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Item 1. Financial Statements

2021-05-05 compared with 2020-11-09 · 260 added, 548 removed, 645 unchanged (56% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

$ in thousands except share amounts September 30, 2020 December 31, 2019

Mortgage-backed and credit risk transfer securities, at fair value (including pledged securities of $ 5,509,166 and $ 21,132,742 , respectively)

$ in thousands, except share amounts March 31, 2021 December 31, 2020

Mortgage-backed securities, at fair value (including pledged securities of $ 8,641,007 and $ 7,614,935 , respectively;

net of allowance for credit losses of $ 830 and $ 1,768 , respectively)

9,099,742 8,172,182

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Derivative assets, at fair value 17,193 10,004

Other assets (including pledged security of $ 44,654 as of December 31, 2019)

43,936 166,180

Other assets 36,890 41,163

Total assets 9,762,836 8,632,851

1 unchanged sentence

Repurchase agreements 8,240,887 7,228,699

Secured loans — 1,650,000

Derivative liabilities, at fair value 4,273 6,344

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands, except share amounts 2021 2020

11 unchanged sentences

Gain (loss) on investments, net ( 331,857 ) ( 755,483 )

(Increase) decrease in provision for credit losses 938 —

Equity in earnings (losses) of unconsolidated ventures ( 94 ) 170

7 unchanged sentences

Total expenses 6,877 14,056

Net income (loss) 107,966 89,003 ( 1,797,065 ) 246,129

Net income (loss) attributable to Invesco Mortgage Capital, Inc.

( 9,275 ) ( 1,616,192 )

Dividends to preferred stockholders 11,107 11,107

Net income (loss) attributable to common stockholders ( 20,382 ) ( 1,627,299 )

Earnings (loss) per share:

Net income (loss) per share:

Net income (loss) attributable to common stockholders

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Diluted ( 0.09 ) ( 10.38 )

(1) Negative interest expense on repurchase agreements for the three months ended September 30, 2020 consists of $ 1.5 million of current period interest expense on repurchase agreements and $ 3.2 million of amortization of net deferred gains on de-designated interest rate swaps.

(1) Negative interest expense on repurchase agreements for the three months ended March 31, 2021 consists of $ 3.7 million of current period interest expense on repurchase agreements and $ 5.4 million of amortization of net deferred gains on de-designated interest rate swaps.

For further information on amortization of amounts classified in accumulated other comprehensive income before we discontinued hedge accounting, see Note 8 - "Derivatives and Hedging Activities" and Note 12 - "Stockholders' Equity".

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2021 2020

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Currency translation adjustments on investment in unconsolidated venture 609 480

Total other comprehensive income (loss) ( 34,649 ) 7,837 ( 217,264 ) 105,037

Total other comprehensive loss ( 3,778 ) ( 159,235 )

Comprehensive income (loss) ( 13,053 ) ( 1,775,427 )

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the three months ended March 31, 2020;

June 30, 2020 and September 30, 2020

For the three months ended March 31, 2021 and 2020

Capital Accumulated

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Balance at December 31, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 203,222,108 2,032 3,387,552 58,605 ( 2,644,355 ) 1,367,158

Cumulative effect of adoption of new accounting principle — — — — — — — — — — 342 342

Net loss — — — — — — — — — — ( 1,616,192 ) ( 1,616,192 )

Net income (loss) — — — — — — — — — — ( 9,275 ) ( 9,275 )

Other comprehensive loss — — — — — — — — — ( 3,778 ) — ( 3,778 )

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Balance at March 31, 2021 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 246,397,710 2,464 3,548,230 54,827 ( 2,686,913 ) 1,481,932

Net loss — — — — — — — — — — ( 288,839 ) ( 288,839 )

Other comprehensive loss — — — — — — — — — ( 23,380 ) — ( 23,380 )

Stock awards — — — — — — 22,500 — — — — —

Common stock dividends — — — — — — 16,338,511 163 74,071 — ( 3,626 ) 70,608

Preferred stock dividends — — — — — — — — — — ( 11,106 ) ( 11,106 )

Amortization of equity-based compensation — — — — — — — — 128 — — 128

Balance at June 30, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 181,327,368 1,813 3,313,801 106,348 ( 2,827,494 ) 1,157,792

Net income — — — — — — — — — — 107,966 107,966

Other comprehensive loss — — — — — — — — — ( 34,649 ) — ( 34,649 )

Proceeds from issuance of common stock, net of offering costs — — — — — — 25,431 — 78 — — 78

Stock awards — — — — — — 22,500 1 — — — 1

Common stock dividends — — — — — — — — — — ( 9,070 ) ( 9,070 )

Preferred stock dividends — — — — — — — — — — ( 11,107 ) ( 11,107 )

Amortization of equity-based compensation — — — — — — — — 129 — — 129

Balance at September 30, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 181,375,299 1,814 3,314,008 71,699 ( 2,739,705 ) 1,211,140

The accompanying notes are an integral part of these condensed consolidated financial statements.

INVESCO MORTGAGE CAPITAL INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)

For the three months ended March 31, 2019;

June 30, 2019 and September 30, 2019

Capital Accumulated

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Balance at December 31, 2019 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 144,256,357 1,443 2,892,652 288,963 ( 814,483 ) 2,931,899

Net income — — — — — — — — — — 138,790 138,790

Other comprehensive income — — — — — — — — — 56,369 — 56,369

Cumulative effect of adoption of new accounting principle — — — — — — — — — — 342 342

Net income (loss) — — — — — — — — — — ( 1,616,192 ) ( 1,616,192 )

Other comprehensive loss — — — — — — — — — ( 159,235 ) — ( 159,235 )

Proceeds from issuance of common stock, net of offering costs — — — — — — 20,700,000 207 346,819 — — 347,026

4 unchanged sentences

Balance at March 31, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 164,966,357 1,650 3,239,602 129,728 ( 2,523,923 ) 1,410,381

Net income — — — — — — — — — — 18,336 18,336

Other comprehensive income — — — — — — — — — 40,831 — 40,831

Proceeds from issuance of common stock, net of offering costs — — — — — — 521,136 5 8,149 — — 8,154

Stock awards — — — — — — 6,895 — — — — —

Common stock dividends — — — — — — — — — — ( 57,958 ) ( 57,958 )

Preferred stock dividends — — — — — — — — — — ( 11,106 ) ( 11,106 )

Amortization of equity-based compensation — — — — — — — — 130 — — 130

Balance at June 30, 2019 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 128,795,528 1,287 2,650,329 318,013 ( 862,852 ) 2,670,101

Net income — — — — — — — — — — 89,003 89,003

Other comprehensive income — — — — — — — — — 7,837 — 7,837

Proceeds from issuance of common stock, net of offering costs — — — — — — 14,000,000 140 219,191 — — 219,331

Stock awards — — — — — — 6,765 — — — — —

Common stock dividends — — — — — — — — — — ( 64,263 ) ( 64,263 )

Preferred stock dividends — — — — — — — — — — ( 11,107 ) ( 11,107 )

Amortization of equity-based compensation — — — — — — — — 130 — — 130

Balance at September 30, 2019 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 142,802,293 1,427 2,869,650 325,850 ( 849,219 ) 2,911,032

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2021 2020

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(Gain) loss on investments, net 331,857 755,483

Decrease in provision for credit losses ( 938 ) —

(Gain) loss from investments in unconsolidated ventures in excess of distributions received 18 222

Other amortization ( 5,239 ) ( 9,936 )

Net (gain) loss on extinguishment of debt ( 14,742 ) —

Net loss on extinguishment of debt — 4,806

Changes in operating assets and liabilities:

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Purchase of mortgage-backed and credit risk transfer securities ( 7,012,452 ) ( 4,444,744 )

(Contributions to) distributions from investments in unconsolidated ventures, net 2,267 2,198

Distributions from investments in unconsolidated ventures, net 1,233 1,168

Change in other assets — 19,269

1 unchanged sentence

Proceeds from sale of mortgage-backed and credit risk transfer securities 5,545,566 16,238,252

Payment on the sale of credit derivatives ( 31,353 ) —

Settlement (termination) of futures, currency forwards and interest rate swaps, net ( 909,435 ) ( 713,233 )

Redemption of Federal Home Loan Bank of Indianapolis stock 74,250 —

Proceeds from sale of credit derivatives — 2,283

Settlement (termination) of forwards, swaps, swaptions and TBAs, net 282,250 ( 904,220 )

Net change in due from counterparties and collateral held payable on derivative instruments ( 3,438 ) 4,849

5 unchanged sentences

Proceeds from repurchase agreements 28,514,983 44,017,958

Principal repayments of repurchase agreements ( 67,898,255 ) ( 90,504,837 )

Principal repayments of repurchase agreements and related fees ( 27,502,795 ) ( 55,266,696 )

Net change in due from counterparties and collateral held payable on repurchase agreements ( 7,953 ) ( 311,732 )

Payments of deferred costs ( 29 ) ( 176 )

Payments of deferred offering costs ( 86 ) ( 40 )

Payments of dividends ( 27,365 ) ( 74,841 )

8 unchanged sentences

Dividends declared not paid 24,888 93,590

Increase (decrease) in Agency CMBS purchase commitments ( 99,557 ) 1,124,815

Increase in Agency CMBS purchase commitments — 410,654

Net change in investment related receivable (payable) excluding Agency CMBS purchase commitments ( 271 ) ( 760,217 )

Dividend paid in common stock 74,234 —

Offering costs not paid ( 334 ) ( 273 )

Net change in repurchase agreements, not settled — ( 625 )

Change in foreign currency translation adjustment on other investments ( 609 ) ( 480 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Invesco Mortgage Capital Inc.

(the "Company" or "we") is a Maryland corporation primarily focused on investing in, financing and managing residential and commercial mortgage-backed securities ("MBS") and other mortgage-related assets.

We are externally managed and advised by Invesco Advisers, Inc.

(our "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd.

("Invesco"), a leading independent global investment management firm.

We conduct our business through IAS Operating Partnership LP (the "Operating Partnership") and have one operating segment.

We have historically invested in:

(the "Company" or "we") is a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities ("MBS") and other mortgage-related assets.

