit risk in connection with our assets. ~~Although we do not expect to encounter credit risk in our Agency CMBS, we~~We are exposed to the risk of potential credit losses from general credit spread widening related to Non-Agency RMBS, Non-Agency CMBS, Residential Whole Loan, Residential Bridge Loans, Commercial Loans and other portfolio investments in addition to unexpected increase in borrower defaults on these investments, decisions are made following a bottom-up credit analysis and specific relevant risk assumptions.instruements that make up most of our current portfolio. As part of the risk management process, our Manager uses detailed proprietary models, applicable to evaluate, depending on the asset class, house price appreciation and depreciation by region, prepayment speeds and foreclosure/default frequency, cost and timing. If our Manager determines that the proposed investment can meet the appropriate risk and return criteria as well as complement our existing asset portfolio, the investment will undergo a more thorough analysis. Investments are evaluated and decisions are made following a bottom-up credit analysis and specific relevant risk assumptions.

As of ~~June~~September 30, 2020, four of the counterparties that we had outstanding repurchase agreement borrowings held collateral which we posted as security for such borrowings in excess of 5% of our stockholders’ equity. Prior to entering into a repurchase agreement with any particular institution, our Manager does a thorough review of such potential counterparty. Such review, however, does not assure the creditworthiness of such counterparty nor that the financial wherewithal of the counterparty will not deteriorate in the future.

Interest Rate Risk

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations. In general, we expect to finance the acquisition of our assets through financings in the form of repurchase agreements, warehouse facilities, securitizations, bank credit facilities (including term loans and revolving facilities) and public and private equity and debt issuances in addition to transaction or asset specific funding arrangements. Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we may utilize derivative financial instruments to hedge the interest rate risk associated with our borrowings. These hedging activities may not be effective. We also may engage in a variety of interest rate management techniques that seek to mitigate changes in interest rates or other potential influences on the values of our assets.

Interest Rate Effect on Net Interest Income

Our operating results will depend in large part on differences between the income earned on our assets and our borrowing costs. The cost of our borrowings is generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase and the yields earned on our leveraged fixed-rate mortgage assets will remain static. Further, the cost of such financing could increase at a faster pace than the yields earned on our leveraged ARM and hybrid ARM assets. This could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our assets. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Interest Rate Cap Risk

To the extent we invest in adjustable-rate RMBS and Whole-Loans, such instruments may be subject to interest rate caps, which potentially could cause such instruments to acquire many of the characteristics of fixed-rate securities if interest rates were to rise above the cap levels. This issue is magnified to the extent we acquire ARM and hybrid ARM assets that are

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not based on mortgages which are fully indexed. In addition, ARM and hybrid ARM assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding or a portion of the

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incremental interest rate increase being deferred. To the extent we invest in such ARM and/or hybrid ARM assets, we could potentially receive less cash income on such assets than we would need to pay the interest cost on our related borrowings. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above under “Interest Rate Risk.”

Interest Rate Effects on Fair value

Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire. We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments. See “Market Risk” below.

The impact of changing interest rates on fair value can change significantly when interest rates change materially. Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, changes in actual interest rates may have a material adverse effect on us.

Market Risk

Our MBS and other assets are reflected at their fair value with unrealized gains and losses included in earnings. The fair value of our investments fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the fair value of these assets would be expected to decrease; conversely, in a decreasing interest rate environment, the fair value of these securities would be expected to increase.

The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments, including interest rate swaps, Interest-Only Strips, and net interest income at ~~June~~September 30, 2020, assuming a static portfolio of assets. When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations. The analysis presented utilizes our Manager’s assumptions, models and estimates, which are based on our Manager’s judgment and experience.


