What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-10-30 · 963 added, 868 removed, 1312 unchanged (58% of the section changed)

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AND RESULTS OF

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

in conjunction with the financial

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.

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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

Report on Form 10-K, 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

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

Our investment

strategy focuses on, and our portfolio

investment strategy focuses on, and our portfolio

consists of, two categories of Agency RMBS:

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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

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

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

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

to generate income from (i) the net interest

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

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We generally will not be subject to U.S.

federal income tax to the extent that we currently

distribute all of our

federal income tax to the extent that we currently distribute

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

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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.

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 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.

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

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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.

Through March 31,

2021, we issued a total of 10,156,561 shares under the August 2020 Equity Distribution

Agreement for aggregate gross proceeds of

approximately $54.1 million, and net proceeds of approximately $53.2

million, net of commissions and fees.

On January 20, 2021, we entered into an underwriting agreement (the “January 2021

Underwriting Agreement”) with J.P.

Securities LLC (“J.P.

Morgan”), relating to the offer and sale of 7,600,000 shares of our common stock.

Morgan purchased the

shares of our common stock from the Company pursuant to the January 2021 Underwriting

Agreement at $5.20 per share.

we granted J.P.

Morgan a 30-day option to purchase up to an additional 1,140,000 shares

of our common stock on the same terms and

conditions, which J.P.

Morgan exercised in full on January 21, 2021.

The closing of the offering of 8,740,000 shares of our common

stock occurred on January 25, 2021, with net proceeds to us of approximately

$45.2 million,

net of offering expenses.

On March 2, 2021 we entered into an underwriting agreement (the “March 2021 Underwriting

Agreement”) with J.P.

relating to the offer and sale of 8,000,000 shares of our common stock.

Morgan purchased the shares of our common stock from

the Company pursuant to the March 2021 Underwriting Agreement at $5.45 per share.

In addition, we granted J.P.

Morgan a 30-day

option to purchase up to an additional 1,200,000 shares of our common stock on the

same terms and conditions, which J.P.

exercised in full on March 3, 2021.

The closing of the offering of 9,200,000 shares of our common stock

occurred on March 5, 2021,

with net proceeds to us of approximately $50.1 million, net of offering expenses.

Stock Repurchase Agreement

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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

From the inception of the stock repurchase program through March 31, 2021, 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.

The Company did not repurchase any shares of its common stock during the three months

ended March 31, 2021.

remaining authorization under the repurchase program as of March 31, 2021 was 837,311 shares.

Factors that Affect our Results of Operations and Financial Condition

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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;

prepayment rates on mortgages underlying our Agency RMBS and credit trends

insofar as they affect prepayment rates;

other market developments.

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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

the Company’s

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

registration exemption under the Investment

the Company’s

for the three

2021, as compared

Company’s results

of operations

for the three

Income Summary

the nine months

ended September

$14.4 million,

the nine months

ended September

$5.7 million,

2021 was $29.4

March 31, 2020

for the three

ended September

$8.5 million,

of net (loss)

ended September

with the changes

in those components

are presented

(in thousands)

Nine Months Ended September 30,

Three Months Ended, September 30,

Interest income

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Net interest income

(Losses) gains on RMBS and derivative contracts

Net portfolio (loss) income

Net (loss) income

Losses on RMBS and derivative contracts

Net portfolio deficiency

GAAP and Non-GAAP Reconciliations

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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.

In addition, we have not designated our derivative financial instruments used for hedging purposes as hedges for

accounting purposes, 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.

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:

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

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

including net interest income or expense on

interest rate swaps

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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

such, for financial reporting purposes,

interest expense and cost of funds are not impacted by the fluctuation in value of the

derivative instruments.

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the current period as well as periods in the future.

The Company may invest in TBAs, which are forward contracts for the purchase or sale of Agency RMBS at a

predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date.

The specific Agency

RMBS to be delivered into the contract are not known until shortly before the settlement date.

We may choose, prior to

settlement, to move the settlement of these securities out to a later date by entering into a dollar roll transaction.