We currently invest in:

• Residential mortgage-backed securities ("RMBS") that are guaranteed by a U.S.

government agency such as the Government National Mortgage Association ("Ginnie Mae"), or a federally chartered corporation such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac") (collectively "Agency RMBS");

• Commercial mortgage-backed securities (“CMBS”) that are guaranteed by a U.S.

government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively "Agency CMBS");

• Commercial mortgage-backed securities ("CMBS") that are not guaranteed by a U.S.

government agency or a federally chartered corporation ("non-Agency CMBS");

• RMBS that are not guaranteed by a U.S.

government agency or a federally chartered corporation ("non-Agency RMBS");

• CMBS that are not guaranteed by a U.S.

government agency or a federally chartered corporation ("non-Agency CMBS");

• Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");

• Residential and commercial mortgage loans;

• Commercial mortgage loans;

• Other real estate-related financing agreements.

We have also historically invested in:

• CMBS that are guaranteed by a U.S.

government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively "Agency CMBS");

• Credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises ("GSE CRT");

• Residential mortgage loans.

We conduct our business through IAS Operating Partnership L.P.

(the "Operating Partnership") and have one operating segment.

We are externally managed and advised by Invesco Advisers, Inc.

(our "Manager"), a registered investment adviser and an indirect, wholly-owned subsidiary of Invesco Ltd.

("Invesco"), a leading independent global investment management firm.

We elected to be taxed as a real estate investment trust ("REIT") for U.S.

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To maintain our REIT qualification, we are generally required to distribute at least 90 % of our REIT taxable income to our stockholders annually.

We operate our business in a manner that permits our exclusion from the "Investment Company" definition under the Investment Company Act of 1940.

We operate our business in a manner that permits our exclusion from the "Investment Company" definition under the Investment Company Act of 1940, as amended (the "1940 Act").

Note 2 – Summary of Significant Accounting Policies

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Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020.

Our condensed consolidated financial statements have been prepared in accordance with U.S.

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S.

GAAP") and consolidate the financial statements of the Company and our controlled subsidiaries.

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The preparation of condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income recognition on mortgage-backed and credit risk transfer securities and allowances for credit losses.

GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes.

Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed and credit risk transfer securities and allowances for credit losses.

Actual results may differ from those estimates.

Significant Accounting Policies

There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2019 other than as discussed below.

Mortgage-Backed and Credit Risk Transfer Securities

Allowances for Credit Losses on Available-For-Sale Securities

We are not required to measure expected credit losses for situations in which historic credit loss information , adjusted for current conditions and reasonable and support able forecasts , results in an expectation that nonpayment of the amortized cost basis is zero.

We consider our Agency portfolio to have zero loss expectation because (i) there have been no historical credit losses, (ii) full and timely payment of principal and interest is guaranteed by the GSEs and (iii) the yields, while not risk free, generally trade based on prepayment and liquidity risk as opposed to credit risk.

Our available-for-sale GSE CRTs are hybrid financial instruments consisting of a debt host contract and an embedded credit derivative.

The embedded credit derivative is carried at fair value with changes in fair value reported in earnings.

For non-Agency RMBS and non-Agency CMBS, we use a discounted cash flow method to estimate and recognize an allowance for credit losses.

We calculate t he allowance for credit losses as the difference between prepayment adjusted contractual cash flows without credit losses and expected cash flows discounted at the effective interest rate used to recognize interest income on the investment.

In developing an expectation of credit losses, we use internal models that analyze the loans underlying each investment and evaluate factors including, but not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.

We place reliance on these internal models in determining credit quality.

We record an allowance for credit losses as a contra-asset on the condensed consolidated balance sheets and a provision for credit losses i n the condensed consolidated statements of operations .

C redit losses are accreted into earnings over time at the effective interest rate used to recognize interest income.

S ubsequent favorable or adverse changes in the amount of expected credit losses are recognized immediately in earnings.

If the allowance for credit losses has been reduced to zero, we reflect the remaining favorable changes as a prospective adjustment to the effective interest rate of the investment.

The allowance for credit losses is limited to the amount by which the investment’s amortized cost exceeds fair value.

When the allowance for credit losses is limited, the effective interest rate used to recognize interest income and accrete credit losses is prospectively adjusted.

We do not record an allowance for credit losses when an investment’s fair value exceeds its amortized cost.

R ecoveries of amounts previously written off relating to improvements in cash flows are recognized in earnings when received.

We record p rovisions for credit losses, reductions in provisions for credit losses, accretion of credit losses, and recoveries of amounts previously written off within g ain (loss) on investments, net in our condensed consolidated statements of operations.

When we determine that we intend to sell , or more likely than not will be required to sell , an available-for-sale security in an unrealized loss position before we recover its amortized cost , we write off any allowance for credit losses and write down the investment’s amortized cost to its fair value.

We record the write off of the allowance for credit losses and write down of the available-for-sale security within g ain (loss) on investments, net in our condensed consolidated statements of operations.

We present accrued interest receivable separately from our investment portfolio on our condensed consolidated balance sheets.

We do not estimate an allowance for credit losses on accrued interest receivable because we write off accrued interest receivable as a reduction to interest income if it is not received when due.

Interest Income Recognition

Mortgage-Backed Securities

Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms.

Premiums or discounts are amortized or accreted into interest income over the life of the investment using the effective interest method.

Interest income on our MBS where we may not recover substantially all of our initial investment is based on estimated future cash flows.

We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price.

Over the life of the investments, we update these estimated future cash flows and compute a revised yield based on the current amortized cost of the investment.

In situations where an allowance for credit losses is limited by the fair value of the investment, we compute the yield as the rate that equates expected future cash flows to the current fair value of the investment.

In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate, and interest rate fluctuations.

These uncertainties and contingencies are difficult to predict and are subject to future events that may impact our estimate and our interest income.

Changes in our original or most recent cash flow projections may result in a prospective change in interest income recognized on these securities, or the amortized cost of these securities.

For non-Agency RMBS not of high credit quality, when actual cash flows vary from expected cash flows, the difference is recorded as an adjustment to the amortized cost

of the security, unless those changes relate to credit losses that will be reflected in an allowance for credit losses, and the security's yield is revised prospectively.

For Agency RMBS and Agency CMBS that cannot be prepaid in such a way that we would not recover substantially all of our initial investment, interest income recognition is based on contractual cash flows.

We do not estimate prepayments in applying the effective interest method.

Fair Value Measurements

As of January 1, 2020, we report our commercial loan at fair value as determined by an independent pricing service.

The pricing service values the loan using a discounted cash flow analysis.

The yield used in the discounted cash flow analysis is determined by comparing the features of the loan to the interest rates and terms required by lenders in the new loan origination market for similar loans and the yield required by investors acquiring mezzanine loans in the secondary market and a comparison of current market and collateral conditions to those present at origination.

We discontinued reporting our commercial loan at amortized cost because we elected the fair value option for this loan in connection with our adoption of the new guidance for reporting credit losses discussed below.

Effective January 1, 2020, we began valuing our interest rate swaps under the market approach through the use of quoted prices available in an active market.

We discontinued using the income approach to value our interest rate swaps because the information we previously used was no longer available.

Accounting Pronouncements Recently Adopted

On January 1, 2020, we adopted the accounting guidance that changes how entities report credit losses for assets measured at amortized cost and available-for-sale securities.

The new guidance significantly changes how entities measure credit losses for most financial assets, including loans, that are not measured at fair value through net income.

The guidance replaces the existing “incurred loss” model with an “expected loss” model for instruments measured at amortized cost and requires entities to record credit allowances for available-for-sale debt securities rather than reduce the carrying amount, as they previously did under the other-than-temporary impairment model.

The new guidance also simplifies the accounting model for purchased credit-impaired debt securities and loans and requires that entities record an adjustment to retained earnings on January 1, 2020 for the cumulative effect of adopting the new guidance.

We were not required to record a cumulative effect adjustment to retained earnings because all of our purchased credit-impaired securities were in an unrealized gain position as of the implementation date.

The new guidance specifically excludes available-for-sale securities measured at fair value through net income.

We elected the fair value option for all MBS purchased on or after September 1, 2016 and GSE CRTs purchased on or after August 24, 2015.

Accordingly , the impact of the new guidance on accounting for our debt securities is limited to those securities purchased prior to election of the fair value option and held on January 1, 2020.

For further information on the composition of our investment portfolio, see Note 4 - "Mortgage Backed and Credit Risk Transfer Securities".

During the three and nine months ended September 30, 2020 , we recorded $ 9.0 million and $ 94.1 million, respectively, of impairment on non-Agency securities that we intended to sell or more likely than not would be required to sell before we recovered the amortized cost basis of the security.

We recorded the impairment within gain (loss) on investments, net in our condensed consolidated statements of operations.

As of September 30, 2020, we have not recorded a credit loss allowance on any of our securities.

We had one commercial loan as of December 31, 2019 that was measured at amortized c ost.

We implemented the new guidance for this loan by electing the fair value option and recording a cumulative effect adjustment to increase retained earnings by $ 342,000 on January 1, 2020.

We recognized $ 15,000 and $ 2.5 million of unrealized losses on our commercial loan in our condensed consolidated statement of operations during the three and nine months ended September 30, 2020, respectively.

There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2020.

Accounting Pronouncements Recently Issued

In March 2020, new accounting guidance was issued for evaluating the effects of reference rate reform on financial reporting.

The new guidance provides temporary optional expedients and exceptions to U.S.

GAAP for contract modifications, hedge accounting and other relationships that reference London Interbank Overnight Financing Rate "LIBOR" or another reference rate that is expected to be discontinued due to reference rate reform.

The guidance may be adopted on or after March 12, 2020 and is only effective for the period from March 12, 2020 through December 31, 2022.

We have not yet adopted this guidance and are currently evaluating what impact the guidance will have on our consolidated financial statements.

In January 2021, the Financial Accounting Standards Board expanded existing accounting guidance for evaluating the effects of reference rate reform on financial reporting.

The new guidance expands the temporary optional expedients and exceptions to U.S.

GAAP for contract modifications, hedge accounting and other relationships that reference London Interbank Overnight Financing Rate ("LIBOR") to apply to all derivative instruments affected by the market-wide change in the interest rates used for discounting, margining or contract price alignment (commonly referred to as the discounting transition).

The guidance can be applied as of January 1, 2020.

We will evaluate our contracts that are eligible for modification relief and may apply the elections prospectively as needed.

We are currently evaluating what impact the guidance will have on our consolidated financial statements.

Note 3 – Variable Interest Entities ("VIEs")

Our maximum risk of loss in VIEs in which we are not the primary beneficiary at September 30, 2020 is presented in the table below.

Our maximum risk of loss in VIEs in which we are not the primary beneficiary at March 31, 2021 is presented in the table below.

$ in thousands Carrying Amount Company's Maximum Risk of Loss

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We resumed investing in Agency RMBS in July 2020.

