CHIMERA INVESTMENT CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
notes to those statements included in Item 1 of this Quarterly Report on Form
10-Q.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


We make forward-looking statements in this report that are subject to risks and
uncertainties. These forward-looking statements include information about, among
other things, possible or assumed future results of our business, financial
condition, liquidity, results of operations, plans and objectives. When we use
the words ''believe,'' ''expect,'' ''anticipate,'' ''estimate,'' ''plan,''
''continue,'' ''intend,'' ''should,'' ''may,'' ''would,'' ''will'' or similar
expressions, we intend to identify forward-looking statements. Statements
regarding the following subjects, among others, are forward-looking by their
nature:

•our business and investment strategy;

•our ability to accurately forecast the payment of future dividends on our
common and preferred stock, and the amount of such dividends;

•our ability to determine accurately the fair market value of our assets;


•availability of investment opportunities in real estate-related and other
securities, including our valuation of potential opportunities that may arise as
a result of current and future market dislocations;

•effect of the novel coronavirus, or COVID-19, pandemic on real estate market,
financial markets and our Company, including the impact on the value,
availability, financing and liquidity of mortgage assets;

•how COVID-19 may affect us, our operations and our personnel;

•our expected investments;

•changes in the value of our investments, including negative changes resulting
in margin calls related to the financing of our assets;

•changes in inflation, interest rates and mortgage prepayment rates;

•prepayments of the mortgage and other loans underlying our mortgage-backed
securities, or MBS, or other asset-backed securities, or ABS;

•rates of default, delinquencies, forbearance, deferred payments or decreased
recovery rates on our investments;

•general volatility of the securities markets in which we invest;

•our ability to maintain existing financing arrangements and our ability to
obtain future financing arrangements;

•our ability to affect our strategy to securitize residential mortgage loans;

•interest rate mismatches between our investments and our borrowings used to
finance such purchases;

•effects of interest rate caps on our adjustable-rate investments;

•the degree to which our hedging strategies may or may not protect us from
interest rate volatility;

•the impact of and changes to various government programs, including in response
to COVID-19;

•impact of and changes in governmental regulations, tax law and rates,
accounting guidance, and similar matters;

•market trends in our industry, interest rates, the debt securities markets or
the general economy;

•estimates relating to our ability to make distributions to our stockholders in
the future;

•our understanding of our competition;

•our ability to find and retain qualified personnel;

•our ability to maintain our classification as a real estate investment trust,
or REIT, for U.S. federal income tax purposes;

•our ability to maintain our exemption from registration under the Investment
Company Act of 1940, as amended, or 1940 Act;

•our expectations regarding materiality or significance; and

•the effectiveness of our disclosure controls and procedures.

Forward-looking statements are based on our beliefs, assumptions and
expectations of our future performance, taking into account all information
currently available to us. You should not place undue reliance on these
forward-looking statements. These beliefs, assumptions and expectations can
change as a result of many possible events or factors, not all of which are
known to us. If a change occurs, our business, financial condition, liquidity,
results of operations and prospects may vary

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materially from those expressed in our forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is made. New
risks and uncertainties arise from time to time, and it is impossible for us to
predict those events or how they may affect us. Except as required by law, we
are not obligated to, and do not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

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Executive Summary

We are a publicly traded REIT that is primarily engaged in the business of
investing directly or having a beneficial interest in a diversified portfolio of
mortgage assets, including residential mortgage loans, Agency RMBS, Non-Agency
RMBS, Agency CMBS, and other real estate-related assets. We use leverage to
increase returns while managing the difference or spread between longer duration
assets and shorter duration financing. Our principal business objective is
seeking to provide an opportunity for stockholders to realize attractive
risk-adjusted returns through the generation of distributable income and through
asset performance linked to residential mortgage credit fundamentals. We
selectively invest in residential mortgage assets with a focus on credit
analysis, projected prepayment rates, interest rate sensitivity and expected
return.

We currently focus our investment activities primarily on acquiring residential
mortgage loans, Non-Agency RMBS and Agency mortgage-backed securities, or MBS.
At September 30, 2022, based on the fair value of our interest earning assets,
approximately 88% of our investment portfolio was residential mortgage loans, 9%
of our investment portfolio was Non-Agency RMBS, and 3% of our investment
portfolio was Agency MBS. At December 31, 2021, based on the fair value of our
interest earning assets, approximately 82% of our investment portfolio was
residential mortgage loans, 12% of our investment portfolio was Non-Agency RMBS,
and 6% of our investment portfolio was Agency MBS.

We use leverage to seek to increase our potential returns and to finance the
acquisition of our assets. We expect to finance our investments using a variety
of financing sources, including securitizations, warehouse facilities and
repurchase agreements. We may seek to manage our debt and interest rate risk by
utilizing interest rate hedges, such as interest rate swaps, caps, options and
futures to reduce the effect of interest rate fluctuations related to our
financing sources.

Our investment strategy is intended to take advantage of opportunities in the
current interest rate and credit environment. We update the execution of our
strategy to changing market conditions by shifting our asset allocations across
various asset classes as interest rates and credit cycles change over time. We
expect to take a long-term view of assets and liabilities.

Business Update


Persistent high inflation in the third quarter continued to put pressure on the
Federal Reserve to raise its benchmark interest rates at a faster pace than
previously estimated. The Federal Reserve responded by undertaking two 75
basis-points rate hikes in the third quarter, which brought the Federal Funds
Rate north of 3%, the highest level since 2008. As a result, mortgage rates
continued to surge reaching the highest level in more than 15 years causing more
home buyers to pull back from the market. This has negatively impacted both the
primary and secondary markets for residential mortgages.

During the third quarter of 2022, we committed to purchase $211 million of
Seasoned Re-Performing residential mortgage loans that will settle in the fourth
quarter. We plan to finance these loans with existing warehouse facilities. We
also committed to purchase $476 million Prime Jumbo loans during the third
quarter of 2022 and expect these loans to settle in the fourth quarter of 2022.
Simultaneous with the purchase of the Prime Jumbo mortgage loans, to finance
them, we expect to enter a $393 million, five-year non-mark-to-market senior
financing facility. Additionally, we purchased and settled on $66 million of
Business Purpose loans during the third quarter of 2022.

During the quarter ended September 30, 2022, we reduced our secured financing
borrowings by $328 million as compared to previous quarter ended June 30, 2022.
We continue to seek to optimize our liabilities through the use of
securitizations. In September 2022, we sponsored CIM 2022-R3, a rated
securitization of Seasoned Re-Performing residential mortgage loans with a
principal balance of $370 million. Securities issued by CIM 2022-R3, with an
aggregate balance of approximately $284 million, were sold in a private
placement to institutional investors. These senior securities represented
approximately 77% of the capital structure. We retained subordinate interests in
securities with an aggregate balance of approximately $86 million and certain
interest-only securities We also retained an option to call the securitized
mortgage loans at any time beginning in September 2027. Our average cost of debt
of this securitization is 5.80%.

In addition, we extended a maturing $489 million non-mark-to-market secured
financing facility by an additional 29 months to February 2025. We also
refinanced $114 million secured financing facility into an evergreen structure.
Lastly, our short-term funding costs increased by 151 basis-points during the
quarter consistent with increases in the Federal Funds Rate over the period.

Given the market outlook of higher interest rates for an extended period and the
potential consequence for increasing interest expense, we entered into two
interest rate swaps in September. The swaps were a $500 million two-year
interest rate swap and a $380 million five-year interest rate swap contract so
that we may partially hedge our borrowing costs over a longer period.


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We continue to focus on growing our Residential Credit portfolio; we have
acquired $1.6 billion in residential mortgage loans through the nine months
ended September 30, 2022. We continue to use securitization as the primary
financing vehicle for loans acquired and completed four securitizations totaling
$1.4 billion this year. At the end of the third quarter, 96% of our capital is
allocated to Residential Credit assets.

Market Conditions and our Strategy


The third quarter of 2022, like the previous two quarters of 2022, saw a
continued rise in forward interest rates and a continued widening of credit
spreads. In July, the market had started to focus on the possibility of interest
rate cuts from the Federal Reserve in 2023, given concerns about slowing growth;
however, such hopes faded quickly as the Federal Reserve reaffirmed its
commitment to fighting inflation even at the cost of slower growth. The Federal
Reserve raised its target Federal Funds Rate by 75 basis-points to 3.25% in
September which was a third consecutive 75 basis-point increase. This
contributed to equity markets moving lower and borrowing rates moving higher in
the second half of the third quarter of 2022.

Mixed economic data, lower energy and commodity prices offset by strong
employment and strength in the US Dollar have kept pressure on the Federal
Reserve to continue with its planned course of rate increases. Mortgages rates
also moved higher, surpassing 7% during third quarter of 2022, leading to a
significant slowdown in mortgage originations for refinance activity. Housing
markets have begun to show signs of softening, with slower turnover and home
price appreciation.

Spreads on all fixed income sectors continued to widen, albeit after a brief
tightening in July and early August. There was pervasive fear amongst investors
that the high yield credit markets may be at an inflection point, with worries
that higher interest rates may drive some highly leveraged companies into
insolvency. Agency MBS spreads continued to widen. Securitized products spreads
widened along with Agency spreads, however to a more moderate extent. The spread
on both Agency MBS and securitized products are approaching levels last seen
during the onset of the COVID-19 pandemic in March 2020. On the Non-Agency
mortgage new issue front, the increase in deal flow of Non-QM collateral has
increased pressure on spreads across the full capital structure spreading into
Re-Performing and Non-Performing deals. Overall, trading in the primary market
was relatively orderly, with most new issues finding clearing levels. The
immediate economic outlook remains challenging, with interest rate and spread
volatility expected to continue until there is some substantial softening in
inflation.

As a result of higher rates and wider spreads, we continued to experience mark
downs in our Agency and Residential Credit portfolios during the quarter ended
September 30, 2022. This drove a decline of $1.38 per common share in our book
value per common share to $7.44, as of September 30, 2022 as compared to $8.82
as of June 30, 2022.

While the current market conditions present challenges, we maintain our strategy
of acquiring new assets for the portfolio while preserving low leverage and
ample liquidity. As noted above, we have purchased additional hedges to protect
our earnings against rising interest rates. The significant increase in interest
expense during the quarter driven by increase in Federal Funds Rate led to a
decline in our earnings available for distribution. As a result, the Board of
Directors declared a $0.23 dividend down from $0.33 per share during the
quarter.

