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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 910 added, 1201 removed, 1208 unchanged (64% of the section changed)

1 unchanged sentence

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.

discussion may contain certain forward-looking

The discussion may contain certain forward-looking

statements that involve risks and uncertainties.

Forward-looking statements are

those that are not historical in nature.

Forward-looking statements

are those that are not historical in nature.

As a result of

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

Report on Form 10-K, our actual results may

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

Annual Report on Form 10-K, our actual results may

differ materially from those anticipated in such forward-looking statements.

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

investment strategy focuses on, and our portfolio

Our investment strategy focuses on, and our portfolio

consists of, two categories of Agency RMBS:

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mortgage obligations (“CMOs”) issued by the GSEs

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

interest-only securities (“IIOs”) and

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

inverse interest-only securities (“IIOs”) and

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

We were formed by Bimini in August 2010,

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

on February 20, 2013.

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

and Exchange Commission (the “SEC”).

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

through a combination of capital

commenced operations on November 24, 2010 and completed our initial public

offering (“IPO”) on February 20, 2013.

externally managed by Bimini Advisors, an investment adviser registered with

the Securities and Exchange Commission (the “SEC”).

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

long term through a combination of capital

appreciation and the payment of regular monthly distributions.

We intend to achieve this objective

by investing in and strategically

We intend to achieve this

objective by investing in and strategically

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

to generate income from (i) the net interest

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

structured Agency RMBS portfolio, and (ii) the interest

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

margin on our leveraged PT RMBS portfolio and the leveraged portion

of our structured Agency RMBS portfolio, and (ii) the interest

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

We intend to fund our PT RMBS and

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

as repurchase agreements.

certain of our structured Agency RMBS through short-term borrowings

structured as repurchase agreements.

PT RMBS and structured

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

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

combined portfolios, the stability of that

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

the combined portfolios, the stability of that

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

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rate environments.

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

Code of 1986, as

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

Internal Revenue Code of 1986, as

amended (the “Code”).

We generally will not be subject to U.S.

federal income tax to the extent that we currently distribute

federal income tax to the extent that we

currently distribute all of our

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

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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.

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, after commissions and fees, prior to

its termination in August 2020.

net proceeds of approximately $19.4 million, after 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 could offer and sell, from time to time, up to an aggregate amount

of $150,000,000 of shares of our

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

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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.

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

prior to its termination in June 2021.

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

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Morgan purchased the

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

Agreement at $5.20 per share.

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

Underwriting Agreement at $5.20 per share.

we granted J.P.

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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.

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,

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

stock occurred on March 5, 2021,

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

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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

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

September 30, 2021, we issued a total of 41,568,338 shares under the June 2021 Equity Distribution

Agreement for aggregate gross

proceeds of approximately $211.0 million, and net proceeds of approximately $207.5 million, after commissions and fees.

to September 30, 2021 and through October 28, 2021, we issued a total of 7,838,998

shares under the June 2021 Equity Distribution

Agreement for aggregate gross proceeds of approximately $39.0 million, and net proceeds

of approximately $38.4 million, after

commissions and fees.

Stock Repurchase Agreement

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shares of our common stock.

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

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

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

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without prior notice.

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

in the stock repurchase program for up to an

On February 8, 2018, the Board of Directors approved

an increase in the stock repurchase program for up to an

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

Coupled with the 783,757 shares

remaining from the original 2,000,000

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

shares, representing 10% of the

Coupled with the 783,757

shares remaining from the original 2,000,000

share authorization, the increased authorization brought the total authorization

to 5,306,579 shares, representing 10% of the

Company’s then outstanding share count.

This stock repurchase program has no termination

From the inception of the stock repurchase program through 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.

From the inception of the stock repurchase program through September 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

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

nine and three months ended September 30, 2021.

The remaining authorization under the repurchase program as of September 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, U.S.

Federal Reserve (the “Fed”), the Federal

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

government, including the presidential administration,

the Fed, the Federal Housing Financing

Agency (the “FHFA”), Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the “FOMC”)

prepayment rates on mortgages underlying our Agency RMBS and credit

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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

June 30, 2021,

Company’s results

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

a registration exemption under the Investment

of Operations

June 30, 2020.

the Company’s

ended September

the Company’s

Income Summary

the six months

$46.2 million,

2020 was $42.4

the three months

$16.9 million,

June 30, 2020

The components

for the three

of net (loss)

June 30, 2021

in those components

ended September

are presented

(in thousands)

Six Months Ended June 30,

Three Months Ended, June 30,

Nine Months Ended September 30,

Three Months Ended, September 30,

Interest income

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

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

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

futures, and interest rate swaps and swaptions,

Treasury futures, and interest rate swaps and swaptions,

that pertain to each period presented.

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Economic Interest Expense and Economic Net Interest Income

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Reflects the effect of derivative instrument hedges for only the

period presented.