The following tables summarize our MBS and GSE CRT portfolio by asset type as of September 30, 2020 and December 31, 2019.

September 30, 2020

The following tables summarize our MBS portfolio by asset type as of March 31, 2021 and December 31, 2020.

March 31, 2021

$ in thousands Principal/ Notional

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(Discount) Amortized

Cost Unrealized

Cost Allowance for Credit Losses Unrealized

(Loss), net Fair

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637,509 ( 627,312 ) 10,197 — 377 10,574 6.21 %

GSE CRT 5,332 — 5,332 ( 415 ) 4,917 3.43 %

Total 9,580,021 ( 297,994 ) 9,282,027 ( 830 ) ( 181,455 ) 9,099,742 1.95 %

(1) Period-end weighted average yield is based on amortized cost as of September 30, 2020 and incorporates future prepayment and loss assumptions.

(2) All Agency collateralized mortgage obligations ("Agency-CMO") are interest-only securities ("Agency IO").

(1) Period-end weighted average yield is based on amortized cost as of March 31, 2021 and incorporates future prepayment and loss assumptions.

(2) Agency collateralized mortgage obligation ("Agency-CMO") are interest-only securities ("Agency IO").

(3) Non-Agency RMBS is 65.3 % fixed rate, 33.7 % variable rate, and 1.0 % floating rate based on fair value.

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(Discount) Amortized

Cost Unrealized

Cost Allowance for Credit Losses Unrealized

(Loss), net Fair

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30 year fixed-rate 7,635,107 391,644 8,026,751 — 24,115 8,050,866 1.86 %

30 year fixed-rate 9,911,339 308,427 10,219,766 304,454 10,524,220 3.62 %

Hybrid ARM 55,024 602 55,626 1,267 56,893 3.46 %

Total Agency RMBS pass-through 7,635,107 391,644 8,026,751 — 24,115 8,050,866 1.86 %

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19,634 ( 19,634 ) — — — — — %

Agency CMBS (3)

4,561,276 75,299 4,636,575 131,355 4,767,930 3.01 %

Non-Agency CMBS 112,549 ( 5,791 ) 106,758 ( 1,768 ) 4,593 109,583 9.40 %

4,464,525 ( 772,295 ) 3,692,230 131,244 3,823,474 5.16 %

Non-Agency RMBS (3)(4)(5)

790,627 ( 779,660 ) 10,967 — 766 11,733 7.83 %

858,244 19,945 878,189 45,483 923,672 2.78 %

Total 8,557,917 ( 413,441 ) 8,144,476 ( 1,768 ) 29,474 8,172,182 1.97 %

(1) Period-end weighted average yield is based on amortized cost as of December 31, 2020 and incorporates future prepayment and loss assumptions.

(2) Agency-CMO includes Agency IO, which represent 56.3 % o f principal (notional) balance, 6.4 % of amortized cost and 6.4 % of fair value.

(3) Includes Agency CMBS purchase commitments with a fair value of approximately $ 96.2 million.

(4) Non-Agency CMBS includes interest-only securities which represent 13.1 % of principal/notional balance, 0.3 % of amortized cost and 0.3 % of fair value.

(5) Non-Agency RMBS is 37.0 % variable rate, 57.7 % fixed rate, and 5.3 % floating rate based on fair value.

(2) All Agency-CMO are Agency IO.

(3) Non-Agency RMBS is 67.3 % fixed rate, 31.8 % variable rate and 0.9 % floating rate based on fair value.

Coupon payments on variable rate investments are based upon changes in the underlying Hybrid ARM loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.

(4) Of the total discount in non-Agency RMBS, $ 2.1 million is non-accretable calculated using the principal/notional balance based on estimated future cash flows of the securities.

(7) Non-Agency RMBS includes interest-only securities, which represent 56.2 % of principal/notional balance, 1.9 % of amortized cost and 1.3 % of fair value.

(8) GSE CRT weighted average yield excludes coupon interest associated with embedded derivatives not accounted for under the fair value option that is recorded as realized and unrealized credit derivative income (loss), net.

The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of September 30, 2020 and December 31, 2019.

We have elected the fair value option for all of our RMBS interest-only securities, our MBS purchased on or after September 1, 2016 and our GSE CRTs purchased on or after August 24, 2015.

As of September 30, 2020 and December 31, 2019, approximately 94 % and 80 %, respectively, of our MBS and GSE CRTs are accounted for under the fair value option.

Our percentage of MBS and GSE CRTs accounted for under the fair value option increased as of September 30, 2020 due to a change in portfolio composition.

During the first half of 2020, we sold MBS and GSE CRTs previously accounted for as available-for-sale securities to generate liquidity and reduce leverage given unprecedented market conditions as a result of the COVID-19 pandemic.

We resumed investing in Agency RMBS in July 2020 and elected the fair value option for these securities.

September 30, 2020 December 31, 2019

(5) Non-Agency RMBS includes non-Agency IO which represent 98.8 % of principal/notional balance, 49.3 % of amortized cost and 41.5 % of fair value.

The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of March 31, 2021 and December 31, 2020.

We have elected the fair value option for all of our RMBS interest-only securities and our MBS purchased on or after September 1, 2016.

As of March 31, 2021 and December 31, 2020, approximately 99 % of our MBS are accounted for under the fair value option.

March 31, 2021 December 31, 2020

$ in thousands Available-for-sale Securities Securities under Fair Value Option Total

1 unchanged sentence

30 year fixed-rate — 8,997,918 8,997,918 — 8,050,866 8,050,866

30 year fixed-rate — 5,536,103 5,536,103 754,590 9,769,630 10,524,220

Hybrid ARM — — — 31,522 25,371 56,893

Total RMBS Agency pass-through — 8,997,918 8,997,918 — 8,050,866 8,050,866

Agency-CMO — — — 146,733 280,779 427,512

Agency CMBS — — — — 4,767,930 4,767,930

Non-Agency CMBS 91,250 — 91,250 109,583 — 109,583

Non-Agency RMBS 6,943 3,631 10,574 7,267 4,466 11,733

GSE CRT — 4,917 4,917 507,445 416,227 923,672

Total 98,193 9,001,549 9,099,742 116,850 8,055,332 8,172,182

The components of the carrying value of our MBS and GSE CRT portfolio at September 30, 2020 and December 31, 2019 are presented below.

September 30, 2020

$ in thousands MBS and GSE CRT Securities Interest-Only Securities Total

The components of the carrying value of our MBS portfolio at March 31, 2021 and December 31, 2020 are presented below.

Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our condensed consolidated balance sheets, was $ 17.5 million at March 31, 2021 (December 31, 2020:

$ 15.4 million).

March 31, 2021

$ in thousands MBS Interest-Only Securities Total

Principal/notional balance 8,933,501 646,520 9,580,021

1 unchanged sentence

Unamortized discount ( 10,852 ) ( 641,593 ) ( 652,445 )

Allowance for credit losses ( 830 ) — ( 830 )

Gross unrealized gains (1)

4 unchanged sentences

December 31, 2020

$ in thousands MBS and GSE CRT Securities Interest-Only Securities Total

$ in thousands MBS Interest-Only Securities Total

Principal/notional balance 7,757,491 800,426 8,557,917

1 unchanged sentence

Unamortized discount ( 10,067 ) ( 795,018 ) ( 805,085 )

Allowance for credit losses ( 1,768 ) — ( 1,768 )

Gross unrealized gains (1)

5 unchanged sentences

Realization occurs upon sale or settlement of such securities.

Further detail on the components of our total gains (losses) on investments, net for the three and nine months ended September 30, 2020 and 2019 is provided below within this Note 4.

The following table summarizes our MBS and GSE CRT portfolio according to estimated weighted average life classifications as of September 30, 2020 and December 31, 2019 .

$ in thousands September 30, 2020 December 31, 2019

Further detail on the components of our total gains (losses) on investments, net for the three months ended March 31, 2021 and 2020 is provided below in this Note 4.

The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of March 31, 2021 and December 31, 2020 .

$ in thousands March 31, 2021 December 31, 2020

Less than one year 29,223 22,112

2 unchanged sentences

Total 9,099,742 8,172,182

The following tables present the estimated fair value and gross unrealized losses of our MBS and GSE CRTs by length of time that such securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019.

September 30, 2020

The following tables present the estimated fair value and gross unrealized losses of our MBS by length of time that such securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020.

March 31, 2021

Less than 12 Months 12 Months or More Total

10 unchanged sentences

Total Agency RMBS pass-through (1)

Non-Agency CMBS 82,458 ( 11,728 ) 12 — — — 82,458 ( 11,728 ) 12

GSE CRT 4,917 ( 415 ) 1 — — — 4,917 ( 415 ) 1

8,592,854 ( 188,816 ) 93 — — — 8,592,854 ( 188,816 ) 93

Non-Agency RMBS (2)

3,487 ( 1,014 ) 10 17 ( 24 ) 4 3,504 ( 1,038 ) 14

(1) Fair value option has been elected for all securities in an unrealized loss position.

Total 8,596,341 ( 189,830 ) 103 17 ( 24 ) 4 8,596,358 ( 189,854 ) 107

(1) Fair value option has been elected for all Agency RMBS in an unrealized loss position.

(2) Fair value option has been elected for all non-Agency RMBS in an unrealized loss position.

December 31, 2020

10 unchanged sentences

30 year fixed-rate 1,496,279 ( 4,108 ) 20 — — — 1,496,279 ( 4,108 ) 20

30 year fixed-rate 255,649 ( 207 ) 3 34,009 ( 256 ) 5 289,658 ( 463 ) 8

Hybrid ARM 434 ( 2 ) 1 1,524 ( 46 ) 3 1,958 ( 48 ) 4

Total Agency RMBS pass-through (1)

1,496,279 ( 4,108 ) 20 — — — 1,496,279 ( 4,108 ) 20

Agency-CMO (2)

67,875 ( 1,194 ) 15 6,155 ( 1,513 ) 13 74,030 ( 2,707 ) 28

Agency CMBS (3)

1,743,800 ( 50,521 ) 58 — — — 1,743,800 ( 50,521 ) 58

Non-Agency CMBS (2)

2 unchanged sentences

2,681 ( 438 ) 6 1,612 ( 203 ) 7 4,293 ( 641 ) 13

77,044 ( 74 ) 4 — — — 77,044 ( 74 ) 4

Total 1,526,029 ( 4,965 ) 27 1,612 ( 203 ) 7 1,527,641 ( 5,168 ) 34

(1) Includes Agency RMBS with a fair value of $ 271.3 million for which the fair value option has been elected.