Change in Interest Rates	Change in Interest Rates	Percentage Change in Projected Net Interest Income		Percentage Change in Projected Portfolio Value		Change in Interest Rates	Percentage Change in Projected Net Interest Income		Percentage Change in Projected Portfolio Value
+1.00%	+1.00%	(36.91)	%	(1.94)	%	+1.00%	(8.44)	%	(0.50)	%
+0.50%	+0.50%	(18.56)	%	(0.96)	%	+0.50%	(4.25)	%	(0.26)	%
-0.50%	-0.50%	20.15	%	0.34	%	-0.50%	4.91	%	0.18	%
-1.00%	-1.00%	40.17	%	(1.24)	%	-1.00%	9.89	%	0.37	%

While the table above reflects the estimated immediate impact of interest rate increases and decreases on a static portfolio, we may rebalance our portfolio from time to time either to seek to take advantage of or reduce the impact of changes in interest rates. It is important to note that the impact of changing interest rates on market value and net interest income can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the market value of our assets could increase significantly when interest rates change beyond amounts shown in the table above. In addition, other factors impact the market value of and net interest income from our interest rate-sensitive investments and derivative instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, interest income would likely differ from that shown above and such difference might be material and adverse to our stockholders.

Certain assumptions have been made in connection with the calculation of the information set forth in the table above and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates at ~~June~~September 30, 2020. The analysis presented utilizes assumptions and estimates based on our Manager’s judgment and experience. Furthermore, while we generally expect to retain such assets and the associated interest rate risk, future purchases and sales of assets could materially change our interest rate risk profile.

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Prepayment Risk

The value of our Agency and Non-Agency RMBS and our Residential Whole Loans may be affected by prepayment rates on the underlying residential mortgage. We acquire RMBS and Residential Whole Loans and anticipate that the underlying residential mortgages will prepay at a projected rate generating an expected yield. If we purchase assets at a premium to par value, when borrowers prepay their residential mortgage loans faster than expected, the corresponding prepayments may reduce the expected yield on our residential mortgage assets because we will have to amortize the related premium on an accelerated basis and, in the case of Agency RMBS, other than interest-only strips, and certain other investment grade rated securities, we are required to make a retrospective adjustment to historical amortization. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their residential mortgage loans slower than expected, such decrease may reduce the expected yield on such assets because we will not be able to accrete the related discount as quickly as originally anticipated and, in the case of Agency RMBS, other than interest-only strips, and certain other investment grade rated securities, we will be required to make a retrospective adjustment to historical amortization.

The value of our Agency and Non-Agency CMBS, as well as Commercial Whole Loans, will also be affected by prepayment ~~rates, however,~~rates. However, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection. Common restrictions include yield maintenance and prepayment penalties, the proceeds of which are generally at least partially allocable to these securities, as well as defeasance.

Likewise, the value of our ABS and other structured securities will also be affected prepayment rates. The collateral underlying such securities may, similar to most residential mortgages, allow the borrower to prepay at any time or, similar to commercial mortgages, limit the ability of the borrower to prepay by imposing lock-out provisions, prepayment penalties and/or make whole provisions.

Extension Risk

Most residential mortgage loans do not prohibit the partial or full prepayment of principal outstanding. Accordingly, while the stated maturity of a residential mortgage loan may be 30 years, or in some cases even longer, historically the vast majority of residential mortgage loans are satisfied prior to their maturity date. In periods of rising interest rates, borrowers have less incentive to refinance their existing mortgages and mortgage financing may not be as readily available. This generally results in a slower rate of prepayments and a corresponding longer weighted average life for RMBS and Residential Whole Loans. The increase, or extension, in weighted average life is commonly referred to as “Extension Risk” which can negatively impact our portfolio. To the extent we receive smaller pre-payments of principal, we will have less capital to invest in new assets. This is extremely detrimental in periods of rising interest rates as we will be unable to invest in new higher coupon investments and a larger portion of our portfolio will remain invested in lower coupon investments. Further, our borrowing costs are generally short-term and, even if hedged, are likely to increase in a rising interest rate environment, thereby reducing our net interest margin. Finally, to the extent we acquired securities at a discount to par, a portion of the overall return on such investments is based on the recovery of this discount. Slower principal prepayments will result in a longer recovery period and a lower overall return on our investment.

