What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-12 · 298 added, 217 removed, 795 unchanged (39% of the section changed)

10 unchanged sentences

To the Board of Trustees and Shareholders of Ellington Residential Mortgage REIT

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ellington Residential Mortgage REIT and its subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of operations, of shareholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements").

We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Ellington Residential Mortgage REIT and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of shareholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Certain Level 3 Investments in Mortgage-backed Securities that are Determined Based on Management’s Internal Valuation Techniques

As described in Notes 2 and 4 to the consolidated financial statements, the Company held $21.5 million of total level 3 investments in mortgage-backed securities, at fair value as of December 31, 2020.

The Company has chosen to make a fair value election for its securities portfolio.

Management generally uses third-party valuations when available, if third-party valuations are not available, management uses other valuation techniques, such as the discounted cash flow methodology.

Management’s estimate of fair value may be based on several assumptions, including but not limited to management’s estimates of yield, projected collateral prepayments, projected collateral losses and projected collateral recoveries, as applicable.

Fair value measurements are impacted by the interrelationships of these assumptions.

The principal considerations for our determination that performing procedures relating to the valuation of certain level 3 investments in mortgage-backed securities that are determined based on management’s internal valuation techniques is a critical audit matter are (i) the significant judgment by management in determining the fair value of these investments, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the valuation of these level 3 investments and the interrelated assumptions related to yield, projected collateral prepayments, projected collateral losses, and projected collateral recoveries, as applicable;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s valuation of certain level 3 investments in mortgage-backed securities, including controls over management’s comparison of internally developed fair values to fair values obtained from third-party pricing providers.

These procedures also included, among others, developing an independent range of fair value estimates, which included (i) testing the completeness and accuracy of data provided by management;

(ii) comparing management’s estimate of fair value to independent sources, where available;

and (iii) for a sample of investments, the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of estimates of fair value by independently developing assumptions related to yield, projected collateral prepayments, projected collateral losses, and projected collateral recoveries, as applicable.

/s/PricewaterhouseCoopers LLP

4 unchanged sentences

CONSOLIDATED BALANCE SHEET

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(In thousands except for share amounts)

1 unchanged sentence

Mortgage-backed securities, at fair value (1)

1,081,380 1,401,778

Other investments, at fair value 292 —

Due from brokers 47,798 34,596

3 unchanged sentences

Interest receivable 4,114 5,016

Total Assets $ 1,194,811 $ 1,489,109

LIABILITIES AND SHAREHOLDERS' EQUITY

18 unchanged sentences

Total Liabilities and Shareholders' Equity $ 1,194,811 $ 1,489,109

(1) Includes assets pledged as collateral to counterparties.

See Note 6 for additional details on the Company's borrowings and related collateral.

See Notes to Consolidated Financial Statements

1 unchanged sentence

CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31,

December 31, 2020 December 31, 2019

(In thousands except for per share amounts)

13 unchanged sentences

Change in net unrealized gains (losses) on securities

15,625 49,231

Change in net unrealized gains (losses) on financial derivatives

( 5,955 ) 6,438

Total other income (loss) 8,583 18,974

5 unchanged sentences

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Common Shares

Preferred Shares

Preferred Shares,

Additional Paid-in-Capital

Accumulated (Deficit) Earnings

Common Shares Common

par value Preferred Shares Preferred Shares,

par value Additional Paid-in-Capital Accumulated (Deficit) Earnings Total

(In thousands except for share amounts)

BALANCE, December 31, 2018

12,507,213 $ 125 — $ — $ 230,888 $ ( 77,191 ) $ 153,822

Issuance of restricted shares 22,361 — — — — —

2 unchanged sentences

Dividends declared (1)

( 14,703 ) ( 14,703 )

Net income (loss) 22,256 22,256

4 unchanged sentences

Dividends declared (1)

( 13,809 ) ( 13,809 )

Net income (loss) 20,112 20,112

17 unchanged sentences

Interest receivable 902 591

Other assets 334 8

Increase (decrease) in liabilities:

60 unchanged sentences

It is the intention of the Company to distribute at least 100 % of its taxable income, after application of available tax attributes, within the time limits prescribed by the Code, which may extend into the subsequent taxable year.

COVID-19 Impact

During the first quarter of 2020, there was a worldwide outbreak of a novel coronavirus disease, or "COVID-19." The outbreak was declared a pandemic by the World Health Organization and numerous countries, including the United States, have responded by instituting quarantines or lockdowns, imposing restrictions on travel, restrictions on the ability of individuals to assemble in groups, and restrictions on the ability of certain businesses to operate, all of which have resulted in significant disruptions in the U.S.

and global economies.

In mid-March 2020, adverse economic conditions related to the COVID-19 pandemic began to impact the Company's financial position and results of operations.

The COVID-19 pandemic has contributed to volatility, dislocations in the financial markets, and illiquidity.

As a result, the Company received margin calls under its repurchase agreements that were higher than typical historical levels.

The Company satisfied all of these margin calls.

Actions during the second half of March 2020 by the U.S.

Federal Reserve helped stabilize the market for Agency RMBS.

In light of the heightened levels of market volatility and systemic liquidity risk experienced during the first quarter of 2020, the Company proactively reduced the size of its Agency RMBS portfolio, thereby bolstering its liquidity and lowering its leverage.

Actions by the Federal Reserve continued to stabilize the market for Agency RMBS during the second quarter, and margin calls under the Company's financing arrangements reverted to more typical levels.

The Company's management team has implemented business continuity plans, and the Company, the Manager, and EMG continue to be fully operational in a largely work-from-home environment.

Significant Accounting Policies

6 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates and those differences could be material.

Actual results could differ from those estimates and those differences could be material (particularly in light of the significant volatility, lack of pricing transparency, and market dislocations that have been caused by the COVID-19 pandemic, and associated responses to the pandemic).

In management's opinion, all material adjustments considered necessary for a fair statement of the Company's interim consolidated financial statements have been included and are only of a normal recurring nature.

