Mortgage REITs 4Q Earnings Preview: Book Value Performance and Capital Deployment Key Areas of Focus

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1 Credit Suisse Equity Research Americas/United States Mortgage REITs 4Q Earnings Preview: Book Value Performance and Capital Deployment Key Areas of Focus January 25, 2017 RESEARCH TEAM Douglas Harter, CFA Research Analyst (212) Sam Choe Research Associate (212) Josh Bolton Research Associate (212) DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Residential mreit Earnings Preview 1. Book Value Update We expect book values to be down 4.7% in the 4 th quarter, with a wide dispersion (0-14%) among the residential mortgage REITs. The key differentiating factors in terms of performance will be the amount of interest rate risk taken and the relative duration of hedges. We estimate best BV performance from PMT, CIM, EFC, and TWO; worst BV performance is expected from ARR, AGNC, and AI. 2. Estimates We are reducing our 4Q EPS estimates by 3% on average to reflect a lower decline in premium amortization expense than previously modeled. Our 2017 and 2018 numbers are unchanged as the full benefit from the rate rise will be felt by the first quarter. The big wildcard around our future estimates comes from portfolio actions (deleveraging or adding hedges) as a result of the large move in rates during the quarter. The mreits with the large book value declines in the quarter are more at risk for these actions. 3. Funding Costs Repo costs (1 month and 3 month) are up 9 and18 bps for the quarter, roughly in line with the move in LIBOR. Post year-end repo costs have fallen relative to LIBOR. With the increase in rates has come as an extension of portfolio durations and a potential need to add additional hedges at higher rates. This could act as further pressure to the cost of funds in the fourth quarter and Asset Yields We are expecting prepayment speeds to be down 7% for the fourth quarter, which should begin to result in lower premium amortization expense and higher asset yields for the sector. The full impact from the decline in CPRs won t be felt until the first quarter. In total we expect asset yields to be up 2-3 bps in 4Q and 8-10 bps in 1Q largely as a result of the lower premium amortization, as well as higher reinvestment yields. 5. PMT, TWO top picks With the sector trading at 90% of book value, we see limited upside stock prices from these levels for the group as a whole and continue to believe the majority of the return will come from the 12% dividend yield. We continue to like PMT and TWO as both have low sensitivity to rising rates, have multi-faceted earnings streams that should outperform in volatile rate environments, and are trading cheap relative to peers on P/B multiple. 1

3 Commercial mreit Earnings Outlook 1. 4Q Trough Earnings will be down sequentially in the fourth quarter for BXMT and STWD as liquidity levels are higher and the absence of elevated prepayment income for BXMT and a more normalized level of conduit earnings for STWD. Our 4Q estimates are above the consensus of ACRE and STWD and below on BXMT. 2. Excess Liquidity/Deal Flow The environment remains active in commercial real estate with relative active transaction volume. This should allow for the commercial mreits to deploy existing liquidity into new loans and grow earnings power heading into This active environment coupled with lower prepayments should lead to 5-10% investment portfolio growth in the quarter. 3. Credit/Real Estate Cycle The outlook for credit quality remains attractive with strong underlying demand trends (with the possibility of more demand if economic growth does in fact accelerate) and new supply remaining in check. While competitive, the market remains rational with no meaningful easing of terms. We are not expecting any problem assets/reserves in the quarter. 4. Special Servicing STWD should continue to benefit from the legacy maturities in the fourth quarter. We expect special servicing balances to increase by 10% in 4Q. The first half of 2017 will continue to see outsized inflows with $17 billion set to mature where STWD is named special servicer; half of these maturities are either rated medium or high risk of defaulting. 5. STWD top pick The backdrop for the commercial mreits remains favorable with strong underlying real estate fundamentals and the ability to continue to source attractive risk-reward loans. STWD is our top pick among the commercial mreits given ability to drive higher sequential earnings from excess liquidity deployment and its diversified earnings streams(conduit, specialty servicer, REO). 2