Calculated by adding the effect of derivative instrument hedges

attributed to the period presented to GAAP interest expense.

Calculated by adding the effect of derivative instrument hedges

attributed to the period presented to GAAP net interest income.

Nine Months Ended

September 30, 2021

September 30, 2020

Reflects the effect of derivative instrument hedges for only the period

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP interest expense.

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP net interest income.

Net Interest Income

ended September

$85.2 million

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income, consisting

of $56.1 million

offset by $5.1

interest expense

on borrowings.

For the comparable

June 30, 2020,

$67.1 million

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income, consisting

interest income

assets offset

by $21.0 million

interest expense

on borrowings.

The $6.8 million

("bps") decrease

average RMBS,

partially offset

by a $1,070.5

$23.0 million

million increase

average RMBS,

103 basis point

("bps") decrease

$18.0 million

interest expense

84 bps decrease

in the average

cost of funds,

partially offset

by a $1,057.6

million increase

On an economic

2021 and 2020

$40.6 million,

respectively, resulting

in $43.5 million

million of economic

income, respectively.

ended September

$32.6 million

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income, consisting

of $29.3 million

interest income

assets offset

by $1.6 million

offset by $1.6

For the three

June 30, 2020,

$25.2 million

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income, consisting

interest income

assets offset

by $4.5 million

interest expense

on borrowings.

The $2.0 million

due to a $1,378.1

offset by $2.0

million increase

partially offset

interest expense

million increase

52 bps decrease

in the average

cost of funds,

partially offset

by a $1,355.7

million increase

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for the three

June 30, 2021

$8.9 million,

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average balances,

interest income,

assets, average

income, yield

average borrowings,

expense, cost

the six months

2020 and each

($ in thousands)

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

($ in thousands)

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Three Months Ended

September 30, 2021

June 30, 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 30 and 31 are calculated based on the

average balances of the underlying investment portfolio/borrowings

balances and are annualized for the periods presented.

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

beginning and ending balances.

Nine Months Ended

September 30, 2021

September 30, 2020

Portfolio yields and costs of borrowings presented in the tables above and the

tables on pages 30 and 31 are calculated based on the

average balances of the underlying investment portfolio/borrowings balances

and are annualized for the periods presented.

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

and ending balances.

Economic interest expense and economic net interest income

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

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

of our derivative instrument hedges for only the periods presented.

(3) Represents

interest cost of our borrowings and the effect of derivative

Represents interest cost of our borrowings and the effect of derivative

instrument hedges attributed to the period divided by average

net interest spread is calculated by subtracting average economic

Economic net interest spread is calculated by subtracting average economic

cost of funds from realized yield on average RMBS.

Interest Income and Average Asset Yield

the six months

2020 was $56.1

$90.2 million,

respectively.

$4,268.8 million

the six months

RMBS holdings

respectively.

June 30, 2021

on our portfolio

2020, respectively.

the six months

June 30, 2021

June 30, 2020,

a $0.1 million

interest income

partially offset

by the $1,070.5

to the $1,284.9

million increase

June 30, 2021

$29.3 million

million, respectively.

offset by the

103 bps decrease

average RMBS.

$27.2 million,

June 30, 2021

respectively.

RMBS holdings

respectively.

on our portfolio

for the three

June 30, 2021

respectively.

June 30, 2021

June 30, 2020,

ended September

a $6.9 million

interest income

$1,378.1 million

million increase

offset by the

52 bps decrease

average RMBS.

partially offset

below presents

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of structured

June 30, 2021

($ in thousands)

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Interest Expense and the Cost of Funds

We had average

of $4,118.4 million

total interest

the six months

$3,116.6 million

the nine months

ended September

respectively.

cost of funds

June 30, 2021,

the comparable

ended September

for the comparable

million decrease

84 bps decrease

in the average

cost of funds,

partially offset

by the $1,057.6

offset by the

million increase

June 30, 2020.

interest expense

ended September

$40.6 million

June 30, 2021

respectively.

economic cost

the six months

30, 2021 from

the six months

in the average

cost of funds

We had average

$2,992.5 million

June 30, 2021

total interest

respectively.

June 30, 2021

cost of funds

respectively.

in the average

cost of funds

and a $1,636.3

average outstanding

interest expense

was $6.7 million

June 30, 2021

million increase

ended September

for the three

respectively.

a 76 bps decrease

in the average

economic cost

June 30, 2021

June 30, 2020.

our repurchase

cost of funds

ended September

1.11% for the three

of our repurchase

are short-term,

directly affect

of funds calculated

bps above the

ended September

cost of funds

average one-month

economic cost

above the average

six-month LIBOR

for the quarter

average six-month

ended September

term to maturity

of the outstanding

June 30, 2021

below present

interest expense

cost of funds,

and six-month

June 30, 2021

economic basis.

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Average GAAP Cost of Funds

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Gains or Losses

below presents

or losses for

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Realized (losses) gains on sales of RMBS

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(Losses) gains on TBA securities (long positions)

Losses on U.S.

Treasury securities (short positions)

(Losses) gains on U.S.

Treasury securities (short

Total (losses)

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their related

However, we have

sold, and may

existing assets

and may continue

assets, which

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or anticipated

interest rates,

federal government

general economic

economic conditions

sheet as part

of our asset/liability

the six months

2020, we received

$1,680.9 million

respectively, from

Most of these

the six months

30, 2020 occurred

order to maintain

sufficient cash

and liquidity

half of March

cash and liquidity

risk associated

with the market

turmoil brought

about by COVID-19.

2020, we received

market turmoil

brought about

ended September

$668.9 million,

respectively, from

losses on RMBS

affect the pricing

part by changes

of the securities

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The unrealized

gains and losses

of prepayments

the underlying

gains or increasing

premiums increase.

contracts are

implied forward

the reporting

below presents

interest rate

data for each

Mortgage Rate

September 30, 2021

June 30, 2021

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Historical 5 and 10 Year

Treasury Rates are obtained from quoted

end of day prices on the Chicago Board Options Exchange.

Treasury Rates are obtained from quoted end

of day prices on the Chicago Board Options Exchange.

Historical 30 Year and

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and three months

ended June 30,

ended September

the Company’s

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$10.9 million

and $3.7 million,

respectively, compared

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respectively, for

ended June 30,

The table below

June 30, 2021

and three months

ended September

below presents

ended September

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Management fees

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on its behalf and to pay the Manager the

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

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

Should the Company terminate the

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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.

The following table summarizes the management fee and overhead allocation expenses

for each quarter in 2021 to date and

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

term of the agreement.

The following table summarizes the management fee and overhead allocation

expenses for each quarter in 2021 to date and

($ in thousands)

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Three Months Ended

September 30, 2021

June 30, 2021

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March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Mortgage-Backed Securities

our RMBS portfolio

$4,671.2 million

of Agency RMBS

As of September

at fair value

weighted average

assets of 3.06%.

principal repayments

average coupon

ended September

million compared

$260.8 million

June 30, 2020.

2021 and 2020

ended September

respectively.

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table presents

the 3-month constant

experienced on

our structured

constant prepayment

on our structured

sub-portfolios,

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the prepayment

rate for a mortgage

pool that assumes

mortgage pool

that a constant

the remaining

of the remaining

month or year.

Specifically, the

CPR in the chart

below represents

the three month

prepayment rate

of the securities

in the respective

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Portfolio (%)

September 30, 2021

June 30, 2021

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of the Company’s

June 30, 2021

and structured

($ in thousands)

Asset Category

June 30, 2021

September 30, 2021

Fixed Rate RMBS

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($ in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

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Total Portfolio

June 30, 2021

September 30, 2021

December 31, 2020

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Effective Duration

Effective duration is the approximate percentage change

in price for a 100 bps change in rates.

Effective duration is the approximate percentage change in price

for a 100 bps change in rates.

An effective duration of 3.350 indicates that an

interest rate increase of 1.0% would be expected to cause a 3.830% decrease in

the value of the RMBS in the Company’s investment

at June 30, 2021.

An effective duration of 2.360 indicates that an interest rate

increase of 1.0% would be expected to cause a 2.360%

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

portfolio at December 31, 2020.

These figures include the structured

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

funding cost hedges.

interest rate increase of 1.0% would be expected to cause a 3.350% decrease in the value

of the RMBS in the Company’s investment portfolio

at September 30, 2021.

An effective duration of 2.360 indicates that an interest rate increase

of 1.0% would be expected to cause a 2.360%

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

at December 31, 2020.

These figures include the structured securities

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

Effective duration quotes for individual investments are

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assets acquired

during the six

June 30, 2021

including securities

ended September

purchased during

after the end

of the period,

($ in thousands)

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Structured RMBS

As of September

we had established

in the repurchase

financial institutions

of commercial

other financial

and had borrowings

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None of these

affiliated with

These borrowings

by the Company’s

cash, and bear

bear interest

at prevailing

market rates.

We believe our

our established

provide borrowing

As of September

we had obligations

of approximately

$4,514.7 million

weighted average

average borrowing

cost of 0.13%.

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our outstanding

100 days, with

average remaining

the repurchase

as of September

with an estimated

including accrued

of approximately

$4,678.1 million

and a weighted

average maturity

and cash pledged

to counterparties

of 344 months,

counterparties

of approximately

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with comparable

terms to those

through August

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

of borrowings for each quarter in

with maturities

The table below presents information about our period end,

maximum and average balances of borrowings for each quarter in

2021 to date and 2020.

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Three Months Ended

September 30, 2021

June 30, 2021

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

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

in the financial and mortgage markets resulting from the

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

and mortgage markets resulting from the

economic impacts of COVID-19.

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Liquidity and Capital Resources

is our ability

to turn non-cash

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Our principal

immediate sources

balances, unencumbered

under repurchase

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capacity will

vary over time

as the market

of our interest

earning assets

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basis through

principal and

believes that

have sufficient

resources available

of additional

with the size

of our existing

RMBS portfolio,

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to the extent

our continued

for our continued

qualification

generate liquidity

liquidity from

debt securities

in public offerings

PT RMBS portfolio

consists entirely

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our liquidity

sources of cash.

Our structured

also consists

of governmental

agency securities,

although they

they typically

with comparable

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liquidate such

readily, even in

readily, even

in distressed

markets, although

do so at prices

such securities

could be sold

stable market.

To enhance our liquidity

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of our structured

of a repurchase

agreement funding,

lieu of acquiring

a modest cost,

retain higher

higher levels

the likelihood

to sell assets

market in order

to raise cash.

costs typically

involves taking

short positions

rate futures,

treasury futures,

interest rate

swaps, interest

rate swaptions

or other instruments.

When the market

This can reduce

our liquidity

market causes

to the extent

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move in price

calls to offset

the derivative

related margin

liquidity might

levered portfolio,

in sufficient

of the levered

pledge additional

funds or risk

risk operating

the portfolio

with less liquidity.

have no stated

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under a master

has been entered

into, it generally

entered into,

can occur, but

the repurchase

as it did during

agreement funding

arrangements,

funding arrangements,

we are required

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of the market

To the extent the market

To the extent the

asset collateralizing

the financing

declines, the

of our posted

be insufficient

posted margin

will be insufficient

post additional

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asset pledged

would be over

collateralized

would be entitled

to have excess

be over collateralized

margin returned

2 unchanged sentences

and make margin

calls as needed,

Typically, but not always,

Typically, but not

parties agree

so as to avoid

nuisance margin

do not specify

2 unchanged sentences

on an individual

the six months

June 30, 2021,

remained stable

June 30, 2021,

average haircut

the nine months

ended September

as of September

approximately

of our collateral.

we do acquire

time to time.

TBAs represent

off-balance sheet

financing and

are accounted

sheet financing

and are accounted

for as derivative

4 to our Financial

for additional

10-Q 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

make physical

of the underlying

to take physical

settle a long

our liquidity

position could

be negatively

margin requirements

by the Mortgage-Backed

Division ("MBSD")

by our master

forward transaction

establish margin

excess of the

margin levels

Such provisions

on the notional

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or the estimated

fair value of

the sole discretion

of our pledged

of the pledged

securing such

call, we must

generally provide

the same business

by taking delivery

of the underlying

must generally

provide additional

business day.

the underlying

margin requirements

3 unchanged sentences

as our primary

source of financing,

adequate sources

such obligations.

earlier, we invest

1 unchanged sentence

in structured

to this portion

of our portfolio.

leverage obtained

in structured

PT securities

4 unchanged sentences

overall investment

strategy since

However, we have

and may continue

of our structured

RMBS in order

our cash levels,

but generally

will not pledge

these securities

acquire additional

The following

table summarizes

the effect on

our liquidity

and cash flows

from contractual

on our liquidity

for repurchase

interest expense

on repurchase

(in thousands)

8 unchanged sentences

interest rates

as of June 30,

remaining term

of the liabilities

at that date.

expect to continue

as of September

the remaining

term of the liabilities

our activities

that is consistent

with our current

current operations

As of September

and cash equivalents

principal and

$497.8 million

from principal

and had average

of $4,118.4 million

the six months

ended September

Stockholders’

1 unchanged sentence

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

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.

5 unchanged sentences

four 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

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

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

We issued a total of 27,493,650

shares under the

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

approximately $147.4 million, after commissions and fees,

prior to its termination in June 2021.

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

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Morgan purchased the shares of our common stock from

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

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

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.

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,

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

common stock occurred on January 25,

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

6 unchanged sentences

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,

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

conditions, which J.P.

Morgan exercised in full on March 3,

5 unchanged sentences

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

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

September 30, 2021, we issued a total of 41,568,338 shares under the June 2021 Equity Distribution

Agreement for aggregate gross

proceeds of approximately $211.0 million, and net proceeds of approximately $207.5 million, after commissions and fees.

to September 30, 2021 and through October 29, 2021, we issued a total of 7,838,998

shares under the June 2021 Equity Distribution

Agreement for aggregate gross proceeds of approximately $39.0 million, and net proceeds

of approximately $38.4 million, after

commissions and fees.

Economic Summary

continued its

strong recovery

from the COVID-19

pandemic during

the second quarter

cases that occurred

during the first

quarter of 2021

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,

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

The effects of

COVID-19 continued

activity during

the third quarter

of 2021, particularly

first emerged

in earnest during

Daily new infections

from the Delta

rapidly during

peak in early

September and

have been slowly

falling since.

COVID related

where fearful

of excess exposure

the new cases

the unvaccinated.

various measures

by governments

and corporations

to mandate employees

receive vaccinations.

The net effect

spreading virus

and a reluctance

get vaccinated

has been subdued

third quarter

This is particularly

true among workers

such as those

in the leisure

and hospitality

or due to the

lack of access

to childcare,

and thus unable

Gross domestic

have expanded

at an 8.0% annualized

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.

forms of pandemic

related supplemental

ended in early

September, so job

in the fourth

In the interim,

the combination

of a reluctance

many individuals,

sufficient income

via unemployment

in both robust

and shortages

many industries.

a demand/supply

favor of demand

many commodities

and parts, the

led to severe

supply shortages

supply imbalances

for goods and

for both, driving

multi-decade highs.

The Fed chairman,

(“FOMC”) have

temporary and

will ease once

fade and workers

Yet, as implied by

market pricing

Treasury securities

various market

participants,

transitory, and

have admitted

inflation has

remained high

they had anticipated.

Over the course

into the fourth,

economy during

quarter continued

28, 2021, the

advanced read

domestic product

approximately

the beginning

of the quarter.

has decelerated

levels suppressed.

Over the course

of the balance

it should become

apparent whether

to labor, are transitory

that essentially

have ended and

the new cases

question about

the transitory

nature of inflation.

market remains

robust as evidenced

of new and existing

home construction.

However, as home

the last year

new home construction,

for the Company’s

as prepayments

related to housing

Congress passed

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the pandemic’s

emergence last

spring and followed

additional legislation

of 2021and followed

over the ensuing

However, as certain

insurance last

July, there appeared

July of 2021,

there appeared

for additional

with the surge

in the pandemic

that occurred

as cold weather

for the economy

deal with the

pandemic that

set in, particularly

over the Christmas

above, the Federal

government eventually

mentioned above,

passed an additional

stimulus package

in late December

of 2020 and again

March of 2021.

the Fed has provided,

package in late

again in March

and continues

1 unchanged sentence

to the markets

and the economy

as it can within

it can within

the constraints

of its mandate.

During the third

quarter of 2020,

the Fed unveiled

third quarter

a new monetary

policy framework

focused on average

inflation rate

targeting that

Fed Funds rate

to remain quite

low, even if inflation

expected to temporarily

rate targeting

the Fed Funds

rate to remain

quite low, even

to temporarily

2% target level.

Further, the Fed

past the presence

of very tight

labor markets,

should they be

has indicated

look past the

markets, should

they be present

a significant

policy framework,

which was focused

on the unemployment

rate as a key

impending inflation.

could steepen

as short-term

curve as short-term

for a considerable

period but longer-term

rates could rise

given the Fed’s

inflation potentially

rise given the

Fed’s intention

to let inflation

in the future

as the economy

The response of

appeared to follow

Treasury rates

pattern precisely

during the first

quarter of 2021

but have since

reversed since

quarter 2021.

Interest Rates

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

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

Interest Rates

Interest rates

curve and U.S.

little changed

third quarter

notable development

rates complex

was the slight

flattening of

30-year points

as the market

asset purchases

sooner as well.

market interpreted

these developments

Fed, although

the leadership

Chairman Powell

this interpretation

the Fed’s stance

has not changed.

in the fourth

to the Fed funds

rate in either

or early 2023.

above, the Delta

the COVID virus

has dominated

activity, both during

the third quarter

2021 and generally

However, the FOMC

chairman have

looked through

see the impact

At the conclusion

of the September

FOMC meeting,

the Fed chairman

that the economy

had made “substantial

further progress”

towards achieving

price stability

and full employment.

the Fed appeared

close to commencing

More specifically,

the Fed chairman

indicated they

asset purchases

and that they

mid next year.

released their

economic projections,

or “Dot Plot”

as it is known,

at the conclusion

of the meeting

the case with

indicated FOMC

members anticipated

the Fed Funds

and by a larger

FOMC members,

Plot released

September, expect

at least once

This surprised

and the market

rates quickly

reflect these

expectations.

As the fourth

have continued

market pricing

reflect additional

the Fed Funds

higher levels

challenge the

Fed’s assertion

prove transitory,

longer maturity

rates have moved

higher so far

fourth quarter.

of the 10-year

The Agency RMBS

for the Agency

for the second

quarter trailed

for the third

a modest 0.01%,

generally in-line

asset classes.

The total return

for the Agency

RMBS sub-index

was 0.33% for

return to comparable

duration U.S.

Treasuries and

the Agency RMBS

sub-index was

0.1% for both

for the quarter.

sector, higher coupon

coupons, specifically

the coupon currently

in widespread

Total returns for the

third quarter

respectively.

were 0.6% and

0.5%, respectively.

and fifteen-year

both returned

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

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.

September FOMC

chairman made

it quite clear

begin to taper

purchases this

the $40 billion

per month purchases

Given the length

the Agency RMBS

market, coupled

been supporting

banks that are

deposits that

need to be invested,

in the Agency

were quite rich

the Agency RMBS

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 Fed routinely

been the 2.0%

and 2.5% coupons

predominantly.

underperformance

and has continued

to do so into

the fourth 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.

third quarter

With interest

rates relatively

steady during

the third quarter

such a prolonged

period of low

rates prepayment

speeds on higher

coupon, premium

priced securities

were expected

to eventually

finally happening,

by the August

and September

reports, released

respectively.

have moved higher

the fourth quarter,

quarter, market

trend to continue,

in the performance

of these coupons

Recent Legislative

2 unchanged sentences

overnight repo

2019 until July

2020 to address

Treasury, Agency debt and

Agency MBS financing

operations ceased

after the central

address disruptions

Treasury, Agency debt

MBS financing

July 2020 after

tamed volatile

2 unchanged sentences

to cause disruption

financial system.

The Fed has taken

taken a number

of other actions

the impacts of

of the COVID-19

March of 2020,

3 unchanged sentences

provide liquidity

Treasury and Agency

RMBS markets.

3 unchanged sentences

already lowered

Funds rate by

50 bps earlier

by 50 bps earlier

in the month.

Later that same

month the Fed

and Agency RMBS

in the amounts

needed to support

the Fed announced

amounts needed

smooth market

purchases, market

market conditions

improved substantially.

Currently, the Fed is

purchasing $80

to purchasing

and $40 billion

1 unchanged sentence

Chairman Powell

and the Fed have

reiterated their

have reiterated

their commitment

to this level

2 unchanged sentences

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

interest rates

at this level

until the Fed

that the economy

has weathered

and its impact

to achieve its

maximum employment

and price stability

2021 meeting,

the Fed generally

assessed that,

provided that

recovery remained

track, a gradual

tapering process

that concluded

be appropriate.

The Fed noted

to begin tapering

the next meeting,

tapering could

commence with

purchase calendars

either mid-November

has taken various

support certain

income markets,

to support mortgage

certain other

support mortgage

and to implement

various portions

of the Coronavirus

Security (“CARES”)

The CARES Act

was passed by

Act was passed

and signed into

COVID-19 relief

3 unchanged sentences

$75,000 a year, increased

up to four months

(on top of state

benefits), funding

and health providers,

1 unchanged sentence

states and municipalities

and grants to

to the airline

24, 2020, President

1 unchanged sentence

into law that

additional $484

funding to individuals,

to individuals,

small businesses,

hospitals, health

care providers

and additional

1 unchanged sentence

Various provisions

expire in July

2020, including

on evictions,

expanded unemployment

benefits, and

and a moratorium

on foreclosures.

2020, President

issued Executive

directing the

Executive Order

13945, directing

the Department

of Health and

Human Services,

Prevention (“CDC”),

the Department

of Housing and

Urban Development,

Department of

the Treasury to

take measures

and Urban Development,

of the Treasury

to take measures

to temporarily

2 unchanged sentences

foreclosures,

including through

temporary financial

additional $900

billion coronavirus

aid package was

of the Consolidated

Appropriations

providing for

extensions of

CARES Act policies

as well as additional

the CARES Act

well as additional

package provided

for, among other things,

direct payments

to most Americans

income of less

for, among other

things, direct

most Americans

$75,000 a year, extension

7 unchanged sentences

issued guidance

extending eviction

for covered persons

through March

31, 2021, which

has been extended

July 31, 2021.

FHFA announced that

the foreclosure

begun under the

CARES Act for

by Fannie Mae

Mac and the eviction

persons through

26, 2021, the

2021, the FHFA announced

that the foreclosure

the CARES Act

eviction moratorium

for real estate

1 unchanged sentence

Mae and Freddie

Mac were extended

31, 2021, which

has been extended

and Urban Development

announced the

the FHA eviction

and foreclosure

to June 30, 2021,

which has been

extended until

extended through

July 30, 2021,

On March 11, 2021, the

$1.9 trillion

of the eviction

through September

and other occupants

and noted the

expiration of

the foreclosure

on July 31, 2021.

On March 11, 2021,

the $1.9 trillion

American Rescue

6 unchanged sentences

provide assistance

to sectors of

the population

of the population

suffering from

1 unchanged sentence

of the pandemic.

In January 2019,

the Trump administration

made statements

overhaul Fannie

and expectations

for the development

for comprehensive

finance reform

30, 2019, the

1 unchanged sentence

Mac were allowed

increase their

capital buffers

to $25 billion

and $20 billion,

their capital

buffers to $25

respectively, from

1 unchanged sentence

of $3 billion

lead to Fannie

Mae and Freddie

Mac being privatized

and represents

concrete step

On June 30, 2020,

the FHFA released

a proposed rule

proposed rule

on a new regulatory

implement both

framework for

the GSEs which

seeks to implement

both a risk-based

capital framework

and minimum leverage

minimum leverage

capital requirements.

The final rule

on the new capital

was published

1 unchanged sentence

December 2020.

On January 14,

2021, the U.S.

the FHFA executed

14, 2021, the

and the FHFA executed

letter agreements

1 unchanged sentence

to retain capital

buffers, as prescribed

including buffers,

as prescribed

in the December

agreements provide,

there will be

conservatorship

until all material

litigation is

settled and the

GSE has common

of its assets,

(ii) the GSEs

with the FHFA’s regulatory

from conservatorship

material litigation

common equity

Tier 1 capital

the GSEs will

the FHFA’s regulatory

capital framework,

2 unchanged sentences

mortgage acquisitions

be restricted

levels, and (iv)

and the FHFA will

establish a timeline

for future GSE

no definitive

will be restricted

(iv) the U.S.

Treasury and the

FHFA will establish

However, no definitive

have been released

to ending the

or enacted with

conservatorship,

1 unchanged sentence

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.

June 23, 2021,

President Biden

FHFA and appointed

14, 2021, the

FHFA suspended

certain provisions

14, 2021, including

the enterprises'

cash windows,

lending, loans

characteristics,

homes and investment

The enterprises

will continue

to build capital

of the letter

Additionally, the

FHFA is reviewing

the enterprise

capital framework

further action

In 2017, policymakers

4 unchanged sentences

are uncomfortable

panel given the

underlying transactions

of underlying

and the liability

associated with

with submitting

ICE Benchmark

12 unchanged sentences

and one, three,

month USD LIBOR

settings immediately

LIBOR settings

following the

LIBOR publication

on June 30, 2023.

A joint statement

by key regulatory

key regulatory

calls on banks

1 unchanged sentence

into new contracts

LIBOR as a reference

rate by no later

reference rate

The Alternative

Reference Rates

a steering committee

committee comprised

of large U.S.

institutions,

7 unchanged sentences

this new rate

it will potentially

become the new

3 unchanged sentences

however, no consensus

rates may become

accepted alternatives

become accepted

Effective January

6 unchanged sentences

Uniform Mortgage-Backed

(UMBS) and Mortgage-Backed

Mortgage-Backed

four consecutively

13 unchanged sentences

day in February

For Agency RMBS

investors, when

RMBS investors,

when a delinquent

loan is bought

2 unchanged sentences

from the pool

as a total prepayment

The respective

7 unchanged sentences

one of the following

exceptions listed

paid in full,

loan repurchased

full, or where

lien is released

a loan repurchased

by a seller/servicer

1 unchanged sentence

requirements;

loan entering

a loan entering

modification,

5 unchanged sentences

remain in the

MBS until the

to a short sale

or deed-in-lieu

a loan subject

sale or deed-in-lieu

of foreclosure;

loan referred

a loan referred

to foreclosure.

3 unchanged sentences

on prevailing

and market conditions

marginal impact

on prepayment

speeds, in aggregate.

more than half

4 unchanged sentences

six months of

speeds are affected

affected depends

on delinquency

levels, borrower

response, and

to foreclosure

The scope and

nature of the

or the Fed will

will ultimately

undertake are

continue to evolve,

evolve, especially

pandemic, President

Biden’s new administration

administration

in the United

developments,

interest rates

and prepayment

rates and prepayment

ways, including

Effects on our

A change in or

or elimination

of the guarantee

our costs (if,

fees increase)

3 unchanged sentences

of the guarantee

of Agency RMBS

to change our

2 unchanged sentences

us to significantly

monitoring of

the credit risks

of our investments

prepayment risks.

of the credit

our investments

Lower long-term

1 unchanged sentence

can affect the

prepayment rates

the refinancing

problems described

7 unchanged sentences

on assets with

are higher than

market yields.

10 unchanged sentences

This is because

prepayment accelerates

the effective

term of an Agency

would shorten

the period during

period during

investor would

2 unchanged sentences

asset is higher

prepayment proceeds

may not be able

market yields).

to be reinvested

1 unchanged sentence

high interest

rates are more

more susceptible

to prepayment

holders of those

mortgages are

those mortgages

are most likely

a lower rate.

IOs and IIOs,

however, may be the

types of Agency

increased prepayment

Because the holder

however, may be

most sensitive

payments, the

2 unchanged sentences

balance on the

the principal

If the principal

eliminated due

1 unchanged sentence

IIOs essentially

increased prepayment

become worthless.

Although increased

rates can negatively

affect the value

they have the

opposite effect

effect on POs.

bonds, meaning

1 unchanged sentence

at a discount

their par value

effective interest

rate based on

value and have

interest rate

of the underlying

loan, an increase

prepayment rates

the effective

reduce the effective

POs and accelerate

6 unchanged sentences

rates available

borrowers also

This tends to

cause prepayment

extend the expected

expected average

life of mortgage

As the expected

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higher discount

Some of the instruments

uses to hedge

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swaps and swaptions,

are stable average

life instruments.

that to the extent

hedges may not

adequately protect

us from price

extent we use

such instruments

not adequately

declines, and

therefore may

negatively impact

our book value.

It is for this

reason we use

interest only

we use interest

only securities

in our portfolio.

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life of these

increases, causing

generally positive

price movements

causing generally

positive price

as the number

longer the underlying

mortgages remain

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the economic,

health and market

turmoil brought

about by COVID-19.

market turmoil

brought about

2020, the Fed

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the Agency RMBS

market, a commitment

it reaffirmed

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Fed meetings.

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,

At the September

Fed generally

assessed that,

provided that

recovery remained

track, a gradual

concluded around

be appropriate.

The Fed noted

that if a decision

tapering purchases

the next meeting,

could commence

with the monthly

calendars beginning

or mid-December.

the Fed modifies,

reduces or suspends

its purchases

our investment

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the moratoriums

and evictions

described above

delay potential

defaults on loans

that would otherwise

on foreclosures

potential defaults

on loans that

would otherwise

be bought out

Agency MBS pools

of the foreclosure

or evictions,

occurs, these

the pool into

which they were

of Agency MBS

pools as described

on the ultimate

of the foreclosures,

may be removed

pool into which

they were securitized.

to occur, it would

effect of delaying

have the effect

on the Company’s

until such time.

As the majority

of the Company’s

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asset in question.

Because we base

our investment

risk management

volatile interest

rate environment

base our investment

on risk management

interest rate

we may allocate

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interest rates

than other asset

attempt to mitigate

to changes in

asset classes.

interest rates

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to changes in

long-term interest

rates than PT

RMBS, particularly

interest rates

than PT RMBS,

PT RMBS backed

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Effects on our

borrowing costs

We leverage our

PT RMBS portfolio

and a portion

of our structured

portfolio and

our structured

with principal

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of short-term

repurchase agreement

transactions.

agreement transactions.

debt are determined

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our borrowing

could affect our

interest rate

spread if there

is no corresponding

we earn on our

would be most

prevalent with

our Agency RMBS

backed by fixed

rate mortgage

loans because

be most prevalent

by fixed rate

mortgage loans

interest rate

on a fixed-rate

mortgage loan

change even though

though market

margin against

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floating-rate

repurchase agreement

debt to fixed-rate

agreement debt

to fixed-rate

debt, or utilize

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T-Note futures

interest rate

that preceded

the second quarter

of 2021, COVID-19

did not suppress

rate swaptions.

Once again COVID-19

dominated economic

this quarter.

However, we may

be at a crossroads

as the effects

the Delta variant

be waning and

of people with

either a vaccination

Pandemic related

relief measures

such as supplemental

insurance payments

and foreclosure

are essentially

the combination

of all of these

lead to surging

quickly lessen

supply shortage

the stubbornly

high inflation

If these events

come to pass,

be positioned

has stated that

slowly remove

the considerable

accommodation

they have provided

via a tapering

asset purchases

and eventually

to the Fed Funds

not unfold and

goods and labor

likely continue

to suffer from

elevated levels

of inflation.

path of economic

less certain,

quite challenging

The performance

in the second

has been driven

by many factors

– the emergence

widespread distribution

of a very effective

vaccine, substantial

government stimulus

and accommodative

monetary policy.

economy recovered

rapidly as an

effective vaccine

allowed pent-up

demand to lead

in demand for

fueled further

rounds of stimulus

checks and numerous

support provided

Financial markets

are benefiting

from extremely

loose financial

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

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.

of the Agency

was very modest

0.0% and 0.1%

versus comparable

duration interest

rates and swaps.

for the sector

was generally

other sectors

towards higher

lower coupons

that comprise

recent production

and Fed purchases.

This has continued

into the fourth

quarter, in large

because the Fed

them to begin

purchases has

commence doing

so this year, likely

ending in mid-2022.

speeds, particularly

on high coupon

have moderated

and are likely

to do so even

so far in the

fourth quarter

and the typical

seasonal slow

winter months.

Critical Accounting Estimates

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Capital Expenditures

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

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

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,

we must pay annual dividends to our

At September 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, we must pay annual dividends to our

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

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(in thousands, except per share amounts)

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.

On October 12, 2021, the Company declared a dividend of $0.065 per

share to be paid on November 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 September 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