Anworth Mortgage Asset (ANH)

Results of Operations

Three Months Ended March 31, 2009 Compared to March 31, 2008

For the three months ended March 31, 2009, our net income was $30.8 million and our net income available to common stockholders was $29.3 million. This includes net income of $30.8 million and the payment of preferred stock dividends of approximately $1.5 million. For the three months ended March 31, 2008, our net income was $16.6 million and our net income available to common stockholders was $15.1 million.

Net interest income for the three months ended March 31, 2009 was $34.5 million, or 48% of gross income, compared to $19.3 million, or 26.8% of gross income, for the three months ended March 31, 2008. 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, 2009 was $67.0 million, compared to $68.4 million for the three months ended March 31, 2008, a decrease of 2.0%, due primarily to an increase of approximately $1 million in premium amortization expense. Interest expense for the three months ended March 31, 2009 was $32.5 million, compared to $49.1 million for the three months ended March 31, 2008, a decrease of 34%. This decrease was due primarily to the decrease in short-term interest rates.

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

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During the three months ended March 31, 2009, premium amortization expense increased $1.0 million, or 29%, from $3.5 million during the three months ended March 31, 2008 to $4.5 million.

For the three months ended March 31, 2009, there was a net gain on derivative instruments of approximately $107 thousand due to hedge ineffectiveness, compared to a net loss on derivative instruments of approximately $280 thousand for the three months ended March 31, 2008.

Total expenses were $3.9 million for the three months ended March 31, 2009, compared to $2.5 million for the three months ended March 31, 2008. The increase of $1.4 million in total expenses was due to an increase in compensation and benefits of $1.37 million (due primarily to an increase of $1.2 million in the accrual for year-end 2009 additional compensation over the 2008 additional compensation accrued through March 2008) and an increase in “Other expenses” of $52 thousand.

Results of Operations

Three Months Ended September 30, 2008 Compared to September 30, 2007

For the three months ended September 30, 2008, our net loss was $1.3 million. Our net loss to common stockholders was $2.8 million, or $(0.03) per diluted share, based on an average of 86.4 million shares outstanding. This consisted of our net loss of $1.3 million and the payment of preferred stock dividends of approximately $1.5 million. This net loss includes an approximately $34.1 million impairment charge on Non-Agency MBS, a net loss on derivative instruments of approximately $0.9 million and a gain on the disposition of discontinued operations of approximately $7.7 million. Net income excluding the impairment charge on Non-Agency MBS and the gain on the disposition of discontinued operations would have been $23.6 million or $0.27 per diluted share, based on an average of 89.4 million shares outstanding.

For the three months ended September 30, 2007, our net loss was $157.0 million. Our net loss to common stockholders was $158.5 million, or $(3.47) per diluted share, based on an average of 45.6 million shares outstanding. The loss for the three months ended September 30, 2007 included a loss from continuing operations of $20.3 million, which includes a loss of approximately $23.4 million on the sale of $904 million of our Agency MBS and Non-Agency MBS. The 2007 loss also included a loss from discontinued operations of $136.7 million due primarily to losses on sales and an impairment charge on Belvedere Trust’s assets.

Net interest income for the three months ended September 30, 2008 was $29.2 million, or 38% of gross income from continuing operations, compared to $4.5 million, or 6.7% of gross income from continuing operations, for the three months ended September 30, 2007. 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 September 30, 2008 was $73.6 million, compared to $62.1 million for the three months ended September 30, 2007, an increase of 19%. The increase in interest income is due primarily to the increase in our investments in Agency MBS (based on the leverage on approximately $243 million in capital raised during the nine months ended September 30, 2008). Interest expense for the three months ended September 30, 2008 was $44.4 million, compared to $57.7 million for the three months ended September 30, 2007, a decrease of 23%. This decrease was due primarily to the decrease in short-term interest rates.