4 Residential Mortgage REITs

5 Estimates vs. Consensus We are reducing our 4Q EPS estimates by 3% on average to reflect a lower decline in premium amortization expense than previously modeled. Our 2017 and 2018 numbers are unchanged as the full benefit from the rate rise will be felt by the first quarter. CS vs Consensus EPS Estimates 4Q 2016E 2017E 2018E CS Old CS New Consensus CS Consensus CS Consensus AGNC $0.63 $0.61 $0.60 $2.40 $2.31 $2.25 $2.14 AI $0.64 $0.63 $0.65 $2.40 $2.51 $2.20 $2.29 ANH $0.13 $0.12 $0.12 $0.56 $0.49 $ ARR - $0.64 $0.65 $2.50 $2.46 $2.15 $2.19 CIM - $0.61 $0.62 $2.40 $2.43 $2.40 $2.37 CYS $0.27 $0.26 $0.24 $1.00 $0.98 $0.90 $0.90 DX - $0.20 $0.20 $0.75 $0.77 $ EFC $0.29 $0.10 $0.26 $1.40 $1.50 $ EARN $0.49 $0.47 $0.46 $1.80 $1.74 $1.70 $1.70 IVR $0.39 $0.38 $0.40 $1.65 $1.63 $1.60 $1.58 MFA - $0.18 $0.19 $0.72 $0.78 $0.72 $0.81 MITT $0.47 $0.46 $0.47 $1.85 $1.85 $ MTGE $0.49 $0.48 $0.45 $1.80 $1.72 $1.80 $1.76 NLY - $0.31 $0.29 $1.15 $1.14 $1.00 $1.10 NYMT - $0.14 $0.16 $0.65 $0.70 $0.75 $0.67 PMT - $0.39 $0.40 $1.85 $1.70 $1.95 $1.72 TWO - $0.25 $0.24 $1.00 $0.97 $1.05 $1.00 Source: Thompson Reuters, CS Estimates 4

6 Book Value Update We are expecting a wide dispersion (range of 0-14% decline) of book value prints this quarter, with a 4.7% average decline. The increased volatility will highlight the risk positioning for the mreits in the quarter in contrast to the almost universally solid results in the low volatility environment of the prior quarters. % Change Price to Book 4Q15 1Q16 2Q16 3Q16 4Q16E 3Q/2Q 4QE/3Q Y/Y 3Q16 4Q16E AG Mortgage MITT $17.88 $17.22 $17.42 $18.49 $ % (5.0%) (1.8%) 92% 96% AGNC Investment¹ AGNC $22.59 $22.09 $20.54 $21.23 $ % (12.7%) (17.9%) 88% 101% Annaly NLY $11.73 $11.61 $11.50 $11.83 $ % (2.1%) (1.3%) 83% 85% Anworth ANH $6.25 $6.00 $6.06 $6.25 $ % (7.9%) (7.9%) 81% 88% Arlington Asset (ex-dta) AI $16.56 $14.45 $13.92 $14.63 $ % (9.6%) (20.2%) 99% 110% Armour ARR $28.00 $24.48 $25.67 $27.87 $ % (14.6%) (15.0%) 77% 90% Chimera CIM $15.70 $15.52 $15.78 $16.18 $ % (1.5%) 1.5% 105% 107% CYS Investment CYS $9.36 $9.46 $9.55 $9.79 $ % (9.5%) (5.3%) 78% 86% Dynex DX $7.71 $7.54 $7.69 $7.76 $ % (2.0%) (1.3%) 84% 86% Ellington Financial EFC $21.80 $20.63 $20.31 $19.83 $19.49 (2.4%) (1.7%) (10.6%) 78% 79% Ellington Residential EARN $15.86 $15.39 $15.38 $15.70 $ % (9.0%) (9.9%) 81% 89% Invesco Mortgage IVR $17.14 $16.53 $17.08 $18.08 $ % (6.2%) (1.1%) 79% 84% MFA Financial MFA $7.47 $7.17 $7.41 $7.64 $ % (3.0%) (0.8%) 100% 103% MTGE Investment MTGE $19.66 $19.03 $19.47 $20.55 $ % (9.1%) (4.9%) 78% 85% New York Mortgage NYMT $6.54 $6.49 $6.38 $6.34 $6.16 (0.6%) (2.9%) (5.9%) 96% 99% PennyMac PMT $20.28 $20.59 $20.09 $20.21 $ % (0.4%) (0.8%) 82% 82% Two Harbors TWO $10.11 $9.70 $9.83 $10.01 $ % (2.0%) (3.0%) 85% 86% Mortgage REITs avg 2.6% (4.7%) (6.0%) 88.3% 93.2% ¹Using economic book value. Source: Company data (as of Dec 30, 2016), Credit Suisse estimates, Locus 5