These securities have unrealized losses of $ 268,000 .

(2) Includes Agency IO with fair value of $ 11.1 million for which the fair value option has been elected.

These Agency IO have unrealized losses of $ 2.3 million.

(3) Fair value option has been elected for all Agency CMBS that are in an unrealized loss position.

(4) Includes non-Agency CMBS with a fair value of $ 181.5 million for which the fair value option has been elected.

These securities have unrealized losses of $ 2.8 million.

(5) Includes non-Agency RMBS and non-Agency IO with a fair value of $ 17.6 million and $ 8.5 million, respectively, for which the fair value option has been elected.

These securities have unrealized losses of $ 261,000 and $ 3.7 million, respectively.

(6) Fair value option has been elected for all GSE CRT that are in an unrealized loss position.

On January 1, 2020, we adopted accounting guidance that requires us to estimate an allowance for credit losses on available-for-sale securities in unrealized loss positions.

As of September 30, 2020, we have not recorded an allowance for credit losses on any of our securities.

We did not record any provisions for credit losses on our condensed consolidated statement of operations during the three and nine months ended September 30, 2020.

We recorded impairments of $ 9.0 million and $ 94.1 million on our condensed consolidated statement of operations during the three and nine months ended September 30, 2020, respectively, because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis.

Prior to January 1, 2020, we assessed our investment securities for other-than-temporary impairment (" OTTI") on a quarterly basis.

When the fair value of an investment was less than its amortized cost at the balance sheet date of the reporting period for which impairment was assessed, the impairment was designated as either "temporary" or "other-than-temporary." This analysis included a determination of estimated future cash flows through an evaluation of the characteristics of the underlying loans and the structural features of the investment.

Underlying loan characteristics reviewed included, but were not limited to, delinquency status, loan-to-value ratios, borrower credit scores, occupancy status and geographic concentration.

The following table summarizes OTTI included in earnings during the three and nine months ended September 30, 2019:

Three Months Ended September 30, Nine Months Ended September 30,

(1) Fair value option has been elected for all Agency RMBS in an unrealized loss position.

(2) Unrealized losses on non-Agency CMBS are included in accumulated other comprehensive income.

These losses are not reflected in an allowance for credit losses based on a comparison of discounted expected cash flows to current amortized cost basis.

(3) Fair value option has been elected for all non-Agency RMBS in an unrealized loss position.

As of March 31, 2021 and December 31, 2020, we have recorded an allowance for credit losses of $ 830,000 and $ 1.8 million, respectively, on a single non-Agency CMBS on our condensed consolidated balance sheets.

We recorded a $ 938,000 decrease in the provision for credit losses on our consolidated statement of operations during the three months ended March 31, 2021.

We did not record any provisions for credit losses during the three months ended March 31, 2020.

During the three months ended March 31, 2020, we recorded impairments of $ 78.8 million on our condensed consolidated statement of operations because we intended to sell or more likely than not would be required to sell the securities before recovery of amortized cost basis.

The following table presents a roll-forward of our allowance for credit losses.

Three Months Ended March 31,

$ in thousands 2021

RMBS interest-only securities 1,826 3,778

Non-Agency RMBS (1)

Total 1,826 4,802

(1) Amounts disclosed relate to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.

OTTI on RMBS interest-only securities was recorded as a reclassification from an unrealized to realized loss within gain (loss) on investments, net on the condensed consolidated statements of operations because we account for these securities under the fair value option.

The following table summarizes the components of our total gain (loss) on investments, net for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30, Nine Months Ended September 30,

Beginning allowance for credit losses ( 1,768 )

Additional increases or decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period 938

Ending allowance for credit losses ( 830 )

The following table summarizes the components of our total gain (loss) on investments, net for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

$ in thousands 2021 2020

1 unchanged sentence

Gross realized losses on sale of investments ( 117,048 ) ( 332,413 )

Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis ( 8,983 ) — ( 94,104 ) —

Other-than-temporary impairment losses — ( 1,826 ) — ( 4,802 )

Impairment of investments the Company intends to sell or more likely than not will be required to sell before recovery of amortized cost basis and other impairments — ( 78,834 )

Net unrealized gains and losses on MBS and GSE CRT accounted for under the fair value option ( 211,912 ) ( 666,872 )

Net unrealized gains and losses on commercial loan and loan participation interest ( 3,098 ) ( 5,492 )

Realized loss on loan participation interest — — ( 3,808 ) —

Total gain (loss) on investments, net ( 331,857 ) ( 755,483 )

The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three and nine months ended September 30, 2020 and 2019.

GSE CRT interest income excludes coupon interest associated with embedded derivatives of $ 478,000 and $ 6.3 million for the three and nine months ended September 30, 2020 (2019:

$ 5.2 million and $ 15.8 million), respectively, that is recorded as realized and unrealized credit derivative income (loss), net.

For the three months ended September 30, 2020

$ in thousands Coupon

Interest Net (Premium

Amortization)/Discount

Accretion Interest

Agency RMBS 16,098 ( 2,520 ) 13,578

Non-Agency CMBS 10,259 3,109 13,368

Non-Agency RMBS 879 ( 874 ) 5

GSE CRT 223 ( 274 ) ( 51 )

Total 27,466 ( 559 ) 26,907

For the three months ended September 30, 2019

$ in thousands Coupon

Interest Net (Premium

Amortization)/Discount

Accretion Interest

Agency RMBS 122,725 ( 21,526 ) 101,199

Agency CMBS 25,434 ( 1,395 ) 24,039

Non-Agency CMBS 41,972 3,957 45,929

Non-Agency RMBS 12,746 2,725 15,471

GSE CRT 9,913 ( 2,369 ) 7,544

Other 756 — 756

Total 213,546 ( 18,608 ) 194,938

For the nine months ended September 30, 2020

The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the three months ended March 31, 2021 and 2020.

GSE CRT interest income excludes coupon interest associated with embedded derivatives of $ 4.7 million for the three months ended March 31, 2020 that was recorded as realized and unrealized credit derivative income (loss), net.

For the three months ended March 31, 2021

$ in thousands Coupon

3 unchanged sentences

Agency RMBS 49,555 ( 12,484 ) 37,071

Agency CMBS 35,822 ( 1,744 ) 34,078

Non-Agency CMBS 1,305 878 2,183

Non-Agency RMBS 624 ( 450 ) 174

GSE CRT 10,230 ( 2,560 ) 7,670

Other 743 — 743

Total 51,490 ( 12,056 ) 39,434

For the nine months ended September 30, 2019

For the three months ended March 31, 2020

$ in thousands Coupon

10 unchanged sentences

Note 5 – Other Assets

The following table summarizes our other assets as of September 30, 2020 and December 31, 2019:

$ in thousands September 30, 2020 December 31, 2019

FHLBI stock — 74,250

Loan participation interest — 44,654

The following table summarizes our other assets as of March 31, 2021 and December 31, 2020:

$ in thousands March 31, 2021 December 31, 2020

Commercial loan, held-for-investment 20,000 23,098

2 unchanged sentences

Total 36,890 41,163

IAS Services LLC, our wholly-owned subsidiary, was required to purchase and hold Federal Home Loan Bank of Indianapolis ("FHLBI") stock as a condition of membership in the FHLBI.

During the nine months ended September 30, 2020, FHLBI fully redeemed our stock at cost in connection with the repayment of our secured loans.

We terminated our membership in FHLBI in the third quarter of 2020.

We sold our participation interest in a secured loan collateralized by mortgage servicing rights for $ 21.6 million in April 2020.

The weighted average asset yield for the participation interest was 5.82 % as of December 31, 2019.

We recorded a realized loss of $ 3.8 million upon sale of the participation interest.

We have an investment in a commercial loan that matures in February 2021.

The loan had a weighted average coupon rate of 8.66 % as of September 30, 2020 and 10.19 % as of December 31, 2019.

As discussed in Note 2- "Summary of Significant Accounting Policies", we elected the fair value option for this loan on January 1, 2020 and recorded a cumulative effect adjustment to increase retained earnings by $ 342,000 on January 1, 2020.

We recorded unrealized losses on this loan of $ 15,000 and $ 2.5 million during the three and nine months ended September 30, 2020, respectively, based on a discounted cash flow valuation prepared by an independent pricing service.

We previously reported this loan at amortized cost on our condensed consolidated balance sheet.

In March 2021, we agreed to extend the contractual maturity of our commercial loan investment from February 2021 to February 2022 at the request of the borrower.

The borrower continues to make current interest payments on the loan and posted additional cash reserves in connection with the loan modification.

The loan had a principal balance of $ 23.9 million as of March 31, 2021 and December 31, 2020 and a weighted average coupon rate of 8.62 % as of March 31, 2021 and 8.65 % as of December 31, 2020.

We account for this investment using the fair value option.

We have invested in unconsolidated ventures that are managed by an affiliate of our Manager.

2 unchanged sentences

Note 6 – Borrowings

W e have historically financed the majority of our investment portfolio through repurchase agreements and secured loans.

We fully repaid our secured loans during the nine months ended September 30, 2020.

The following tables summarize certain characteristics of our borrowings at September 30, 2020 and December 31, 2019.

Refer to Note 7 - "Collat eral Positions" for collateral pledged and held under our repurchase agreements and secured loans.

$ in thousands September 30, 2020

We have historically financed the majority of our investment portfolio through repurchase agreements and secured loans.

We fully repaid our secured loans during the year ended December 31, 2020.

The following tables summarize certain characteristics of our borrowings at March 31, 2021 and December 31, 2020.

Refer to Note 7 - "Collateral Positions" for collateral pledged and held under our repurchase agreements.

$ in thousands March 31, 2021

Weighted Average

9 unchanged sentences

Outstanding Rate (days)

Repurchase Agreements:

Agency RMBS 9,666,964 1.95 % 46

Agency CMBS 4,246,359 1.95 % 43

Non-Agency CMBS 2,041,968 2.71 % 14

Non-Agency RMBS 790,412 2.65 % 16

GSE CRT 753,110 2.70 % 13

Loan participation interest 33,490 3.22 % 240

Total Repurchase Agreements 17,532,303 2.11 % 39

Secured Loans 1,650,000 1.93 % 1587

Repurchase Agreements - Agency RMBS 7,228,699 0.21 % 14

Total Borrowings 7,228,699 0.21 % 14

Secured Loans

During the nine months ended September 30, 2020, IAS Services LLC fully repaid its outstanding secured loans from the FHLBI.

In April 2020, the FHLBI modified the terms of our secured loans because we were not in compliance with all of the financial covenants of our secured loan agreements as of March 31, 2020.

