What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 810 added, 676 removed, 1599 unchanged (48% of the section changed)

71 unchanged sentences

gross proceeds of $19.8 million, and

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

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

its termination in August 2020.

1 unchanged sentence

Equity Distribution Agreement”) with four

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

sales agents pursuant to which we could 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

common stock in transactions that were 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.

We issued a total

of 27,493,650 shares under the August 2020 Equity Distribution Agreement for

aggregate gross proceeds of approximately $150.0

million, and net proceeds of approximately $147.4 million, after commissions and

fees, prior to its termination in June 2021.

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

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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.

stock occurred on January 25, 2021, with 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

10 unchanged sentences

occurred on March 5, 2021,

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

with proceeds to us of approximately $50.0 million, net of offering expenses.

On June 22, 2021, we entered into an equity distribution agreement (the “June 2021

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 $250,000,000 of shares of our

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

negotiated transactions.

Through June 30,

2021, we issued a total of 5,750,000 shares under the June 2021 Equity Distribution

Agreement for aggregate gross proceeds of

approximately $31.1 million, and net proceeds of approximately $30.6 million, after commissions

Subsequent to June 30,

2021 and through July 30, 2021, we issued a total of 5,560,000 shares under the June 2021

Equity Distribution Agreement for

aggregate gross proceeds of approximately $28.6 million, and net proceeds of approximately

$28.2 million, after commissions and

Stock Repurchase Agreement

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This stock repurchase program has no termination

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

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.

From the inception of the stock repurchase program through June 30, 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 of $7.10

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

months ended June 30, 2021.

remaining authorization under the repurchase program as of June 30, 2021 was 837,311 shares.

Factors that Affect our Results of Operations and Financial Condition

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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, U.S.

Federal Reserve (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.

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the Company’s

for the three

2021, as compared

June 30, 2021,

Company’s results

of operations

for the three

June 30, 2020.

Income Summary

the six months

$46.2 million,

2020 was $42.4

March 31, 2020

for the three

the three months

$16.9 million,

June 30, 2020

The components

of net (loss)

June 30, 2021

in those components

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(in thousands)

Six Months Ended June 30,

Three Months Ended, June 30,

Interest income

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Net interest income

Losses on RMBS and derivative contracts

Net portfolio deficiency

(Losses) gains on RMBS and derivative contracts

Net portfolio (loss) income

Net (loss) income

GAAP and Non-GAAP Reconciliations

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Three Months Ended

June 30, 2021

March 31, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

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

including net interest income or expense on

instruments, 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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Three Months Ended

June 30, 2021

March 31, 2021

3 unchanged sentences

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Economic Interest Expense and Economic Net Interest Income

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Three Months Ended

June 30, 2021

March 31, 2021

3 unchanged sentences

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Reflects the effect of derivative instrument hedges for only the

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of $56.1 million

interest income

assets offset

by $1.9 million

offset by $3.5

interest expense

on borrowings.

For the comparable

2020, we generated

June 30, 2020,

$41.9 million

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income, consisting

of $35.7 million

offset by $16.5

interest income

assets offset

by $21.0 million

interest expense

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The $6.8 million

interest income

point ("bps")

("bps") decrease

average RMBS,

partially offset

by the $762.9

by a $1,070.5

million increase

$17.5 million

in the average

interest expense

cost of funds,

partially offset

by a $1,057.6

million increase

average assets

and borrowings

first quarter

of 2021 compared

raising activity

On an economic

for the three

2021 and 2020

was $6.0 million

million, respectively,

$31.7 million,

respectively, resulting

in $43.5 million

million of economic

income, respectively.

economic interest

expense during

in the average

$27.7 million

of net interest

income, consisting

of $29.3 million

interest income

assets offset

by $1.6 million

For the three

June 30, 2020,

$22.8 million

of net interest

income, consisting

interest income

assets offset

by $4.5 million

interest expense

on borrowings.

