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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 1957 added, 506 removed, 223 unchanged (92% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes to those statements included in Item 1 of this Form 10-Q.

The discussion may contain certain forward-looking statements that involve risks and uncertainties.

Forward-looking statements are those that are not historical in nature.

As a result of many factors, such as those set forth under “Risk Factors” in our most recent Annual Report on Form 10-K and our quarterly reports on Form 10-Q, our actual results may differ materially from those anticipated in such forward-looking statements.

We are a specialty finance company that invests in residential mortgage-backed securities (“RMBS”) which are issued and guaranteed by a federally chartered corporation or agency (“Agency RMBS”).

Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS:

(i) traditional pass-through Agency RMBS, such as mortgage pass-through certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”), inverse interest-only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS.

We were formed by Bimini in August 2010, commenced operations on November 24, 2010 and completed our initial public offering (“IPO”) on February 20, 2013.

We are externally managed by Bimini Advisors, an investment adviser registered with the Securities and Exchange Commission (the “SEC”).

Our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions.

We intend to achieve this objective by investing in and strategically allocating capital between the two categories of Agency RMBS described above.

We seek to generate income from (i) the net interest margin on our leveraged PT RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio.

We intend to fund our PT RMBS and certain of our structured Agency RMBS through short-term borrowings structured as repurchase agreements.

PT RMBS and structured Agency RMBS typically exhibit materially different sensitivities to movements in interest rates.

Declines in the value of one portfolio may be offset by appreciation in the other.

The percentage of capital that we allocate to our two Agency RMBS asset categories will vary and will be actively managed in an effort to maintain the level of income generated by the combined portfolios, the stability of that income stream and the stability of the value of the combined portfolios.

We believe that this strategy will enhance our liquidity, earnings, book value stability and asset selection opportunities in various interest rate environments.

We operate so as to qualify to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”).

AND ANALYSIS OF FINANCIAL

AND RESULTS OF

The following discussion of our financial condition and results of operations should be read

in conjunction with the financial

statements and notes to those statements included in Item 1 of this Form 10-Q.

discussion may contain certain forward-looking

statements that involve risks and uncertainties.

Forward-looking statements are

those that are not historical in nature.

As a result of

many factors, such as those set forth under “Risk Factors” in our most recent Annual

Report on Form 10-K and our quarterly reports on

Form 10-Q, our actual results may differ materially from those anticipated in such forward-looking

We are a specialty finance company that invests in residential mortgage-backed securities

(“RMBS”) which are issued and

guaranteed by a federally chartered corporation or agency (“Agency RMBS”).

Our investment

strategy focuses on, and our portfolio

consists of, two categories of Agency RMBS:

(i) traditional pass-through Agency RMBS,

such as mortgage pass-through certificates

issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized mortgage

obligations (“CMOs”) issued by the GSEs

(“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”), inverse

interest-only securities (“IIOs”) and

principal only securities (“POs”), among other types of structured Agency RMBS.

We were formed by Bimini in August 2010,

commenced operations on November 24, 2010 and completed our initial public offering (“IPO”)

on February 20, 2013.

externally managed by Bimini Advisors, an investment adviser registered with the Securities

and Exchange Commission (the “SEC”).

Our business objective is to provide attractive risk-adjusted total returns over the long term

through a combination of capital

appreciation and the payment of regular monthly distributions.

We intend to achieve this objective

by investing in and strategically

allocating capital between the two categories of Agency RMBS described above.

We seek to generate income from (i) the net interest

margin on our leveraged PT RMBS portfolio and the leveraged portion of our

structured Agency RMBS portfolio, and (ii) the interest

income we generate from the unleveraged portion of our structured Agency RMBS

We intend to fund our PT RMBS and

certain of our structured Agency RMBS through short-term borrowings structured

as repurchase agreements.

PT RMBS and structured

Agency RMBS typically exhibit materially different sensitivities to movements in interest

Declines in the value of one portfolio

may be offset by appreciation in the other.

The percentage of capital that we allocate to our two Agency RMBS asset categories will

vary and will be actively managed in an effort to maintain the level of income generated by the

combined portfolios, the stability of that

income stream and the stability of the value of the combined portfolios.

We believe that this

strategy will enhance our liquidity,

earnings, book value stability and asset selection opportunities in various interest

rate environments.

We operate so as to qualify to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue

Code of 1986, as

amended (the “Code”).

We generally will not be subject to U.S.

federal income tax to the extent that we currently distribute all of our REIT taxable income (as defined in the Code) to our stockholders and maintain our REIT qualification.

federal income tax to the extent that we currently

distribute all of our

REIT taxable income (as defined in the Code) to our stockholders and maintain

our REIT qualification.

The Company’s common stock trades on the New York Stock Exchange under the symbol “ORC”.

Impact of the COVID-19 Pandemic

Beginning in March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions began to impact our financial position and results of operations.

As a result of the economic, health and market turmoil brought about by COVID-19, the Agency RMBS market experienced severe dislocations.

This resulted in falling prices of our assets and increased margin calls from our repurchase agreement lenders.

Further, as interest rates declined, we faced additional margin calls related to our various hedge positions.

In order to maintain sufficient cash and liquidity, reduce risk and satisfy margin calls, we were forced to sell assets at levels significantly below their carrying values and closed several of our hedge positions.

The Agency RMBS market largely stabilized after the Federal Reserve (the “Fed”) announced on March 23, 2020 that it would purchase Agency RMBS and U.S.

Beginning in March 2020, the global pandemic associated with the novel coronavirus

COVID-19 (“COVID-19”) and related

economic conditions began to impact our financial position and results of operations.

As a result of the economic, health and market

turmoil brought about by COVID-19, the Agency RMBS market experienced

severe dislocations.

This resulted in falling prices of our

assets and increased margin calls from our repurchase agreement lenders.

Further, as interest rates declined, we faced additional

margin calls related to our various hedge positions.

In order to maintain sufficient cash and liquidity, reduce risk and satisfy margin

calls, we were forced to sell assets at levels significantly below their carrying values and

closed several of our hedge positions.

Agency RMBS market largely stabilized after the Federal Reserve (the “Fed”) announced

on March 23, 2020 that it would purchase

Agency RMBS and U.S.

Treasuries in the amounts needed to support smooth market functioning.

As of June 30, 2020, we had timely satisfied all margin calls.

The following summarizes the impact COVID-19 has had on our financial position and results of operations through June 30, 2020.

We sold approximately $2.0 billion of RMBS during the six months ended June 30, 2020, realizing losses of approximately $25.0 million.

Approximately $1.1 billion of these sales were executed on March 19th and March 20th and resulted in losses of approximately $31.4 million.

The losses sustained on these two days were a direct result of the adverse RMBS market conditions associated with COVID-19.

We terminated interest rate swap positions with an aggregate notional value of $1.2 billion and incurred approximately $54.5 million in mark to market losses on the positions through the date of the respective terminations.

Approximately $45.0 million of these losses occurred during the three months ended March 31, 2020.

Our RMBS portfolio had a fair market value of approximately $3.3 billion as of June 30, 2020, compared to $3.6 billion as of December 31, 2019.

The June 30, 2020 balance represents an increase from the $2.9 billion balance as of March 31, 2020.

Our outstanding balances under our repurchase agreement borrowings as of June 30, 2020 were approximately $3.2 billion, compared to $3.4 billion as of December 31, 2019 and $2.8 billion as of March 31, 2020.

Our stockholders’ equity was $346.0 million as of June 30, 2020, compared to $395.5 million as of December 31, 2019 and $308.1 million as of March 31, 2020.

Largely as a result of actions taken by the Fed in late March, Agency RMBS valuations have increased and the market for these assets has stabilized.

Bimini Advisors, LLC (our “Manager”) has invoked its Disaster Recovery Plan and its employees are working remotely.

Prior planning resulted in the successful implementation of this plan and key operational team members maintain daily communication.

We do not anticipate incurring additional material costs, nor have we identified any operational or internal control issues related to this remote working plan.

As of September

30, 2020, we had

timely satisfied all margin calls.

The following summarizes the impact COVID-19 has

had on our financial position and results of

operations through September 30, 2020.

We sold approximately $2.7 billion of RMBS during the nine months ended September 30, 2020,

realizing losses of approximately

$24.5 million.

Approximately $1.1 billion of these sales were executed on March

19th and March 20th and resulted in losses of

approximately $31.4 million.

The losses sustained on these two days were a direct result of the adverse

RMBS market conditions

associated with COVID-19.

We terminated interest rate swap positions with an aggregate notional value of $1.2 billion and incurred

approximately $54.5

million in mark to market losses on the positions through the date of the respective

terminations.

Approximately $45.0 million of

these losses occurred during the three months ended March 31, 2020.

Our RMBS portfolio had a fair market value of approximately $3.5 billion as of

September 30, 2020, compared to $3.6 billion as of

December 31, 2019.

The September 30, 2020 balance represents an increase

from the $3.3 billion balance as of June 30, 2020

and the $2.9 billion balance as of March 31, 2020.

Our outstanding balances under our repurchase agreement borrowings as of

September 30, 2020 were approximately $3.3 billion,

compared to $3.4 billion as of December 31, 2019, $3.2 billion as of June 30, 2020,

and $2.8 billion as of March 31, 2020.

Our stockholders’ equity was $376.7 million as of September 30, 2020, compared to

$395.5 million as of December 31, 2019,

$346.0 million as of June 30, 2020 and $308.1 million as of March 31, 2020.

Largely as a result of actions taken by the Fed in late March, Agency RMBS

valuations have increased and the market for these

assets has stabilized.

Bimini Advisors, LLC (our “Manager”) has invoked its Disaster Recovery Plan

and its employees are working remotely.

planning resulted in the successful implementation of this plan and key operational

team members maintain daily communication.

do not anticipate incurring additional material costs, nor have we

identified any operational or internal control issues related to this

remote working plan.

Capital Raising Activities

On August 2, 2017, we entered into an equity distribution agreement (the “August 2017 Equity Distribution Agreement”) with two sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.

We issued a total of 15,123,178 shares under the August 2017 Equity Distribution Agreement for aggregate gross proceeds of $125.0 million, and net proceeds of approximately $123.1 million, net of commissions and fees, prior to its termination in July 2019.

On July 30, 2019, we entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co.

LLC, Citigroup Global Markets Inc.

Morgan Securities LLC, as representatives of the underwriters named therein, relating to the offer and sale of 7,000,000 shares of our common stock at a price to the public of $6.55 per share.

The underwriters purchased the shares pursuant to the Underwriting Agreement at a price of $6.3535 per share.

The closing of the offering of 7,000,000 shares of common stock occurred on August 2, 2019, with net proceeds to us of approximately $44.2 million after deduction of underwriting discounts and commissions and other estimated offering expenses.

On January 23, 2020, we entered into an equity distribution agreement (the “January 2020 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $200,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.

Through June 30, 2020, we issued a total of 3,170,727 shares under the January 2020 Equity Distribution Agreement for aggregate gross proceeds of $19.8 million, and net proceeds of approximately $19.4 million, net of commissions and fees.