During the three months ended September 30, 2008, premium amortization expense decreased $2.6 million, or 47%, from $5.5 million during the three months ended September 30, 2007 to $2.9 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

The table below shows the approximate constant prepayment rate of our MBS for each of the following quarters:

For the three months ended September 30, 2008, there was a net loss on derivative instruments of approximately $0.9 million due to hedge ineffectiveness, compared to a net loss on derivative instruments of approximately $147 thousand for the three months ended September 30, 2007.

Total expenses were $3.2 million for the three months ended September 30, 2008, compared to $1.2 million for the three months ended September 30, 2007. The increase of $2.0 million in total expenses was due to an increase in compensation and benefits of $1.541 million (due primarily to increases in executives’ and other employees’ salaries of $291 thousand and an accrual for year-end 2008 additional compensation of $1.250 million), the write-off or common stock offering costs of $108 thousand, an increase in “Other expenses” of $93 thousand, and an increase in amortization of restricted stock of $249 thousand.

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Nine Months Ended September 30, 2008 Compared to September 30, 2007

For the nine months ended September 30, 2008, our net income was $41.0 million. Our net income available to common stockholders was $36.6 million, or $0.46 per diluted share, based on an average of 82.5 million shares outstanding. This consisted of our net income of $41.0 million less the preferred dividends of approximately $4.4 million. This net loss includes an approximately $34.1 million impairment charge on Non-Agency MBS, a net loss on derivative instruments of approximately $0.9 million and a gain on the disposition of discontinued operations of approximately $7.7 million. Net income excluding the impairment charge on Non-Agency MBS and the gain on the disposition of discontinued operations would have been approximately $62.9 million, or $0.78 per diluted share, based on an average of 82.5 million shares outstanding. For the nine months ended September 30, 2007, our net loss was $150.7 million. Our net loss to common stockholders was $154.0 million, or $(3.37) per diluted share, based on an average of 45.7 million shares outstanding. The loss for the nine months ended September 30, 2007 included a loss from continuing operations of $14.6 million, which includes a loss of approximately $23.4 million on the sale of $904 million of our Agency MBS and Non-Agency MBS. The 2007 loss also included a loss from discontinued operations of $136.1 due primarily to losses on sales and an impairment charge on Belvedere Trust’s assets.

Net interest income for the nine months ended September 30, 2008 was $77.3 million, or 34% of gross income from continuing operations, compared to $13.3 million, or 6.4% of gross income from continuing operations, for the nine months ended September 30, 2007. 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, 2008 was $216.4 million, compared to $190.2 million for the nine months ended September 30, 2007, an increase of 14%. The increase in interest income is due primarily to the increase in our investments in Agency MBS (based on the leverage on approximately $243 million in capital raised during the nine months ended September 30, 2008). Interest expense for the nine months ended September 30, 2008 was $139.1 million, compared to $177 million for the nine months ended September 30, 2007, a decrease of 21%. This decrease was due primarily to the decrease in short-term interest rates.

For the nine months ended September 30, 2008, there was a net loss on derivative instruments of approximately $0.9 million due to hedge ineffectiveness, compared to a net loss on derivative instruments of approximately $147 thousand for the nine months ended September 30, 2007.

During the nine months ended September 30, 2008, premium amortization expense decreased $7.6 million, or 43%, from $17.7 million during the nine months ended September 30, 2007 to $10.1 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

Total expenses were $9.0 million for the nine months ended September 30, 2008, compared to $4.3 million for the nine months ended September 30, 2007. The increase of $4.7 million in total expenses was due to an increase in compensation and benefits of $4.26 million (due primarily to increases in executives’ and other employees’ salaries of $835 thousand and an accrual for year-end 2008 additional compensation of $3.425 million), the write-off or common stock offering costs of $108 thousand, an increase in “Other expenses” of $282 thousand and an increase in amortization of restricted stock of $51 thousand.