Prepayment rates on Agency and Non-Agency CMBS, as well as Commercial Whole Loans, are generally less volatile than residential mortgage assets as commercial mortgages usually limit the ability of the borrower to prepay the mortgage prior to maturity or a period shortly before maturity. Accordingly, extension risk for Agency and Non-Agency CMBS and Commercial Whole Loans is generally less than RMBS and Residential Whole Loans as it presumed that other than defaults (i.e. involuntary prepayments), most commercial mortgages will remain outstanding for the contractual term of the mortgage.

Prepayment rates on ABS and our other structured securities will be determined by the underlying collateral. The extension risk of such securities will generally be less than residential mortgages, but greater than commercial mortgages.

Real Estate Risk

Residential and commercial property values are subject to volatility and may be adversely affected by a number of factors, including, but not limited to: national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as the supply of housing stock); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to

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building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds

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available to a borrower to repay our loans, which could also cause us to suffer losses. The COVID 19 pandemic could have a significant impact on real estate values generally or as certain sectors more affected by health related shut downs or reductions in activity

Counterparty Risk

The following discussion on counterparty risk reflects how these transactions are structured, rather than how they are presented for financial reporting purposes.

When we engage in repurchase transactions, we generally sell securities to lenders (i.e., repurchase agreement counterparties) and receive cash from the lenders. The lenders are obligated to resell the same securities back to us at the end of the term of the transaction. Because the cash we receive from the lender when we initially sell the securities to the lender is less than the value of those securities (this difference is the haircut), if the lender defaults on its obligation to resell the same securities back to us, we could incur a loss on the transaction up to the amount of the haircut (assuming there was no change in the value of the securities).

If a counterparty to a bi-lateral interest rate swap cannot perform under the terms of the interest rate swap, we may not receive payments due under that agreement, and thus, we may lose any unrealized gain associated with the interest rate swap. We may also risk the loss of any collateral we have pledged to secure our obligations under interest rate swap if the counterparty becomes insolvent or files for bankruptcy. In the case of a cleared swap, if our clearing broker were to default, become insolvent or file for bankruptcy, we may also risk the loss of any collateral we have posted to the clearing broker unless we were able to transfer or “port” our positions and held collateral to another clearing broker. In addition, the interest rate swap would no longer mitigate the impact of changes in interest rates as intended. Most of our interest swaps are currently cleared through a central clearing house which reduces but does not eliminate the aforementioned risks. Also see “Liquidity Risk” below.

Prior to entering into a trading agreement or transaction with any particular institution where we take on counterparty risk, our Manager does a thorough review of such potential counterparty. Such review, however, does not assure the creditworthiness of such counterparty nor that the financial wherewithal of the counterparty will not deteriorate in the future.

Funding Risk

We have financed a substantial majority of our assets with repurchase agreement financing. Over time, as market conditions change, in addition to these financings, we may use other forms of leverage. Changes in the regulatory environment, as well as, weakness in the financial markets, the residential mortgage markets, the commercial mortgage markets, the asset-backed securitization markets and the economy generally could adversely affect one or more of our potential lenders and could cause one or more of our potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.

Liquidity Risk

Our liquidity risk is principally associated with the financing of long-maturity assets with short-term borrowings in the form of repurchase agreements. Although the interest rate adjustments of these assets and liabilities fall within the guidelines established by our operating policies, maturities are not required to be, nor are they, matched.

Should the value of our assets pledged as collateral suddenly decrease, margin calls relating to our repurchase agreements could increase, causing an adverse change in our liquidity position. Our inability to post adequate collateral for a margin call by the counterparty could result in a condition of default under our repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by us, which may have a material adverse consequence on our business and results of operations.

In an instance of severe volatility, or where the additional stress on liquidity resulting from volatility is sustained over an extended period of time, we could be required to sell securities, possibly even at a loss to generate sufficient liquidity to satisfy collateral and margin requirements which could have a material adverse effect on our financial position, results of operations and cash flows.

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Additionally, if one or more of our repurchase agreement counterparties chose not to provide on-going funding, our ability to finance would decline or exist at possibly less advantageous terms. Further, if we are unable to renew, replace or expand repurchase financing with other sources of financing on substantially similar terms, it may have a material adverse effect on our business, financial position, results of operations and cash flows, due to the long term nature of our investments and relatively short-term maturities of our repurchase agreements. As such, there is no assurance that we will always be able to roll over our repurchase agreements.