The $2.0 million

due to a $1,378.1

million increase

partially offset

interest expense

cost of funds,

partially offset

by the $759.5

by a $1,355.7

million increase

and the negative

hedging activities

On an economic

for the three

June 30, 2021

$10.2 million,

respectively, resulting

in $22.6 million

income, respectively.

below provide

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expense, cost

in 2021 to date

economic basis.

the six months

2020 and each

($ in thousands)

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Three Months Ended

June 30, 2021

March 31, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

($ in thousands)

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Three Months Ended

June 30, 2021

March 31, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Portfolio yields and costs of borrowings presented in the tables above

and the tables on pages

29 and 30 are calculated based on the

and the tables on pages 30 and 31 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 30 include

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

of our derivative instrument hedges for only the periods presented.

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Interest Income and Average Asset Yield

the six months

2020 was $56.1

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$4,268.8 million

2021 and 2020,

the six months

2020, respectively.

for the three

2021 and 2020,

June 30, 2021

respectively.

million decrease

the six months

June 30, 2021

June 30, 2020,

a $6.8 million

interest income

partially offset

by the $1,070.5

million increase

June 30, 2021

$29.3 million

million, respectively.

$4,504.9 million

June 30, 2021

respectively.

for the three

June 30, 2021

respectively.

June 30, 2021

June 30, 2020,

a $2.0 million

interest income

$1,378.1 million

average RMBS,

partially offset

below presents

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of structured

for each quarter

date and 2020.

June 30, 2021

($ in thousands)

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Three Months Ended

June 30, 2021

March 31, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Interest Expense and the Cost of Funds

We had average

$3,129.2 million

2021 and 2020,

respectively.

2.11% for the three

of $4,118.4 million

total interest

the six months

2020, respectively.

to the decrease

cost of funds

June 30, 2021,

the comparable

million decrease

in the average

cost of funds,

partially offset

by the $1,057.6

million increase

2021 as compared

June 30, 2020.

interest expense

$31.7 million

June 30, 2021

respectively.

economic cost

the six months

30, 2021 from

the six months

We had average

$2,992.5 million

June 30, 2021

respectively.

June 30, 2021

respectively.

cost of funds

and a $1,355.7

average outstanding

interest expense

was $6.7 million

2021 and 2020,

June 30, 2021

respectively.

a 76 bps decrease

in the average

economic cost

for the three

June 30, 2021

June 30, 2020.

our repurchase

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of the outstanding

June 30, 2021

below present

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and six-month

for each quarter

in 2021 to date

June 30, 2021

economic basis.

($ in thousands)

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Three Months Ended

June 30, 2021

March 31, 2021

3 unchanged sentences

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Average GAAP Cost of Funds

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Three Months Ended

June 30, 2021

March 31, 2021

3 unchanged sentences

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Gains or Losses

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or losses for

2021 and 2020.

(in thousands)

Realized losses on sales of RMBS

Six Months Ended June 30,

Three Months Ended June 30,

Realized (losses) gains on sales of RMBS

Unrealized (losses) gains on RMBS

Total losses on

Total (losses)

gains on RMBS

Gains (losses) on interest rate futures

Gains (losses) on interest rate swaps

Losses on payer swaptions (short positions)

Gains (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 interest rate floors

Gains (losses) on TBA securities (short positions)

(Losses) gains on TBA securities (long positions)

Losses on U.S.

Treasury securities (short positions)

Total (losses)

gains from derivative instruments

yield on those

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of our asset/liability

2021 and 2020,

the six months

2020, we received

$1,680.9 million

respectively, from

of these sales

Most of these

the six months

30, 2020 occurred

of March 2020

maintain sufficient

cash and liquidity

order to maintain

sufficient cash

and liquidity

risk associated

market turmoil

brought about

with the market

turmoil brought

about by COVID-19.

2020, we received

$692.4 million

respectively, from

losses on RMBS

interest rates,

affect the pricing

of the securities

in our portfolio.

As rates increased

it had a negative

The unrealized

gains and losses

of prepayments

the underlying

gains or increasing

premiums increase.

contracts are

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Mortgage Rate

June 30, 2021

March 31, 2021

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Administration Ltd.

