Anworth Mortgage Asset (ANH)

Nine Months Ended September 30, 2006 Compared to September 30, 2005

For the nine months ended September 30, 2006, our net loss was $11.9 million. Our net loss to common stockholders was $14.95 million, or $(0.33) per diluted share, based on an average of 45.4 million shares outstanding. This includes a net loss of $1.1 million for Belvedere Trust. For the nine months ended September 30, 2005, our net income was $27.8 million and our net income available to common stockholders was $25.0 million, or $0.53 per diluted share, based on an average of 47.5 million shares outstanding.

Net interest income for the nine months ended September 30, 2006 totaled $2.1 million, or 0.9% of total interest income, compared to $35.4 million, or 16.9% of total interest income, for the nine months ended September 30, 2005. The decline in net interest income is due primarily to the increase in short-term interest rates during the year and the mismatch between longer maturities on the mortgage-related assets and the shorter maturities on the related liabilities that finance those assets. Net interest income is comprised of the interest income earned on mortgage investments less interest expense from borrowings. Interest income net of premium amortization expense for the nine months ended September 30, 2006 was $228.5 million, compared to $209.7 million for the nine months ended September 30, 2005, an increase of 9.0%. Interest expense for the nine months ended September 30, 2006 was $226.4 million, compared to $174.4 million for the nine months ended September 30, 2005, an increase of 29.8%. The increase in both interest income and interest expense was due primarily to the increase in short-term interest rates during the year.

During the nine months ended September 30, 2006, premium amortization expense for Anworth decreased $10.2 million, or 32.6%, from $31.3 million during the nine months ended September 30, 2005 to $21.1 million, and for Belvedere Trust, it increased $5.1 million, or 48.1%, from $10.6 million during the nine months ended September 30, 2005 to $15.7 million. During the nine months ended September 30, 2006, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the increase in premium amortization expense for Belvedere Trust resulted from an increase in the constant prepayment rate of its portfolio of loans (due to a higher concentration of ARM product) and impairment charges of $2.5 million related to some of Belvedere Trust’s interest-only securities.

During the nine months ended September 30, 2006, we sold approximately $398 million in face amount of Agency MBS, resulting in a loss of approximately $10.2 million as part of our asset/liability management program. The proceeds from the sale were used to invest in higher-yielding Agency MBS. This loss was partially offset by a gain of approximately $2.6 million on the sale of $103 million of Belvedere Trust’s Other MBS. Belvedere Trust’s sales of Other MBS were part of its asset/liability management program and were designed to reduce credit exposure.

Total expenses were $6.5 million for the nine months ended September 30, 2006, compared to $7.3 million for the nine months ended September 30, 2005. The decrease of $0.8 million in total expenses was due primarily to a decrease in incentive compensation expenses of $708 thousand (due to our incurring a net loss), a decrease in the provision for loan losses of $122 thousand (due primarily to a decrease in the loan portfolio this year versus an increase in the loan portfolio last year), a decrease in compensation expense of $169 thousand (due primarily to reductions in pay at Belvedere Trust), partially offset by a combined increase of the remaining expenses of $243 thousand (which includes $221 thousand in additional costs incurred on the Belvedere Trust IPO and also includes the amortization of restricted stock to officers and directors).

36

Table of Contents

Six Months Ended June 30, 2006 Compared to June 30, 2005

For the six months ended June 30, 2006, our net loss was $9.5 million. Our net loss to common stockholders was $11.5 million, or $(0.25) per diluted share, based on an average of 45.4 million shares outstanding. For the six months ended June 30, 2005, our net income was $23.3 million and our net income available to common stockholders was $21.5 million, or $0.45 per diluted share, based on an average of 47.3 million shares outstanding.

Net interest income for the six months ended June 30, 2006 totaled $3.6 million, or 2.4% of total interest income, compared to $28.9 million, or 21% of total interest income, for the six months ended June 30, 2005. The decline in net interest income is due primarily to the increase in short-term interest rates during the year and the mismatch between longer maturities on the mortgage-related assets and the shorter maturities on the related liabilities that finance those assets. Net interest income is comprised of the interest income earned on mortgage investments less interest expense from borrowings. Interest income net of premium amortization expense for the six months ended June 30, 2006 was $149.4 million, compared to $138.5 million for the six months ended June 30, 2005, an increase of 7.9%. Interest expense for the six months ended June 30, 2006 was $145.8 million, compared to $109.7 million for the six months ended June 30, 2005, an increase of 32.9%. The larger percentage increase in interest expense was due primarily to the increase in short-term interest rates during the year.

During the six months ended June 30, 2006, premium amortization expense for Anworth decreased $5.4 million, or 27.3%, from $19.8 million to $14.4 million, and for Belvedere Trust, it increased $2.1 million, or 28%, from $7.5 million to $9.6 million. During the six months ended June 30, 2006, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the increase in premium amortization expense for Belvedere Trust resulted from an increase in the constant prepayment rate of its portfolio of loans and other mortgage-related assets.

During the six months ended June 30, 2006, we sold approximately $398 million in face amount of agency MBS, resulting in a loss of approximately $10.2 million as part of our asset/liability management program. This loss was partially offset by a gain of approximately $1.1 million on the sale of approximately $54 million of Belvedere Trust’s securities.

36

Table of Contents

Total expenses were $4.1 million for the six months ended June 30, 2006, compared to $5.3 million for the six months ended June 30, 2005. The decrease of $1.2 million in total expenses was due primarily to a decrease in incentive compensation expenses of $851 thousand (due to the Company incurring a net loss), a decrease in the provision for loan losses of $332 thousand (due primarily to a decrease in the loan portfolio this year versus an increase in the loan portfolio last year), a decrease in compensation expense of $110 thousand (due primarily to reductions in pay at Belvedere Trust), partially offset by a combined increase of the remaining expenses of $116 thousand (which includes $221 thousand in additional costs incurred on the Belvedere Trust IPO).

Three Months Ended March 31, 2006 Compared to March 31, 2005

For the three months ended March 31, 2006, our net income was $2.4 million. Our net income available to common stockholders was $1.4 million, or $0.03 per diluted share, based on an average of 45.4 million shares outstanding. For the three months ended March 31, 2005, our net income was $14.5 million and our net income available to common stockholders was $13.6 million, or $0.29 per diluted share, based on an average of 46.9 million shares outstanding.

Net interest income for the three months ended March 31, 2006 totaled $4.5 million, or 6% of total interest income, compared to $17.7 million, or 26% of total interest income, for the three months ended March 31, 2005. Net interest income is comprised of the interest income earned on mortgage investments less interest expense from borrowings. Interest income net of premium amortization expense for the three months ended March 31, 2006 was $75.4 million, compared to $66.8 million for the three months ended March 31, 2005, an increase of 12.9%. Interest expense for the three months ended March 31, 2006 was $70.9 million, compared to $49.1 million for the three months ended March 31, 2005, an increase of 44.4%. The larger percentage increase in interest expense was due primarily to the increase in short-term interest rates during the year.

During the three months ended March 31, 2006, premium amortization expense for Anworth decreased $2.4 million, or 26.1%, from $9.2 million to $6.8 million, and for Belvedere Trust, it increased $1.4 million, or 43.8%,

36

Table of Contents

from $3.2 million to $4.6 million. During the three months ended March 31, 2006, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the increase in premium amortization expense for Belvedere Trust resulted from an increase in the constant prepayment rate of its portfolio of loans and other mortgage-related assets.

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

The table below shows the approximate constant prepayment rate on all of Belvedere Trust’s mortgage-related assets:

Total expenses were $2.2 million for the three months ended March 31, 2006, compared to $3.1 million for the three months ended March 31, 2005. The decrease of $862 thousand in total expenses was due primarily to a decrease in incentive compensation expenses of $772 thousand, a decrease in the provision for loan losses of $109 thousand (relating to the residential real estate loans at Belvedere Trust), partially offset by a combined increase of the remaining expenses of $19 thousand.