Results of Operations

Three Months Ended June 30, 2008 Compared to June 30, 2007

For the three months ended June 30, 2008, our net income was $25.8 million. Our net income available to common stockholders was $24.3 million, or $0.29 per diluted share, based on an average of 85.1 million shares outstanding. For the three months ended June 30, 2007, our net income was $3.6 million and our net income available to common stockholders was $2.1 million, or $0.05 per diluted share, based on an average of 45.6 million shares outstanding.

Net interest income for the three months ended June 30, 2008 was $28.8 million, or 36.9% of gross income from continuing operations, compared to $4.8 million, or 6.8% of gross income from continuing operations, for the three months ended June 30, 2007. 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 June 30, 2008 was $74.3 million, compared to $64.2 million for the three months ended June 30, 2007, an increase of 15.7%. The increase in interest income is due primarily to the increase in our investments in Agency MBS (based on the leverage on approximately $210 million in capital raised during the six months ended June 30, 2008). Interest expense for the three months ended June 30, 2008 was $45.5 million, compared to $59.5 million for the three months ended June 30, 2007, a decrease of 23.4%. This decrease was due primarily to the decrease in short-term interest rates.

During the three months ended June 30, 2008, premium amortization expense decreased $2.6 million, or 41.3%, from $6.3 million during the three months ended June 30, 2007 to $3.7 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

The table below shows the approximate constant prepayment rate of our MBS for each of the following quarters:

During the three months ended June 30, 2008, we recognized a gain of $273 thousand due to hedge ineffectiveness.

Total expenses were $3.3 million for the three months ended June 30, 2008, compared to $1.5 million for the three months ended June 30, 2007. The increase of $1.8 million in total expenses was due to an increase in compensation and benefits of $1,737,000 (due primarily to increases in executives’ and other employees’ salaries of $362,000 and an accrual for year-end 2008 additional compensation of $1,375,000) and an increase in “Other expenses” of $128,000, partially offset by a decrease in amortization of restricted stock of $41,000.

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Six Months Ended June 30, 2008 Compared to June 30, 2007

For the six months ended June 30, 2008, our net income was $42.4 million. Our net income to available to common stockholders was $39.4 million, or $0.51 per diluted share, based on an average of 78.9 million shares outstanding. For the six months ended June 30, 2007, our net income was $6.3 million and our net income available to common stockholders was $4.6 million, or $0.10 per diluted share, based on an average of 45.6 million shares outstanding.

Net interest income for the six months ended June 30, 2008 was $48.1 million, or 32.1% of gross income from continuing operations, compared to $8.8 million, or 6.3% of gross income from continuing operations, for the six months ended June 30, 2007. 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, 2008 was $142.7 million, compared to $128.1 million for the six months ended June 30, 2007, an increase of 11.4%. The increase in interest income is due primarily to the increase in our investments in Agency MBS (based on the leverage on approximately $210 million in capital raised during the six months ended June 30, 2008). Interest expense for the six months ended June 30, 2008 was $94.6 million, compared to $119.3 million for the six months ended June 30, 2007, a decrease of 20.7%. This decrease was due primarily to the decrease in short-term interest rates.

During the six months ended June 30, 2008, premium amortization expense decreased $5.0 million, or 41.0%, from $12.2 million during the six months ended June 30, 2007 to $7.2 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

Total expenses were $5.8 million for the six months ended June 30, 2008, compared to $3.1 million for the six months ended June 30, 2007. The increase of $2.7 million in total expenses was due to an increase in compensation and benefits of $2.7 million (due primarily to increases in executives’ and other employees’ salaries of $546,000 and an accrual for year-end 2008 additional compensation of $2,175,000) and an increase in “Other expenses” of $189,000, partially offset by a decrease in amortization of restricted stock of $198,000.

Results of Operations

Three Months Ended March 31, 2008 Compared to March 31, 2007

For the three months ended March 31, 2008, our net income was $16.6 million. Our net income to common stockholders was $15.1 million, or $0.21 per diluted share, based on an average of 72.6 million shares outstanding. For the three months ended March 31, 2007, our net income was $2.8 million and our net income to common stockholders was $2.4 million, or $0.05 per diluted share, based on an average of 45.6 million shares outstanding.