Business Operations

Net Income (Loss) Summary

The table below presents our net income (loss) on a GAAP basis for the quarters
ended September 30, 2022 and June 30, 2022, and the nine months ended
September 30, 2022 and September 30, 2021.

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                                                                 Net Income (Loss)
                                              (dollars in thousands, except share and per share data)
                                                                    (unaudited)
                                                  For the Quarters Ended                                    For the Nine Months Ended
                                     September 30,     June 30, 2022      QoQ Change           September 30,    September 30, 2021     YoY Change
                                          2022                                                      2022
Net interest income:
Interest income (1)                 $     188,303    $      195,357    $    

(7,054) $ 585,835 $ 716,384 $ (130,549)
Interest expense (2)

                       83,464            78,467            4,997                226,403               260,029         (33,626)
Net interest income                       104,839           116,890          (12,051)               359,432               456,355         (96,923)

Increase (decrease) in provision
for credit losses                          (1,534)            4,497           (6,031)                 3,203                   (58)          3,261

Other investment gains (losses):
Net unrealized gains (losses) on
derivatives                                10,307            (1,618)          11,925                  8,689                     -           8,689

Periodic interest cost of swaps,
net                                          (122)                -             (122)                  (122)                    -            (122)
Net gains (losses) on derivatives          10,185            (1,618)          11,803                  8,567                     -           8,567
Net unrealized gains (losses) on
financial instruments at fair value      (239,513)         (239,246)            (267)              (848,925)              545,643      (1,394,568)
Net realized gains (losses) on
sales of investments                      (37,031)                -          (37,031)               (37,031)               45,313         (82,344)

Gains (losses) on extinguishment of
debt                                            -            (2,897)           2,897                 (2,897)             (284,535)        281,638
Other investment gains (losses)              (462)              980           (1,442)                   517                     -             517
Total other gains (losses)               (266,821)         (242,781)         (24,040)              (879,769)              306,421      (1,186,190)

Other expenses:


Compensation and benefits                  10,000             8,859            1,141                 30,211                35,363          (5,152)
General and administrative expenses         4,836             5,944           (1,108)                16,493                16,672            (179)
Servicing and asset manager fees            8,516             9,315             (799)                27,122                27,659            (537)
Transaction expenses                        2,341             6,727           (4,386)                12,872                25,614         (12,742)
Total other expenses                       25,693            30,845           (5,152)                86,698               105,308         (18,610)

Income (loss) before income taxes (186,141) (161,233)

  (24,908)              (610,238)              657,526      (1,267,764)
Income taxes                                    4                94              (90)                    28                 5,146          (5,118)
Net income (loss)                   $    (186,145)   $     (161,327)   $    

(24,818) $ (610,266) $ 652,380 $ (1,262,646)


Dividends on preferred stock               18,438            18,438                -                 55,283                55,313             (30)

Net income (loss) available to
common shareholders                 $    (204,583)   $     (179,765)   $    

(24,818) $ (665,549) $ 597,067 $ (1,262,616)


Net income (loss) per share
available to common shareholders:
Basic                               $       (0.88)   $        (0.76)   $       (0.12)         $       (2.84)   $             2.57    $      (5.41)
Diluted                             $       (0.88)   $        (0.76)   $       (0.12)         $       (2.84)   $             2.42    $      (5.26)

Weighted average number of common
shares outstanding:
Basic                                 231,750,422       235,310,440       (3,560,018)           234,671,912           232,717,010       1,954,902
Diluted                               231,750,422       235,310,440       (3,560,018)           234,671,912           247,358,823     (12,686,911)

Dividends declared per share of
common stock                        $        0.23    $         0.33    $       (0.10)         $        0.89    $             0.96    $      (0.07)



(1) Includes interest income of consolidated VIEs of $139,598 and $140,209 for
the quarters ended September 30, 2022 and June 30, 2022, respectively, and
$410,873 and $446,198 for the nine months ended September 30, 2022 and 2021,
respectively. See Note 9 to consolidated financial statements for further
discussion.
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(2) Includes interest expense of consolidated VIEs of $50,030 and $50,193 for
the quarters ended September 30, 2022 and June 30, 2022, respectively, and
$142,714 and $159,666 for the six months ended September 30, 2022 and 2021,
respectively. See Note 9 to consolidated financial statements for further
discussion.

See accompanying notes to consolidated financial statements.

Results of Operations for the Quarters Ended September 30, 2022 and June 30,
2022
, and for the Nine Months Ended September 30, 2022 and September 30, 2021.

Our primary source of income is interest income earned on our assets, net of
interest expense paid on our financing liabilities.

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


For the quarter ended September 30, 2022, our net loss available to common
shareholders was $205 million, or $0.88 per average basic common share, as
compared to a net loss of $180 million, or $0.76 per average basic common share,
for the quarter ended June 30, 2022. The net loss for the quarter ended
September 30, 2022 was primarily driven by additional mark to market losses on
our portfolio's asset prices due to continued increases in interest rates and
credit spread widening. During the quarter ended September 30, 2022, we had net
unrealized losses on financial instruments at fair value of $240 million,
partially offset by net interest income of $105 million. During the quarter
ended June 30, 2022, we had net unrealized losses on financial instruments at
fair value of $239 million, partially offset by net interest income of $117
million.

The increase in net loss available to common shareholders for the quarter ended
September 30, 2022, as compared to the quarter ended June 30, 2022, was
primarily driven by net realized losses on sale of investments of $37 million as
compared to no sales of investments in the prior quarter, and a decrease in net
interest income of $12 million, which was partially offset by a net gain on
derivatives of $12 million, a decrease in provision for credit losses of $6
million, and a decrease in total other expense of $5 million.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


For the nine months ended September 30, 2022, our net loss available to common
shareholders was $666 million, or $2.84 per average basic common share, compared
to a net income of $597 million, or $2.57 per average basic common share for the
nine months ended September 30, 2021. The net loss available for the nine months
ended September 30, 2022 was primarily driven by mark to market losses on our
portfolio's asset prices due to continued increases in interest rates and credit
spread widening. During the nine months ended September 30, 2022, we had net
unrealized losses on financial instruments at fair value of $849 million,
partially offset by net interest income of $359 million. During the nine months
ended September 30, 2021, we had unrealized gains on financial instruments at
fair value of $546 million and net interest income of $456 million, partially
offset by losses on extinguishment of debt of $285 million and other expenses of
$105 million.

The increase in net loss available to common shareholders for the nine months
ended September 30, 2022, as compared to the nine months ended September 30,
2021 was primarily driven by an increase in unrealized losses on financial
instruments at fair value of $1.4 billion, a decrease in net interest income of
$97 million and an increase in realized losses on sale of investments of $82
million, which was partially offset by a decrease in losses on extinguishment of
debt of $282 million related to acquisitions of securitized debt collateralized
by Loans held for investment and a decrease in total other expense of $19
million.

Interest Income

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


Interest income decreased by $7 million, or 4%, to $188 million for the quarter
ended September 30, 2022 as compared to $195 million for the quarter ended June
30, 2022. This decrease in our interest income was driven by a decline in our
total average interest earnings assets of $430 million and lower yields on our
Non-Agency RMBS and Agency CMBS investments during the quarter ended
September 30, 2022 as compared to the quarter ended June 30, 2022. During the
quarter ended September 30, 2022 our interest income decreased by $6 million on
our Non-Agency RMBS, and $1 million on our Agency CMBS investments, due to lower
yields and lower average asset balance as compared to the quarter ended June 30,
2022.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


Interest income decreased by $130 million, or 18%, to $586 million for the nine
months ended September 30, 2022 as compared to $716 million for the nine months
ended September 30, 2021. This decrease in our interest income during the nine
months ended September 30, 2022 was primarily driven by a decline in our average
interest earning assets, lower prepayment penalties on our Agency CMBS
investments and lower yields on our Loans held for investments and Non-Agency
RMBS as
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compared to the nine months ended September 30, 2021. We reduced our average
interest earning asset balances by $916 million to $13.7 billion as compared to
$14.6 billion from the same period of 2021 to respond to rising interest rates
and Residential Credit cycle changes. Our Non-Agency RMBS and Loans held for
investment portfolio interest income decreased by $58 million and $27 million
due to lower asset balances and lower yields during the nine months ended
September 30, 2022 as compared to the same period of 2021. Our Agency CMBS
interest income decreased by $47 million as we received lower prepayment
penalties during the nine months ended September 30, 2022 as compared to the
same period of 2021.

Interest Expense

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


Interest expense increased by $5 million, or 6%, to $83 million for the quarter
ended September 30, 2022 as compared to $78 million for the quarter ended June
30, 2022. This increase in our interest expense during the quarter ended
September 30, 2022 was primarily driven by the increases in Federal Funds Rate
driving our secured financing agreement borrowing rates higher. During the
quarter ended September 30, 2022 our interest expense on secured financing
agreements collateralized by Loans held for investments, Non-Agency RMBS and
Agency CMBS increased by $3 million, $1 million, and $1 million, respectively,
as compared to the quarter ended June 30, 2022.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


Interest expense decreased by $34 million, or 13%, to $226 million for the nine
months ended September 30, 2022 as compared to $260 million for the nine months
ended September 30, 2021. This decrease was primarily driven by our de-levering
efforts to reduce secured financing agreements balances, and calls of our higher
rate securitized debt financing, replacing it with lower rates available.

During the nine months ended September 30, 2022 we reduced our average interest
bearing liability balances by $1.2 billion to $11.3 billion as compared to $12.5
billion, from the nine months ended September 30, 2021. During the nine months
ended September 30, 2022 interest expense on securitized debt decreased by $20
million and the average cost of funding on this same debt decreased by 20 basis
points as compared to the nine months ended September 30, 2021. Additionally,
due to lower average balances and financing rates our interest expense on
secured financing agreements collateralized by Non-Agency RMBS and Loans held
for investment decreased by $8 million and $5 million, respectively, as compared
to the nine months ended September 30, 2021.