The costs associated with our borrowings are generally based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase while the yields earned on our existing portfolio of leveraged fixed-rate MBS and other fixed rate assets will remain static. Further, certain of our floating rate assets may contain annual or lifetime interest rate caps as well as limit the frequency or timing of changes to the underlying interest rate index. This could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time, as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our assets. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could have a material adverse effect on our liquidity and results of operations.

In addition, the assets that comprise our investment portfolio are not traded on a public exchange. A portion of these assets may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of our assets may make it difficult for us to sell such assets if the need or desire arises, including in response to changes in economic and other conditions. Recent regulatory changes have imposed new capital requirements and other restrictions on banks and other market intermediaries’ ability and desire to hold assets on their balance sheets and otherwise make markets in fixed income securities and other assets resulting in reduced liquidity in many sectors of the market. This regulatory trend is expected to continue. As a result of these developments, it may become increasingly difficult for us to sell assets in the market, especially in credit oriented sectors such as Non-Agency RMBS and CMBS, ABS and Whole Loans.

We enter into interest rate swaps to manage our interest rate risk. We are required to pledge cash or securities as collateral as part of a margin arrangement, calculated daily, in connection with the interest rate swaps. The amount of margin that we are required to post will vary and generally reflects collateral required to be posted with respect to interest rate swaps that are in an unrealized loss position to us and is generally based on a percentage of the aggregate notional amount of interest rate swaps per counterparty. Margin calls could adversely affect our liquidity. Our inability to post adequate collateral for a margin call could result in a condition of default under our interest rate swap agreements, thereby resulting in liquidation of the collateral pledged by us, which may have a material adverse consequence on our business, financial position, results of operations and cash flows. Conversely, if our interest rate swaps are in an unrealized gain position, our counterparties to bilateral swaps are required to post collateral with us, under the same terms that we post collateral with them. We generally enter into a MAC interest rate swap in which we receive or make a payment at the time of entering such interest rate swap to compensate for the out of the market nature of such interest rate swap. Similar to all other interest rate swaps, MAC interest rate swaps are subject to the margin requirements previously described.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily directly correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our Board of Directors consistent with our obligation to distribute to our stockholders at least 90% of our net taxable income on an annual basis, in accordance with the REIT regulations, in order to maintain our REIT qualification. In each case, our activities and consolidated balance sheets are measured with reference to historical cost and/or fair market value without considering inflation.

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Foreign Investment risk

We have invested in non U.S. CMBS transactions and, in the future, we may make other investments in non U.S. issuers and transactions. These investments present certain unique risks, including those resulting from future political, legal, and economic developments, which could include favorable or unfavorable changes in currency exchange rates, exchange control regulations (including currency blockage), expropriation, nationalization, or confiscatory taxation of assets, adverse changes in investment capital or exchange control regulations (which may include suspension of the ability to transfer currency from a country), political changes, diplomatic developments, difficulty in obtaining and enforcing judgments against non U.S. entities, the possible imposition of the applicable country’s governmental laws or restrictions, and the reduced availability of public information concerning issuers. In the event of a nationalization, expropriation, or other confiscation of assets, we could lose our entire investment in a security. Legal remedies available to investors in certain jurisdictions may be more limited than those available to investors in the United States. Issuers of non U.S. securities may not be subject to the same degree of regulation as U.S. issuers.

Furthermore, non U.S. issuers are not generally subject to uniform accounting, auditing, and financial reporting standards or other regulatory practices and requirements comparable to those applicable to U.S. issuers. There is generally less government supervision and regulation of non U.S. exchanges, brokers, and issuers than there is in the United States, and there is greater difficulty in taking appropriate legal action in non U.S. courts. There are also special tax considerations that apply to securities of non U.S. issuers and securities principally traded overseas.