(B) Valuation:

4 unchanged sentences

• Level 1—inputs to the valuation methodology are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Currently, the types of financial instruments the Company generally includes in this category are exchange-traded derivatives;

Currently, the types of financial instruments the Company generally includes in this category are exchange-traded derivatives and equities;

• Level 2—inputs to the valuation methodology other than quoted prices included in Level 1 are observable for the asset or liability, either directly or indirectly.

22 unchanged sentences

Management has been able to obtain third-party valuations on the vast majority of these instruments and expects to continue to solicit third-party valuations in the future.

Management generally values each financial instrument at the average of third-party valuations received and not rejected as described below.

Management generally

values each financial instrument at the average of third-party valuations received and not rejected as described below.

Third-party valuations are not binding, management may adjust the valuations it receives (e.g., downward adjustments for odd lots), and management may challenge or reject a valuation when, based on its validation criteria, management determines that such valuation is unreasonable or erroneous.

11 unchanged sentences

Repurchase agreements and reverse repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature.

The Company's valuation process, including the application of validation criteria, is overseen by the Manager's Valuation Committee ("Valuation Committee").

The Company's valuation process, including the application of validation criteria, is directed by the Manager's Valuation Committee ("Valuation Committee") and overseen by the Company's audit committee.

The Valuation Committee includes senior level executives from various departments within the Manager, and each quarter the Valuation Committee reviews and approves the valuations of the Company's investments.

7 unchanged sentences

As such, securities are recorded at fair value on the Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on the Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities.

The Company evaluates the cost basis of its Agency IOs and non-Agency RMBS for other-than-temporary impairment, or "OTTI," on at least a quarterly basis.

When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security is considered impaired, and the impairment is designated as either temporary or other-than-temporary.

When a security's cost basis is impaired, an OTTI is considered to have occurred if (i) the Company intends to sell the security (i.e., a decision has been made as of the reporting date), (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or (iii) the Company does not expect to recover the security's amortized cost basis, even if the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security.

If any of these conditions exist as of the financial reporting date, the entire amount of the impairment loss, if any, is recognized in earnings as a realized loss and the cost basis of the security is adjusted.

Any resulting OTTI adjustments made to the amortized cost basis of the security are reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.

Periods after January 1, 2020— For periods subsequent to the Company's application of the principles of ASU 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"), as discussed below, the Company evaluates the cost basis of its securities on at least a quarterly basis under ASC 326-30, Financial Instruments—Credit Losses:

Available-for-Sale Debt Securities ("ASC 326-30").

When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security's cost basis is considered impaired.

The Company must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors.

In its assessment of whether a credit loss exists, the Company compares the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security.

The estimated future cash flows reflect those that a "market participant" would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well as incorporating observations of current market developments and events.

Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income.

If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Unrealized gains (losses) on securities and loans, net, on the Consolidated Statement of Operations.

If it is determined as of the financial reporting date that all or a portion of a security's cost basis is not collectible, then the Company will recognize a realized loss to the extent of the adjustment to the security's cost basis.

This adjustment to the amortized cost basis of the security is reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.

Periods prior to January 1, 2020— For periods prior to the Company's application of the principles of ASU 2016-13, the Company evaluated the cost basis of its Agency IOs and non-Agency RMBS for other-than-temporary impairment, or "OTTI," on at least a quarterly basis.

When the fair value of a security was less than its amortized cost basis as of the balance sheet date, the security was considered impaired, and the impairment was designated as either temporary or other-than-temporary.

When a security's cost basis was impaired, an OTTI was considered to have occurred if (i) the Company intended to sell the security (i.e., a decision had been made as of the reporting date), (ii) it was more likely than not that the Company would have been required to sell the security before recovery of its amortized cost basis, or (iii) the Company did not expect to recover the security's amortized cost basis, even if the Company did not intend to sell the security and it was not more likely than not that the Company would have been required to sell the security.

If any of these conditions existed as of the financial reporting date, the entire amount of the impairment loss, if any, was recognized in earnings as a realized loss and the cost basis of the security was adjusted.

Any resulting OTTI adjustments made to the amortized cost basis of the security were reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.

(D) Interest Income:

4 unchanged sentences

For RMBS that are deemed not to be of high credit quality at the time of purchase, interest income is recognized based on the effective interest method.

For purposes of determining the effective interest rate, management estimates the future expected cash flows of its investment holdings based on assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macro-economic assumptions, such as future housing prices).

For purposes of estimating future expected cash flows, management uses assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macro-economic assumptions, such as future housing prices).

These assumptions are re-evaluated not less than quarterly.

Principal write-offs are generally treated as realized losses.

Changes in projected cash flows, as applied to the current amortized cost of the security, may result in a prospective change in the yield/interest income recognized on such securities.

Changes in estimated future cash flows, as applied to the current amortized cost of the security, may result in a prospective change in the yield/interest income recognized on such securities.

Certain of the Company's debt securities, at the date of acquisition, have experienced or are expected to experience more-than-insignificant deterioration in credit quality since origination.

For periods subsequent to the Company's application of the principles of ASU 2016-13, if at the date of acquisition for a particular asset the Company projects a significant difference between contractual cash flows and expected cash flows, it establishes an initial estimate for credit losses as an upward adjustment to the acquisition cost of the asset for the purpose of calculating interest income using the effective yield method.

The Company's accretion of discounts and amortization of premiums on securities for U.S.

3 unchanged sentences

Cash and cash equivalents include cash and short term investments with original maturities of three months or less at the date of acquisition.

Cash and cash equivalents typically include amounts held in an interest bearing overnight account and amounts held in money market funds, and these balances generally exceed insured limits.

Cash and cash equivalents typically include amounts held in interest bearing overnight accounts and amounts held in money market funds, and these balances generally exceed insured limits.

The Company holds its cash at institutions that it believes to be highly creditworthy.

4 unchanged sentences

The Company's financial derivatives are predominantly subject to bilateral collateral arrangements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Company may be required to deliver or may receive cash or securities as collateral upon entering into derivative transactions.

The Company may be required to deliver or may receive cash or

securities as collateral upon entering into derivative transactions.