Economic Net Interest Income


Our Economic net interest income is a non-GAAP financial measure that equals
GAAP net interest income adjusted for interest expense on long term debt, net
periodic interest cost of interest rate swaps and any interest earned on cash.
For the purpose of computing economic net interest income and ratios relating to
cost of funds measures throughout this section, interest expense includes net
payments on our interest rate swaps, which is presented as a part of Net gains
(losses) on derivatives in our Consolidated Statements of Operations. Interest
rate swaps are used to manage the increase in interest paid on secured financing
agreements in a rising rate environment. Presenting the net contractual interest
payments on interest rate swaps with the interest paid on interest-bearing
liabilities reflects our total contractual interest payments. We believe this
presentation is useful to investors because it depicts the economic value of our
investment strategy by showing all components of interest expense and net
interest income of our investment portfolio. However, Economic net interest
income should not be viewed in isolation and is not a substitute for net
interest income computed in accordance with GAAP. Where indicated, interest
expense, adjusting for interest payments on long term debt and any interest
earned on cash, is referred to as Economic interest expense. Where indicated,
net interest income reflecting interest payments on long term debt, net periodic
interest cost of interest rate swaps and any interest earned on cash, is
referred to as Economic net interest income.

The following table reconciles the Economic net interest income to GAAP net
interest income and Economic interest expense to GAAP interest expense for the
periods presented.

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                                                                Periodic
                                                                Interest                                                                         Economic
                                   GAAP              GAAP       Cost of    Interest Expense   Economic            GAAP Net                         Net
                                 Interest          Interest     Interest     on Long Term     Interest            Interest                       Interest
                                  Income            Expense    Rate Swaps        Debt          Expense             Income          Other (1)      Income

For the Quarter Ended
September 30, 2022             $ 188,303          $ 83,464    $     122    $           -    $   83,586          $  104,839       $     (662)   $ 104,177
For the Quarter Ended June 30,
2022                           $ 195,357          $ 78,467    $       -    $           -    $   78,467          $  116,890       $      (81)   $ 116,809
For the Quarter Ended March
31, 2022                       $ 202,175          $ 64,473    $       -    $           -    $   64,473          $  137,702       $      (18)   $ 137,684
For the Quarter Ended December
31, 2021                       $ 221,162          $ 66,598    $       -    $           -    $   66,598          $  154,564       $      (12)   $ 154,552
For the Quarter Ended
September 30, 2021             $ 220,579          $ 71,353    $       -    $        (239)   $   71,114          $  149,226       $      220    $ 149,446

(1) Primarily interest expense on Long term debt, periodic net interest cost on
swaps and interest income on cash and cash equivalents.

Net Interest Rate Spread


The following table shows our average earning assets held, interest earned on
assets, yield on average interest earning assets, average debt balance, economic
interest expense, economic average cost of funds, economic net interest income
and net interest rate spread for the periods presented.

                                                                                          For the Quarter Ended
                                                                 September 30, 2022                                     June 30, 2022
                                                               (dollars in thousands)                               (dollars in thousands)
                                                       Average                       Average                Average                       Average
                                                       Balance       Interest      Yield/Cost               Balance       Interest      Yield/Cost
Assets:
Interest-earning assets (1):
Agency RMBS                                        $    110,260    $     274               1.0  %       $    126,498    $     312               1.0  %
Agency CMBS                                             445,191        4,784               4.3  %            466,403        5,938               5.1  %
Non-Agency RMBS                                       1,061,412       33,565              12.6  %          1,098,317       39,362              14.3  %
Loans held for investment                            12,022,445      149,140               5.0  %         12,378,236      149,664               4.8  %
Total                                              $ 13,639,308    $ 187,763               5.5  %       $ 14,069,454    $ 195,276               5.6  %

Liabilities and stockholders' equity:
Interest-bearing liabilities (2):

Secured financing agreements collateralized by:
Agency RMBS                                        $      6,560    $      45               2.7  %       $     14,665    $      36               1.0  %
Agency CMBS                                             350,883        2,009               2.3  %            336,379          770               0.9  %
Non-Agency RMBS                                         853,768        7,368               3.5  %            831,864        6,221               3.0  %
Loans held for investment                             1,845,075       21,181               4.6  %          2,190,270       18,077               3.3  %
Securitized debt                                      8,176,766       52,983               2.6  %          8,330,885       53,363               2.6  %
Total                                              $ 11,233,052    $  83,586               3.0  %       $ 11,704,063    $  78,467               2.7  %

Economic net interest income/net interest rate
spread                                                             $ 104,177               2.5  %                       $ 116,809               

2.9 %


Net interest-earning assets/net interest margin    $  2,406,256                            3.1  %       $  2,365,391                            3.3  %

Ratio of interest-earning assets to interest
bearing liabilities                                        1.21                                                 1.20

(1) Interest-earning assets at amortized cost
(2) Interest includes periodic net interest cost
on swaps


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                                                                                       For the Nine Months Ended
                                                                September 30, 2022                                    September 30, 2021
                                                              (dollars in thousands)                                (dollars in thousands)
                                                      Average                       Average                 Average                       Average
                                                      Balance       Interest      Yield/Cost                Balance       Interest      Yield/Cost
Assets:
Interest-earning assets (1):
Agency RMBS                                       $    115,393    $     839               1.0  %        $    111,999    $     853               1.0  %
Agency CMBS                                            496,384       33,593               9.0  %           1,163,165       80,526               9.2  %
Non-Agency RMBS                                      1,168,586      118,603              13.5  %           1,508,973      176,204              15.6  %
Loans held for investment                           11,921,301      432,162               4.8  %          11,833,925      458,748               5.2  %
Total                                             $ 13,701,664    $ 585,197               5.7  %        $ 14,618,062    $ 716,331               6.5  %

Liabilities and stockholders' equity:
Interest-bearing liabilities (2):

Secured financing agreements collateralized by:
Agency RMBS                                       $     14,024    $     111               1.1  %        $     54,242    $     331               0.8  %
Agency CMBS                                            382,806        3,048               1.1  %           1,040,018        1,223               0.2  %
Non-Agency RMBS                                        835,233       19,037               3.0  %             903,742       26,918               4.0  %
Loans held for investment                            1,971,247       52,098               3.5  %           2,112,853       57,133               3.6  %
Securitized debt                                     8,077,615      152,231               2.5  %           8,394,680      172,151               2.7  %
Total                                             $ 11,280,925    $ 226,525               2.7  %        $ 12,505,535    $ 257,756               2.7  %

Economic net interest income/net interest rate
spread                                                            $ 358,672               3.0  %                        $ 458,575               3.8  %

Net interest-earning assets/net interest margin   $  2,420,739                            3.5  %        $  2,112,527                            4.2  %

Ratio of interest-earning assets to interest
bearing liabilities                                       1.21                                                  1.17

(1) Interest-earning assets at amortized cost
(2) Interest includes periodic net interest cost
on swaps



Economic Net Interest Income and the Average Earning Assets

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


Our Economic net interest income (which is a non-GAAP measure, see "Economic net
interest income" discussion earlier for details) decreased by $13 million to
$104 million for the quarter ended September 30, 2022 from $117 million compared
to the quarter ended June 30, 2022. Our net interest rate spread, which equals
the yield on our average interest-earning assets less the economic average cost
of funds, decreased by 40 basis points for the quarter ended September 30, 2022,
as compared to the quarter ended June 30, 2022. The net interest margin, which
equals the Economic net interest income as a percentage of the net average
balance of our interest-earning assets less our interest-bearing liabilities,
decreased by 20 basis points for the quarter ended September 30, 2022, as
compared to June 30, 2022. Our Average net interest-earning assets decreased by
$41 million to $2.4 billion for the quarter ended September 30, 2022, compared
to $2.4 billion for the quarter ended June 30, 2022. The decrease in our net
interest rate spread is primarily due to an increase in secured financing
agreement borrowing rates driven by the higher Federal Funds Rates during the
quarter ended September 30, 2022 as compared to quarter ended June 30, 2022.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


Our Economic net interest income (which is a non-GAAP measure, see "Economic net
interest income" discussion earlier for details) decreased by $100 million to
$359 million for the nine months ended September 30, 2022 from $459 million for
the nine months ended September 30, 2021. Our net interest rate spread, which
equals the yield on our average interest-earning assets less the economic
average cost of funds, decreased by 80 basis points for the nine months ended
September 30, 2022, as compared to the same period of 2021. The net interest
margin, which equals the Economic net interest income as a percentage of the net
average balance of our interest-earning assets less our interest-bearing
liabilities, decreased by 70 basis points for the nine months ended
September 30, 2022, as compared to the same period of 2021. Our Average net
interest-earning assets increased by $308 million to $2.4 billion for the nine
months ended September 30, 2022, compared to $2.1 billion for the same period of
2021. The decrease in our net interest rate spread for the nine months ended
September 30, 2022 as compared to the nine months ended September 30, 2021 is
primarily due to decline in our asset yields and lower prepayment penalties
received.
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Economic Interest Expense and the Cost of Funds


The borrowing rate at which we are able to finance our assets using secured
financing agreements is typically correlated to SOFR and the term of the
financing. The borrowing rate on majority of our securitized debt is fixed and
correlated to the term of the financing. The table below shows our average
borrowed funds, Economic interest expense, average cost of funds (inclusive of
periodic interest costs on swaps), average one-month SOFR, average three-month
SOFR and average one-month SOFR relative to average three-month SOFR.
                                                                                                                                 Average One-Month
                                                          Economic                                                               SOFR Relative to
                                        Average Debt      Interest   

Average Cost of Average One-Month Average Three-Month Average Three-Month

                                          Balance         Expense          Funds              SOFR                SOFR                 SOFR
                                                                   (Ratios 

have been annualized, dollars in thousands)


For the Quarter Ended September 30,
2022                                  $  11,233,052    $    83,586             2.98  %            2.45  %              2.84  %              (0.39) %

For the Quarter Ended June 30, 2022 $ 11,704,063 $ 78,467

    2.68  %            0.93  %              1.32  %              (0.39) %

For the Quarter Ended March 31, 2022 $ 11,092,249 $ 64,473

    2.32  %            0.16  %              0.34  %              (0.18) %
For the Quarter Ended December 31,
2021                                  $  11,477,331    $    66,598             2.32  %            0.05  %              0.06  %              (0.01) %
For the Quarter Ended September 30,
2021                                  $  11,902,369    $    71,114             2.39  %            0.05  %              0.05  %                  -  %



Average interest-bearing liabilities decreased by $471 million for the quarter
ended September 30, 2022, as compared to the quarter ended June 30, 2022.
Economic interest expense increased by $5 million for the quarter ended
September 30, 2022, as compared to the quarter ended June 30, 2022 due to
increase in our secured financing agreements borrowing rates driven by higher
Federal Funds Rates.