To the extent that our investments are denominated in U.S. dollars, these investments are not affected directly by changes in currency exchange rates relative to the dollar and exchange control regulations. We are, however, subject to currency risk with respect to such investments to the extent that a decline in a non U.S. issuer’s or borrower’s own currency relative to the dollar may impair such issuer’s or borrower’s ability to make timely payments of principal and/or interest on a loan or other debt security. To the extent that our investments are in non-dollar denominated securities, the value of the investment and the net investment income available for distribution may be affected favorably or unfavorably by changes in currency exchange rates relative to the dollar and exchange control regulations.

Currency exchange rates can be volatile and affected by, among other factors, the general economics of a country, the actions of governments or central banks and the imposition of currency controls and speculation. In addition, a security may be denominated in a currency that is different from the currency where the issuer is domiciled.

Currency Risk

We have and may continue in the future to invest in assets which are denominated in a currency other than U.S dollars and may finance such investments with repurchase financing or other forms of financing which may also be denominated in a currency other than U.S. dollars. To the extent we make such investments and/or enter into such financing arrangements, we may utilize foreign currency swaps, forwards or other derivative instruments to hedge our exposure to foreign currency risk. Despite being economic hedges, we have elected not to treat such derivative instruments as hedges for accounting purposes and therefore the changes in the value of such instruments, including actual and accrued payments, will be included in our Consolidated Statements of Operations. While such transactions are entered into in an effort to minimize our foreign currency risk, there can be no assurance that they will perform as expected. If actual prepayments of the foreign denominated asset are faster, or slower, than expected, the hedge instrument is unlikely to fully protect us from changes in the valuation of such foreign currency. Further, as with interest rate swaps, there is counterparty risk associated with the future creditworthiness of such counterparty.

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ITEM 4. Controls and Procedures

Disclosure Controls and Procedures: Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that the required information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We have evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2020. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

No change occurred in our internal control over financial reporting (as defined in Rule13a-15(f) and Rule 15d-15(f) of the Exchange Act) during the three months ended ~~June~~September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of ~~June~~September 30, 2020, the Company was not involved in any legal proceedings.

ITEM 1A. Risk Factors

The Company is supplementing the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 6, 2020. These supplemental risk factors should be read in conjunction with the other risk factors described in the Form 10-K.

The COVID-19 pandemic and measures intended to prevent its spread have had and may continue to have a material adverse effect on our business, results of operations, liquidity and financial condition.

The COVID-19 pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led governments and other authorities around the world to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The actual and potential impact and duration of COVID-19 or another pandemic have and are expected to continue to have significant repercussions across regional, national and global economies and financial markets, and have triggered a period of regional, national and global economic slowdown and may trigger a longer term recession. The impact of the pandemic and measures to prevent its spread have negatively impacted us and could further negatively impact our business. To the extent current conditions persist or worsen, we expect there to be a materially negative effect on the value of our assets and our results of operations, and, in turn, cash available for distribution to our stockholders. Moreover, many risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

Our commercial mortgages collateralized by hotels, retail properties are disproportionately impacted by the effects of COVID-19. We expect over the near- and long-term that the economic impacts of the pandemic will impact the financial stability of these borrowers As a result, we expect that some of our borrowers will experience financial hardship, making it difficult to meet their payment obligations to us, leading to requests for forbearance and elevated levels of delinquency and default, which will have an adverse effect on our business, the value of these assets and our results of operations and financial condition. Future outbreaks involving other highly infectious or contagious diseases could have similar adverse effects.

We are subject to risks related to residential mortgages. Over the near and long term, the economic and market disruptions caused by the COVID-19 pandemic are likely to adversely impact the financial condition of borrowers underlying our residential mortgage loan investments, As a result, we anticipate that the number of borrowers who become delinquent or default on their loans may increase significantly. Such increased levels of payment delinquencies, defaults, foreclosures, or losses would adversely affect our business, the value of these assets, results of operations and financial position. Future outbreaks involving other highly infectious or contagious diseases could have similar adverse effects.

