Abstract

We are a Maryland real estate investment trust, or "REIT," formed in August 2012
that specializes in acquiring, investing in, and managing residential mortgage-
and real estate-related assets. Our primary objective is to generate attractive
current yields and risk-adjusted total returns for our shareholders by making
investments that we believe compensate us appropriately for the risks associated
with them. We seek to attain this objective by constructing and actively
managing a portfolio consisting primarily of residential mortgage-backed
securities, or "RMBS," for which the principal and interest payments are
guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or
"Agency RMBS," and, to a lesser extent, RMBS that do not carry such guarantees,
or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper,
mortgage loans that are not deemed "qualified mortgage," or "QM," loans under
the rules of the Consumer Financial Protection Bureau, or "non-QM loans,"
mortgages on single-family-rental properties, manufactured housing, and subprime
residential mortgage loans. We also may opportunistically acquire other types of
mortgage- and real estate-related asset classes, such as commercial
mortgage-backed securities, or "CMBS," residential mortgage loans, mortgage
servicing rights, or "MSRs," and credit risk transfer securities, or "CRTs." We
believe that being able to combine Agency RMBS with non-Agency RMBS and other
mortgage- and real estate-related asset classes enables us to balance a range of
mortgage-related risks.

We were initially formed through a strategic venture among affiliates of
Ellington Management Group, L.L.C., an investment management firm and registered
investment adviser with a 27-year history of investing in a broad spectrum of
residential and commercial mortgage-backed securities, or "MBS," and related
derivatives, with an emphasis on the RMBS market, and the Blackstone Tactical
Opportunity Funds, or the "Blackstone Funds." We are externally managed and
advised by our Manager, an affiliate of Ellington. Since our inception, the
Blackstone Funds had held special non-voting membership interests in the holding
company that owns our Manager. In August 2021, an Ellington affiliate purchased
these special non-voting membership interests from the Blackstone Funds.

We use leverage in our Agency RMBS strategy and, while we have not done so
meaningfully to date, we may use leverage in our non-Agency RMBS strategy as
well, although we expect such leverage to be lower. We have financed our
purchases of Agency RMBS exclusively through repurchase agreements, which we
account for as collateralized borrowings. As of December 31, 2021, we had
outstanding borrowings under repurchase agreements in the amount of $1.1 billion
with 15 counterparties.

We have elected to be taxed as a REIT for U.S. federal income tax purposes.
Accordingly, we generally will not be subject to U.S. federal income taxes on
our taxable income that we distribute currently to our shareholders as long as
we maintain our qualification as a REIT. We intend to conduct our operations so
that neither we nor any of our subsidiaries is required to register as an
investment company under the Investment Company Act of 1940, as amended, or the
"Investment Company Act."

On April 2, 2021, we commenced an "at-the-market" offering program, or "ATM
program," by entering into equity distribution agreements with third party sales
agents under which we are authorized to offer and sell up to $75.0 million of
common shares from time to time. During the year ended December 31, 2021, we
issued 163,269 common shares under the ATM program which provided $1.9 million
of net proceeds after $29 thousand of agent commissions and offering costs.

On June 17, 2021, we completed a public follow-on offering of 3,250,000 common
shares, of which 2,675,000 shares were sold by the Blackstone Funds and 575,000
shares were sold by us. The offering generated net proceeds to us of $7.1
million, after underwriters' discounts and commissions and offering costs.

From December 31, 2021our book value per share was $11.76 compared to
$13.48 from December 31, 2020.

Recent market trends and developments

Market overview

•In 2021, the U.S. Federal Reserve, or the "Federal Reserve," maintained the
target range of 0.00%-0.25% throughout the year, and for the first ten months of
the year, it directed the Open Market Desk to increase its holdings of U.S.
Treasury securities by $80 billion per month, and of Agency RMBS by $40 billion
per month. This activity reflected a continuation of the Federal Reserve's
response in 2020 to the negative economic effects caused by the COVID-19
pandemic when the Federal Reserve lowered the target range for the federal funds
rate to 0.00%-0.25% from 1.50%-1.75%, committed to purchase U.S. Treasury
securities and Agency MBS without explicit limits on the amounts purchased, and
also announced several funding and liquidity programs.
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At the end of the first quarter of 2021, the U.S. Congress passed the American
Rescue Plan Act of 2021, which provided for an additional $1.9 trillion of
COVID-related stimulus and economic aid. Additionally, in July, the Federal
Reserve announced the establishment of a standing repurchase agreement facility
to support financing markets.

At its November 2021 meeting, citing "the substantial further progress the
economy has made," the Federal Reserve announced a tapering schedule for its
asset purchases, beginning with a reduction of its monthly net asset purchases
by $10 billion for U.S. Treasury securities and by $5 billion for Agency RMBS in
November; by an additional $10 billion for U.S. Treasury securities and $5
billion for Agency RMBS in December; and with an increasing pace of tapering
anticipated in subsequent months, until incremental monthly net purchases reach
zero. The Federal Reserve also noted that it expected elevated inflation to be
"transitory."

At its final meeting of the year, in December, "in light of inflation
developments and the further improvement in the labor market," the Federal
Reserve announced that it would further accelerate the tapering of its asset
purchases. Beginning in January 2022, it would reduce the monthly pace of net
asset purchases by an additional $20 billion per month for U.S. Treasury
securities and $10 billion per month for Agency RMBS, with an increasing pace of
tapering in subsequent months, until incremental monthly net purchases reach
zero. In addition, given the persistently high rate of inflation, the Federal
Reserve shifted to a more hawkish position on interest rates, signaling that
multiple increases of the target range for the federal funds rate could be
imminent, and also that it could begin to reduce the size of the Federal
Reserve's balance sheet soon (as opposed to tapering net purchases to zero, but
still maintaining the size of its balance sheet).

In December 2021, US consumer prices increased by 7% year-over-year, which was
the fastest pace in nearly four decades. In a congressional hearing in January
2022, the Chairman of the Federal Reserve, Jerome Powell, discussed his focus on
inflation and stated, "If we have to raise interest rates more over time, we
will. The economy no longer needs or wants the very highly accommodative
policies we have had in place."

•During the first quarter of 2021, long-term interest rates rose significantly
and the U.S. Treasury yield curve steepened, with the 10-year U.S. Treasury
yield increasing 83 basis points to finish the quarter at 1.74%, and the 2-year
U.S. Treasury yield up just 4 basis points to 0.16%. The yield spread between
the 2-year and 10-year U.S. Treasury increased to 158 basis points, which was
its widest level since 2015. Interest rate volatility also increased in the
quarter, with the MOVE Index, which measures U.S. interest rate volatility,
reaching a 10-month high in February.

In the second quarter, long-term interest rates reversed course, with the
10-year U.S. Treasury yield falling 27 basis points to 1.47%, while the 2-year
U.S. Treasury yield increased 9 basis points to 0.25%. The yield spread between
the 2-year and 10-year U.S. Treasury decreased to 122 basis points at June 30th,
but was still meaningfully higher than the 79 basis point spread at the start of
the year. Interest rate volatility subsided for most of the quarter, before
increasing modestly during the second half of June.

In the third quarter, interest rates declined in July, before reversing course
and rising in August and September. For the quarter, the 10-year U.S. Treasury
yield rose 2 basis points to 1.49%, while the 2-year U.S. Treasury yield
increased 3 basis points to 0.28%, and the yield spread between the 2-year and
10-year U.S. Treasury was essentially unchanged. Interest rate volatility
remained relatively elevated for much of the third quarter.

During the fourth quarter, short-term interest rates spiked, the yield curve
flattened significantly, and interest rate volatility rose, as the market
reacted to imminent Fed tapering, potential upcoming interest rate increases,
and consistently strong inflation reports. The 2-year U.S. Treasury yield
increased 46 basis points to 0.73%, its highest level since early March 2020,
while the 10-year U.S. Treasury yield rose just 2 basis points to 1.51%. The
spread between the 2-year and 10-year U.S. Treasury narrowed to 78 basis points,
back to about where it started the year. Meanwhile, the MOVE Index reached its
high for the year in November.

•After declining to all-time lows over the course of 2020, mortgage rates
reversed course during the first quarter of 2021 as long-term interest rates
rose. The Freddie Mac survey 30-year mortgage rate rose steadily throughout the
quarter, increasing to 3.18% as of April 1st, as compared to 2.67% at year end.
Although still elevated on an historical basis, refinancing applications
declined during the quarter, with the Mortgage Bankers Association's Refinance
Index decreasing 21.7% between January 1st and April 2nd of 2021. Still, overall
Fannie Mae 30-year MBS prepayments remained well above pre-pandemic levels,
declining slightly from a CPR of 35.1 in December 2020 to 30.8 in January 2021,
before increasing to 31.8 in February 2021 and 35.4 in March 2021.