7 Increase in Funding Costs Muted On average repo costs were up 9 bps and 18 bps for 1 month and 3 month repo in the fourth quarter. During the quarter the average spread to LIBOR remained constant which should allow for a modest benefit to funding costs relative to the first half of the year given the receive leg of swaps. In January 3 month repo costs have fallen 4 bps relative to LIBOR, while 1-month rates are relatively flat. If repo rates continue to outperform LIBOR in the quarter, this would provide a couple bp benefit in the first quarter. We have not factored this benefit into our estimates. Repo Rates Repo-LIBOR Spread Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 1 Month Repo 3 Month Repo Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 1 Mo spread 3 Mo spread Source: Locus (Data as of January 23, 2016) 6

8 CPR vs. Amortization Expense With the increase in rates during the fourth quarter, CPRs declined 7% in the quarter, with the full effect of lower rates, prepayments, and premium amortization expense being felt in the first quarter as many homeowners continued to refinance mortgages well into November. As a result of lower prepays in the quarter we expect a 2-3 bp benefit in asset yields in the fourth quarter from lower amortization expense. 1Q asset yields should benefit by an additional 5-7 bps as the full impact of the CPR decline is realized. Quarterly CPRs -7% -36% Source: Locus (Data as of December 30, 2016), Company data, Credit Suisse estimates 7

9 New Capital & Incremental Returns Valuation have improved for the mreit sector and we have seen 2 convert issuances (TWO, NYMT) so far in the first quarter. With a 6.25% cash coupon both of these issuances are accretive to earnings in the near-term. Incremental returns on Agency MBS improved during the fourth quarter as the yield curve steepened. The forward curve indicates that some of that benefit will reverse in New credit opportunities are expected to remain limited with GSE reform a potential wildcard. CIM is achieving the highest incremental returns (mid-teens) in the sector today on its risk retention securitizations, although by adding leverage to the residual pieces it is increasing the risk should credit quality deteriorate (admittedly a small risk at this point). 2.50% 2.00% 1.50% 1.00% 0.50% Short-Term Rate Expectations 1.40% 2.10% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 30-Year Agency MBS Returns 0.00% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 CS Est Fed Funds Futures Fed Dots (Dec Meeting) Source: Locus (as of Jan 23, 2017) 6.0% Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec year 3.5% OAS 30 year 3.5% OAD 8

10 Valuation At current valuation levels we see the risk/reward as balanced and expect the majority of shareholder return in the 4 th quarter coming from dividend yield. 1.80x Historical Price to Book Value 1.60x 1.40x 1.20x 1.00x 0.80x 0.60x 0.40x Long Term Average (0.95x) Source: the BLOOMBERG PROFESSIONAL service, Company data, Credit Suisse estimates 9