Provision for Credit Losses

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


For the quarter ended September 30, 2022, we recorded a decrease in provision
for credit losses of $1.5 million, as compared to an increase in provision of
credit losses of $4.5 million for the quarter ended June 30, 2022. The decrease
in the allowance for credit losses for the quarter ended September 30, 2022, is
primarily due to decrease in expected losses and delinquencies.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


For the nine months ended September 30, 2022 we recorded an increase in
provision for credit losses of $3.2 million, as compared to a decrease in
provision of credit losses of $58 thousand for the nine months ended
September 30, 2021. The increase in provision for credit losses for the nine
months ended September 30, 2022 as compared to nine months ended September 30,
2021, is primarily due to an increase in expected losses and delinquencies. In
addition, certain Non-Agency RMBS positions, now have higher unrealized losses
and resulted in the recognition of an allowance for credit losses which was
previously limited by unrealized gains on these investments.

Net Unrealized Gains (Losses) on Derivatives


We use derivatives to economically hedge the effects of changes in interest
rates on our portfolio, specifically our secured financing agreements.
Unrealized gains and losses include the change in market value, period over
period, on our derivatives portfolio. Changes in market value are generally a
result of changes in interest rates. We may or may not ultimately realize these
unrealized derivative gains and losses depending on trade activity, changes in
interest rates and the values of the underlying securities.

The table below shows a summary of our net gains (losses) on derivative
instruments, for the quarters ended September 30, 2022 and June 30, 2022,
respectively, and nine months ended September 30, 2022 and 2021, respectively.




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                                                             For the Quarters Ended              For the Nine Months Ended
                                                      September 30, 2022    June 30, 2022   September 30,   September 30, 2021
                                                                                                 2022
                                                                           

(dollars in thousands)
Periodic interest income (expense) on interest rate
swaps, net

                                           $       (122)        $            -    $      (122)   $                -

Unrealized gains (losses) on derivative instruments,
net:
Interest Rate Swaps                                         3,718                      -          3,718                     -

Swaptions                                                   6,589                 (1,618)         4,971                     -

Total unrealized gains (losses) on derivative
instruments, net:                                          10,307                 (1,618)         8,689                     -

Total gains (losses) on derivative instruments, net $ 10,185 $

       (1,618)   $     8,567    $                -



Net Unrealized Gains (Losses) on Financial Instruments at Fair Value


During the quarter and nine months ended September 30, 2022, there was an
increase in headline inflation, an inversion of yield curve, an increase in
expected Federal Funds Rate and widening of credit spreads. As a result, we
experienced mark to market losses in our Agency MBS and Residential Credit
portfolios compared to prior periods. In addition, our securitized debt also
experienced mark downs, resulting in mark to market gains that offset some of
the mark to market losses on our asset portfolio.

During the quarter ended September 30, 2022, we had Net unrealized losses of
$354 million and $47 million on Loans held for investments and Non-Agency RMBS,
respectively, which were offset by Net unrealized gains on Securitized debt
collateralized by loans held for investment of $159 million.

During the nine months ended September 30, 2022, we had Net unrealized losses of
$1.4 billion, $129 million and $52 million on Loans held for investments,
Non-Agency RMBS, and Agency MBS, respectively, which were offset by Net
unrealized gains on Securitized debt collateralized by loans held for investment
of $679 million.

Quarter ended September 30, 2022 compared to the Quarter ended June 30, 2022


We recorded Net unrealized losses on financial instruments at fair value of $240
million for the quarter ended September 30, 2022, as compared to the Net
unrealized losses on financial instruments at fair value of $239 million for the
quarter ended June 30, 2022.

Nine Months ended September 30, 2022 compared to the Nine Months ended
September 30, 2021


We recorded Net unrealized losses on financial instruments at fair value of $849
million for the nine months ended September 30, 2022, as compared to Net
unrealized gains on financial instruments at fair value of $546 million for the
nine months ended September 30, 2021.

Gains and Losses on Sales of Assets


We do not forecast sales of investments as we generally expect to invest for
long term gains. However, from time to time, we may sell assets to create
liquidity necessary to pursue new opportunities, to achieve targeted leverage
ratios as well as for gains when prices indicate a sale is most beneficial to
us, or is the most prudent course of action to maintain a targeted risk adjusted
yield for our investors.

During the quarter and nine months ended September 30, 2022 we sold some of our
Agency IO investments as a part of our portfolio optimization efforts and
realized a loss of $37 million. We recorded a realized gain of $45 million for
the nine months ended September 30, 2021 as we sold some of our Agency CMBS and
Non-Agency RMBS investments to strengthen our liquidity during that period.

Extinguishment of Securitized Debt


When we acquire our outstanding securitized debt, we extinguish the outstanding
debt and recognize a gain or loss based on the difference between the carrying
value of the debt and the cost to acquire the debt which is reflected in the
Consolidated Statements of Operations as a gain or loss on extinguishment of
debt.

We did not acquire any securitized debt collateralized by Non-Agency RMBS during
the quarters ended September 30, 2022 and June 30, 2022, and nine months ended
September 30, 2022 and 2021.
                                       53
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We did not acquire any securitized debt collateralized by loans held for
investment during the quarters ended September 30, 2022 and June 30, 2022. We
did not acquire any securitized debt collateralized by loans held for investment
during the nine months ended September 30, 2022. During the nine months ended
September 30, 2021, we acquired securitized debt collateralized by Loans held
for investment with an amortized cost balance of $3.9 billion for $4.2 billion.
This transaction resulted in net loss on extinguishment of debt of $260 million.

Compensation, General and Administrative Expenses and Transaction Expenses


The table below shows our total compensation and benefit expense, general and
administrative, or G&A expenses, and transaction expenses as compared to average
total assets and average equity for the periods presented.

                                        Total Compensation, G&A     Total 

Compensation, G&A and Total Compensation, G&A and

                                        and Transaction Expenses   Transaction Expenses/Average      Transaction Expenses/Average
                                                                              Assets                            Equity
                                                            (Ratios have

been annualized, dollars in thousands)


For the Quarter Ended September 30,
2022                                    $              17,177                              0.50  %                           2.44  %
For the Quarter Ended June 30, 2022     $              21,530                              0.59  %                           2.73  %
For the Quarter Ended March 31, 2022    $              20,868                              0.54  %                           2.36  %
For the Quarter Ended December 31, 2021 $              21,275                              0.54  %                           2.24  %
For the Quarter Ended September 30,
2021                                    $              21,426                              0.54  %                           2.29  %



Compensation and benefit costs were approximately $10 million and $9 million for
the quarters September 30, 2022 and June 30, 2022, respectively, and remained
relatively unchanged. The Compensation and benefit costs were approximately $30
million and $35 million for the nine months ended September 30, 2022 and
September 30, 2021, respectively. The decrease in Compensation and benefit costs
for the nine months ended September 30, 2022 was driven by a decline in
performance based compensation costs as compared to the nine months ended
September 30, 2021.

G&A expenses were approximately $5 million and $6 million for the quarters ended
September 30, 2022 and June 30, 2022, respectively and remained relatively
unchanged. The G&A expenses were approximately $16 million and $17 million for
the nine months ended September 30, 2022 and September 30, 2021, respectively
and remained relatively unchanged. The G&A expenses are primarily comprised of
legal, market data and research, auditing, consulting, information technology,
and independent investment consulting expenses.

We incurred transaction expenses in relation to securitizations of $2 million
and $7 million for the quarters ended September 30, 2022 and June 30, 2022,
respectively. The transactions expenses were approximately $13 million and $26
million for the nine months ended September 30, 2022 and September 30, 2021,
respectively. The decrease in transaction expenses for the quarter and nine
months ended September 30, 2022 compared to respective prior periods are driven
by lower call and securitization activity.

Servicing and Asset Manager Fees


Servicing fees and asset manager expenses remained relatively unchanged at $9
million for the quarters ended September 30, 2022, and June 30, 2022. The
servicing fees and asset manager expenses were $27 million and $28 million for
the nine months ended September 30, 2022 and September 30, 2021, respectively.
These servicing fees are primarily related to the servicing costs of the whole
loans held in consolidated securitization vehicles and are paid from interest
income earned by the VIEs. The servicing fees generally range from 5 to 50 basis
points of unpaid principal balances of our consolidated VIEs.

Earnings available for distribution


Earnings available for distribution is a non-GAAP measure and is defined as GAAP
net income excluding unrealized gains or losses on financial instruments carried
at fair value with changes in fair value recorded in earnings, realized gains or
losses on the sales of investments, gains or losses on the extinguishment of
debt, interest expense on long term debt, changes in the provision for credit
losses, other gains or losses on equity investments, and transaction expenses
incurred. In addition, stock compensation expense charges incurred on awards to
retirement eligible employees is reflected as an expense over a vesting period
(36 months) rather than reported as an immediate expense.

As defined, Earnings available for distribution is the Economic net interest
income, as defined previously, reduced by compensation and benefits expenses
(adjusted for awards to retirement eligible employees), general and
administrative
                                       54
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expenses, servicing and asset manager fees, income tax benefits or expenses
incurred during the period, as well as the preferred dividend charges. We view
Earnings available for distribution as a consistent measure of our investment
portfolio's ability to generate income for distribution to common stockholders.
Earnings available for distribution is one of the metrics, but not the exclusive
metric, that our Board of Directors uses to determine the amount, if any, of
dividends on our common stock. Other metrics that our Board of Directors may
consider when determining the amount, if any, of dividends on our common stock
include (among others) REIT taxable income, dividend yield, book value,
reinvestment opportunities and other cash needs. In addition, Earnings available
for distribution is different than REIT taxable income and the determination of
whether we have met the requirement to distribute at least 90% of our annual
REIT taxable income (subject to certain adjustments) to our stockholders in
order to maintain qualification as a REIT is not based on Earnings available for
distribution. Therefore, Earnings available for distribution should not be
considered as an indication of our REIT taxable income, a guaranty of our
ability to pay dividends, or as a proxy for the amount of dividends we may pay,
because Earnings available for distribution excludes certain items that impact
our cash needs. We believe Earnings available for distribution as described
above helps us and investors evaluate our financial performance period over
period without the impact of certain transactions. Therefore, Earnings available
for distribution should not be viewed in isolation and is not a substitute for
net income or net income per basic share computed in accordance with GAAP. In
addition, our methodology for calculating Earnings available for distribution
may differ from the methodologies employed by other REITs to calculate the same
or similar supplemental performance measures, and accordingly, our Earnings
available for distribution may not be comparable to the Earnings available for
distribution reported by other REITs.

The following table provides GAAP measures of net income and net income per
diluted share available to common stockholders for the periods presented and
details with respect to reconciling the line items to Earnings available for
distribution and related per average diluted common share amounts. Earnings
available for distribution is presented on an adjusted dilutive shares basis.
Certain prior period amounts have been reclassified to conform to the current
period's presentation.