Net interest income for the three months ended March 31, 2008 was $19.3 million, or 26.8% of gross income from continuing operations, compared to $4.0 million, or 5.8% of gross income from continuing operations, for the three months ended March 31, 2007. 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, 2008 was $68.4 million, compared to $63.8 million for the three months ended March 31, 2007, an increase of 7.1%. The increase in interest income is due primarily to the increase in our investments in Agency MBS (based on the leverage on $160 million in capital raised during the three months ended March 31, 2008). Interest expense for the three months ended March 31, 2008 was $49.1 million, compared to $59.8 million for the three months ended March 31, 2007, a decrease of 17.9%. This decrease was due primarily to the decrease in short-term interest rates.

During the three months ended March 31, 2008, premium amortization expense decreased $2.4 million, or 41%, from $5.9 million during the three months ended March 31, 2007 to $3.5 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

The table below shows the approximate constant prepayment rate of our MBS for each of the following quarters:

During the three months ended March 31, 2008, we recognized a loss of $280,000 due to hedge ineffectiveness.

Total expenses were $2.5 million for the three months ended March 31, 2008, compared to $1.6 million for the three months ended March 31, 2007. The increase of $888,000 in total expenses was due to an increase in compensation and benefits of $983,000 (due primarily to increases in executives’ and other employees’ salaries of $183,000 and year-end 2008 additional compensation of $800,000) and an increase in “Other expenses” of $61,000, partially offset by a decrease in amortization of restricted stock of $156,000.

Results of Operations

Three Months Ended September 30, 2007 Compared to September 30, 2006

For the three months ended September 30, 2007, our net loss was $157.0 million. Our net loss to common stockholders was $158.5 million, or $(3.47) per diluted share, based on an average of 45.6 million shares outstanding. This includes a loss from continuing operations of $20.3 million which includes a loss of approximately $23.4 million on the sale of $904 million of our Agency MBS and Non Agency MBS. This also includes a loss from discontinued operations of $136.7 million due primarily to losses on sales and an impairment charge on Belvedere Trust’s assets. For the three months ended September 30, 2006, our net loss was $2.4 million (consisting of a loss from continuing operations of $1.1 million and a loss from discontinued operations of $1.3 million) and our net loss to common stockholders was $3.4 million, or $(0.07) per diluted share, based on an average of 45.4 million shares outstanding.

Continuing Operations

Net interest income for the three months ended September 30, 2007 was $4.5 million, or 6.7% of gross income from continuing operations, compared to $0.4 million, or 0.6% of gross income from continuing operations, for the three months ended September 30, 2006. 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 September 30, 2007 was $62.1 million, compared to $55.3 million for the three months ended September 30, 2006, an increase of 12.3%. The increase in interest income is due primarily to the increase in interest rates of our investments in MBS. Interest expense for the three months ended September 30, 2007 was $57.7 million, compared to $54.9 million for the three months ended September 30, 2006, an increase of 5.1%. The smaller increase in interest expense relative to the increase in interest income is due to the increases in short-term rates (we believe the liquidity and credit concerns surrounding the mortgage markets generally caused lenders to be more cautious, which resulted in increases in the borrowing rate as well as more limited financing).

During the three months ended September 30, 2007, premium amortization expense decreased $1.3 million, or 19%, from $6.8 million during the three months ended September 30, 2006 to $5.5 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

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The table below shows the approximate constant prepayment rate of our MBS for each of the following quarters:

During the three months ended September 30, 2007, we sold approximately $904 million of Agency MBS and Non-Agency MBS, which resulted in realized losses of approximately $23.4 million. As these sales were mostly lower-yielding MBS, this portfolio restructuring is expected to result in a higher-yielding portfolio going forward. During the three months ended September 30, 2006, we did not sell any Agency MBS.

Total expenses were $1.2 million for the three months ended September 30, 2007, compared to $1.5 million for the three months ended September 30, 2006. The decrease of $297 thousand in total expenses was due to a decrease in amortization of restricted stock of approximately $255 thousand (due primarily to a reduction this period of $198 thousand versus $57 thousand of amortization in the prior period) and a decrease of $59 thousand in other expenses, partially offset by an increase in compensation expenses of $17 thousand.

Nine Months Ended September 30, 2007 Compared to September 30, 2006

For the nine months ended September 30, 2007, our net loss was $150.7 million. Our net loss to common stockholders was $154.0 million, or $(3.37) per diluted share, based on an average of 45.7 million shares outstanding. This includes a loss from continuing operations of $14.6 million, which includes a loss of approximately $23.4 million on the sale of $904 million of our Agency MBS and Non-Agency MBS. This also includes a loss from discontinued operations of $136.1 due primarily to losses on sales and an impairment charge on Belvedere Trust’s assets. For the nine months ended September 30, 2006, our net loss was $11.9 million (consisting of a loss from continuing operations of $10.8 million and a loss from discontinued operations of $1.1 million) and our net loss to common stockholders was $13.9 million, or $(0.31) per diluted share, based on an average of 45.4 million shares outstanding.

Continuing Operations

Net interest income for the nine months ended September 30, 2007 was $13.3 million, or 6.4% of gross income from continuing operations, compared to $3.4 million, or 2.0% of gross income from continuing operations, for the nine months ended September 30, 2006. Interest income net of premium amortization expense for the nine months ended September 30, 2007 was $190.2 million, compared to $148.2 million for the nine months ended September 30, 2006, an increase of 28.3%. The increase in interest income is due primarily to the increase in interest rates of our investments in MBS. Interest expense for the nine months ended September 30, 2007 was $177 million, compared to $144.8 million for the nine months ended September 30, 2006, an increase of 22.2%. The smaller increase in interest expense relative to the increase in interest income is due to the increases in short-term rates (due to both increases in the federal funds rate, which only recently has declined, and also due to the liquidity and credit concerns surrounding the mortgage markets generally, which we believe caused lenders to be more cautious, resulting in increases in the borrowing rate as well as more limited financing).

During the nine months ended September 30, 2007, premium amortization expense decreased $3.4 million, or 16%, from $21.1 million during the nine months ended September 30, 2006 to $17.7 million, which was due primarily to the decrease in the constant prepayment rate of our MBS investments.

During the nine months ended September 30, 2007, we sold approximately $904 million of Agency MBS and Non-Agency MBS, which resulted in realized losses of approximately $23.4 million. As these sales were

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mostly lower-yielding MBS, this portfolio restructuring is expected to result in a higher-yielding portfolio going forward. During the nine months ended September 30, 2006, we sold approximately $398 million of Agency MBS, which resulted in a realized loss of approximately $10.2 million, as part of our asset/liability management program. The proceeds from the sales in 2006 were used to invest in higher-yielding Agency MBS.

Total expenses were $4.3 million for the nine months ended September 30, 2007, compared to $4.0 million for the nine months ended September 30, 2006. The increase of $216 thousand in total expenses was due to an increase in compensation expenses of $145 thousand and an increase of $159 thousand in other expenses, partially offset by a decrease in amortization of restricted stock of $88 thousand.

Results of Operations

Three Months Ended June 30, 2007 Compared to June 30, 2006

For the three months ended June 30, 2007, our net income was $3.6 million. Our net income available to common stockholders was $2.1 million, or $0.05 per diluted share, based on an average of 45.6 million shares outstanding. This includes a net profit of $0.3 million for Belvedere Trust. For the three months ended June 30, 2006, our net loss was $11.9 million and our net loss to common stockholders was $12.9 million, or $(0.28) per diluted share, based on an average of 45.4 million shares outstanding.