In response to the pandemic, the U.S. government has taken various actions to support the economy and the continued functioning of the financial markets. The Federal Reserve has announced its commitment to purchase unlimited amounts of U.S. Treasuries, mortgage-backed securities, municipal bonds and other assets. In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, has and is expected to provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who have difficulty making their loan payments. There can be no assurance as to how, in the long term, actions by the U.S. government intended to counter the effects of the COVID-19 pandemic, including the CARES Act, will affect the efficiency, liquidity and stability of the financial and mortgage markets. To the extent the financial or mortgage markets do not respond favorably to these government actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected.

The extent to which the COVID-19 pandemic impacts our business will depend on future developments which are highly uncertain and cannot be predicted including new information which may emerge concerning the severity of COVID-19

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and the actions to contain the pandemic or treat its impact, among others. If these effects continue for a prolonged period or result in a global economic slowdown or recession, many of the risk factors identified in our Annual Report on Form 10-K could be exacerbated and such effects could have a material adverse impact on our results of operations, value of our investments and cash available for distribution to our stockholders.

Our inability to access funding or the terms on which such funding is available could have a material adverse effect on our financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.

Our ability to fund our operations, meet financial obligations and finance our asset may be impacted by our ability to secure and maintain our financings through master repurchase agreements and other borrowings with our counterparties. Because repurchase agreements are short-term commitments of capital, lenders may respond to market conditions making it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings and have and may continue to impose more onerous conditions when rolling such financings. If we are not able to renew our existing facilities or arrange for new financing on terms acceptable to us, or if we default on our covenants or are otherwise unable to access funds under our financing facilities or if we are required to post more collateral or face larger haircuts, we may have to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses. If we are subject to a larger haircut in order to roll repurchase agreement or other borrowings with a particular counterparty then we would be required to post additional margin. Similarly, if we were to move financing to another counterparty that was subject to a larger haircut we would have to pay more cash to the original repurchase agreement counterparty than would be able to borrow from new counterparty.

In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also have revised and may continue to revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, including haircuts and requiring additional collateral in the form of cash, based on, among other factors, the regulatory environment and their management of actual and perceived risk, particularly with respect to assignee liability. Moreover, the amount of financing we receive under our financing arrangements will be directly related to our lenders’ valuation of our assets subject to such agreements. Typically, repurchase agreements grant the lender the absolute right to reevaluate the fair market value of the assets that cover outstanding borrowings at any time. If a lender determines in its sole discretion that the value of the assets has decreased, it has the right to initiate a margin call. These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales and distressed levels by forced sellers. A margin call requires us to transfer additional assets to a lender without any advance of funds from the lender for such transfer or to repay a portion of the outstanding borrowings. We have experienced this phenomenon in recent weeks

In ~~recent weeks,~~March and April 2020, we have observed a significant mark-down on our assets by the counterparties to our financing arrangements, resulting in us having to pay cash or securities to satisfy higher than historical levels of margin calls. The significant decline in asset values resulted in us having to sell assets in order to these meet margin calls by our repurchase agreement counterparties. If in the future we are unable to post adequate collateral for a margin call by a counterparty, in a time frame as short as the close of the same business day, it could result in a condition of default under certain of our repurchase agreements, thereby enabling the counterparty to liquidate the collateral pledged by us, which may have a material adverse effect on our financial position, results of operations and cash flows.

In connection with the market disruptions in the first and second quarters of 2020, resulting from the COVID-19 pandemic, we changed our interest rate hedging strategy and closed out of, or terminated all of our interest rate hedges, incurring realized losses. As a result, interest rate risk exposure that is associated with certain of our assets and liabilities is no longer being hedged in the manner that we previously used to address interest rate risk and our revised strategy to address interest rate risk may not be effective and could result in the occurrence of future realized losses.

In response to the recent market dislocations resulting from the global pandemic of COVID-19, we made the determination that certain of our interest rate hedges were no longer effective in hedging asset market values and, as of March 23, 2020, had terminated or closed out all of our outstanding interest rate hedges and, overall, incurred realized losses. While we are monitoring market conditions and determining when we believe it would be appropriate and effective to re-implement interest rate hedging strategies, including by taking into account our future business activities and assets and liabilities, we will be exposed to the impact that changes in benchmark interest rates may have on the value of the loans, securities and other assets we own that are sensitive to interest rate changes, as well as long-term debt obligations that are sensitive to interest rate changes. There can be no assurance that future market conditions and our financial condition in the future will enable us to re-

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establish an effective interest rate risk hedging program, even if in the future we believe it would otherwise be appropriate or desirable to do so.

