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Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-10 · 311 added, 228 removed, 367 unchanged (59% of the section changed)

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Executive Summary

We are a Maryland real estate investment trust, or "REIT," formed in August 2012 that specializes in acquiring, investing in, and managing residential mortgage- and real estate-related assets.

We are a Maryland real estate investment trust, or "REIT," formed in August 2012 that specializes in acquiring, investing in, and managing residential mortgage- and real estate-related and other assets.

Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them.

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government agency or a U.S.

government-sponsored entity, or "Agency RMBS," and, to a lesser extent, RMBS that do not carry such guarantees, or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper, mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," mortgages on single-family-rental properties, manufactured housing, and subprime residential mortgage loans.

We also may opportunistically acquire other types of mortgage- and real estate-related asset classes, such as commercial mortgage-backed securities, or "CMBS," residential mortgage loans, mortgage servicing rights, or "MSRs," and credit risk transfer securities, or "CRTs." We believe that being able to combine Agency RMBS with non-Agency RMBS and other mortgage- and real estate-related asset classes enables us to balance a range of mortgage-related risks.

government-sponsored entity, or "Agency RMBS," and RMBS that do not carry such guarantees, or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper, mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," mortgages on single-family-rental properties, manufactured housing, and subprime residential mortgage loans.

We also acquire and manage corporate collateralized loan obligations, or "CLOs." We also may opportunistically acquire other types of mortgage- and real estate-related asset classes, such as commercial mortgage-backed securities, or "CMBS," residential mortgage loans, mortgage servicing rights and credit risk transfer securities.

We believe that being able to combine Agency RMBS with non-Agency RMBS and other mortgage- and real estate-related asset classes, along with opportunistic investments in CLOs, enables us to balance a range of risks.

We were initially formed through a strategic venture among affiliates of Ellington Management Group, L.L.C., an investment management firm and registered investment adviser with a 29-year history of investing in a broad spectrum of residential and commercial mortgage-backed securities, or "MBS," and related derivatives, with an emphasis on the RMBS market, and the Blackstone Tactical Opportunity Funds, or the "Blackstone Funds." We are externally managed and advised by our Manager, an affiliate of Ellington.

Since our inception, the Blackstone Funds had held special non-voting membership interests in the holding company that owns our Manager.

In August 2021, an Ellington affiliate purchased these special non-voting membership interests from the Blackstone Funds.

We use leverage in both our Agency and non-Agency RMBS strategies, although we expect leverage in our non-Agency strategy to be significantly lower.

We have financed our RMBS exclusively through repurchase agreements, which we account for as collateralized borrowings.

From our inception until August 2021, the Blackstone Funds had held special non-voting membership interests in the holding company that owns our Manager.

In August 2021, an Ellington affiliate purchased these

special non-voting membership interests from the Blackstone Funds.

We use leverage in our strategies and to date have financed our assets exclusively through repurchase agreements, which we account for as collateralized borrowings.

As of December 31, 2023, we had outstanding borrowings under repurchase agreements in the amount of $729.5 million with 19 counterparties;

93% of such borrowings were collateralized by Agency RMBS.

We have elected to be taxed as a REIT for U.S.

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We intend to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under the Investment Company Act of 1940, as amended, or the "Investment Company Act."

As of December 31, 2022, our book value per share was $8.40 as compared to $11.76 as of December 31, 2021.

As of December 31, 2023, our book value per share was $7.32 as compared to $8.40 as of December 31, 2022, respectively.

Trends and Recent Market Developments

Market Overview

• After maintaining its target range of 0.00%–0.25% for the federal funds rate throughout 2021 and at its first meeting of 2022 in January, the U.S.

Federal Reserve, or the "Federal Reserve," rapidly tightened its monetary policy to combat elevated inflation through the rest of 2022.

At its March and May meetings, the Federal Reserve increased the target range by 0.25% and 0.50%, respectively, and then implemented rate hikes of 0.75% at each of its next four meetings, increasing the target range to 3.75%-4.00% in November.

At its December meeting, the Federal Reserve announced another interest rate hike, this time by 0.50%, increasing the target range of the federal funds rate to 4.25%-4.50%, its highest level since 2007.

Minutes of the December meeting noted that despite "welcome reductions" in inflation in October and November, "it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path."

After initiating the tapering of its asset purchases in the fourth quarter of 2021, the Federal Reserve announced plans for reducing the size of its balance sheet at its May 2022 meeting, whereby it would only reinvest principal payments that exceeded monthly caps of $30 billion for Treasury securities and $17.5 billion for Agency MBS, beginning in June.

Those monthly caps increased in September to $60.0 billion and $35.0 billion, respectively, where they remained through year end.

Similarly, other central banks around the globe continued to tighten their monetary policies during 2022.

• Interest rates rose sharply in 2022, particularly short-term interest rates, with various segments of the yield curve inverting during the year.

Over the course of the year, the yield on the 2-year U.S.

Treasury increased by 369 basis

points to 4.43% as of December 31, 2022, while the 10-year U.S.

Treasury increased by 236 basis points to 3.87%.

Meanwhile, interest rate volatility was elevated through much of the year, with the MOVE Index in October reaching its highest point since the COVID-related market volatility of March 2020, before subsiding somewhat into year end.

• Mortgage rates also rose sharply during much of 2022, in sympathy with the increase in interest rates.

After starting the year at 3.11%, the Freddie Mac survey 30-year mortgage rate increased by at least a full percentage point in each of the first three quarters, rising a cumulative 359 basis points to 6.70% as of September 29th.

Mortgage rates continued to rise in October, with the Freddie Mac 30-year mortgage rate exceeding 7.00% in late October and early November for the first time since April 2002, before declining to 6.41% as of December 29, 2022.

Driven by higher mortgage rates, the Mortgage Bankers Association's Refinance Index fell precipitously throughout the year, declining by 87% year over year to its lowest level since May 1997.

Fannie Mae 30-year MBS prepayments dropped steadily as well, declining from a CPR of 18.7% in December of 2021 to 4.5% in December of 2022.

Despite the sharply higher mortgage rates, home prices continued to appreciate during the first half of the year, with the S&P CoreLogic Case-Schiller US National Home Price NSA Index rising 10.7%, after increasing by 18.9% in 2021.

The index reversed course from there, however, declining by 4.4% during the second half of the year, but was still up by 5.8% for the full year.

The combination of drastically higher mortgage rates and substantial home price appreciation put significant downward pressure on housing affordability, with the National Association of Realtors Housing Affordability Index declining by 28.8% for the year through December.

• LIBOR rates and the Secured Overnight Financing Rate, or "SOFR," also rose significantly during the year, increasing during each quarter of 2022.

For the year, one-month LIBOR increased a cumulative 429 basis points to 4.39% as of December 31, 20222, while three-month LIBOR increased by 456 basis points to 4.77%.

In anticipation of additional interest rate increases by the Federal Reserve, the spread between one- and three-month LIBOR widened during the first nine months of the year, reaching 61 basis points as of September 30, 2022, compared to just 11 basis points at the start of the year.

During the fourth quarter, as the Fed began to slow the pace of its interest rate hikes, the spread tightened to 38 basis points.

SOFR increased as well;

one-month SOFR rose by 430 basis points to 4.36% at year end, and three-month SOFR rose by 450 basis points to 4.59%.

LIBOR and SOFR drive many of our financing costs.

• After positive GDP growth in each quarter of 2021, U.S.

real GDP contracted at an estimated annualized rate of 1.6% in the first quarter and 0.6% in the second quarter of 2022.

Real GDP then reversed course during the second half of 2022, expanding at an estimated annualized rate of 3.2% in the third quarter and 2.9% in the fourth quarter of 2022.

Meanwhile, the unemployment rate remained low throughout 2022, dropping from 3.9% at the end of 2021, to 3.6% as of both March 31st and June 30th, and to 3.5% as of both September 30th and December 31st.

• Inflation increased steadily during the first six months of 2022.

The 12-month percentage change in the Consumer Price Index for All Urban Consumers ("CPI-U"), not seasonally adjusted, increased from 7.5% in January to 9.1% in June, which was the highest reading since November 1981.

While still elevated, inflation did subside over the second half of the year, with the 12-month percentage change in CPI-U registering 6.5% in December 2022.

• Elevated volatility, rising interest rates, and yield spread widening drove underperformance of Agency MBS during the first nine months of 2022, and despite a rebound in the fourth quarter, for the year overall.

For the first nine months of the year, the Bloomberg Barclays U.S.

MBS Index ("BB MBS Index") generated a negative return of (13.66%), and a negative excess return (on a duration-adjusted basis) of (3.11%) relative to the Bloomberg Barclays U.S.

• After increasing the target range for the federal funds rate by a cumulative 4.25% in 2022, the U.S.

Federal Reserve, or the "Federal Reserve," slowed the pace of its interest rate hikes in 2023.

In 2023, at its January/February meeting, the Federal Reserve raised the target range by 25 basis points to 4.50%–4.75%, which was its smallest increase since March 2022.

In March 2023, in response to stress in the banking system, which included the failures of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation, or "FDIC," took steps to guarantee all deposits of those two failed banks, including deposits above the standard limit of $250,000.

Meanwhile, concerns around the solvency of Credit Suisse Group AG prompted the Swiss Government to provide liquidity assistance and other financial support in conjunction with a merger of Credit Suisse Group AG into UBS Group AG.

In addition, the Federal Reserve announced additional liquidity support through the creation of the Bank Term Funding Program, which provided loans with terms of up to one year to banks and other eligible depository institutions for qualified collateral, which included U.S.

Treasury securities and Agency RMBS, at their par values.

Other central banks around the world also announced plans to increase liquidity to financial institutions.

Later in March 2023, at its monthly meeting, the Federal Reserve declared that the "U.S.

banking system is sound and resilient" and increased the target range for the federal funds rate by an additional 25 basis points to 4.75%–5.00%.

Next, the Federal Reserve increased the target range by an additional 25 basis points in May 2023, paused in June, increased by an additional 25 basis points in July to a range of 5.25%–5.50%, and then maintained that range at each of its meetings from September through December, noting in December that "inflation has eased over the past year but remains elevated." In a dovish shift, the Summary of Economic Projections released by the Federal Reserve in December implied three interest rate cuts in 2024.

However, minutes from the December 2023 meeting released in early January 2024 revealed that during the meeting Federal Reserve participants "reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down," seemingly lowering the likelihood of a cut during the first quarter of 2024.

Throughout 2023, the Federal Reserve continued to reinvest only principal payments that exceeded monthly caps of $60 billion on U.S.

Treasury securities and $35 billion on Agency RMBS.

• Interest rates were highly volatile during much of 2023, and many parts of the yield curve continued to be inverted.

After falling in January, interest rates increased in February and early March, particularly short-term interest rates, as the yield on the 2-year U.S.

Treasury surpassed 5% for the first time since June 2007.

Then, in mid-March 2023, concerns about the stress in the banking system spurred a flight to safety, which drove interest rates down significantly.

Overall, the yield on the 2-year U.S.

Treasury decreased by 40 basis points to 4.03% in the first quarter, while the yield on the 10-year U.S.

Treasury decreased by 41 basis points to 3.47%.

Interest rate volatility spiked in mid-March 2023, with the MOVE Index surpassing its COVID-related highs and reaching its highest level since 2008.

After trading in a relatively tight range in April and early May of 2023, interest rates rose steadily in the latter half of the second quarter, and the inversion of the yield curve deepened.

Overall, the yield on the 2-year U.S.

Treasury increased by 87 basis points to 4.90%, quarter over quarter, while the yield on the 10-year U.S.

Treasury increased by

37 basis points to 3.84%.

Meanwhile, interest rate volatility, as measured by the MOVE Index, declined during the quarter, particularly in June 2023 following the resolution of the federal government's debt ceiling dispute.

In the third quarter of 2023, interest rates increased, particularly long-term interest rates, which caused the inversion of the yield curve to subside somewhat.

The yield on the 2-year U.S.

Treasury increased by 15 basis points quarter over quarter to 5.04%, while the yield on the 10-year U.S.

Treasury increased by 73 basis points quarter over quarter to 4.57%.

Toward the end of the quarter, the 2-year U.S.

Treasury yield reached its highest level since July 2006, and the 10-year U.S.

Treasury yield reached its highest level since October 2007.

Meanwhile, interest rate volatility, as measured by the MOVE Index, remained elevated throughout the quarter.

In the fourth quarter, interest rates reversed course and began to decline, as the market anticipated the conclusion of the Federal Reserve's interest rate hiking cycle.

For the quarter, the yield on the 2-year U.S.

Treasury decreased by 79 basis points to 4.25%, while the 10-year U.S.

Treasury yield decreased by 69 basis points to 3.88%.

The MOVE Index increased modestly from the previous quarter.

For the full year 2023, the 2-year U.S.

Treasury yield decreased by 18 basis points, while the 10-year yield increased by 1 basis point.

• Secured Overnight Financing Rates, or "SOFR" rates, rose sharply from the start of the year through July 31, 2023, with one-month term SOFR increasing by 96 basis points to 5.32% and three-month term SOFR rising by 78 basis points to 5.37%.

Beginning in August 2023, SOFR rates were relatively stable with one-month term SOFR ending the year at 5.35% and three-month term SOFR ending the year at 5.33%.

Many of our financing costs are based on SOFR.

• Mortgage rates moved in sympathy with long-term interest rates during 2023.

The Freddie Mac survey 30-year mortgage rate declined from 6.41% at the start of the year to 5.95% in mid-January, and then steadily rose to 6.74% in early March, before declining to 6.24% by the end of the first quarter.

From there, mortgage rates rose steadily for much of 2023, with the Freddie Mac 30-year mortgage rate peaking at 7.79% on October 26 th , its highest level since October 2000.

The survey rate then reversed course and fell sharply over the final two months of 2023, declining to 6.42% on December 28 th , approximately where it started the year.

After reaching a 25-year low at the end of 2022, the Mortgage Bankers Association's Refinance Index increased by 53% in the first quarter of 2023, before declining through the end of November, driven by higher mortgage rates.

The index temporarily rose in mid-December 2023 with lower mortgage rates, and declined again toward the end of December 2023.

Overall, the index increased by 15% year over year but remained at historically depressed levels.

Prepayment speeds also remained at historically low levels throughout 2023.

The Fannie Mae 30-year MBS registered a CPR of 4.5 in December 2023, unchanged year over year, reaching a 2023 low of 3.7 in January and a 2023 high of 6.4 in June.

• Despite higher mortgage rates for much of 2023, the S&P CoreLogic Case-Schiller US National Home Price NSA Index increased by 5.5% during the year.

The National Association of Realtors Housing Affordability Index declined by 7% during 2023, as higher mortgage rates and record home prices continued to stress housing affordability.

real GDP increased at an annualized rate of 2.2% in the first quarter, 2.1% in the second quarter, 4.9% in the third quarter, and an estimated annualized rate of 3.2% in the fourth quarter.

Meanwhile, the unemployment rate remained low throughout 2023, starting the year at 3.5% and registering 3.7% as of year end.

• Inflation, while still elevated, declined during each of the first six months of 2023.

The year-over-year percentage change in the Consumer Price Index for All Urban Consumers ("CPI-U"), not seasonally adjusted, declined from 6.4% in January 2023 to 3.0% in June 2023.

Year-over-year inflation then increased again in the third quarter of 2023, registering 3.7% in September, before declining modestly in the fourth quarter, registering 3.4% in December.

• After a historically difficult year in 2022, MBS performance was mixed in 2023.

Following strong absolute and relative performance in January 2023, MBS performance reversed course in mid-February and especially in March, as concerns in the banking sector caused volatility to surge.

Overall for the first quarter of 2023, the Bloomberg Barclays U.S.

MBS Index ("BB MBS Index") generated a positive return of 2.53% but a negative excess return (on a duration-adjusted basis) of (0.50%) relative to the Bloomberg Barclays U.S.

Treasury Index.

In the fourth quarter, the BB MBS Index generated a positive return of 1.85%, as interest rate volatility moderated and yield spreads tightened, and a positive excess return of 0.88%.

For the full year 2022, the BB MBS index generated a negative return of (11.81%), which was its worst performance on record, and a negative excess return of (2.23%), its second-worst performance on record.

• Similarly, the Bloomberg Barclays U.S.

Corporate Bond Index ("BB IG Index") and the Bloomberg Barclays U.S.

Corporate High Yield Bond Index ("BB HY Index") generated negative returns during the first three quarters of 2022, before rebounding in the fourth quarter, but still finished the year with significant negative performance on both an absolute and relative basis.

For the full year, the BB IG Index generated a negative return of (15.76%) and a negative excess return of (1.25%), while the BB HY Index generated a negative return of (11.19%) and a negative excess return of (3.71%).

equities experienced significant losses in 2022 as well, with the Dow Jones Industrial Average declining by 8.8%, the S&P 500 falling by 19.4%, and the NASDAQ down 33.1%.

Meanwhile, London's FTSE 100 index increased by 0.9% for the year, and the MSCI World global equity index decreased 19.5%.

Similar to the MOVE index, the VIX volatility index was elevated throughout much of the year.

In the second quarter of 2023, the BB MBS Index generated a negative return of (0.66%) but a positive excess return of 0.79%, driven by strong outperformance in June.

For the third quarter, the BB MBS Index posted a negative return of (4.13%) and a negative excess return of (0.88%) relative to the Bloomberg Barclays U.S.

Treasury Index, driven by underperformance of the mortgage basis in September 2023.

That underperformance continued into October, but over the final two months of the year, volatility declined and yield spreads tightened and overall for the fourth quarter of 2023, the BB MBS Index

generated a positive return of 7.31% and an excess return of 1.26%.

For the full year 2023, the BB MBS Index generated a positive return of 5.05% and an excess return of 0.68%.

• Similarly, after negative performance in 2022, the Bloomberg Barclays U.S.

Corporate Bond Index ("BB IG Index") generated positive results on both an absolute and relative basis in 2023, driven by strong results in the fourth quarter of 2023.

For the full year 2023, the BB IG Index generated a return of 8.52% on an absolute basis and an excess return of 4.55%.

Meanwhile, the Bloomberg Barclays U.S.

Corporate High Yield Bond Index ("BB HY Index") generated positive returns in each quarter of 2023 on both an absolute and relative basis.

For the full year 2023, the BB HY Index generated a positive return of 13.45% and an excess return of 8.86%.

equities were also volatile during 2023, but performed well overall for the year, with the Dow Jones Industrial Average increasing by 13.7%, the S&P 500 rising by 24.2%, and the NASDAQ up 43.4%.

Meanwhile, London's FTSE 100 index increased by 3.8% for the year, and the MSCI World global equity index increased by 21.8%.

The VIX volatility index spiked in mid-March 2023 in response to the stress in the banking system and again in late September and October, before falling through year end.

Portfolio Overview and Outlook

As of December 31, 2022, our mortgage-backed securities portfolio consisted of $836.8 million of fixed-rate Agency "specified pools," $8.7 million of Agency RMBS backed by adjustable rate mortgages, or "Agency ARMs," $17.9 million of Agency reverse mortgage pools, $9.3 million of Agency interest-only securities, or "Agency IOs," $12.6 million of non-Agency RMBS, and $8.1 million of non-Agency interest-only securities, or "non-Agency IOs." Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.

Our Agency RMBS holdings decreased by 33% to $863.3 million as of December 31, 2022, as compared to $1.289 billion as of December 31, 2021.

The decrease was driven by net sales, paydowns, and net losses.

Over the same period, our holdings of non-Agency RMBS increased by 39% to $12.6 million, and our holdings of interest-only securities increased by 33% to $17.5 million driven by a larger portfolio of non-Agency IOs.

Our debt-to-equity ratio, adjusted for unsettled purchases and sales, increased to 7.6:1 as of December 31, 2022, as compared to 6.9:1 as of December 31, 2021.

The increase was driven by lower shareholders’ equity year over year, partially offset by a decline in borrowings on our smaller Agency RMBS portfolio.

As of December 31, 2023, our mortgage-backed securities portfolio consisted of $706.0 million of fixed-rate Agency "specified pools," $7.1 million of Agency RMBS backed by adjustable rate mortgages, or "Agency ARMs", $14.9 million of Agency reverse mortgage pools, $7.4 million of Agency interest-only securities, or "Agency IOs", $9.4 million of non-Agency RMBS, and $11.3 million of non-Agency interest-only securities, or "non-Agency IOs".

Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.

The size of our Agency RMBS holdings decreased by 16% to $728.0 million as of December 31, 2023, compared to $863.3 million as of December 31, 2022.

The decline was driven by paydowns and net sales, primarily during the second half of the year.

Over the course of the year, our holdings of non-Agency RMBS decreased by 25% to $9.4 million, while our holdings of interest-only securities increased by 7% to $18.7 million.

In addition, during the second half of the year, we started rotating a portion of our investment capital to corporate CLOs.

As of December 31, 2023 our holdings of corporate CLO investments totaled $17.4 million.

CLOs are a form of asset-backed security collateralized by syndicated corporate loans.

We could continue to increase our capital allocation to CLO mezzanine debt and CLO equity investments, based on market opportunities or other factors.

Our debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased to 5.3:1 as of December 31, 2023, as compared to 7.6:1 as of December 31, 2022.

The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio and significantly higher shareholders' equity, partially offset by a small increase in borrowings on our CLO portfolio.

Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions.

As of December 31, 2022, the majority of our borrowings were secured by specified pools.

As of December 31, 2023, 93% of our borrowings were secured by Agency RMBS.

As of December 31, 2023, we had cash and cash equivalents of $38.5 million, in addition to other unencumbered assets of $22.9 million.

This compares to cash and cash equivalents of $34.8 million and other unencumbered assets of $2.9 million as of December 31, 2022.

During the first nine months of 2022, interest rates rose rapidly and volatility was elevated, as the Federal Reserve tightened its monetary policy to combat elevated inflation.

Agency RMBS durations extended in response to the higher interest rates, while the elevated volatility contributed to substantial yield spread widening.

As a result, net losses on our Agency RMBS significantly exceeded net gains on our interest rate hedges and net interest income for the period.

In the fourth quarter, inflation moderated and the Federal Reserve ratcheted back the pace of its interest rate hikes.

Volatility declined incrementally and investor demand for Agency RMBS increased;

together, this drove Agency RMBS yield spreads tighter, while pay-ups also increased.

For the quarter, significant net gains on our specified pools exceeded net losses on our interest rate hedges, and we generated an overall net gain.

Despite the strong fourth quarter, however, we had a significant net loss in our Agency strategy, and overall, for the full year.

In the current higher interest rate environment, the specified pool market has become less focused on prepayment protection, and more focused on extension protection.

Many of our specified pools are considered to offer significant extension protection relative to their TBA counterparts.

Thus despite higher mortgage rates, average pay-ups on our specified pool portfolio actually increased during the year, as the increase in the value of the extension protection provided by these specified pools more than offset the reduction in the value of the prepayment protection.

In addition, the pools that we sold during the year had lower average pay-ups than the held population.

Due to the combination of these factors, overall pay-ups on our specified pools increased to 1.26% as of December 31, 2022, as compared to 1.07% as of December 31, 2021.

Our non-Agency RMBS portfolio generated strong results in 2022, as net interest income exceeded modest net mark-to-market losses.

During the course of the year, w e increased our allocation to non-Agency RMBS and expect to continue to do so given current market opportunities.

Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity—declined during the year.

The decrease was driven by a smaller Agency RMBS portfolio, partially offset by lower shareholder's equity and a smaller net short TBA position.

The first quarter of 2023 began on a constructive note with interest rates and volatility declining and Agency RMBS yield spreads tightening in January.

However, markets reversed course in mid-February on renewed anxiety over inflation and what the Federal Reserve’s response would be.

Then in March, turmoil in the banking system put further pressure on Agency yield spreads.

Overall, Agency RMBS underperformed U.S.

Treasury securities and interest rate swaps (which are the primary instruments we use to hedge our interest rate risk) in the first quarter with the most pronounced underperformance coming on sub-5% coupon RMBS, where our Agency RMBS was concentrated, due to concerns over future selling from distressed regional banks.

FDIC-directed sales of RMBS from failed regional banks commenced at the start of the second quarter of 2023, which pressured yield spreads but also drove strong RMBS demand into May, even as interest rate volatility remained elevated.

Then in June, yield spreads tightened following the resolution of the debt ceiling dispute, and Agency RMBS outperformed hedging instruments for the quarter.

In the third quarter of 2023, Agency RMBS faced the significant headwinds of elevated market volatility and rising long-term interest rates, resulting in wider yield spreads and Agency RMBS underperformance relative to hedging instruments.

In the fourth quarter of 2023, interest rates and volatility increased in October, which drove yield spreads wider in most fixed income sectors, including Agency RMBS.

Markets then reversed course, however, with interest rates and volatility declining, and yield spreads tightening, through year end.

Overall for the fourth quarter, Agency RMBS outperformed hedging instruments, with lower and intermediate coupon RMBS exhibiting the most pronounced outperformance.

Overall, we had positive net income in the Agency RMBS strategy for the year, driven by net gains on our interest rate hedges, which exceeded net losses on our Agency RMBS and negative net interest income.

Average pay-ups on our specified pool portfolio decreased to 1.01% as of December 31, 2023, as compared to 1.26% as of December 31, 2022.

During the year, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S.

Treasury securities, and futures.

We ended the year with a net long TBA position on a notional basis, but a net short TBA position as measured by 10-year equivalents.

10-year equivalents for a group of positions represent the amount of 10-year U.S.

Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.

In the fourth quarter, our newly established corporate CLO portfolio contributed positively to our results, driven by net interest income and net gains.

Similar to Agency RMBS, yield spreads on most CLOs widened in October before tightening in November and December, finishing the fourth quarter tighter overall.

Finally, our non-Agency RMBS portfolio and interest-only securities generated strong results for the year, driven by net interest income and net gains.

Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by shareholders' equity attributable to our mortgage-related strategies—slightly declined during the year.

The decrease was driven by lower leverage employed in our mortgage-related strategies at December 31, 2023, despite having a net long TBA position as of December 31, 2023 as compared to a net short TBA position as of December 31, 2022.

From time to time, in response to market opportunities and other factors, we increase or decrease our net mortgage assets-to-equity ratio by varying the sizes of our net short TBA position and/or our long RMBS portfolio in relation to the portion of our overall shareholders' equity employed in our mortgage-related strategies.

The following table summarizes our net mortgage assets-to-equity ratio and provides additional details, for the last five quarters, to illustrate this fluctuation.

Notional Amount of Long TBAs Notional Amount of Short TBAs Fair Value of Mortgage-backed Securities Net Short TBA Underlying Market Value (1)

Notional Amount of Long TBAs Notional Amount of Short TBAs Fair Value of Mortgage-backed Securities Net Long (Short) TBA Underlying Market Value (1)

Net Mortgage Assets-to-Equity Ratio

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Three-Month Constant Prepayment Rates (1)

6.8 7.3 7.4 4.3 6.1

(1) Excludes recent purchases of fixed rate Agency specified pools with no prepayment history.

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4.50–4.99 51 50 167 146 145 155

4.50–4.99 146 145 155 306 318 147

Total 15-year fixed-rate mortgages 28,647 27,847 78 47,453 45,324 56

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5.00–5.49 577 583 64 785 791 52

6.50–6.99 991 1,019 6 — — —

Total 20-year fixed-rate mortgages 8,524 7,863 41 10,812 9,691 33

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Total fixed-rate Agency RMBS $ 734,681 $ 706,004 50 $ 900,088 $ 836,769 44

For the year ended December 31, 2022, we had total net realized and unrealized losses on our Agency securities of $(156.2) million, or $(11.86) per share.

For the year ended December 31, 2023, we had total net realized and unrealized gains on our Agency securities of $0.2 million, or $0.01 per share.

Our Agency portfolio turnover was approximately 87% for the year ended December 31, 2023 and we recognized net realized losses of $(59.2) million.

For the year ended December 31, 2022, we continued to hedge interest rate risk through the use of interest rate swaps, and short positions in TBAs, U.S.

For the year ended December 31, 2023, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S.

Treasury securities, and futures.

We had total net realized and unrealized gains of $122.6 million, or $9.31 per share, on our interest rate hedging portfolio, as interest rates increased significantly during the year.

were partially offset by net realized and unrealized losses of $(11.7) million, or $(0.89) per share, on our long TBAs held for investment.

We ended the year with a net short TBA position, both on a notional basis and as measured by 10-year equivalents.

We had total net realized and unrealized gains of $10.8 million, or $0.73 per share, on our interest rate hedging portfolio, as sharply rising interest rates in the

second and third quarters of the year drove a significant gain on our interest rate hedges during those periods.

These gains were partially offset by net losses in the first and fourth quarters, driven by declining interest rates.

These gains exclude net realized and unrealized gains of $0.6 million, or $0.04 per share, on our long TBAs held for investment.

We ended the year with a net long TBA position on a notional basis, but a net short TBA position as measured by 10-year equivalents.

Ten-year equivalents for a group of positions represent the amount of 10-year U.S.

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The relative makeup of our interest rate hedging portfolio can change materially from period to period.

We may also selectively hedge our corporate CLO and/or non-Agency RMBS investments;

as of December 31, 2023, we had a small credit hedge position in place.

After giving effect to dividends declared during the year ended December 31, 2023 of $0.96 per share, our book value per share decreased to $7.32 as of December 31, 2023, from $8.40 as of December 31, 2022, and we had a negative economic return of (1.4)% for the year ended December 31, 2023.

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For the year ended December 31, 2023, our average repo borrowing cost increased to 5.18%, as compared to 1.40% for the year ended December 31, 2022.

This increase in average repo borrowing cost was the result of significant increases in short-term interest rates during the year ended December 31, 2022.

This increase in average repo borrowing cost was the result of a sharp increase in short-term interest rates during the year ended December 31, 2023.

As of December 31, 2023 and December 31, 2022, the weighted average borrowing rate on our repurchase agreements was 5.58% and 3.70%, respectively.

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Adjusted for unsettled purchases and sales, our debt-to equity ratio was 5.3:1 as of December 31, 2023, as compared to 7.6:1 as of December 31, 2022.

The increase was primarily due to lower shareholders’ equity, partially offset by a decrease in borrowings on the Company's smaller Agency RMBS portfolio.

The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio (reflecting in part the ongoing rotation of investment capital from RMBS to corporate CLOs) and significantly higher shareholders' equity.

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Electing the fair value option allows us to record changes in fair value in our Consolidated Statement of Operations, which, in our view, more appropriately reflects the results of our operations for a particular reporting period as all securities activities will be recorded in a similar manner.

As such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net

unrealized gains (losses) on securities.

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

Purchase and sales transactions are generally recorded on trade date.

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Our valuations are sensitive to changes in interest rates;

see the interest rate sensitivity analysis included in Item 7A.

see the interest rate sensitivity analysis included in Item 3.

Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further information.

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We compare estimated prepayments to actual prepayments on a quarterly basis, and effective yields are recalculated retroactive to the time of purchase.

When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment, or "Catch-up Premium Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields.

For the years ended December 31, 2022 and 2021, we recognized a Catch-up Premium Amortization Adjustment of $3.1 million and $1.7 million, respectively.

The Catch-up Premium Amortization Adjustment is reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations.

When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields.

For the years ended December 31, 2023 and 2022, we recognized a Catch-up Amortization Adjustment of $(0.1) million and $3.1 million, respectively.

The Catch-up Amortization Adjustment is reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations.

Our accretion of discounts and amortization of premiums on securities for U.S.

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We made an election to be taxed as a REIT for U.S.

federal income tax purposes and are generally not subject to corporate-level federal and state income tax on net income we distribute to our shareholders within the prescribed timeframes.

federal income tax purposes and are generally not subject to corporate-level federal and state income tax on net income we distribute to our shareholders within the prescribed time frames.

We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations.

Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements.

Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws,

regulations, and interpretations thereof.

Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax

liability that has not been recorded in the accompanying consolidated financial statements.

Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof.

As of December 31, 2023, the REIT had a net operating loss carry-forward of approximately $39 million.

See Note 2 to our consolidated financial statements for additional details on income taxes.

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Cost Average Cost (1)

Agency Portfolio:

Agency RMBS (2)

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Total Agency RMBS 756,214 727,997 96.27 744,826 98.49 926,290 863,284 93.20 938,829 101.35

Agency IOs n/a 7,415 n/a 6,607 n/a n/a 9,313 n/a 9,212 n/a

Total Agency 735,412 751,433 872,597 948,041

Credit Portfolio:

CLO Notes 16,876 14,491 85.87 14,441 85.57 — — — — —

CLO Equity n/a 2,926 n/a 2,947 n/a — — — — —

Non-Agency RMBS (2)

9,953 9,409 94.53 8,189 82.28 16,895 12,566 74.38 12,414 73.48

Total RMBS (2)

943,185 875,850 92.86 951,243 100.85 1,246,084 1,298,274 104.19 1,290,577 103.57

Agency IOs n/a 9,313 n/a 9,212 n/a n/a 10,289 n/a 12,983 n/a

Non-Agency IOs n/a 11,310 n/a 8,700 n/a n/a 8,138 n/a 6,289 n/a

Total mortgage-backed securities $ 893,301 $ 966,744 $ 1,311,361 $ 1,306,244

Preferred equity securities — — — — — n/a 208 n/a 202 n/a

Total Credit 38,136 34,277 20,912 18,905

Treasury securities sold short — — — — — (500) (498) 99.60 (499) 99.80

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Total $ 773,548 $ 785,710 $ 893,510 $ 966,946

(1) Represents the dollar amount (not shown in thousands) per $100 of current principal of the price or cost for the security.

(1) Expressed as a percentage of the current principal balance.

(2) Excludes IOs.

The majority of our capital is allocated to our Agency RMBS strategy, which includes investments in Agency pools and Agency collateralized mortgage obligations, or "CMOs." As of both December 31, 2022 and 2021, investments in non-Agency RMBS constituted a relatively small portion of our total investments, although we expect to increase our portfolio of non-Agency RMBS given current market opportunities.

As of December 31, 2023, 89% of our invested capital was allocated to mortgage-related securities and 11% was allocated to corporate CLOs.

The majority of our mortgage-related securities are Agency RMBS, which include investments in Agency pools and Agency collateralized mortgage obligations, or "CMOs."

Our most prevalent method of financing RMBS is through short-term repos, which generally have maturities of 364 days or less.

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Futures (63) (82)

Credit Default Swaps (632) —

Total financial derivatives–liabilities, at fair value (7,329) (3,119)

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We generally enter into these transactions to offset the potential adverse effects of rising interest rates on short-term repurchase agreements.

Our repurchase agreements generally have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as LIBOR or SOFR for those same periods.

Our repurchase agreements generally have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as SOFR for those same periods.

As each then-existing fixed-rate repo borrowing matures, it will generally be replaced with a new fixed-rate repo borrowing based on market interest rates established at that future date.

In the case of interest rate swaps, most of our contracts are structured such that we receive payments based on a variable interest rate and make payments based on a fixed interest rate.

The variable interest rate on which payments are received is generally calculated based on various reset mechanisms for a benchmark rate such as LIBOR or SOFR.

The variable interest rate on which payments are received is generally calculated based on various reset mechanisms for a benchmark rate such as SOFR.

To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings.

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While we use TBAs to hedge interest rate risk and certain other risks, we also hold net long positions in certain TBA securities as a means of acquiring exposure to Agency RMBS.

Credit Risk Hedging

We also selectively enter into credit-hedging positions in order to protect against adverse credit events with respect to our CLO and/or non-Agency RMBS investments, subject to maintaining our qualification as a REIT.

Our credit hedging portfolio can vary significantly from period to period, and can encompass a wide variety of financial instruments, including corporate debt or equity-related instruments, RMBS- or CMBS-related instruments, or instruments involving other markets.

Our hedging instruments can include both "single-name" instruments (i.e., instruments referencing one underlying entity or security) and hedging instruments referencing indices.

Currently, our credit hedges consist of CDS on corporate bond indices, although there are periods of time where we have no credit hedges in place.

The composition and relative mix of our hedging instruments may vary from period to period given the amount of our liabilities outstanding or anticipated to be entered into, the overall market environment and our view as to which instruments best enable us to execute our hedging goals.

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

(In thousands)

(In thousands) (In thousands)

30 days or less $ 713,678 5.56 % 17 $ 563,926 4.01 % 14

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61-90 days 9,734 6.47 67 67,960 4.16 72

91-120 days — — — 104,361 0.17 106

121-150 days — — — 148,855 0.16 133

151-180 days — — — 56,337 0.15 163

181-364 days — — — 242,941 0.19 238

Total $ 729,543 5.58 % 17 $ 842,455 3.70 % 26

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As of December 31, 2023 and 2022, our total debt-to-equity ratio was 5.4:1 and 7.5:1, respectively.

Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted, as of December 31, 2022 and 2021 had an aggregate fair value of $0.9 billion and $1.1 billion.

Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.8 billion and $0.9 billion, as of December 31, 2023 and December 31, 2022, respectively.

Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets conditions, and the timing of security purchase and sale transactions.

Shareholders' Equity

As of December 31, 2022, our shareholders' equity decreased to $112.4 million from $154.2 million as of December 31, 2021.

This decrease principally consisted of a net loss of $(30.2) million and dividends declared of $13.7 million, partially offset by net proceeds from the issuance of common shares of $2.0 million.

As of December 31, 2023, our shareholders' equity increased to $136.2 million from $112.4 million as of December 31, 2022.

This increase principally consisted of net proceeds from the issuance of shares of $33.6 million and a net gain of $4.6 million, partially offset by dividends declared of $14.5 million.

As of December 31, 2023, our book value per share was $7.32, as compared to $8.40 as of December 31, 2022.

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Interest expense (45,256) (14,820)

Net interest income 20,186 25,641

Net interest income (expense) (2,707) 20,186

Management fees to affiliate 1,804 1,758

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Net Income (Loss) Per Common Share $ 0.31 $ (2.29)

Adjusted Distributable Earnings

Beginning with the financial results for the quarter ended June 30, 2022, the supplemental non-GAAP financial measure that we previously referred to as "Core Earnings," we now refer to as "Adjusted Distributable Earnings." We calculate Adjusted Distributable Earnings (formerly referred to as Core Earnings) as net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and excluding other income or loss items that are of a non-recurring nature.

Adjusted Distributable Earnings also excludes the effect of the Catch-up Premium Amortization Adjustment on interest income.

The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses).

The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.

Adjusted Distributable Earnings includes net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps.

Adjusted Distributable Earnings is a supplemental non-GAAP financial measure.

We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because:

(i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability;

(ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage;

and (iii) we believe that presenting Adjusted Distributable Earnings assists our investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our residential mortgage REIT peers.

Please note, however, that:

(I) our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable;

and (II) Adjusted Distributable Earnings excludes certain items, such as most realized and unrealized gains and losses, that may impact the amount of cash that is actually available for distribution.

In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S.

GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable income.

As a result, the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to its shareholders, in order to maintain qualification as a REIT, is not based on whether we have distributed 90% of our Adjusted Distributable Earnings.

In setting our dividend, our Board of Trustees considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Trustees may deem relevant from time to time.

The following table reconciles, for the years ended December 31, 2022 and 2021, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable GAAP measure:

Year Ended December 31,

(In thousands except for share amounts) 2022 2021

Net Income (Loss)

Net realized (gains) losses on securities 73,682 (3,818)

Change in net unrealized (gains) losses on securities 79,103 36,090

Net realized (gains) losses on financial derivatives (48,996) 2,526

Change in net unrealized (gains) losses on financial derivatives (58,533) (8,600)

Net realized gains (losses) on periodic settlements of interest rate swaps 626 (1,856)

Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps

Non-recurring expenses — 58

Negative (positive) component of interest income represented by Catch-up Premium Amortization Adjustment (3,144) (1,662)

Subtotal 44,020 22,383

Adjusted Distributable Earnings $ 13,822 $ 16,074

Weighted Average Shares Outstanding 13,163,106 12,683,761

Adjusted Distributable Earnings Per Share $ 1.05 $ 1.27

Results of Operations for the Years Ended December 31, 2022 and 2021

Net Income (Loss)

Net income (loss) for the year ended December 31, 2023 was $4.6 million, as compared to $(30.2) million for the year ended December 31, 2022.

The period-over-period decline in our results of operations was primarily due to an increase in total other loss and a decrease in net interest income.

The reversal in our results of operations year over year was primarily due to a total other income in the current period as compared to a total other loss in the prior period.

Gains in the current year were partially offset by a significant increase in interest expense, primarily as a result of higher financing costs stemming from the significant increase in short-term interest rates during 2023.

Interest Income

Our portfolio as of both December 31, 2022 and 2021 consisted primarily of Agency RMBS, and to a lesser extent, non-Agency RMBS.

Our portfolio as of both December 31, 2023 and 2022 consisted primarily of Agency RMBS, and to a lesser extent, non-Agency RMBS, and as of December 31, 2023, CLO investments.

Before interest expense, we earned approximately $38.8 million and $33.4 million in interest income on these securities for the years ended December 31, 2023 and 2022, respectively.

The period-over-period increase in interest income primarily resulted from higher asset yields on both our Agency and non-Agency RMBS, in addition to higher average holdings on our non-Agency RMBS portfolio, partially offset by lower average holdings on our Agency RMBS portfolio.

The Catch-up Premium Amortization Adjustment causes variability in our interest income and portfolio yields.

For the years ended December 31, 202, and 2021, we had a positive Catch-up Premium Amortization Adjustment of approximately $3.1 million and $1.7 million, respectively, which increased interest income.

Excluding the Catch-up Premium Amortization Adjustments, the weighted average yield of our overall portfolio was 2.80% and 2.36% for the years ended December 31, 2022 and 2021, respectively.

The year-over-year increase in interest income primarily resulted from higher asset yields on both our Agency and credit portfolios and to a lesser extent higher average holdings on our credit portfolio, partially offset by lower average holdings on our Agency RMBS portfolio.

The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields.

For the year ended December 31, 2023, we had a negative Catch-up Amortization Adjustments of approximately $(0.1) million, which decreased interest income.

For the year ended December 31, 2022, we had a positive Catch-up Amortization Adjustments of approximately $3.1 million, which increased interest income.

Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 4.09% and 2.80% for the years ended December 31, 2023 and 2022, respectively.

The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2023 and 2022:

Non-Agency (1)

(In thousands) Interest Income Average Holdings Yield Interest Income Average Holdings Yield Interest Income Average Holdings Yield

December 31, 2022 $ 31,866 $ 1,067,399 2.99 % $ 1,558 $ 14,115 11.04 % $ 33,424 $ 1,081,514 3.09 %

December 31, 2021 $ 27,497 $ 1,118,346 2.46 % $ 757 $ 8,485 8.91 % $ 28,254 $ 1,126,831 2.51 %

(1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin) and long U.S.

Treasury securities.

Year ended December 31, 2023 $ 36,186 $ 928,386 3.90 % $ 2,645 $ 22,678 11.66 % $ 38,831 $ 951,064 4.08 %

Year ended December 31, 2022 $ 31,866 $ 1,067,399 2.99 % $ 1,558 $ 14,115 11.04 % $ 33,424 $ 1,081,514 3.09 %

(1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin), long U.S.

Treasury securities, and reverse repurchase agreements.

Interest Expense

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Treasury securities as well as on our counterparties' cash collateral held by us.

Our total interest expense for the year ended December 31, 2022 was $14.8 million, which primarily consisted of $14.1 million of interest expense on our repo borrowings, and $0.7 million of interest expense related to our short positions in U.S.

Treasury securities.

Our total interest expense for the year ended December 31, 2021 was $2.7 million, which primarily consisted of $2.1 million of interest expense on our repo borrowings, and $0.6 million of interest expense related to our short positions in U.S.

Treasury securities.

The period-over-period increase in our total interest expense resulted mainly from higher rates on our repo borrowings stemming from the significant increase in short-term interest rates.

The following tables shows information related to our average cost of funds (1) on repurchase agreements for the years ended December 31, 2022 and 2021:

Our total interest expense for the years ended December 31, 2023 and 2022 was $45.3 million and $14.8 million, respectively, which primarily consisted of interest expense on our repo borrowings.

The year-over-year increase in our total interest expense resulted mainly from higher financing costs stemming from the significant increase in short-term interest rates.

The following table provides details of our borrowings under repurchase agreements for the years ended December 31, 2023 and 2022:

December 31, 2023 Year Ended

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(In thousands)

Repurchase Agreements:

Agency RMBS $ 822,543 $ 42,386 5.15 % $ 982,375 $ 13,398 1.36 %

Non-Agency RMBS 9,686 313 3.23 % — — —

Credit 15,497 1,015 6.55 % 9,686 313 3.23 %

838,040 43,401 5.18 % 992,061 13,711 1.38 %

Treasury securities 16,023 849 5.30 % 15,246 394 2.58 %

Total $ 854,063 $ 44,250 5.18 % $ 1,007,307 $ 14,105 1.40 %

(1) Excludes U.S.

Treasury securities.

Adjusted Cost of Funds

Among other instruments, we use interest rate swaps and U.S.

Treasury securities to hedge against the risk to our borrowings of rising interest rates.

As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the net interest (income) expense we incur on our positions in U.S.

Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings on yield-bearing assets (excluding U.S.

Treasury securities).

The following table details the components of our adjusted cost of funds (1)(2) for the years ended December 31, 2023 and 2022:

December 31, 2023 Year Ended

December 31, 2022

(In thousands) Average Borrowed Funds (3)

Interest Expense (Benefit) Average

Funds Average Borrowed Funds (3)

Interest Expense (Benefit) Average

Repurchase Agreements:

Agency RMBS $ 822,543 $ 42,386 5.15 % $ 982,375 $ 13,398 1.36 %

Credit 15,497 1,015 6.55 % 9,686 313 3.23 %

838,040 43,401 5.18 % 992,061 13,711 1.38 %

Net interest (income) expense related to U.S.

Treasury securities (5)

9 — % 298 0.03 %

Net periodic expense (benefit) paid or payable on interest rate swaps (21,078) (2.52) % (1,908) (0.19) %

Total Adjusted Cost of Funds $ 838,040 $ 22,332 2.66 % 992,061 12,101 1.22 %

(1) This metric does not take into account other instruments that we use to hedge interest rate risk, such as TBAs, swaptions, and futures.

Among other instruments, we use interest rate swaps and short U.S.

Treasury securities to hedge against the risk of rising interest rates.

The following table shows information related to the components of our average cost of funds including the amortization of upfront payments and the actual and accrued periodic payments on our interest rate swaps and interest expense on short U.S.

Treasury securities for the years ended December 31, 2022 and 2021:

Agreements Interest Rate

(2) Conformed to current period presentation.

(3) Excludes average borrowed funds related to repurchase agreements collateralized by U.S.

Treasury securities.

Average Borrowed Funds Interest Expense Average

Funds Net periodic expense paid or payable Adjustment to Average

Funds Interest expense Adjustment to Average

Funds Interest and net periodic expense paid or payable Adjusted Average

(In thousands)

Year ended December 31, 2022 $ 1,007,307 $ 14,105 1.40 % $ (2,200) (0.22) % $ 675 0.07 % $ 12,580 1.25 %

Year ended December 31, 2021 $ 1,097,793 $ 2,130 0.19 % $ 2,149 0.20 % $ 561 0.05 % $ 4,840 0.44 %

(1) As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the interest expense we incur on our short positions in U.S.

Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings.

(2) Includes interest expense on reverse repurchase agreements with negative interest rates, which can occur when we borrow certain bonds that we have sold short.

For the year ended December 31, 2022, the weighted average yield of our portfolio of Agency and non-Agency RMBS excluding the impact of the Catch-up Premium Amortization Adjustment was 2.80%, while our total adjusted average cost of funds, including interest rate swaps and short U.S.

(4) Excludes U.S.

Treasury securities.

(5) Includes interest expense from repurchase agreements collateralized by U.S.

Treasury securities and from positions in short U.S.

Treasury securities and interest income from reverse repurchase agreements collateralized by U.S.

Treasury securities and from positions in long U.S.

Treasury securities.

For the year ended December 31, 2023, the weighted average yield on our Agency RMBS and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 4.09%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S.

Treasury securities, was 2.66%, resulting in a net interest margin of 1.43%.

By comparison, for the year ended December 31, 2021, the weighted average yield of our portfolio of Agency and non-Agency RMBS excluding the impact of the Catch-up Premium Amortization Adjustment was 2.36%, while our total adjusted average cost of funds, including interest rate swaps and short U.S.

By comparison, for the year ended December 31, 2022, the weighted average yield of our portfolio of Agency and non-Agency RMBS excluding the impact of the Catch-up Amortization Adjustment was 2.80%, while our total adjusted average cost of funds, including interest rate swaps and short U.S.

Treasury securities, was 1.22%, resulting in a net interest margin of 1.58%.

Management Fees

For the years ended December 31, 2022 and 2021, our management fee expense was approximately $1.8 million and $2.4 million, respectively.

For each of the years ended December 31, 2023 and 2022, our management fee expense was approximately $1.8 million.

Management fees are calculated based on our shareholders' equity at the end of each quarter.

The decrease in the management fee year over year was due to a smaller capital base at each quarter end in 2022, as compared to the respective quarter ends in 2021.

Other Operating Expenses

Other operating expenses, as presented above, include professional fees, compensation expense, insurance expense, and various other expenses incurred in connection with the operation of our business.

For both of the years ended December 31, 2022 and 2021, our other operating expenses were approximately $3.4 million.

Other operating expenses, as presented above, includes professional fees, compensation expense, insurance expense, and various other operating expenses included on the Consolidated Statement of Operations incurred in connection with the operation of our business.

For the years ended December 31, 2023 and 2022, our other operating expenses were approximately $3.7 million and $3.4 million, respectively.

The increase in other operating expenses for the year ended December 31, 2023 was primarily due to an increase in professional fees.

Other Income (Loss)

Other income (loss) consists of net realized and net change in unrealized gains (losses) on securities and financial derivatives.

For the year ended December 31, 2023, Other income (loss) was $12.8 million, consisting of net realized and unrealized gains of $9.6 million and $3.2 million on our financial derivatives and securities, respectively.

Net realized and unrealized gains of $9.6 million on our financial derivatives consisted of net realized and unrealized gains of $8.3 million on our TBAs and $2.6 million on our interest rate swaps, partially offset by net realized and unrealized losses of $(0.8) million on our U.S Treasury futures and $(0.4) million on our credit default swaps.

The net gain on our financial derivatives was primarily the result of sharply rising interest rates in the second and third quarters of the year.

These gains were partially offset by net losses in the first and fourth quarters, driven by declining interest rates.

Net realized and unrealized gains of $3.2 million on our securities consisted primarily of net realized and unrealized gains of $1.5 million on our non-Agency RMBS and $1.4 million on our U.S.

Treasury securities.

For the year ended December 31, 2022, Other income (loss) was $(45.3) million, consisting primarily of net realized and unrealized losses of $(152.8) million on our securities, which were partially offset by net realized and unrealized gains of $107.5 million on our financial derivatives.

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The net gains on our financial derivatives were primarily the result of the significant increase in interest rates, and in the case of short positions in TBAs, also of widening yields spreads.

For the year ended December 31, 2021, Other income (loss) was $(26.2) million, consisting primarily of net realized and unrealized losses of $(32.3) million on securities, partially offset by net realized and unrealized gains of $6.1 million on our financial derivatives.

Net realized and unrealized losses of $(32.3) million on securities primarily consisted of $(34.5) million of net realized and unrealized losses on our Agency RMBS which were partially offset by net realized gains of $1.9 million on our short U.S.

Treasury securities.

Net realized and unrealized gains of $6.1 million on our financial derivatives primarily consisted of $7.7 million of net realized and unrealized gains on our swaps and futures partially offset by net realized and unrealized losses of $(1.6) million on our TBAs, where net gains on our higher-coupon short holdings were exceeded by net losses on our lower-coupon long holdings.

During 2021, interest rate volatility and long-term interest rates increased during much of the year.

Yield spreads on most of our Agency RMBS holdings widened and their prices declined, leading to net realized and unrealized losses.

For the year ended December 31, 2021, net realized and unrealized gains of $1.9 million and $6.1 million on our short U.S.

Treasury securities and our financial derivatives, respectively, were primarily the result of the increase in long-term interest rates.

Adjusted Distributable Earnings

We calculate Adjusted Distributable Earnings as net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and excluding other income or loss items that are of a non-recurring nature, if any.

Adjusted Distributable Earnings includes net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps.

Adjusted Distributable Earnings also excludes the effect of the Catch-up Amortization Adjustment on interest income.

The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses).

The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.

Adjusted Distributable Earnings is a supplemental non-GAAP financial measure.

We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because:

(ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage;

and (iii) we believe that presenting Adjusted Distributable Earnings assists our investors in measuring and evaluating our operating performance, and

comparing our operating performance to that of our residential mortgage REIT peers.

Our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable;

Adjusted Distributable Earnings excludes certain items, such as most realized and unrealized gains and losses, that may impact the amount of cash that is actually available for distribution.

In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S.

GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable income.

The following table reconciles, for the years ended December 31, 2023 and 2022, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.

GAAP measure:

Year Ended December 31,

(In thousands except for share amounts) 2023 2022

Net Income (Loss) $ 4,559 $ (30,198)

Net realized (gains) losses on securities 58,103 73,682

Change in net unrealized (gains) losses on securities (61,274) 79,103

Net realized (gains) losses on financial derivatives (28,562) (48,996)

Change in net unrealized (gains) losses on financial derivatives 18,932 (58,533)

Net realized gains (losses) on periodic settlements of interest rate swaps 7,388 626

Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps

Non-recurring expenses 102 —

Negative (positive) component of interest income represented by Catch-up Amortization Adjustment 62 (3,144)

Subtotal 8,441 44,020

Adjusted Distributable Earnings $ 13,000 $ 13,822

Weighted Average Shares Outstanding 14,875,314 13,163,106

Adjusted Distributable Earnings Per Share $ 0.87 $ 1.05

Liquidity and Capital Resources

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Our short-term (the 12 months following period end) and long-term (beyond 12 months from period end) liquidity requirements include acquisition costs for assets we acquire, payment of our management fee, compliance with margin requirements under our repurchase agreements, TBA and other financial derivative contracts, repayment of repurchase agreement borrowings to the extent we are unable or unwilling to extend our repurchase agreements, the payment of dividends, and payment of our general operating expenses.

Our capital resources primarily include cash on hand, cash flow from our investments (including monthly principal and interest payments received on our RMBS and proceeds from the sale of RMBS), borrowings under repurchase agreements, and proceeds from equity offerings.

Our capital resources primarily include cash on hand, cash flow from our investments (including monthly principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings.

We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.

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These provisions may differ for each of our lenders.

As of December 31, 2022 and December 31, 2021, we had $0.8 billion and $1.1 billion outstanding under our repurchase agreements, respectively.

As of December 31, 2023 and 2022, we had $729.5 million and $842.5 million outstanding under our repurchase agreements, respectively.

As of December 31, 2023, our outstanding repurchase agreements were with 19 counterparties.

The amounts borrowed under our repurchase agreements are generally subject to the application of "haircuts." A haircut is the percentage discount that a repo lender applies to the market value of an asset serving as collateral for a repo borrowing, for the purpose of determining whether such repo borrowing is adequately collateralized.

As of December 31, 2022 and December 31, 2021, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 5.5% and 5.2%, respectively.

As of December 31, 2023 and 2022, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 5.7% and 5.5%, respectively.

The following table details total outstanding borrowings, average outstanding borrowings, and the maximum outstanding borrowings at any month end for each quarter under repurchase agreements for the past twelve quarters.

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March 31, 2021 1,106,724 1,040,521 1,106,724

1,109,342 1,281,507 1,308,377

(1) During the quarter ended March 31, 2020 in response to significant volatility and heightened risks in the financial markets as a result of the spread of COVID-19, we significantly reduced our outstanding borrowings to lower leverage and increase our liquidity.

As of December 31, 2023, we had an aggregate amount at risk under our repurchase agreements with 19 counterparties of $50.1 million.

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If the amounts outstanding under repurchase agreements with a particular counterparty are greater than the collateral held by the counterparty, there is no amount at risk for the particular counterparty.

Amounts at risk under our repurchase agreements as of December 31, 2022 and December 31, 2021 does not include $1.5 million and $2.6 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.

Amounts at risk under our repurchase agreements as of December 31, 2023 and 2022 does not include $0.5 million and $1.5 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.

Our derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the "Dodd-Frank Act." We may be required to deliver or receive cash or securities as collateral upon entering into derivative transactions.

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As of December 31, 2023, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with three counterparties of approximately $26.0 million.

As of December 31, 2021, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with two counterparties of approximately $11.3 million.

As of December 31, 2022, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $24.5 million.

Amounts at risk under our derivatives contracts represent the excess, if any, for each counterparty of the fair value of our derivative contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.

If a particular counterparty's collateral held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

If a particular counterparty's collateral

held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

We purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis.

delayed delivery for these securities means that these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and therefore are more vulnerable, especially in the absence of margining arrangements with respect to these transactions, to increasing amounts at risk with the applicable counterparties.

The delayed delivery for these securities means that these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and therefore are more vulnerable, especially in the absence of margining arrangements with respect to these transactions, to increasing amounts at risk with the applicable counterparties.

As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with seven counterparties of approximately $1.7 million.

As of December 31, 2022, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with eight counterparties of approximately $4.6 million.

As of December 31, 2021, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with four counterparties of approximately $4.1 million.

Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.

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0.08 1,060 September 8, 2022 September 30, 2022 October 25, 2022

0.08 1,058 August 4, 2022 August 31, 2022 September 26, 2022

0.08 1,046 July 8, 2022 July 29, 2022 August 25, 2022

0.08 1,046 June 7, 2022 June 30, 2022 July 25, 2022

0.08 1,049 May 2, 2022 May 31, 2022 June 27, 2022

0.10 1,311 April 7, 2022 April 29, 2022 May 25, 2022

0.10 1,311 March 7, 2022 March 31, 2022 April 25, 2022

0.10 1,311 February 7, 2022 February 28, 2022 March 25, 2022

0.10 1,311 January 7, 2022 January 31, 2022 February 25, 2022

On January 8, 2024, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on February 26, 2024 to shareholders of record as of January 31, 2024.

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On March 7, 2024, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on April 25, 2024 to shareholders of record as of March 29, 2024.

At those times when cash flows from our operating activities are insufficient to fund our dividend payments, we fund such dividend payments through cash flows from our investing and/or financing activities, and in some cases from additional cash on hand.

The following paragraphs summarize our cash flows for the years ended December 31, 2023 and 2022.

For the year ended December 31, 2023, our operating activities used net cash of $10.0 million and our investing activities provided net cash of $85.7 million.

Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $91.4 million.

Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $15.7 million.

We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $33.6 million.

We also used $14.1 million to pay dividends.

As a result of these activities, there was an increase in our cash holdings of $3.7 million, from $34.8 million as of December 31, 2022 to $38.5 million as of December 31, 2023.

For the year ended December 31, 2022, our operating activities provided net cash of $22.4 million and our investing activities provided net cash of $110.5 million.

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Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $22.0 million.

We also received proceeds from the issuance of common shares, net of agent commissions and offering costs paid of $2.0 million.

We also received net proceeds from the issuance of common shares, net of commissions and offering costs paid of $2.0 million.

We used $13.9 million to pay dividends, and $0.3 million to repurchase common shares.

As a result of these activities, there was a decrease in our cash holdings of $34.2 million, from $69.0 million as of December 31, 2021 to $34.8 million as of December 31, 2022.

For the year ended December 31, 2021, our operating activities provided net cash of $27.9 million and our investing activities used net cash of $15.2 million.

Thus our operating and investing activities, when combined with our net repo financing activities, provided net cash of $19.2 million.

We also received proceeds from the issuance of common shares, net of agent commissions and offering costs paid of $8.9 million.

We used $17.3 million to pay dividends.

As a result of these activities, there was an increase in our cash holdings of $10.9 million, from $58.2 million as of December 31, 2020 to $69.0 million as of December 31, 2021.

On April 2, 2021, we commenced an "at-the-market" offering program, or "ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $75.0 million of common shares from time to time.

During the year ended December 31, 2022, we issued 268,780 common shares under the ATM program which provided $2.0 million of net proceeds after $38 thousand of agent commissions and $86 thousand of offering costs.

From December 31, 2022 through March 3, 2023, we issued 406,760 common shares under the ATM program, which provided $3.1 million of net proceeds after $0.1 million of agent commissions and offering costs.

From commencement of the ATM program through March 3, 2023, we issued 838,809 common shares under the ATM program, which provided $7.1 million of net proceeds after $0.1 million of agent commissions and $0.1 million of offering costs.

On April 2, 2021, we implemented an "at-the-market" offering program, or "ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $75.0 million of common shares from time to time.

The 2021 ATM program was terminated in connection with the establishment of the 2023 ATM program, hereinafter defined.

On November 14, 2023, we implemented an “at the market” offering program, or the "2023 ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of common shares from time to time.

In the aggregate, under the 2021 ATM program and 2023 ATM program, during the year ended December 31, 2023, we issued 5,183,037 common shares which provided $33.6 million of net proceeds after $0.5 million of commissions and $0.2 million of offering costs.

As of December 31, 2023, we had $85.9 million of common shares available to be issued remaining under the 2023 ATM program.

From commencement

of the 2023 ATM program through March 1, 2024, we issued 3,480,148 common shares under the 2023 ATM program, which provided $21.2 million of net proceeds after $0.2 million of commissions and $0.2 million of offering costs.

On June 13, 2018, our Board of Trustees approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.2 million common shares.

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Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations.

During the year ended December 31, 2022, we repurchased 40,021 common shares at an aggregate cost of $0.3 million, and an average price per share of $6.56.

Under the current repurchase program adopted on June 13, 2018, we have repurchased 474,192 common shares through March 3, 2023 at an average price per share of $9.21 and an aggregate cost of $4.4 million, and have authorization to repurchase an additional 725,808 common shares.

Under the current repurchase program adopted on June 13, 2018, we have repurchased 474,192 common shares through May 12, 2023 at an average price per share of $9.21 and an aggregate cost of $4.4 million, and have authorization to repurchase an additional 725,808 common shares.

We did not purchase any shares under this program during the year ended December 31, 2023.

Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements.

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We may enter into reverse repurchase agreements with third-party broker-dealers whereby we purchase securities under agreements to resell at an agreed-upon price and date.

In general, we most often

will enter into reverse repurchase agreement transactions in order to effectively borrow securities that we can then deliver to counterparties to whom we have made short sales of the same securities.

In general, we most often will enter into reverse repurchase agreement transactions in order to effectively borrow securities that we can then deliver to counterparties to whom we have made short sales of the same securities.

The implied interest rates on the repurchase agreements and reverse repurchase agreements we enter into are based upon competitive market rates at the time of initiation.

Repurchase agreements and reverse repurchase agreements that are conducted with the same counterparty may be reported on a net basis if they meet the requirements of ASC 210-20, Balance Sheet, Offsetting .

As of both December 31, 2022 and December 31, 2021, there were no repurchase agreements and reverse repurchase agreements reported on a net basis on the Consolidated Balance Sheet.

As of December 31, 2022, we had $0.8 billion of outstanding borrowings with 16 counterparties.

As of both December 31, 2023 and 2022, there were no repurchase agreements and reverse repurchase agreements reported on a net basis on the Consolidated Balance Sheet.

As of December 31, 2023, we had $729.5 million of outstanding borrowings with 19 counterparties.

Off-Balance Sheet Arrangements

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As a result, interest rates and other factors generally influence our performance more than does inflation.

Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates.

Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

However, elevated long-term inflation could adversely impact the performance of our investment portfolio, or the prices of our investments, or both.

For example, if higher inflation is not matched by an increase in wages, inflation could cause the real income of the borrowers whose loans underlie our non-Agency RMBS to decline.

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 7. Management’s Discussion and Analysis