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.

and three months

ended June 30,

2021, the Company’s

total operating

expenses were

approximately

$3.7 million,

respectively, compared

to approximately

and $2.8 million,

respectively, for

ended June 30,

The table below

June 30, 2021

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Management fees

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Audit, legal and other professional fees

Other direct REIT operating expenses

Other expenses

Direct REIT operating expenses

Other administrative

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

June 30, 2021

March 31, 2021

3 unchanged sentences

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Mortgage-Backed Securities

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principal repayments

million compared

$260.8 million

for the three

June 30, 2020.

2021 and 2020

respectively.

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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

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Portfolio (%)

June 30, 2021

March 31, 2021

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of the Company’s

June 30, 2021

($ in thousands)

Asset Category

March 31, 2021

June 30, 2021

Fixed Rate RMBS

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($ in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

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Total Portfolio

March 31, 2021

June 30, 2021

December 31, 2020

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the value of the RMBS in the Company’s investment

at March 31, 2021.

at June 30, 2021.

An effective duration of 2.360 indicates that an interest rate

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assets acquired

during the three

March 31, 2021

during the six

June 30, 2021

including securities

during the period

purchased during

after the end

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in the repurchase

banks and other

financial institutions

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affiliated with

These borrowings

by the Company’s

cash, and bear

at prevailing

market rates.

our established

We believe our

provide borrowing

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$79.1 million.

Through April

able to maintain

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terms to those

through October

through August

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

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Three Months Ended

June 30, 2021

March 31, 2021

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our liquidity

sources of cash.

Our structured

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liquidate such

securities readily,

even in distressed

readily, even in

markets, although

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of a repurchase

agreement funding,

lieu of acquiring

a modest cost,

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at our option

option of the

counterparty.

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on an individual

the six months

June 30, 2021,

remained stable

June 30, 2021,

average haircut

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as our primary

source of financing,

adequate sources

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interest rates

as of March 31,

as of June 30,

remaining term

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and cash equivalents

of $211.4 million.

principal and

and had average

million during

of $4,118.4 million

the six months

Stockholders’

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million, and net proceeds of approximately

$19.4 million, net of commissions and fees, prior to its termination in August 2020.

$19.4 million, after commissions and fees, prior to its termination in August

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

could 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,

were deemed to be “at the market” offerings and privately negotiated transactions.

We issued a total of 27,493,650

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.

shares under the

August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately

$150.0 million, and net proceeds of

approximately $147.4 million, after commissions and fees, prior to its termination in June

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

10 unchanged sentences

stock occurred on January 25,

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

2021, with 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.

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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.

5, 2021, with proceeds to us of

approximately $50.0

million, net of offering expenses payable.

On June 22, 2021, we entered into an equity distribution agreement (the “June 2021

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 $250,000,000 of shares of our

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

negotiated transactions.

Through June 30,

2021, we issued a total of 5,750,000 shares under the June 2021 Equity Distribution

Agreement for aggregate gross proceeds of

approximately $31.1 million, and net proceeds of approximately $30.6 million, after commissions

Subsequent to June 30,

2021 and through July 30, 2021, we issued a total of 5,560,000 shares under the June 2021

Equity Distribution Agreement for

aggregate gross proceeds of approximately $28.6 million, and net proceeds of approximately

$28.2 million, after commissions and

Economic Summary

continued its

strong recovery

from the COVID-19

pandemic during

the second quarter

cases that occurred

during the first

quarter of 2021

made tremendous

strides towards

recovery from

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.

abated quickly

as inoculations

of the new vaccines

widely distributed

throughout the

to those most

to the virus.

hospitalizations

and deaths from

the virus decreased

dramatically, allowing

to reopen and

demand on the

part of consumers

to be unleashed.

fiscal policy

administration,

described below,

surge in economic

data released

throughout the

second quarter

provided evidence

of the recovery.

Retail sales,

home sales, demand

and other durable

goods are all

from the stimulus

and considerable

pent-up demand.

appears to be

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

travel and hotel

demand, surged.

grew at a pace

that exceeded

the early 2000s.

exceeded levels

seen in the early

2000s as well,

eventually leading

to a slow down

in home sales

and price appreciation

quarter as elevated

became an impediment

to new sales.

As the demand

for many goods

lingering effects

of the pandemic

acted to retard

supply, leading to

price increases.

supply of computer

case of autos

could not keep

up with demand.

in the case of

labor generally,

the economy’s

remained constrained

content to collect

insurance available

initially under

COVID-19 related

where fearful

of excess exposure

and hospitality

or due to the

lack of access

to childcare,

and thus unable

Gross domestic

have expanded

at an 8.0% 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.

the second quarter

Importantly, the supply/demand

imbalance mentioned

above, coupled

with an expansion

in the monetary

by both fiscal

Fed’s monthly

asset purchases),

has driven inflation

to over 5% on

for the first

time since 2008.

The lone disappointment

over the period

mentioned above.

this may change

somewhat when

the supplemental

benefits lapse

early September,

but the rapid

the delta variant

growth recovery

beyond September.

Congress passed

12 unchanged sentences

that occurred

weather set in,

as cold weather

set in, particularly

over the Christmas

45 unchanged sentences

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

steadily increased

throughout the

first quarter

above and levels

rose as well.

Mortgage rates

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

The response of

appeared to follow

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,

primary/secondary

The spread is

still slightly

above long-term

average levels

meaning rates

borrowers could

remain at current

rates increased

end of the first

but have since

reversed since

quarter 2021.

Interest Rates

have declined

by approximately

20 basis points

inflation accelerated

during the second

quarter of 2021,

market participants

continue to rise

as they had done

first quarter

This was most

evident in the

open interest

futures – namely

contracts shorted.

However, interest

rates did not

the second quarter

In fact, over

the course of

the quarter, longer

term interest

rates declined

the case of the

Treasury note

of the 30-year

prepayment levels

on RMBS securities

to remain high

Treasury rates

increase above

current levels.

Since quarter

rates have accelerated

their decline,

so as the delta

variant of COVID-19

has appeared to

both the U.S.

and the globe.

of the counter-intuitive

rates was likely

the result of

market positioning

was so skewed

side and there

additional sellers.

disappointing

also been pointed

to as evidence

may have been

overly optimistic

More recently, the

causing market

to lower their

near-term growth

and globally.

The Fed has played

the evolution

the course of

most significant

Fed’s insistence,

at least from

the FOMC leadership,

that the inflationary

pressures evident

be transitory.

The Fed argues

that COVID-19

related supply

most price pressures,

that activity

to the opening

of the economy

– travel, dining

out, housing,

price pressures

demand, demand

subside as the

economy returns

to normal levels

Substantial fiscal

stimulus also

played a role

in the Fed’s view

in that direct

consumers related

to the various

relief measures

passed by Congress

were one time

in nature and

Market pricing,

rates, especially

long-term rates,

seems to indicate

the market agrees

with this point

However, at the conclusion

learn that while

the leadership

of the Fed maintained

this view, not all

members of the

There were members

of the committee

that believed

inflation may

not be transitory,

and that as a

would have to

raise interest

than previously

thought and begin

to taper their

asset purchases

sooner as well.

market interpreted

these developments

Fed, although

the leadership

Chairman Powell

this interpretation

the Fed’s stance

has not changed.

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

for the Agency

for the second

quarter trailed

asset classes,

The total return

for the Agency

RMBS sub-index

was 0.33% for

above, at the

June FOMC meeting

it was evident

committee members

shared the view

of the Fed leadership

that the removal

accommodation

was still far

off – or that the

far from complete.

would have to

asset purchases

and eventually

raise short-term

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.

For the Agency

meant Fed purchases

of $40 billion

per month might

be ending sooner

than most market

The extremely

strong housing

the notion that

not need to continue

the market any

longer as well.

Given the length

the Agency RMBS

market continues

to be essentially

bifurcated with

Lower coupon fixed

rate mortgages,

through 2.5%,

are purchased

activity maintains

price pressure

under these coupons,

and they benefit

from attractive

Higher coupons

in the TBA market

Importantly, the Fed

tends to take

out of the market.

The absence of

higher coupons

means the market

is left to absorb

high prepayment

speeds on these

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.

market, coupled

banks that are

deposits that

need to be invested,

in the Agency

were quite rich

prior to this

sectors of the

financial markets

priced at the

price ranges,

buyer of Agency

would have a negative

effect on their

to the potential

leading to the

relative under-performance

of the Agency

market during

the second quarter

The second driver

of Agency RMBS

second quarter

of prepayments.

As the market

long-term rates

– rates available

seen last summer,

has yet to develop

seasoned mortgages.

This has been

specified pool

a core holding

of the Company.

Recent Legislative

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overnight repo

from late 2019

2019 until July

2020 to address

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of other actions

of the COVID-19

the impacts of

March of 2020,

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and the Fed have

their commitment

reiterated their

to this level

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their meeting

June 2021 meeting,

the Fed agreed

discuss plans

adjusting the

path and composition

of asset purchases,

but reiterated

the intention

in advance of

to reduce the

also maintained

maintain interest

rates at this

the Fed is confident

interest rates

at this level

until the Fed

that the economy

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and its impact

and is on track

to achieve its

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and price stability

taken various

certain other

support mortgage

servicers and

has taken various

support certain

income markets,

to support mortgage

and to implement

various portions

of the Coronavirus

Economic Security

Security (“CARES”)

The CARES Act

was passed by

law by President

Trump on March

provided many

forms of direct

support to individuals

and small businesses

stem the steep

trillion COVID-19

among other things,

COVID-19 relief

other things,

direct payments

to each American

up to $75,000

$75,000 a year, increased

up to four months

state benefits),

funding to hospitals

(on top of state

benefits), funding

and health providers,

loans and investments

to businesses,

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24, 2020, President

Trump signed an

signed an additional

into law that

additional $484

funding to individuals,

small businesses,

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Various provisions

the CARES Act

began to expire

in July 2020,

(July 25, 2020),

expire in July

2020, including

on evictions,

expanded unemployment

benefits (July

31, 2020), and

benefits, and

on foreclosures.

(August 31, 2020).

2020, President

Executive Order

13945, directing

the Department

issued Executive

directing the

of Health and

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Urban Development,

and Department

of the Treasury

to take measures

Department of

the Treasury to

take measures

to temporarily

halt residential

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temporary financial

27, 2020, President

Trump signed into

law an additional

aid package as

additional $900

billion coronavirus

aid package was

of the Consolidated

Appropriations

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extensions of

additional relief.

The package provided

CARES Act policies

as well as additional

package provided

for, among other things,

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to most Americans

less than $75,000

income of less

$75,000 a year, extension

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March 14, 2021,

and health providers,

loans to qualified

rental assistance

and funding for

2021, the CDC

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through March

further extended

2021 on March

31, 2021, which

has been extended

July 31, 2021.

FHFA announced that

the foreclosure

begun under the

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by Fannie Mae

Mac and the eviction

for real estate

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31, 2021, which

June 30, 2021

16, 2021, the

has been extended

and Urban Development

Department announced

the extension

of the FHA eviction

announced the

the FHA eviction

and foreclosure

to June 30, 2021,

which has been

July 31, 2021.

On March 11, 2021, the

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overhaul Fannie

Mac and expectations

to announce a

and expectations

for the development

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agreements provide,

be no exit from

there will be

conservatorship

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GSEs, or materially

2021, President

Biden removed

of the FHFA and appointed

FHFA, some observers

anticipate that

the Biden administration

likely to focus

on ending the

GSEs’ conservatorship

agreements between

and the FHFA may

be renegotiated.

In 2017, policymakers

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panel given the

the liability

underlying transactions

and the liability

associated with

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replacing USD-LIBOR

with a new SOFR,

banks believe

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this new rate

as it will potentially

it will potentially

become the new

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monitoring of

the credit risks

of our investments

prepayment risks.

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in our portfolio,

we may not be

able to invest

be able to invest

similarly-yielding

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returns (assuming

the prepaid asset

is higher than

market yields).

asset is higher

prepayment proceeds

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types of Agency

RMBS most sensitive

prepayment rates.

increased prepayment

Because the holder

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IIOs essentially

become worthless.

Although increased

increased prepayment

rates can negatively

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Higher long-term

also affect the

rates can also

affect the value

of our Agency

rates available

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Fed meetings.

including its

meeting in April

Fed modifies,

At the June 2021

the Fed agreed

discuss plans

for adjusting

of asset purchases,

but reiterated

the intention

to provide notice

well in advance

of an announcement

to reduce the

If the Fed modifies,

our investment

could be negatively

portfolio could

be negatively

the moratoriums

on foreclosures

and evictions

described above

potential defaults

on loans that

would otherwise

delay potential

defaults on loans

that would otherwise

be bought out

of Agency MBS

pools as described

ultimate resolution

Agency MBS pools

of the foreclosure

or evictions,

when and if it

occurs, these

the pool into

they were securitized.

which they were

to occur, it would

have the effect

effect of delaying

on the Company’s

until such time.

As the majority

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to par, this will

realized yield

tend to increase

asset in question.

Because we base

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to changes in

long-term interest

rates than other

asset classes.

interest rates

than other asset

attempt to mitigate

to changes in

rates by investing

interest rates

in IOs and IIOs,

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interest rate

COVID-19 continues

to dominate the

of the markets

quarter of 2021

this meant the

recovery from

the pandemic,

in stark contrast

quarter of 2020

when the pandemic

first emerged

that preceded

the second quarter

of 2021, COVID-19

did not suppress

the performance

in the second

has been driven

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– the emergence

and widespread

widespread distribution

of a very effective

vaccine, substantial

government stimulus

1 unchanged sentence

monetary policy.

economy is recovering

the emergence

an effective vaccine

pent-up demand

a surge in demand

for goods and

economy recovered

rapidly as an

effective vaccine

allowed pent-up

demand to lead

in demand for

fueled further

multiple rounds

rounds of stimulus

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

Financial markets

are benefiting

from extremely

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

conditions, abundant

liquidity, high risk

and an insatiable

The constraint

that both limits

of price pressures

lingering effect

of the pandemic

on labor force

participation

– or lack thereof.

A significant

part of the price

pressure observed

during the second

driven by supply

shortages, which

driven by under-staffed

goods and services.

This constraint

should be slowly

the balance of

data released

during the second

quarter tells

the story quite

GDP is estimated

to have expanded

8.0% annualized

The housing market

than the days

before the financial

crisis in the

both in terms

of the number

of homes sold

and average prices

up over 23% year

June 2021 versus

the case of existing

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

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

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

due to the combination

of constrained

supply channels

robust demand

a strong combination

demand and government

The CPI increased

June as well.

insisted these

price pressures

are temporary, and

agree based on

However, not all

members of the

FOMC or market

Since the disagreement

the length of

time the price

pressures are

present in the

will be resolved

passage of time.

Returns for the Agency RMBS market trailed most other sectors of the financial markets, both fixed income as well as

equities or high-yield.

The driver was the prospect the Fed would begin to taper their asset purchases as the economy fully

This was especially the case in June, after the Fed concluded their FOMC meeting and revealed there was

divergence in views of committee members regarding the timing of this step.

While Fed leadership maintains this step is

still well into the future, the robustness of the housing market coupled with the growing divergence of views within the Fed

was enough for the markets to begin to price in a reduction in Fed asset purchases.

A second factor hurting the sector was

the rally in long-term interest rates that confounded many market participants.

Rates available to borrowers are back to

levels prevalent during the summer of 2020 and refinancing activity has re-accelerated, delaying once more burn-out for

higher coupon, more seasoned loans and driving premiums for specified pools slightly higher.

Critical Accounting Estimates

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Capital Expenditures

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

At June 30, 2021, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

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

At June 30, 2021, we did not have any off-balance sheet arrangements.

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

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(in thousands, except per share amounts)

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.

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

to be paid on August 27, 2021.

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, 2021.

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

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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