The modified loan terms required repayment of our secured loans by December 2020 but allowed for prepayment at any time without penalty.

These secured loans had variable rates that were based on the FHLBI's short-term cost of funds.

For the nine months ended September 30, 2020, IAS Services LLC had weighted average borrowings of $ 784.3 million with a weighted average borrowing rate of 1.47 %.

Repurchase Agreements

3 unchanged sentences

While certain of our repurchase agreement counterparties permitted our repurchase agreements to remain outstanding while we were not in compliance, other counterparties seized and sold securities that we had posted as collateral for our repurchase agreements.

We repaid all of our repurchase agreements that may have been in default as of May 7, 2020.

Gains and losses associated with the termination of these repurchase agreements are reported as a net gain (loss) on extinguishment of debt in our condensed consolidated statement of operations.

During the three months ended September 30, 2020, we entered into a mutual release of claims with a counterparty resulting in a one-time gain on settlement of a debt obligation of $ 16.0 million that is reported within net gain (loss) on extinguishment of debt on our condensed consolidated statement of operations.

As of May 7, 2020, we repaid all of our repurchase agreements that may have been in default.

Gains and losses associated with the termination of these repurchase agreements during the three months ended March 31, 2020 are reported as net gain (loss) on extinguishment of debt in our condensed consolidated statement of operations.

We resumed financing the purchase of Agency RMBS with repurchase agreements in July 2020.

These repurchase agreements generally bear interest at a contractually agreed upon rate and have maturities of approximately one month.

These repurchase agreements generally bear interest at a contractually agreed upon rate and have maturities of approximately one to three months.

Repurchase agreements are accounted for as secured borrowings since we maintain effective control of the financed assets.

The repurchase agreements are subject to certain financial covenants.

We were in compliance with all of these covenants as of September 30, 2020.

We were in compliance with all of these covenants as of March 31, 2021.

Secured Loans

During the year ended December 31, 2020, IAS Services LLC, our former wholly-owned captive insurance subsidiary, fully repaid its outstanding secured loans from the Federal Home Loan Bank of Indianapolis ("FHLBI").

Note 7 - Collateral Positions

The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements, secured loans, interest rate swaps, currency forward contracts and to-be-announced securities forward contracts ("TBAs") as of September 30, 2020 and December 31, 2019.

The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements, interest rate swaps, currency forward contracts and to-be-announced securities forward contracts ("TBAs") as of March 31, 2021 and December 31, 2020.

Refer to Note 2 - "Summary of Significant Accounting Policies - Fair Value Measurements" of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for a description of how we determine fair value.

RMBS, CMBS and GSE CRT collateral pledged is included in mortgage-backed and credit risk transfer securities on our condensed consolidated balance sheets.

Loan participation interest collateral pledged was included in other assets on our condensed consolidated balance sheets.

Cash collateral pledged on secured loans, centrally cleared interest rate swaps and currency forward contracts is classified as restricted cash on our condensed consolidated balance sheets.

Agency RMBS collateral pledged is included in mortgage-backed securities on our condensed consolidated balance sheets.

Cash collateral pledged on centrally cleared interest rate swaps and currency forward contracts is classified as restricted cash on our condensed consolidated balance sheets.

Cash collateral pledged on repurchase agreements and TBAs accounted for as derivatives is classified as due from counterparties on our condensed consolidated balance sheets.

Agency CMBS purchase commitments that are recorded as mortgage-backed and credit risk transfer securities on our condensed consolidated balance sheets cannot be pledged as collateral until these securities settle.

We held approximately $ 96.2 million of these securities as of December 31, 2019.

We did no t have any Agency CMBS purchase commitments as of September 30, 2020.

Cash collateral held on repurchase agreements that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable.

Cash collateral held that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable.

Non-cash collateral held is only recognized if the counterparty defaults or if we sell the pledged collateral.

As of September 30, 2020 and December 31, 2019, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets.

As of March 31, 2021 and December 31, 2020, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets.

$ in thousands As of

Collateral Pledged September 30, 2020 December 31, 2019

Collateral Pledged March 31, 2021 December 31, 2020

Repurchase Agreements:

Agency RMBS 8,641,007 7,614,935

Agency CMBS — 4,446,384

Non-Agency CMBS — 2,549,841

Non-Agency RMBS — 943,176

GSE CRT — 918,117

Loan participation interest — 44,654

Cash 6,736 700

Total repurchase agreements collateral pledged 8,647,743 7,615,635

Secured Loans:

Agency RMBS — 621,471

Non-Agency CMBS — 1,276,418

Restricted cash — 600

Total secured loans collateral pledged — 1,898,489

Interest Rate Swaps, Currency Forward Contracts and TBAs:

Agency RMBS — 189,780

Cash 4,704 378

Restricted cash 380,678 244,573

1 unchanged sentence

Total collateral pledged:

Mortgage-backed and credit risk transfer securities 5,509,166 21,132,742

Loan participation interest — 44,654

Agency RMBS 8,641,007 7,614,935

Cash 11,440 1,078

1 unchanged sentence

Total collateral pledged 9,033,125 7,860,586

Collateral Held September 30, 2020 December 31, 2019

Collateral Held March 31, 2021 December 31, 2020

Repurchase Agreements:

1 unchanged sentence

Total repurchase agreements collateral held — 6,142

Interest Rate Swaps and Currency Forward Contracts:

Total interest rate swap and currency forward contracts collateral held 280 160

Interest Rate Swaps, Currency Forward Contracts and TBAs:

Cash 1,337 1,630

Total interest rate swaps, currency forward contracts and TBAs collateral held 1,337 1,630

Total collateral held:

Cash 1,337 3,546

Non-cash collateral — 4,226

4 unchanged sentences

Under the repurchase agreements, the respective lender retains the contractual right to mark the underlying collateral to fair value.

We would be required to provide additional collateral or fund margin calls if the value of pledged assets declined.

We would be required to provide additional collateral to fund margin calls if the value of pledged assets declined.

We intend to maintain a level of liquidity that will enable us to meet margin calls.

Our repurchase agreement collateral pledged ratio (MBS, GSE CRTs and a loan participation interest pledged as collateral/amount outstanding) was 105 % as of September 30, 2020 and 109 % as of December 31, 2019.

Secured Loans

Collateral pledged with the FHLBI was held in trust for the benefit of the FHLBI and was not commingled with our other assets.

The FHLBI retained the right to mark the underlying collateral for FHLBI advances to fair value as determined by the FHLBI in its sole discretion.

We repaid the outstanding balance of our secured loans during the nine months ended September 30, 2020 and did not have any secured loans outstanding as of September 30, 2020.

Our repurchase agreement collateral pledged ratio (MBS pledged as collateral/amount outstanding) was 105 % as of March 31, 2021 (December 31, 2020:

Interest Rate Swaps

All of the interest rate swaps that we have entered into during 2020 were centrally cleared by a registered clearing organization such as the Chicago Mercantile Exchange (“CME”) and LCH Limited (“LCH”) through a Futures Commission Merchant (“FCM”).

As of March 31, 2021 and December 31, 2020, all of our interest rate swaps were centrally cleared by a registered clearing organization such as the Chicago Mercantile Exchange ("CME") and LCH Limited ("LCH") through a Futures Commission Merchant ("FCM").

We are required to pledge initial margin and daily variation margin for our centrally cleared interest rate swaps that is based on the fair value of our contracts as determined by our FCM.

Collateral pledged with our FCM is segregated in our books and records and can be in the form of cash or securities.

Daily variation margin for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as gain (loss) on derivative instruments, net in our consolidated statements of operations.

Our FCM agreements include cross default provisions.

2 unchanged sentences

Collateral pledged with our TBA and currency forward counterparties is segregated in our books and records and can be in the form of cash or securities.

Our counterparties have the right to repledge the collateral posted and the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the contracts changes.

Our counterparties have the right to repledge the collateral posted and have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the contracts changes.

Note 8 – Derivatives and Hedging Activities

1 unchanged sentence

$ in thousands Notional Amount

of December 31,

2020 Additions Settlement,

or Exercise Notional Amount

September 30,

Interest Rate Swaps (1)

6,300,000 500,000 ( 500,000 ) 6,300,000

Interest Rate Swaptions — 1,000,000 ( 1,000,000 ) —

Currency Forward Contracts 33,084 16,850 ( 33,084 ) 16,850

Credit Derivatives 464,966 — ( 464,966 ) —

TBA Purchase Contracts 1,700,000 7,350,000 ( 7,050,000 ) 2,000,000

1 unchanged sentence

Total 8,033,084 1,316,850 ( 1,533,084 ) 7,816,850

(1) Notional amount as of March 31, 2021 excludes $ 1.3 billion of interest rate swaps with forward start dates.

Refer to Note 7 - "Collateral Positions" for further information regarding our collateral pledged to and received from our derivative counterparties.

6 unchanged sentences

Amounts recorded in accumulated other comprehensive income ("AOCI") before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements.

We reclassified $ 3.2 million and $ 17.8 million as a decrease (September 30, 2019:

$ 6.0 million and $ 17.7 million as a decrease) to interest expense for the three and nine months ended September 30, 2020, respectively.

We reclassified $ 5.4 million as a decrease (March 31, 2020:

$ 10.1 million as a decrease) to interest expense for the three months ended March 31, 2021.

We increased the amount of gains and losses

reclassified as a decrease to interest expense during the three months ended March 31, 2020 by $ 4.2 million because it was probable that the original forecasted repurchase agreement transactions would not occur by the end of the originally specified time period .

During the next 12 months, we estimate that $ 21.8 million will be reclas sified as a decrease to interest expense, repurchase agreements.

As of September 30, 2020, $ 58.1 million (December 31, 2019:

As of March 31, 2021, $ 46.7 million (December 31, 2020:

$ 52.1 million) of unrealized gains on discontinued cash flow hedges, net are still included in accumulated other comprehensive income and will be reclassified as a decrease to interest expense, repurchase agreements over a period of time through December 15, 2023.

As of September 30, 2020 and December 31, 2019, we had interest rate swaps with the following maturities outstand ing:

$ in thousands As of September 30, 2020

As of March 31, 2021 and December 31, 2020, we had interest rate swaps with the following maturities outstand ing, excluding interest rate swaps with forward start dates:

$ in thousands As of March 31, 2021

Maturities Notional Amount (1)

Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity

2024 1,000,000 0.16 % 0.15 % 3.8

2025 1,250,000 0.23 % 0.15 % 4.9

Thereafter 2,300,000 0.47 % 0.16 % 8.1

3 to 5 years 2,250,000 0.20 % 0.11 % 3.9

5 to 7 years 1,775,000 0.43 % 0.11 % 6.5

7 to 10 years 2,275,000 0.60 % 0.11 % 8.9

Total 6,300,000 0.41 % 0.11 % 6.5

(1) All swaps received variable payments based on 1-month LIBOR as of September 30, 2020.