Agency RMBS purchased or sold for a forward settlement date are typically priced at a discount to equivalent securities

settling in the current month.

Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a

form of off-balance sheet financing.

These TBAs are accounted for as derivatives and marked to market through the income

Gains or losses on TBAs are included with gains or losses on other derivative contracts and are not included in

interest income for purposes of the discussions below.

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

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Attributed to

Income (Loss)

Treasury and TBA

Securities Gain (Loss)

(Short Positions)

(Long Positions)

Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Economic Interest Expense and Economic Net Interest Income

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Reflects the effect of derivative instrument hedges for only the

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Net Interest Income

ended September

$24.9 million

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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

2020, we generated

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interest income

a 73 bps decrease

average RMBS,

combined with

a $251.5 million

point ("bps")

average RMBS,

million decrease

225 bps decrease

partially offset

by the $762.9

million increase

$14.6 million

in the average

cost of funds,

combined with

a $343.7 million

average outstanding

partially offset

million increase

average assets

and borrowings

first quarter

of 2021 compared

raising activity

On an economic

for the three

2019 was $8.9

2021 and 2020

was $6.0 million

million, respectively,

$20.9 million

respectively, resulting

in $18.3 million

interest income,

respectively.

income, respectively.

economic interest

expense during

in the average

cost of funds

partially offset

by the $759.5

million increase

and the negative

hedging activities

below provide

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expense, cost

of funds, net

the nine months

ended September

2019 and each

in 2021 to date

economic basis.

($ in thousands)

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

($ in thousands)

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

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

and the tables on pages

29 and 30 are calculated based on the

average balances of the underlying investment portfolio/borrowings

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Economic interest expense and economic net interest income

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

presented in the table above and the tables on page 30 include

of our derivative instrument hedges for only the periods presented.

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respectively.

RMBS holdings

$4,032.7 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

2021 and 2020,

respectively.

our portfolio

for the three

September 30,

2021 and 2020,

respectively.

interest income

73 bps decrease

combined with

million decrease

average RMBS.

partially offset

million increase

below presents

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Interest Expense and the Cost of Funds

We had average

of $3,116.6 million

total interest

$3,129.2 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

2021 and 2020,

respectively.

2.11% for the three

2020, respectively.

cost of funds

million decrease

ended September

to the decrease

partially offset

million increase

2021 as compared

interest expense

was $6.0 million

2021 and 2020,

respectively.

in the average

economic cost

for the three

September 30,

our repurchase

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average one-month

ended September

economic cost

bps above the

average six-month

ended September

above the average

six-month LIBOR

for the quarter

term to maturity

of the outstanding

30, 2020 from

below present

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for each quarter

economic basis.

in 2021 to date

($ in thousands)

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Average GAAP Cost of Funds

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Gains or Losses

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or losses for

ended September

2021 and 2020.

(in thousands)

Nine Months Ended September 30,

Three Months Ended September 30,

Realized (losses) gains on sales of RMBS

Unrealized gains (losses) on RMBS

(losses) on RMBS

Losses on interest rate futures

(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

Realized losses on sales of RMBS

Unrealized (losses) gains on RMBS

Total losses on

Gains (losses) on interest rate futures

Gains (losses) on interest rate swaps

Losses on payer swaptions (short positions)

Gains (losses) on payer swaptions (long positions)

Gains on interest rate floors

Losses on TBA securities (long positions)

Gains (losses) on TBA securities (short positions)

yield on those

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of our asset/liability

the nine months

ended September

2019, we received

2021 and 2020,

$988.5 million

respectively, from

Most of these

the nine months

ended September

of these sales

2020 occurred

half of March

of March 2020

maintain sufficient

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risk associated

with the market

market turmoil

brought about

ended September

2019, we received

$668.9 million

$258.3 million,

respectively, from

losses on RMBS

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in our portfolio.

As rates increased

it had a negative

Gains and losses

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below presents

for each quarter

interest rate

data for each

Mortgage Rate

September 30, 2020

June 30, 2020

March 31, 2021

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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

operating expenses were approximately $3.5 million and $2.1 million for the three months ended March 31, 2021

and 2020, respectively.

The table below presents a breakdown of operating expenses for the three months ended March

31, 2021 and 2020.

(in thousands)

Nine Months Ended September 30,

Three Months Ended September 30,

Management fees

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Audit, legal and other professional fees

Direct REIT operating expenses

Other administrative

Other direct REIT operating expenses

Other expenses

Total expenses

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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

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.

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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.

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

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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March 31, 2020

Nine Months Ended

September 30, 2020

September 30, 2019

Mortgage-Backed Securities

As of September

our RMBS portfolio

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at fair value

average coupon

ended September

weighted average

assets of 3.02%.

principal repayments

million compared

the nine months

ended September

$142.3 million

for the three

11.9%, respectively.

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Portfolio (%)

September 30, 2020

June 30, 2020

March 31, 2021

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Asset Category

September 30, 2020

Adjustable Rate RMBS

March 31, 2021

Fixed Rate RMBS

Fixed Rate CMOs

Total Mortgage-backed Pass-through

Interest-Only Securities

Inverse Interest-Only Securities

Total Structured RMBS

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December 31, 2020

Adjustable Rate RMBS

Fixed Rate RMBS

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Interest-Only Securities

Inverse Interest-Only Securities

Total Structured RMBS

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($ in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

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Total Portfolio

September 30, 2020

March 31, 2021

December 31, 2020

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the value of the RMBS in the Company’s investment

at September 30, 2020.

at March 31, 2021.

An effective duration of 2.360 indicates that an interest rate

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assets acquired

during the nine

September 30,

during the three

March 31, 2021

including securities

purchased during

during the period

after the end

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Structured RMBS

As of September

we had established

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cash, and bear

at prevailing

market rates.

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provide borrowing

As of September

we had obligations

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$4,181.7 million

average borrowing

weighted average

cost of 0.18%.

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our outstanding

1 to 225 days,

with a weighted

166 days, with

average remaining

as of September

with an estimated

including accrued

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and a weighted

of 341 months,

average maturity

and cash pledged

2 unchanged sentences

$102.6 million.

Through October

Through April

able to maintain

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with comparable

30, 2020 with

terms to those

through October

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

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Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2021

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principal and

in the financial

impacts resulting

believes that

have sufficient

liquidity and

capital resources

available for

(a) the acquisition

resources available

of additional

with the size

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on borrowings

to the extent

our continued

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liquidate such

readily, even in

securities readily,

even in distressed

markets, although

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on an individual

the nine months

ended September

remained stable

and as of September

average haircut

approximately

TBAs represent

off-balance sheet

financing and

are accounted

for as derivative

4 to our Financial

for additional

Under certain

market conditions,

it may be uneconomical

future months

or make physical

the underlying

physical delivery

we would have

total purchase

or other financing

liquidity position

could be negatively

the Mortgage-Backed

Division ("MBSD")

by our master

forward transaction

establish margin

excess of the

on the notional

if the estimated

or the estimated

fair value of

the sole discretion

securing such

call, we must

generally provide

the same business

by taking delivery

of the underlying

margin requirements

However, since

use TBA dollar

roll transactions

as our primary

adequate sources

earlier, we invest

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interest rates

as of September

the remaining

term of the liabilities

as of March 31,

remaining term

of the liabilities

at that date.

expect to continue

2 unchanged sentences

with our current

As of September

and cash equivalents

$475.8 million

from principal

and had average

of $211.4 million.

ended September

principal and

and had average

million during

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.

On January 23, 2020, we entered into 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.

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, prior to its termination in August 2020.

On August 4, 2020, we entered into 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.

Through March 31,

2021, we issued a total of

10,156,561 shares under the August 2020 Equity Distribution Agreement for aggregate

gross proceeds of approximately $54.1 million,

and net proceeds of approximately $53.2 million, net of commissions and fees.