11 Commercial Mortgage REITs

12 Estimates vs. Consensus Earnings will be down sequentially in the fourth quarter for BXMT and STWD as liquidity levels are higher and the absence of elevated prepayment income for BXMT and a more normalized level of conduit earnings for STWD. Our 4Q estimates are above the consensus of ACRE and STWD and below on BXMT. We continue to prefer STWD over BXMT and ACRE as its diversified earnings streams should support a premium valuation. See slide 15 for valuation comparison. CS vs Consensus, EPS Estimates 4Q 2016E 2017E 2018E CS Consensus CS Consensus CS Consensus ACRE $0.30 $0.28 $1.20 $1.22 $1.25 $1.27 BXMT $0.62 $0.64 $2.65 $2.63 $2.70 $2.73 STWD $0.51 $0.50 $2.20 $2.13 $2.35 $2.27 Source: Credit Suisse Estimates, Thompson Reuters 11

13 Deploying Excess Liquidity The opportunity for new investments remains attractive heading into 2017 with spreads on new investments holding steady to rising over the past several quarters. All 3 of our commercial mreits have excess liquidity to deploy to drive EPS higher in the coming quarters. ACRE BXMT Following the completion of the sale of the mortgage banking subsidiary, ACRE had excess liquidity of $122 million (as of November 2) which would allow for portfolio growth of 25%. We expect this capital will be deployed by 2Q17 and will drive sequential earnings higher in the coming quarters with the earnings power reaching $0.27 by the 3Q of 2017 compared to the current $0.26 dividend. As of the end of the third quarter BXMT had excess liquidity of $ million, which would give the company the ability to grow the lending portfolio by 10-15%. Our estimates assume this capital will be deployed over the next 3 quarters. STWD Following the December capital raise and the eventual closing of the medical office property portfolio, STWD has about $ million of available liquidity, which gives the company the ability to add about $2.0 billion to fund additional loan and property acquisitions. Our estimates assume this liquidity is deployed over the coming 3 quarters. Source: Company Data, Credit Suisse Estimates 12

14 Benefit From Rising Rates All of the commercial mreits are asset sensitive due to the fact that the majority of loans are floating rate. The loan rates are tied to 1 month LIBOR and have average floors of bps. Our current estimates have included 2 additional rate hikes in Assuming 1 additional rate hike (as the Fed dots and Fed Funds now imply) would add 1-2% to earnings in 2017 with an additional boost to 2018 earnings given the full run rate benefit. Given their pure play lending businesses, ACRE and BXMT are bigger beneficiaries of any additional rate hikes than STWD. Average % of Floating % of Fixed EPS Sensitivity to Floor Rate Assets Rate Debt 3 hikes vs 2 hikes ACRE 0.36% 93% 0% 1.70% BXMT 1.13% 86% 24% 1.50% STWD 0.32% 90% 25% 0.50% Source: Company Data, Credit Suisse Estimates 13

15 STWD Specialty Servicing Opportunity The continuation of the pre-crisis CMBS maturity wall presents a unique opportunity for STWD, with the benefits continuing to be felt into marks the last year of significant pre-crisis maturities with $100+ billion of expected maturities. Based on the work of Credit Suisse CMBS Strategists, we expect 20% of these maturities to wind up in special servicing. The increased inflow of problem assets should drive higher special servicing balances and revenues. Much of this benefit will be felt months from now as the bigger fee stream comes from the resolution of the problem asset. We expect the majority of the incremental revenue to fall to bottom line as minimal incremental costs (ex-incentive fees) are needed. Specialty Servicing Data 1Q16 2Q16 3Q16E 4Q16E 2017E 2018E Begginning balance 10,800 10,600 11,000 11,397 12,424 14,964 Addition 1,224 1,541 1,847 2,508 9, Resolution (1,424) (1,141) (1,450) (1,482) (7,081) (8,530) Ending balance 10,600 11,000 11,397 12,424 14,964 6,799 Revenue 1Q16 2Q16 3Q16E 4Q16E 2017E 2018E Average servicing balances 10,700 10,800 11,199 11,910 13,694 10,882 Lifetime ticking fee Resolution fee Total servicing revenue Source: Company Data, Credit Suisse Estimates 14