Net interest income for the three months ended June 30, 2007 was $6.1 million, or 6.4% of total interest income, compared to $(0.9) million, or (1.0)% of total interest income, for the three months ended June 30, 2006. 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 June 30, 2007 was $86.2 million, compared to $74 million for the three months ended June 30, 2006, an increase of 16.6%. The increase in interest income is due primarily to the increase in the interest rates of our portfolios, partially offset by the decrease in the balance of Belvedere Trust’s BT Residential Loans portfolio. Interest expense for the three months ended June 30, 2007 was $80.1 million, compared to $74.9 million for the three months ended June 30, 2006, an increase of 7.0%. The smaller increase in interest expense is due to the increases in short-term interest rates (which have not increased as much since the Federal Reserve Bank stopped the increase in the Fed Funds Rate), partially offset by the decrease in the balance of Belvedere Trust’s BT Residential Loans portfolio.

During the three months ended June 30, 2007, premium amortization expense for Anworth decreased $1.3 million, or 17%, from $7.6 million during the three months ended June 30, 2006 to $6.3 million, and for Belvedere Trust, it decreased $2.5 million, or 50%, from $5.0 million during the three months ended June 30, 2006 to $2.5 million. During the three months ended June 30, 2007, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the decrease in premium amortization expense for Belvedere Trust resulted from the continued reduction in Belvedere Trust’s BT Residential Loans portfolio.

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The table below shows the approximate constant prepayment rate of our (including Belvedere Trust’s) mortgage-related assets for each of the following quarters:

During the three months ended June 30, 2007, we did not sell any Agency MBS, compared to a sale of approximately $398 million during the three months ended June 30, 2006, which resulted in a loss of approximately $10.2 million. During the three months ended June 30, 2007, Belvedere Trust did not sell any of its Other MBS, compared to a sale of approximately $54 million during the three months ended June 30, 2006, which resulted in a gain of approximately $1.1 million.

Total expenses were $2.5 million for the three months ended June 30, 2007, compared to $1.9 million for the three months ended June 30, 2006. The increase of $570 thousand in total expenses was due to an increase in compensation expenses of $6 thousand, an increase in amortization of restricted stock of approximately $17 thousand (due primarily to a restricted stock grant in October 2006) and an increase in the provision for loan losses of $547 thousand (due primarily to increases in specific reserves on delinquent loans).

Six Months Ended June 30, 2007 Compared to June 30, 2006

For the six months ended June 30, 2007, our net income was $6.3 million. Our net income available to common stockholders was $4.6 million, or $0.10 per diluted share, based on an average of 45.6 million shares outstanding. This includes a net profit of $0.6 million for Belvedere Trust. For the six months ended June 30, 2006, our net loss was $9.5 million and our net loss to common stockholders was $10.5 million, or $(0.23) per diluted share, based on an average of 45.4 million shares outstanding.

Net interest income for the six months ended June 30, 2007 was $11.1 million, or 5.8% of total interest income, compared to $3.6 million, or 2.1% of total interest income, for the six months ended June 30, 2006. 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, 2007 was $172.8 million, compared to $149.4 million for the six months ended June 30, 2006, an increase of 15.7%. The increase in interest income is due primarily to the increase in the interest rates of our portfolios, partially offset by the decrease in the balance of Belvedere Trust’s BT Residential Loans portfolio. Interest expense for the six months ended June 30, 2007 was $161.6 million, compared to $145.8 million for the six months ended June 30, 2006, an increase of 10.8%. The smaller increase in interest expense is due to the increases in short-term interest rates (which have not increased as much since the Federal Reserve Bank stopped the increase in the Fed Funds Rate), partially offset by the decrease in the balance of Belvedere Trust’s BT Residential Loans portfolio.

During the six months ended June 30, 2007, premium amortization expense for Anworth decreased $2.2 million, or 15%, from $14.4 million during the six months ended June 30, 2006 to $12.2 million, and for Belvedere Trust, it decreased $3.4 million, or 35%, from $9.6 million during the six months ended June 30, 2006 to $6.2 million. During the six months ended June 30, 2007, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the decrease in premium amortization expense for Belvedere Trust resulted from the continued reduction in the loan portfolio.

During the six months ended June 30, 2007, we did not sell any Agency MBS, compared to a sale of approximately $398 million during the six months ended June 30, 2006, which resulted in a loss of approximately $10.2 million. During the six months ended June 30, 2007, Belvedere Trust sold approximately

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$29.3 million of its BT Other MBS and realized a net gain of approximately $0.2 million, compared to a sale of approximately $54 million during the six months ended June 30, 2006, which resulted in a gain of approximately $1.1 million. These sales were part of Belvedere Trust’s asset/liability management program in order to reduce credit exposure and minimize future volatility to its earnings.

Total expenses were $5.0 million for the six months ended June 30, 2007, compared to $4.1 million for the six months ended June 30, 2006. The increase of $857 thousand in total expenses was due to an increase in compensation expenses of $48 thousand, an increase in amortization of restricted stock of approximately $166 thousand (due primarily to a restricted stock grant in October 2006) and an increase in the provision for loan losses of $787 thousand (due primarily to increases in specific reserves on delinquent loans) partially offset by a decrease in “Other expenses” of $144 thousand.

Results of Operations

Three Months Ended March 31, 2007 Compared to March 31, 2006

For the three months ended March 31, 2007, our net income was $2.8 million. Our net income available to common stockholders was $2.4 million, or $0.05 per diluted share, based on an average of 45.6 million shares outstanding. This includes a net profit of $0.3 million for Belvedere Trust. For the three months ended March 31, 2006, our net income was $2.4 million and our net income to common stockholders was $2.4 million, or $0.05 per diluted share, based on an average of 45.4 million shares outstanding.

Net interest income for the three months ended March 31, 2007 was $5.1 million, or 5.3% of total interest income, compared to $4.5 million, or 5.2% of total interest income, for the three months ended March 31, 2006. 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, 2007 was $86.5 million, compared to $75.4 million for the three months ended March 31, 2006, an increase of 15%. Interest expense for the three months ended March 31, 2007 was $81.5 million, compared to $70.9 million for the three months ended March 31, 2006, an increase of 15%. The increase in both interest income and interest expense was due primarily to the increase in short-term interest rates during the past two years.

During the three months ended March 31, 2007, premium amortization expense for Anworth decreased $0.9 million, or 13%, from $6.8 million during the three months ended March 31, 2006 to $5.9 million, and for Belvedere Trust, it decreased $0.9 million, or 20%, from $4.6 million during the three months ended March 31, 2006 to $3.7 million. During the three months ended March 31, 2007, the decrease in premium amortization expense for Anworth resulted from a decrease of the constant prepayment rate of its portfolio and the decrease in premium amortization expense for Belvedere Trust resulted from a decrease in the constant prepayment rate of its portfolio of loans and the continued reduction in the loan portfolio.

The table below shows the approximate constant prepayment rate of our (including Belvedere Trust’s) mortgage-related assets for each of the following quarters:

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During the three months ended March 31, 2007, we did not sell any Agency MBS. Belvedere Trust sold approximately $29.3 million of its BT Other MBS and realized a net gain of approximately $0.2 million. The sales were part of Belvedere Trust’s asset/liability management program in order to reduce credit exposure and minimize future volatility to its earnings.

Total expenses were $2.5 million for the three months ended March 31, 2007, compared to $2.2 million for the three months ended March 31, 2006. The increase of $0.3 million in total expenses was due primarily to an increase in compensation expenses of $42 thousand, an increase in amortization of restricted stock of approximately $132 thousand (due primarily to a restricted stock grant in October 2006) and an increase in the provision for loan losses of $240 thousand (due primarily to increases in specific reserves on delinquent loans) partially offset by a decrease in “Other expenses” of $127 thousand.