In addition, changes in the relative value of financial derivative transactions may require the Company or the counterparty to post or receive additional collateral.

35 unchanged sentences

instead, the agreed-upon premium is paid by the buyer upon expiration of the options contract, regardless of whether or not the options contract is exercised.

Unrealized gains or (losses) resulting from the options contract being marked-to-market are

included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations.

Unrealized gains or (losses) resulting from the options contract being marked-to-market are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations.

Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.

4 unchanged sentences

Initial margin deposits are made upon entering into futures contracts and can be either in the form of cash or securities.

During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking-to-market to reflect the current market value of the contract.

During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking-to-market to reflect the

current market value of the contract.

Unrealized gains or (losses) are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations.

35 unchanged sentences

ASC 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.

ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the financial statements.

ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the

financial statements.

The cost is measured based on the fair value, at the grant date, of the equity or liability instruments issued and is amortized over the vesting period.

35 unchanged sentences

ASU 2018-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those years, with early adoption permitted.

Entities are permitted to early adopt any removed or modified

disclosures and delay adoption of the additional disclosures until their effective date.

The Company has elected to early adopt the removal and modification of various disclosure requirements in accordance with ASU 2018-13;

early adoption has not had a material impact on the Company's consolidated financial statements.

The Company has elected not to early adopt the additional disclosure requirements.

The adoption of the additional disclosure requirements, as required under ASU 2018-13, is not expected to have a material impact on the Company's consolidated financial statements.

Entities are permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date.

The adoption of the additional disclosure requirements, as required under ASU 2018-13, did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, which introduced a new model related to the accounting for credit losses on financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures.

ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

ASU 2016-13 amends the guidance which required an OTTI charge only when fair value is below the amortized cost of an asset.

length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists;

as a result, there is no longer an other-than-temporary impairment model.

In addition, credit losses on available-for-sale debt securities will now be limited to the difference between the security's amortized cost basis and its fair value.

The new debt security model will also require the use of an allowance to record estimated credit losses.

While ASU 2016-13 is generally not applicable for securities for which the fair value option has been elected, the Company has applied the principles of ASU 2016-13 as described above.

The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform—Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional guidance for a limited period meant to ease the potential burden in accounting for, or recognizing the effects of, reform to LIBOR and certain other reference rates.

The standard is effective for all entities beginning on March 12, 2020 and may be elected over time.

However, ASU 2020-04 is only applicable to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, and that were entered into or evaluated prior to January 1, 2023.

The Company is currently evaluating the impact that the adoption of ASU 2020-04 would have on its consolidated financial statements.

Mortgage-Backed Securities

5 unchanged sentences

($ in thousands)

Gross Unrealized

Weighted Average

Current Principal

Unamortized Premium (Discount)

Amortized Cost

Gross Unrealized Weighted Average

Current Principal Unamortized Premium (Discount) Amortized Cost

Gains Losses Fair Value Coupon (1)

15-year fixed-rate mortgages

$ 77,578 $ 2,566 $ 80,144 $ 3,063 $ ( 48 ) $ 83,159 3.35 % 2.24 % 3.33

20-year fixed-rate mortgages

42,559 1,688 44,247 516 — 44,763 2.35 % 1.34 % 4.46

30-year fixed-rate mortgages

763,563 35,797 799,360 35,865 ( 344 ) 834,881 3.87 % 2.47 % 4.18

Adjustable rate mortgages

19,459 522 19,981 481 ( 20 ) 20,442 3.32 % 2.34 % 3.18

Reverse mortgages

61,653 3,841 65,494 1,990 ( 10 ) 67,474 3.86 % 2.40 % 4.49

Interest only securities

n/a n/a 15,434 489 ( 2,874 ) 13,049 3.25 % 3.74 % 3.37

Total Agency RMBS 964,812 44,414 1,024,660 42,404 ( 3,296 ) 1,063,768 3.68 % 2.42 % 4.02

Non-Agency RMBS 23,140 ( 7,771 ) 15,369 2,245 ( 2 ) 17,612 1.32 % 7.41 % 6.53

Total RMBS $ 987,952 $ 36,643 $ 1,040,029 $ 44,649 $ ( 3,298 ) $ 1,081,380 3.63 % 2.49 % 4.07

(1) Weighted average coupon represents the weighted average pass-through rates of the securities rather than the weighted average gross mortgage rates of the underlying collateral.

3 unchanged sentences

($ in thousands)

Gross Unrealized

Weighted Average

Current Principal

Unamortized Premium (Discount)

Amortized Cost

Gross Unrealized Weighted Average

Current Principal Unamortized Premium (Discount) Amortized Cost

Losses Fair Value Coupon (1)

15-year fixed-rate mortgages

$ 173,350 $ 3,498 $ 176,848 $ 4,424 $ ( 41 ) $ 181,231 3.45 % 2.89 % 4.06

20-year fixed-rate mortgages

1,276 80 1,356 29 — 1,385 5.00 % 3.34 % 5.09

30-year fixed-rate mortgages

996,451 45,099 1,041,550 19,676 ( 2,348 ) 1,058,878 4.18 % 3.12 % 6.71

Adjustable rate mortgages

32,122 927 33,049 264 ( 58 ) 33,255 3.79 % 2.41 % 4.20

Reverse mortgages

91,560 6,847 98,407 1,549 ( 22 ) 99,934 4.53 % 2.73 % 5.66

Interest only securities

n/a n/a 17,795 648 ( 199 ) 18,244 3.22 % 9.11 % 3.97

Total Agency RMBS 1,294,759 56,451 1,369,005 26,590 ( 2,668 ) 1,392,927 3.99 % 3.12 % 5.92

Non-Agency RMBS 10,947 ( 4,023 ) 6,924 1,928 ( 1 ) 8,851 3.73 % 13.48 % 5.93

Total RMBS $ 1,305,706 $ 52,428 $ 1,375,929 $ 28,518 $ ( 2,669 ) $ 1,401,778 3.98 % 3.17 % 5.92

(1) Weighted average coupon represents the weighted average pass-through rates of the securities rather than the weighted average gross mortgage rates of the underlying collateral.