                                                                        For the Quarters Ended
                                            September 30,    June 30, 2022     March 31, 2022   December 31,  September 30,
                                                 2022                                               2021          2021
                                                             (dollars in thousands, except per share data)
GAAP Net income (loss) available to common
stockholders                                $  (204,583)   $     (179,765)   $      (281,202)   $     (718)   $  313,030
Adjustments:
Net unrealized (gains) losses on financial
instruments at fair value                       239,513           239,246            370,167       108,286      (239,524)
Net realized (gains) losses on sales of
investments                                      37,031                 -                  -             -             -
(Gains) losses on extinguishment of debt              -             2,897                  -          (980)       25,622
Interest expense on long term debt                    -                 -                  -             -           238
Increase (decrease) in provision for credit
losses                                           (1,534)            4,497                240            92          (386)

Net unrealized (gains) losses on
derivatives                                     (10,307)            1,618                  -             -             -

Transaction expenses                              2,341             6,727              3,804         4,241         3,432

Stock Compensation expense for retirement
eligible awards                                    (310)             (309)               723          (363)         (365)

Other investment (gains) losses                     462              (980)                 -             -             -

Earnings available for distribution $ 62,613 $ 73,931

$ 93,732 $ 110,558 $ 102,047


GAAP net income (loss) per diluted common
share                                       $     (0.88)   $        (0.76)   $         (1.19)   $        -    $     1.30
Earnings available for distribution per
adjusted diluted common share               $      0.27    $         0.31   

$ 0.39 $ 0.46 $ 0.42

The table below summarizes the reconciliation from weighted-average diluted
shares under GAAP to the weighted-average adjusted diluted shares used for
Earnings available for distribution for the periods reported below.

                                                                                       For the Quarters Ended
                                        September 30, 2022          June 30, 2022           March 31, 2022         December 31, 2021       September 30, 2021
Weighted average diluted shares -
GAAP                                      231,750,422                235,310,440             237,012,702                236,896,512          

240,362,602

Potentially dilutive shares (1)             2,425,579                  2,277,366               2,421,546                  2,672,393                


Adjusted weighted average diluted
shares - Earnings available for
distribution                              234,176,001                237,587,806             239,434,248                239,568,905          240,362,602


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(1) Potentially dilutive shares related to restricted stock units and
performance stock units excluded from the computation of weighted average GAAP
diluted shares because their effect would have been anti-dilutive given the GAAP
net loss available to common shareholders for the quarters ended September 31,
2022, June 30, 2022, March 31, 2022, and December 31, 2021.

Our Earnings available for distribution for the quarter ended September 30, 2022
were $63 million, or $0.27 per average diluted common share, and decreased by
$11 million, or $0.04 per average diluted common share, as compared to $74
million, or $0.31 per average diluted common share, for the quarter ended June
30, 2022. The decrease in Earnings available for distribution was driven by an
increase in interest expense driven by the higher Fed Funds rate and no
prepayment penalties or early paydowns received during the quarter ended
September 30, 2022 as compared to the quarter ended June 30, 2022.

Net Income (Loss) and Return on Total Stockholders’ Equity


The table below shows our Net Income and Economic net interest income as a
percentage of average stockholders' equity and Earnings available for
distribution as a percentage of average common stockholders' equity. Return on
average equity is defined as our GAAP net income (loss) as a percentage of
average equity.  Average equity is defined as the average of our beginning and
ending stockholders' equity balance for the period reported. Economic net
interest income and Earnings available for distribution are non-GAAP measures as
defined in previous sections.
                                                                        Economic Net Interest             Earnings available for
                                           Return on Average Equity    Income/Average Equity *      distribution/Average Common Equity
                                                                         

(Ratios have been annualized)


For the Quarter Ended September 30, 2022                  (26.47) %                       14.81  %                             13.30  %
For the Quarter Ended June 30, 2022                       (20.45) %                       14.81  %                             13.29  %
For the Quarter Ended March 31, 2022                      (29.72) %                       15.57  %                             14.38  %
For the Quarter Ended December 31, 2021                     1.87  %                       16.30  %                             15.45  %
For the Quarter Ended September 30, 2021                   35.47  %                       15.99  %                             14.54  %


* Excludes long term debt expense.


Return on average equity decreased by 602 basis points for the quarter ended
September 30, 2022, as compared to the quarter ended June 30, 2022. This
decrease is driven primarily by lower unrealized asset pricing losses on our
financial instruments. Economic net interest income as a percentage of average
equity remained unchanged for the quarter ended September 30, 2022 compared to
the quarter ended June 30, 2022. Earnings available for distribution as a
percentage of average common equity remained relatively unchanged for the
quarter ended September 30, 2022 compared to the quarter ended June 30, 2022.

Financial Condition

Portfolio Review

During the nine months ended September 30, 2022, we focused our efforts on
taking advantage of the opportunity to acquire higher yielding assets while
maintaining low leverage and ample liquidity. During the nine months ended
September 30, 2022, on an aggregate basis, we purchased $1.5 billion of
investments and received $2.2 billion in principal payments related to our
Agency MBS, Non-Agency RMBS and Loans held for investment portfolio.

The following table summarizes certain characteristics of our portfolio at
September 30, 2022 and December 31, 2021.


                                              September 30, 2022    December 31, 2021
Interest earning assets at period-end (1)    $        13,365,051   $       14,893,829
Interest bearing liabilities at period-end   $        10,255,209   $       11,075,655
GAAP Leverage at period-end                                  3.9:1          

3.0:1

GAAP Leverage at period-end (recourse)                       1.1:1          

0.9:1

(1) Excludes cash and cash equivalents.

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                                           September 30, 2022   December 31, 2021          September 30, 2022   December 31, 2021
Portfolio Composition                                  Amortized Cost                                    Fair Value
Non-Agency RMBS                                         7.6  %              10.1  %                     8.9  %              12.1  %
Senior                                                  3.9  %               4.5  %                     5.9  %               6.5  %
Subordinated                                            2.5  %               4.2  %                     2.3  %               4.4  %
Interest-only                                           1.2  %               1.4  %                     0.7  %               1.2  %
Agency RMBS                                             0.5  %               0.8  %                     0.3  %               0.4  %

Interest-only                                           0.5  %               0.8  %                     0.3  %               0.4  %
Agency CMBS                                             3.2  %               5.3  %                     3.2  %               5.2  %
Project loans                                           2.2  %               4.2  %                     2.2  %               4.2  %
Interest-only                                           1.0  %               1.1  %                     1.0  %               1.0  %
Loans held for investment                              88.7  %              83.8  %                    87.6  %              82.3  %
Fixed-rate percentage of portfolio                     96.3  %              95.4  %                    95.5  %              94.4  %
Adjustable-rate percentage of portfolio                 3.7  %               4.6  %                     4.5  %               5.6  %



GAAP leverage at period-end is calculated as a ratio of our secured financing
agreements and securitized debt liabilities over GAAP book value. GAAP recourse
leverage is calculated as a ratio of our secured financing agreements over
stockholders equity.

The following table presents details of each asset class in our portfolio at
September 30, 2022 and December 31, 2021. The principal or notional value
represents the interest income earning balance of each class. The weighted
average figures are weighted by each investment's respective principal/notional
value in the asset class.

                                                                                                                             September 30, 2022
                                          Principal or
                                       Notional Value at     Weighted
                                           Period-End         Average        Weighted                       Weighted Average   Weighted Average 3  Weighted Average 12    Weighted Average 3  Weighted Average 12
                                           (dollars in    Amortized Cost  

Average Fair Weighted Average Yield at Period-End Month Prepay Rate Month Prepay Rate Month CDR at Month CDR at Weighted Average Weighted Average

                                           thousands)          Basis          Value           Coupon               (1)            at Period-End       at Period-End           Period-End          Period-End        Loss Severity(2)    Credit Enhancement
Non-Agency Mortgage-Backed Securities
Senior                                 $     1,171,759    $      46.17    $     67.11               5.0  %             16.8  %              8.6  %             12.9  %                 2.0  %              1.8  %              28.1  %               2.1  %
Subordinated                           $       506,901    $      67.54    $     60.90               4.6  %              6.9  %              8.4  %             16.0  %                 0.2  %              0.2  %              34.0  %               6.2  %
Interest-only                          $     3,363,236    $       4.95    $      2.86               1.0  %              7.4  %              8.5  %             16.2  %                 0.8  %              0.9  %              40.1  %               1.6  %
Agency RMBS

Interest-only                          $     1,229,240    $       5.48    $      3.13               0.8  %              1.6  %             18.6  %             20.1  %                    N/A                 N/A                  N/A                  N/A
Agency CMBS
Project loans                          $       303,369    $     101.89    $     97.99               4.3  %              4.1  %                -  %                -  %                    N/A                 N/A                  N/A                  N/A
Interest-only                          $     2,704,539    $       5.35    $      4.83               0.7  %              3.8  %              3.0  %              6.7  %                    N/A                 N/A                  N/A                  N/A
Loans held for investment              $    12,481,055    $      98.40    $     93.95               5.7  %              5.1  %             11.4  %             14.0  %                 0.7  %              0.7  %              34.0  %                  N/A

(1) Bond Equivalent Yield at period-end. Weighted Average Yield is calculated
using each investment’s respective amortized cost.
(2) Calculated based on reported losses to date, utilizing widest data set
available (i.e., life-time losses, 12-month loss, etc.)