In the second quarter, however, mortgage rates declined as long-term interest
rates fell. The Freddie Mac survey 30-year mortgage rate decreased to 2.98% as
of June 30th, while refinancing applications continued to decline. The Mortgage
Bankers Association's Refinance Index decreased another 9% between April 2nd and
July 2nd. Overall Fannie Mae 30-year MBS prepayments declined from a CPR of 35.4
in March to 27.8 in April and 23.4 in May, before increasing moderately to 24.6
in June.
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Mortgage rates also declined in July before reversing course and rising in
August and September, in sympathy with long-term interest rates. For the third
quarter, the Freddie Mac survey 30-year mortgage rate increased by 3 basis
points to 3.01%. Refinancing applications rose modestly during the quarter, with
the Mortgage Bankers Association's Refinance Index increasing by 9% between July
2nd and October 1st. Overall Fannie Mae 30-year MBS prepayments decreased from a
CPR of 24.6 in June 2021 to 22.2 in July, before returning to 24.6 in August and
declining slightly to 24.1 in September.

Mortgage rates continued to rise in the fourth quarter as the Freddie Mac survey
30-year mortgage rate increased another 10 basis points to finish the year at
3.11%. Refinancing applications declined during the fourth quarter, with the
Mortgage Bankers Association's Refinance Index falling 29% between September 3rd
and December 31st. Overall Fannie Mae 30-year MBS prepayments continued to fall
throughout the quarter, declining to 22.2 in October, 20.2 in November, and 18.7
in December.

•LIBOR rates, which directly or indirectly drive most of our repo financing
costs, declined modestly during the first nine months of 2021. Between December
31, 2020 and September 30, 2021, one-month LIBOR declined 6 basis points to
0.08%, and three-month LIBOR fell 11 basis points to 0.13%. In the fourth
quarter, LIBOR ticked up slightly, with one-month LIBOR increasing 2 basis
points to 0.10% and three-month LIBOR up by 8 basis points to 0.21%.

•U.S. real GDP increased at an annualized rate of 6.3% in the first quarter and
6.7% in the second quarter, before slowing to 2.3% in the third quarter, but
accelerating again to an estimated annualized rate of 7.0% in the fourth
quarter.

•Positive economic activity drove steady growth in U.S. employment in each
quarter of 2021. The unemployment rate dropped from 6.7% at the end of 2020, to
6.0% on March 31st, 5.9% on June 30th, 4.8% on September 30th, and 3.9% at year
end.

•Driven by the economic recovery and strong employment, forbearance rates on
residential mortgages steadily declined throughout 2021. According to the
Mortgage Bankers Association, the total forbearance rate decreased from 5.5% as
of January 3rd, to 4.9% on March 28th, 3.9% on June 27th, 2.9% on September
26th, and 1.4% on December 31st.

•In the first quarter, the Bloomberg Barclays U.S. MBS Index ("BB MBS Index")
generated a negative return of (1.10%), driven by rising interest rates, but a
positive excess return (on a duration-adjusted basis) of 0.15% relative to the
Bloomberg Barclays U.S. Treasury Index. In the second quarter, long-term
interest rates declined and the BB MBS Index generated a positive return of
0.33%, but a negative excess return of (0.60%). After generating a modest return
and positive excess return in the third quarter, the BB MBS Index generated a
negative return of (0.37%) and a negative excess return of (0.26%) in the fourth
quarter, as volatility increased and short-term Treasury yields spiked. For the
full year 2021, the BB MBS Index generated a negative return of (1.04%), and a
negative excess return of (0.68%).

•In the first quarter, the Bloomberg Barclays U.S. Corporate Bond Index ("BB IG
Index") generated a negative return of (4.65%), but an excess return of 0.95%,
and in the second quarter, a positive return of 3.38% and positive excess return
of 1.09%. In the third quarter, the BB IG Index generated a breakeven return and
had a negative excess return of (0.15%), and in the fourth quarter, it generated
a positive return of 0.23% but a negative excess return of (0.28%). For the full
year 2021, the BB IG Index generated a negative return of (1.04%), but an excess
return of 1.61%. Meanwhile, the Bloomberg Barclays U.S. Corporate High Yield
Bond Index ("BB HY Index") generated positive returns and positive excess
returns in each quarter of 2021. For the year, the BB HY Index generated a gain
of 5.28% and an excess return of 6.63%.

•U.S. equities performed well in 2021, driven by the ongoing economic and
employment recovery, continued monetary and fiscal policy support, the
development and distribution of vaccines, and other positive factors, which
outweighed negative factors including supply-chain challenges, uncertainty about
the path of the virus, concerns about the quickening pace of inflation, rising
interest rates, and the actual and anticipated removal of stimulus measures.

For the year, the S&P 500 rose 26.9%, the Dow Jones Industrial Average increased
18.7%, and the NASDAQ rose 21.4%. Meanwhile, London's FTSE 100 index increased
14.3% and the MSCI World global equity index increased 20.1%.

The VIX volatility index remained relatively low during 2021, as compared to the
months surrounding the onset of the pandemic in early 2020, although it did
spike toward the end of the fourth quarter in response to the spread of a new
COVID variant and a hawkish shift from the Federal Reserve.
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Portfolio overview and outlook

As of December 31, 2021, our mortgage-backed securities portfolio consisted of
$1.240 billion of fixed-rate Agency "specified pools," $12.0 million of Agency
RMBS backed by adjustable rate mortgages, or "Agency ARMs," $37.3 million of
Agency reverse mortgage pools, $10.3 million of Agency interest-only securities,
or "Agency IOs," $9.1 million of non-Agency RMBS, and $2.8 million of non-Agency
IOs. Specified pools are fixed-rate Agency pools consisting of mortgages with
special characteristics, such as mortgages with low loan balances, mortgages
backed by investor properties, mortgages originated through the
government-sponsored "Making Homes Affordable" refinancing programs, and
mortgages with various other characteristics.

Our Agency RMBS holdings, excluding IOs, increased by 23% to $1.289 billion as
of December 31, 2021, as compared to $1.051 billion as of December 31, 2020.
Over the same period, our non-Agency RMBS, excluding IOs, decreased
approximately 50% to $9.1 million as of December 31, 2021, as compared to $17.6
million as of December 31, 2020. At December 31, 2021, we held $13.1 million of
IOs, roughly unchanged as compared to December 31, 2020.

In conjunction with our larger portfolio, our debt-to-equity ratio increased to
6.9:1 as of December 31, 2021 from 6.1:1 as of December 31, 2020. Our
debt-to-equity ratio may fluctuate period over period based on portfolio
management decisions, market conditions, capital markets activities, and the
timing of security purchase and sale transactions. As of December 31, 2021,
substantially all of our borrowings were secured by specified pools.

From December 31, 2021we had cash and cash equivalents of $69.0 millionas well as other unencumbered assets of approximately $16.7 million. This compares to cash and cash equivalents of $58.2 million and unencumbered assets $47.4 million at December 31, 2020.

Our agency RMBS strategy generated a net loss for the year, in a challenging agency market marked by rising interest rates, widening yield spreads and high interest rate volatility for a most of the year.

During the first quarter of the year, long-term interest rates rose, the yield
curve steepened, and interest rate volatility increased. As a result, most
Agency RMBS prices declined, with lower-coupon RMBS performing the worst in the
face of heightened extension risk. Next, in a reversal from the prior quarter,
long-term interest rates declined and the yield curve flattened in the second
quarter; most Agency RMBS underperformed hedging instruments, with higher-coupon
Agency RMBS faring the worst. Moving to the third quarter, performance of Agency
RMBS was again mixed, with incrementally higher mortgage rates leading to
reduced expectations for prepayments, which boosted higher-coupon RMBS, while
the anticipated withdrawal of Federal Reserve purchases negatively impacted
lower-coupon RMBS. As a result, higher coupons outperformed lower coupons for
the third quarter.

In the fourth quarter, short-term interest rates rose sharply, actual and
implied volatility increased, and the yield curve flattened as the Federal
Reserve signaled that interest rate increases could be imminent. The Federal
Reserve also began the tapering of its asset purchases in November, and then
accelerated the pace of that tapering starting in December. In response to these
developments, most Agency RMBS underperformed U.S. Treasury securities during
the fourth quarter, with higher-coupon specified pools and other
shorter-duration RMBS particularly underperforming in light of the flattening of
the yield curve.

Over the course of the year, virtually all Agency RMBS prices declined, which
led to net realized and unrealized losses on our Agency RMBS portfolio. These
losses were partially offset by net interest income and net gains on our
interest rate hedges.

Pay-ups on our existing specified pool investments declined during the year,
while our new purchases during the year primarily consisted of pools with lower
pay-ups. As a result, the average pay-ups on our specified pools declined to
1.07% as of December 31, 2021, as compared to 2.40% as of December 31, 2020.
Pay-ups are price premiums for specified pools relative to their TBA
counterparts.

Our non-Agency RMBS performed well during 2021, driven by net interest income
and net realized and unrealized gains. We decreased our non-Agency RMBS holdings
over the year, and particularly in the first quarter, as we monetized gains in
response to tightening yield spreads. We expect to continue to vary our
allocation to non-Agency RMBS as market opportunities change over time.

Our net mortgage assets-to-equity ratio-which we define as the net aggregate
market value of our mortgage-backed securities (including the underlying market
values of our long and short TBA positions) divided by total shareholders'
equity-increased during the year, driven by a larger RMBS portfolio as well as a
decrease in shareholders' equity year over year. From time to time, in response
to market opportunities and other factors, we increase or decrease our net
mortgage assets-to-equity
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ratio by varying the sizes of our net short TBA position and/or our long RMBS
portfolio. The following table summarizes our net mortgage assets-to-equity
ratio and provides additional details, for the last five quarters, to illustrate
this fluctuation.

                                                                                  Fair Value of             Net Short TBA
                                  Notional Amount       Notional Amount          Mortgage-backed          Underlying Market              Net Mortgage
                                   of Long TBAs          of Short TBAs             Securities                 Value(1)              Assets-to-Equity Ratio
($ In thousands)
December 31, 2021                 $    216,407          $   (412,632)         $        1,311,361          $     (213,543)                              7.1:1
September 30, 2021                     237,697              (410,932)                  1,218,306                (195,178)                              6.4:1
June 30, 2021                          290,128              (394,603)                  1,210,620                (123,333)                              6.7:1
March 31, 2021                         299,350              (459,286)                  1,204,629                (186,394)                              6.2:1
December 31, 2020                      317,890              (459,613)                  1,081,380                (156,326)                              5.6:1

(1) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) at the end of the period.

We expect to continue to target specified pools that, taking into account their
particular composition and based on our prepayment projections, should: (1)
generate attractive yields relative to other Agency RMBS and U.S. Treasury
securities, (2) have less prepayment sensitivity to government policy shocks,
and/or (3) create opportunities for trading gains once the market recognizes
their value, which for newer pools may come only after several months, when
actual prepayment experience can be observed. We believe that our research team,
proprietary prepayment models, and extensive databases remain essential tools in
our implementation of this strategy.

The following table summarizes prepayment rates for our portfolio of fixed-rate
specified pools (excluding those backed by reverse mortgages) for the
three-month periods ended December, 31, 2021, September 30, 2021, June 30, 2021,
March 31, 2021, and December 31, 2020.
                                                                                           Three-Month Period Ended
                                                                      September 30,
                                         December 31, 2021                 2021                  June 30, 2021            March 31, 2021            December 31, 2020
Three-Month Constant Prepayment
Rates                                          20.7%                      21.9%                      22.8%                     23.6%                      21.0%

(1) Excludes recent purchases of agency-specified fixed rate pools with no prepayment history.

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The following table provides details about the composition of our portfolio of
fixed-rate specified pools (excluding those backed by reverse mortgages) as of
December 31, 2021 and 2020.

                                                                  December 31, 2021                                              December 31, 2020
                                                                                            Weighted                                                      Weighted
                                                  Current                                 Average Loan           Current                                Average Loan
                          Coupon (%)             Principal            Fair Value          Age (Months)          Principal          Fair Value           Age (Months)
                                                         (In thousands)                                                (In thousands)
Fixed-rate Agency
RMBS:
15-year fixed-rate
mortgages:
                          2.00-2.49           $     39,608          $    40,857                 10            $        -          $        -                   -
                          2.50-2.99                 26,752               27,734                 32                16,385              17,236                  42
                          3.00-3.49                 22,935               24,062                 48                14,001              14,824                  37
                          3.50-3.99                 21,311               22,638                 54                25,113              27,177                  50
                          4.00-4.49                 14,121               15,101                 46                21,529              23,347                  33
                          4.50-4.99                    306                  318                147                   550                 575                 135
Total 15-year
fixed-rate mortgages                               125,033              130,710                 33                77,578              83,159                  42
20-year fixed-rate
mortgages:
                          2.00-2.49                 28,153               28,289                 16                32,333              33,633                   4
                          2.50-2.99                  2,200                2,255                 17                 3,212               3,382                   5
                          3.00-3.49                  1,998                2,090                      22            2,496               2,647                        10
                          4.00-4.49                  1,751                1,928                 17                 2,161               2,492                   5
                          4.50-4.99                    806                  871                 39                 1,300               1,417                  27
                          5.00-5.49                    824                  914                 40                 1,057               1,192                  28
Total 20-year
fixed-rate mortgages                                35,732               36,347                 18                42,559              44,763                   6
30-year fixed-rate
mortgages:
                          2.00-2.49                342,662              342,371                  3                     -                   -                   -
                          2.50-2.99                159,754              164,340                  8                16,361              17,383                   3
                          3.00-3.49                 81,860               85,828                 32                98,654             105,085                  28
                          3.50-3.99                170,743              183,150                 63               245,320             266,547                  51
                          4.00-4.49                135,518              146,946                 67               191,033             209,502                  55
                          4.50-4.99                100,695              109,672                 61               146,843             162,645                  49
                          5.00-5.49                 30,130               33,303                 73                54,804              61,719                  51
                          5.50-5.99                  4,828                5,442                 68                 7,890               8,951                  49
                          6.00-6.49                  1,653                1,852                 39                 2,658               3,049                  27
Total 30-year
fixed-rate mortgages                             1,027,843            1,072,904                 33               763,563             834,881                  48
Total fixed-rate
Agency RMBS                                   $  1,188,608          $ 1,239,961                 32            $  883,700          $  962,803                  45


For the year ended December 31, 2021, we had total net realized and unrealized
losses on our Agency securities of $(34.5) million, or $(2.72) per share. Our
Agency portfolio turnover was approximately 88% for the year ended December 31,
2021, and we recognized net realized gains of $1.4 million.

During the year ended December 31, 2021, we continued to hedge interest rate
risk through the use of interest rate swaps, and short positions in TBAs, U.S.
Treasury securities, and futures. We had total net realized and unrealized gains
of $14.5 million, or $1.14 per share, on our interest rate hedging portfolio as
interest rates increased during the year. These gains were partially offset by
net realized and unrealized losses of $(6.5) million, or $(0.51) per share, on
our long TBAs held for investment, driven primarily by underperformance of
lower-coupon TBAs.
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We ended the year with a net short overall TBA position on a notional basis
while maintaining a small net long overall TBA position as measured by 10-year
equivalents. Ten-year equivalents for a group of positions represent the amount
of 10-year U.S. Treasury securities that would be expected to experience a
similar change in market value under a standard parallel move in interest rates.
The relative makeup of our interest rate hedging portfolio can change materially
from period to period.

After giving effect to dividends during the year ended December 31, 2021 of
$1.18 per share, our book value per share decreased to $11.76 as of December 31,
2021, from $13.48 as of December 31, 2020, and we had an economic return of
(4.0)% for the year ended December 31, 2021. Economic return for a period is
computed by adding back dividends declared during the period to ending book
value per share, and comparing that amount to book value per share as of the
beginning of the period.

Our net Agency premium as a percentage of the fair value of our specified pool
holdings is one metric that we use to measure the overall prepayment risk of our
specified pool portfolio. Net Agency premium represents the total premium
(excess of market value over outstanding principal balance) on our specified
pool holdings less the total premium on net short TBA positions. The lower our
net Agency premium, the less we believe that our specified pool portfolio is
exposed to market-wide increases in Agency RMBS prepayments. As of December 31,
2021 and 2020, our net Agency premium as a percentage of fair value of our
specified pool holdings was approximately 2.8% and 6.8%, respectively. Excluding
TBA positions, our Agency premium as a percentage of fair value was
approximately 4.2% and 8.2% as of December 31, 2021 and 2020, respectively. Our
Agency premium percentage and net Agency premium percentage may fluctuate from
period to period based on a variety of factors, including market factors such as
interest rates and mortgage rates, and, in the case of our net Agency premium
percentage, based on the degree to which we hedge prepayment risk with short
TBAs. We believe that our focus on purchasing pools with specific prepayment
characteristics provides a measure of protection against prepayments.

We believe that our adaptive and active style of portfolio management is well
suited to the current MBS market environment, which, especially given the
current effects and future uncertainties related to the COVID-19 pandemic and to
quantitative tightening, exhibits high levels of interest rate risk, prepayment
risk, financing and liquidity risk, shifting central bank and government
policies, regulatory changes, and disruptive technological developments.

Funding

For the year ended December 31, 2021, our average repo borrowing cost decreased
to 0.19%, as compared to 0.91% for the year ended December 31, 2020, mainly as a
result of decreases in short-term interest rates. As of December 31, 2021 and
2020, the weighted average borrowing rate on our repurchase agreements was 0.18%
and 0.25%, respectively.

While large banks still dominate the repo market, non-bank firms, not subject to
the same regulations as banks, are active in providing repo financing. Most of
our outstanding repo financing is still provided by banks and bank affiliates;
however, we have also entered into repo agreements with non-bank dealers.

Our leverage ratio was 6.9:1 at December 31, 2021compared to 6.1:1 from December 31, 2020. Our leverage ratio may fluctuate from period to period depending on portfolio management decisions, market conditions, capital market activity and the timing of securities purchase and sale transactions.

Critical accounting estimates

Our consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, or
"U.S. GAAP," and Regulation S-X. Entities in which we have a controlling
financial interest, through ownership of the majority of the entities' voting
equity interests, or through other contractual rights that give us control, are
consolidated by us. All inter-company balances and transactions have been
eliminated.

The preparation of our consolidated financial statements in accordance with U.S.
GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Our critical accounting estimates are those which require
assumptions to be made about matters that are highly uncertain. Actual results
could differ from those estimates and such differences could have a material
impact on our financial condition and/or results of operations. We believe that
all of the decisions and assessments upon which our consolidated financial
statements are based were reasonable at the time made based upon information
available to us at that time. We rely on the experience of our Manager and
Ellington and analysis of historical and current market data in order to arrive
at what we believe to be reasonable estimates. See Note 2 of the notes to our
consolidated financial statements for a complete discussion of our significant
accounting policies. We have identified our most critical accounting estimates
to be the following:

Valuation: We have elected the fair value option for the vast majority of our
assets and liabilities for which such election is permitted, as provided for
under ASC 825, Financial Instruments ("ASC 825"). Electing the fair value option
allows us to
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record changes in fair value in our Consolidated Statement of Operations, which,
in our view, more appropriately reflects the results of our operations for a
particular reporting period as all securities activities will be recorded in a
similar manner. As such, the mortgage-backed securities are recorded at fair
value on our Consolidated Balance Sheet and the period change in fair value is
recorded in current period earnings on our Consolidated Statement of Operations
as a component of Change in net unrealized gains (losses) on securities.
Purchase and sales transactions are generally recorded on trade date. Realized
and unrealized gains and losses are calculated based on identified cost.

For financial instruments that are traded in an "active market," the best
measure of fair value is the quoted market price. However, many of our financial
instruments are not traded in an active market. Therefore, management generally
uses third-party valuations when available. If third-party valuations are not
available, management uses other valuation techniques, such as the discounted
cash flow methodology.

Summary descriptions, for the various categories of financial instruments, of
the valuation methodologies management uses in determining fair value of our
financial instruments are detailed in Note 2 of the notes to our consolidated
financial statements. Management utilizes such methodologies to assign a good
faith fair value (the estimated price that, in an orderly transaction at the
valuation date, would be received to sell an asset, or paid to transfer a
liability, as the case may be) to each such financial instrument. See the notes
to our consolidated financial statements for more information on valuation
techniques used by management in the valuation of our assets and liabilities.

Because of the inherent uncertainty of valuation, the estimated fair value of
our financial instruments may differ significantly from the values that would
have been used had a ready market for the financial instruments existed, and the
differences could be material to our consolidated financial statements.

The determination of estimated fair value of those of our financial instruments
that are not traded in an active market requires the use of both macroeconomic
and microeconomic assumptions and/or inputs, which are generally based on
current market and economic conditions. Changes in market and/or economic
conditions could have a significant adverse effect on the estimated fair value
of our financial instruments. Changes to assumptions, including assumed market
yields, may significantly impact the estimated fair value of our investments.
Our valuations are sensitive to changes in interest rates; see the interest rate
sensitivity analysis included in Item 7A. Quantitative and Qualitative
Disclosures about Market Risk in this Annual Report on Form 10-K for further
information.

Interest Income: Coupon interest income on investment securities is accrued
based on the outstanding principal balance and the current coupon rate on each
security. We generally amortize premiums and accrete discounts on our
fixed-income investments using the effective interest method. For certain of our
securities, for purposes of estimating future expected cash flows, management
uses assumptions including, but not limited to, assumptions for future
prepayment rates, default rates, and loss severities (each of which may in turn
incorporate various macroeconomic assumptions, such as future housing prices,
GDP growth rates, and unemployment rates). These assumptions require the use of
a significant amount of judgment. Any resulting changes in effective yield are
recognized prospectively based on the current amortized cost of the investment
as adjusted for credit impairment, if any.

The effective yield on our debt securities that are deemed to be of high credit
quality (including Agency RMBS, exclusive of interest only securities) can be
significantly impacted by our estimate of future prepayments. Future prepayment
rates are difficult to predict. We estimate prepayment rates over the remaining
life of our securities using models that generally incorporate the forward yield
curve, current mortgage rates, mortgage rates on the outstanding loans, age and
size of the outstanding loans, and other factors. We compare estimated
prepayments to actual prepayments on a quarterly basis, and effective yields are
recalculated retroactive to the time of purchase. When differences arise between
our previously calculated effective yields and our current calculated effective
yields, a catch-up adjustment, or "Catch-up Premium Amortization Adjustment," is
made to interest income to reflect the cumulative impact of the changes in
effective yields. For the years ended December 31, 2021 and 2020, we recognized
a Catch-up Premium Amortization Adjustment of $1.7 million and $(4.6) million,
respectively, which is reflected as an increase (decrease) to interest income on
the Consolidated Statement of Operations.

Our accretion of discounts and amortization of premiums on securities for U.S.
federal and other tax purposes is likely to differ from the accounting treatment
under U.S. GAAP of these items as described above.

See Note 2 of the Notes to our Consolidated Financial Statements for more information on the assumptions and methods we use to amortize purchase premiums and accrue purchase discounts.

Income Taxes: We made an election to be taxed as a REIT for U.S. federal income
tax purposes and are generally not subject to corporate-level federal and state
income tax on net income we distribute to our shareholders within the prescribed
timeframes. We may take positions with respect to certain tax issues which
depend on legal interpretation of facts or applicable
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tax regulations. Should the relevant tax regulators successfully challenge any
such positions, we might be found to have a tax liability that has not been
recorded in the accompanying consolidated financial statements. Also,
management's conclusions regarding the authoritative guidance may be subject to
review and adjustment at a later date based on changing tax laws, regulations,
and interpretations thereof. See Note 2 and Note 12 to our consolidated
financial statements for additional details on income taxes.

Recent accounting pronouncements

See the accompanying notes to our consolidated financial statements for a description of relevant recent accounting pronouncements.

Financial condition

Investment portfolio

The following tables summarize our securities portfolio as of December 31, 2021
and 2020:

                                                                     December 31, 2021                                                                                   December 31, 2020
                                  Current                                 Average                                 Average             Current                                 Average                                 Average
(In thousands)                   Principal           Fair Value           Price(1)              Cost              Cost(1)            Principal           Fair Value           Price(1)              Cost              Cost(1)

Agency RMBS(2) 15-year fixed rate mortgages $125,033 $130,710 $104.54 $130,099 $104.05 $77,578 $83,159 $107.19 $80,144 $103.31
20-year fixed rate mortgages 35,732

               36,347             101.72               37,211             104.14              42,559               44,763             105.18               44,247             103.97
30-year fixed-rate mortgages    1,027,843            1,072,904             104.38            1,066,347             103.75             763,563              834,881             109.34              799,360             104.69
ARMs                               11,491               11,960             104.08               12,034             104.73              19,459               20,442             105.05               19,981             102.68
Reverse mortgages                  35,313               37,297             105.62               37,652             106.62              61,653               67,474             109.44               65,494             106.23
Total Agency RMBS               1,235,412            1,289,218             104.36            1,283,343             103.88             964,812            1,050,719             108.90            1,009,226             104.60
Non-Agency RMBS(2)                 10,672                9,056              84.86                7,234              67.78              23,140               17,612              76.11               15,369              66.42
Total RMBS(2)                   1,246,084            1,298,274             104.19            1,290,577             103.57             987,952            1,068,331             108.14            1,024,595             103.71
Agency IOs                          n/a                 10,289              n/a                 12,983              n/a                 n/a                 13,049              n/a                 15,434              n/a
Non-Agency IOs                      n/a                  2,798              n/a                  2,684              n/a                 n/a                      -              n/a                      -              n/a
Total mortgage-backed
securities                                         $ 1,311,361                             $ 1,306,244                                                 $ 1,081,380                             $ 1,040,029

U.S. Treasury securities sold
short                            (118,750)            (117,195)             98.69             (117,322)             98.80                   -                    -                  -                    -                  -
Reverse repurchase agreements     117,505              117,505             100.00              117,505             100.00                   -                    -                  -                    -                  -
Total                                              $ 1,311,671                             $ 1,306,427                                                 $ 1,081,380                             $ 1,040,029


(1)Represents the dollar amount (not shown in thousands) per $100 of current
principal of the price or cost for the security.
(2)Excludes IOs.

The majority of our capital is allocated to our agency RMBS strategy, which includes investments in agency pools and agency-backed mortgage bonds, or “CMOs”. Like two December 31, 2021 and 2020, investments in non-agency RMBS constituted a relatively small portion of our total investments.

Our most prevalent method of financing RMBS is through short-term repos, which
generally have maturities of 364 days or less. The weighted average lives of the
RMBS that we own are generally much longer. Consequently, the weighted average
term of our repurchase agreement financings will almost always be substantially
shorter than the expected average maturity of our RMBS. This mismatch in
maturities, together with the uncertainty of RMBS prepayments, and other
potential changes in timing and/or amount of cash flows on our RMBS assets,
creates the risk that changes in interest rates will cause our financing costs
with respect to our RMBS to increase relative to the income on our RMBS over the
term of our investments.
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Financial derivatives

The following table summarizes our portfolio of financial derivative holdings as
of December 31, 2021 and 2020:
(In thousands)                                                          December 31, 2021           December 31, 2020
Financial derivatives-assets, at fair value:
TBA securities purchase contracts                                     $              158          $            1,720
TBA securities sale contracts                                                        750                           -
Fixed payer interest rate swaps                                                    5,165                         457
Fixed receiver interest rate swaps                                                   289                         614

Futures                                                                              276                           -
Total financial derivatives-assets, at fair value                                  6,638                       2,791
Financial derivatives-liabilities, at fair value:
TBA securities purchase contracts                                                   (182)                          -
TBA securities sale contracts                                                       (168)                       (699)
Fixed payer interest rate swaps                                                     (465)                     (5,208)
Fixed receiver interest rate swaps                                                  (143)                       (377)

Futures                                                                             (145)                       (346)
Total financial derivatives-liabilities, at fair value                            (1,103)                     (6,630)
Total                                                                 $            5,535          $           (3,839)


Pursuant to our hedging program, we engage in a variety of interest rate hedging
activities that are designed to reduce the interest rate risk with respect to
the liabilities incurred to acquire or hold RMBS. These interest rate hedges
generally seek to reduce the interest rate sensitivity of our liabilities or, in
other words, reduce the volatility of our financing cost over time attributable
to interest rate changes. Our interest rate hedging transactions may include:

• Interest rate swaps (a contract exchanging a variable rate for a fixed rate, or vice versa);

•Interest rate swaptions (options to enter into interest rate swaps at a later date);

• TBA forward contracts on Agency Passage Certificates;

• Short sales of we Treasury securities;

• Eurodollar and we Treasury futures contracts; and

•Other derivatives.

We generally enter into these transactions to offset the potential adverse effects of rising interest rates on short-term repurchase agreements. Our repurchase agreements typically have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as LIBOR or the Secured Overnight Funding Rate, or “SOFR”. , for these same periods. As each then-existing Fixed Rate Repo Loan matures, it will generally be replaced by a new Fixed Rate Repo Loan based on market interest rates established at that future date.

In the case of interest rate swaps, most of our contracts are structured such
that we receive payments based on a variable interest rate and make payments
based on a fixed interest rate. The variable interest rate on which payments are
received is generally calculated based on various reset mechanisms for a
benchmark rate such as LIBOR or SOFR. To the extent that the benchmark rates
used to calculate the payments we receive on our interest rate swaps continue to
be highly correlated with our repo borrowing costs, our interest rate swap
contracts should help to reduce the variability of our overall repo borrowing
costs, thus reducing risk to the extent we hold fixed-rate assets that are
financed with repo borrowings. While for the time being the majority of our
interest rate swaps are LIBOR-based interest rate swap contracts, we have
entered into interest rate swap contracts based on other benchmark rates, such
as SOFR.

In the case of TBAs, many of our positions are short TBA positions with negative
duration, meaning that should interest rates rise, the value of the short
position would be expected to increase. This expected increase in value would
then serve to offset corollary expected increases in our current and/or future
borrowing costs under our repurchase agreements, and so in this manner our short
TBA positions serve as a hedge against potential increases in interest rates.
While we use TBAs to hedge interest rate risk and certain other risks, we also
hold net long positions in certain TBA securities as a means of acquiring
exposure to Agency RMBS.
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The composition and relative mix of our hedging instruments may vary from period
to period given the amount of our liabilities outstanding or anticipated to be
entered into, the overall market environment and our view as to which
instruments best enable us to execute our hedging goals.

Leverage

The following table summarizes our outstanding liabilities under repurchase
agreements as of December 31, 2021 and 2020. We had no other borrowings
outstanding.
                                                    December 31, 2021                                                    December 31, 2020
                                                                Weighted Average                                                     Weighted Average
Remaining Days to                Borrowings                                Remaining Days to          Borrowings                                Remaining Days to
Maturity                        Outstanding           Interest Rate            Maturity              Outstanding           Interest Rate            Maturity
                               (In thousands)
30 days or less               $     162,089                  0.18  %                      13       $     307,544                  0.27  %                      15
31-60 days                          235,321                  0.21                         43             541,104                  0.23                         44
61-90 days                          114,931                  0.18                         72              92,314                  0.26                         74
91-120 days                         104,361                  0.17                        106                   -                     -                     -
121-150 days                        148,855                  0.16                        133               2,371                  0.27                        126
151-180 days                         56,337                  0.15                        163              53,150                  0.32                        162
181-364 days                        242,941                  0.19                        238              18,762                  0.26                        257
Total                         $   1,064,835                  0.18  %                     111       $   1,015,245                  0.25  %                      48


We finance our assets with what we believe to be a prudent amount of leverage,
which will vary from time to time based upon the particular characteristics of
our portfolio, availability of financing, and market conditions. As of
December 31, 2021 and 2020, our total debt-to-equity ratio was 6.9:1 and 6.1:1,
respectively. Collateral transferred with respect to our outstanding repo
borrowings, including net cash collateral posted, as of both December 31, 2021
and 2020 had an aggregate fair value of $1.1 billion. Our debt-to-equity ratio
may fluctuate period over period based on portfolio management decisions, market
conditions, capital markets conditions, and the timing of security purchase and
sale transactions.

From December 31, 2021we had cash and cash equivalents of $69.0 millionas well as other unencumbered assets of approximately $16.7 million.

Equity

As of December 31, 2021, our shareholders' equity decreased to $154.2 million
from $166.4 million as of December 31, 2020. This decrease principally consisted
of dividends declared of $15.1 million and a net loss of $(6.3) million,
partially offset by net proceeds from the issuances of common shares of $9.0
million. As of December 31, 2021, our book value per share was $11.76, as
compared to $13.48 as of December 31, 2020.
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Results of operations for the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended
December 31, 2021 and 2020:

Year ended in December

31,

(In thousands except for per share amounts)                                         2021                2020
Interest Income (Expense)
Interest income                                                                 $   28,364          $   27,320
Interest expense                                                                    (2,723)             (9,965)
Net interest income                                                                 25,641              17,355
Expenses
Management fees to affiliate                                                         2,402               2,357
Other operating expenses                                                             3,350               3,469
Total expenses                                                                       5,752               5,826

Other net realized income (losses) and change in net unrealized gains (losses) on securities

                                                                         (32,272)             27,742

Net realized gains (losses) and change in net unrealized gains (losses) on financial derivatives

                                                                6,074             (19,159)
Total Other Income (Loss)                                                          (26,198)              8,583
Net Income (Loss)                                                               $   (6,309)         $   20,112
Net Income (Loss) Per Common Share                                              $    (0.50)         $     1.63


Core Earnings

Core Earnings consists of net income (loss), excluding realized and change in
net unrealized gains and (losses) on securities and financial derivatives, and
excluding, if applicable, any non-recurring items of income or loss. Core
Earnings also excludes the effect of the Catch-up Premium Amortization
Adjustment on interest income. The Catch-up Premium Amortization Adjustment is a
quarterly adjustment to premium amortization triggered by changes in actual and
projected prepayments on our Agency RMBS (accompanied by a corresponding
offsetting adjustment to realized and unrealized gains and losses). The
adjustment is calculated as of the beginning of each quarter based on our
then-current assumptions about cashflows and prepayments, and can vary
significantly from period to period. Core Earnings includes net realized and
change in net unrealized gains (losses) associated with periodic settlements on
interest rate swaps.

Core Earnings is a supplemental non-GAAP financial measure. We believe that Core
Earnings provides information useful to investors because it is a metric that we
use to assess our performance and to evaluate the effective net yield provided
by the portfolio. Moreover, one of our objectives is to generate income from the
net interest margin on the portfolio, and Core Earnings is used to help measure
the extent to which this objective is being achieved. In addition, we believe
that presenting Core Earnings enables our investors to measure, evaluate and
compare our operating performance to that of our peer companies. However,
because Core Earnings is an incomplete measure of our financial results and
differs from net income (loss) computed in accordance with GAAP, it should be
considered as supplementary to, and not as a substitute for, net income (loss)
computed in accordance with GAAP.
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The following table reconciles, for the years ended December 31, 2021 and 2020,
Core Earnings to the line on the Consolidated Statement of Operations entitled
Net Income (Loss), which we believe is the most directly comparable GAAP
measure:
                                                                             Year Ended December
                                                                                     31,
(In thousands except for share amounts)                                                2021                  2020
Net Income (Loss)                                                                 $     (6,309)         $     20,112
Adjustments:
Net realized (gains) losses on securities                                               (3,818)              (12,117)
Change in net unrealized (gains) losses on securities                                   36,090               (15,625)
Net realized (gains) losses on financial derivatives                                     2,526                13,204

Change in net unrealized (gains) losses on financial derivatives

                                                                             (8,600)                5,955

Net realized gains (losses) on periodic settlements of interest rate swaps

                                                                              (1,856)                 (810)

Change in net unrealized gains (losses) on cumulative periodic settlements of interest rate swaps

                                                        (355)                 (134)
Non-recurring expenses                                                                      58                   351

Negative (positive) component of interest income represented by catch-up bonus amortization adjustment

            (1,662)                4,619
Subtotal                                                                                22,383                (4,557)
Core Earnings                                                                     $     16,074          $     15,555
Weighted Average Shares Outstanding                                                 12,683,761            12,353,246
Core Earnings Per Share                                                           $       1.27          $       1.26

Results of operations for the years ended December 31, 2021 and 2020

Net profit (net loss)

Net income (loss) for the year ended December 31, 2021 was $(6.3) million, as
compared to $20.1 million for the year ended December 31, 2020. The reversal in
our results of operations year over year was primarily due to total other losses
for the year ended December 31, 2021, as compared to total other gains for the
year ended December 31, 2020, partially offset by an increase in net interest
income.

Interest Income

Our portfolio as of both December 31, 2021 and 2020 consisted primarily of
Agency RMBS, and to a lesser extent, non-Agency RMBS. Before interest expense,
we earned approximately $28.3 million and $26.9 million in interest income on
these securities for the years ended December 31, 2021 and 2020, respectively.
The year-over-year increase in interest income primarily resulted from higher
yields and a larger Agency RMBS portfolio in 2021. The Catch-up Premium
Amortization Adjustment causes variability in our interest income and portfolio
yields. For the year ended December 31, 2021, we had a positive Catch-up Premium
Amortization Adjustment of approximately $1.7 million, which increased interest
income. For the year ended December 31, 2020, we had a negative Catch-up Premium
Amortization Adjustment of approximately $(4.6) million, which decreased
interest income. Excluding the Catch-up Premium Amortization Adjustments, the
weighted average yield of our overall portfolio was 2.36% and 2.82% for the
years ended December 31, 2021 and 2020, respectively.

The following table details our interest income, average holdings of yield-bearing assets and average return weighted by amortized cost for the years ended December 31, 2021 and 2020:

                                                  Agency(1)                                                 Non-Agency(1)                                                  Total(1)
                            Interest                                                        Interest           Average                               Interest
(In thousands)               Income            Average Holdings            Yield             Income            Holdings            Yield              Income            Average Holdings            Yield
Year ended
December 31, 2021         $  27,497          $       1,118,346              2.46  %       $     757          $   8,485               8.91  %       $  28,254          $       1,126,831              2.51  %
Year ended
December 31, 2020         $  25,337          $       1,095,537              2.31  %       $   1,552          $  20,837               7.45  %       $  26,889          $       1,116,374              2.41  %


(1) Amounts exclude interest income on cash and cash equivalents (including when recognized as margin) and long we Treasury securities.

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Interest charges

For the years ended December 31, 2021 and 2020, the majority of interest expense
that we incurred was related to our repo borrowings, which we use to finance our
assets. We also incur interest expense in connection with our short positions in
U.S. Treasury securities as well as on our counterparties' cash collateral held
by us. Our total interest expense for the year ended December 31, 2021 was $2.7
million, which primarily consisted of $2.1 million of interest expense on our
repo borrowings, and $0.6 million of interest expense related to our short
positions in U.S. Treasury securities. Our total interest expense for the year
ended December 31, 2020 was $10.0 million, consisting primarily of $9.7 million
of interest expense on our repo borrowings, and $0.2 million of interest expense
related primarily to our short positions in U.S. Treasury securities. The
year-over-year decrease in our total interest expense resulted mainly from
significantly lower rates on our repo borrowings stemming from the decrease in
short-term interest rates.

The following table presents information relating to our average cost of funds(1) for the years ended December 31, 2021 and 2020:

                                                      Repurchase                                            Interest Rate
                                                      Agreements                                              Swaps(2)                                 Short U.S. Treasury Securities(2)(3)                              Total(2)
                                                                                                                                                                                                             Interest
                                                                                                                                                                                                              and net
                                                                                                                       Adjustment to                                                 Adjustment to           periodic
                                                                            Average            Net periodic               Average                                                       Average               expense         Adjusted Average
                                   Average             Interest             Cost of           expense paid or             Cost of                                                       Cost of               paid or             Cost of
                               Borrowed Funds          Expense               Funds                payable                  Funds                    Interest expense                     Funds                payable              Funds
(In thousands)
Year ended December 31,
2021                           $  1,097,793          $   2,130                  0.19  %       $      2,149                      0.20  %       $        
    561                               0.05  %       $  4,840                   0.44  %
Year ended December 31,
2020                           $  1,071,352          $   9,706                  0.91  %       $        899                      0.08  %       $             218                               0.02  %       $ 10,823                   1.01  %


(1)This metric does not take into account other instruments that we use to hedge
interest rate risk, such as TBAs, swaptions, and futures.
(2)As an alternative cost of funds measure, we add to our repo borrowing cost
the net periodic amounts paid or payable by us on our interest rate swaps and
the interest expense we incur on our short positions in U.S. Treasury
securities, and express the total as a percentage of our average outstanding
repurchase agreement borrowings.
(3)Includes interest expense on reverse repurchase agreements with negative
interest rates, which can occur when we borrow certain bonds that we have sold
short.

For the years ended December 31, 2021 and 2020, average one-month LIBOR was
0.10% and 0.52%, respectively. For the years ended December 31, 2021 and 2020,
average six-month LIBOR was 0.20% and 0.69%, respectively. For the year ended
December 31, 2021, the weighted average yield of our portfolio of Agency and
non-Agency RMBS excluding the impact of the Catch-up Premium Amortization
Adjustment was 2.36%, while our total adjusted average cost of funds, including
interest rate swaps and short U.S. Treasury securities, was 0.44%, resulting in
a net interest margin of 1.92%. By comparison, for the year ended December 31,
2020, the weighted average yield of our Agency and non-Agency RMBS excluding the
impact of the Catch-up Premium Amortization Adjustment was 2.82%, while our
total adjusted average cost of funds, including interest rate swaps and short
U.S. Treasury securities, was 1.01%, resulting in a net interest margin of
1.81%.

Management fees

For each of the completed years December 31, 2021 and 2020, our management fees were approximately $2.4 million. Management fees are calculated based on our equity at the end of each quarter.

Other operating expenses

Other operating expenses, as presented above, include professional fees,
compensation expense, insurance expense, and various other expenses incurred in
connection with the operation of our business. For the years ended December 31,
2021 and 2020, our other operating expenses were approximately $3.4 million and
$3.5 million, respectively. The decrease in other operating expenses for the
year ended December 31, 2021 was primarily due to a decrease in professional
fees partially offset by an increase in compensation expense.

Other income (losses)

Other income (loss) consists of net realized and net change in unrealized gains
(losses) on securities and financial derivatives. For the year ended
December 31, 2021, Other income (loss) was $(26.2) million, consisting primarily
of net realized and unrealized losses of $(32.3) million on securities,
partially offset by net realized and unrealized gains of $6.1 million on our
financial derivatives. Net realized and unrealized losses of $(32.3) million on
securities primarily consisted of $(34.5) million of net realized and unrealized
losses on our Agency RMBS which were partially offset by net realized gains of
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$1.9 million on our short U.S. Treasury securities. Net realized and unrealized
gains of $6.1 million on our financial derivatives primarily consisted of $7.7
million of net realized and unrealized gains on our swaps and futures partially
offset by net realized and unrealized losses of $(1.6) million on our TBAs,
where net gains on our higher-coupon short holdings were exceeded by net losses
on our lower-coupon long holdings. During 2021, interest rate volatility and
long-term interest rates increased during much of the year. Yield spreads on
most of our Agency RMBS holdings widened and their prices declined, leading to
net realized and unrealized losses. For the year ended December 31, 2021, net
realized and unrealized gains of $1.9 million and $6.1 million on our short U.S.
Treasury securities and our financial derivatives, respectively, were primarily
the result of the increase in long-term interest rates.

For the year ended December 31, 2020, Other income (loss) was $8.6 million,
consisting primarily of net realized and change in net unrealized gains of $27.0
million on our Agency RMBS and $3.2 million on our non-Agency RMBS, which were
partially offset by net realized and change in net unrealized losses of $(2.7)
million on our short U.S. Treasury securities and $(19.2) million on our
financial derivatives. The gains on our Agency RMBS holdings were mainly driven
by appreciation of our fixed rate specified pools in response to declining
interest rates. For the year ended December 31, 2020, as measured by sales and
excluding paydowns, we turned over approximately 64% of our Agency RMBS
portfolio and, as a result of these sales, we generated net realized gains of
$11.8 million on our Agency RMBS portfolio. For the year ended December 31,
2020, we had net realized and change in net unrealized losses on our financial
derivatives of $(19.2) million, which consisted of net realized and change in
net unrealized losses of $(16.9) million on our interest rate swaps and $(6.6)
million on our futures, which were partially offset by net realized and change
in net unrealized gains of $4.4 million on our TBAs. The net losses on our
financial derivatives were largely incurred during the three-month period ended
March 31, 2020, when interest rates declined sharply and were highly volatile
during the market stresses caused by the spread of the COVID-19 pandemic.

Cash and capital resources

Liquidity refers to our ability to generate and obtain adequate amounts of cash
to meet our requirements, including repaying our borrowings, funding and
maintaining RMBS and other assets, paying dividends, and other general business
needs. Our short-term (the 12 months ending December 31, 2022) and long-term
(beyond December 31, 2022) liquidity requirements include acquisition costs for
assets we acquire, payment of our management fee, compliance with margin
requirements under our repurchase agreements, TBA and other financial derivative
contracts, repayment of repurchase agreement borrowings to the extent we are
unable or unwilling to extend our repurchase agreements, the payment of
dividends, and payment of our general operating expenses. Our capital resources
primarily include cash on hand, cash flow from our investments (including
monthly principal and interest payments received on our RMBS and proceeds from
the sale of RMBS), borrowings under repurchase agreements, and proceeds from
equity offerings. We expect that these sources of funds will be sufficient to
meet our short-term and long-term liquidity needs.

We borrow funds in the form of repurchase agreements. The terms of our repo
borrowings are predominantly governed by Master Repurchase Agreements, or
"MRAs," which generally conform to the terms in the standard master repurchase
agreement as published by the Securities Industry and Financial Markets
Association as to repayment and margin requirements. In addition, each lender
may require that we include supplemental terms and conditions to the standard
master repurchase agreement. Typical supplemental terms and conditions include
the addition of or changes to provisions relating to margin calls, net asset
value requirements, cross default provisions, certain key person events, changes
in corporate structure, and requirements that all controversies related to the
repurchase agreement be litigated in a particular jurisdiction. These provisions
may differ for each of our lenders.

From December 31, 2021 and 2020 we had $1.1 billion and $1.0 billion
outstanding under our repurchase agreements, respectively. From December 31, 2021our current repurchase agreements were with 15 counterparties.

The amounts borrowed under our repurchase agreements are generally subject to
the application of "haircuts." A haircut is the percentage discount that a repo
lender applies to the market value of an asset serving as collateral for a repo
borrowing, for the purpose of determining whether such repo borrowing is
adequately collateralized. As of December 31, 2021 and 2020, the weighted
average contractual haircut applicable to the assets that serve as collateral
for our outstanding repo borrowings was 5.2% and 5.3%, respectively.
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The following table details total outstanding borrowings, average outstanding
borrowings, and the maximum outstanding borrowings at any month end for each
quarter under repurchase agreements for the past twelve quarters.

                                               Borrowings                  Average               Maximum Borrowings
                                             Outstanding at              Borrowings              Outstanding at Any
Quarter Ended                                  Quarter End               Outstanding                 Month End
                                                                         (In thousands)
December 31, 2021                          $      1,064,835          $      1,068,384          $         1,088,712
September 30, 2021                                1,062,197                 1,114,820                    1,140,182
June 30, 2021                                     1,135,497                 1,166,954                    1,196,779
March 31, 2021                                    1,106,724                 1,040,521                    1,106,724
December 31, 2020                                 1,015,245                 1,033,128                    1,050,840
September 30, 2020                                1,061,640                 1,030,402                    1,096,065
June 30, 2020                                       909,821                   941,242                      920,712
March 31, 2020(1)                                 1,109,342                 1,281,507                    1,308,377
December 31, 2019                                 1,296,272                 1,301,270                    1,319,839
September 30, 2019                                1,337,984                 1,369,722                    1,374,080
June 30, 2019                                     1,442,043                 1,412,434                    1,442,043
March 31, 2019                                    1,427,147                 1,422,333                    1,427,147


(1)For the quarter ended March 31, 2020 in response to significant volatility
and heightened risks in the financial markets as a result of the spread of
COVID-19, we significantly reduced our outstanding borrowings to lower leverage
and increase our liquidity.

As of December 31, 2021, we had an aggregate amount at risk under our repurchase
agreements with 15 counterparties of $52.7 million. As of December 31, 2020, we
had an aggregate amount at risk under our repurchase agreements with 15
counterparties of $53.7 million. Amounts at risk represent the excess, if any,
for each counterparty of the fair value of collateral held by such counterparty
over the amounts outstanding under repurchase agreements. If the amounts
outstanding under repurchase agreements with a particular counterparty are
greater than the collateral held by the counterparty, there is no amount at risk
for the particular counterparty. Amounts at risk under our repurchase agreements
as of December 31, 2021 and 2020 does not include $2.6 million and $2.9 million,
respectively, of net accrued interest receivable, which is defined as accrued
interest on securities held as collateral less interest payable on cash
borrowed.

Our derivatives are predominantly subject to bilateral master trade agreements
or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer
Protection Act, or the "Dodd-Frank Act." We may be required to deliver or
receive cash or securities as collateral upon entering into derivative
transactions. Changes in the relative value of derivative transactions may
require us or the counterparty to post or receive additional collateral.
Entering into derivative contracts involves market risk in excess of amounts
recorded on our balance sheet. In the case of cleared derivatives, the
clearinghouse becomes our counterparty and the future commission merchant acts
as an intermediary between us and the clearinghouse with respect to all facets
of the related transaction, including the posting and receipt of required
collateral.

As of December 31, 2021, we had an aggregate amount at risk under our derivative
contracts, excluding TBAs, with two counterparties of approximately $11.3
million. As of December 31, 2020, we had an aggregate amount at risk under our
derivatives contracts, excluding TBAs, with two counterparties of approximately
$5.1 million. We also had $3.9 million of initial margin for cleared OTC
derivatives posted to central clearinghouses as of that date. Amounts at risk
under our derivatives contracts represent the excess, if any, for each
counterparty of the fair value of our derivative contracts plus our collateral
held directly by the counterparty less the counterparty's collateral held by us.
If a particular counterparty's collateral held by us is greater than the
aggregate fair value of the financial derivatives plus our collateral held
directly by the counterparty, there is no amount at risk for the particular
counterparty.

We purchase and sell TBAs and Agency pass-through certificates on a when-issued
or delayed delivery basis. The delayed delivery for these securities means that
these transactions are more prone to market fluctuations between the trade date
and the ultimate settlement date, and therefore are more vulnerable, especially
in the absence of margining arrangements with respect to these transactions, to
increasing amounts at risk with the applicable counterparties. As of
December 31, 2021, in connection with our forward settling TBA and Agency
pass-through certificates, we had an aggregate amount at risk with four
counterparties of approximately $4.1 million. As of December 31, 2020, in
connection with our forward settling TBA and Agency pass-through certificates,
we had an aggregate amount at risk with four counterparties of approximately
$3.5 million. Amounts at risk in connection with our forward settling TBA and
Agency pass-through certificates represent the excess, if any, for each
counterparty of the net fair value of the forward settling securities plus our
collateral held directly by the counterparty
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less the counterparty's collateral held by us. If a particular counterparty's
collateral held by us is greater than the aggregate fair value of the forward
settling securities plus our collateral held directly by the counterparty, there
is no amount at risk for the particular counterparty.

We held cash and cash equivalents of $69.0 million and $58.2 million from
December 31, 2021 and 2020, respectively.

The timing and frequency of distributions will be determined by our Board of
Trustees based upon a variety of factors deemed relevant by our trustees,
including restrictions under applicable law, our capital requirements, and the
REIT requirements of the Code. The declaration of dividends to our shareholders
and the amount of such dividends are at the discretion of our Board of Trustees.
The following table sets forth the dividend distributions authorized by the
Board of Trustees for the periods indicated below:

Year ended December 31, 2021

Dividend Dividend

    Per Share           Amount            Declaration Date          Record Date            Payment Date
                    (In thousands)

   $     0.10           1,311             December 7, 2021       December 

30, 2021 January 25, 2022

         0.10           1,310             November 5, 2021       November 

30, 2021 December 27, 2021

         0.10           1,294             October 7, 2021         October 

29, 2021 November 26, 2021

         0.30           3,881            September 14, 2021      September 

30, 2021 October 25, 2021

         0.30           3,876               June 9, 2021           June 30, 2021           July 26, 2021
         0.28           3,456              March 3, 2021           March

31, 2021 April 26, 2021

Year ended December 31, 2020

Dividend Dividend

    Per Share           Amount            Declaration Date          Record Date            Payment Date
                    (In thousands)

$0.28 $3,456 December 17, 2020 December 31, 2020 January 25, 2021

         0.28                3,454       September 10, 2020      September 

30, 2020 October 26, 2020

         0.28                3,450         June 10, 2020           June 30, 

2020 July 27, 2020

         0.28                3,449         March 4, 2020           March

31, 2020 April 27, 2020


On January 7, 2022, the Board of Trustees approved a monthly dividend in the
amount of $0.10 per share payable on February 25, 2022 to shareholders of record
as of January 31, 2022.

On February 7, 2022, the Board of Trustees approved a monthly dividend in the
amount of $0.10 per share payable on March 25, 2022 to shareholders of record as
of February 28, 2022.

At March 7, 2022the board of directors approved a monthly dividend in the amount of $0.10 per share payable on April 25, 2022 to shareholders registered in March 31, 2022.

For the year ended December 31, 2021, our operating activities provided net cash
of $27.9 million and our investing activities used net cash of $15.2 million.
Our repo activity used to finance our purchase of securities (including
repayments, in conjunction with the sales of securities, of amounts borrowed
under our repurchase agreements as well as collateral posted in connection with
our repo activity) provided net cash of $6.6 million. Thus our operating and
investing activities, when combined with our net repo financing activities,
provided net cash of $19.2 million. We also received proceeds, net of offering
costs paid, from the issuances of common shares of $8.9 million. We used $17.3
million to pay dividends. As a result of these activities, there was an increase
in our cash holdings of $10.9 million, from $58.2 million as of December 31,
2020 to $69.0 million as of December 31, 2021.

For the year ended December 31, 2020, our operating activities provided net cash
of $24.4 million and our investing activities provided net cash of $304.1
million. Our repo activity used to finance our purchase of securities (including
repayments, in conjunction with the sales of securities, of amounts borrowed
under our repurchase agreements as well as collateral posted in connection with
our repo activity) used net cash of $290.8 million. Thus our operating and
investing activities, when combined with our net repo financing activities,
provided net cash of $37.6 million. We used $13.8 million to pay dividends and
$1.0 million to repurchase common shares. As a result of these activities, there
was an increase in our cash holdings of $22.8 million, from $35.4 million as of
December 31, 2019 to $58.2 million as of December 31, 2020.
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On April 2, 2021, we commenced an "at-the-market" offering program, or "ATM
program," by entering into equity distribution agreements with third party sales
agents under which we are authorized to offer and sell up to $75.0 million of
common shares from time to time. During the year ended December 31, 2021, we
issued 163,269 common shares under the ATM program which provided $1.9 million
of net proceeds after $29 thousand of agent commissions and offering costs. As
of December 31, 2021, the Company had $73.0 million of common shares available
to be issued remaining under the ATM program.

On June 17, 2021, the Company sold 575,000 of its common shares as part of a
follow-on offering, which generated net proceeds, after underwriters' discounts
and commissions and offering costs, of $7.1 million.

On June 13, 2018, our Board of Trustees approved the adoption of a share
repurchase program under which we are authorized to repurchase up to 1.2 million
common shares. The program, which is open-ended in duration, allows us to make
repurchases from time to time on the open market or in negotiated transactions,
including through Rule 10b5-1 plans. Repurchases are at our discretion, subject
to applicable law, share availability, price and our financial performance,
among other considerations. Under the current repurchase program adopted on June
13, 2018, we have repurchased 434,171 common shares through March 4, 2022 at an
average price per share of $9.45 and an aggregate cost of $4.1 million, and have
authorization to repurchase an additional 765,829 common shares. We did not
purchase any shares under this program during the year ended December 31, 2021.

Based on our current portfolio, amount of free cash on hand, debt-to-equity
ratio and current and anticipated availability of credit, we believe that our
capital resources will be sufficient to enable us to meet anticipated short-term
and long-term liquidity requirements.

Our investment guidelines do not require us to maintain a specific leverage ratio, and we believe that appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets. , as well as the general availability and stable and reliable financing conditions for these assets.

Contractual obligations and commitments

We are a party to a management agreement with our Manager. Pursuant to that
agreement, our Manager is entitled to receive a management fee based on
shareholders' equity, reimbursement of certain expenses and, in certain
circumstances, a termination fee. Such fees and expenses do not have fixed and
determinable payments. For a description of the management agreement provisions,
see Note 9 to our consolidated financial statements.

We enter into repurchase agreements with third-party broker-dealers whereby we
sell securities to such broker-dealers at agreed-upon purchase prices at the
initiation of the repurchase agreements and agree to repurchase such securities
at predetermined repurchase prices and termination dates, thus providing the
broker-dealers with an implied interest rate on the funds initially transferred
to us by the broker-dealers. We may enter into reverse repurchase agreements
with third-party broker-dealers whereby we purchase securities under agreements
to resell at an agreed-upon price and date. In general, we most often will enter
into reverse repurchase agreement transactions in order to effectively borrow
securities that we can then deliver to counterparties to whom we have made short
sales of the same securities. The implied interest rates on the repurchase
agreements and reverse repurchase agreements we enter into are based upon
competitive market rates at the time of initiation. Repurchase agreements and
reverse repurchase agreements that are conducted with the same counterparty may
be reported on a net basis if they meet the requirements of ASC 210-20, Balance
Sheet, Offsetting. As of both December 31, 2021 and December 31, 2020, there
were no repurchase agreements and reverse repurchase agreements reported on a
net basis on the Consolidated Balance Sheet.

From December 31, 2021we have had $1.1 billion outstanding borrowings from 15 counterparties.

Off-balance sheet arrangements

As of December 31, 2021, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. Further, we have not guaranteed
any obligations of unconsolidated entities nor do we have any commitment or
intent to provide funding to any such entities. As such, we are not materially
exposed to any market, credit, liquidity, or financing risk that could arise if
we had engaged in such relationships.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. Therefore, interest rates and other factors

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influence our performance far more so than does inflation. Changes in interest
rates do not necessarily correlate with inflation rates or changes in inflation
rates. Our activities and balance sheet are measured with reference to
historical cost and/or fair market value without considering inflation.

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