4 unchanged sentences

($ in thousands)

Agency Interest Only Securities

Non-Agency RMBS

Agency RMBS Agency Interest Only Securities Non-Agency RMBS

Estimated Weighted Average Life (1)

Amortized Cost

Weighted Average Coupon (2)

Amortized Cost

Weighted Average Coupon (2)

Amortized Cost

Weighted Average Coupon (2)

Value Amortized Cost Weighted Average Coupon (2)

Fair Value Amortized Cost Weighted Average Coupon (2)

Less than three years $ 165,830 $ 162,346 3.80 % $ 3,345 $ 4,341 4.72 % $ 1,848 $ 1,757 2.08 %

2 unchanged sentences

Greater than eleven years 16,438 15,222 3.61 % — — — % — — — %

Total $ 1,050,719 $ 1,009,226 3.75 % $ 13,049 $ 15,434 3.25 % $ 17,612 $ 15,369 1.32 %

(1) Average lives of RMBS are generally shorter than stated contractual maturities.

2 unchanged sentences

($ in thousands)

Agency Interest Only Securities

Non-Agency RMBS

Agency RMBS Agency Interest Only Securities Non-Agency RMBS

Estimated Weighted Average Life (1)

Amortized Cost

Weighted Average Coupon (2)

Amortized Cost

Weighted Average Coupon (2)

Amortized Cost

Weighted Average Coupon (2)

Value Amortized Cost Weighted Average Coupon (2)

Fair Value Amortized Cost Weighted Average Coupon (2)

Less than three years $ 53,620 $ 52,683 4.72 % $ 3,695 $ 3,407 4.53 % $ 4,000 $ 3,823 5.35 %

2 unchanged sentences

Greater than eleven years 30,909 30,621 3.97 % — — — % — — — %

Total $ 1,374,683 $ 1,351,210 4.10 % $ 18,244 $ 17,795 3.22 % $ 8,851 $ 6,924 3.73 %

(1) Average lives of RMBS are generally shorter than stated contractual maturities.

1 unchanged sentence

The following tables reflect the components of interest income on the Company's RMBS for the years ended December 31, 2020 and 2019:

December 31, 2019

December 31, 2020 Year Ended

December 31, 2019

($ in thousands)

Net Amortization

Interest Net Amortization Interest

Income Coupon

Interest Net Amortization Interest

Agency RMBS $ 45,505 $ ( 20,168 ) $ 25,337 $ 61,197 $ ( 19,710 ) $ 41,487

Non-Agency RMBS 548 1,004 1,552 425 467 892

For the years ended December 31, 2019 and 2018, the Catch-up Premium Amortization Adjustment was $( 5.9 ) million and $( 38 ) thousand , respectively.

Total $ 46,053 $ ( 19,164 ) $ 26,889 $ 61,622 $ ( 19,243 ) $ 42,379

For the years ended December 31, 2020 and 2019, the Catch-up Premium Amortization Adjustment was $( 4.6 ) million and $( 5.9 ) million, respectively.

At December 31, 2020, the Company had gross unrealized losses on RMBS of $( 3.3 ) million, of which $( 2.6 ) million relates to adverse changes in estimated future cash flows on Agency IOs and non-Agency RMBS, primarily resulting from an increase in expected prepayments.

Certain of the Company's securities, at the date of acquisition, have experienced or are expected to experience more-than-insignificant deterioration in credit quality since origination, and the Company has established an initial estimate for credit losses on such securities for the purpose of calculating interest income;

as of December 31, 2020, the estimated credit losses on such securities was $( 0.7 ) million.

For the year ended December 31, 2019, the Company recognized an impairment charge of $ 4.3 million relating to its Agency IOs, which is included in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.

This charge recorded was due to an adverse change in cash flows resulting from an increase in prepayments.

This impairment charge was due to an adverse change in estimated future cash flows resulting from an increase in expected prepayments.

The following tables present the Company's financial instruments measured at fair value on:

1 unchanged sentence

(In thousands)

Description Level 1 Level 2 Level 3 Total

Mortgage-backed securities, at fair value:

7 unchanged sentences

Mortgage-backed securities, at fair value — 1,059,888 21,492 1,081,380

Other investments, at fair value:

Preferred equity securities 292 — — 292

Treasury securities — — — —

Total other investments, at fair value 292 — — 292

Financial derivatives–assets, at fair value:

TBAs — 1,720 — 1,720

Interest rate swaps — 1,071 — 1,071

Total financial derivatives–assets, at fair value — 2,791 — 2,791

Total mortgage-backed securities and financial derivatives–assets, at fair value

Treasury securities sold short, at fair value

Total mortgage-backed securities, other investments, and financial derivatives–assets, at fair value

$ 292 $ 1,062,679 $ 21,492 $ 1,084,463

Financial derivatives–liabilities, at fair value:

TBAs $ — $ ( 699 ) $ — $ ( 699 )

Interest rate swaps — ( 5,585 ) — ( 5,585 )

Futures ( 346 ) — — ( 346 )

Total financial derivatives–liabilities, at fair value $ ( 346 ) $ ( 6,284 ) $ — $ ( 6,630 )

Treasury securities sold short and financial derivatives–liabilities, at fair value

December 31, 2019:

(In thousands)

Description Level 1 Level 2 Level 3 Total

Mortgage-backed securities, at fair value:

8 unchanged sentences

Financial derivatives–assets, at fair value:

TBAs — 122 — 122

Interest rate swaps — 3,624 — 3,624

Futures 434 — — 434

Total financial derivatives–assets, at fair value 434 3,746 — 4,180

Total mortgage-backed securities and financial derivatives–assets, at fair value

$ 434 $ 1,394,612 $ 10,912 $ 1,405,958

Treasury securities sold short, at fair value $ — $ ( 2,070 ) $ — $ ( 2,070 )

Financial derivatives–liabilities, at fair value:

TBAs — ( 304 ) — ( 304 )

Interest rate swaps — ( 1,647 ) — ( 1,647 )

Futures ( 96 ) — — ( 96 )

Total financial derivatives–liabilities, at fair value ( 96 ) ( 1,951 ) — ( 2,047 )

Treasury securities sold short and financial derivatives–liabilities, at fair value

$ ( 96 ) $ ( 4,021 ) $ — $ ( 4,117 )

The following tables present additional information about the Company's investments which are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value.