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                                                                                                                             December 31, 2021
                                        Principal or
                                     Notional Value at
                                         Period-End     Weighted Average    Weighted                       Weighted Average    Weighted Average 3  Weighted Average 12    Weighted Average 3  Weighted Average 12
                                         (dollars in     Amortized Cost  

Average Fair Weighted Average Yield at Period-End Month Prepay Rate at Month Prepay Rate Month CDR at Month CDR at Weighted Average Weighted Average

                                         thousands)          Basis           Value           Coupon               (1)              Period-End         at Period-End           Period-End          Period-End        Loss Severity(2)     Credit Enhancement
Non-Agency Mortgage-Backed
Securities
Senior                               $     1,283,788    $       48.02    $     76.78               4.5  %             18.0  %              14.1  %             14.6  %                 1.6  %              1.9  %              23.6  %                 2.8  %
Subordinated                         $       845,432    $       68.10    $     77.12               3.8  %              7.1  %              18.6  %             19.3  %                 0.2  %              0.5  %              28.9  %                 3.6  %
Interest-only                        $     3,904,665    $        4.90    $      4.42               1.7  %             13.2  %              22.2  %             25.5  %                 1.0  %              1.8  %              23.4  %                   -  %
Agency RMBS

Interest-only                        $       992,978    $       10.37    $      6.09               1.3  %              0.3  %              25.6  %             26.6  %                    N/A                 N/A                  N/A                    N/A
Agency CMBS
Project loans                        $       560,565    $      101.77    $    109.61               4.3  %              4.1  %                 -  %                -  %                    N/A                 N/A                  N/A                    N/A
Interest-only                        $     2,578,640    $        5.70    $      5.69               0.7  %              4.6  %              14.0  %             30.9  %                    N/A                 N/A                  N/A                    N/A
Loans held for investment            $    11,519,255    $       99.22    $    106.58               5.5  %              4.9  %              16.1  %             15.0  %                 0.9  %              0.4  %              50.5  %                    N/A

(1) Bond Equivalent Yield at period-end. Weighted Average Yield is calculated
using each investment’s respective amortized cost.
(2) Calculated based on reported losses to date, utilizing widest data set
available (i.e., life-time losses, 12-month loss, etc.)


Based on the projected cash flows for our Non-Agency RMBS that are not of high
credit quality, a portion of the original purchase discount is designated as
Accretable Discount, which reflects the purchase discount expected to be
accreted into interest income, and a portion is designated as Non-Accretable
Difference, which represents the contractual principal on the security that is
not expected to be collected. The amount designated as Non-Accretable Difference
may be adjusted over time, based on the actual performance of the security, its
underlying collateral, actual and projected cash flow from such collateral,
economic conditions and other factors. If the performance of a security is more
favorable than previously estimated, a portion of the amount designated as
Non-Accretable Difference may be transferred to Accretable Discount and accreted
into interest income over time. Conversely, if the performance of a security is
less favorable than previously estimated, a provision for credit loss may be
recognized resulting in an increase in the amounts designated as Non-Accretable
Difference.

The following table presents changes to Accretable Discount (net of premiums) as
it pertains to our Non-Agency RMBS portfolio, excluding premiums on
interest-only investments, during the previous five quarters.


                                                                    For the 

Quarters Ended

                                                                    (dollars in thousands)
Accretable Discount (Net of Premiums)  September 30,                                         December 31,  September 30,
                                                2022     June 30, 2022     March 31, 2022            2021           2021
Balance, beginning of period          $   241,391    $      258,494    $       333,546    $    352,545    $   338,024
Accretion of discount                     (12,989)          (17,408)           (19,470)        (22,172)       (21,820)
Purchases                                       -                 -                  -               -          1,995
Sales                                           -                 -                  -               -              -
Elimination in consolidation                    -                 -            (60,361)              -              -
Transfers from/(to) credit reserve,
net                                       (20,590)              305              4,779           3,173         34,346
Balance, end of period                $   207,812    $      241,391    $       258,494    $    333,546    $   352,545



We invest a significant majority of our capital in pools of Non-Agency RMBS and
Loans held for investment. These investments carry risk for credit losses. As we
are exposed to risk for credit losses, it is important for us to closely monitor
credit losses incurred, as well as how expectations of credit losses are
expected to change. We estimate future credit losses based on historical
experience, market trends, current delinquencies as well as expected recoveries.
The net present value of these expected credit losses can change, sometimes
significantly from period to period as new information becomes available. When
credit loss experience and expectations improve, we will collect more principal
on our investments. If credit loss experience deteriorates, we will collect less
principal on our investments. The favorable or unfavorable changes in credit
losses are reflected in the yield on our investments in mortgage loans and
recognized in earnings over the remaining life of our investments. The following
table presents changes to net present value of expected credit losses for our
Non-Agency RMBS and Loans held for investment portfolios during the previous
five quarters. Gross losses are discounted at the rate used to amortize any
discounts or premiums on our investments into income. A decrease (negative
balance) in the "Increase/(decrease)" line item in the tables below represents a
favorable change in expected credit losses. An increase (positive balance) in
the "Increase/(decrease)" line item in the tables below represents an
unfavorable change in expected credit losses.

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                                                                           For the Quarters Ended
                                                                           (dollars in thousands)
Non-Agency RMBS                               September 30,                                         December 31,   September 30,
                                                       2022     June 30, 2022     March 31, 2022            2021            2021
Balance, beginning of period                $     91,187    $       94,590    $       106,240    $    107,686    $    129,053
Realized losses                                   (1,517)             (909)             7,995            (987)           (229)
Accretion                                          2,588             2,614              3,049           2,928           3,374
Purchased losses                                       -                 -                  -               -           1,006
Sold losses                                            -                 -                  -               -               -
Losses removed due to consolidation                    -                 -            (10,191)              -               -
Increase/(decrease)                               11,136            (5,108)           (12,503)         (3,387)        (25,518)
Balance, end of period                      $    103,394    $       91,187    $        94,590    $    106,240    $    107,686



                                                                           For the Quarters Ended
                                                                           (dollars in thousands)
Loans held for investment                     September 30,                                         December 31,   September 30,
                                                       2022     June 30, 2022     March 31, 2022            2021            2021
Balance, beginning of period                $    315,299    $      409,650    $       369,028    $    340,431    $    420,323
Realized losses                                   (8,127)          (10,766)           (12,260)         (8,368)         (7,641)
Accretion                                          3,989             4,563              4,251           4,074           4,487
Purchased losses                                       -             3,028             14,883           3,485           5,524
Losses added due to consolidation                      -                 -             49,774               -               -
Increase/(decrease)                              (25,987)          (91,176)           (16,026)         29,406         (82,262)
Balance, end of period                      $    285,174    $      315,299    $       409,650    $    369,028    $    340,431



Liquidity and Capital Resources

General


Liquidity measures our ability to meet cash requirements, including ongoing
commitments to repay our borrowings, purchase RMBS, residential mortgage loans
and other assets for our portfolio, pay dividends and other general business
needs. Our principal sources of capital and funds for additional investments
primarily include earnings, principal paydowns and sales from our investments,
borrowings under securitizations and re-securitizations, secured financing
agreements and other financing facilities including warehouse facilities, and
proceeds from equity or other securities offerings.

As discussed earlier, during the nine months ended September 30, 2022, we
experienced mark downs in our Agency, Residential Credit and securitized debt
portfolios as a result of the increase in headline inflation, an inversion of
yield curve, an increase in the expected Federal Funds Rate and widening of
credit spreads. If these conditions become more pronounced, we may experience an
adverse impact on our liquidity. We have sought and expect to continue to seek
longer-term, more durable financing to reduce our risk to margin calls related
to shorter-term repurchase financing.

Our ability to fund our operations, meet financial obligations and finance
target asset acquisitions may be impacted by our ability to secure and maintain
our master secured financing agreements, warehouse facilities and secured
financing agreements facilities with our counterparties. Because secured
financing agreements and warehouse facilities are short-term commitments of
capital, lenders may respond to market conditions making it more difficult for
us to renew or replace on a continuous basis our maturing short-term borrowings
and have and may continue to impose more onerous conditions when rolling forward
such financings. If we are not able to renew our existing facilities or arrange
for new financing on terms acceptable to us, or if we default on our covenants
or are otherwise unable to access funds under our financing facilities or if we
are required to post more collateral or face larger haircuts, we may have to
curtail our asset acquisition activities and dispose of assets.

To meet our short term (one year or less) liquidity needs, we expect to continue
to borrow funds in the form of secured financing agreements and, subject to
market conditions, other types of financing. The terms of the secured financing
transaction borrowings under our master secured financing agreement generally
conform to the terms in the standard master secured financing agreement as
published by the Securities Industry and Financial Markets Association, or
SIFMA, or similar market accepted agreements, as to repayment and margin
requirements. In addition, each lender typically requires that we include
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supplemental terms and conditions to the standard master secured financing
agreement. Typical supplemental terms and conditions include changes to the
margin maintenance requirements, net asset value, required haircuts or the
percentage that is subtracted from the value of MBS that collateralizes the
financing, purchase price maintenance requirements, and requirements that all
disputes related to the secured financing agreement be litigated or arbitrated
in a particular jurisdiction. These provisions may differ for each of our
lenders.

Based on our current portfolio, leverage ratio and available borrowing
arrangements, we believe our assets will be sufficient to enable us to meet
anticipated short-term liquidity requirements. If our cash resources are
insufficient to satisfy our liquidity requirements, we may have to sell
additional investments, potentially at a loss, issue debt or additional common
or preferred equity securities.


To meet our longer-term liquidity needs (greater than one year), we expect our
principal sources of capital and funds to continue to be provided by earnings,
principal paydowns and sales from our investments, borrowings under
securitizations and re-securitizations, secured financing agreements and other
financing facilities, as well as proceeds from equity or other securities
offerings.

In addition to the principal sources of capital described above, we may enter
into warehouse facilities and use longer dated structured secured financing
agreements. The use of any particular source of capital and funds will depend on
market conditions, availability of these facilities, and the investment
opportunities available to us.

Current Period


We held cash and cash equivalents of approximately $86 million and $386 million
at September 30, 2022 and December 31, 2021, respectively. As a result of our
operating, investing and financing activities described below, our cash position
decreased
by $228 million from December 31, 2021 to September 30, 2022.

Our operating activities provided net cash of approximately $299 million and
$410 million for the nine months ended September 30, 2022 and 2021,
respectively. The cash flows from operations were primarily driven by interest
received in excess of interest paid of $431 million and $513 million during the
nine months ended September 30, 2022 and 2021, respectively.

Our investing activities provided cash of $656 million and $1.8 billion for the
nine months ended September 30, 2022 and 2021, respectively. During the nine
months ended September 30, 2022, we received cash for principal repayments on
Agency MBS, Non-Agency RMBS and Loans held for investment of $2.2 billion. This
cash received was offset in part by cash used on investment purchases of $1.5
billion, primarily consisting of Loans held for investment of $1.4 billion,
Agency MBS of $57 million and Non-Agency RMBS of $23 million. During the nine
months ended September 30, 2021, we received cash from sale of investments of
$1.9 billion, primarily consisting of Loans held for investments of $1.7 billion
and principal repayments on our Agency MBS, Non-Agency RMBS, and Loans held for
investments of $2.7 billion. This cash provided was offset in part by cash used
on investment purchases of $2.8 billion, primarily consisting of Loans held for
investments.

Our financing activities used cash of $1.3 billion and $2.2 billion for the nine
months ended September 30, 2022 and 2021, respectively. During the nine months
ended September 30, 2022, we primarily used cash for repayment of principal on
our securitized debt of $1.5 billion, net payments on our secured financing
agreements of $444 million, payment of common and preferred dividends of $290
million, and repurchase of our common stock of $49 million. This cash used was
offset in part by cash received for securitized debt collateralized by loans
issuance of $1.0 billion. During the nine months ended September 30, 2021, our
financing efforts were focused on taking advantage of a low interest rate
environment to collapse and securitize debt borrowings that significantly reduce
our cost of funding. During the nine months ended September 30, 2021, we
primarily used cash for repayment of principal on our securitized debt of $5.9
billion, net payments on our secured financing agreements of $852 million,
settlement of warrants of $221 million, and paid common and preferred dividends
of $276 million. This cash paid was offset in part by cash received for
securitized debt collateralized by loans issuance of $5.1 billion.

Our recourse leverage was 1.1:1 and 0.9:1 at September 30, 2022 and at
December 31, 2021, respectively and remained relatively low. Our recourse
leverage excludes the securitized debt which can only be repaid from the
proceeds on the assets securing this debt in their respective VIEs. Our recourse
leverage is presented as a ratio of our secured financing agreements, which are
recourse to our assets and our equity.

At September 30, 2022 and December 31, 2021, the remaining maturities and
borrowing rates on our RMBS and loan secured financing agreements were as
follows.

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                                               September 30, 2022                                                     December 31, 2021
                                                                                (dollars in thousands)
                                         Weighted Average                                                       Weighted Average
                           Principal      Borrowing Rates     Range of Borrowing Rates          Principal (1)    Borrowing Rates     Range of Borrowing Rates

1 to 29 days            $    425,202           3.84%               2.77% - 6.11%               $  1,018,670           0.73%               0.11% - 1.95%
30 to 59 days                434,926           3.40%               2.74% - 4.13%                    379,031           1.66%               1.55% - 1.70%
60 to 89 days                181,282           4.26%               2.45% - 4.93%                    342,790           1.86%                0.90% - 2.35%
90 to 119 days               146,780           4.36%               3.63% - 5.96%                     67,840           1.66%               1.66% - 1.66%
120 to 180 days              546,867           5.18%                3.98% - 6.06%                   157,944           1.38%               0.95% - 1.45%
180 days to 1 year           596,387           4.67%                4.33% - 5.33%                   895,210           3.70%               1.95% - 4.38%
1 to 2 years                       -            NA                       NA                         143,239           3.05%               3.05% - 3.05%
2 to 3 years                 489,487           6.79%               6.79% - 6.79%                          -            NA                       NA
Greater than 3 years               -            NA                       NA                         256,889           5.56%               5.56% - 5.56%
Total                   $  2,820,931           4.77%                                           $  3,261,613           2.30%

(1) The principal balance for secured financing agreements in the table above is
net of $3 million of deferred financing cost as of December 31, 2021.

Average remaining maturity of Secured financing agreements secured by:

                                                  September 30, 2022                  December 31, 2021
Agency RMBS (in thousands)                                          18 Days                                 4 Days
Agency CMBS (in thousands)                                          24 Days                                13 Days
Non-Agency RMBS and Loans held for
investment (in thousands)                                          301 Days                               257 Days



We collateralize the secured financing agreements we use to finance our
operations with our MBS investments and mortgage loans held in trusts controlled
by us. Our counterparties negotiate a 'haircut', which is the difference
expressed in percentage terms between the fair value of the collateral and the
amount the counterparty will lend to us, when we enter into a financing
transaction. The size of the haircut reflects the perceived risk and market
volatility associated with holding the MBS by the lender. The haircut provides
lenders with a cushion for daily market value movements that reduce the need for
a margin call to be issued or margin to be returned as normal daily increases or
decreases in MBS market values occur. Haircuts have increased during the third
quarter of 2022. At September 30, 2022, the weighted average haircut on our
remaining secured financing agreements collateralized by Agency RMBS IOs was
20.0%, Agency CMBS was 7.8% and Non-Agency RMBS and Loans held for investment
was 28.4%. At December 31, 2021, the weighted average haircut on our remaining
secured financing agreements collateralized by Agency RMBS IOs was 15.0%, Agency
CMBS was 6.7% and Non-Agency RMBS and Loans held for investment was 27.9%.

The fair value of the Non-Agency MBS is more difficult to determine in current
financial conditions, as well as more volatile period to period than Agency MBS,
the Non-Agency MBS typically requires a larger haircut. In addition, when
financing assets using standard form of SIFMA Master Repurchase Agreements, the
counterparty to the agreement typically nets its exposure to us on all
outstanding repurchase agreements and issues margin calls if movement of the
fair values of the assets in the aggregate exceeds their allowable exposure to
us. A decline in asset fair values could create a margin call or may create no
margin call depending on the counterparty's specific policy. In addition,
counterparties consider a number of factors, including their aggregate exposure
to us as a whole and the number of days remaining before the repurchase
transaction closes prior to issuing a margin call. To minimize the risk of
margin calls, as of September 30, 2022, we have entered into $737 million of
financing arrangements for which the collateral cannot be adjusted as a result
of changes in market value, minimizing the risk of a margin call as a result in
price volatility. We refer to these agreements as non-mark-to-market (non-MTM)
facilities. These non-MTM facilities generally have higher costs of financing,
but lower the risk of a margin call which could result in sales of our assets at
distressed prices. All non-MTM facilities are collateralized by non-agency RMBS
collateral, which tends to have increased volatile price changes during periods
of market stress. In addition we have entered into certain secured financing
agreements which are not subject to additional margin requirement until the drop
in fair value of collateral is greater than a threshold. We refer to these
agreements as limited mark-to-market (limited MTM) facilities. As of
September 30, 2022 we have $476 million, of limited MTM facilities. We believe
these non-MTM and limited MTM facilities significantly reduce our financing
risks. See Note 5 to our Consolidated Financial Statements for a discussion on
how we determine the fair values of the RMBS collateralizing our secured
financing agreements.

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At September 30, 2022, the weighted average borrowing rates for our secured
financing agreements collateralized by Agency RMBS IOs was 3.1%, Agency CMBS was
3.1% and Non-Agency MBS and Loans held for investment was 5.0%. At December 31,
2021, the weighted average borrowing rates for our secured financing agreements
collateralized by Agency RMBS IOs was 0.7%, Agency CMBS was 0.2%, and Non-Agency
MBS and Loans held for investment was 2.8%.

The table below presents our average daily secured financing agreements balance
and the secured financing agreements balance at each period end for the periods
presented. Our balance at period-end tends to fluctuate from the average daily
balances due to the adjusting of the size of our portfolio by using leverage.

                                       Average secured financing     Secured financing agreements
Period                                    agreements balances            balance at period end
                                                        (dollars in thousands)

Quarter End September 30, 2022      $                  3,056,286    $                  2,820,931
Quarter End June 30, 2022           $                  3,373,179    $                  3,148,832
Quarter End March 31, 2022          $                  3,222,122    $                  3,424,405
Quarter End December 31, 2021       $                  3,468,212    $                  3,261,613
Quarter End September 30, 2021      $                  3,824,615    $                  3,788,336



Our secured financing agreements do not required us to maintain any specific
leverage ratio. We believe the appropriate leverage for the particular assets we
are financing depends on the credit quality and risk of those assets. At
September 30, 2022 and December 31, 2021, the carrying value of our total
interest-bearing debt was approximately $10.3 billion and $11.1 billion,
respectively, which represented a leverage ratio of approximately 3.9:1 and
3.0:1, respectively. We include our secured financing agreements and securitized
debt in the numerator of our leverage ratio and stockholders' equity as the
denominator.

At September 30, 2022, we had secured financing agreements with 14
counterparties. All of our secured financing agreements are secured by Agency
MBS, Non-Agency RMBS and Loans held for investment and cash. Under these secured
financing agreements, we may not be able to reclaim our collateral but will
still be obligated to pay our repurchase obligations. We mitigate this risk by
ensuring our counterparties are highly rated. As of September 30, 2022 and
December 31, 2021, we had $3.7 billion and $4.4 billion, respectively, of
securities or cash pledged against our secured financing agreements obligations.

We expect to enter into new secured financing agreements at maturity; however,
there is a risk that we will not be able to renew our secured financing
agreements when we desire to renew them or obtain favorable interest rates and
haircuts as a result of uncertainty in the market including, but not limited to,
uncertainty as a result of inflation, increases in the Fed Funds Rate and the
COVID-19 pandemic.

Exposure to Financial Counterparties


We actively manage the number of secured financing agreements counterparties to
reduce counterparty risk and manage our liquidity needs. The following table
summarizes our exposure to our secured financing agreements counterparties at
September 30, 2022:

                                      September 30, 2022

Country                                   Number of Counterparties       Secured Financing         Exposure (1)
                                                                             Agreement
                                    (dollars in thousands)
United States                                        9                         1,422,789                 498,224
Japan                                                1                           717,902                 258,378
Canada                                               1                           406,233                 113,566
Netherlands                                          1                            47,546                   1,898
South Korea                                          1                           122,226                   6,352
Switzerland                                          1                           104,235                  51,276

Total                                                14                 $      2,820,931       $         929,694

(1) Represents the amount of securities and/or cash pledged as collateral to
each counterparty less the aggregate of secured financing agreement.


We regularly monitor our exposure to financing counterparties for credit risk
and allocate assets to these counterparties based, in part, on the credit
quality and internally developed metrics measuring counterparty risk. Our
exposure to a particular counterparty is calculated as the excess collateral
which is pledged relative to the secured financing agreement balance. If our
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exposure to our financing counterparties exceeds internally developed
thresholds, we develop a plan to reduce the exposure to an acceptable level. At
September 30, 2022, we did not have any exposure to a counterparty which
exceeded 10% of our equity.

At September 30, 2022, we did not use credit default swaps or other forms of
credit protection to hedge the exposures summarized in the table above.

Stockholders’ Equity


In February 2021, our Board of Directors increased the authorization of our
share repurchase program, or the Repurchase Program, to $250 million. Such
authorization does not have an expiration date, and at present, there is no
intention to modify or otherwise rescind such authorization. Shares of our
common stock may be purchased in the open market, including through block
purchases, through privately negotiated transactions, or pursuant to any trading
plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. The
timing, manner, price and amount of any repurchases will be determined at our
discretion and the program may be suspended, terminated or modified at any time
for any reason. Among other factors, we intend to only consider repurchasing
shares of our common stock when the purchase price is less than the last
publicly reported book value per common share. In addition, we do not intend to
repurchase any shares from directors, officers or other affiliates. The program
does not obligate us to acquire any specific number of shares, and all
repurchases will be made in accordance with Rule 10b-18, which sets certain
restrictions on the method, timing, price and volume of stock repurchases.

We did not repurchase any common stock during the quarters ended September 30,
2022 and June 30, 2022. We repurchased approximately 5.4 million shares of our
common stock at an average price of $9.10 for a total of $49 million during the
nine months ended September 30, 2022. We repurchased approximately 161 thousand
shares of our common stock at an average price of $11.39 per share for a total
of $2 million during the nine months ended September 30, 2021. The approximate
dollar value of shares that may yet be purchased under the Repurchase Program is
$177 million as of September 30, 2022.

In February 2022, we entered into separate Distribution Agency Agreements (the
"Sales Agreements") with each of
Credit Suisse Securities (USA) LLC, JMP Securities LLC, Goldman Sachs & Co. LLC,
Morgan Stanley & Co. LLC and
RBC Capital Markets, LLC (the "Sales Agents"). Pursuant to the terms of the
Sales Agreements, we may offer and sell
shares of our common stock, having an aggregate offering price of up to
$500,000,000, from time to time through any of
the Sales Agents under the Securities Act of 1933. During the quarter and nine
months ended September 30, 2022, we did not issue any shares under the
at-the-market sales program.

During the quarter ended September 30, 2022 and June 30, 2022, we declared
dividends to common shareholders of $56 million and $78 million, or $0.23 and
$0.33 per share, respectively. During the nine months ended September 30, 2022
and September 30, 2021, we declared dividends to common shareholders of $212
million and $228 million, or $0.89 and $0.96 per share, respectively.

We declared dividends to Series A preferred stockholders of $3 million, or $0.50
per preferred share, during the quarters ended September 30, 2022 and June 30,
2022, respectively. We declared dividends to Series A preferred stockholders of
$9 million, or $1.50 per preferred share, during the nine months ended
September 30, 2022 and September 30, 2021, respectively.

We declared dividends to Series B preferred stockholders of $7 million, or $0.50
per preferred share, during the quarters ended September 30, 2022 and June 30,
2022, respectively. We declared dividends to Series B preferred stockholders of
$20 million, or $1.50 per preferred share, during the nine months ended
September 30, 2022 and September 30, 2021, respectively.

We declared dividends to Series C preferred stockholders of $5 million, or
$0.484375 per preferred share, during the quarters ended September 30, 2022 and
June 30, 2022, respectively. We declared dividends to Series C preferred
stockholders of $15 million, or $1.453125 per preferred share, during the nine
months ended September 30, 2022 and September 30, 2021, respectively.

We declared dividends to Series D preferred stockholders of $4 million, or $0.50
per preferred share, during the quarters ended September 30, 2022 and June 30,
2022, respectively. We declared dividends to Series D preferred stockholders of
$12 million, or $1.50 per preferred share, during the nine months ended
September 30, 2022 and September 30, 2021, respectively.

On October 30, 2021, all 5,800,000 issued and outstanding shares of Series A
Preferred Stock with an outstanding liquidation preference of $145 million
became callable at a redemption price equal to the liquidation preference plus
accrued and unpaid dividends through, but not including, the redemption date.
The dividend rate on shares of Series A Preferred Stock is 8.00% per annum. Our
fixed-to-floating rate series B, C and D preferred stock are LIBOR based and
will become floating on their respective call dates.

Restricted Stock Unit and Performance Share Unit Grants

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Grants of Restricted Stock Units, or RSUs


During the nine months ended September 30, 2022 and 2021, we granted RSU awards
to our employees. These RSU awards are designed to reward our employees for
services provided to us. Generally, the RSU awards vest equally over a
three-year period beginning from the grant date and will fully vest after three
years. For employees who are retirement eligible, defined as years of service to
us plus age, is equal to or greater than 65, the service period is considered to
be fulfilled and all grants are expensed immediately. The RSU awards are valued
at the market price of our common stock on the grant date and generally the
employees must be employed by us on the vesting dates to receive the RSU awards.
We did not grant any RSU awards during the quarter ended September 30, 2022 and
granted 93 thousand RSU awards during the quarter ended June 30, 2022 with a
grant date fair value of $1 million. We granted 221 thousand and 296 thousand
RSU awards during the nine months ended September 30, 2022 and 2021, with a
grant date fair value of $3 million and $4 million, respectively. In addition,
during the nine months ended September 30, 2021, we granted certain of our
senior management 1 million RSU awards that vest in five equal tranches with one
tranche vested immediately and the remaining four will vest equally over a
four-year period. These additional RSUs are not subject to retirement eligible
provisions and had a grant date fair value of $10 million.

Grants of Performance Share Units, or PSUs


PSU awards are designed to align compensation with our future performance. The
PSU awards granted during the first quarter of 2022 and 2021 include a
three-year performance period ending on December 31, 2024 and December 31, 2023,
respectively. The final number of shares awarded will be between 0% and 200% of
the PSUs granted based on our Economic Return compared to a peer group. Our
three-year Economic Return is equal to our change in book value per common share
plus common stock dividends. Compensation expense will be recognized on a
straight-line basis over the three-year vesting period based on an estimate of
our Economic Return in relation to the entities in the peer group and will be
adjusted each period based on our best estimate of the actual number of shares
awarded. We did not grant any PSU awards during the quarters ended September 30,
2022 and June 30, 2022. During the nine months ended September 30, 2022 and
September 30, 2021, we granted 128 thousand and 182 thousand, PSU awards to
senior management with a grant date fair value of $2 million, respectively.

At September 30, 2022 and December 31, 2021, there were approximately 3.0
million and 2.8 million, respectively, unvested shares of RSUs and PSUs issued
to our employees and directors.

Contractual Obligations and Commitments


The following tables summarize our contractual obligations at September 30, 2022
and December 31, 2021. The estimated principal repayment schedule of the
securitized debt is based on expected cash flows of the residential mortgage
loans or RMBS, as adjusted for expected principal write-downs on the underlying
collateral of the debt.

                                                       September 30, 2022
                                                     (dollars in thousands)
                                                                                                 Greater Than or
                                                                 One to Three    Three to Five    Equal to Five
Contractual Obligations                       Within One Year        Years           Years            Years            Total
Secured financing agreements                $      2,331,444    $    489,487    $          -    $            -    $  2,820,931
Securitized debt, collateralized by
Non-Agency RMBS                                          751             533              88                84           1,456
Securitized debt at fair value,
collateralized by Loans held for investment        1,799,830       2,705,792       1,767,557         1,821,698       8,094,877
Interest expense on MBS secured financing
agreements (1)                                        20,026           2,491               -                 -          22,517
Interest expense on securitized debt (1)             208,681         299,397         176,184           169,682         853,944
Total                                       $      4,360,732    $  3,497,700    $  1,943,829    $    1,991,464    $ 11,793,725

(1) Interest is based on variable rates in effect as of September 30, 2022.

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                                                        December 31, 2021
                                                      (dollars in thousands)
                                                                                                  Greater Than or
                                                                  One to Three    Three to Five    Equal to Five
Contractual Obligations                        Within One Year        Years           Years            Years            Total
Secured financing agreements                 $      2,861,485    $    143,239    $    256,889    $            -    $  3,261,613
Securitized debt, collateralized by
Non-Agency RMBS                                         4,374           2,361             949                82           7,766
Securitized debt at fair value,
collateralized by Loans held for investment         2,031,445       2,886,255       1,697,760         1,145,995       7,761,455
Interest expense on MBS secured financing
agreements (1)                                          7,687             352           1,270                 -           9,309
Interest expense on securitized debt (1)              170,798         223,316         117,998           101,367         613,479
Total                                        $      5,075,789    $  3,255,523    $  2,074,866    $    1,247,444    $ 11,653,622

(1) Interest is based on variable rates in effect as of December 31, 2021.


Not included in the table above are the unfunded construction loan commitments
of $10 million and $23 million as of September 30, 2022 and December 31, 2021,
respectively. We expect the majority of these commitments will be paid within
one year and are reported under Payable for investments purchased in our
Consolidated Statements of Financial Condition.

Capital Expenditure Requirements

At September 30, 2022 and December 31, 2021, we had no material commitments for
capital expenditures.


Dividends

To maintain our qualification as a REIT, we must pay annual dividends to our
stockholders of at least 90% of our taxable income (subject to certain
adjustments). Before we pay any dividend, we must first meet any operating
requirements and scheduled debt service on our financing facilities and other
debt payable.

Critical Accounting Estimates

Accounting policies are integral to understanding our Management's Discussion
and Analysis of Financial Condition and Results of Operations. The preparation
of financial statements in accordance with GAAP requires management to make
certain judgments and assumptions, on the basis of information available at the
time of the financial statements, in determining accounting estimates used in
the preparation of these statements. Our significant accounting policies and
accounting estimates are described in Note 2 to the Consolidated Financial
Statements. Critical accounting policies are described in this section. An
accounting policy is considered critical if it requires management to make
assumptions or judgments about matters that are highly uncertain at the time the
accounting estimate was made or require significant management judgment in
interpreting the accounting literature. If actual results differ from our
judgments and assumptions, or other accounting judgments were made, this could
have a significant and potentially adverse impact on our financial condition,
results of operations and cash flows.

The accounting policies and estimates which we consider most critical relate to
the recognition of revenue on our investments, including recognition of any
losses, and the determination of fair value of our financial instruments.


The consolidated financial statements include, on a consolidated basis, our
accounts, the accounts of our wholly-owned subsidiaries, and variable interest
entities, or VIEs, for which we are the primary beneficiary. All significant
intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates


The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Although our estimates contemplate current
conditions and how we expect them to change in the future, it is reasonably
possible that actual conditions could be different than anticipated in those
estimates, which could materially adversely impact our results of operations and
our financial condition. Management has made significant estimates in several
areas, including current expected credit losses of Non-Agency
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RMBS, valuation of Loans held for investments, Agency and Non-Agency MBS and
interest rate swaps and income recognition on Loans held for investments and
Non-Agency RMBS. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Refer to Note 2 in the Notes to Consolidated Financial Statements for a
discussion of accounting guidance we have recently adopted or expect to be
adopted in the future.

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