On August 2, 2017, we entered into an equity distribution agreement (the “August 2017

Equity Distribution Agreement”) with two

sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount

of $125,000,000 of shares of our

common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated transactions.

We issued a total

of 15,123,178 shares under the August 2017 Equity Distribution Agreement for

aggregate gross proceeds of $125.0 million, and net

proceeds of approximately $123.1 million, net of commissions and fees, prior to

its termination in July 2019.

On July 30, 2019, we entered into an underwriting agreement (the “Underwriting Agreement”)

with Morgan Stanley & Co.

Citigroup Global Markets Inc.

Morgan Securities LLC, as representatives of the underwriters named therein, relating to the

offer and sale of 7,000,000 shares of our common stock at a price to the public of $6.55 per

The underwriters purchased the

shares pursuant to the Underwriting Agreement at a price of $6.3535 per share.

of the offering of 7,000,000 shares of

common stock occurred on August 2, 2019, with net proceeds to us of approximately

million after deduction of underwriting

discounts and commissions and other estimated offering expenses.

On January 23, 2020, we entered into an equity distribution agreement (the “January

2020 Equity Distribution Agreement”) with

three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount

of $200,000,000 of shares

of our common stock in transactions that were deemed to be “at the market” offerings and

privately negotiated transactions.

a total of 3,170,727 shares under the January 2020 Equity Distribution Agreement for aggregate

gross proceeds of $19.8 million, and

net proceeds of approximately $19.4 million, net of commissions and fees, prior to

its termination in August 2020.

On August 4, 2020, we entered into an equity distribution agreement (the “August 2020

Equity Distribution Agreement”) with four

sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount

of $150,000,000 of shares of our

common stock in transactions that are deemed to be “at the market” offerings and privately

negotiated transactions.

September 30, 2020, we issued a total of 3,073,326 shares under the August 2020 Equity Distribution

Agreement for aggregate gross

proceeds of approximately $15.8 million, and net proceeds of approximately $15.6 million,

net of commissions and fees.

Stock Repurchase Agreement

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of our common stock.

The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject to economic and market conditions, stock price, applicable legal requirements and other factors.

The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company’s discretion without prior notice.

On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,522,822 shares of the Company’s common stock.

Coupled with the 783,757 shares remaining from the original 2,0000,000 share authorization, the increased authorization brought the total authorization to 5,306,579 shares, representing 10% of the Company’s then outstanding share count.

This stock repurchase program has no termination date.

From the inception of the stock repurchase program through June 30, 2020, the Company repurchased a total of 5,665,620 shares at an aggregate cost of approximately $40.4 million, including commissions and fees, for a weighted average price of $7.10 per share.

During the six months ended June 30, 2020, the Company repurchased 19,891 shares of its common at an aggregate cost of approximately $0.1 million, including commissions and fees, for a weighted average price of $3.42 per share.

The remaining authorization under the repurchase program as of June 30, 2020 was 837,311 shares.

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000

shares of our common stock.

The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject to

and market conditions, stock price, applicable legal requirements and other factors.

The authorization does not obligate the Company

to acquire any particular amount of common stock and the program may be

suspended or discontinued at the Company’s discretion

without prior notice.

On February 8, 2018, the Board of Directors approved an increase

in the stock repurchase program for up to an

additional 4,522,822 shares of the Company’s common stock.

Coupled with the 783,757 shares

remaining from the original 2,000,000

share authorization, the increased authorization brought the total authorization to 5,306,579

shares, representing 10% of the

Company’s then outstanding share count.

This stock repurchase program has no termination

From the inception of the stock repurchase program through September 30, 2020, the

Company repurchased a total of 5,685,511

shares at an aggregate cost of approximately $40.4

million, including commissions and fees, for a weighted average price

During the nine months ended September 30, 2020, the Company repurchased

19,891 shares of its common at an aggregate

cost of approximately $0.1 million, including commissions and fees, for a weighted average

price of $3.42 per share.

The remaining

authorization under the repurchase program as of September 30, 2020 was 837,311 shares.

Factors that Affect our Results of Operations and Financial Condition

A variety of industry and economic factors may impact our results of operations and financial condition.

A variety of industry and economic factors may impact our results of operations and

financial condition.

These factors include:

3 unchanged sentences

actions taken by the U.S.

government, including the presidential administration, the Fed, the Federal Housing Financing Agency (the “FHFA”), the Federal Open Market Committee (the “FOMC”) and the U.S.

prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates;

government, including the presidential administration,

the Fed, the Federal Housing Financing

Agency (the “FHFA”), the Federal Open Market Committee (the “FOMC”) and the U.S.

prepayment rates on mortgages underlying our Agency RMBS and credit

trends insofar as they affect prepayment rates;

other market developments.

In addition, a variety of factors relating to our business may also impact our results of operations and financial condition.

These factors include:

In addition, a variety of factors relating to our business may also impact our results

of operations and financial condition.

factors include:

our degree of leverage;

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the market value of our investments;

the requirements to qualify as a REIT and the requirements to qualify for a registration exemption under the Investment Company Act.

Results of Operations

Described below are the Company’s results of operations for the six and three months ended June 30, 2020, as compared to the Company’s results of operations for the six and three months ended June 30, 2019.

Net (Loss) Income Summary

Net loss for the six months ended June 30, 2020 was $42.4 million, or $0.65 per share.

Net income for the six months ended June 30, 2019 was $14.1 million, or $0.28 per share.

Net income for the three months ended June 30, 2020 was $48.8 million, or $0.74 per share.

Net income for the three months ended June 30, 2019 was $3.5 million, or $0.07 per share.

The components of net (loss) income for the six and three months ended June 30, 2020 and 2019, along with the changes in those components are presented in the table below:

the requirements to qualify as a REIT and the requirements to qualify for a registration

exemption under the Investment

the Company’s

Income Summary

the nine months

ended September

$14.4 million,

the nine months

ended September

$5.7 million,

for the three

ended September

$8.5 million,

of net (loss)

ended September

with the changes

are presented

(in thousands)

Six Months Ended June 30,

Three Months Ended, June 30,

Nine Months Ended September 30,

Three Months Ended, September 30,

Interest income

5 unchanged sentences

GAAP and Non-GAAP Reconciliations

In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including “Net Earnings Excluding Realized and Unrealized Gains and Losses”, “Economic Interest Expense” and “Economic Net Interest Income.”

In addition to the results presented in accordance with GAAP,

our results of operations discussed below include certain

non-GAAP financial information, including “Net Earnings Excluding Realized and Unrealized Gains and Losses”, “Economic

Interest Expense” and “Economic Net Interest Income.”

Net Earnings Excluding Realized and Unrealized Gains and Losses

We have elected to account for our Agency RMBS under the fair value option.

Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of operations.

In addition, we have not designated our derivative financial instruments in hedge accounting relationships, but rather hold them for economic hedging purposes.

Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of operations and are not included in interest expense.

As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

Securities held under the fair value

option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through

the statements of operations.

In addition, we have not designated our derivative financial instruments in hedge accounting relationships, but rather

hold them for economic hedging purposes.

Changes in fair value of these instruments are presented in a separate line item

in the Company’s statements of operations and are not included in interest expense.

As such, for financial reporting

purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

Presenting net earnings excluding realized and unrealized gains and losses allows management to:

(i) isolate the net interest income and other expenses of the Company over time, free of all fair value adjustments and (ii) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance.

Our funding and hedging strategies, capital allocation and asset selection are integral to our risk management strategy, and therefore critical to the management of our portfolio.

We believe that the presentation of our net earnings excluding realized and unrealized gains is useful to investors because it provides a means of comparing our results of operations to those of our peers who have not elected the same accounting treatment.

Our presentation of net earnings excluding realized and unrealized gains and losses may not be comparable to similarly-titled measures of other companies, who may use different calculations.

As a result, net earnings excluding realized and unrealized gains and losses should not be considered as a substitute for our GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under GAAP.

The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses.

(i) isolate the net

interest income and other expenses of the Company over time, free of all fair value adjustments and (ii) assess the

effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance.

Our funding and hedging strategies, capital allocation and asset selection are integral to our risk management strategy, and

therefore critical to the management of our portfolio.

We believe that the presentation of our net earnings excluding realized

and unrealized gains is useful to investors because it provides a means of comparing our results of operations to those of

our peers who have not elected the same accounting treatment.

Our presentation of net earnings excluding realized and

unrealized gains and losses may not be comparable to similarly-titled measures of other companies, who may use different

calculations.

As a result, net earnings excluding realized and unrealized gains and losses should not be considered as a

substitute for our GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under

The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net

earnings excluding realized and unrealized gains and losses.

Net Earnings Excluding Realized and Unrealized Gains and Losses

1 unchanged sentence

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments, including net interest income or expense on interest rate swaps .

Nine Months Ended

September 30, 2020

September 30, 2019

Includes realized and unrealized gains (losses) on RMBS and derivative financial

instruments, including net interest income or expense on

interest rate swaps

Economic Interest Expense and Economic Net Interest Income

We use derivative and other hedging instruments, specifically Eurodollar, Fed Funds and Treasury Note (“T-Note”) futures contracts, short positions in U.S.

Treasury securities, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.

We use derivative and other hedging instruments, specifically Eurodollar,

Fed Funds and Treasury Note (“T-Note”)

futures contracts, short positions in U.S.

Treasury securities, interest rate swaps and swaptions, to hedge a portion of the

interest rate risk on repurchase agreements in a rising rate environment.

We have not elected to designate our derivative holdings for hedge accounting treatment.

Changes in fair value of these instruments are presented in a separate line item in our statements of operations and not included in interest expense.

As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Eurodollar, Fed Funds and U.S.

Treasury futures, and interest rate swaps and swaptions, that pertain to each period presented.

We believe that adjusting our interest expense for the periods presented by the gains or losses on these derivative instruments would not accurately reflect our economic interest expense for these periods.

The reason is that these derivative instruments may cover periods that extend into the future, not just the current period.

Any realized or unrealized gains or losses on the instruments reflect the change in market value of the instrument caused by changes in underlying interest rates applicable to the term covered by the instrument, not just the current period.

For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period.

Changes in fair value of these

instruments are presented in a separate line item in our statements of operations and not included in interest expense.

such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the

derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP

interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments

the Company uses, specifically Eurodollar, Fed Funds and U.S.

futures, and interest rate swaps and swaptions,

that pertain to each period presented.

We believe that adjusting our interest expense for the periods presented by the gains

or losses on these derivative instruments would not accurately reflect our economic interest expense for these periods.

reason is that these derivative instruments may cover periods that extend into the future, not just the current period.

realized or unrealized gains or losses on the instruments reflect the change in market value of the instrument caused by

changes in underlying interest rates applicable to the term covered by the instrument, not just the current period.

period presented, we have combined the effects of the derivative financial instruments in place for the respective period with

the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period.

Interest expense, including the effect of derivative instruments for the period, is referred to as economic interest expense.

Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic net interest income.

This presentation includes gains or losses on all contracts in effect during the reporting period, covering the current period as well as periods in the future.

We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP.

The non-GAAP measures help management to evaluate its financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio or operations.

The unrealized gains or losses on derivative instruments presented in our statements of operations are not necessarily representative of the total interest rate expense that we will ultimately realize.

This is because as interest rates move up or down in the future, the gains or losses we ultimately realize, and which will affect our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized as of the reporting date.

Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic

net interest income.

This presentation includes gains or losses on all contracts in effect during the reporting period, covering

the current period as well as periods in the future.

We believe that economic interest expense and economic net interest income provide meaningful information to

consider, in addition to the respective amounts prepared in accordance with GAAP.

The non-GAAP measures help

management to evaluate its financial position and performance without the effects of certain transactions and GAAP

adjustments that are not necessarily indicative of our current investment portfolio or operations.

The unrealized gains or

losses on derivative instruments presented in our statements of operations are not necessarily representative of the total

interest rate expense that we will ultimately realize.

This is because as interest rates move up or down in the future, the

gains or losses we ultimately realize, and which will affect our total interest rate expense in future periods, may differ from

the unrealized gains or losses recognized as of the reporting date.

Our presentation of the economic value of our hedging strategy has important limitations.

First, other market participants may calculate economic interest expense and economic net interest income differently than the way we calculate them.

Second, while we believe that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance, it may be of limited usefulness as an analytical tool.

Therefore, the economic value of our investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with GAAP.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for each quarter of 2020 to date and 2019.

First, other market

participants may calculate economic interest expense and economic net interest income differently than the way we

calculate them.

Second, while we believe that the calculation of the economic value of our hedging strategy described

above helps to present our financial position and performance, it may be of limited usefulness as an analytical tool.

Therefore, the economic value of our investment strategy should not be viewed in isolation and is not a substitute for

interest expense and net interest income computed in accordance with GAAP.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our

derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in

accordance with GAAP for each quarter of 2020 to date and 2019.

Gains (Losses) on Derivative Instruments

6 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Economic Interest Expense and Economic Net Interest Income

3 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Reflects the effect of derivative instrument hedges for only the period presented.

Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense.

Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.

Nine Months Ended

September 30, 2020

September 30, 2019

Reflects the effect of derivative instrument hedges for only the

period presented.

Calculated by adding the effect of derivative instrument hedges

attributed to the period presented to GAAP interest expense.

Calculated by adding the effect of derivative instrument hedges

attributed to the period presented to GAAP net interest income.

Net Interest Income

During the six months ended June 30, 2020, we generated $41.9 million of net interest income, consisting of $62.9 million of interest income from RMBS assets offset by $21.0 million of interest expense on borrowings.

For the comparable period ended June 30, 2019, we generated $27.6 million of net interest income, consisting of $68.9 million of interest income from RMBS assets offset by $41.3 million of interest expense on borrowings.

The $6.0 million decrease in interest income was due to a 39 basis point ("bps") decrease in the yield on average RMBS, which was partially offset by a $18.6 million increase in average RMBS.

The $20.3 million decrease in interest expense was due to a 136 bps decrease in the average cost of funds, partially offset by a $38.8 million increase in average outstanding borrowings.

On an economic basis, our interest expense on borrowings for the six months ended June 30, 2020 and 2019

was $31.7 million and $37.4 million, respectively, resulting in $31.3 million and $31.5 million of economic net interest income, respectively.

During the three months ended June 30, 2020, we generated $22.8 million of net interest income, consisting of $27.3 million of interest income from RMBS assets offset by $4.5 million of interest expense on borrowings.

For the three months ended June 30, 2019, we generated $14.0 million of net interest income, consisting of $36.5 million of interest income from RMBS assets offset by $22.4 million of interest expense on borrowings.

The $9.2 million decrease in interest income was due to a 92 bps decrease in the yield on average RMBS, combined with a $181.1 million decrease in average RMBS.

The $18.0 million decrease in interest expense was due to a 230 bps decrease in the average cost of funds, combined with a $105.6 million decrease in average outstanding borrowings.

On an economic basis, our interest expense on borrowings for the three months ended June 30, 2020 and 2019 was $10.2 million and $21.0 million, respectively, resulting in $17.0 million and $15.5 million of economic net interest income, respectively.

The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for the six months ended June 30, 2020 and 2019 and each quarter of 2020 to date and 2019 on both a GAAP and economic basis.

ended September

$67.1 million

of net interest

income, consisting

of $90.2 million

interest income

assets offset

by $23.0 million

For the comparable

$41.2 million

of net interest

income, consisting

interest income

offset by $63.6

million decrease

average RMBS,

combined with

a $71.4 million

average RMBS.

million decrease

in the average

cost of funds,

combined with

$88.7 million

average outstanding

On an economic

2019 was $40.6

$58.5 million,

respectively, resulting

in $49.6 million

interest income,

respectively.

ended September

$25.2 million

of net interest

income, consisting

of $27.2 million

interest income

assets offset

by $2.0 million

For the three

2019, we generated

$13.6 million

of net interest

income, consisting

of $35.9 million

offset by $22.3

interest expense

on borrowings.

The $8.7 million

interest income

a 73 bps decrease

average RMBS,

combined with

a $251.5 million

average RMBS.

million decrease

225 bps decrease

in the average

cost of funds,

combined with

a $343.7 million

average outstanding

On an economic

for the three

2019 was $8.9

$21.1 million,

respectively, resulting

in $18.3 million

interest income,

respectively.

below provide

on our portfolio

average balances,

interest income,

assets, average

expense, cost

of funds, net

the nine months

ended September

2019 and each

($ in thousands)

1 unchanged sentence

Average Cost of Funds

Borrowings (1)

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

($ in thousands)

2 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Portfolio yields and costs of borrowings presented in the tables above and the tables on pages 30 and 31 are

calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented.

Average balances for quarterly periods are calculated using two data points, the beginning and ending balances.

Economic interest expense and economic net interest income presented in the table above and the tables on page 31 includes the effect of our derivative instrument hedges for only the periods presented.

(3) Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average RMBS.

(4) Economic net interest spread is calculated by subtracting average economic cost of funds from realized yield on average RMBS.

Nine Months Ended

September 30, 2020

September 30, 2019

Portfolio yields and costs of borrowings presented in the tables above

and the tables on pages 34 and 35 are calculated based on the

average balances of the underlying investment portfolio/borrowings

balances and are annualized for the periods presented.

balances for quarterly periods are calculated using two data points, the

beginning and ending balances.

Economic interest expense and economic net interest income

presented in the table above and the tables on page 31 includes

of our derivative instrument hedges for only the periods presented.

(3) Represents

interest cost of our borrowings and the effect of derivative

instrument hedges attributed to the period divided by average

net interest spread is calculated by subtracting average economic

cost of funds from realized yield on average RMBS.

Interest Income and Average Asset Yield

Our interest income for the six months ended June 30, 2020 and 2019 was $62.9 million and $68.9 million, respectively.

We had average RMBS holdings of $3,198.3 million and $3,179.7 million for the six months ended June 30, 2020 and 2019, respectively.

The yield on our portfolio was 3.94% and 4.33% for the six months ended June 30, 2020 and 2019, respectively.

For the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, there was a $6.0 million decrease in interest income due to the 39 bps decrease in the yield on average RMBS, partially offset by the $18.6 million increase in average RMBS.

Our interest income for the three months ended June 30, 2020 and 2019 was $27.3 million and $36.5 million, respectively.

We had average RMBS holdings of $3,126.8 million and $3,307.9 million for the three months ended June 30, 2020 and 2019, respectively.

The yield on our portfolio was 3.49% and 4.41% for the three months ended June 30, 2020 and 2019, respectively.

For the three months ended June 30, 2020 as compared to the three months ended June 30, 2019, there was a $9.2 million decrease in interest income due to the 92 bps decrease in the yield on average RMBS, combined with the $181.1 million decrease in average RMBS.

The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS, for the six months ended June 30, 2020 and 2019, and for each quarter of 2020 to date and 2019.

2019 was $90.2

$104.8 million,

respectively.

RMBS holdings

$3,344.5 million

respectively.

our portfolio

2019, respectively.

the nine months

ended September

the nine months

ended September

$14.6 million

interest income

51 bps decrease

RMBS, combined

with the $71.4

million decrease

average RMBS.

2019 was $27.2

$35.9 million,

respectively.

RMBS holdings

$3,674.1 million

for the three

respectively.

our portfolio

for the three

September 30,

2020 and 2019,

respectively.

interest income

73 bps decrease

combined with

million decrease

average RMBS.

below presents

of our respective

sub-portfolios,

of structured

for each quarter

date and 2019.

($ in thousands)

3 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Interest Expense and the Cost of Funds

We had average outstanding borrowings of $3,060.8 million and $3,022.0 million and total interest expense of $21.0 million and $41.3 million for the six months ended June 30, 2020 and 2019, respectively.

Our average cost of funds was 1.37% for the six months ended June 30, 2020, compared to 2.73% for the comparable period in 2019.

The $20.3 million decrease in interest expense was due to the 136 bps decrease in the average cost of

funds, partially offset by a $38.8 million increase in average outstanding borrowings during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.

Our economic interest expense was $31.7 million and $37.4 million for the six months ended June 30, 2020 and 2019, respectively.

There was a 41 bps decrease in the average economic cost of funds to 2.07% for the six months ended June 30, 2020 from 2.48% for the six months ended June 30, 2019.

We had average outstanding borrowings of $2,992.5 million and $3,098.1 million and total interest expense of $4.5 million and $22.4 million for the three months ended June 30, 2020 and 2019, respectively.

Our average cost of funds was 0.60% and 2.90% for three months ended June 30, 2020 and 2019, respectively.

There was a 230 bps decrease in the average cost of funds and a $105.6 million decrease in average outstanding borrowings during the three months ended June 30, 2020, compared to the three months ended June 30, 2019.

Our economic interest expense was $10.2 million and $21.0 million for the three months ended June 30, 2020 and 2019, respectively.

There was a 134 bps decrease in the average economic cost of funds to 1.37% for the three months ended June 30, 2020 from 2.71% for the three months ended June 30, 2019.

Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.

Our average cost of funds calculated on a GAAP basis was 5 bps above the average one-month LIBOR and 10 bps below the average six-month LIBOR for the quarter ended June 30, 2020.

Our average economic cost of funds was 82 bps above the average one-month LIBOR and 67 bps above the average six-month LIBOR for the quarter ended June 30, 2020.

The average term to maturity of the outstanding repurchase agreements increased to 30 days at June 30, 2020 from 25 days at December 31, 2019.

The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month LIBOR rates for the six months ended June 30, 2020 and 2019, and for each quarter in 2020 to date and 2019 on both a GAAP and economic basis.

We had average

of $3,116.6 million

total interest

$23.0 million

the nine months

ended September

2019, respectively.

cost of funds

ended September

the comparable

million decrease

166 bps decrease

in the average

cost of funds,

combined with

$88.7 million

ended September

the nine months

ended September

interest expense

$58.5 million

respectively.

economic cost

the nine months

ended September

the nine months

ended September

We had average

$3,571.8 million

respectively.

2019, respectively.

cost of funds

million decrease

ended September

interest expense

was $8.9 million

respectively.

in the average

economic cost

1.11% for the three

September 30,

our repurchase

are short-term,

directly affect

of funds calculated

bps above the

average one-month

ended September

economic cost

bps above the

average six-month

ended September

term to maturity

of the outstanding

30, 2020 from

below present

interest expense

cost of funds,

and six-month

for each quarter

economic basis.

($ in thousands)

2 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Average GAAP Cost of Funds

4 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Gains or Losses

The table below presents our gains or losses for the six and three months ended June 30, 2020 and 2019.

below presents

or losses for

ended September

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Realized (losses) gains on sales of RMBS

Unrealized gains on RMBS

Total gains on RMBS

Unrealized gains (losses) on RMBS

(losses) on RMBS

Losses on interest rate futures

Losses on interest rate swaps

Losses on payer swaptions

Losses on TBA securities

Losses on U.S.

Treasury securities - short

Total (losses) gains from derivative instruments

We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales.

However, we have sold, and may continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy.

During the six months ended June 30, 2020 and 2019, we received proceeds of $2,023.3 million and $1,689.7 million, respectively, from the sales of RMBS.

Most of these sales during the six months ended June 30, 2020 occurred during the second half of March 2020 as we sold assets in order to maintain sufficient cash and liquidity and reduce risk associated with the market turmoil brought about by COVID-19.

During the three months ended June 30, 2020 and 2019, we received proceeds of $214.5 million and $1,034.4 million, respectively, from the sales of RMBS.

Realized and unrealized gains and losses on RMBS are driven in part by changes in yields and interest rates, which affect the pricing of the securities in our portfolio.

Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period.

The table below presents historical interest rate data for each quarter end during 2020 to date and 2019.

(Losses) gains on interest rate swaps

(Losses) gains on payer swaptions

(Losses) gains on TBA securities

(Losses) gains on U.S.

Treasury securities -

Total (losses)

gains from derivative instruments

yield on those

their related

However, we have

sold, and may

existing assets

assets, which

our management

believes might

risk-adjusted

light of current

or anticipated

interest rates,

federal government

general economic

sheet as part

of our asset/liability

the nine months

ended September

2019, we received

$2,692.2 million

respectively, from

Most of these

the nine months

ended September

30, 2020 occurred

half of March

maintain sufficient

cash and liquidity

risk associated

with the market

brought about

ended September

2019, we received

$668.9 million

$258.3 million,

respectively, from

losses on RMBS

interest rates,

of the securities

in our portfolio.

Gains and losses

contracts are

implied forward

the reporting

below presents

for each quarter

Mortgage Rate

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Historical 5 and 10 Year U.S.

Treasury Rates are obtained from quoted end of day prices on the Chicago Board

Options Exchange.

Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey.

Historical LIBOR is obtained from the Intercontinental Exchange Benchmark Administration Ltd.

For the six and three months ended June 30, 2020, the Company’s total operating expenses were approximately $4.9 million and $2.8 million, respectively, compared to approximately $5.0 million and $2.8 million, respectively, for the six and three months ended June 30, 2019.

The table below presents a breakdown of operating expenses for the six and three months ended June 30, 2020 and 2019.

Historical 5 and 10 Year

Treasury Rates are obtained from quoted

end of day prices on the Chicago Board Options Exchange.

Historical 30 Year and

15 Year Fixed

Rate Mortgage Rates are obtained from Freddie Mac’s

Primary Mortgage Market Survey.

Historical LIBOR is obtained from the Intercontinental Exchange Benchmark

Administration Ltd.

and three months

ended September

30, 2020, the

Company’s total

operating expenses

were approximately

and $2.8 million,

respectively, compared

to approximately

and $2.6 million,

respectively, for the

and three months

ended September

The table below

presents a breakdown

ended September

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Management fees

6 unchanged sentences

Total expenses

We are externally managed and advised by Bimini Advisors, LLC (the “Manager”) pursuant to the terms of a management agreement.

The management agreement has been renewed through February 20, 2021 and provides for automatic one-year extension options thereafter and is subject to certain termination rights.

Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company.

The Manager receives a monthly management fee in the amount of:

We are externally managed and advised by Bimini Advisors, LLC (the “Manager”) pursuant

to the terms of a management

The management agreement has been renewed through February 20,

2021 and provides for automatic one-year extension

options thereafter and is subject to certain termination rights.

Under the terms of the management agreement, the Manager is

responsible for administering the business activities and day-to-day operations of

The Manager receives a monthly

management fee in the amount of:

One-twelfth of 1.5% of the first $250 million of the Company’s month end equity, as defined in the management agreement,

One-twelfth of 1.25% of the Company’s month end equity that is greater than $250 million and less than or equal to $500 million, and

One-twelfth of 1.25% of the Company’s month end equity that is greater than $250 million

The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the Company’s pro rata portion of certain overhead costs set forth in the management agreement.

Should the Company terminate the management agreement without cause, it will pay the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement.

The following table summarizes the management fee and overhead allocation expenses for each quarter in 2020 to date and 2019.

and less than or equal to $500

One-twelfth of 1.00% of the Company’s month end equity that is greater than $500 million.

The Company is obligated to reimburse the Manager for any direct expenses incurred

on its behalf and to pay the Manager the

Company’s pro rata portion of certain overhead costs set forth in the management agreement.

Should the Company terminate the

management agreement without cause, it will pay the Manager a termination

fee equal to three times the average annual management

fee, as defined in the management agreement, before or on the last day of the term of

the agreement.

The following table summarizes the management fee and overhead allocation expenses

for each quarter in 2020 to date and

($ in thousands)

1 unchanged sentence

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Financial Condition:

Nine Months Ended

September 30, 2020

September 30, 2019

Mortgage-Backed Securities

As of June 30, 2020, our RMBS portfolio consisted of $3,304.8 million of Agency RMBS at fair value and had a weighted average coupon on assets of 3.68%.

During the six months ended June 30, 2020, we received principal repayments of $260.8 million compared to $229.6 million for the six months ended June 30, 2019.

The average prepayment speeds for the quarters ended June 30, 2020 and 2019 were 16.3% and 11.4%, respectively.

The following table presents the 3-month constant prepayment rate (“CPR”) experienced on our structured and PT RMBS sub-portfolios, on an annualized basis, for the quarterly periods presented.

CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year.

Specifically, the CPR in the chart below represents the three month prepayment rate of the securities in the respective asset category.

Assets that were not owned for the entire quarter have been excluded from the calculation.

The exclusion of certain assets during periods of high trading activity can create a very high, and often volatile, reliance on a small sample of underlying loans.

As of September

our RMBS portfolio

$3,540.4 million

of Agency RMBS

at fair value

average coupon

ended September

principal repayments

million compared

the nine months

ended September

16.4%, respectively.

The following

table presents

the 3-month constant

experienced on

our structured

sub-portfolios,

on an annualized

the quarterly

periods presented.

CPR is a method

of expressing

the prepayment

rate for a mortgage

pool that assumes

that a constant

the remaining

month or year.

Specifically, the

CPR in the chart

below represents

the three month

prepayment rate

of the securities

in the respective

were not owned

for the entire

been excluded

from the calculation.

The exclusion

assets during

periods of high

trading activity

and often volatile,

a small sample

of underlying

Three Months Ended

2 unchanged sentences

Portfolio (%)

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of June 30, 2020 and December 31, 2019:

The following

tables summarize

certain characteristics

of the Company’s

($ in thousands)

Asset Category

June 30, 2020

September 30, 2020

Adjustable Rate RMBS

15 unchanged sentences

($ in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

Total Portfolio

June 30, 2020

September 30, 2020

December 31, 2019

4 unchanged sentences

Effective Duration

Effective duration is the approximate percentage change in price for a 100 bps change in rates.

An effective duration of 2.010 indicates that an interest rate increase of 1.0% would be expected to cause a 2.010% decrease in the value of the RMBS in the Company’s investment portfolio at June 30, 2020.

An effective duration of 2.780 indicates that an interest rate increase of 1.0% would be expected to cause a 2.780% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2019.

These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges.

Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

The following table presents a summary of portfolio assets acquired during the six months ended June 30, 2020 and 2019, including securities purchased during the period that settled after the end of the period, if any.

Effective duration is the approximate percentage change

in price for a 100 bps change in rates.

An effective duration of 1.790 indicates that an

interest rate increase of 1.0% would be expected to cause a 1.790% decrease in

the value of the RMBS in the Company’s investment

at September 30, 2020.

An effective duration of 2.780 indicates that an interest rate

increase of 1.0% would be expected to cause a 2.780%

decrease in the value of the RMBS in the Company’s investment

portfolio at December 31, 2019.

These figures include the structured

in the portfolio, but do not include the effect of the Company’s

funding cost hedges.

Effective duration quotes for individual investments are

obtained from The Yield Book, Inc.

The following

table presents

assets acquired

during the nine

September 30,

including securities

purchased during

after the end

of the period,

($ in thousands)

Average Price

Weighted Average Yield

Average Price

Weighted Average Yield

Pass-through RMBS

Structured RMBS

As of June 30, 2020, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 20 of these counterparties.

None of these lenders are affiliated with the Company.

These borrowings are secured by the

Company’s RMBS and cash, and bear interest at prevailing market rates.

We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.

As of June 30, 2020, we had obligations outstanding under the repurchase agreements of approximately $3,174.7 million with a net weighted average borrowing cost of 0.27%.

The remaining maturity of our outstanding repurchase agreement obligations ranged from 1 to 317 days, with a weighted average remaining maturity of 30 days.

Securing the repurchase agreement obligations as of June 30, 2020 are RMBS with an estimated fair value, including accrued interest, of approximately $3,304.5 million and a weighted average maturity of 346 months, and cash pledged to counterparties of approximately $35.6 million.

Through July 31, 2020, we have been able to maintain our repurchase facilities with comparable terms to those that existed at June 30, 2020 with maturities through May 13, 2021.

The table below presents information about our period end, maximum and average balances of borrowings for each quarter in 2020 to date and 2019.

As of September

we had established

in the repurchase

banks and other

financial institutions

and had borrowings

in place with

counterparties.

None of these

affiliated with

by the Company’s

cash, and bear

at prevailing

market rates.

our established

provide borrowing

As of September

we had obligations

of approximately

$3,281.3 million

average borrowing

cost of 0.24%.

The remaining

our outstanding

1 to 225 days,

with a weighted

average remaining

as of September

including accrued

of approximately

$3,426.3 million

and a weighted

of 341 months,

and cash pledged

to counterparties

of approximately

$24.8 million.

Through October

able to maintain

our repurchase

with comparable

30, 2020 with

The table below presents information about our period end, maximum and average balances

of borrowings for each quarter in

2020 to date and 2019.

($ in thousands)

3 unchanged sentences

Three Months Ended

September 30, 2020

June 30, 2020

4 unchanged sentences

March 31, 2019

The lower ending balance relative to the average balance during the quarter ended March 31, 2020 reflects the disposal of RMBS pledged as collateral in order to maintain cash and liquidity in response to the dislocations in the financial and mortgage markets resulting from the economic impacts of COVID-19.

During the quarter ended March 31, 2020, the Company’s investment in RMBS decreased $642.1 million.

The lower ending balance relative to the average balance during the quarter

ended March 31, 2020 reflects the disposal of RMBS pledged as

collateral in order to maintain cash and liquidity in response to the dislocations

in the financial and mortgage markets resulting from the

economic impacts of COVID-19.

During the quarter ended March 31, 2020, the Company’s investment

in RMBS decreased $642.1 million.

Liquidity and Capital Resources

Liquidity is our ability to turn non-cash assets into cash, purchase additional investments, repay principal and interest on borrowings, fund overhead, fulfill margin calls and pay dividends.

Our principal immediate sources of liquidity include cash balances, unencumbered assets and borrowings under repurchase agreements.

Our borrowing capacity will vary over time as the market value of our interest earning assets varies.

Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio.

Despite the recent dislocations in the financial and mortgage markets and the economic impacts resulting from COVID-19, management believes that we currently have sufficient liquidity and capital resources available for (a) the acquisition of additional investments consistent with the size and nature of our existing RMBS portfolio, (b) the repayments on borrowings and (c) the payment of dividends to the extent required for our continued qualification as a REIT.

We may also generate liquidity from time to time by selling our equity or debt securities in public offerings or private placements.

Because our PT RMBS portfolio consists entirely of government and agency securities, we do not anticipate having difficulty converting our assets to cash should our liquidity needs ever exceed our immediately available sources of cash.

Our structured RMBS portfolio also consists entirely of governmental agency securities, although they typically do not trade with comparable bid / ask spreads as PT RMBS.

However, we anticipate that

we would be able to liquidate such securities readily, even in distressed markets, although we would likely do so at prices below where such securities could be sold in a more stable market.

To enhance our liquidity even further, we may pledge a portion of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets.

In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash.

Our strategy for hedging our funding costs typically involves taking short positions in interest rate futures, treasury futures, interest rate swaps, interest rate swaptions or other instruments.

When the market causes these short positions to decline in value we are required to meet margin calls with cash.

This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls.

If this were to occur in sufficient magnitude, the loss of liquidity might force us to reduce the size of the levered portfolio, pledge additional structured securities to raise funds or risk operating the portfolio with less liquidity.

Our master repurchase agreements have no stated expiration, but can be terminated at any time at our option or at the option of the counterparty.

However, once a definitive repurchase agreement under a master repurchase agreement has been entered into, it generally may not be terminated by either party.

A negotiated termination can occur, but may involve a fee to be paid by the party seeking to terminate the repurchase agreement transaction, as it did during the three months ended March 31, 2020.

Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing.

The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged.

To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient and we will be required to post additional collateral.

Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty.

Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we.

Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis.

Our master repurchase agreements do not specify the haircut;

rather haircuts are determined on an individual repurchase transaction basis.

Throughout the six months ended June 30, 2020, haircuts on our pledged collateral remained stable and as of June 30, 2020, our weighted average haircut was approximately 4.9% of the value of our collateral.

As discussed earlier, we invest a portion of our capital in structured Agency RMBS.

We generally do not apply leverage to this portion of our portfolio.

The leverage inherent in structured securities replaces the leverage obtained by acquiring PT securities and funding them in the repurchase market.

This structured RMBS strategy has been a core element of the Company’s overall investment strategy since inception.

However, we have and may continue to pledge a portion of our structured RMBS in order to raise our cash levels, but generally will not pledge these securities in order to acquire additional assets.

The following table summarizes the effect on our liquidity and cash flows from contractual obligations for repurchase agreements and interest expense on repurchase agreements.

to turn non-cash

cash, purchase

repay principal

on borrowings,

fund overhead,

fulfill margin

pay dividends.

Our principal

immediate sources

balances, unencumbered

under repurchase

Our borrowing

capacity will

vary over time

as the market

earning assets

on an on-going

basis through

principal and

in the financial

impacts resulting

believes that

have sufficient

liquidity and

capital resources

available for

(a) the acquisition

with the size

of our existing

RMBS portfolio,

(b) the repayments

on borrowings

our continued

qualification

generate liquidity

debt securities

in public offerings

PT RMBS portfolio

consists entirely

of government

having difficulty

to cash should

our liquidity

Our structured

also consists

agency securities,

although they

with comparable

bid / ask spreads

However, we anticipate

that we would

liquidate such

readily, even in

markets, although

do so at prices

such securities

could be sold

stable market.

To enhance our liquidity

even further,

of our structured

of a repurchase

a modest cost,

retain higher

the likelihood

to sell assets

market in order

to raise cash.

costs typically

involves taking

short positions

rate futures,

treasury futures,

interest rate

swaps, interest

rate swaptions

or other instruments.

When the market

This can reduce

our liquidity

to the extent

other securities

in our portfolio

move in price

calls to offset

the derivative

related margin

liquidity might

levered portfolio,

pledge additional

funds or risk

the portfolio

with less liquidity.

have no stated

at our option

option of the

counterparty.

once a definitive

under a master

has been entered

into, it generally

can occur, but

the repurchase

as it did during

agreement funding

arrangements,

we are required

to post margin

at the initiation

of the borrowing.

posted represents

of the market

To the extent the market

asset collateralizing

the financing

declines, the

of our posted

be insufficient

post additional

Conversely, if

asset pledged

would be over

collateralized

would be entitled

to have excess

margin returned

counterparty.

pledged securities

and make margin

calls as needed,

Typically, but not always,

so as to avoid

nuisance margin

do not specify

rather haircuts

are determined

on an individual

the nine months

ended September

remained stable

and as of September

approximately

earlier, we invest

of our capital

in structured

of our portfolio.

leverage obtained

PT securities

in the repurchase

This structured

RMBS strategy

of the Company’s

overall investment

strategy since

However, we have

and may continue

of our structured

RMBS in order

but generally

will not pledge

these securities

acquire additional

The following

table summarizes

the effect on

our liquidity

and cash flows

from contractual

for repurchase

interest expense

on repurchase

(in thousands)

Obligations Maturing

Within One Year

One to Three Years

Three to Five Years

More than Five Years

Three to Five

Repurchase agreements

Interest expense on repurchase agreements

Interest expense on repurchase agreements is based on current interest rates as of June 30, 2020 and the remaining term of the liabilities existing at that date.

In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements.

As of June 30, 2020, we had cash and cash equivalents of $175.3 million.

We generated cash flows of $325.2 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $3,060.8 million during the six months ended June 30, 2020.

Stockholders’ Equity

On July 30, 2019, we entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co.

LLC, Citigroup Global Markets Inc.

Morgan Securities LLC, as representatives of the underwriters named therein, relating to the offer and sale of 7,000,000 shares of our common stock at a price to the public of $6.55 per share.

The underwriters purchased the shares pursuant to the Underwriting Agreement at a price of $6.3535 per share.

The COVID-19 coronavirus that emerged in China in late 2019 and spread to the U.S.

during the first quarter of 2020 continues to drive economic activity and markets around the globe during the second quarter.

The severe contraction in economic activity in the U.S.

that took place in March and April slowly reversed during the second quarter.

As businesses across the country closed, shelter-in-place policies took effect throughout most of the U.S.

and social distancing was widely practiced.

As a result, the spread of the virus slowed and new cases grew at a decelerating rate.

These developments led various state and local governments to slowly reverse these restrictions starting in early May.

As the restrictive policies were unwound, economic activity resumed and the economic data released in May, June and early July showed the economy was beginning to recover.

Financial markets recovered as well and continued stimulus, from both the Fed - via monetary policy and the implementation of various programs designed to stabilize various funding markets – as well as additional aid programs from the Federal government, acted as a stimulant to the recovery.

The strong monetary and fiscal support also reduced uncertainty about the ability of the economy to recover.

Consistently the Fed in

particular has made it clear they will continue to do whatever is necessary to support smooth operations of all financial markets and act as a lender of last resort when needed and appropriate for them to do so.

While the economy gradually reopened and economic activity began to recover, the virus re-emerged and the number of new cases of the virus started to grow rapidly – even more rapidly than before the shut-down.

This started to occur around mid-June, just as most of the economy and country was resuming all or most forms of activity – inside dining at restaurants, bars, gyms, movie theaters, etc.

As the number of new cases have rapidly grown, it has become apparent governments may need to resume at least some of the tight restrictions that were implemented during the March/April period.

This will likely entail restricting or eliminating the activities that are assumed to have facilitated the sudden re-emergence of the virus.

Examples include closing or restricting bars, inside dining at restaurants and any other activity where large numbers of people are nearby in an enclosed area.

The use of face masks is becoming mandatory in many areas as well.

This will certainly impact economic activity, although the economic data covering the current period will not be reported until a later date, so we will not be able to gauge to what extent activity has slowed.

These developments also cast doubt over the timing of when the economy will be able to sustainably resume normal activity.

This in turn raises uncertainty over the level of economic growth that will occur, and the extent of further accommodation needed from the Fed and Congress.

A presidential election in November also looms.

Throughout the second quarter of 2020 and into the third quarter interest rates in the U.S.

Treasury market have been fairly stable.

The yield on the 10-year U.S.

Treasury note has remained within a 32.5 bps range, and excluding a brief period in early June, the range has been approximately half that.

The equity markets have exhibited substantially more volatility, although they continue to recover from the depths of the contraction of March of this year.

The backstop to the recovery is a Fed that continuously signals a willingness to provide as much accommodation as needed and the belief in additional stimulus from Washington, although subject to political wrangling that tends to slow the response.

Given the uncertainty surrounding the recovery and the timing of when “normal” economic activity may resume, the level of interest rates, especially short term rates, are likely to remain very low and the Fed Funds target range pegged to the effective lower bound of 0%.

The Fed has signaled a reluctance to see negative interest rates in the U.S.

many times, so their role in maintaining rates at these levels will likely be through forward guidance and/or yield curve control – a practice observed in Japan and Australia.

Given the current level of rates and the likelihood rates will remain low means that prepayment speeds will likely remain elevated.

During the depths of the virus outbreak when social distancing, shelter-in-place and very low levels of any kind of activity in general were constraining the refinancing of mortgages, it seemed prepayment activity would not be as responsive to low rates as feared.

This has not turned out to be the case.

Starting in April, prepayment reports have consistently surprised the market to the upside.

They would be higher still if originators were not capacity constrained.

The primary/secondary spread, or the spread between the current coupon mortgage security (priced at par) and rates available to borrowers is very high – reflecting capacity constraints primarily.

Over time it is assumed this spread will narrow as originators add capacity, There is room for rates available to borrowers to decline well below 3% if the primary/secondary spread were to return to historical norms.

As a result, refinancing activity is likely to remain very elevated for the foreseeable future.

We expect that eventually most borrowers that can will refinance their mortgage.

At that point, prepayment speeds will moderate, perhaps meaningfully so.

To the extent rates eventually move higher, we expect that prepayment activity would plummet.

That day, if it ever comes, does not appear to be near.

Such an event will require a return to sustained economic growth.

That in turn is predicated on the evolution of the virus and the emergence of an effective, widely available vaccine, if one is to be found.

The Agency MBS sector performance for the second quarter of 2020 was not as robust as the first quarter, but still positive at 0.8% for the second quarter, and 3.6% year-to-date.

On an absolute return basis for the quarter, Agency MBS trailed most credit sectors – both corporate and non-Agency RMBS/CMBS, as well as Agency CMBS.

As the economy recovered, supported by substantial interventions from the Fed and Congress, most sectors of the fixed income markets recovered.

For most, while returns were strong for the second quarter – in the high single digits and low double digits in the case of corporate debt and non-Agency RMBS, respectively, year-to-date returns are more modest and in all but a few cases negative year-to-date versus comparable duration U.S.

Agency RMBS have generated a -0.8% excess return year-to-date.

While negative, this return still exceeds those of most of the fixed income markets.

In the current environment prepayment speeds are expected to remain high.

Further, for the month of July the Fed purchased over $100 billion of Agency RMBS.

The Fed generally purchases between $40 and $45 billion per month as part of their quantitative easing program plus reinvest prepayments on their existing portfolio.

The latter figure was approximately $57 billion in July.

The Fed tends to purchase the coupons currently in production.

As they appear to be an indiscriminate buyer, they remove most of the worst securities in terms of prepayments behavior from the market.

This is the case for the coupons they purchase.

For those coupons they do not purchase, the market must absorb all that are produced.

As a result, the coupons the Fed purchases tend to outperform those not purchased by the Fed.

For the latter coupons, specified pools, with favorable prepayment characteristics, become more valuable to investors.

Current premiums charged for such securities are at the highest levels ever observed.

This is likely to be the case as long as current conditions persist.

Recent Legislative and Regulatory Developments

The Fed conducted large scale overnight repo operations from late 2019 until July 2020 to address disruptions in the U.S.

Treasury, Agency debt and Agency MBS financing markets.

These operations ceased in July 2020 after the central bank successfully tamed volatile funding costs that had threatened to cause disruption across the financial system.

The Fed has taken a number of other actions to stabilize markets as a result of the impacts of the COVID-19 pandemic.

On Sunday, March 15, 2020, the Fed announced a $700 billion asset purchase program to provide liquidity to the U.S.

Treasury and Agency MBS markets.

Specifically, the Fed announced that it would purchase at least $500 billion of U.S.

Treasuries and at least $200 billion of Agency MBS.

The Fed also lowered the Fed Funds rate to a range of 0.0% – 0.25%, after having already lowered the Fed Funds rate by 50 bps on March 3, 2020.

On June 30, 2020, Fed Chairman Powell announced expectations to maintain interest rates at this level until the Fed is confident that the economy has weathered recent events and is on track to achieve maximum employment and price stability goals.

The markets for U.S.

Treasuries, Agency MBS and other mortgage and fixed income markets continued to deteriorate following this announcement as investors liquidated investments in response to the economic crisis resulting from the actions to contain and minimize the impacts of the COVID-19 pandemic.

Many of these markets experienced severe dislocations during the week following March 15, 2020, which resulted in forced sales of assets to satisfy margin calls.

To address these issues in the fixed income and funding markets, on the morning of Monday, March 23, 2020, the Fed announced a program to acquire U.S.

Treasuries and Agency MBS in the amounts needed to support smooth market functioning.

With these purchases, market conditions improved substantially, and in early April, the Fed began to gradually reduce the pace of these purchases.

On June 30, 2020, Chairman Powell also announced the Fed’s intention to increase its holdings of U.S.

Treasury securities and Agency MBS over the coming months, at least at the current pace, to sustain smooth market functioning and thereby

foster the effective transmission of monetary policy to broader financial conditions.

Since March, the Fed has taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Congress and President Trump have adopted several pieces of legislation in response to the public health and economic impacts resulting from the COVID-19 pandemic.

The first two pieces of legislation provided, among other things, emergency funding to develop a vaccine for COVID-19, medical supplies, grants for public health agencies, small business loans, assistance for health systems in other countries, expanded coronavirus testing, paid leave, enhanced unemployment insurance, expanded food security initiatives and increased federal Medicaid funding.

The CARES Act was passed by Congress and signed into law by President Trump on March 27, 2020.

The CARES Act provides many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity.

This over $2 trillion COVID-19 relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health providers, loans and investments to businesses, states and municipalities and grants to the airline industry.

On April 24, 2020, President Trump signed an additional funding bill into law that provides an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts.

In January 2019, the Trump administration made statements of its plans to work with Congress to overhaul Fannie Mae and Freddie Mac and expectations to announce a framework for the development of a policy for comprehensive housing finance reform soon.

On September 30, 2019, the FHFA announced that Fannie Mae and Freddie Mac were allowed to increase their capital buffers to $25 billion and $20 billion, respectively, from the prior limit of $3 billion each.

This step could ultimately lead to Fannie Mae and Freddie Mac being privatized and represents the first concrete step on the road to GSE reform.

At this time, however, no decisions have been made on any additional steps to be taken as part of the GSE reform plan and the economic impact of COVID-19 may delay GSE reform plans further.

Although the Trump administration has made statements of its intentions to reform housing finance and tax policy, many of these potential policy changes will require congressional action.

In 2017, policymakers announced that LIBOR will be replaced by 2021.

The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level.

LIBOR will be replaced with a new SOFR, a rate based on U.S.

Interest expense

on repurchase

agreements is

based on current

interest rates

as of September

the remaining

term of the liabilities

expect to continue

our activities

that is consistent

with our current

As of September

and cash equivalents

$475.8 million

from principal

and had average

of $3,116.6 million

ended September

Stockholders’

On August 2, 2017, we entered into an equity distribution agreement (the “August 2017

Equity Distribution Agreement”) with two

sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount

of $125,000,000 of shares of our

common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated transactions.

We issued a total

of 15,123,178 shares under the August 2017 Equity Distribution Agreement for

aggregate gross proceeds of $125.0 million, and net

proceeds of approximately $123.1 million, net of commissions and fees, prior to

its termination in July 2019.

On July 30, 2019, we entered into an underwriting agreement (the “Underwriting Agreement”)

with Morgan Stanley & Co.

Citigroup Global Markets Inc.

Morgan Securities LLC, as representatives of the underwriters named therein, relating to the

offer and sale of 7,000,000 shares of our common stock at a price to the public of $6.55 per

The underwriters purchased the

shares pursuant to the Underwriting Agreement at a price of $6.3535 per share.

of the offering of 7,000,000 shares of

common stock occurred on August 2, 2019, with net proceeds to us of approximately

$44.2 million after deduction of underwriting

discounts and commissions and other estimated offering expenses.

On January 23, 2020, we entered into an equity distribution agreement (the “January

2020 Equity Distribution Agreement”) with

three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount

of $200,000,000 of shares

of our common stock in transactions that were deemed to be “at the market” offerings and

privately negotiated transactions.

a total of 3,170,727 shares under the January 2020 Equity Distribution Agreement for aggregate

gross proceeds of $19.8 million, and

net proceeds of approximately $19.4 million, net of commissions and fees, prior to

its termination in August 2020.

On August 4, 2020, we entered into an equity distribution agreement (the “August 2020

Equity Distribution Agreement”) with four

sales agents pursuant to which we may offer and sell, from

time to time, up to an aggregate amount of $150,000,000 of shares of our

common stock in transactions that are deemed to be “at the market” offerings and privately

negotiated transactions.

September 30, 2020, we issued a total of 3,073,326 shares under the August 2020 Equity Distribution

Agreement for aggregate gross

proceeds of approximately $15.8 million, and net proceeds of approximately $15.6 million,

net of commissions and fees.

Economic Summary

that emerged in

China in late

2019 and spread

during the first

quarter of 2020

be the driving

economic activity

both in the U.S.

in our second

earnings release,

cases of COVID-19

were starting

to surge in the

August, particularly

By late summer

the surge subsided

optimism rebounded

by most measures

As the weather

and people spend

start to increase

to be happening

the fourth quarter,

northern states

To date governments have

not responded

with such drastic

measures such

like we saw in

with the spring

and summer, hospitalizations

and serious cases

occurring less

frequently, and the medical

adept at dealing

with the more

severe cases.

recovery from

the severe contraction

that occurred

in the spring

However, the “V”

of the recovery

are over, at least

on a broad basis.

sectors approaching

levels of activity

last seen before

the pandemic,

short of such

A few sectors

have surpassed

pandemic levels

– importantly

housing among

them, as well

as retail sales.

However, the leisure

and hospitality

below pre-pandemic

activity levels

expected to fully

the near term.

The consequence

unbalanced recovery

go to get back

as the unemployment

rate was reported

early October.

While progress

towards finding

a vaccine continues,

with many efforts

promise, widespread

viable vaccine

appears to be

also been made

the treatment

to the latter.

The lower death

and hospitalization

may be a result

of the former.

Congress passed

the CARES Act

below) quickly

to the pandemic’s

emergence this

followed with

additional legislation

over the ensuing

However, as certain

provisions of

the CARES Act

have expired,

such as supplemental

the end of July, there

be a need for

additional stimulus

economy to deal

with the uneven

level of unemployment.

However, the government

has been unable

reach an agreement

on additional

appears the politicians

in Washington and

media are focused

the presidential

and a compromise

on additional

hand has provided,

and continues

as much support

to the markets

and the economy

as it can within

the constraints

of its mandate.

During the third

quarter of 2020,

the Fed unveiled

a new monetary

policy framework

allow the Fed

Funds rate to

low, even if inflation

to temporarily

2% target level.

look past the

presence of very

markets, should

they be present

a significant

on the unemployment

rate as a key

impending inflation.

could steepen

curve as short

term rates could

for a considerable

but longer term

rise given the

let inflation

in the future

as the economy

Interest Rates

Interest rates

a tight range

throughout the

third quarter

of 2020 and seem

so for the short

especially given

the change to

the Fed’s monetary

policy framework.

With realized

levels of volatility

low by historical

Mortgage rates

continue to slowly

however, as originators

can handle ever

levels of production

The spread between

rates available

yield on a current

coupon mortgage,

the Primary/Secondary

spread, has continued

spread is still

above long-term

average levels

meaning either

rates available

levels should

rates increase,

or they could

In either case,

levels on RMBS

to remain high

for the foreseeable

The Agency RMBS

market continues

to be essentially

bifurcated with

rate mortgages,

of 1.5% through

be soon in the

daily purchases

activity maintains

price pressure

under these coupons,

and they benefit

from attractive

TBA dollar roll

Higher coupons

in the TBA market

do not have the

benefit of Fed

purchases and

the Fed tends

collateral out

of the market.

The absence of

Fed purchases

means the market

high prepayment

speeds on these

For these coupons,

specified pools

very high demand

very high premiums.

These premiums

continue to rise

as prepayment

activity remains

and is likely

Recent Legislative

and Regulatory

The Fed conducted

overnight repo

from late 2019

2020 to address

Treasury, Agency debt and

Agency MBS financing

operations ceased

after the central

tamed volatile

funding costs

that had threatened

to cause disruption

financial system.

The Fed has taken

of other actions

of the COVID-19

On Sunday, March 15,

2020, the Fed

asset purchase

program to provide

Treasury and Agency

Specifically, the Fed

announced that

it would purchase

at least $500

Treasuries and

at least $200

Fed Funds rate

to a range of

0.0% – 0.25%,

already lowered

the Fed Funds

30, 2020, Fed

Chairman Powell

announced expectations

interest rates

at this level

until the Fed

that the economy

has weathered

recent events

and is on track

to achieve maximum

employment and

price stability

16, 2020, the

(“FOMC”) reaffirmed

this commitment,

to allow inflation

to climb modestly

2% target and

maintain that

period sufficient

for inflation

to average 2%

to the deterioration

in the markets

Treasuries, Agency

MBS and other

investors liquidated

to the economic

crisis resulting

from the actions

of Monday, March 23,

2020, the Fed

to acquire U.S.

Treasuries and Agency

MBS in the amounts

needed to support

smooth market

purchases, market

conditions improved

substantially, and in

the Fed began

reduce the pace

June 30, 2020,

Chairman Powell

also announced

the Fed’s intention

and Agency MBS

over the coming

months, at least

at the current

pace, to sustain

smooth market

thereby foster

the effective

policy to broader

financial conditions.

16, 2020, the

reaffirmed this

the Fed has taken

various other

steps to support

certain other

to support mortgage

servicers and

various portions

of the Coronavirus

President Trump

several pieces

of legislation

to the public

health and economic

impacts resulting

from the COVID-19

first two pieces

of legislation

provided, among

other things,

funding to develop

for COVID-19,

medical supplies,

grants for public

health agencies,

small business

assistance for

health systems

in other countries,

expanded coronavirus

testing, paid

leave, enhanced

insurance, expanded

food security

and increased

federal Medicaid

The CARES Act

was passed by

law by President

Trump on March

provides many

forms of direct

support to individuals

and small businesses

stem the steep

trillion COVID-19

among other things,

direct payments

to each American

up to $75,000

increased unemployment

up to four months

state benefits),

funding to hospitals

and health providers,

loans and investments

to businesses,

states and municipalities

and grants to

24, 2020, President

Trump signed an

into law that

additional $484

small businesses,

hospitals, health

care providers

and additional

testing efforts.

Various provisions

the CARES Act

began to expire

in July 2020,

(July 25, 2020),

expanded unemployment

benefits (July

31, 2020), and

on foreclosures

(August 31, 2020).

Additional legislative

relief efforts

Congress, and

for a compromise

2020 election

8, 2020, President

Executive Order

13945, directing

the Department

of Health and

Human Services,

Prevention (“CDC”),

the Department

of Housing and

Urban Development,

and Department

of the Treasury

to take measures

halt residential

evictions and

foreclosures,

including through

temporary financial

2020, the CDC

issued guidance

extending eviction

for covered persons

through the end

In January 2019,

the Trump administration

made statements

overhaul Fannie

Mac and expectations

to announce a

for the development

for comprehensive

finance reform

30, 2019, the

FHFA announced that

Mac were allowed

increase their

capital buffers

to $25 billion

and $20 billion,

respectively, from

the prior limit

of $3 billion

lead to Fannie

Mae and Freddie

Mac being privatized

and represents

concrete step

On June 30, 2020,

the FHFA released

a proposed rule

on a new regulatory

implement both

capital framework

and minimum leverage

capital requirements.

25, 2020, the

Financial Stability

Oversight Council

released a statement

on the proposed

rule cautioning

relative to other

credit providers

and would maintain

a significant

concentration

At this time,

however, no decisions

have been made

on any additional

steps to be taken

as part of the

impact of COVID-19

may delay GSE

Trump administration

statements of

its intentions

to reform housing

tax policy, many of

these potential

policy changes

congressional

In 2017, policymakers

announced that

be replaced by

The directive

fact that banks

are uncomfortable

panel given the

underlying transactions

and the liability

associated with

will be replaced

based on U.S.

repo trading.

The new benchmark rate will be based on overnight Treasury General Collateral repo rates.

The rate-setting process will be managed and published by the Fed and the Treasury’s Office of Financial Research.

Many banks believe that it may take four to five years to complete the transition to SOFR, despite the 2021 deadline.

We will monitor the emergence of this new rate carefully as it will likely become the new benchmark for hedges and a range of interest rate investments.

The scope and nature of the actions the U.S.

government or the Fed will ultimately undertake are unknown and will continue to evolve, especially in light of the COVID-19 pandemic and the upcoming presidential and Congressional elections in the United States.

Regulatory developments, movements in interest rates and prepayment rates affect us in many ways, including the following:

Effects on our Assets

A change in or elimination of the guarantee structure of Agency RMBS may increase our costs (if, for example, guarantee fees increase) or require us to change our investment strategy altogether.

For example, the elimination of the guarantee structure of Agency RMBS may cause us to change our investment strategy to focus on non-Agency RMBS, which in turn would require us to significantly increase our monitoring of the credit risks of our investments in addition to interest rate and prepayment risks.

Lower long-term interest rates can affect the value of our Agency RMBS in a number of ways.

If prepayment rates are relatively low (due, in part, to the refinancing problems described above), lower long-term interest rates can increase the value of higher-coupon Agency RMBS.

This is because investors typically place a premium on assets with yields that are higher than market yields.

Although lower long-term interest rates may increase asset values in our portfolio, we may not be able to invest new funds in similarly-yielding assets.

If prepayment levels increase, the value of our Agency RMBS affected by such prepayments may decline.

This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the period during which an investor would receive above-market returns (assuming the yield on the prepaid asset is higher than market yields).

Also, prepayment proceeds may not be able to be reinvested in similar-yielding assets.

Agency RMBS backed by mortgages with high interest rates are more susceptible to prepayment risk because holders of those mortgages are most likely to refinance to a lower rate.

IOs and IIOs, however, may be the types of Agency RMBS most sensitive to increased prepayment rates.

Because the holder of an IO or IIO receives no principal payments, the values of IOs and IIOs are entirely dependent on the existence of a principal balance on the underlying mortgages.

If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless.

Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs.

Because POs act like zero-coupon bonds, meaning they are purchased at a discount to their par value and have an effective interest rate based on the discount and the term of the underlying loan, an increase in prepayment rates would reduce the effective term of our POs and accelerate the yields earned on those assets, which would increase our net income.

Higher long-term rates can also affect the value of our Agency RMBS.

As long-term rates rise, rates available to borrowers also rise.

This tends to cause prepayment activity to slow and extend the expected average life of mortgage cash flows.

As the expected average life of the mortgage cash flows increases, coupled with higher discount rates, the value of Agency RMBS declines.

Some of the instruments the Company uses to hedge our Agency RMBS assets, such as interest rate futures, swaps and swaptions, are stable average life instruments.

This means that to the extent we use such instruments to hedge our Agency RMBS assets, our hedges may not adequately protect us from price declines, and therefore may negatively impact our book value.

It is for this reason we use interest only securities in our portfolio.

As interest rates rise, the expected average life of these securities increases, causing generally positive price movements as the number and size of the cash flows increase the longer the underlying mortgages remain outstanding.

This makes interest only securities desirable hedge instruments for pass-through Agency RMBS.

As described above, the Agency RMBS market began to experience severe dislocations in mid-March 2020 as a result of the economic, health and market turmoil brought about by COVID-19.

On March 23, 2020, the Fed announced that it would purchase Agency RMBS and U.S.

Treasuries in the amounts needed to support smooth market functioning, which largely stabilized the Agency RMBS

If the Fed modifies, reduces or suspends its purchases of Agency RMBS, our investment portfolio could be negatively impacted.

Because we base our investment decisions on risk management principles rather than anticipated movements in interest rates, in a volatile interest rate environment we may allocate more capital to structured Agency RMBS with shorter durations.

We believe these securities have a lower sensitivity to changes in long-term interest rates than other asset classes.

We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT RMBS, particularly PT RMBS backed by fixed-rate mortgages.

Effects on our borrowing costs

We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions.

The interest rates on our debt are determined by the short term interest rate markets.

An increase in the Fed Funds rate or LIBOR would increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets.

This would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.

In order to protect our net interest margin against increases in short-term interest rates, we may enter into interest rate swaps, which economically convert our floating-rate repurchase agreement debt to fixed-rate debt, or utilize other hedging instruments such as Eurodollar, Fed Funds and T-Note futures contracts or interest rate swaptions.

After suffering through arguably the most dramatic contraction of economic activity and financial market turmoil ever witnessed during the first quarter of 2020, the second quarter was one of recovery – or so it appeared until mid-June.

As the economy slowly reopened from a near complete shut-down caused by the pervasive safety precautions taken as the COVID-19 virus spread throughout the U.S., economic activity rebounded.

However, as life returned to normal, and people could resume their lives as they existed prior to the outbreak, the virus spread again and reported cases surged, starting in mid-June.

Safety precautions are being re-implemented to stem the spread of the virus once more.

Economic activity is generally reported with a lag, so we will not know the extent of the slowdown in economic activity caused by the re-emergence of the virus until a later date.

The financial markets are generally functioning properly, in large part because of the substantial intervention by the Fed.

The Fed has undertaken a quantitative easing program whereby they buy U.S.

Treasuries and Agency RMBS securities regularly throughout the week.

In addition, they have provided financing to essentially all aspects of the markets – from municipal securities to small and large corporations, as well as foreign central banks.

Interest rates remain at or near the lowest levels ever across the U.S.

Treasury curve, and are likely to remain so until the economy is well on the road to recovery and inflation is nearing the Fed’s target level of 2%.

Given the excess capacity in the economy caused by the demand shock resulting from the virus, this could take several years.

With rates at such low levels refinancing activity is robust and likely to become even more so as originators add capacity.

This is in spite of the virus and various measures of social distancing and shelter-in-place prevalent throughout the economy.

As originators add capacity, prevailing mortgage rates available to borrowers could fall well below 3%.

Eventually most borrowers will have the

opportunity to refinance their mortgage and the effect of such low rates will diminish.

Another factor affecting the Agency RMBS market is the quantitative easing on the part of the Fed.

During the month of July 2020 the Fed purchased over $100 billion of Agency RMBS.