We cannot predict the effect that government policies, laws, and plans adopted in response to the COVID-19 pandemic or other future outbreaks involving highly infectious or contagious diseases and resulting recessionary economic conditions will have on us.

Governments have adopted, and we expect will continue to adopt, policies, laws, and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial, and mortgage markets that it has caused. We cannot assure you that these programs will be effective, sufficient, or otherwise have a positive impact on our business.

Market and economic disruptions caused by the COVID-19 pandemic have made it more difficult for us to determine the fair value of our investments.

Market-based inputs are generally the preferred source of values for purposes of measuring the fair value of our assets under U.S. GAAP. However, the markets for our investments have and continue to experience extreme volatility, reduced transaction volume and liquidity, and disruption as a result of the COVID-19 pandemic, which has made it more difficult for us, and for the providers of third-party valuations that we use, to rely on market-based inputs in connection with the valuation of our assets under U.S. GAAP. The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. The value of our common and our results of operations could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

We may pay taxable dividends in our common stock and cash, in which case stockholders may sell shares of our common stock to pay tax on such dividends, placing downward pressure on the market price of our common stock.

We generally must distribute annually at least 90% of our REIT taxable income (subject to certain adjustments and excluding any net capital gain), in order to qualify as a REIT, and any REIT taxable income that we do not distribute will be subject to U.S. corporate income tax at regular rates. In March 2020, the Board of Directors of the Company determined it was prudent to conserve available liquidity and suspend the Company’s first quarter dividend. The Board of Directors will evaluate dividends in future periods based upon customary consideration, such as our cash balances, and cash flows and market conditions and could consider paying future dividends in shares of common stock, cash, or a combination of shares of common stock and cash.

On May 4, 2020 the IRS issued Revenue Procedure 2020-19, which modifies Revenue Procedure 2017-45 solely with respect to distributions by publicly owned REITs. Pursuant to this revenue procedure, effective for distributions declared on or after April 1, 2020, the IRS will treat the distribution of stock pursuant to an elective stock dividend as a distribution of property under Section 301 of the Code (i.e., as a dividend to the extent of our earnings and profits), as long as at least 10% of the total dividend is available in cash and certain other requirements outlined in the revenue procedure are met.

If we make a taxable dividend payable in cash and common stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. If we make a taxable dividend payable in cash and our common stock and a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

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None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

The following exhibits are filed as part of this report.


Exhibit No.						Description

3.1*						Amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 3.1 to Amendment No. 10 Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012.

3.2*						Amendment to the amended and restated certificate of incorporation of Western Asset Mortgage Capital Corporation, dated June 3, 2016, incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K, filed March 7, 2017.

3.3*						Amended and restated bylaws of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 3.2 to Amendment No. 10 to Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012

4.1*						Specimen Common Stock Certificate of Western Asset Mortgage Capital Corporation, incorporated by reference to Exhibit 4.1 to Amendment No. 10 to Form S-11 (Registration Statement No. 333-159962), filed May 8, 2012.

4.2*						Indenture, dated as of October 2, 2017, between Western Asset Mortgage Capital Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed on October 3, 2017.

4.3*						First Supplemental Indenture, dated as of October 2, 2017, between Western Asset Mortgage Capital Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, filed on October 3, 2017.

4.4*						Form of 6.75% Convertible Senior Notes due 2022 (attached as Exhibit A to the First Supplemental Indenture filed as Exhibit 4.3 hereto), incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, filed on October 3, 2017.

10.1*						Amendment to the Management Agreement between Western Asset Mortgage Capital Corporation and Western Asset Management Company, dated August 3, 2016, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed on August 5, 2016.

10.2*						Form of Warrant, incorporated by reference to Exhibit 10.2 to Amendment No. 9 to Form S-11 (Registration Statement No. 333-159962), filed April 30, 2012.

10.3*						Management Agreement, dated May 9, 2012, between Western Asset Mortgage Capital Corporation and Western Asset Management Company, incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q, filed August 14, 2012.

10.4*						Registration Rights Agreement, dated May 15, 2012, among Western Asset Mortgage Capital Corporation, Western Asset Management Company and certain individual holders named therein, incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q, filed August 14, 2012.

10.5*						Western Asset Mortgage Capital Corporation Equity Plan, incorporated by reference to Exhibit 10.5 to Amendment No. 9 to Form S-11 (Registration Statement No. 333-159962), filed April 30, 2012.

10.6*						Western Asset Mortgage Capital Corporation Manager Equity Plan, incorporated by reference to Exhibit 10.6 to Amendment No. 9 to Form S-11 (Registration Statement No. 333-159962), filed April 30, 2012.

10.7*						Form of Indemnification Agreement between Western Asset Mortgage Capital Corporation and a director, incorporated by reference to Exhibit 10.7 to Amendment No. 9 Form S-11 (Registration Statement No. 333-159962), filed April 30, 2012.

10.8*						Restricted Stock Award Agreement, dated May 15, 2012, for Western Asset Management Company, incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, filed August 14, 2012.

10.9*						Form of Restricted Stock Award Agreement for independent directors, incorporated by reference to Exhibit 10.2 to the Form S-8 dated May 15, 2012 (File No. 1-35543).

10.10*						Equity Distribution Agreement, dated March 6, 2017, among Western Asset Mortgage Capital Corporation, Western Asset Management Company and JMP Securities LLC, incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K, filed March 9, 2017.

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10.11*						Amendment No. 1 to the Equity Distribution Agreement, dated June 5, 2020, among Western Asset Mortgage Capital Corporation, Western Asset Management Company, LLC and JMP Securities LLC, incorporated by reference to Exhibit 1.1 to the Current Report on Form ~~8-k,~~8-K, filed June 5, 2020.

31.1						Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

31.2						Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

32.1						Section 1350 Certifications of Chief Executive Officer aSection 1350 Certifications of Chief Executive Officer and Chief Financial Officer.

~~101.INS~~101						The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019; (ii) the Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019; (iii) the Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2020 and 2019; (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019; and (v) the Notes to Consolidated Financial Statements.

104						Cover Page Interactive Data File (the cover page XBRL ~~Instance Document~~tags are embedded within the iXBRL document).



~~101.SCH~~						~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~						~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~						~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~						~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~						~~XBRL Taxonomy Extension Presentation Linkbase Document~~

*Fully or partly previously filed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


			By:			/s/ JENNIFER W. MURPHY

			Jennifer W. Murphy
			President, Chief Executive Officer and Director (Principal Executive Officer)

			~~August 10,~~November 6, 2020


			By:			/s/ LISA MEYER

			Lisa Meyer
			Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

			~~August 10,~~November 6, 2020

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		Page

	Part I — FINANCIAL INFORMATION

ITEM 1.	Financial Statements	2

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5558

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	97102

ITEM 4.	Controls and Procedures	~~103~~108

	Part II — OTHER INFORMATION	~~104~~109

ITEM 1.	Legal Proceedings	~~104~~109

ITEM 1A.	Risk Factors	~~104~~109

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~106~~111

ITEM 3.	Defaults Upon Senior Securities	~~106~~111

ITEM 4.	Mine Safety Disclosures	~~107~~112

ITEM 5.	Other Information	~~107~~112

ITEM 6.	Exhibits	~~108~~113

Signatures		~~110~~115


	$ Amount		Per Share



















GAAP Book Value at June 30, 2020	$	188,712	$	3.17

Adjustments to deconsolidate VIEs and reflect the Company's interest in the securities owned
Deconsolidation of VIEs assets	(1,555,962)		(26.17)
Deconsolidation VIEs liabilities	1,486,107		25.00
Interest in securities of VIEs owned, at fair value	121,315		2.04
Economic Book Value at June 30, 2020	$	240,172	$	4.04