Year Ended December 31, 2020:

(In thousands)

Non-Agency RMBS

(In thousands) Non-Agency RMBS Agency RMBS

Beginning balance as of December 31, 2019

$ 3,273 $ 7,639

Purchases 17,672 5,976

Proceeds from sales ( 11,205 ) ( 3,774 )

7 unchanged sentences

All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations.

The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at December 31, 2019 , as well as Level 3 financial instruments

disposed of by the Company during the year ended December 31, 2019 .

For Level 3 financial instruments held by the Company as of December 31, 2019 , change in net unrealized gains (losses) of $( 25 ) thousand and $ 0.5 million , for the year ended December 31, 2019 relate to non-Agency RMBS and Agency RMBS, respectively.

The table above incorporates changes in net unrealized gains (losses) for

both Level 3 financial instruments held by the Company at December 31, 2020, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2020.

For Level 3 financial instruments held by the Company as of December 31, 2020, change in net unrealized gains (losses) of $ 0.2 million and $( 2.4 ) million, for the year ended December 31, 2020 relate to non-Agency RMBS and Agency RMBS, respectively.

At December 31, 2020, the Company transferred $ 1.8 million of RMBS from Level 3 to Level 2 and $ 6.2 million of RMBS from Level 2 to Level 3.

2 unchanged sentences

Year Ended December 31, 2019:

(In thousands)

Non-Agency RMBS

(In thousands) Non-Agency RMBS Agency RMBS

Beginning balance as of December 31, 2018

$ 4,634 $ 2,832

Purchases — 2,818

Proceeds from sales ( 1,372 ) —

18 unchanged sentences

(In thousands)

Non-Agency RMBS

Market quotes

Non-Binding Third-Party Valuation

Agency RMBS–Interest Only Securities

Market quotes

Non-Binding Third-Party Valuation

Non-Agency RMBS

Non-Agency RMBS $ 12,009 Market quotes Non-Binding Third-Party Valuation $ 42.57 $ 92.45 $ 80.76

1,287 Discounted Cash Flows

13,296 Yield (2)

2.2 % 28.6 % 4.5 %

Projected Collateral Prepayments 31.7 % 56.2 % 41.8 %

1 unchanged sentence

Projected Collateral Recoveries 9.4 % 21.5 % 15.2 %

Projected Collateral Scheduled Amortization

Agency RMBS–Interest Only Securities

Option Adjusted Spread ("OAS")

LIBOR OAS (2)

Agency RMBS–Interest Only Securities 8,196 Option Adjusted Spread ("OAS") LIBOR OAS (3)(4)

Projected Collateral Prepayments 25.8 % 100.0 % 82.9 %

Projected Collateral Scheduled Amortization

(1) Averages are weighted based on the fair value of the related instrument.

(2) For the range minimum, the range maximum, and the weighted average yield, excludes non-Agency RMBS with a negative yield, with a total fair value of $ 0.9 million.

Including these securities the weighted average yield was 4.1 %.

(3) Shown in basis points.

(4) For the range minimum, the range maximum, and the weighted average of LIBOR OAS, excludes Agency interest only securities with a negative LIBOR OAS, with a total fair value of $ 0.5 million.

Including these securities the weighted average was 385 basis points.

December 31, 2019 (1) :

3 unchanged sentences

(In thousands)

Non-Agency RMBS

Market quotes

Non-Binding Third-Party Valuation

Non-Agency RMBS

Non-Agency RMBS $ 1,558 Market quotes Non-Binding Third-Party Valuation $ 64.56 $ 89.04 $ 81.56

1,715 Discounted Cash Flows

3,273 Yield 1.3 % 9.9 % 4.4 %

Projected Collateral Prepayments 49.1 % 61.8 % 57.9 %

1 unchanged sentence

Projected Collateral Recoveries 6.6 % 14.5 % 12.3 %

Projected Collateral Scheduled Amortization

Agency RMBS–Interest Only Securities

Agency RMBS–Interest Only Securities 2,615 Market quotes Non-Binding Third-Party Valuation $ 6.67 $ 17.14 $ 11.96

5,024 Option Adjusted Spread ("OAS")

7,639 LIBOR OAS (3)

77 25,553 824

Projected Collateral Prepayments 41.7 % 80.3 % 73.4 %

Projected Collateral Scheduled Amortization

(1) Conformed to current period presentation.

(2) Averages are weighted based on the fair value of the related instrument.

3 unchanged sentences

For those assets valued using the LIBOR Option Adjusted Spread, or "OAS," valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates implied by each interest rate scenario.

The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset.

The LIBOR OAS of an asset is then computed as the unique constant yield spread

that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset.

LIBOR OAS is therefore model-dependent.

5 unchanged sentences

The following table summarizes the estimated fair value of all other financial instruments not included in the disclosures above as of December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

(In thousands)

Carrying Value

Other financial instruments

December 31, 2020 December 31, 2019

(In thousands) Fair Value Carrying Value Fair Value Carrying Value

Cash and cash equivalents $ 58,166 $ 58,166 $ 35,351 $ 35,351

18 unchanged sentences

The following table details the fair value of the Company's holdings of financial derivatives as of December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(In thousands)

4 unchanged sentences

Fixed receiver interest rate swaps 614 81

Futures — 434

Total financial derivatives–assets, at fair value 2,791 4,180

4 unchanged sentences

Fixed receiver interest rate swaps ( 377 ) ( 15 )

Futures ( 346 ) ( 96 )

Total financial derivatives–liabilities, at fair value ( 6,630 ) ( 2,047 )

Total, net $ ( 3,839 ) $ 2,133

Interest Rate Swaps

2 unchanged sentences

Weighted Average

Notional Amount

Remaining Years to Maturity

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2022 $ 124,347 $ ( 1,883 ) 0.93 % 0.22 % 1.78