Results of Operations

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

For the three months ended September 30, 2006, our net loss was $2.4 million. Our net loss to common stockholders was $3.4 million, or $(0.07) per diluted share, based on an average of 45.4 million shares outstanding. This includes a net loss of $1.3 million for Belvedere Trust. For the three months ended September 30, 2005, our net income was $4.5 million and our net income available to common stockholders was $3.5 million, or $0.07 per diluted share, based on an average of 47.9 million shares outstanding.

Net interest income for the three months ended September 30, 2006 was $(1.5) million, or (1.9)% of total interest income, compared to $6.5 million, or 9% of total interest income, for the three 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 three months ended September 30, 2006 was $79.2 million, compared to $71.2 million for the three months ended September 30, 2005, an increase of 11.2%. Interest expense for the three months ended September 30, 2006 was $80.7 million, compared to $64.7 million for the three months ended September 30, 2005, an increase of 24.7%. 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 three months ended September 30, 2006, premium amortization expense for Anworth decreased $4.8 million, or 41.3%, from $11.6 million during the three months ended September 30, 2005 to $6.8 million, and for Belvedere Trust, it increased $1.8 million, or 41.9%, from $4.3 million during the three months ended September 30, 2005 to $6.1 million. During the three 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 $1.8 million related to some of Belvedere Trust’s interest-only securities.

The table below shows the approximate constant prepayment rate of our (including Belvedere Trust’s) mortgage-related assets:

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During the three months ended September 30, 2006, we did not sell any Agency MBS. Belvedere Trust sold $49 million of its Other MBS and realized a gain of approximately $1.5 million. The sales were part of Belvedere Trust’s asset/liability management program and were designed to reduce credit exposure.

Total expenses were $2.4 million for the three months ended September 30, 2006, compared to $2.0 million for the three months ended September 30, 2005. The increase of $0.4 million in total expenses was due primarily to an increase in the provision for loan losses of $209 thousand (due primarily to increases in specific reserves on delinquent loans) and an increase in “Other expenses” of $127 thousand (due primarily to the issuance and amortization of restricted stock to officers and directors).

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).

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Results of Operations

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

For the three months ended June 30, 2006, our net loss was $11.9 million. Our net loss to common stockholders was $12.9 million, or $(0.28) per diluted share, based on an average of 45.4 million shares outstanding. For the three months ended June 30, 2005, our net income was $8.9 million and our net income available to common stockholders was $7.8 million, or $0.16 per diluted share, based on an average of 47.7 million shares outstanding.

Net interest income for the three months ended June 30, 2006 was $(0.9) million, or (1.3)% of total interest income, compared to $11.2 million, or 16% of total interest income, for the three 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 three months ended June 30, 2006 was $74 million, compared to $71.7 million for the three months ended June 30, 2005, an increase of 3.2%. Interest expense for the three months ended June 30, 2006 was $74.9 million, compared to $60.5 million for the three months ended June 30, 2005, an increase of 23.8%. 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 June 30, 2006, premium amortization expense for Anworth decreased $3.0 million, or 28.3%, from $10.6 million to $7.6 million, and for Belvedere Trust, it increased $0.7 million, or 16.3%, from $4.3 million to $5.0 million. During the three 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 (due to a higher concentration of ARM product).

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

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

During the three 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. The proceeds from the sale were used to invest in higher-yielding agency MBS. 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.

Total expenses were $1.9 million for the three months ended June 30, 2006, compared to $2.2 million for the three months ended June 30, 2005. The decrease of $314 thousand in total expenses was due primarily to a decrease in compensation of $98 thousand (due primarily to reductions in pay at Belvedere Trust), a decrease in incentive compensation expenses of $87 thousand (due to the Company incurring a net loss), a decrease in the provision for loan losses of $223 thousand (due primarily to a decrease in the loan portfolio this year versus an increase in the loan portfolio last year), partially offset by a combined increase of the remaining expenses of $94 thousand (which includes $221 thousand in additional costs incurred on the Belvedere Trust IPO).

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.

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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).