On January 20, 2021, we entered into the January 2021 Underwriting Agreement

Morgan Securities LLC (“J.P.

relating to the offer and sale of 7,600,000 shares of our common stock.

Morgan purchased the shares of our common stock from

the Company pursuant to the January 2021 Underwriting Agreement at $5.20 per share.

In addition, we granted J.P.

Morgan a 30-day

option to purchase up to an additional 1,140,000 shares of our common stock on the

same terms and conditions, which J.P.

exercised in full on January 21, 2021.

The closing of the offering of 8,740,000 shares of our common

stock occurred on January 25,

2021, with net proceeds to us of approximately $45.2 million, net of offering expenses.

On March 2, 2021 we entered into the “March 2021 Underwriting Agreement with J.P.

Morgan, relating to the offer and sale of

8,000,000 shares of our common stock.

Morgan purchased the shares of our common stock from the Company pursuant to the

March 2021 Underwriting Agreement at $5.45 per share.

In addition, we granted

Morgan a 30-day option to purchase up to an

additional 1,200,000 shares of our common stock on the same terms and conditions,

Morgan exercised in full on March 3,

The closing of the offering of 9,200,000 shares of our common stock occurred on March

5, 2021, with net proceeds to us of

approximately $50.1 million, net of offering expenses payable.

Economic Summary

that emerged in

China in late

2019 and spread

During the first

quarter of 2021

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.

made tremendous

strides towards

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

was pervasive.

COVID-19, which

peaked around

the year, moderated

significantly, as

did hospitalizations

run-off elections

in early January,

both of which

one party was

now in control

House and both

houses of Congress.

package being

passed that was

end of market

- $1.9 trillion.

Act of 2021 was

the third legislative

to the nation’s

recovery from

pandemic, after

the $2.2 trillion

CARES Act (described

below), which

passed on March

Appropriations

which contained

relief and was

signed on December

Given the momentum

the administration

had after passing

shortly thereafter

announced plans

for a $2 trillion-plus

infrastructure

which initially

haphazard, improved

where the U.S.

became a world

over 200 million

were administered

by April 21, 2021,

most optimistic

projections at

Economic data

released over

the course of

the first quarter

has been consistently

by two rounds

during the first

quarter, consumers

have been spending.

Retail sales,

home sales, demand

and other durable

goods are all

from the stimulus

and considerable

pent-up demand.

appears to be

also been made

the treatment

to the latter.

The lower death

and hospitalization

may be a result

of the former.

quickly, and the unemployment

rate has dropped

All of the developments

above have stoked

inflation fears.

The most obvious

potential price

pressures relate

to supply shortages

consumer goods

and commodities

caused by the

of still constrained

production and

surging demand

that have begun

above have led

economy, which grew

at an annualized

They have also

financial markets.

making new all-time

frequent basis,

and corporate

debt issuance

levels – both

grade and high

at or near record

the demand for

investor appetite

Treasury rates,

at least longer-term

significantly.

ten-year U.S.

Treasury note yield

increased from

0.916% to 1.742%

over the course

82.6 basis points,

Treasury curve

has steepened

substantially.

for a recovery

from the pandemic

and return to

normalcy significantly.

to higher rates,

them as a sign

However, when the

in an acceleration

to the timing

of the rate increases

efforts have largely

been successful,

market pricing

only reflects

the end of 2022.

Congress passed

the CARES Act

below) quickly

to the pandemic’s

emergence this

followed with

the pandemic’s

emergence last

spring and followed

additional legislation

1 unchanged sentence

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,

insurance last

July, there appeared

for additional

with the surge

in the pandemic

that occurred

weather set in,

over the Christmas

above, the Federal

government eventually

passed an additional

stimulus package

in late December

of 2020 and again

March of 2021.

the Fed has provided,

and continues

9 unchanged sentences

a new monetary

policy framework

allow the Fed

Funds rate to

focused on average

inflation rate

targeting that

Fed Funds rate

to remain quite

low, even if inflation

to temporarily

expected to temporarily

2% target level.