The Fed generally purchases between $40 and $45 billion per month as part of their quantitative easing program plus reinvests prepayments on their existing portfolio.

The latter figure was approximately $57 billion in July.

Gross supply of Agency RMBS for the month of July is anticipated to be between $135 billion and $150 billion.

The Fed tends to purchase the coupons currently in production.

As they are an indiscriminate buyer, they remove most of the worst securities in terms of prepayments behavior from the market.

This is the case for the coupons they purchase.

For those coupons they do not purchase, the market must absorb all that are produced.

As a result, the coupons the Fed purchases tend to outperform those not purchased by the Fed.

For the latter coupons, specified pools, with favorable prepayment characteristics, become much more valuable to investors.

Current premiums charged for such securities are at the highest levels ever observed.

This is likely to be the case as long as current conditions persist.

The Agency MBS sector performance for the second quarter of 2020 was not as robust as the first quarter, but still positive at 0.8% for the second quarter, and 3.6% year-to-date.

On an absolute return basis for the quarter, Agency MBS trailed most credit sectors – both corporate and non-Agency RMBS/CMBS, as well as Agency CMBS.

As the economy recovered, supported by substantial interventions from the Fed and Congress, most sectors of the fixed income markets recovered.

Agency RMBS have generated a -0.8% excess return versus U.S.

Treasuries year-to-date.

While negative, this return still exceeds those of most of the fixed income markets.

With respect to the outlook going forward, the economy has yet to fully recover from the steep contraction during the first quarter of 2020, despite massive intervention by both the Fed and the Trump administration.

There remains significant uncertainty surrounding the timing of a full recovery in economic activity and a return to life as it existed before the virus emerged.

There is also considerable risk associated with the unprecedented deficits the Federal government has incurred in an effort to stabilize the economy, and such deficits are still expanding rapidly.

As of the date of this report, the Company has not utilized any of the funding provided by the CARES Act or by any other legislation adopted by Congress.

The new benchmark

based on overnight

Treasury General

be managed and

the Treasury’s

Office of Financial

years to complete

the transition

to SOFR, despite

the 2021 deadline.

We will monitor

this new rate

it will likely

become the new

benchmark for

range of interest

Effective January

1, 2021, Fannie

Mae, in alignment

extend the timeframe

for its delinquent

buyout policy

for Single-Family

Uniform Mortgage-Backed

(UMBS) and Mortgage-Backed

four consecutively

missed monthly

consecutively

missed monthly

payments (i.e.,

24 months past

new timeframe

to outstanding

single-family

pools and newly

issued single-family

pools and will

reflected when

For Agency RMBS

investors, when

loan is bought

out of a pool

loans, the removal

from the pool

as a total prepayment

The respective

GSEs currently

however, that

delinquent loans

will be repurchased

in most cases

before the 24-month

deadline under

one of the exceptions

listed below.

Exceptions include:

paid in full,

loan repurchased

by a seller/servicer

under applicable

requirements;

loan entering

modification,

which generally

to be removed

from the MBS.

trial period,

the loan will

remain in the

MBS until the

to a short sale

or deed-in-lieu

of foreclosure;

loan referred

to foreclosure.

Because of these

the GSEs currently

believe based

on prevailing

and market conditions

marginal impact

on prepayment

speeds, in aggregate.

more than half

of loans referred

to foreclosure

are historically

referred within

six months of

speeds are affected

levels, borrower

response, and

The scope and

nature of the

or the Fed will

undertake are

continue to evolve,

and Congressional

the United States.

developments,

interest rates

and prepayment

ways, including

Effects on our

A change in or

of the guarantee

our costs (if,

fees increase)

us to change our

strategy altogether.

the elimination

of the guarantee

to change our

focus on non-Agency

would require

us to significantly

monitoring of

the credit risks

of our investments

prepayment risks.

Lower long-term

interest rates

can affect the

prepayment rates

problems described

above), lower

long-term interest

rates can increase

of higher-coupon

This is because

investors typically

place a premium

on assets with

are higher than

market yields.

Although lower

long-term interest

rates may increase

in our portfolio,

we may not be

able to invest

similarly-yielding

If prepayment

levels increase,

RMBS affected

by such prepayments

This is because

prepayment accelerates

the effective

term of an Agency

would shorten

the period during

investor would

receive above-market

returns (assuming

asset is higher

prepayment proceeds

may not be able

to be reinvested

in similar-yielding

high interest

rates are more

to prepayment

holders of those

mortgages are

a lower rate.

IOs and IIOs,

however, may be the

types of Agency

RMBS most sensitive

prepayment rates.

Because the holder

payments, the

values of IOs

entirely dependent

balance on the

the principal

eliminated due

to prepayment,

IIOs essentially

become worthless.

Although increased

rates can negatively

affect the value

they have the

opposite effect

bonds, meaning

they are purchased

at a discount

their par value

effective interest

rate based on

of the underlying

loan, an increase

prepayment rates

the effective

POs and accelerate

earned on those

Higher long-term

rates can also

affect the value

of our Agency

rates available

borrowers also

This tends to

cause prepayment

extend the expected

As the expected

of the mortgage

higher discount

Some of the instruments

uses to hedge

such as interest

rate futures,

swaps and swaptions,

are stable average

life instruments.

that to the extent

hedges may not

adequately protect

us from price

declines, and

therefore may

negatively impact

our book value.

It is for this

reason we use

interest only

in our portfolio.

expected average

life of these

increases, causing

generally positive

price movements

as the number

longer the underlying

mortgages remain

interest only

hedge instruments

for pass-through

above, the Agency

began to experience

severe dislocations

2020 as a result

the economic,

health and market

turmoil brought

about by COVID-19.

2020, the Fed

announced that

purchase Agency

RMBS and U.S.

Treasuries in

the amounts needed

smooth market

which largely

the Agency RMBS

it reaffirmed

on June 30, 2020

and September

modifies, reduces

its purchases

of Agency RMBS,

our investment

portfolio could

be negatively

Because we base

our investment

risk management

volatile interest

rate environment

we may allocate

to structured

We believe these

to changes in

long-term interest

rates than other

asset classes.

attempt to mitigate

to changes in

interest rates

in IOs and IIOs,

which typically

different sensitivities

to changes in

long-term interest

rates than PT

RMBS, particularly

PT RMBS backed

by fixed-rate

Effects on our

borrowing costs

We leverage our

PT RMBS portfolio

and a portion

of our structured

with principal

balances through

of short-term

repurchase agreement

transactions.

debt are determined

term interest

the Fed Funds

rate or LIBOR

would increase

our borrowing

could affect our

interest rate

spread if there

is no corresponding

we earn on our

would be most

prevalent with

our Agency RMBS

backed by fixed

rate mortgage

loans because

mortgage loan

change even though

margin against

interest rates,

into interest

floating-rate

repurchase agreement

debt to fixed-rate

debt, or utilize

other hedging

such as Eurodollar,

Fed Funds and

T-Note futures

interest rate

COVID-19 continues

to dominate the

of the markets

While both have

recovered from

depths of March,

the financial

economy continues

has proven to

back to or near

levels of activity

below with little

to those levels

The unemployment

elevated – with

the most recent

- as millions

The Fed has taken,

and continues

steps to support

However, much needed

stimulus from

Washington and the

federal government

has been absent

since the end

of the second

with a presidential

in November, appears

partisan politics

unable to agree

on another round

Interest rates

continue to trade

range and at extremely

Fed Funds rate

the effective

for an extended

period of time,

more so after

the Fed altered

policy framework

during the third

the Fed appears

to be willing

to let inflation

run above the

2% target level,

even when unemployment

is very low, before

removing accommodation.

The Agency RMBS

market continues

to be bifurcated

production coupons

coupons in specified

The TBA market

coupons remains

the Fed and prepayment

speeds are extremely

high, resulting

in poor expected

specified pool

market – with

lower expected

prepayment speeds

– for attractive

Since the economy

recover absent

the containment

of the COVID-19

current market

conditions are

likely to persist.

we expect prepayment

elevated, the

active in the

asset purchases,

funding levels

low and the most

returns available

will be either

in the TBA dollar

coupons or with

specified pools

Critical Accounting Estimates

Our condensed financial statements are prepared in accordance with GAAP.

GAAP requires our management to make some complex and subjective decisions and assessments.

Our most critical accounting estimates involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses.

There have been no changes to our critical accounting estimates as discussed in our annual report on Form 10-K for the year ended December 31, 2019.

GAAP requires our management to make

some complex and subjective decisions and assessments.

Our most critical accounting estimates involve decisions and

assessments which could significantly affect reported assets, liabilities, revenues and expenses.

There have been no

changes to our critical accounting estimates as discussed in our annual report on Form 10-K for the year ended December

Capital Expenditures

At June 30, 2020, we had no material commitments for capital expenditures.

At September 30, 2020, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

At June 30, 2020, we did not have any off-balance sheet arrangements.

In addition to other requirements that must be satisfied to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains.

REIT taxable income (loss) is computed in accordance with the Code, and can be greater than or less than our financial statement net income (loss) computed in accordance with GAAP.

These book to tax differences primarily relate to the recognition of interest income on RMBS, unrealized gains and losses on RMBS, and the amortization of losses on derivative instruments that are treated as funding hedges for tax purposes.

We intend to pay regular monthly dividends to our stockholders and have declared the following dividends since the completion of our IPO.

At September 30, 2020, we did not have any off-balance sheet arrangements.

In addition to other requirements that must be satisfied to qualify as a REIT,

we must pay annual dividends to our

stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and

excluding any net capital gains.

REIT taxable income (loss) is computed in accordance with the Code, and can be greater

than or less than our financial statement net income (loss) computed in accordance with GAAP.

These book to tax

differences primarily relate to the recognition of interest income on RMBS, unrealized gains and losses on RMBS, and the

amortization of losses on derivative instruments that are treated as funding hedges for tax purposes.

We intend to pay regular monthly dividends to our stockholders and have declared the following dividends since the

completion of our IPO.

(in thousands, except per share amounts)

Per Share Amount

2020 - YTD (1)

On July 15, 2020, the Company declared a dividend of $0.06 per share to be paid on August 27, 2020.

The effect of this dividend is included in the table above, but is not reflected in the Company’s financial statements as of June 30, 2020.

On October 14, 2020, the Company declared a dividend of $0.065 per

share to be paid on November 25, 2020.

The effect of this dividend is

included in the table above, but is not reflected in the Company’s

financial statements as of September 30, 2020.

Virtually all of our assets and liabilities are interest rate sensitive in nature.

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

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

Our financial statements are prepared in accordance with GAAP and our distributions will be determined by our Board of Directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification;

in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

As a result, interest rates and other factors

influence our performance far more so than does inflation.

Changes in interest rates do not necessarily correlate with

inflation rates or changes in inflation rates.

Our financial statements are prepared in accordance with GAAP and our

distributions will be determined by our Board of Directors consistent with our obligation to distribute to our stockholders at

least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification;

in each case, our

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

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-Q

Item 2. Management’s Discussion and Analysis