2023 77,591 ( 1,711 ) 0.96 0.23 2.45

2025 25,000 ( 128 ) 0.51 0.21 4.87

2027 56,692 305 0.50 0.23 6.54

2040 500 20 0.90 0.09 19.82

2042 10,303 ( 988 ) 1.81 0.23 21.93

2049 3,633 ( 463 ) 1.89 0.21 28.83

2050 792 97 0.90 0.22 29.54

Total $ 298,858 $ ( 4,751 ) 0.86 % 0.22 % 4.24

December 31, 2019:

Weighted Average

Notional Amount

Remaining Years to Maturity

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2020 $ 86,000 $ 148 1.60 % 1.97 % 0.32

2021 161,581 ( 134 ) 1.79 1.92 1.55

2022 74,370 292 1.54 1.91 2.92

2023 84,373 ( 1,223 ) 1.97 1.91 3.61

2024 19,073 246 1.46 2.04 4.76

2025 106,812 1,129 1.56 1.92 5.91

2026 28,502 402 1.57 1.91 6.92

2027 35,550 547 1.61 1.92 7.91

2029 170 2 1.72 1.90 9.89

2042 10,303 501 1.81 1.91 22.93

2048 630 ( 157 ) 3.18 1.92 28.93

2049 3,633 158 1.89 1.94 29.84

Total $ 610,997 $ 1,911 1.69 % 1.93 % 3.87

The following tables provide information about the Company's fixed receiver interest rate swaps as of December 31, 2020 and 2019.

1 unchanged sentence

Weighted Average

Notional Amount

Remaining Years to Maturity

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2023 $ 13,200 $ 614 0.21 % 1.87 % 2.31

2025 5,000 ( 1 ) 0.09 0.06 4.81

2030 25,880 ( 356 ) 0.23 0.73 9.60

2040 500 ( 20 ) 0.09 0.84 19.82

Total $ 44,580 $ 237 0.21 % 0.99 % 7.02

December 31, 2019:

Weighted Average

Notional Amount

Remaining Years to Maturity

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2023 $ 13,200 $ 81 1.94 % 1.87 % 3.32

2029 9,902 ( 15 ) 1.92 1.87 9.98

Total $ 23,102 $ 66 1.93 % 1.87 % 6.17

The following tables provide information about the Company's futures as of December 31, 2020 and 2019.

December 31, 2020:

Notional Amount

Remaining Months to Expiration

Description Notional Amount Fair Value Remaining Months to Expiration

($ in thousands)

3 unchanged sentences

Treasury Futures ( 147,800 ) ( 318 ) 2.85

Total, net $ ( 144,500 ) $ ( 346 ) 2.85

December 31, 2019:

Notional Amount

Remaining Months to Expiration

Description Notional Amount Fair Value Remaining Months to Expiration

($ in thousands)

Long Contracts:

Treasury Futures $ 4,100 $ ( 96 ) 2.84

Short Contracts:

Treasury Futures ( 37,500 ) 434 2.72

Total, net $ ( 33,400 ) $ 338 2.71

The Company transacts in the forward settling TBA market.

7 unchanged sentences

As of December 31, 2020 and 2019, the Company had outstanding contracts to purchase ("long positions") and sell ("short positions") TBA securities as follows:

December 31, 2019

December 31, 2018

TBA Securities

Notional Amount (1)

December 31, 2020 December 31, 2019

TBA Securities Notional Amount (1)

Market Value (3)

5 unchanged sentences

Purchase contracts:

Assets $ 317,890 $ 330,719 $ 332,439 $ 1,720 $ 26,877 $ 27,087 $ 27,135 $ 48

Liabilities — — — — 43,570 45,629 45,558 ( 71 )

317,890 330,719 332,439 1,720 70,447 72,716 72,693 ( 23 )

Sale contracts:

Assets — — — — ( 82,520 ) ( 85,124 ) ( 85,050 ) 74

Liabilities ( 459,613 ) ( 488,066 ) ( 488,765 ) ( 699 ) ( 164,435 ) ( 170,779 ) ( 171,012 ) ( 233 )

( 459,613 ) ( 488,066 ) ( 488,765 ) ( 699 ) ( 246,955 ) ( 255,903 ) ( 256,062 ) ( 159 )

Total TBA securities, net $ ( 141,723 ) $ ( 157,347 ) $ ( 156,326 ) $ 1,021 $ ( 176,508 ) $ ( 183,187 ) $ ( 183,369 ) $ ( 182 )

4 unchanged sentences

The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the years ended December 31, 2020 and 2019:

Derivative Type

December 31, 2019

Derivative Type Year Ended

December 31, 2020 Year Ended

December 31, 2019

1 unchanged sentence

Interest rate swaps $ 402,407 $ 651,793

TBAs 642,362 474,555

Futures 104,454 114,277

Options — 1,492

Gains and losses on the Company's financial derivatives for the years ended December 31, 2020 and 2019 are summarized in the tables below:

Year Ended December 31, 2020

Derivative Type

Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps

Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps

Net Realized Gains (Losses) on Financial Derivatives

Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps

Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps

Change in Net Unrealized Gains (Losses) on Financial Derivatives

Derivative Type Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives

(In thousands)

Interest rate swaps $ ( 810 ) $ ( 9,600 ) $ ( 10,410 ) $ ( 134 ) $ ( 6,340 ) $ ( 6,474 )

TBAs 3,164 3,164 1,203 1,203

Futures ( 5,958 ) ( 5,958 ) ( 684 ) ( 684 )

Total $ ( 810 ) $ ( 12,394 ) $ ( 13,204 ) $ ( 134 ) $ ( 5,821 ) $ ( 5,955 )

Year Ended December 31, 2019

Derivative Type

Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps

Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps

Net Realized Gains (Losses) on Financial Derivatives

Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps

Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps

Change in Net Unrealized Gains (Losses) on Financial Derivatives

(In thousands)

Interest rate swaps $ 1,262 $ ( 19,508 ) $ ( 18,246 ) $ 850 $ ( 4,141 ) $ ( 3,291 )

TBAs ( 6,624 ) ( 6,624 ) 1,561 1,561

Futures ( 14,005 ) ( 14,005 ) 8,168 8,168

Options ( 100 ) ( 100 ) — —

Total $ 1,262 $ ( 40,237 ) $ ( 38,975 ) $ 850 $ 5,588 $ 6,438

From time to time, the Company uses short positions in U.S.