16 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Valuation CMBS spreads tightened during the quarter, and have continued to tighten into the 4th quarter. Commercial mreit dividend yields are now trading 125 bps higher than CMBS BBB- yields (above the long term average of 100 bps). Price/Book Div yield over CMBS BBB- 1.60x 4.0% 1.40x 1.20x 3.5% 3.0% 2.5% 1.00x 2.0% 0.80x 1.5% 1.0% 0.60x 0.5% 0.40x 0.20x 0.0% -0.5% -1.0% 0.00x Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan % ACRE BXMT STWD Source: Company Data, Credit Suisse Estimates 15

17 Disclosures

18 Companies Mentioned (Price as of 24-Jan-2017) AG Mortgage Investment Trust (MITT.N, $17.74, NEUTRAL, TP $16.0) AGNC Investment Corp. (AGNC.OQ, $19.12, NEUTRAL, TP $19.5) Annaly Capital Management (NLY.N, $10.24) Anworth Mortgage Asset Corp (ANH.N, $5.24, NEUTRAL, TP $5.5) Ares Commercial Real Estate Corp (ACRE.N, $13.79) Arlington Asset Investment Corp (AI.N, $15.31, NEUTRAL, TP $14.5) Armour Residential REIT (ARR.N, $21.75) Blackstone Mortgage Trust (BXMT.N, $31.33) CYS Investments. Inc (CYS.N, $7.96, UNDERPERFORM, TP $8.5) Chimera Investment (CIM.N, $17.94) Dynex Capital (DX.N, $6.78) Ellington Financial LLC (EFC.N, $15.74, OUTPERFORM, TP $18.0) Ellington Residential Mortgage REIT (EARN.N, $13.21, NEUTRAL, TP $13.5) Invesco Mortgage Capital (IVR.N, $14.86, OUTPERFORM, TP $16.5) MFA Financial (MFA.N, $7.92) MTGE Investment Corp (MTGE.OQ, $16.48, NEUTRAL, TP $17.5) New York Mortgage Trust Inc (NYMT.OQ, $6.54) PennyMac Mortgage Investment Trust (PMT.N, $17.13, OUTPERFORM, TP $18.0) Starwood Property Trust (STWD.N, $22.62, OUTPERFORM, TP $25.0) Two Harbors Investment (TWO.N, $8.78, OUTPERFORM, TP $9.5) 3-Year Price and Rating History for Anworth Mortgage Asset Corp (ANH.N) ANH.N Closing Price Target Price 07-Apr U 18-Apr R 29-Jun N 06-Jan Sep U N D ERPERFO RM REST RICT ED N EU T RA L Disclosure Appendix 3-Year Price and Rating History for Arlington Asset Investment Corp (AI.N) Analyst Certification I, Douglas Harter, CFA, certify that (1) the views expressed in this report accurately reflect my per sonal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendatio ns or views expressed in this report. 3-Year Price and Rating History for AG Mortgage Investment Trust (MITT.N) MITT.N Closing Price Target Price 27-Feb N 27-May Sep Jan Sep AI.N Closing Price Target Price 24-Mar R 14-Apr N * 27-May Sep R 04-Sep N 04-Feb Apr Sep Oct Jan Apr R 01-Jul N REST RICT ED N EU T RA L 3-Year Price and Rating History for CYS Investments. Inc (CYS.N) N EU T RA L 3-Year Price and Rating History for AGNC Investment Corp. (AGNC.OQ) AGNC.OQ Closing Price Target Price 04-Feb O 28-Apr Jul Feb Sep Jan May R 12-Jul O 09-Sep Dec N O U T PERFO RM REST RICT ED N EU T RA L CYS.N Closing Price Target Price 10-Feb N 21-Apr Feb U 09-Sep Jan Sep Dec N EU T RA L U N D ERPERFO RM 3-Year Price and Rating History for Ellington Financial LLC (EFC.N) EFC.N Closing Price Target Price 13-Feb O 02-Sep R 21-Oct O 02-Feb Sep Jan Nov O U T PERFO RM REST RICT ED