$ in thousands As of December 31, 2020

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Weighted Average Fixed Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity

2020 1,900,000 1.67 % 1.84 % 0.6

2021 2,500,000 1.40 % 1.77 % 1.3

2022 800,000 1.53 % 1.91 % 2.9

2023 2,400,000 1.44 % 1.72 % 3.9

2024 900,000 1.49 % 1.76 % 4.8

Thereafter 5,500,000 1.44 % 1.78 % 9.5

3 to 5 years 2,250,000 0.20 % 0.15 % 4.2

5 to 7 years 1,775,000 0.43 % 0.15 % 6.7

7 to 10 years 2,275,000 0.60 % 0.15 % 9.2

Total 6,300,000 0.41 % 0.15 % 6.7

(1) Notional amount includes $ 10.7 billion of interest rate swaps that received variable payments based on 1-month LIBOR and $ 3.3 billion of interest rate swaps that received variable payments based on 3-month LIBOR as of December 31, 2019.

Futures and Currency Forward Contracts

We purchase or sell U.S.

Treasury futures contracts to help mitigate the potential impact of changes in interest rates on the performance of our investment portfolio.

We recognize realized and unrealized gains and losses associated with the purchases or sales U.S.

Treasury futures contracts in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations.

We did not have any futures contract outstanding as of September 30, 2020 and December 31, 2019.

(1) Notional amount includes $ 6.3 billion of interest rate swaps that received variable payments based on 1-month LIBOR as of March 31, 2021.

(2) Notional amount includes $ 6.3 billion of interest rate swaps that received variable payments based on 1-month LIBOR as of December 31, 2020.

As of March 31, 2021, we held $ 1.3 billion notional amount of interest rate swaps with forward start dates that will receive interest based on 1-month LIBOR with a weighted average maturity of 21.3 years and a weighted average fixed pay rate of 1.37 %.

We did not hold any interest rate swaps with forward start dates as of December 31, 2020.

Swaptions and Currency Forward Contracts

We periodically purchase interest rate swaptions to help mitigate the potential impact of increases or decreases in interest rates on the performance of our Agency RMBS portfolio (referred to as "convexity risk").

The interest rate swaptions provide us the option to enter into interest rate swap agreements for a predetermined notional amount, stated term and pay and receive interest rates in the future.

The premium paid for interest rate swaptions is reported as a derivative asset in our condensed consolidated balance sheets.

The premium is valued at an amount equal to the fair value of the swaption that would have the effect of closing the position adjusted for nonperformance risk, if any.

The difference between the premium and the fair value of the swaption is reported in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations.

If an interest rate swaption expires unexercised, the loss on the interest rate swaption would equal the premium paid.

If we sell or exercise an interest rate swaption, the realized gain or loss on the interest rate swaption would equal the difference between the cash or the fair value of the underlying interest rate swap received and the premium paid.

We use currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on our investments denominated in foreign currencies.

We recognize realized and unrealized gains and losses associated with the purchases or sales of currency forward contracts in gain (loss) on derivative instruments, net in our condensed consolidated statements of operations.

As of September 30, 2020, we had $ 24.6 million (December 31, 2019:

As of March 31, 2021, we had $ 16.9 million (December 31, 2020:

$ 33.1 million) of notional amount of currency forward contracts related to an investment in an unconsolidated venture denominated in Euro.

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Embedded derivatives associated with GSE CRTs were recorded within mortgage-backed and credit risk transfer securities, at fair value, on the condensed consolidated balance sheets.

We did not hold any GSE CRTs that were accounted for as hybrid financial instruments as of September 30, 2020.

At December 31, 2019, terms of the GSE CRT embedded derivatives were:

$ in thousands December 31, 2019

Fair value amount 10,281

Notional amount 464,966

Maximum potential amount of future undiscounted payments 464,966

We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency MBS.

The following table summarizes certain characteristics of our TBAs accounted for as derivatives as of September 30, 2020.

We did not hold any such instruments as of December 31, 2019.

$ in thousands September 30, 2020

We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS.

The following table summarizes certain characteristics of our TBAs accounted for as derivatives as of March 31, 2021 and December 31, 2020.

$ in thousands As of March 31, 2021

Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value

TBA purchase contracts 2,000,000 2,054,000 2,049,727 ( 4,273 )

TBA sales contracts ( 500,000 ) ( 505,934 ) ( 504,844 ) 1,090

Net TBA derivatives 1,500,000 1,548,066 1,544,883 ( 3,183 )

$ in thousands As of December 31, 2020

Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value

TBA purchase contracts 1,700,000 1,772,211 1,782,104 9,893

Net TBA derivatives 1,700,000 1,772,211 1,782,104 9,893

Tabular Disclosure of the Effect of Derivative Instruments on the Balance Sheet

The table below presents the fair value of our derivative financial instruments, as well as their classification on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.

The table below presents the fair value of our derivative financial instruments, as well as their classification on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

$ in thousands

Derivative Assets Derivative Liabilities

As of September 30, 2020 As of December 31, 2019 As of September 30, 2020 As of December 31, 2019

As of March 31, 2021 As of December 31, 2020 As of March 31, 2021 As of December 31, 2020

Sheet Fair Value Fair Value Balance

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Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement

The tables below present the effect of our credit derivatives on the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019.

$ in thousands

Three Months Ended September 30, 2020

not designated as

hedging instrument Realized gain (loss), net GSE CRT embedded derivative coupon interest Unrealized gain (loss), net Realized and unrealized credit derivative income (loss), net

GSE CRT Embedded Derivatives ( 17,223 ) 478 17,223 478

The table below presents the effect of our credit derivatives on the condensed consolidated statements of operations for the three months ended March 31, 2020.

$ in thousands

Three Months Ended September 30, 2019

not designated as

hedging instrument Realized gain (loss), net GSE CRT embedded derivative coupon interest Unrealized gain (loss), net Realized and unrealized credit derivative income (loss), net

GSE CRT Embedded Derivatives — 5,196 ( 5,195 ) 1

$ in thousands Nine Months Ended September 30, 2020

not designated as

hedging instrument Realized gain (loss), net GSE CRT embedded derivative coupon interest Unrealized gain (loss), net Realized and unrealized credit derivative income (loss), net

GSE CRT Embedded Derivatives ( 31,354 ) 6,323 ( 10,281 ) ( 35,312 )

$ in thousands Nine Months Ended September 30, 2019

Three months ended March 31, 2020

not designated as

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GSE CRT Embedded Derivatives 2,283 4,718 ( 40,053 ) ( 33,052 )

The following tables summarizes the effect of interest rate swaps, currency forward contracts, TBAs and futures reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019:

The following tables summarizes the effect of interest rate swaps, interest rate swaptions, currency forward contracts and TBAs reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020:

$ in thousands

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

not designated as

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Interest Rate Swaps 327,527 ( 4,549 ) 21,081 344,059

Interest Rate Swaptions ( 553 ) — — ( 553 )

Currency Forward Contracts ( 539 ) — 1,255 716

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$ in thousands

Three Months Ended September 30, 2019

not designated as

hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net

Interest Rate Swaps ( 137,346 ) 11,715 ( 15,772 ) ( 141,403 )

Futures Contracts ( 36,633 ) — ( 464 ) ( 37,097 )

Currency Forward Contracts 372 — 884 1,256

Total ( 173,607 ) 11,715 ( 15,352 ) ( 177,244 )

$ in thousands Nine Months Ended September 30, 2020

not designated as

hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net

Interest Rate Swaps ( 909,366 ) 11,369 ( 13,266 ) ( 911,263 )

Currency Forward Contracts ( 1,297 ) — 519 ( 778 )

TBAs 1,227 — 2,578 3,805

Total ( 909,436 ) 11,369 ( 10,169 ) ( 908,236 )

$ in thousands Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

not designated as

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Interest Rate Swaps ( 904,704 ) 11,924 ( 18,532 ) ( 911,312 )

Futures Contracts ( 169,274 ) — 7,990 ( 161,284 )

Currency Forward Contracts 484 — 49 533

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Assets and liabilities subject to such arrangements are presented on a gross basis in the condensed consolidated balance sheets.

The following tables present information about the assets and liabilities that are subject to master netting agreements (or similar agreements) and can potentially be offset on our condensed consolidated balance sheets at September 30, 2020 and December 31, 2019.

The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral.

Our derivative assets of $ 5.3 million as of September 30, 2020 and $ 18.5 million as of December 31, 2019 related to centrally cleared interest rate swaps are not included in the tables below as a result of this characterization of daily variation margin.

As of September 30, 2020

As of March 31, 2021, our derivative asset of $ 15.5 million (December 31, 2020:

derivative liability of $ 5.5 million) related to centrally cleared interest rate swaps is not included in the table below as a result of this characterization of daily variation margin.

As of March 31, 2021

Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets

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Balance Sheets Financial

Instruments (2)

Cash Collateral

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Balance Sheets Financial

Instruments (2)

Cash Collateral

Instruments Cash Collateral

(Received) Pledged Net Amount

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10,004 — 10,004 ( 111 ) ( 1,630 ) 8,263

Repurchase Agreements (3)

Total Assets 10,004 — 10,004 ( 111 ) ( 1,630 ) 8,263

Derivatives (1) (2)

( 807 ) — ( 807 ) 111 610 ( 86 )

Secured Loans (4)

Repurchase Agreements (3)

( 7,228,699 ) — ( 7,228,699 ) 7,228,699 — —

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(1) Amounts represent derivative assets and derivative liabilities which could potentially be offset against other derivative assets, derivative liabilities and cash collateral pledged or received.

(2) The fair value of securities pledged as initial margin against our centrally cleared swaps was $ 189.8 million as of December 31, 2019.

Cash collateral pledged on our currency forward contracts, TBAs and centrally cleared interest rate swaps was $ 167.4 million and $ 116.4 million as of September 30, 2020 and December 31, 2019, respectively.

(2) Cash collateral pledged by us on our currency forward contracts, TBAs and centrally cleared interest rate swaps was $ 385.4 million and $ 245.0 million as of March 31, 2021 and December 31, 2020, respectively.

Cash collateral pledged on our centrally cleared interest rate swaps is settled against the fair value of these swaps and is therefore excluded from the tables above.