2 unchanged sentences

Treasury securities, with a principal amount of $ 2.1 million and a fair value of $ 2.1 million;

As of December 31, 2018, the Company held short positions in U.S.

Treasury securities, with a principal amount of $ 0.4 million and a fair value of $ 0.4 million .

the Company did not hold short positions in U.S.

Treasury securities as of December 31, 2020.

Such securities are included on the Company's Consolidated Balance Sheet under the caption U.S.

15 unchanged sentences

At any given time, the Company seeks to have its outstanding borrowings under repurchase agreements with several different counterparties in order to reduce the exposure to any single counterparty.

As of December 31, 2019 and 2018, the Company had outstanding borrowings under repurchase agreements with 15 and 12 counterparties, respectively.

As of both December 31, 2020 and 2019, the Company had outstanding borrowings under repurchase agreements with 15 counterparties.

The following table details the Company's outstanding borrowings under repurchase agreements as of December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Weighted Average

Remaining Days to Maturity

Borrowings Outstanding

Interest Rate

Remaining Days to Maturity

Borrowings Outstanding

Interest Rate

Remaining Days to Maturity

(In thousands)

December 31, 2020 December 31, 2019

Weighted Average Weighted Average

Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity

(In thousands) (In thousands)

30 days or less $ 307,544 0.27 % 15 $ 513,092 2.10 % 15

31-60 days 541,104 0.23 44 549,541 1.91 45

61-90 days 92,314 0.26 74 233,639 1.97 74

121-150 days 2,371 0.27 126 — — —

151-180 days 53,150 0.32 162 — — —

181-360 days 18,762 0.26 257 — — —

Total $ 1,015,245 0.25 % 48 $ 1,296,272 2.00 % 39

Repurchase agreements involving underlying investments that the Company sold prior to period end, for settlement following period end, are shown using their original maturity dates even though such repurchase agreements may be expected to be terminated early upon settlement of the sale of the underlying investment.

As of December 31, 2020 and 2019, the fair value of RMBS transferred as collateral under outstanding borrowings under repurchase agreements was $ 1.0 billion and $ 1.3 billion, respectively.

Collateral transferred under outstanding borrowings as of December 31, 2019 includes RMBS in the amount of $ 3.0 million that were sold prior to period end but for which such sale had not yet settled.

Collateral transferred under outstanding borrowings as of December 31, 2019 includes RMBS in the amount of $ 3.0 million that were sold prior to year end but for which such sale had not yet settled.

In addition as of December 31, 2019 , the Company was posting to repurchase agreement counterparties net cash collateral of $ 24.9 million as a result of margin calls with various repurchase agreement counterparties.

As of December 31, 2018, the Company was posting to repurchase agreement counterparties net cash collateral of $ 3.8 million and additional securities with a fair value of $ 1.1 million as a result of margin calls with various repurchase agreement counterparties.

In addition as of December 31, 2020 and 2019, the Company was posting to repurchase agreement counterparties net cash collateral of $ 34.7 million and $ 24.9 million, respectively, as a result of margin calls with various repurchase agreement counterparties.

Amount at risk represents the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repurchase agreements.

The following table reflects counterparties for which the amounts at risk relating to our repurchase agreements were greater than 10 % of shareholders' equity as of December, 31, 2018.

There was no counterparty for which the amount at risk was greater than 10% of shareholders' equity as of December 31, 2019.

December 31, 2018:

Amount at Risk (1)

Weighted Average Remaining Days to Maturity

Percentage of Shareholders' Equity

(In thousands)

Wells Fargo Bank, N.A.

Royal Bank of Canada

Morgan Securities LLC

Amounts at risk exclude, in aggregate, $( 43 ) thousand of net accrued interest, defined as accrued interest on securities held as collateral less interest payable on cash borrowed.

There was no counterparty for which the amount at risk was greater than 10 % of shareholders' equity as of December 31, 2020 or 2019.

Offsetting of Assets and Liabilities

The Company records certain financial instruments at fair value as described in Note 2.

All financial instruments are recorded on a gross basis on the Consolidated Balance Sheet.

In connection with its financial derivatives, repurchase agreements, and related trading agreements, the Company and its counterparties are required to pledge collateral.

2 unchanged sentences

The Company has not previously entered into master netting agreements with any of its counterparties.

Certain of the Company's repurchase and reverse repurchase agreements and financial derivative transactions are governed by underlying agreements that generally provide a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction.

Certain of the Company's repurchase and reverse repurchase agreements and financial derivative transactions are governed by underlying agreements that generally provide a right of net settlement, as well as a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction.

December 31, 2020:

Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1)

Description Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1)

Financial Instruments Available for Offset

3 unchanged sentences

Financial derivatives–assets $ 2,791 $ ( 1,774 ) $ — $ ( 230 ) $ 787

Reverse repurchase agreements

Financial derivatives–liabilities ( 6,630 ) 1,774 — 4,530 ( 326 )

Repurchase agreements ( 1,015,245 ) — 980,561 34,684 —

In the Company's Consolidated Balance Sheet, all balances associated with the repurchase agreements and financial derivatives are presented on a gross basis.

(1) In the Company's Consolidated Balance Sheet, all balances associated with repurchase and reverse repurchase agreements and financial derivatives are presented on a gross basis.

(2) For the purpose of this presentation, for each row the total amount of financial instruments transferred or pledged and cash collateral (received) or pledged may not exceed the applicable gross amount of assets or (liabilities) as presented here.

5 unchanged sentences

December 31, 2019:

Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1)

Description Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1)

Financial Instruments Available for Offset

6 unchanged sentences

Repurchase agreements ( 1,296,272 ) 2,084 1,269,264 24,924 —

In the Company's Consolidated Balance Sheet, all balances associated with the repurchase agreements and financial derivatives are presented on a gross basis.

(1) In the Company's Consolidated Balance Sheet, all balances associated with repurchase and reverse repurchase agreements and financial derivatives are presented on a gross basis.

12 unchanged sentences

Net income (loss)

$ 20,112 $ 22,256

Basic and diluted weighted average shares outstanding

12,353,246 12,461,054

Basic and diluted earnings per share $ 1.63 $ 1.79

8 unchanged sentences

The management fee is payable quarterly in arrears.

For the years ended December 31, 2019 and 2018, the total management fee incurred was $ 2.4 million and $ 2.5 million , respectively.

For each of the years ended December 31, 2020 and 2019, the total management fee incurred was $ 2.4 million.

Services Agreement

11 unchanged sentences

The Company reimburses the Manager for the allocable share of the compensation, including, without limitation, wages, salaries, and employee benefits paid or reimbursed, as approved by the Compensation Committee of the Board of Trustees, to certain dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company's affairs, based upon the percentage of time devoted by such personnel to the Company's affairs.

In their capacities as officers or personnel of the Manager or its affiliates, such personnel will devote such portion of their time to the Company's affairs as is necessary to enable the Company to operate its business.

In their capacities as officers or

personnel of the Manager or its affiliates, such personnel will devote such portion of their time to the Company's affairs as is necessary to enable the Company to operate its business.

For the years ended December 31, 2020 and 2019, the Company reimbursed the Manager $ 2.0 million and $ 2.1 million, respectively, for previously incurred operating and compensation expenses.

As of December 31, 2019 and 2018, the outstanding payable to the Manager for operating and compensation expenses was $ 0.2 million and $ 0.3 million , respectively, which are included in Accrued expenses on the Consolidated Balance Sheet.

As of December 31, 2020 and 2019, the outstanding payable to the Manager for operating and compensation expenses was $ 0.3 million and $ 0.2 million, respectively, and is included in Accrued expenses on the Consolidated Balance Sheet.

Termination Fee

7 unchanged sentences

No preferred shares have been issued.

On September 11, 2019, the Company's Board of Trustees authorized the issuance of 15,024 shares to its independent trustees pursuant to trustee share award agreements.

On December 13, 2019, the Company's Board of Trustees authorized the issuance of 7,337 restricted common shares to certain of its partially dedicated employees pursuant to employee share award agreements.

Detailed below is a roll forward of the Company's common shares outstanding for the years ended December 31, 2020 and 2019:

Year Ended December 31,

December 31, 2020 December 31, 2019

Common Shares Outstanding (12/31/2019 and 12/31/2018, respectively)

12,455,758 12,507,213

Share Activity:

2 unchanged sentences

Common Shares Outstanding (12/31/2020 and 12/31/2019, respectively)

12,343,542 12,455,758

Unvested restricted shares outstanding (12/31/2020 and 12/31/2019, respectively)

27,594 25,476

The below table provides details on the Company's restricted shares granted pursuant to share award agreements which are unvested at December 31, 2020:

Grant Recipient

Number of Restricted Shares Granted

Vesting Date (1)

Grant Recipient Number of Restricted Shares Granted Grant Date Vesting Date (1)

Independent trustees:

September 11, 2019

September 10, 2020

15,020 September 10, 2020 September 9, 2021

Partially dedicated employees:

December 13, 2019

December 13, 2020

December 13, 2019

December 13, 2021

December 11, 2018

December 11, 2020

3,668 December 13, 2019 December 13, 2021

4,454 December 17, 2020 December 17, 2021

4,452 December 17, 2020 December 17, 2022

(1) Date at which such restricted shares will vest and become non-forfeitable.

16 unchanged sentences

The Company's maximum exposure under these arrangements, including future claims that may be made against the Company that have not yet occurred, is unknown.

The Company has not incurred any costs

to defend lawsuits or settle claims related to these indemnification agreements.

The Company has not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements.

The Company has no liabilities recorded for these agreements as of December 31, 2020 and 2019 and management is not aware of any significant contingencies at December 31, 2020.

Condensed Quarterly Financial Data (Unaudited)

D etailed below is unaudited quarterly information for the years ended December 31, 2019 and 2018.

Detailed below is unaudited quarterly information for the years ended December 31, 2020 and 2019.

(In thousands except for per share amounts)

Three-Month Period Ended March 31, 2019

Three-Month Period Ended June 30, 2019

Three-Month Period Ended September 30, 2019

Three-Month Period Ended March 31, 2020 Three-Month Period Ended June 30, 2020 Three-Month Period Ended September 30, 2020 Three-Month

December 31, 2020

11 unchanged sentences

Net realized gains (losses) on securities and financial derivatives

( 5,406 ) ( 3,277 ) 4,339 3,257

Change in net unrealized gains (losses) on securities and financial derivatives

( 13,832 ) 25,195 ( 1,772 ) 79

Total other income (loss) ( 19,238 ) 21,918 2,567 3,336

5 unchanged sentences

(In thousands except for per share amounts)

Three-Month Period Ended March 31, 2018

Three-Month Period Ended June 30, 2018

Three-Month Period Ended September 30, 2018

Three-Month Period Ended March 31, 2019 Three-Month Period Ended June 30, 2019 Three-Month Period Ended September 30, 2019 Three-Month

December 31, 2019

11 unchanged sentences

Net realized gains (losses) on securities and financial derivatives

( 13,765 ) ( 7,353 ) ( 298 ) ( 15,279 )

Change in net unrealized gains (losses) on securities and financial derivatives

21,003 6,069 3,707 24,890

Total other income (loss) 7,238 ( 1,284 ) 3,409 9,611

4 unchanged sentences

Dividends declared $ 0.34 $ 0.28 $ 0.28 $ 0.28

For the year ended December 31, 2018 the sum of EPS for the four quarters of the year does not equal EPS as calculated for the entire year (see Note 8) as a result of changes in shares during the year due to repurchases of common shares, as EPS is calculated using average shares outstanding during the period.

Subsequent Events

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data