19 3-Year Price and Rating History for Ellington Residential Mortgage REIT (EARN.N) 3-Year Price and Rating History for Starwood Property Trust (STWD.N) EARN.N Closing Price Target Price 31-Mar R 29-Jun N 09-Sep Jan Sep STWD.N Closing Price Target Price 04-Feb O * 06-Jan Sep Dec R 08-Dec O REST RICT ED N EU T RA L O U T PERFO RM REST RICT ED 3-Year Price and Rating History for Invesco Mortgage Capital (IVR.N) 3-Year Price and Rating History for Two Harbors Investment (TWO.N) IVR.N Closing Price Target Price 19-Feb O 14-Apr Jul Feb Sep Jan Sep O U T PERFO RM 3-Year Price and Rating History for MTGE Investment Corp (MTGE.OQ) MTGE.OQ Closing Price Target Price 05-Feb O 29-Apr Sep Jan N 09-Sep O U T PERFO RM N EU T RA L 3-Year Price and Rating History for PennyMac Mortgage Investment Trust (PMT.N) PMT.N Closing Price Target Price 05-Feb O 06-May Sep Jan Feb Jun O U T PERFO RM TWO.N Closing Price Target Price 05-Feb O 27-May Sep Jan Jan R 13-Jan O O U T PERFO RM REST RICT ED The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors includ ing Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock s t otal return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between - 5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and r egulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or inv estment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fun damentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. 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20 Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (% ) Of which banking clients (% ) Outperform/Buy * 45% (63% banking clients) Neutral/Hold* 38% (60% banking clients) Underperform/Sell* 15% (54% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock r atings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors. Important Global Disclosures Credit Suisse s research reports are made available to clients through our proprietary research portal on CS PLUS. 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Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Valuation Methodology and Risks: (12 months) for AG Mortgage Investment Trust (MITT.N) Method: Our $16.00 target price is based on a 13% discount to the third quarter book value. Our Neutral rating is based on MITT's lack of operational business, and our view that there exists better risk/reward in some of its peers. The primary risks to our $16.00 target price and Neutral rating for MITT are interest rate risk on the agency MBS portfolio a nd worse than expected deterioration in credit quality on the credit investments. The Agency book is subject to interest rate risk, both on the long- and shortend of the rate curve. A flattening of the yield curve will lead to a reduction in returns available on incr emental investments. An increase in long-term interest rates will result in a reduction to book value. Any macro-induced volatility would negatively impact the credit book. Valuation Methodology and Risks: (12 months) for AGNC Investment Corp. (AGNC.OQ) Method: Our $19.50 target price for American Capital Agency is based on a 1.05x price to 4Q estimated tangible book value. Our Neutra l rating is based on management's track record of outperforming peers, along with its current discount to BV. The biggest risk to our $19.50 target price and Neutral rating for American Capital Agency comes from interest rate risk. AGNC is exposed t o interest rate risk on both the long and the short end of the interest rate curve. Valuation Methodology and Risks: (12 months) for Anworth Mortgage Asset Corp (ANH.N) Method: Our $5.50 target price for Anworth Mortgage is equal to an 5% discount to 4Q16 expected book value. Our NEUTRAL rating is bas ed on the fact that ANH has not added any operating business lines like some of its peers, as well as the limited upside to our target price from current levels. The primary risk to our $5.50 target price and NEUTRAL rating for Anworth Mortgage is interest rate risk. Anworth faces a ri sk to its book value if interest rates rise, which would result in lower mortgage prices and a decline in investment portfolio value. In add ition, ANH faces a reduced net interest spread from increased premium amortization if mortgage rates fall significan tly. As a REIT, Anworth also relies on external capital to grow its investment portfolio and earnings. Valuation Methodology and Risks: (12 months) for Arlington Asset Investment Corp (AI.N) Method: Our $14.50 target price is based on 1.1x our 4Q16 book value estimate. Our NEUTRAL rating is based on the limited upside to our target price compared with our Outperform-rated names. The biggest risks to our $14.50 target price and NEUTRAL rating are interest rate risk on the Age ncy MBS and credit deterioration on the private label portfolio. Furthermore, in ability to unlock value from the deferred tax asset (DTA) would negatively impact th e earnings potential of the company as well as the economic book value. Valuation Methodology and Risks: (12 months) for CYS Investments. Inc (CYS.N) Method: Our $8.50 target price for CYS is based on a 7% discount to fourth quarter book value. Our UNDERPERFORM rating is due to CYS' s high volatility of economic returns. The biggest risk to our $8.50 target price for CYS Investments is interest rate risk. CYS has interest rate risk on both the long and the shortend of the interest rate curve. Upside risks to our UNDERPERFORM rating are sustained economic returns above the dividend level, and increased share buybacks programs. Valuation Methodology and Risks: (12 months) for Ellington Financial LLC (EFC.N) Method: Our target price of $18 for Ellington Financial LLC represents a 8% discount to 4Q16E book value. Our OUTPERFORM rating is based on the upside of our target price from current trading levels, and EFC's track record of less volatile economic returns througho ut the cycle. As a mostly non-agency hybrid mortgage REIT, EFC's largest risk to our $18 target price and OUTPERFORM rating is credit risk. A downturn in the economy and a resulting decline in home prices and job growth would negatively impact this company. The compa ny is also subject to interest rate risk as it has an Agency portfolio as well. Continued rising rates would negatively impact this company as the cost of funds would increase and book values would decline. Valuation Methodology and Risks: (12 months) for Ellington Residential Mortgage REIT (EARN.N) Method: We have established a $13.50 target price and NEUTRAL rating for EARN based on a 14% discount to third quarter book value estimate. As a mostly-agency hybrid mortgage REIT, the biggest risk to our $13.50 target price and NEUTRAL rating is interest rate risk and, therefore, its book value. As interest rates rise, the value of its assets could decline, reducing earnings and dividend yields. Valuation Methodology and Risks: (12 months) for Invesco Mortgage Capital (IVR.N) Method: Our $16.50 target price for Invesco Mortgage is based on a 3% discount to fourth quarter book value Our OUTPERFORM rating i s based on IVR's balanced portfolio consisting of residential and commercial real estate credit. The biggest potential risk to our $16.50 target price and OUTPERFORM rating for Invesco Mortgage is the continued deterioration in the credit quality of the underlying mortgages in the non-agency residential mortgage securities portfolio. The Agency MBS portfolio is subject to short-term interest rate risks which could cause returns, and dividends, to be lower than expected. Invesco Mortgage is also subject to the risk from the appearance of conflict of interests for the allocation of investment opportunities w ith its external manager. Valuation Methodology and Risks: (12 months) for MTGE Investment Corp (MTGE.OQ) Method: Our $17.50 target price for American Capital Mortgage Investment Corp represents a 6% discount to our fourth quarter book value estimate. Our NEUTRAL rating reflects management long-term positive track record. The primary risks to our $17.50 target price and NEUTRAL rating for MTGE are interest rate risk on the agency MBS portfolio a nd worse than expected deterioration in credit quality on the Non-Agency portfolio. The Agency book is subject to interest rate risk, both on the long- and short-end of the rate curve. A flattening of the yield curve will lead to a reduction in returns available on incremental investmen ts. An increase in long-term interest rates will result in a reduction to book value. Valuation Methodology and Risks: (12 months) for PennyMac Mortgage Investment Trust (PMT.N) Method: Our $18 target price for PennyMac Mortgage Investment Trust is based on a 10.6% discount to 4Q16E book value. With earnings stabilizing above the current dividend, our OUTPERFORM rating is based on the attractive risk/reward potential given the steep disco unt to current book value and limited book value risk from interest rate movement. The biggest potential risk to our $18 target price and OUTPERFORM rating for PennyMac Mortgage Investment Trust is the timing of capital deployment. If it takes PennyMac longer than expected to deploy capital near-term earnings and dividends will be lower than expected. PMT should generate non-cash earnings through the accretion of the purchase discount. This discount accretion is a taxable event and requires a dividend payment. The potential cash flow timing mismatch could limit PMT's ability to reinvest into the business or cause liquidity constraints. Also, slower-than-expected growth and profitability in the correspondent lending business presents a downside risk to our earnings estimates. Valuation Methodology and Risks: (12 months) for Starwood Property Trust (STWD.N) Method: Our $25 target price for STWD is based on a sum of the parts for the 2 main businesses. Our target represents a 49% premium to book value and a 8.0% yield on the current dividend. Our OUTPERFORM rating is based on STWD's diversified earnings streams across busine ss segments along with low leverage positions, as these factors position STWD well to consistently generate e arnings in an array of macro environments. The primary risk to our $25 target price and OUTPERFORM rating for STWD is an increase in credit costs in the principal lending portfolio. Our current estimates do not assume any credit losses given the senior nature of the loans combined with the fact that the portfolio is all postcrisis vintages. A downturn in the US economy could result in losses and lower earnings for STWD.Asset yields have compressed across all fixed income markets including commercial real estate. Specialty servicing revenues represent 23% of our 2015 total revenue forecast. There is more limited visibility into the revenue source than the lending portfolio. Should the pace of inflows into specialty serv icing be slower than expected or should the revenue capture per dollar of UPB in specialty servicing be lower than expected STWD's earnings will be negatively impacted. As a mortgage REIT STWD is required to distribute its taxable earnings to shareholders as a dividend. This could limit STWD's ability to fund attractive loan opportunities. In addition management could raise dilutive equity to fund asset growth or an acquisition. Valuation Methodology and Risks: (12 months) for Two Harbors Investment (TWO.N)

21 Method: Our $9.50 target price for Two Harbors is based on an 4.0% discount to current book value. Our OUTPERFORM rating is based on TWO's build out of operational businesses that will help TWO diversify its earnings power. The primary risks to our $9.50 target price and OUTPERFORM rating for Two Harbors are interest rate risk on the Agency MBS portfolio and worse than expected deterioration in the credit quality of the non -Agency portfolio. The Agency MBS portfolio is subject to various forms of interest rate risk. The portfolio is funded with short-term repos and hedged with interest rate swaps. This leaves the net interest spread negatively exposed to rising short-term rates. Agency MBS are also exposed to interest rate risk on the long -term rates. A move higher in interest rates would negatively impact the book value of the portoflio. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (AI.N, IVR.N, AGNC.OQ, MITT.N, CYS.N, EARN.N, MTGE.OQ, STWD.N, PMT.N, TWO.N, ANH.N, ACRE.N, ARR.N, CIM.N, DX.N, MFA.N, NLY.N, NYMT.OQ, BXMT.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (AI.N, AGNC.OQ, STWD.N, TWO.N, CIM.N, NLY.N, BXMT.N ) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (CIM.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (STWD.N, TWO.N, CIM.N) within the pas t 12 months. Credit Suisse has received investment banking related compensation from the subject company (AI.N, AGNC.OQ, STWD.N, TWO.N, CI M.N, NLY.N, BXMT.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking r elated compensation from the subject company (AI.N, IVR.N, AGNC.OQ, MITT.N, CYS.N, EARN.N, MTGE.OQ, STWD.N, PMT.N, TWO.N, ANH.N, ACRE.N, ARR.N, CIM.N, DX.N, MFA.N, NLY.N, NYMT.OQ, BXMT.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (CIM.N) within the past 12 months As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (MT GE.OQ). Credit Suisse has a material conflict of interest with the subject company (CIM.N). Credit Suisse is acting as exclusive fina ncial advisor to Annaly Capital Management, Inc. 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