We held cash collateral on our derivatives of $ 280,000 and $ 160,000 at September 30, 2020 and December 31, 2019, respectively.

(3) The fair value of securities pledged against our borrowing under repurchase agreements was $ 5.5 billion and $ 19.1 billion at September 30, 2020 and December 31, 2019, respectively.

We pledged cash collateral of $ 3.1 million and $ 32.6 million under repurchase agreements as of September 30, 2020 and December 31, 2019, respectively.

We held cash collateral of $ 670,000 and $ 10,000 under repurchase agreements as of September 30, 2020 and December 31, 2019, respectively.

(4) The fair value of securities pledged against IAS Services LLC's borrowings under secured loans was $ 1.9 billion at December 31, 2019.

We pledged cash collateral against secured loans of $ 600,000 as of December 31, 2019.

We held cash collateral on our derivatives of $ 1.3 million and $ 1.6 million at March 31, 2021 and December 31, 2020, respectively.

(3) The fair value of securities pledged against our borrowing under repurchase agreements was $ 8.6 billion and $ 7.6 billion at March 31, 2021 and December 31, 2020, respectively.

We pledged cash collateral of $ 6.7 million and $ 700,000 under repurchase agreements as of March 31, 2021 and December 31, 2020, respectively.

We held cash collateral of $ 1.9 million under repurchase agreements as of December 31, 2020.

We did no t hold cash collateral under repurchase agreements as of March 31, 2021.

Note 10 – Fair Value of Financial Instruments

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The following tables present our assets and liabilities measured at fair value on a recurring basis.

September 30, 2020

March 31, 2021

Fair Value Measurements Using:

$ in thousands Level 1 Level 2 Level 3 NAV as a practical expedient (2)

Mortgage-backed and credit risk transfer securities (1)(2)

Mortgage-backed securities (1)

— 9,099,742 — — 9,099,742

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$ in thousands Level 1 Level 2 Level 3 NAV as a practical expedient (2)

Mortgage-backed and credit risk transfer securities (1)(2)

Mortgage-backed securities (1)

— 8,172,182 — — 8,172,182

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Total liabilities — 6,344 — — 6,344

(1) For more detail about the fair value of our MBS and GSE CRTs, refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities."

(2) Our GSE CRTs purchased prior to August 24, 2015 were accounted for as hybrid financial instruments with an embedded derivative.

The hybrid financial instruments consisted of debt host contracts classified as Level 2 and embedded derivatives classified as Level 3.

We did not hold any GSE CRTs accounted for as hybrid financial instruments as of September 30, 2020.

As of December 31, 2019, the net embedded derivative asset position of $ 10.3 million includes $ 19.5 million of embedded derivatives in an asset position and $ 9.2 million of embedded derivatives in a liability position.

(1) For more detail about the fair value of our MBS, refer to Note 4 - "Mortgage-Backed and Credit Risk Transfer Securities."

(2) Investments in unconsolidated ventures are valued using the net asset value ("NAV") as a practical expedient and are not subject to redemption, although investors may sell or transfer their interest at the approval of the general partner of the underlying funds.

As of September 30, 2020 and December 31, 2019, the weighted average remaining term of our investments in unconsolidated ventures w as 1.9 years an d 2.2 years, respectively.

(4) Includes $ 44.7 million of a loan participation interest as of December 31, 2019 and $ 21.8 million of a commercial loan as of September 30, 2020.

We elected the fair value option for our commercial loan as of January 1, 2020 and valued the loan based on a third party appraisal as of September 30, 2020.

We sold our loan participation interest on April 1, 2020.

As of March 31, 2021 and December 31, 2020, the weighted average remaining term of our investments in unconsolidated ventures was 1.2 years and 1.5 years, respectively.

(3) Includes $ 20.0 million and $ 23.1 million of a commercial loan as of March 31, 2021 and December 31, 2020, respectively.

We value the loan based on a third party appraisal.

The following table shows a reconciliation of the beginning and ending fair value measurements of our GSE CRT embedded derivatives, which we have valued utilizing Level 3 inputs:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2020

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Ending balance ( 29,772 )

(1) Includes $ 37.6 million of unrealized losses attributable to GSE CRT embedded derivatives still held as of March 31, 2020.

The following table shows a reconciliation of the beginning and ending fair value measurements of our loan participation interest, which we have valued utilizing Level 3 inputs:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2020

Beginning balance 44,654

Purchases/Advances — 5,192 — 5,769

Repayments ( 19,269 )

Sales — — ( 21,577 ) —

Total net gains and losses included in net income:

Realized losses — — ( 3,808 ) —

Net unrealized gains and losses — — — —

Total net unrealized losses included in net income:

Unrealized losses ( 3,808 )

Ending balance 21,577

Realized and unrealized losses on our loan participation interest are included in gain (loss) on investments, net in our condensed consolidated statements of operations.

Unrealized losses on our loan participation interest were included in gain (loss) on investments, net in our condensed consolidated statements of operations.

The following table shows a reconciliation of the beginning balance of our commercial loan and ending balance at fair value, which we have valued utilizing Level 3 inputs:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31, Three Months Ended March 31,

$ in thousands 2021 2020

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Unrealized losses on our commercial loan are included in gain (loss) on investments, net in our condensed consolidated statements of operations.

The following tables summarize significant unobservable inputs used in the fair value measurement of our GSE CRT embedded derivatives:

Fair Value at Valuation Unobservable Weighted

$ in thousands December 31, 2019 Technique Input Range Average

GSE CRT Embedded Derivatives 10,281 Market Comparables, Vendor Pricing Weighted average life 1.1 - 4.2 years

These significant unobservable inputs change according to market conditions and security performance.

We estimate the weighted average life of GSE CRTs in order to identify GSE corporate debt with a similar maturity.

We obtain our weighted average life estimates from a third party provider.

Although weighted average life is a significant input, changes in weighted average life may not have an explicit directional impact on the fair value measurement.

We elected the fair value option for our commercial loan on January 1, 2020 when we implemented the new accounting guidance for how entities report credit losses for assets measured at amortized cost.

The following table summarizes the significant unobservable input used in the fair value measurement of our commercial loan:

Fair Value at Valuation Unobservable

$ in thousands September 30, 2020 Technique Input Rate

$ in thousands March 31, 2021 Technique Input Rate

Commercial Loan 20,000 Discounted Cash Flow Discount rate 29.4 %

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the condensed consolidated balance sheets at September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Fair Value at Valuation Unobservable

$ in thousands December 31, 2020 Technique Input Rate

Commercial Loan 23,098 Discounted Cash Flow Discount rate 29.9 %

March 31, 2021 December 31, 2020

$ in thousands Carrying

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Value Estimated

Financial Assets

Commercial loan, held-for-investment (1)

N/A N/A 24,055 24,397

FHLBI stock — — 74,250 74,250

Total — — 98,305 98,647

Financial Liabilities

Repurchase agreements 8,240,887 8,240,959 7,228,699 7,228,719

Secured loans — — 1,650,000 1,650,000

Total 8,240,887 8,240,959 7,228,699 7,228,719

(1) The carrying value and estimated fair value of our commercial loan as of September 30, 2020 are not applicable for disclosure in this table because we elected the fair value option for our commercial loan on January 1, 2020.

The following describes our methods for estimating the fair value for financial instruments not carried at fair value on the condensed consolidated balance sheets.

• The estimated fair value of our commercial loan, held-for-investment, included in "Other assets" on our condensed consolidated balance sheet as of December 31, 2019, is a Level 3 fair value measurement.

The fair value was determined by an independent pricing service using a discounted cash flow analysis.

• The estimated fair value of FHLBI stock, included in "Other assets" on our condensed consolidated balance sheet as of December 31, 2019, is a Level 3 fair value measurement.

The cost of the FHLBI stock approximated its fair value because it could only be sold back to the FHLBI at its discretion at par.

FHLBI redeemed our stock at cost in connection with the repayment of our secured loans.

We terminated our membership in FHLBI in the third quarter of 2020.

• The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique.

This method discounts future estimated cash flows using rates we determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality.

• The estimated fair value of secured loans is a Level 3 fair value measurement.

As of December 31, 2020, the secured loans had floating rates based on an index plus a spread and the spread was typically consistent w ith those demanded in the market.

Accordingly, the interest rates on these secured loans were at market, and thus the carrying amount approximated fair value.

We fully repaid our secured loans during the nine months ended September 30, 2020.

Note 11 – Related Party Transactions

Our Manager is at all times subject to the supervision and oversight of our Board of Directors and has only such functions and authority as we delegate to it.

Under the terms of our management agreement, our Manager and its affiliates provide us with our management team, including our officers and appropriate support personnel.

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Our Manager is not obligated to dedicate any of its employees exclusively to us, nor is our Manager obligated to dedicate any specific portion of time to our business.

During the three and nine months ended September 30, 2020, we reimbursed our Manager $ 242,000 and $ 726,000 (September 30, 2019:

$ 250,000 and $ 646,000 ), respectively, for costs of support personnel.

We have invested $ 1.3 million as of September 30, 2020 (December 31, 2019:

$ 154.0 million) in money market or mutual funds managed by affiliates of our Manager.

During the three months ended March 31, 2021, we reimbursed our Manager $ 242,000 (March 31, 2020:

$ 242,000 ) for costs of support personnel.

We have invested $ 1.9 million in money market or mutual funds managed by affiliates of our Manager as of December 31, 2020.

The investments are reported as cash and cash equivalents on our condensed consolidated balance sheets as they are highly liquid and have original or remaining maturities of three months or less when purchased.

During the three and nine months ended September 30, 2020, we sold non-Agency CMBS to affiliates of our Manager for cash proceeds of $ 40.0 million and recognized a realized gain of $ 4.1 million.

Management Fee Expense

Effective October 1, 2019, our management fee is equal to 1.50 % of our stockholders' equity per annum.

We did not have any investments in money market of mutual funds managed by affiliates of our Manager as of March 31, 2021.

Management Fee

Our management fee is equal to 1.50 % of our stockholders' equity per annum.

For purposes of calculating the management fee, stockholders' equity is calculated as average month-end stockholders' equity for the prior calendar quarter as determined in accordance with U.S.

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Our reimbursement obligation is not subject to any dollar limitation.

The following table summarizes the costs incurred on our behalf by our Manager for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30, Nine Months Ended September 30,

The following table summarizes the costs incurred on our behalf by our Manager for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

$ in thousands 2021 2020

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As of July 2017, we have the option to redeem shares of our Series A Preferred Stock for $ 25.00 per share, plus any accumulated and unpaid dividends through the date of redemption.