look past the

presence of very

markets, should

they be present

Further, the Fed

past the presence

of very tight

labor markets,

should they be

a significant

on the unemployment

policy framework,

which was focused

rate as a key

1 unchanged sentence

could steepen

curve as short

term rates could

as short-term

for a considerable

but longer term

rise given the

let inflation

period but longer-term

rates could rise

given the Fed’s

inflation potentially

in the future

as the economy

occurring early

in 2021 now that

effective vaccines

have been found

and inoculations

are distributed

at an accelerating

Interest Rates

Interest rates

a tight range

steadily increased

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

first quarter

above and levels

rose as well.

Mortgage rates

continue to slowly

however, as originators

can handle ever

levels of production

The spread between

slowly declined

at the end of

2020 as originators

added capacity

and could handle

ever increasing

production volume.

This trend in

mortgage rates

quickly reversed

during the first

quarter of 2021

as rates began

in late February

rates, prepayment

activity slowed.

universe with

sufficient rate

refinance has

declined from

approximately

end of 2020 to

approximately

46% at the end

spread between

rates available

and the implied

yield on a current

coupon mortgage,

the Primary/Secondary

spread, has continued

spread is still

primary/secondary

The spread is

still slightly

above long-term

average levels

meaning either

rates available

levels should

rates increase,

or they could

In either case,

levels on RMBS

meaning rates

borrowers could

remain at current

rates increased

end of the first

interest rates

have declined

by approximately

20 basis points

of the 10-year

prepayment levels

on RMBS securities

to remain high

for the foreseeable

Treasury rates

increase above

current levels.

The Agency RMBS

conditions that

prevailed throughout

the first quarter

were not conducive

bonds, all fixed

income sectors

had negative returns

Interest rates

rose rapidly, and volatility

was elevated.

excess returns

for the first

quarter of -1.2%

and -0.3%, respectively

and LIBOR/swaps).

benefit to higher

interest rates,

and as interest

levels declined.

Bankers Association

refinance index

declined from

approximately

4700 in early

to approximately

2900 in early

before rebounding

mid-April 2021.

The Agency RMBS

2 unchanged sentences

bifurcated with

Lower coupon fixed

rate mortgages,

of 1.5% through

be soon in the

daily purchases

through 2.5%,

are purchased

activity maintains

3 unchanged sentences

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.

Importantly, the Fed

tends to take

out of the market.

The absence of

Fed purchases

higher coupons

means the market

is left to absorb

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

have not risen

enough to eliminate

expects prepayments

on higher coupons

will eventually

decline as “burn

– a phenomenon

whereby refinancing

activity declines

are exposed to

for an extended

March 2021 prepayment

report released

in early April,

continue to favor

pools that have

prepayment characteristics

the refinance

TBA securities

significantly

with the reduced

incentive caused

by the increase

in rates available

to borrowers.

Recent Legislative

16 unchanged sentences

of the COVID-19

On Sunday, March 15,

2020, the Fed

March of 2020,

the Fed announced

a $700 billion

asset purchase

program to provide

Treasury and Agency

Specifically, the Fed

announced that

it would purchase

at least $500

Treasuries and

at least $200

provide liquidity

RMBS markets.

Fed Funds rate

2 unchanged sentences

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

Funds rate by

50 bps earlier

in the month.

Later that same

month the Fed

and Agency RMBS

in the amounts

needed to support

1 unchanged sentence

purchases, market

conditions improved

substantially, and in

the Fed began

reduce the pace

June 30, 2020,

improved substantially.

Currently, the Fed is

purchasing $80

and $40 billion

RMBS each month.

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

and the Fed have

their commitment

to this level

of asset purchases

meeting since

their meeting

also maintained

maintain interest

rates at this

the Fed is confident

that the economy

has weathered

and its impact

and is on track

to achieve its

maximum employment

and price stability

taken various

certain other

to support mortgage

support mortgage

servicers and

1 unchanged sentence

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

Economic Security

The CARES Act

2 unchanged sentences

Trump on March

provides many

provided many

forms of direct

7 unchanged sentences

up to $75,000

increased unemployment

a year, increased

up to four months

25 unchanged sentences

(August 31, 2020).

Additional legislative

relief efforts

Congress, and

for a compromise

2020 election

2020, President

16 unchanged sentences

temporary financial

27, 2020, President

Trump signed into

law an additional

aid package as

Appropriations

providing for

extensions of

additional relief.

The package provided

for, among other things,

direct payments

to most Americans

less than $75,000

a year, extension

of unemployment

benefits through

March 14, 2021,

and health providers,

loans to qualified

rental assistance

2021, the CDC

2 unchanged sentences

for covered persons

through the end

through March

further extended

2021 on March

FHFA announced that

begun under the

CARES Act for

by Fannie Mae

for real estate

owned by Fannie

Mae and Freddie

Mac were extended

31, 2021, which

June 30, 2021

16, 2021, the

and Urban Development

Department announced

the extension

of the FHA eviction

and foreclosure

to June 30, 2021.

On March 11, 2021, the

$1.9 trillion

American Rescue

2021 was signed

This stimulus

furthered the

Federal government’s

efforts to stabilize

the economy and

provide assistance

to sectors of

the population

suffering from

economic effects

of the pandemic.

In January 2019,

30 unchanged sentences

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

The final rule

on the new capital

was published

in the federal

December 2020.

On January 14,

2021, the U.S.

the FHFA executed

letter agreements

GSEs to continue

to retain capital

buffers, as prescribed

in the December

agreements provide,

be no exit from

conservatorship

until all material

litigation is

settled and the

GSE has common

of its assets,

(ii) the GSEs

with the FHFA’s regulatory

capital framework,

(iii) higher-risk

single-family

mortgage acquisitions

be restricted

levels, and (iv)

and the FHFA will

establish a timeline

for future GSE

no definitive

have been released

to ending the

conservatorship,

unwinding the

GSEs, or materially

In 2017, policymakers

5 unchanged sentences

panel given the

underlying transactions

and the liability

the liability

associated with

will be replaced

based on U.S.

repo trading.

The new benchmark

based on overnight

Treasury General

be managed and

the Treasury’s

Office of Financial

years to complete

ICE Benchmark

Administration,

in its capacity

as administrator

of USD LIBOR,

has confirmed

cease publication

two-month USD

settings immediately

following the

LIBOR publication

31, 2021, and

(ii) the overnight

and one, three,

month USD LIBOR

settings immediately

following the

LIBOR publication

on June 30, 2023.

A joint statement

by key regulatory

calls on banks

to cease entering

into new contracts

LIBOR as a reference

rate by no later

The Alternative

Reference Rates

a steering committee

institutions,

replacing USD-LIBOR

banks believe

the transition

to SOFR, despite

certain, despite

the 2021 deadline.

1 unchanged sentence

this new rate

it will likely

as it will potentially

become the new

benchmark for

range of interest

for hedges and

interest rate

At this time,

however, no consensus

rates may become

accepted alternatives

Effective January

18 unchanged sentences

issued single-family

pools and will

pools and was

reflected when

the fourth business

day in February

For Agency RMBS

13 unchanged sentences

deadline under

one of the exceptions

listed below.

Exceptions include:

one of the following

exceptions listed

paid in full,

39 unchanged sentences

continue to evolve,

and Congressional

the United States.

pandemic, President

Biden’s new administration

in the United

developments,

16 unchanged sentences

monitoring of

the credit risks

of our investments

prepayment risks.

34 unchanged sentences

returns (assuming

asset is higher

the prepaid asset

is higher than

market yields).

prepayment proceeds

40 unchanged sentences

earned on those

assets, which

Higher long-term

rates can also

affect the value

of our Agency

also affect the

rates available

53 unchanged sentences

the Agency RMBS

market, a commitment

it reaffirmed

on June 30, 2020

and September

modifies, reduces

its purchases

of Agency RMBS,

at all subsequent

Fed meetings,

including its

meeting in April

Fed modifies,

our investment

portfolio could

be negatively

could be negatively

the moratoriums

on foreclosures

and evictions

described above

potential defaults

on loans that

would otherwise

be bought out

of Agency MBS

pools as described

ultimate resolution

of the foreclosure

or evictions,

when and if it

occurs, these

the pool into

they were securitized.

to occur, it would

have the effect

on the Company’s

As the majority

of the Company’s

to par, this will

realized yield

Because we base

12 unchanged sentences

to changes in

interest rates

rates by investing

in IOs and IIOs,

52 unchanged sentences

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.

quarter of 2021

this meant the

recovery from

the pandemic,

in stark contrast

quarter of 2020

when the pandemic

first emerged

has been driven

by many factors

– the emergence

and widespread

of a very effective

government stimulus

and accommodative

monetary policy.

economy is recovering

the emergence

an effective vaccine

pent-up demand

a surge in demand

for goods and

fueled further

multiple rounds

checks and numerous

support provided

by the government.

benefiting from

extremely lose

financial conditions,

abundant liquidity,

tolerance and

an insatiable

demand for returns.

economic activity

during the first

quarter of 2021

and expectations

than anticipated

caused interest

rates to rise

over 82 basis

points and closed

at approximately

1.75%, not far

below the yield

level that prevailed

before the pandemic

curve has steepened

as the market

fears an outbreak

caused by the

of abundant liquidity

via government

loose financial

conditions and

demand for all

types of goods

and services.

of needed raw

inputs to consumer

as micro chips,

and even labor

have exacerbated

be seen if these

price pressures

prove to be temporary

or lead to more

sustained inflation.

The Fed believes

the effects are

Current market

roughly in line

with the Fed’s

and Fed Funds

futures markets

most one interest

the end of 2022.

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

the first quarter

as market conditions

– rapidly rising

increased volatility

– led to extension

fears in mortgage

driving convexity

related selling

and spread widening.

excess returns

for the first

quarter of 2021

-0.3%, respectively

and LIBOR/swaps).

A positive impact

rates and lowered

prepayment expectations

premium amortization,

which enhances

all else equal.

Bankers Association

refinance index

from approximately

4700 in early

to approximately

2900 in early

April, before

rebounding slightly

in mid-April.

2020, the Agency

be essentially

bifurcated with

fixed rate mortgages,

coupons of 1.5%

through 2.5%,

are purchased

by the Fed and

the substantial

price pressure

and attractive

Higher coupons

in the TBA market

of Fed purchases,

so the market

very high prepayment

these securities

as rates have

enough to eliminate

expects prepayments

on higher coupons

will eventually

decline as “burn

out” sets in,

although this

has yet to occur.

One final element

for the quarter

the impact of

on the premiums

paid for specified

significantly

with the reduced

refinance incentive

caused by the

rates available

to borrowers.

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

pandemic appears

sight, at least

accustomed to

should return

to pre-pandemic

The key questions

forward relate

to whether there

have been any

permanent changes

that will result,

including, for

example, inflationary

pressures resulting

from the unprecedented

government stimulus

easing by the

Fed, the impact

the many technological

that were born

out of the pandemic,

such as employees’

ability to effectively

remotely, the

desire to live

in congested cities

and the implications

for commercial

real estate values

for the cities

to return to,

and the willingness

large numbers

These factors

Company to the

impact the levels

rates and the

efficacy of refinancing

specifically, and

economic activity

and inflation

Critical Accounting Estimates

7 unchanged sentences

Capital Expenditures

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

At March 31, 2021, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

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

At March 31, 2021, we did not have any off-balance sheet arrangements.

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

10 unchanged sentences

(in thousands, except per share amounts)

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.

On April 14, 2021, the Company declared a dividend of $0.065 per

share to be paid on May 26, 2021.

The effect of this dividend is included in

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

as of March 31, 2021.

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

9 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis