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OFFON

ANWORTH MORTGAGE ASSET CORPORATION

(ANH)
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ANWORTH MORTGAGE ASSET : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

02/26/2021 | 02:25pm EDT

Our Business


We were incorporated in Maryland on October 20, 1997 and commenced operations on
March 17, 1998. Our principal business is to invest in, finance and manage a
leveraged portfolio of residential mortgage-backed securities and residential
mortgage loans which presently include the following types of investments:

Agency mortgage-backed securities, or Agency MBS, which include residential

mortgage pass-through certificates and collateralized mortgage obligations, or

CMOs, which are securities representing interests in pools of mortgage loans

? secured by residential property in which the principal and interest payments

are guaranteed by a government-sponsored enterprise, or GSE, such as the

Federal National Mortgage Association, or Fannie Mae, or the Federal Home Loan

Mortgage Corporation, or Freddie Mac;

Non-agency mortgage-backed securities, or Non-Agency MBS, which are securities

? issued by companies that are not guaranteed by federally sponsored enterprises

and that are secured primarily by first-lien residential mortgage loans; and

Residential mortgage loans. We acquire non-Qualified Mortgage, or Non-QM,

residential mortgage loans (which are described further on page 86) from

independent loan originators with the intent of holding these loans for

securitization. These loans are financed by a warehouse line of credit until

? securitization. We also hold residential mortgage loans through consolidated

securitization trusts. We finance these loans through asset-backed securities,

or ABS, issued by the consolidated securitization trusts. The ABS, which are

held by unaffiliated third parties, are non-recourse financing. The difference

in the amount of the loans in the trusts and the amount of the ABS represents

our retained net interest in the securitization trusts.

Proposed Merger with Ready Capital Corporation


On December 6, 2020, we entered into the Merger Agreement with Ready Capital and
Merger Sub, pursuant to which, subject to the terms and conditions therein, our
Company will be merged with and into Merger Sub, with Merger Sub remaining as a
wholly owned subsidiary of Ready Capital (such transaction, the "Merger").

Under the terms of the Merger Agreement, at the Effective Time, each share of
Anworth Common Stock issued and outstanding immediately prior to the Effective
Time (excluding any shares held by Ready Capital, Merger Sub or any of their
respective subsidiaries) will automatically be converted into the right to
receive from Ready Capital (i) 0.1688 shares of Ready Capital Common Stock, plus
(ii) $0.61 in cash minus the Per Share Excess Amount, in each case, subject to
adjustment as provided in the Merger Agreement. Additionally, at the Effective
Time, each share of our 8.625% Series A Cumulative Preferred Stock will be
converted into the right to receive one share of Ready Capital Series B
Preferred Stock; each share of our 6.25% Series B Cumulative Convertible
Preferred Stock will be converted into the right to receive one share Ready
Capital Series C Preferred Stock; and each share of our 7.625% Series C
Cumulative Redeemable Preferred Stock will be converted into the right to
receive one share of Ready Capital Series D Preferred Stock.

The Merger Agreement provides that each of our Company and Ready Capital will,
until the Effective Time, operate their respective businesses in all material
respects in the ordinary course and consistent with practice, and preserve
substantially intact its current business organization and preserve key business
relationships. Each of our Company and Ready Capital are subject to restrictions
as specified in the Merger Agreement on certain actions each company may take
prior to the Effective Time, including, among other things, actions related
to
amending organizational

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documents, declaring dividends, issuing or repurchasing capital stock, engaging in certain business transactions and incurring indebtedness.

Completion of the proposed Merger is subject to the satisfaction of certain
customary conditions, and is subject to the approval of the stockholders of both
Ready Capital and our Company. We cannot provide any assurance that the proposed
Merger will close in a timely manner or at all.

Our Business Strategy

Our principal business objective is to generate net income for distribution to
our stockholders primarily based upon the spread between the interest income on
our mortgage assets and our borrowing costs to finance our acquisition of those
assets.

We generally view our target investments as being influenced primarily by either
interest rate risks or credit risks. Our Agency MBS are sensitive to changes in
interest rates and related prepayment speeds. Our Non-Agency MBS and residential
mortgage loans held-for-securitization or held-for-investment through
consolidated securitization trusts are sensitive to changes in both interest
rate risk and credit risk.

The assets which we allocate to Agency MBS are also allocated to one of two subcategories:

1. Agency MBS which have a fixed interest rate during the life of the mortgages;

and

2. Agency MBS whose interest rates will change or adjust to current market levels

at varying times.

We believe our hybrid investment model allows us to allocate assets across
various sectors within the residential mortgage market with a focus on security
selection and implementation of a relative value investment approach. Our asset
allocation process takes into account the opportunities in the marketplace, cost
of financing and cost of hedging interest rate, prepayment credit, and other
portfolio risks. As a result, mortgage-related asset allocation reflects
management's opportunistic approach to investing in the marketplace.

The following table provides the MBS asset allocation and asset allocation between our Agency MBS, Non-Agency MBS and residential mortgage loans at December 31, 2020 and December 31, 2019:



                                                   December 31,                       December 31,
                                                       2020                               2019
                                            Dollar Amount     Percentage       Dollar Amount     Percentage
                                           (in thousands)                     (in thousands)
Agency MBS                                 $     1,624,354         73.58 %    $     3,510,051         73.66 %
Non-Agency MBS                                     206,933          9.37              643,610         13.51
Total MBS                                  $     1,831,287         82.95 %    $     4,153,661         87.17 %
Residential mortgage loans
held-for-securitization                            109,312          4.95              152,922          3.21
Residential mortgage loans
held-for-investment through
consolidated securitization trusts                 267,107         12.10              458,348          9.62
Total mortgage-related assets              $     2,207,706        100.00 % 
  $     4,764,931        100.00 %




When we change the allocation of our investment portfolio, our annualized yields
and cost of financing will change. As previously discussed, our investment
decisions are not driven solely by annualized yields but also by taking into
account the uncertainty of faster or slower prepayments, extension risk and
credit-related events.

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Our MBS Portfolio

At December 31, 2020 and December 31, 2019, the fair value of our MBS portfolio
(which consists primarily of Agency MBS and Non-Agency MBS) and its allocation
were approximately as follows:


                                                            December 31,         December 31,
                                                                2020                 2019

                                                              (dollar amounts in thousands)
Fair value of MBS                                          $     1,831,287      $     4,153,661
Adjustable-rate Agency MBS less than 1-year reset                       18 %                 12 %
Adjustable-rate Agency MBS 1-3 year reset                                7                    2
Adjustable-rate Agency MBS 3-5 year reset                                -                    3
Adjustable-rate Agency MBS greater than 5-year reset                     3                    2
Total Adjustable-Rate Agency MBS                                        28 %                 19 %
15-year fixed-rate Agency MBS                                            2                    1
20-year fixed-rate Agency MBS                                            9                    5
30-year fixed-rate Agency MBS                                           50 
                 60
Non-Agency MBS                                                          11                   15
Total MBS                                                              100 %                100 %




Results of Operations

Years Ended December 31, 2020 and 2019


For the year ended December 31, 2020, our net loss to common stockholders was
approximately $(112.9) million, or $(1.14) per basic and diluted share, based on
a weighted average of 99.0 million basic and fully diluted shares outstanding.
This included a net loss of $(103.7) million and the payment of preferred
dividends of $9.2 million. For the year ended December 31, 2019, our net loss to
common stockholders was approximately $(64.6) million, or $(0.65) per basic and
diluted share, based on a weighted average of 98.7 million basic and fully
diluted shares outstanding. This included a net loss of $(55.4) million and the
payment of preferred dividends of $9.2 million.

Net interest income after provision for loan losses for the year ended
December 31, 2020 totaled $37.5 million, or 34.9% of gross interest income, as
compared to $35.6 million, or 19.7% of gross interest income, for the year ended
December 31, 2019. Net interest income after provision for loan losses is
comprised of the interest income earned on mortgage investments (net of premium
amortization expense) and other interest income less interest expense from
borrowings and provision for loan losses. Interest and other interest income net
of premium amortization expense for the year ended December 31, 2020 was $83.1
million, as compared to $154.4 million for the year ended December 31, 2019, a
decrease of 46.2% due primarily to a decrease in interest income on securitized
residential mortgage loans of approximately $5.8 million due to paydowns on this
portfolio, a decrease in the weighted average portfolio outstanding, from
approximately $3.95 billion in 2019 to approximately $2.34 billion in 2020, and
a decrease in the weighted average coupons on MBS (from 3.93% in 2019 to 3.71%
in 2020), and a decrease in other interest income of $1.2 million due primarily
to less interest earned on restricted cash balances, partially offset by a
decrease in premium amortization expense of $2.2 million and an increase in
interest on residential mortgage loans held-for-securitization of $1.7 million
due to a greater weighted average outstanding balance during 2020. Interest
expense for the year ended December 31, 2020 was $44.9 million, as compared to
$118.8 million for the year ended December 31, 2019, a decrease of approximately
62.2%, which resulted primarily from a decrease in the weighted average interest
rates, from 2.64% in 2019 to 1.18% in 2020, a decrease in interest expense on
asset-backed securities issued by securitization trusts of approximately $5.7
million due to paydowns on this portfolio, and a decrease in the average
borrowings outstanding, from $3.52 billion in 2019 to $2.11 billion in 2020,
partially offset by an increase in interest expense on our warehouse line of
credit of $0.3 million.

Our results of our operations are affected by a number of factors, many of which
are beyond our control, and primarily depend on, among other things, the level
of our net interest income, the market value of our mortgage-related assets, the
supply of, and demand for, mortgage-related assets in the marketplace, and
the
terms and availability of

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financing. Our net interest income varies primarily as a result from changes in
interest rates, the slope of the yield curve (the differential between long-term
and short-term interest rates), borrowing costs (our interest expense) and
prepayment speeds on our MBS and loan portfolios, the behavior of which involves
various risks and uncertainties. Interest rates and prepayment speeds, as
measured by the constant prepayment rate, vary according to the type of
investment, conditions in the financial markets, competition and other factors,
none of which can be predicted with any certainty. With respect to our business
operations, increases in interest rates, in general, may, over time, cause:
(i) the interest expense associated with our borrowings, which are primarily
comprised of repurchase agreements, to increase; (ii) the value of our MBS and
loan portfolios and, correspondingly, our stockholders' equity to decline;
(iii) coupons on our MBS and loans to reset, although on a delayed basis, to
higher interest rates; (iv) prepayments on our MBS and loan portfolios to slow,
thereby slowing the amortization of our purchase premiums; and (v) the value of
our interest rate swap agreements and, correspondingly, our stockholders' equity
to increase. Conversely, decreases in interest rates, in general, may, over
time, cause: (a) prepayments on our MBS and loan portfolios to increase, thereby
accelerating the amortization of our purchase premiums; (b) the interest expense
associated with our borrowings to decrease; (c) the value of our MBS and loan
portfolios and, correspondingly, our stockholders' equity to increase; (d) the
value of our interest rate swap agreements and, correspondingly, our
stockholders' equity to decrease; and (e) coupons on our MBS and loans to reset,
although on a delayed basis, to lower interest rates. In addition, our borrowing
costs and credit lines are further affected by the type of collateral pledged
and general conditions in the credit markets.

During the year ended December 31, 2020, premium amortization expense decreased
by $2.2 million, or 8.4%, to $24.6 million from $26.8 million during the year
ended December 31, 2019, due primarily to less unamortized premium from a lower
average MBS portfolio outstanding. The prepayment rate assumptions used in our
projection of long-term CPR percentages are based on historical prepayment rates
on our MBS assets as well as assumptions about future mortgage rates and their
expected impact on future prepayments. Given our current expectations for
prepayments and market conditions, we do not expect a significant change in
future prepayment assumptions.

The table below shows the approximate constant prepayment rate of our MBS:

                                2020                                           2019
             Fourth        Third     Second      First       Fourth      Third     Second       First
Portfolio    Quarter      Quarter    Quarter    Quarter      Quarter    Quarter    Quarter     Quarter
MBS               40 %         39 %       33 %       18 %         25 %       21 %       18 %        13 %



We review our MBS portfolios relative to current market conditions, trading
prices of individual MBS, the general level of mortgage interest rates,
prepayment activity, other investment opportunities and the duration of our
portfolio versus the duration of our liabilities. During the year ended December
31, 2020, we sold available-for-sale Agency MBS (including Agency MBS trading
securities) of approximately $1.4 billion and realized net gains of
approximately $19.4 million. During 2020, we sold a substantial portion of our
MBS in order to reduce leverage, maintain adequate liquidity, pay-down the
balance on our repurchase agreements, and preserve over-collateralization for
our repurchase agreements. During the year ended December 31, 2019, we received
proceeds of approximately $2.95 billion from the sales of Agency MBS (including
Agency MBS trading securities) and recognized a combined net gain of
approximately $7.2 million. During 2019, we sold a substantial portion of our
MBS to reallocate our portfolio from lower-yielding assets to higher-yielding
assets. During the years ended December 31, 2020 and 2019, we recognized a gain
(including derivative income) of approximately $28.2 million and approximately
$14.2 million, respectively, on TBA Agency MBS. During the years ended December
31, 2020 and 2019, we did not sell any of our residential mortgage loans. At
March 31, 2020, we designated our Non-Agency MBS as trading securities. The
unrealized gain or loss on these securities, which had been formally recorded in
AOCI, is now recorded as a net gain or loss on our consolidated statements of
operations. During the year ended December 31, 2020, we had a net loss on these
securities of approximately $15.5 million. During 2019, we did not classify our
Non-Agency MBS as trading securities. During the year ended December 31, 2020,
we also had a net loss on available-for-sale Non-Agency MBS of approximately
$55.4 million. During the year ended December 31, 2019, we received proceeds of
approximately $30 million from the sales (including calls) of Non-Agency MBS and
recognized a net gain of approximately $76 thousand.

During the year ended December 31, 2020, we had a loss on interest rate swaps
recognized in our consolidated statements of operations of approximately $106.3
million, consisting primarily of $91.5 million in the negative change in fair
value (see the section entitled "Derivative Financial Instruments-Accounting for
Derivative and Hedging Activities"

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in Note 1, "Organization and Significant Accounting Policies," to the
accompanying audited consolidated financial statements for additional
information), and approximately $3.3 million in AOCI amortization and
approximately $11.5 million in net cash settlements paid. During the year ended
December 31, 2019, we also had a loss on interest rate swaps recognized in our
consolidated statements of operations of approximately $98.9 million, consisting
primarily of approximately $106.5 million in the negative change in fair value
and approximately $3.9 million in AOCI amortization, partially offset by
approximately $11.5 million in net cash settlements received. During the year
ended December 31, 2020, rental income from our residential rental properties
decreased by approximately $93 thousand. During the year ended December 31,
2020, we sold three of our residential rental properties and realized a gain of
approximately $201 thousand. During the year ended December 31, 2019, we sold
one of our residential rental properties and realized a gain of approximately
$31 thousand. During the year ended December 31, 2020, there was no impairment
charge on our Non-Agency MBS, as compared to an impairment charge of
approximately $2.1 million during the year ended December 31, 2019.

Total expenses were approximately $13.5 million for the year ended December 31,
2020, as compared to approximately $13.3 million for the year ended December 31,
2019. For the year ended December 31, 2020, we incurred management fees of
approximately $5.6 million, which is based on a percentage of our equity (see
Note 12, "Public Offerings and Capital Stock," to the accompanying audited
consolidated financial statements), as compared to management fees of
approximately $6.7 million for the year ended December 31, 2019. Rental
properties depreciation and expenses increased by $470 thousand during 2020.
"Other expenses" increased by approximately $0.8 million, due primarily to
approximately $1.4 million in expenses related to the Merger Agreement.

Years Ended December 31, 2019 and 2018


The discussion comparing the results of operations for the years ended December
31, 2019 and December 31, 2018 can be found in, and is incorporated herein by
reference to, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Years Ended December 31, 2019 and 2018," of
our   Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Financial Condition

MBS Portfolio

At December 31, 2020, we held Agency MBS which had an amortized cost of
approximately $1.56 billion, consisting primarily of approximately $0.5 billion
of adjustable-rate MBS and approximately $1.06 billion of fixed-rate MBS. This
amount represents a decrease of approximately 55% from the $3.46 billion held at
December 31, 2019. This decrease was due primarily to paydowns and sales of the
portfolio. At December 31, 2020, as our Non-Agency MBS are now designated as
trading securities, they had a carrying value and a fair value of approximately
$206.9 million. At December 31, 2019, the Non-Agency MBS had an amortized cost
of approximately $613.6 million, a fair value of approximately $643.6 million,
and a contractually required principal of approximately $801.9 million. Due to
the COVID-19 coronavirus pandemic, there was much volatility in the markets, and
we sold a substantial portion of our Agency MBS and Non-Agency MBS portfolios
during March and April 2020 to reduce leverage, maintain adequate liquidity,
pay-down the balances on our repurchase agreements, and preserve
over-collateralization for our repurchase agreements.



The following table presents a schedule of our MBS at fair value owned at December 31, 2020 and December 31, 2019 as classified by type of issuer:



                                                    December 31, 2020                    December 31, 2019
                                                    Fair          Portfolio              Fair          Portfolio
Agency                                             Value          Percentage            Value          Percentage
                                               (in thousands)                       (in thousands)
Fannie Mae (FNM)                              $      1,067,375          58.3 %     $      2,617,084          63.0 %
Freddie Mac (FHLMC)                                    556,979          30.4                892,967          21.5
Non-Agency MBS                                         206,933          11.3                643,610          15.5
Total MBS                                     $      1,831,287         100.0 %     $      4,153,661         100.0 %


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The following table classifies our portfolio of MBS owned at December 31, 2020 and December 31, 2019 by type of interest rate index:



                                                    December 31, 2020                    December 31, 2019
                                                    Fair          Portfolio              Fair          Portfolio
Index                                              Value          Percentage            Value          Percentage
                                               (in thousands)                       (in thousands)
Agency MBS:
One-month LIBOR                               $            322             - %     $            386             - %
Six-month LIBOR                                          1,069           0.1                  1,426             -
One-year LIBOR                                         495,532          27.1                767,275          18.5
Six-month certificate of deposit                           147             -                    297             -
One-year constant maturity treasury                     12,801           0.7                 17,552           0.4
Cost of Funds Index                                      1,757           0.1                  2,532           0.1
15-year fixed-rate                                      34,755           1.9                 48,226           1.2
20-year fixed-rate                                     156,369           8.5                194,577           4.7
30-year fixed-rate                                     921,602          50.3              2,477,780          59.6
Total Agency MBS                              $      1,624,354          88.7 %     $      3,510,051          84.5 %
Non-Agency MBS                                         206,933          11.3                643,610          15.5
Total MBS                                     $      1,831,287         100.0 %     $      4,153,661         100.0 %



The fair values indicated do not include interest earned but not yet paid. With
respect to our hybrid adjustable-rate Agency MBS, the fair value of these
securities appears on the line associated with the index based on which the
security will eventually reset once the initial fixed interest rate period has
expired. The fair value of our MBS is reported to us independently, either from
third-party pricing services or from dealers who are major financial
institutions and are considered to be market makers for these types of
instruments. For more detail on the fair value of our MBS, see Note 9, "Fair
Values of Financial Instruments," to the accompanying audited consolidated
financial statements.

Agency MBS

The weighted average coupon and average amortized cost of our Agency MBS at December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019 were as follows:


                                        December 31,        September 30,        June 30,        March 31,      December 31,
                                            2020                 2020              2020            2020             2019
Agency MBS Portfolio:
Weighted Average Coupon:
Adjustable-rate Agency MBS                       2.80 %               3.16 %          3.47 %          3.78 %            3.95 %
Hybrid adjustable-rate Agency MBS                2.73                 2.74            2.76            2.78              2.78
15-year fixed-rate Agency MBS                    3.50                 3.50            3.50            3.50              3.50
20-year fixed-rate Agency MBS                    3.56                 3.56            3.56            3.56              3.56
30-year fixed-rate Agency MBS                    3.61                 4.00            4.00            3.79              3.56
Total Agency MBS                                 3.34 %               3.58 %          3.66 %          3.64 %            3.54 %
Average Amortized Cost:
Adjustable-rate Agency MBS                     101.99 %             102.02

% 102.16 % 101.96 % 102.04 % Hybrid adjustable-rate Agency MBS

              101.30               101.51          101.84          102.09            102.11
15-year fixed-rate Agency MBS                  101.50               101.51          101.72          101.75            101.81
20-year fixed-rate Agency MBS                  103.28               103.35          103.76          103.83            103.96
30-year fixed-rate Agency MBS                  102.81               102.23          102.51          102.54            102.33
Total Agency MBS                               102.49 %             102.18 %        102.44 %        102.47 %          102.35 %
Current yield on Agency MBS
(weighted average coupon divided by
average amortized cost)                          3.26 %               3.51 %          3.57 %          3.56 %            3.46 %




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At December 31, 2020 and December 31, 2019, the unamortized net premium paid for our Agency MBS was approximately $37.8 million and $79.4 million, respectively.


At December 31, 2020, the current yield on our Agency MBS decreased to 3.26%
from 3.46% at December 31, 2019. This was due primarily to the decrease in the
weighted average coupon. As noted in the trend above, the weighted average
coupon has decreased by approximately 20 basis points from December 31, 2019.
During the three months ended December 31, 2020, the weighted average coupon for
our total Agency MBS decreased by 24 basis points, due primarily to the decrease
in the coupon on 30-year fixed-rate MBS. One of the factors that also impact the
reported yield on our MBS portfolio is the actual prepayment rate on the
underlying mortgages. We analyze our MBS and the extent to which prepayments
impact the yield. When the rate of prepayments exceeds expectations, we amortize
the premiums paid on mortgage assets over a shorter time period, resulting in a
reduced yield to maturity on our mortgage assets. Conversely, if actual
prepayments are less than the assumed constant prepayment rate, the premium
would be amortized over a longer time period, resulting in a higher yield to
maturity.

Non-Agency MBS
Non-Agency MBS yields are based on our estimate of the timing and amount of
future cash flows and our cost basis. Our cash flow estimates for these
investments are based on our observations of current information and events and
include assumptions related to interest rates, prepayment rates and the timing
and amount of credit losses and other factors.

Non-Agency MBS include the following types of securities:

Legacy Non-Agency MBS - These are collateralized by loans that were generally

originated prior to the 2008 financial crisis and, therefore, trade at a deep

? discount due to having experienced high levels of defaults by the underlying

borrowers. While these underlying loans will generally experience losses, the

securities were generally acquired at deep discounts to face/par value, which

   we believe serves to mitigate this potential exposure to credit risk;


   Non-performing - These are collateralized by loans that were generally

originated prior to 2008 and have been repackaged into newer securitization

pools. They may or may not be currently non-performing or delinquent but there

? is a higher expectation of loss on these loans. Resolution of these loans

typically occurs from loan modifications, short sales, and foreclosures. These

loan pools usually have a greater degree of overcollateralization to support

the securities; and

Credit Risk Transfer - These securities are designed to synthetically transfer

mortgage credit risk from Fannie Mae, Freddie Mac, and other issuers to private

? investors. As loans default, the securities may incur principal write-downs.

These are allocated to the tranches within a deal according to the cash flow

structure of the securities.

At March 31, 2020, our Non-Agency MBS were designated as trading securities and are carried at fair value.


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The following table summarizes our Non-Agency MBS portfolio by type at December 31, 2020 and December 31, 2019:

December 31, 2020


                                                 Weighted Average
                               Fair                        Fair Market
Portfolio Type                Value          Coupon           Price
                          (in thousands)
Legacy Non-Agency MBS    $        101,149      5.21 %    $       62.57
Non-performing                      9,860      6.35              98.60
Credit Risk Transfer               95,924      4.12             101.20
Total Non-Agency MBS     $        206,933      4.86 %    $       77.67




December 31, 2019


                                                                                Weighted Average
                                Fair       Amortized      Contractual     Amortized
Portfolio Type                  Value         Cost         Principal        Cost       Coupon    Yield

                                           (in thousands)
Legacy Non-Agency MBS         $ 497,408    $  477,786    $     655,447         72.9 %    5.52 %    5.49 %
Non-performing                   11,052        10,938           11,000         99.4      5.50      6.05
Credit Risk Transfer            135,150       124,852          135,489         92.2      4.20      5.80
Total Non-Agency MBS          $ 643,610    $  613,576    $     801,936         76.5 %    5.30 %    5.56 %




Financing

The following information pertains to our repurchase agreement borrowings at December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and December 31, 2018:


                              December 31,       September 30,       June 30,      March 31,       December 31,       December 31,
                                  2020                2020             2020           2020             2019               2018

                                                                  (dollar amounts in thousands)
Total repurchase
agreements outstanding       $     1,470,620    $      1,464,593    $ 1,697,181    $ 2,473,134    $     3,657,873    $     3,811,627
Average repurchase
agreements outstanding
during the quarter           $     1,400,044    $      1,587,115    $ 1,919,736    $ 3,476,576    $     3,322,672    $     3,891,158
Average repurchase
agreements outstanding
during the year              $     2,106,400    $            N/A    $      

N/A $ N/A $ 3,516,634 $ 4,110,250 Maximum monthly amount during the quarter

           $     1,470,620    $      1,621,431    $ 

1,847,853 $ 3,607,774 $ 3,657,873 $ 3,914,585 Maximum monthly amount during the year

              $     3,607,774    $            N/A    $       N/A    $       N/A    $     4,214,226    $     4,357,754
Average interest rate on
outstanding repurchase
agreements                              0.33 %              0.35 %         0.39 %         1.86 %             2.07 %             2.67 %
Average days to maturity             30 days             26 days        23 days        29 days            28 days            32 days
Average interest rate
after adjusting for
interest rate swaps                     1.38 %              1.44 %         1.24 %         2.15 %             2.13 %             2.23 %
Weighted average maturity
after adjusting for
interest rate swaps               1,047 days          1,091 days       983 days       859 days           978 days         1,217 days


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At December 31, 2020, the repurchase agreements had the following balances, weighted average interest rates, and remaining weighted average maturities:


                                          Agency MBS                       Non-Agency MBS                       Total MBS
                                                     Weighted                           Weighted                           Weighted
                                                     Average                            Average                            Average
                                                     Interest                           Interest                           Interest
                                     Balance           Rate             Balance           Rate             Balance           Rate
                                  (in thousands)                     (in thousands)                     (in thousands)
Overnight                        $              -           - %     $              -           - %     $              -           - %
Less than 30 days                         710,000        0.21                 48,936        2.01                758,936        0.32
30 days to 90 days                        655,000        0.21                 56,684        1.85                711,684        0.34
Over 90 days                                    -           -                      -           -                      -           -
Demand                                          -           -                      -           -                      -           -
                                 $      1,365,000        0.21 %     $        105,620        1.92 %     $      1,470,620        0.33 %
Weighted average maturity                 29 days                            49 days                            30 days
Weighted average interest
rate after adjusting for
interest rate swaps                                                                                                1.38 %
Weighted average maturity
after adjusting for interest
rate swaps                                                                                                   1,047 days
MBS pledged as collateral
under the repurchase
agreements and interest rate
swaps                            $      1,437,565                   $        166,140                   $      1,603,705



At December 31, 2019, the repurchase agreements had the following balances, weighted average interest rates, and remaining weighted average maturities:


                                           Agency MBS                        Non-Agency MBS                       Total MBS
                                                      Weighted                            Weighted                           Weighted
                                                      Average                             Average                            Average
                                                      Interest                            Interest                           Interest
                                      Balance           Rate              Balance           Rate             Balance           Rate
                                   (in thousands)                      (in thousands)                     (in thousands)
Overnight                         $              -           - %      $              -           - %     $              -           - %
Less than 30 days                        1,680,000        2.04                 427,873        2.80              2,107,873        2.20
30 days to 90 days                       1,550,000        1.89                       -           -              1,550,000        1.89
Over 90 days                                     -           -                       -           -                      -           -
Demand                                           -           -                       -           -                      -           -
                                  $      3,230,000        1.97 %      $        427,873        2.80 %     $      3,657,873        2.07 %
Weighted average maturity                  30 days                             11 days                            28 days
Weighted average interest rate
after adjusting for interest
rate swaps                                                                                                           2.13 %
Weighted average maturity
after adjusting for interest
rate swaps                                                                                                       978 days
MBS pledged as collateral
under the repurchase
agreements and interest rate
swaps                             $      3,419,375                    $        535,315                   $      3,954,690




The average interest rate on outstanding repurchase agreements, after adjusting
for interest rate swap transactions, decreased from 2.13% at December 31, 2019
to 1.38% at December 31, 2020. The decrease was due primarily to a reduction in
the repurchase agreement weighted average interest rate, from 2.07% at December
31, 2019 to 0.33% at December 31, 2020. The weighted average term to next rate
adjustment after adjusting for interest rate swap transactions increased from
978 days at December 31, 2019 to 1,047 days at December 31, 2020. This was due
primarily to the increase in the weighted average maturity of the swap
agreements, as shown in the table under "Hedging Strategies."

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Residential Mortgage Loans Held-for-Securitization

At December 31, 2020, we owned approximately $109.3 million of residential
mortgage loans which are being held until we have a sufficient quantity for
securitization. Non-QM loans do not comply with the rules of the Consumer
Financial Protection Bureau, or the CFPB, relating to Qualified Mortgages.
Post-crisis, the CFPB issued rules on what is required for a loan to be
qualified as a Qualified Mortgage, or QM. These rules have certain requirements,
such as debt-to-income ratio, being fully-amortizing, and limits on loan fees.
Non-QM loans do not comply with at least one of these requirements, but that
does not necessarily imply that they carry more risk. Even though these loans
may not have traditional documentation of income, such as a Form W-2 or
paychecks, they generally have stated income and may have alternate
documentation, such as bank statements, CPA letters, or tax returns. The loans
we are acquiring have high FICO scores, as well as other strong borrower
attributes, which are factors we analyze in making acquisitions. See Note 4,
"Residential Mortgage Loans Held-for-Securitization," to our accompanying
audited consolidated financial statements for more information regarding the
residential mortgage loans held-for-securitization.

These loans are financed by a warehouse line of credit. In July 2020, we entered
into a new agreement with the same lender to renew the line of credit in the
amount of $300 million and a term of one year. At December 31, 2020, the amount
outstanding on this line of credit (including warehouse transaction costs) was
$90.2 million. The interest rate on the amounts advanced under this line of
credit is at LIBOR + 3.00%, which was 3.50% at December 31, 2020. Additionally,
we paid a facility fee on this line of credit for the first six months of 2020,
which was approximately $375 thousand. Under the terms of the new agreement, the
facility fee was terminated, and we now pay a funding fee of 0.50% on new
advances under this line of credit with a minimum fee of $150 thousand per
quarter. During the year ended December 31, 2020, this funding fee was $300
thousand. Various fees plus legal fees paid to secure this line of credit are
being amortized over one year. See Note 9, "Fair Values of Financial
Instruments," to the accompanying audited consolidated financial statements for
more information regarding the fair value of these investments and their related
financing.

Residential Mortgage Loans Held-for-Investment Through Consolidated Securitization Trusts

At December 31, 2020, we owned approximately $8.7 million in net interests on
certain securitization trusts. The underlying mortgage loans held in the
securitization trusts (classified as residential mortgage loans
held-for-investment through consolidated securitization trusts) and the related
financing (asset-backed securities issued by the securitization trusts) are
consolidated on our consolidated balance sheets and are carried at cost. See
Note 5, "Variable Interest Entities," to the accompanying audited consolidated
financial statements for more information regarding consolidation of the
securitization trusts. See Note 9, "Fair Values of Financial Instruments," to
the accompanying audited consolidated financial statements for more information
regarding the fair value of these investments and their related financing.

Residential Properties Portfolio


At December 31, 2020, we owned 82 single-family residential properties which are
all located in Southeastern Florida and are carried at a total cost, net of
accumulated depreciation, of approximately $12.7 million. During the year ended
December 31, 2020, we sold three properties for a gain of approximately $201
thousand. At December 31, 2019, we owned 85 single-family residential properties
which are all located in Southeastern Florida and were carried at a total cost,
net of accumulated depreciation, of approximately $13.5 million. During the year
ended December 31, 2019, we sold one of our residential properties for a gain of
approximately $31 thousand.

Hedging Strategies

As we intend to hedge our exposure to rising rates on funds borrowed to finance
our investments in securities, we periodically enter into derivative
transactions, primarily in the form of interest rate swaps. We designate
interest rate swaps as cash flow hedges for tax purposes. To the extent that we
enter into hedging transactions to reduce our interest rate risk on indebtedness
incurred to acquire or carry real estate assets, any income or gain from the
disposition of hedging transactions should be qualifying income under the REIT
rules for purposes of the 75% and 95% gross income

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test. To qualify for this exclusion, the hedging transaction must be clearly identified as such before the close of the day on which it was acquired, originated or entered into.

As part of our asset/liability management policy, we may enter into hedging
agreements, such as interest rate swaps. These agreements are entered into to
try to reduce interest rate risk and are designed to provide us with income and
capital appreciation in the event of certain changes in interest rates. We
review the need for hedging agreements on a regular basis consistent with our
capital investment policy. Interest rate swaps are derivative instruments as
defined by ASC 815-10. We do not anticipate entering into derivative
transactions for speculative or trading purposes. In accordance with the swap
agreements, we pay a fixed-rate of interest during the term of the interest rate
swaps and we receive a payment that varies with the three-month LIBOR rate.

The following table pertains to all of our interest rate swaps at each quarter-end for the years ended December 31, 2020 and December 31, 2019:


                                                            Year Ended December 31, 2020                              Year Ended December 31, 2019
                                                Q4              Q3              Q2               Q1            Q4           Q3           Q2           Q1
Aggregate notional amount of interest                                      
                                   $2.501       $2.191       $2.956       $3.356
rate swaps(1)                              $715 million    $765 million    $915 million    $1.276 billion     billion      billion      billion      billion
Average maturity of interest rate
swaps                                         5.9 years       5.8 years       5.1 years         4.6 years   4.0 years    3.9 years    3.6 years    3.9 years
Weighted average fixed-rate paid on
interest rate swaps                                2.38 %          2.34 %          2.23 %            2.10 %      2.02 %       2.08 %       2.09 %       2.13 %

(1) This table excludes $162.5 million in notional amount of OIS swaps that we

received in the transition from LIBOR to OIS rates.



Interest rate swaps are used to provide protection from increases in interest
rates having a negative impact on the market value of our portfolio that could
result in our lenders requiring additional collateral for our repurchase
agreement borrowings. An increase or decrease in the notional value of these
agreements or contracts usually provides an increase or decrease in protection
to our portfolio's change in value due to interest rate changes. However, there
are other methods that can also lessen our portfolio's change in value due to
interest rate increases. Among them are acquiring mortgages that are inherently
less sensitive to interest rate changes and borrowings using long-term
agreements.

After August 22, 2014, none of our interest rate swaps were designated for hedge
accounting. For both terminated interest rate swaps and the de-designated
interest rate swaps, as long as there is the probability that the forecasted
transactions that were being hedged (i.e., rollovers of our repurchase agreement
borrowings) are still expected to occur, the amount of the gain or loss in AOCI
remains in AOCI and is amortized over the remaining term of the interest rate
swaps. At December 31, 2020, the net unrealized loss in AOCI on the interest
rate swaps was approximately $4.3 million, as compared to an unrealized loss of
approximately $7.6 million at December 31, 2019.

At December 31, 2020, we had approximately $700 million in notional amount of
TBA Agency MBS, as compared to approximately $250 million in notional amount of
TBA Agency MBS at December 31, 2019.

For more information on the amounts, policies, objectives and other qualitative
data on our derivatives, see Notes 1, 9, and 15 to the accompanying consolidated
financial statements.

Liquidity and Capital Resources

Agency MBS and Non-Agency MBS Portfolios

Our primary source of funds consists of repurchase agreements which totaled
$1.47 billion at December 31, 2020. As collateral for the repurchase agreements
and interest rate swaps, we had pledged approximately $1.44 billion in Agency
MBS and approximately $166 million in Non-Agency MBS. Our other significant
sources of funds for the year ended December 31, 2020 consisted of payments of
principal from our MBS portfolios in the amount of $825.8 million and proceeds
from the sales of MBS of approximately $1.7 billion.

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For the year ended December 31, 2020, there was a net increase in cash, cash
equivalents, and restricted cash of approximately $32.2 million. This consisted
of the following components:

Net cash provided by operating activities for the year ended December 31, 2020

was approximately $62.1 million. This is comprised primarily of a net loss of

$103.7 million and adding back or subtracting the following non-cash items: the

amortization of premium and discounts on Agency MBS of approximately $24.6

million; accretion of discounts on Non-Agency MBS of approximately $1.3

million; depreciation on rental properties of $476 thousand; amortization of

premium on residential loans of $1.3 million; a realized net loss on sales of

available-for-sale Non-Agency MBS of approximately $55.4 million; provision for

loan losses of $0.7 million; a loss on interest rate swaps of approximately

$102.4 million; the amortization of restricted stock of $16 thousand; and a net

loss on Non-Agency MBS held as trading investments of approximately $15.5

? million, partially offset by net settlements on interest rate swaps, net of

amortization, of approximately $7.6 million; a gain on derivatives, net of

derivative income on TBA Agency MBS, of approximately $28.8 million; a realized

gain on sales of available-for-sale Agency MBS of approximately $15.8 million;

a net gain on Trading Agency MBS of approximately $3.6 million; a gain on sale

of residential properties of $201 thousand; and accretion of discount on

residential mortgage loans of approximately $116 thousand. Net cash provided by

operating activities also included a decrease in interest receivable of

approximately $5.7 million; a decrease in reverse repurchase agreements of

approximately $15 million; and a decrease in prepaid expenses of approximately

$10.6 million, partially offset by a decrease in accrued interest payable of

approximately $6.5 million and a decrease in accrued expenses of approximately

$4.6 million;

Net cash provided by investing activities for the year ended December 31, 2020

was approximately $2.27 billion, which consisted of $825.8 million from

principal payments on MBS; proceeds from sales of MBS of approximately $1.7

billion; payments on residential mortgage loans held-for-investment through

? consolidated securitization trusts of approximately $141 thousand; principal

payments on loans held-for-securitization of $41.4 million; and sales of

residential properties of approximately $662 thousand, partially offset by

purchases of MBS of approximately $0.3 billion; purchases of residential

mortgage loans held-for-securitization of approximately $4.8 million; and

improvements on residential properties of approximately $257 thousand; and

Net cash (used in) financing activities for the year ended December 31, 2020

was approximately $2.3 billion. This consisted of borrowings on repurchase

agreements of approximately $17.6 billion, offset by repayments on repurchase

agreements of approximately $19.8 billion; proceeds from sales of common stock

? of approximately $0.8 million; net settlements on TBA Agency MBS of

approximately $22 million; and derivative counterparty margin of $4.9 million,

partially offset by repayments on the warehouse line of credit of $43.9

million; dividends paid of $23.8 million on common stock; dividends paid of

approximately $9.2 million on preferred stock; and termination of interest rate

swaps of $62.9 million.



At December 31, 2020, our leverage (excluding the ABS issued by securitization
trusts) on total capital (including all preferred stock and junior subordinated
notes) decreased from 6.2x at December 31, 2019 to 3.4x at December 31, 2020.
The decrease in our leverage was due primarily to a decrease in repurchase
agreements and credit line outstanding, from $3.79 billion at December 31, 2019
to $1.56 billion at December 31, 2020, partially offset by a decrease in our
total capital (as described above), from $609.4 million at December 31, 2019 to
$465.9 million at December 31, 2020.

In the future, we expect that our primary sources of funds will continue to
consist of borrowed funds under repurchase agreement transactions and of monthly
payments of principal and interest on our MBS portfolios. Our liquid assets
generally consist of unpledged MBS, cash and cash equivalents. A large negative
change in the market value of our MBS might reduce our liquidity, requiring us
to sell assets with the likely result of realized losses upon sale.

During the year ended December 31, 2020, we raised approximately $763 thousand in capital under our Dividend Reinvestment and Stock Purchase Plan.

At December 31, 2020, our authorized capital included 20 million shares of $0.01 par value preferred stock, which we have classified as Series A Cumulative Preferred Stock, or Series A Preferred Stock, Series B Cumulative


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Convertible Preferred Stock, or Series B Preferred Stock, and Series C Cumulative Redeemable Preferred Stock, or Series C Preferred Stock.

On August 10, 2016, we entered into an At Market Issuance Sales Agreement, or
the FBR Sales Agreement, with FBR Capital Markets & Co., or FBR, pursuant to
which we may offer and sell from time to time through FBR, as our agent, up to
$196,615,000 maximum aggregate amount of our common stock, Series B Preferred
Stock, and Series C Preferred Stock, in such amounts as we may specify by notice
to FBR, in accordance with the terms and conditions set forth in the FBR Sales
Agreement. During the year ended December 31, 2020, we did not sell any shares
of stock under the FBR Sales Agreement. At December 31, 2020, there was
approximately $152.7 million available for sale and issuance under the FBR Sales
Agreement.

On October 3, 2011, we announced that our Board had authorized a share
repurchase program which permitted us to acquire up to 2,000,000 shares of our
common stock. The shares are expected to be acquired at prevailing prices
through open market transactions. Our Board also authorized the Company to
purchase an amount of our common stock up to the amount of common stock sold
through our Dividend Reinvestment and Stock Purchase Plan. Subsequently, our
Board authorized the Company to acquire an aggregate of an additional 45,000,000
shares (pursuant to six separate authorizations) between December 13, 2013 and
January 22, 2016. In December 2019, our Board decided to no longer include the
amount of common stock sold through our Dividend Reinvestment and Stock Purchase
Plan as an amount of stock available for repurchase. During the year ended
December 31, 2020, we did not repurchase any shares of our common stock under
our share repurchase program.

Disclosure of Contractual Obligations


The following table represents the contractual obligations of the Company at
December 31, 2020:


                                                           Less Than                                    More Than
                                              Total         1 Year        1-3 Years      3-5 Years       5 Years

                                                                       (in thousands)
Repurchase agreements(1)                   $ 1,470,620    $ 1,470,620    $         -    $         -    $         -
Warehouse line of credit                        90,185         90,185              -              -              -
Junior subordinated notes(2)                    37,380              -              -              -         37,380
Lease commitment                                   822            545            277              -              -
Total                                      $ 1,599,007    $ 1,561,350    $       277    $         -    $    37,380

(1) These represent amounts due by maturity.

These represent amounts due by contractual maturity. However, we do have the (2) option to redeem these as more fully described in Note 8, "Junior

Subordinated Notes," to the accompanying audited consolidated financial

    statements.


Stockholders' Equity

We use available-for-sale treatment for most of our Agency MBS, which are
carried on our consolidated balance sheets at fair value rather than historical
cost. Based upon this treatment, our total equity base at December 31, 2020 was
$409.0 million. Common stockholders' equity was approximately $310.8 million, or
a book value of $3.13 per common share. Common stockholders' equity serves as
the basis for how book value per common share is calculated.

Under our available-for-sale accounting treatment used for most of our MBS,
unrealized fluctuations in fair values of assets are assessed to determine
whether they are other-than-temporary. To the extent we determine that these
unrealized fluctuations are not other-than-temporary, they do not impact GAAP
income or taxable income but rather are reflected on our consolidated balance
sheets by changing the carrying value of the assets and reflecting the change in
the "Stockholders' Equity" section under "Accumulated other comprehensive
income, unrealized gain (loss) on available-for-sale securities."

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As a result of this mark-to-market accounting treatment, our book value and book
value per share are likely to fluctuate far more than if we used historical
amortized cost accounting on all of our assets. As a result, comparisons with
some companies that use historical cost accounting for all of their balance
sheets may not be meaningful.

Unrealized changes in the fair value of MBS have one significant and direct
effect on our potential earnings and dividends: positive fair value changes will
increase our equity base and allow us to increase our borrowing capacity, while
negative changes will tend to reduce borrowing capacity under our capital
investment policy. A very large negative change in the net market value of our
MBS might reduce our liquidity, requiring us to sell assets with the likely
result of realized losses upon sale. "Accumulated other comprehensive income,
unrealized gain" on available-for-sale Agency MBS was approximately $58.8
million, or 4.06% of the amortized cost of our Agency MBS, at December 31, 2020.
This, along with "Accumulated other comprehensive loss, derivatives" of
approximately $4.3 million, constitutes the total "Accumulated other
comprehensive income consisting of unrealized gains and losses" of approximately
$54.5 million.

Non-GAAP Financial Measures Related to Operating Results

In addition to the Company's operating results presented in accordance with
GAAP, the following table includes the following non-GAAP financial measures:
core earnings (including per common share), TBA dollar roll income, and paydown
expense on Agency MBS. The table below reconciles the Company's net loss to
common stockholders for the year ended December 31, 2020 to core earnings for
the same period. Core earnings represents the net loss to common stockholders
(which is the nearest comparable GAAP measure) adjusted for the items shown in
the table below.

The Company's management believes that:

these non-GAAP financial measures are useful because they provide investors

? with greater transparency to the information that the Company uses in its

financial and operational decision-making process;

the inclusion of paydown expense on Agency MBS is more indicative of the

current earnings potential of the Company's investment portfolio, as it

reflects the actual principal paydowns which occurred during the period.

? Paydown expense on Agency MBS is not dependent on future assumptions on

prepayments or the cumulative effect from prior periods of any current changes

to those assumptions, as is the case with the GAAP measure, "Premium

amortization on Agency MBS";

? the adjustment for merger expenses, as these are not indicative of current

earnings potential; and

the presentation of these measures, when analyzed in conjunction with the

Company's GAAP operating results, allows investors to more effectively evaluate

? the Company's performance to that of its peers, particularly those that have

discontinued hedge accounting and those that have used similar portfolio and

derivative strategies.



These non-GAAP financial measures should not be used as a substitute for the
Company's operating results for the year ended December 31, 2020. An analysis of
any non-GAAP financial measure should be used in conjunction with results
presented in accordance with GAAP.

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Core Earnings


                                                                       Year Ended
                                                                    December 31, 2020
                                                                  Amount          Per Share
                                                              (in thousands)
Net (loss) to common stockholders                            $      (112,882)    $    (1.14)
Adjustments to derive core earnings:
Realized net (gain) on sales of Agency MBS                           (15,805)         (0.16)
Realized net loss on sales of Non-Agency MBS                           55,390           0.56
Net (gain) on Agency MBS held as trading investments                  (3,629)         (0.04)
Net loss on Non-Agency MBS held as trading securities                  15,537           0.16
Loss on interest rate swaps, net                                      106,334           1.07
(Gain) on derivatives-TBA Agency MBS, net                            (28,213)         (0.28)
(Gain) on sales of residential properties                               (201)              -
Net settlement on interest rate swaps after
de-designation(1)                                                    (11,539)         (0.12)
Dollar roll income on TBA Agency MBS(2)                                 8,514           0.09
Premium amortization on MBS                                            24,577           0.25
Paydown expense(3)                                                  

(22,092) (0.22) Depreciation expense and non-recurring expenses on residential rental properties

                                             891           0.01
Deferred payments on modifications/forbearance
agreements(4)                                                             301              -
Expenses related to the Merger Agreement(5)                             1,369           0.01
Core earnings                                                $         18,552    $      0.19
Basic weighted average number of shares outstanding                    

99,048

Net settlement on interest rate swaps after de-designation include all (1) subsequent net payments made on interest rate swaps which were de-designated

as hedges in August 2014 and are recorded in "Loss on interest rate swaps,

net."

Dollar roll income on TBA Agency MBS is the income resulting from the price (2) discount typically obtained by extending the settlement of TBA Agency MBS to

a later date. This is a component of the "Loss on derivatives, net" that is

shown on the Company's consolidated financial statements.

Paydown expense on Agency MBS represents the proportional expense of Agency (3) MBS purchase premiums relative to the Agency MBS principal payments and

prepayments which occurred during the three-month period.

(4) The Trustee reported these amounts as losses in the securitization trusts,

but these payments are due upon liquidation or maturity.

(5) Expenses related to the Merger Agreement are added back, as they are not

    indicative of earnings potential.



Critical Accounting Policies and Estimates

Management has the obligation to ensure that its policies and methodologies are in accordance with GAAP.

Management has reviewed and evaluated its critical accounting policies and believes them to be appropriate.




The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying audited consolidated financial
statements. In preparing these audited consolidated financial statements,
management has made its best estimates and judgments on the basis of information
then readily available to it of certain amounts included in the audited
consolidated financial statements, giving due consideration to materiality.
Application of these accounting policies involves the exercise of judgment and
use of assumptions as to future uncertainties and, as a result, actual results
could differ materially and adversely from these estimates.



Our accounting policies are described in Note 1, "Organization and Significant
Accounting Policies," to the accompanying audited consolidated financial
statements. Management believes the more significant of our accounting policies
are the following:



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Income Recognition

The most significant source of our income is derived from our investments in
Agency MBS. We reflect income using the effective yield method which, through
amortization of premiums and accretion of discounts at an effective yield,
recognizes periodic income over the estimated life of the investment on a
constant yield basis, as adjusted for actual prepayment activity and estimated
prepayments. Management believes our revenue recognition policies are
appropriate to reflect the substance of the underlying transactions.



Interest income on our Agency MBS is accrued based on the actual coupon rate and
the outstanding principal amounts of the underlying mortgages. Premiums and
discounts are amortized or accreted into interest income over the expected lives
of the securities using the effective interest yield method, adjusted for the
effects of actual prepayments and estimated prepayments based on ASC 320-10.



Our policy for estimating prepayment speeds for calculating the effective yield
is to evaluate historical performance, street consensus prepayment speeds and
current market conditions. If our estimate of prepayments is incorrect, we may
be required to make an adjustment to the amortization or accretion of premiums
and discounts that would have an impact on future income, which could be
material and adverse.



The vast majority of our Non-Agency MBS had previously been accounted for under "Loans and Debt Securities


Acquired with Credit Deterioration" (ASC 310-30). Under CECL, debt securities
previously accounted for as assets acquired with credit impairment (PCI) are
treated as assets acquired with credit deterioration (PCD). Under ASC 326,

PCD assets that are also available-for-sale debt securities follow the available-for-sale debt security impairment model.

This compares the fair value of a security with its amortized cost. If the fair
value of a security exceeds its amortized cost, there is no credit loss. If the
fair value of a security is less than its amortized cost, then the security is
impaired and further assessment needs to be done to determine if the decline in
fair value is due to a credit loss or to other factors. The first step in this
assessment process is for an entity to determine whether it had the intent to
sell the security, or the ability to hold the security until the expected
recovery of its amortized cost basis, or until maturity. If an entity did not
have either the intent or the ability to hold the security until the expected
recovery of the amortized cost basis, then the amortized cost basis is written
down to the debt security's fair value through earnings.



Upon the adoption of CECL at January 1, 2020, we reviewed those Non-Agency MBS
that were in an unrealized loss position to determine if there was any credit
loss. In our Annual Report on Form 10-K for the year ended December

31, 2019, we stated the following: "On the Non-Agency MBS that were in an unrealized loss position, at December 31,

2019, we did not expect to sell these Non-Agency MBS at a price less than the amortized cost basis of our investments.

Because the decline in market value on these Non-Agency MBS is attributable to
changes in interest rate and not the credit quality of the Non-Agency MBS in our
portfolio, and because we did not have the intent to sell these investments, nor
is it more likely than not that we will be required to sell these investments
before recovery of their amortized cost basis, which may be at maturity, we do
not consider these investments to be other-than-temporarily impaired." On

January 1, 2020, when we adopted CECL, we reviewed our assessment of the
Non-Agency MBS in an unrealized loss position at December 31, 2020, and
concluded that there was no credit loss on these securities. Our conclusion
included a review of factors such as the ratings of these securities by rating
agencies, the payment structure of these securities, whether the issuer has
continued to make payments of principal and interest, and review of prepayment
speeds, delinquency, and default rates.



At March 31, 2020, we changed the designation of our Non-Agency MBS from
available-for-sale securities to trading securities. The reason for this change
in designation was due to the negative effects on the economy resulting from the
COVID-19 coronavirus pandemic and the high volatility in the market for
Non-Agency MBS. Starting in the third week in March 2020, we began receiving
requests from our repurchase agreement counterparties for margin calls,
increases in the haircuts (the amount of coverage on the collateral securing the
repurchase agreement financing), and higher interest rates. This all resulted
from the perceived damage to the economy from the COVID-19 coronavirus pandemic.
After the Federal Reserve stepped in and supported the Agency MBS market, the
prices for Agency MBS stabilized. The Non-Agency MBS market was still volatile
(with non-agency prices continuing to decline). We sold a substantial portion of
our Non-Agency MBS in order to reduce leverage, maintain adequate liquidity,
pay-down the balances on our repurchase agreement borrowings, and preserve
over-collateralization for our repurchase agreement

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lenders. Due to the high volatility in the market for Non-Agency MBS, and the
more restrictive terms by our repurchase agreement counterparties on these
securities, we felt that we could no longer state that we had the intent and the
ability to hold these securities until recovery of their amortized cost basis,
or until maturity. Therefore, we changed the designation of these securities to
trading securities as of March 31, 2020. Once an entity elects to classify a
security as a trading security, it should be prepared to maintain that
classification until the security is sold or matures.

Transfer of securities from available-for-sale to trading securities means that
the unrealized gains and losses that were in accumulated other comprehensive
income are reported through earnings as unrealized gains or losses as of the
date of the change in designation. Trading securities are subsequently measured
at fair value, with the changes in fair value reported in income in the period
the change occurs.


Interest income on the Non-Agency MBS that were purchased at a discount to par
value, and were rated below AA at the time of purchase, was previously
recognized based on the security's effective interest rate. The effective
interest rate on these securities was based on the projected cash flows from
each security, which was estimated based on our observation of current
information and events, and include assumptions related to interest rates,
prepayment rates, and the timing and amount of credit losses. On at least a
quarterly basis, we reviewed and, if appropriate, made adjustments to our cash
flow projections based on input and analysis received from external sources,
internal models, and our judgment about interest rates, prepayment rates, the
timing and amount of credit losses, and other factors. Changes in cash flows
from those originally projected, or from those estimated at the last evaluation,
resulted in a prospective change in the yield/interest income recognized on such
securities. Actual maturities of these Non-Agency MBS were affected by the
contractual lives of the associated mortgage collateral, periodic payments of
principal, and prepayments of principal. Therefore, actual maturities of these
securities are generally shorter than stated contractual maturities. Stated
contractual maturities are generally greater than ten years. At March 31, 2020,
we designated our Non-Agency MBS as trading securities. On a prospective basis,
interest income is recognized based on the actual coupon rate and the
outstanding principal amount. Securities transactions are recorded on the date
the securities are purchased or sold. Realized gains or losses from securities
transactions are determined based on the specific identified cost of the
securities.



Valuation and Classification of Investment Securities

We carry our investment securities on our consolidated balance sheets at fair value. The fair values of our Agency


MBS are primarily based on third party bid price indications provided by
independent third-party pricing services. If, in the opinion of management, one
or more securities prices reported to us are not reliable or unavailable,
management reviews the fair value based on characteristics of the security it
receives from the issuer and available market information. The fair values
reported reflect estimates and may not necessarily be indicative of the amounts
we could realize in a current market exchange. We review various factors (i.e.,
expected cash flows, changes in interest rates, credit protection, etc.) in
determining whether and to what extent an other-than-temporary impairment
exists. The unrealized losses on our Agency MBS were primarily caused by
fluctuations in interest rates due to market volatility resulting from the
COVID-19 coronavirus pandemic and its negative effect on the economy, and not
due to credit quality. At December 31, 2020, we did not have the intent to sell
these investments, nor is it more likely than not that we will be required to
sell these investments before recovery of their amortized cost basis, which may
be at maturity. The payments of principal and interest on these securities are
guaranteed by Fannie Mae and Freddie Mac, which are under the conservatorship of
the U.S. government. Accordingly, there is zero loss expectation on these
securities, and no allowance for credit losses has been recorded. Assets
classified as trading investments are reported at fair value with unrealized
gains and losses included in our consolidated statements of operations. For more
detail on the fair value of our Agency MBS, see Note 9, "Fair Values of
Financial Instruments," to the accompanying audited consolidated financial
statements.



In determining the fair value of our Non-Agency MBS, management considers a
number of observable market data points, including pricing from independent
pricing services, prices obtained from well-known major financial brokers that
make markets in these instruments, and timely trading activity in the
marketplace. Management reviews these inputs in the valuation of our Non-Agency
MBS. We understand that in order to determine the fair market value of a
security, market participants not only consider the characteristics of the type
of security and its underlying collateral but also take into consideration the
historical performance data of the underlying collateral of that security
including loan delinquency, loan losses and credit enhancement. In addition, we
also collect and consider current market intelligence on

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all major markets, including benchmark security evaluations and bid list results
from various sources. Upon the adoption of CECL on January 1, 2020, the
unrealized losses on our investments in Non-Agency MBS were primarily caused by
fluctuations in interest. We purchased the Non-Agency MBS primarily at a
discount relative to their face value. At

March 31, 2020, we designated these securities as trading securities, and they are carried at fair value. See the section on

Non-Agency MBS under the caption, "Mortgage-Backed Securities," in Significant Accounting Policies in Note 1, "Organization and Significant Accounting Policies," to the accompanying audited consolidated financial statements.

Our MBS are valued using various market data points as described above, which management considers to be directly or indirectly observable parameters. Accordingly, our MBS are classified as Level 2 in the fair value hierarchy.

Residential Mortgage Loans Held-for-Securitization

Residential mortgage loans held-for-securitization are held at our wholly-owned subsidiary, Anworth Mortgage


Loans, Inc., in connection with our intent to sponsor our own securitizations.
Loans purchased with the intent to securitize are recorded on the trade date.
Any fees associated with acquiring the loans held-for-securitization, as well as
any premium paid to acquire the loans, are deferred. These are included in the
loan balance and amortized using the effective interest yield method. Upon
securitization, the costs of securitization such as underwriting fees, legal
fees, and accounting fees are added to the loan balances and amortized using the
effective interest yield method. Interest income is recorded as revenue when
earned and deemed collectible or until a loan becomes more than 90 days' past
due, at which point the loan is placed on non-accrual status. When a non-accrual
loan has been cured, meaning when all delinquent principal and interest have
been remitted by the borrower, the loan is placed back on accrual status.
Alternatively, nonaccrual loans may be placed back on accrual status after the
loan is considered re-performing, generally when the loan has been current for 6
months. The estimates for the allowance for loan losses require consideration of
various observable inputs including, but not limited to, historical loss
experience, delinquency status, borrower credit scores, geographic
concentrations and loan-to-value ratios, and are adjusted for current economic
conditions as deemed necessary by management. Many of these factors are
subjective and cannot be reduced to a mathematical formula. In addition, since
we have not incurred any direct losses on our portfolio, we review national
historical credit performance information from external sources to assist in our
analysis. Changes in our estimates can significantly impact the allowance for
loan losses and provision expense. The allowance reflects management's best
estimate of the credit losses inherent in the loan portfolio at the balance
sheet date. It is also possible that we will experience credit losses that are
different from our current estimates or that the time of those losses may differ
from our estimates.



The residential mortgage loans held-for-securitization are financed by a
warehouse line of credit. Fees incurred in securing the credit line are deducted
from the amount outstanding under the line and are amortized to interest expense
over the term of the credit line. Under this borrowing facility, we make various
representations and warranties and the loans must also meet certain eligibility
criteria. We may be required to remove a loan from a warehouse line of credit.

We do not maintain a loan repurchase reserve, as any risk of loss due to loan
repurchase would normally be covered by recourse to the companies from which we
acquired the loans.


Residential Mortgage Loans Held-for-Investment Through Consolidated Securitization Trusts


Residential mortgage loans held-for-investment through consolidated
securitization trusts are carried at unpaid principal balance net of any
allowance for loan losses. These estimates for the allowance for loan losses
require consideration of various observable inputs including, but not limited
to, historical loss experience, delinquency status, borrower credit scores,
geographic concentrations and loan-to-value ratios, and are adjusted for current
economic conditions as deemed necessary by management. Many of these factors are
subjective and cannot be reduced to a mathematical formula. In addition, we
review national historical credit performance information from external sources
to assist in our analysis. Changes in our estimates can significantly impact the
allowance for loan losses and provision expense. The allowance reflects
management's best estimate of the credit losses inherent in the loan portfolio
at the balance sheet date. It is also possible that we will experience credit
losses that are different from our current estimates or that the time of those
losses may differ from our estimates.

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Accounting for Derivatives and Hedging Activities


In accordance with ASC 815, we recognize all derivatives as either assets or
liabilities and we measure these investments at fair value. Changes in fair
value for derivatives not designated as hedges are recorded in our consolidated
statements of operations as "(Loss) on derivatives, net."



In accordance with ASC 815-10, a derivative that is designated as a hedge is
recognized as an asset/liability and measured at estimated fair value. In order
for our interest rate swap agreements to qualify for hedge accounting, upon
entering into the swap agreement, we must anticipate that the hedge will be
highly "effective," as defined by ASC

815-10.




Prior to March 18, 2014 and August 22, 2014 (the dates when we de-designated our
interest rate swaps from hedge accounting), on the date we entered into a
derivative contract, we designated the derivative as a hedge of the variability
of cash flows that were to be received or paid in connection with a recognized
asset or liability (a "cash flow" hedge). Changes in the fair value of a
derivative that were highly effective and that were designated and qualified as
a cash flow hedge, to the extent that the hedge was effective, were recorded in
"other comprehensive income" and reclassified to income when the forecasted
transaction affected income (e.g., when periodic settlement interest payments
were due on repurchase agreements). The swap agreements were carried on our
consolidated balance sheets at their fair value based on values obtained from
large financial institutions who were market makers for these types of
instruments. Hedge ineffectiveness, if any, was recorded in current-period
income.



We formally assessed, both at the hedge's inception and on an ongoing basis,
whether the derivatives that were used in hedging transactions were highly
effective in offsetting changes in the cash flows of hedged items and whether
those derivatives were expected to remain highly effective in future periods. If
it was determined that a derivative was not (or ceased to be) highly effective
as a hedge, we discontinued hedge accounting.



When we discontinued hedge accounting, the gain or loss on the derivative
remained in "Accumulated other comprehensive income (loss)" and is reclassified
into income when the forecasted transaction affects income. In all situations in
which hedge accounting is discontinued and the derivative remains outstanding,
we carry the derivative at its fair value on our consolidated balance sheets,
recognizing changes in the fair value in current-period income. At

December 31, 2020, none of our derivative instruments were designated as hedges for accounting purposes.


For purposes of the cash flow statement, cash flows from derivative instruments
were classified with the cash flows from the hedged item. Cash flows from
derivatives that are not hedges are classified according to the underlying
nature or purpose of the derivative. For more detail on our derivative
instruments, see Notes 1, 9, and 15 to our accompanying audited consolidated
financial statements.



Income Taxes

Our financial results do not reflect provisions for current or deferred income
taxes. Management believes that we have and intend to continue to operate in a
manner that will allow us to be taxed as a REIT and, as a result, management
does not expect to pay substantial, if any, corporate level taxes. Many of these
requirements, however, are highly technical and complex. If we were to fail to
meet these requirements, we would be subject to federal income tax.



Recent and Recently Adopted Accounting Pronouncements

A description of recent and recently adopted accounting pronouncements, the date
adoption is required, and the impact on our consolidated financial statements is
contained in Note 1, "Organization and Significant Accounting

Policies," to the accompanying audited consolidated financial statements.

Government Activity

Developments Concerning Fannie Mae and Freddie Mac

Payments on the Agency MBS in which we invest are guaranteed by Fannie Mae and
Freddie Mac, which are stockholder corporations chartered by Congress with a
public mission to provide liquidity, stability, and affordability to

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the U.S. housing market. Since 2008, Fannie Mae and Freddie Mac have been
regulated by the Federal Housing Finance Agency, or the FHFA, the U.S.
Department of Housing and Urban Development, the SEC, and the U.S. Department of
the Treasury, or the U.S. Treasury, and are currently operating under the
conservatorship of the FHFA. The U.S. Treasury has agreed to support the
continuing operations of Fannie Mae and Freddie Mac with any necessary capital
contributions while in conservatorship. However, the U.S. government does not
guarantee the securities or other obligations of Fannie Mae or Freddie Mac.

Over the past several years, separate legislation has been introduced in both
houses of the U.S. Congress to wind-down or reform both of these agencies. None
of these bills have garnered enough support for a vote. It is currently unknown
if, and when, any of these bills would become law and, if they did, what impact
that would have on housing finance in general and what the impact would be on
the existing securities guaranteed by Fannie Mae and Freddie Mac, as well as the
impact on the pricing, supply, liquidity, and value of the MBS in which we
invest.

Actions of the Federal Reserve

The outbreak of the COVID-19 coronavirus pandemic has created unprecedented
economic disruption. In addition, measures to prevent the spread of the COVID-19
coronavirus have caused, and may continue to cause, substantial business
closures, travel restrictions, and self-isolation. Most state and local
governments, in coordination with the Federal government, have ordered people to
stay home and mandated non-essential businesses to close. Millions of people
have been laid off and have filed for unemployment benefits, potentially
affecting their ability to make payments on their mortgage, rent, or other debt.
In March 2020, the Federal Reserve took the following actions:



On March 15, 2020, the Federal Reserve Open Market Committee, or the FOMC,

? lowered the fed funds rate to a target range of 0% to 0.25%. At its January

2021 meeting, the FOMC did not make any changes to this rate;

The Federal Reserve increased holdings of U.S. Treasury securities by at least

? $500 billion and holdings of Agency MBS by at least $200 billion. It announced

   that it would also reinvest the principal from its holding into further
   acquisitions of Agency MBS;

The FOMC announced it would expand its overnight and term repurchase agreement

? operations by trillions of dollars, which was designed to stabilize these

markets;

The Federal Reserve, in coordination with the Bank of England, Bank of Canada,

Bank of Japan, the European Central Bank, and the Swiss National Bank,

announced a coordinated action to enhance liquidity via standing U.S. dollar

? liquidity swap line agreements. The new lower rate will be the U.S. Overnight

Index Swap, or the OIS, rate plus 25 basis points. This announcement is

designed to reduce stress in global funding markets and to mitigate the stress

on the supply of funds to households and businesses, both domestically and

   globally;


   The Federal Reserve enhanced the ability of banks and other financial

institutions to access the Fed discount window, which supports the liquidity

? and stability of the banking system and the effective implementation of the

monetary supply. The Fed primary credit rate was lowered by 150 basis points to

0.25%;

The Federal Reserve established a Commercial Paper Funding Facility to support

the flow of credit to consumers, such as through auto loans and mortgages, and

? to provide liquidity for the operational needs of a wide range of businesses.

The U.S. Treasury has committed $10 billion to the Federal Reserve for this

   facility; and


   Congress passed the $2.2 trillion CARES Act to provide, through the U.S.

Treasury and the Federal Reserve, aid to individuals and businesses. As part of

? this Act, lenders were encouraged to work with consumers struggling to make

their loan payments by offering forbearance of several months to any persons

   who requested such assistance.


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We cannot predict the economic impact of COVID-19 and the ultimate effect it
will have on our business, nor can we predict whether the actions of the Federal
Reserve, the U.S. government, state and local governments, and foreign
governments will be successful, or whether future actions may be necessary.
Although some of the actions have provided economic relief to individuals and
businesses and may have stabilized, for the present time, certain lending
markets, we cannot predict how the actions already taken, or those that may be
taken, could impact our business, results of operations, and financial
condition. These actions, while intending to help the economy currently, could
have longer-term and broader implications, and could negatively affect the
availability of financing and the quantity and quality of available mortgage
products, and could cause changes in interest rates and the yield curve, any and
each of which could materially and adversely affect our business, results of
operations, and financial condition, as well as those of the entire mortgage
sector in general, and the broader U.S. and global economies.



Other Recent Activity


During the past several years, there have been continuing liquidity and credit
concerns surrounding the mortgage markets and the general global economy. While
the U.S. government and other foreign governments have taken various actions to
address these concerns, there are also concerns about the ability of the U.S.
government to reduce its budget deficit as well as possible future rating
downgrades of U.S. sovereign debt and government- sponsored agency debt. In
December 2020, Congress passed a $2.3 trillion COVID-19 relief and government
funding bill, which was signed by President Trump. A failure by the U.S.
government to reach agreement on future budgets and debt ceilings, reduce its
budget deficit, or a future downgrade of U.S. sovereign debt and
government-sponsored agencies' debt, could have a material adverse effect on the
U.S. economy and the global economy. These events could have a material adverse
effect on our borrowing costs, the availability of financing, and the liquidity
and valuation of securities in general, and also on the securities in our
portfolio.



Over the past several years, U.S. and British banking authorities assessed fines
on several major financial institutions for LIBOR manipulation. LIBOR is an
unregulated rate based on estimates that lenders submitted to the British
Bankers' Association, a trade group that compiled the information and published
daily the LIBOR rate. On February 1, 2014, the administration of LIBOR was
transferred from the British Bankers' Association to the Intercontinental
Exchange Benchmark Administration, or the IBA, following authorization by the
Financial Conduct Authority (the United Kingdom regulators). In July 2017, the
Financial Conduct Authority announced that by the end of 2021, LIBOR would be
replaced with a more reliable alternative. At this time, we do not know what
changes will be made by the Financial Conduct Authority. In the United States,
the Alternative Refinance Rates Committee selected the Secured Overnight
Financing Rate, or SOFR, an overnight secured U.S. Treasury repurchase agreement
rate, as the new rate, and adopted a proposed transition plan for the change
from U.S. LIBOR to SOFR. The calculation of LIBOR under the IBA is the average
of the interest rates that some of the world's leading banks charge each other
for short-term loans. It is unclear at this time as to how the change to another
alternative to LIBOR will affect the interest rates that repurchase agreement
counterparties and lenders charge on borrowings in general and how they could
specifically affect our borrowing agreements.

On June 23, 2016, the citizens of the United Kingdom, or the UK, voted to leave,
or Brexit, the European Union, or the EU. The UK had two years from its formal
notification of withdrawal (given on March 29, 2017) from the EU to negotiate a
new treaty to replace the terms of its EU membership. The UK was due to leave
the EU in March 2019 and EU leaders had adopted formal guidelines about the
future relationship between the EU and the UK. It is unknown at this time what
effects the Brexit vote and the UK/EU relationship will have on interest rates,
on stock markets (over the longer term), and the effect on the U.S. economy and
the global economy. The UK formerly left the EU on January 31, 2020.



On January 16, 2020, the U.S. Congress passed the USMCA trade agreement, which
became effective after the legislatures of the United States, Mexico, and Canada
all approved it. It is believed that the USMCA trade agreement will be
beneficial to U.S. workers, manufacturers, and farmers in particular, as well as
improving trade relations among all three nations.



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Subsequent Events

Special Meeting of Stockholders




We have set March 17, 2021 as the date for the special meeting of our
stockholders to, among other things, consider and vote on a proposal to approve
the Merger. Stockholders of record as of the close of business on February 4,
2021 are entitled to vote at the special meeting. The Merger is subject to
certain customary closing conditions and the receipt of approvals of the
respective stockholders of the Company and Ready Capital.



Litigation Relating to the Merger

Seven putative class action lawsuits have been filed by purported stockholders of the Company relating to the Merger.




On January 7, 2021, Shiva Stein, a purported shareholder of the Company, filed a
lawsuit in the United States District Court for the Central District of
California, styled Shiva Stein v. Anworth Mortgage Asset Corporation, et al.,
No. 2:21-cv-00122 (referred to as the "Stein Action"). The Stein Action was
filed against the Company and our board of directors in connection with the
Merger Agreement. The complaint in the Stein Action asserts that the Form S-4
Registration Statement initially filed on January 4, 2021 in connection with the
Merger (referred to as the "Initial S-4 Filing") contained materially incomplete
and misleading information concerning financial projections and financial
analyses in violation of Sections 14(a) and 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 14a-9 promulgated thereunder.
The Stein Action seeks, among other things, an injunction enjoining the Merger
from closing, rescission of the Merger or rescissory damages if the Merger is
consummated, compensatory damages against the defendants, and an award of
attorneys' and experts' fees.



On January 12, 2021, Giuseppe Alescio, a purported shareholder of the Company,
filed a lawsuit in the United States District Court for the Southern District of
New York, styled Giuseppe Alescio v. Anworth Mortgage Asset Corporation, et al.,
No. 1:21-cv-00258 (referred to as the "Alescio Action"). The Alescio Action was
filed against the Company, our board of directors, Ready Capital, and Merger
Sub. The complaint in the Alescio Action asserts that the Initial S-4 Filing
omitted material information concerning financial forecasts and financial
analyses in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule
14a-9 promulgated thereunder. The Alescio Action seeks, among other things, an
injunction enjoining the Merger from closing, rescission of the Merger or
rescissory damages if the Merger is consummated, the filing of an amendment to
the registration statement that does not contain any untrue statements of
material fact and that states all material facts required in it or necessary to
make the statements contained therein not misleading, and an award of attorneys'
and experts' fees.



On January 19, 2021, Joseph Sheridan, a purported shareholder of the Company,
filed a lawsuit in the United States District Court for the Southern District of
New York, styled Joseph Sheridan v. Anworth Mortgage Asset Corporation, et al.,
No. 1:21-cv-00465 (referred to as the "Sheridan Action"). The Sheridan Action
was filed against the Company, our board of directors, Ready Capital, and Merger
Sub. The complaint in the Sheridan Action asserts that the Initial S-4 Filing
contained materially incomplete and misleading information concerning the sales
process, financial projections, and financial analyses in violation of Sections
14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. The
Sheridan Action seeks, among other things, an injunction enjoining the Merger
from closing, rescission of the Merger or rescissory damages if the Merger is
consummated, and an award of attorneys' and experts' fees.



On January 20, 2021, Ken Bishop, a purported shareholder of the Company, filed a
lawsuit in the United States District Court for the Eastern District of New
York, styled Ken Bishop v. Anworth Mortgage Asset Corporation, et al., No.
1:21-cv-00331 (referred to as the "Bishop Action"). The Bishop Action was filed
against the Company and our board of directors. The complaint in the Bishop
Action asserts that the Initial S-4 Filing contained materially false and
misleading statements and omissions concerning financial projections, financial
analyses, the sales process and potential conflicts of interest involving the
Company's financial advisor, Credit Suisse Securities (USA) LLC ("Credit
Suisse"), in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule
14a-9 promulgated thereunder. The Bishop Action

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seeks, among other things, an injunction enjoining the Merger from closing, rescission of the Merger or rescissory damages if the Merger is consummated, and an award of attorneys' and experts' fees.




On January 21, 2021, Samuel Carlisle, a purported shareholder of the Company,
filed a lawsuit in the United States District Court for the Central District of
California, styled Samuel Carlisle v. Anworth Mortgage Asset Corporation, et
al., No. 2:21-cv-00566 (referred to as the "Carlisle Action"). The Carlisle
Action was filed against the Company and our board of directors. The complaint
in the Carlisle Action asserts that the Initial S-4 Filing omitted or
misrepresented material information concerning financial projections, potential
conflicts of interest involving Credit Suisse, and the background of the Merger,
in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9
promulgated thereunder. The Carlisle Action seeks, among other things, an
injunction enjoining the Merger from closing, rescission of the Merger or
rescissory damages if the Merger is consummated, and an award of attorneys'
and
experts' fees.



On January 26, 2021, Reginald Padilla, a purported shareholder of the Company,
filed a lawsuit in the United States District Court for the Central District of
California, styled Reginald Padilla v. Anworth Mortgage Asset Corporation, et
al., No. 2:21-cv-00702 (referred to as the "Padilla Action"). The Padilla Action
was filed against the Company and our board of directors. The complaint in the
Padilla Action asserts that the Initial S-4 Filing was materially deficient and
misleading in regards to financial projections, potential conflicts of interest
involving Credit Suisse, and the background of the Merger, in violation of
Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder. The Padilla Action seeks, among other things, an injunction
enjoining the Merger from closing, rescission of the Merger or rescissory
damages if the Merger is consummated, the filing of an amendment to the
registration statement that does not contain any untrue statements of material
fact and that states all material facts required in it or necessary to make the
statements contained therein not misleading, and an award of attorneys' and
experts' fees.



On February 1, 2021, Diane Antasek, as Trustee for The Diane R. Antasek Trust
Agreement, April 8, 1997, and Ronald Antasek, as Trustee for the Ronald J.
Antasek Sr. Trust Agreement, April 8, 1997, purported shareholders of the
Company, filed a lawsuit in the United States District Court for the Central
District of California, styled Antasek et al. v. Anworth Mortgage Asset
Corporation, et al., No. 2:21-cv-00917 (referred to as the "Antasek Action," and
collectively with the Stein Action, Alescio Action, Sheridan Action, Bishop
Action, Carlisle Action, and the Padilla Action, the "Actions"). The Antasek
Action was filed against the Company and our board of directors. The complaint
in the Antasek Action asserts that the Initial S-4 Filing was materially
deficient in regards to potential conflicts of interest involving Credit Suisse,
financial projections and financial valuation analyses in violation of Sections
14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, and
that our board of directors violated their fiduciary duty as a result of an
unfair process for an unfair price. The Antasek Action seeks, among other
things, an injunction enjoining the Merger from closing, rescission of the
Merger or rescissory damages if the Merger is consummated, an order directing
our board of directors to exercise their fiduciary duties to commence a sale
process that is reasonably designed to secure the best possible consideration
for the Company and obtain a transaction which is in the best interests of the
Company and its stockholders, an award of damages sustained, and an award of
attorneys' and experts' fees.



We intend to vigorously defend the Company and our board of directors against the Action.

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Managers and Directors
John T. Hillman Vice President & Director-Investor Relations
Heather Una Baines Executive Vice President
Bistra Petrova Pashamova Senior Vice President & Portfolio Manager
Brett I. Roth Senior Vice President & Portfolio Manager
Angelina Greve Vice President & Controller