We have the option to redeem shares of our Series B Preferred Stock after December 27, 2024 and shares of our Series C Preferred Stock after September 27, 2027 for $ 25.00 per

share, plus any accumulated and unpaid dividends through the date of the redemption.

Shares of Series B and Series C Preferred Stock are not redeemable, convertible into or exchangeable for any other property or any other securities of the Company prior to those times, except under circumstances intended to preserve our qualification as a REIT or upon the occurrence of a change in control.

We have the option to redeem shares of our Series B Preferred Stock after December 27, 2024 and shares of our Series C Preferred Stock after September 27, 2027 for $ 25.00 per share, plus any accumulated and unpaid dividends through the date of the redemption.

Shares of Series B and Series C Preferred Stock are not redeemable, convertible into or exchangeable for any other property or any other securities of the Company before those times, except under circumstances intended to preserve our qualification as a REIT or upon the occurrence of a change in control.

We may sell up to 7,000,000 shares of our preferred stock from time to time in at-the-market or privately negotiated transactions under an equity distribution agreement with a placement agent.

These shares are registered with the SEC under our shelf registration statement (as amended and/or supplemented).

We have not sold any shares of preferred stock under this equity distribution agreement through the filing date of this Quarterly Report.

On June 30, 2020, we issued 16,338,511 shares of common stock in connection with the payment of a common stock dividend.

See "Dividends" below for further discussion of this payment.

We may sell up to 17,000,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions under an equity distribution agreement with a placement agent.

We have not sold any shares of preferred stock under equity distribution agreements.

On February 4, 2021, we completed a public offering of 27,600,000 shares of common stock at the price of $ 3.75 per share.

Total net proceeds were approximately $ 103.1 million after deducting offering expenses.

As of March 31, 2021, we may sell up to 22,060,000 shares of our common stock from time to time in at-the-market or privately negotiated transactions under an equity distribution agreement with a placement agent.

These shares are registered with the SEC under our shelf registration statement (as amended and/or supplemented).

We issued 25,431 shares of common stock under the equity distribution agreement in the three and nine months ended September 30.

2020 for proceeds of $ 80,000 , net of approximately $ 2,000 in commissions and fees.

During the nine months ended September 30, 2019 , we issued 1,093,136 shares of common stock under the equity distribution agreement for proceeds of $ 17.2 million, net of approximately $ 363,000 in commissions and fees.

We did no t issue any common stock under the equity distribution agreement during the three months ended September 30, 2019.

During the three months ended March 31, 2021, we sold 15,550,000 shares under our equity distribution agreement for proceeds of $ 57.8 million, net of approximately $ 831,000 in commissions and fees.

During the three months ended March 31, 2020 , we did not sell any shares of common stock under equity distribution agreements.

Share Repurchase Program

During the nine months ended September 30, 2020 and 2019, we did no t repurchase any shares of our common stock.

As of September 30, 2020, we had authority to purchase 18,163,982 shares of our common stock through our share repurchase program.

During the three months ended March 31, 2021 and 2020, we did no t repurchase any shares of our common stock.

As of March 31, 2021, we had authority to purchase 18,163,982 shares of our common stock through our share repurchase program.

Accumulated Other Comprehensive Income

The following tables present the components of total other comprehensive income (loss), net and accumulated other comprehensive income ("AOCI") for the three and nine months ended September 30, 2020 and 2019.

The following tables present the components of total other comprehensive income (loss), net and accumulated other comprehensive income ("AOCI") for the three months ended March 31, 2021 and 2020.

The tables exclude gains and losses on MBS and GSE CRTs that are accounted for under the fair value option.

Three Months Ended September 30, 2020

$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total

Total other comprehensive income (loss)

Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — 22,812 — 22,812

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net — ( 54,615 ) — ( 54,615 )

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 3,243 ) ( 3,243 )

Currency translation adjustments on investment in unconsolidated venture 397 — — 397

Total other comprehensive income (loss) 397 ( 31,803 ) ( 3,243 ) ( 34,649 )

AOCI balance at beginning of period ( 553 ) 45,564 61,337 106,348

Total other comprehensive income (loss) 397 ( 31,803 ) ( 3,243 ) ( 34,649 )

AOCI balance at end of period ( 156 ) 13,761 58,094 71,699

Three Months Ended September 30, 2019

$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total

Total other comprehensive income (loss)

Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — 14,482 — 14,482

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net — ( 954 ) — ( 954 )

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 5,981 ) ( 5,981 )

Currency translation adjustments on investment in unconsolidated venture 290 — — 290

Total other comprehensive income (loss) 290 13,528 ( 5,981 ) 7,837

AOCI balance at beginning of period ( 83 ) 230,227 87,869 318,013

Total other comprehensive income (loss) 290 13,528 ( 5,981 ) 7,837

AOCI balance at end of period 207 243,755 81,888 325,850

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total

1 unchanged sentence

Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — 981 — 981

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net — 17,124 — 17,124

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 5,368 ) ( 5,368 )

4 unchanged sentences

AOCI balance at end of period 1,108 6,974 46,745 54,827

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

$ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total

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Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining original life of the interest rate swap agreements.

The tables below summarize the dividends we declared during the nine months ended September 30, 2020 and 2019:

The table below summarizes the dividends we declared during the three months ended March 31, 2021 and 2020:

$ in thousands, except per share amounts Dividends Declared

Series A Preferred Stock Per Share In Aggregate Date of Payment

September 10, 2020 0.4844 2,713 October 26, 2020

June 17, 2020 0.4844 2,712 July 27, 2020

February 19, 2021 0.4844 2,713 April 26, 2021

March 17, 2020 0.4844 2,713 May 22, 2020

September 16, 2019 0.4844 2,713 October 25, 2019

June 17, 2019 0.4844 2,712 July 25, 2019

March 18, 2019 0.4844 2,713 April 25, 2019

$ in thousands, except per share amounts Dividends Declared

Series B Preferred Stock Per Share In Aggregate Date of Payment

August 5, 2020 0.4844 3,003 September 28, 2020

May 9, 2020 0.4844 3,004 June 29, 2020

February 18, 2020 0.4844 3,003 May 22, 2020

August 1, 2019 0.4844 3,003 September 27, 2019

May 3, 2019 0.4844 3,004 June 27, 2019

February 19, 2021 0.4844 3,003 March 29, 2021

February 18, 2020 0.4844 3,003 May 22, 2020

$ in thousands, except per share amounts Dividends Declared

Series C Preferred Stock Per Share In Aggregate Date of Payment

August 5, 2020 0.46875 5,391 September 28, 2020

May 9, 2020 0.46875 5,390 June 29, 2020

February 18, 2020 0.46875 5,391 May 22, 2020

August 1, 2019 0.46875 5,391 September 27, 2019

May 3, 2019 0.46875 5,390 June 27, 2019

February 19, 2021 0.46875 5,391 March 29, 2021

February 18, 2020 0.46875 5,391 May 22, 2020

$ in thousands, except per share amounts Dividends Declared

Common Stock Per Share In Aggregate Date of Payment

September 30, 2020 0.05 9,070 October 27, 2020

June 17, 2020 0.02 3,626 July 28, 2020

March 17, 2020 0.50 82,483 June 30, 2020

September 16, 2019 0.45 64,261 October 28, 2019

June 17, 2019 0.45 57,958 July 26, 2019

March 26, 2021 0.09 22,176 April 27, 2021

March 17, 2020 0.50 82,483 June 30, 2020

On May 9, 2020, our Board of Directors approved payment of our common stock dividend that was declared on March 17, 2020 in a combination of cash and shares of our common stock.

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Note 13 – Earnings (Loss) per Common Share

Earnings (loss) per share for the three and nine months ended September 30, 2020 and 2019 is computed as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Earnings (loss) per share for the three months ended March 31, 2021 and 2020 is computed as follows:

Three Months Ended March 31,

In thousands, except per share amounts 2021 2020

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Shares available to common stockholders 223,955 156,771

Effect of dilutive securities:

Restricted stock awards 11 13 — 12

Dilutive Shares 223,955 156,771

Earnings (loss) per share:

Net income (loss) per share:

Net income (loss) attributable to common stockholders

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Diluted ( 0.09 ) ( 10.38 )

The following potential common shares were excluded from diluted earnings per share for the nine months ended September 30, 2020 as the effect would be antidilutive:

11,131 for restricted stock awards.

The following potential weighted average common shares were excluded from diluted earnings per share for the three months ended March 31, 2021 and 2020 as the effect would be antidilutive:

12,385 and 12,065 for restricted stock awards, respectively.

Note 14 – Commitments and Contingencies

1 unchanged sentence

Commitments and contingencies may arise in the ordinary course of business.

Our material off-balance sheet commitments and contingencies as of September 30, 2020 are discussed below.

As discussed in Note 5 - "Other Assets", we have invested $ 20.0 million in unconsolidated ventures that are sponsored by an affiliate of our Manager.

Our material off-balance sheet commitments as of March 31, 2021 are discussed below.

As discussed in Note 5 - "Other Assets", we have invested in unconsolidated ventures that are sponsored by an affiliate of our Manager.

The unconsolidated ventures are structured as partnerships, and we invest in the partnerships as a limited partner.

The entities are structured such that capital commitments are to be drawn down over the life of the partnership as investment opportunities are identified.

As of September 30, 2020 and December 31, 2019, our undrawn capital and purchase commitments were $ 6.7 million and $ 6.5 million, respectively.

As of March 31, 2021 and December 31, 2020, our undrawn capital and purchase commitments were $ 6.7 million and $ 6.8 million, respectively.

Note 15 – Subsequent Events

We declared the following dividends on November 5, 2020:

a Series A Preferred Stock dividend of $ 0.4844 per share payable on January 25, 2021 to our stockholders of record as of January 1, 2021, a Series B Preferred Stock dividend of $ 0.4844 per share payable on December 28, 2020 to our stockholders of record as of December 5, 2020 and a Series C Preferred Stock dividend of $ 0.46875 per share payable on December 28, 2020 to our stockholders of record as of December 5, 2020.

We declared the following dividends on May 4, 2021:

a Series A Preferred Stock dividend of $ 0.4844 per share payable on July 26, 2021 to our stockholders of record as of July 1, 2021, a Series B Preferred Stock dividend of $ 0.4844 per share payable on June 28, 2021 to our stockholders of record as of June 5, 2021 and a Series C Preferred Stock dividend of $ 0.46875 per share payable on June 28, 2021 to our stockholders of record as of June 5, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements