What changed in this filing

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Item 9A. Controls and Procedures

2023-02-21 compared with 2022-02-17 · 250 added, 274 removed, 1152 unchanged (31% of the section changed)

11 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Under the supervision and with the participation of the principal executive officer and principal financial officer, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

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Not applicable.

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Directors, Executive Officers and Corporate Governance.

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Not applicable.

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Exhibit Index

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3.6 Articles Supplementary reclassifying 2,110,000 shares of authorized but unissued shares of Series A Preferred Stock as shares of Preferred Stock without designation, incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on June 17, 2021.

3.7 Articles of Amendment of Invesco Mortgage Capital Inc.

(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed with the SEC on June 3, 2022).

3.8 Articles of Amendment of Invesco Mortgage Capital Inc.

(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, filed with the SEC on June 3, 2022).

3.9 Articles of Amendment (Authorized shares) (incorporated by reference to Exhibit 3.9 to the Quarterly Report on Form 10-Q, filed with the SEC on August 4, 2022).

3.10 Amended and Restated Bylaws of Invesco Mortgage Capital Inc., incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the SEC on February 17, 2017.

4.1 Specimen Common Stock Certificate of Invesco Mortgage Capital Inc., incorporated by reference to Exhibit 4.1 to our Pre-Effective Amendment No.

8, filed with the SEC on June 18, 2009.

4.1 Specimen Common Stock Certificate of Invesco Mortgage Capital Inc.

4.2 Specimen 7.75% Series B Fixed-to-Floating Cumulative Redeemable Preferred Stock Certificate, incorporated by reference to Exhibit 4.1 to our Registration Statement on Form 8-A, filed with the SEC on September 8, 2014.

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§ 10.5 Invesco Mortgage Capital Inc.

Amended and Restated 2009 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on May 5, 2021.

Amended and Restated 2009 Equity Incentive Plan, incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8, filed with the SEC on May 4, 2022.

10.6 Form of Restricted Stock Award Agreement for Non-Executive Directors under the Invesco Mortgage Capital Inc.

2009 Equity Incentive Plan (May 2021), incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q, filed with the SEC on August 4, 2021.

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10.7 Equity Distribution Agreement with respect to the Series B Shares and Series C Shares, dated March 19, 2019, among Invesco Mortgage Capital Inc., IAS Operating Partnership LP, Invesco Advisers, Inc.

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Refer to (a)(2) above.

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INDEX TO FINANCIAL STATEMENTS

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Schedule IV - Mortgage Loans on Real Estate as of December 31, 202 2

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Report of Independent Registered Public Accounting Firm

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and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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We have served as the Company’s auditor since 2016.

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INVESCO MORTGAGE CAPITAL INC.

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Mortgage-backed securities, at fair value (including pledged securities of $ 4,439,583 and $ 7,326,175 , respectively)

net of allowance for credit losses of $ 1,768 as of December 31, 2020)

4,791,893 7,804,259

10 unchanged sentences

Dividends payable 25,162 29,689

Investment related payable — 274

Accrued interest payable 20,546 1,171

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50,000,000 shares authorized:

7.75 % Series A Cumulative Redeemable Preferred Stock:

no shares and 5,600,000 shares issued and outstanding, respectively ($ 140,000 aggregate liquidation preference as of December 31, 2020)

7.75 % Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock:

6,200,000 shares issued and outstanding ($ 155,000 aggregate liquidation preference)

4,537,634 and 6,200,000 shares issued and outstanding, respectively ($ 113,441 and $ 155,000 aggregate liquidation preference, respectively)

109,679 149,860

7.50 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock:

11,500,000 shares issued and outstanding ($ 287,500 aggregate liquidation preference)

7,816,470 and 11,500,000 shares issued and outstanding, respectively ($ 195,412 and $ 287,500 aggregate liquidation preference, respectively)

189,028 278,108

Common Stock, par value $ 0.01 per share;

450,000,000 shares authorized;

67,000,000 and 450,000,000 shares authorized, respectively;

38,710,916 and 32,987,478 shares issued and outstanding, respectively

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

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INVESCO MORTGAGE CAPITAL INC.

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Interest income

Mortgage-backed and credit risk transfer securities 167,056 277,400 772,657

Mortgage-backed and other securities 192,566 167,056 277,400

Commercial and other loans 1,947 2,146 2,766

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(Increase) decrease in provision for credit losses — 1,768 ( 1,768 )

Equity in earnings of unconsolidated ventures 870 1,163 2,224

Equity in earnings (losses) of unconsolidated ventures ( 407 ) 870 1,163

Gain (loss) on derivative instruments, net 559,007 122,611 ( 851,050 )

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Total expenses 25,324 29,233 40,230

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

( 90,000 ) ( 1,674,352 ) 364,101

Net income (loss) ( 402,924 ) ( 90,000 ) ( 1,674,352 )

Dividends to preferred stockholders ( 28,218 ) ( 37,795 ) ( 44,426 )

Gain on repurchase and retirement of preferred stock 14,179 — —

Issuance and redemption costs of redeemed preferred stock — ( 4,682 ) —

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

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INVESCO MORTGAGE CAPITAL INC.

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Dividends to preferred stockholders ( 28,218 ) ( 37,795 ) ( 44,426 )

Gain on repurchase and retirement of preferred stock 14,179 — —

Issuance and redemption costs of redeemed preferred stock — ( 4,682 ) —

1 unchanged sentence

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

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INVESCO MORTGAGE CAPITAL INC.

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Balance at December 31, 2019 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 14,425,636 144 2,893,951 288,963 ( 814,483 ) 2,931,899

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

Net income (loss) — — — — — — — — — — ( 1,674,352 ) ( 1,674,352 )

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Balance at December 31, 2020 5,600,000 135,356 6,200,000 149,860 11,500,000 278,108 20,322,211 203 3,389,381 58,605 ( 2,644,355 ) 1,367,158

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

Net income (loss) — — — — — — — — — ( 90,000 ) ( 90,000 )

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Stock awards — — — — — — 18,365 1 — — — 1

Redemption of preferred stock ( 5,600,000 ) ( 135,356 ) — — — — — — — — ( 4,682 ) ( 140,038 )

Common stock dividends — — — — — — — — — — ( 105,992 ) ( 105,992 )

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Stock awards — — — — — — 36,886 — — — — —

Payments in lieu of fractional shares in connection with one-for-ten reverse stock split — — — — — — ( 46 ) — ( 1 ) — — ( 1 )

Repurchase and retirement of preferred stock — — ( 1,662,366 ) ( 40,181 ) ( 3,683,530 ) ( 89,080 ) — — — — 14,179 ( 115,082 )

Common stock dividends — — — — — — — — — — ( 107,555 ) ( 107,555 )

Preferred stock dividends — — — — — — — — — — ( 28,218 ) ( 28,218 )

Redemption of preferred stock ( 5,600,000 ) ( 135,356 ) — — — — — — — — ( 4,682 ) ( 140,038 )

Amortization of equity-based compensation — — — — — — — — 613 — — 613

1 unchanged sentence

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

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INVESCO MORTGAGE CAPITAL INC.

5 unchanged sentences

Net income (loss) ( 402,924 ) ( 90,000 ) ( 1,674,352 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization of mortgage-backed and credit risk transfer securities premiums and (discounts), net 37,397 15,980 46,243

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Amortization of mortgage-backed and other securities premiums and (discounts), net ( 1,118 ) 37,397 15,980

Realized and unrealized (gain) loss on derivative instruments, net ( 472,135 ) ( 138,414 ) 859,097

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Purchase of mortgage-backed and credit risk transfer securities ( 25,723,584 ) ( 17,132,975 ) ( 13,613,447 )

Purchase of U.S.

Treasury securities ( 502,290 ) — —

Distributions from (contributions to) investments in unconsolidated ventures, net 11,342 3,848 6,505

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Proceeds from sale of mortgage-backed and credit risk transfer securities 27,281,250 16,273,956 25,028,464

Proceeds from sale of U.S.

Treasury securities 468,051 — —

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

Settlement (termination) of futures, forwards, swaps, swaptions and TBAs, net 156,160 ( 844,577 ) ( 597,077 )

Settlement (termination) of forwards, swaps, swaptions and TBAs, net 459,466 156,160 ( 844,577 )

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

Net change in due from counterparties and collateral held payable on derivative instruments 2,594 ( 5,430 ) 1,093

Principal payments from commercial loans held-for-investment — 136 7,527

Principal payments from commercial loan held-for-investment 23,917 — 136

Net cash provided by (used in) investing activities 2,424,073 120,748 11,554,509

2 unchanged sentences

Redemption of preferred stock — ( 140,038 ) —

Repurchase of preferred stock ( 115,082 ) — —

Cash paid in lieu of fractional shares in connection with one-for-ten reverse stock split ( 1 ) — —

Principal repayments of secured loans — — ( 1,650,000 )

11 unchanged sentences

Non-cash Investing and Financing Activities Information

Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities 756 ( 207,708 ) 93,037

Net change in unrealized gain (loss) on mortgage-backed and credit risk transfer securities classified as available-for-sale ( 6,280 ) 756 ( 207,708 )

Dividends declared not paid 25,162 29,689 18,970

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Dividend paid in common stock — — 74,234

Offering costs not paid 527 — 48

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

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INVESCO MORTGAGE CAPITAL INC.

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(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:

As of December 31, 2022, we were invested in:

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

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

• Commercial mortgage loans;

• Other real estate-related financing agreements.

We have also historically invested in:

• other real estate-related financing arrangements.

During the periods presented in these consolidated financial statements, we also invested in:

• CMBS that are guaranteed by a U.S.

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• credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”);

• Residential mortgage loans.

• a commercial mortgage loan;

Treasury securities.

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

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Basis of Presentation and Consolidation

For all periods presented in these consolidated financial statements, common shares and per common share amounts have been adjusted on a retroactive basis to reflect our one-for-ten reverse stock split, which was effected following the close of business on June 3, 2022, unless otherwise noted.

Our 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.

GAAP”) and consolidate the financial statements of the Company and its controlled subsidiaries.

All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation.

5 unchanged sentences

Actual results may differ from those estimates.

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Translation of Foreign Currencies

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The cumulative translation adjustments associated with the investment in the unconsolidated venture are recorded in accumulated other comprehensive income (loss), a component of consolidated stockholders’ equity.

We generally hedge interest rate and foreign currency exposure with derivative financial instruments.

We have historically hedged foreign currency exposure with derivative financial instruments.

Refer to Note 8 - “Derivatives and Hedging Activities” for further information.

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We and the pricing service continuously monitor market indicators and economic events to determine whether they may have an impact on our valuations.

The pricing service values interest rate swaps, U.S.

Treasury futures (“futures”), currency forward contracts and to-be-announced securities (“TBAs”) under the market approach through the use of quoted prices available in an active market.

The pricing service values interest rate swaps, currency forward contracts and to-be-announced securities (“TBAs”) under the market approach through the use of quoted prices available in an active market.

Overrides of prices from pricing services are rare in the current market environment for the assets we hold.

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Transparency tools are also available from the pricing services which help us understand data points and/or market inputs used for pricing securities.

We also review daily price movements for interest rate swaps, futures, currency forward contracts and TBAs.

We also review daily price movements for interest rate swaps, currency forward contracts and TBAs.

Price movements exceeding pre-defined tolerance levels are investigated using an alternate price from another pricing service as well as available market information.

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Virtual visits may take place in lieu of physical visits given concerns surrounding the COVID-19 pandemic.

An independent pricing service values our commercial loan investment 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 as well as a comparison of current market and collateral conditions to those present at origination.

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An independent pricing service valued our commercial loan investment using a discounted cash flow analysis.

The yield used in the discounted cash flow analysis was 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 as well as a comparison of current market and collateral conditions to those present at origination.

As described in Note 10 - “Fair Value of Financial Instruments,” we evaluate the source used to fair value our assets and liabilities and make a determination on its categorization within the fair value hierarchy.

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We record our purchases of MBS and GSE CRTs on the trade date and report these securities at fair value as described above in the Fair Value Measurements section of this Note 2 to our consolidated financial statements.

Approximately $ 7.7 billion ( 99 %) of our MBS are accounted for under the fair value option as of December 31, 2021 (December 31, 2020:

Approximately $ 4.7 billion or 99 % of our MBS are accounted for under the fair value option as of December 31, 2022 (December 31, 2021:

$ 7.7 billion or 99 %).

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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.

The allowance for credit losses is

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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.

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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.

Commercial Loans Held-For-Investment

As of January 1, 2020, we report our commercial loan investment at fair value as described in the Fair Value Measurements section of this Note 2 to the consolidated financial statements.

We record changes in fair value within gain (loss) on investments, net in our consolidated statements of operations.

Before January 1, 2020, we carried commercial loans held-for-investment at amortized cost, net of any provision for loan losses.

Treasury Securities

Treasury securities are classified as trading securities and reported at fair value on our consolidated balance sheets.

Purchases of U.S.

Treasury Securities are recorded on the trade date.

Changes in the fair value of U.S.

Treasury securities are recognized within gain (loss) on investments, net in our consolidated statements of operations.

Coupon interest income is accrued based on the outstanding principal balance of the securities and their contractual terms.

Interest income on U.S.

Treasury securities is recognized within mortgage-backed and other securities interest income on our consolidated statements of operations.

Commercial Loan Held-For-Investment

We reported our commercial loan investment at fair value as described in the Fair Value Measurements section of this Note 2 to the consolidated financial statements.

We recorded changes in fair value within gain (loss) on investments, net in our consolidated statements of operations.

Interest Income Recognition

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

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Credit Risk Transfer Securities

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We recognize interest income from commercial and other loans when earned and deemed collectible, or until a loan becomes past due based on the terms of the loan agreement.

Any related origination fees or costs on commercial and others loans for which we have elected the fair value option are recognized immediately in earnings.

Before our decision to elect the fair value option for commercial and other loans, any related origination fees, net of origination cost were amortized into interest income using the effective interest method over the life of the loan.

Any related origination fees or costs on commercial and other loans for which we have elected the fair value option are recognized immediately in earnings.

Interest received after a loan becomes past due or impaired is used to reduce the outstanding loan principal balance.

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Investment related receivable consists of receivables for mortgage-backed securities that we have sold but have not settled with the buyer and accrued interest and principal paydowns on mortgage-backed securities.

Accrued interest receivable was $ 16.8 million and $ 15.6 million as of December 31, 2021 and 2020, respectively.

Investment related payable consists of liabilities for mortgage-backed securities that we have purchased but have not settled with the seller.

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Repurchase Agreements

We finance our purchases of mortgage-backed and credit risk transfer securities primarily through the use of repurchase agreements.

We have financed our purchases of mortgage-backed and credit risk transfer securities primarily through the use of repurchase agreements.

Repurchase agreements are treated as collateralized financing transactions and are carried at their contractual amounts, including accrued interest, as specified in the respective agreements.

We record the mortgage-backed securities and the related repurchase agreement financing on a gross basis in our consolidated balance sheets, and the corresponding interest income and interest expense on a gross basis in our consolidated statements of operations.

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Secured Loans

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FHLBI advances were treated as secured financing transactions and carried at their contractual amounts.

During the year ended

December 31, 2020, we fully repaid our outstanding secured loans from the FHLBI and terminated our membership.

During the year ended December 31, 2020, we fully repaid our outstanding secured loans from the FHLBI and terminated our membership.

IAS Services LLC was dissolved in December 2020.

Dividends Payable

Dividends payable represent dividends declared at the balance sheet date which are payable to common stockholders and preferred stockholders.

Dividends payable represent dividends declared at the balance sheet date that are payable to common stockholders and preferred stockholders.

Earnings (Loss) per Share

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Share-Based Compensation

Under the terms of our 2009 Equity Incentive Plan (the “Incentive Plan”), our independent directors are eligible to receive stock awards as part of their compensation for serving as directors, In addition, we may compensate the officers and employees of our Manager and its affiliates under the Incentive Plan under the terms of our management agreement.

Under the terms of our amended and restated 2009 Equity Incentive Plan (the “Incentive Plan”), our independent directors are eligible to receive stock awards as part of their compensation for serving as directors, In addition, we may compensate the officers and employees of our Manager and its affiliates under the Incentive Plan under the terms of our management agreement.

Share-based compensation arrangements may include share options, restricted and non-restricted share awards, performance-based awards and share appreciation rights.

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As long as we expect the forecasted transactions that were being hedged (i.e., rollovers of our repurchase agreement borrowings) to still occur, the balance recorded in accumulated other comprehensive income (loss) (“AOCI”) from the interest rate swap activity through December 31, 2013 will remain in AOCI and be recognized in our consolidated statements of operations as interest expense over the remaining term of the interest rate swaps.

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Prior to December 31, 2020, we were a party to hybrid financial instruments that contained embedded derivative instruments and for which we did not elect the fair value option.

We assessed at inception whether the economic characteristics of the embedded derivative instruments were clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the debt host contract), whether the financial instrument was remeasured to fair value through earnings and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument.

When it was determined that (1) the embedded instrument possessed economic

characteristics that were not clearly and closely related to the economic characteristics of the debt host contract, (2) the financial instrument was not remeasured to fair value through earnings and (3) a separate instrument with the same terms would qualify as a derivative instrument, the embedded instrument qualified as an embedded derivative that was separated from the debt host contract.

When it was determined that (1) the embedded instrument possessed economic characteristics that were not clearly and closely related to the economic characteristics of the debt host contract, (2) the financial instrument was not remeasured to fair value through earnings and (3) a separate instrument with the same terms would qualify as a derivative instrument, the embedded instrument qualified as an embedded derivative that was separated from the debt host contract.

The embedded derivative was recorded at fair value, and changes in fair value were recorded in realized and unrealized credit derivative income (loss), net in our consolidated statements of operations.

We evaluate the terms and conditions of our holdings of swaptions, futures contracts, currency forward contracts and TBAs to determine if an instrument has the characteristics of an investment or should be considered a derivative under U.S.

Accordingly, futures contracts, currency forward contracts and TBAs having the characteristics of derivatives are accounted for at fair value with such changes recognized in gain (loss) on derivative instruments, net in the consolidated statements of operations.

The fair value of these futures contracts, currency forward contracts and TBAs is included in derivative assets or derivative liabilities on the consolidated balance sheets.

We evaluate the terms and conditions of our holdings of swaptions, currency forward contracts and TBAs to determine if an instrument has the characteristics of an investment or should be considered a derivative under U.S.

Accordingly, swaptions, currency forward contracts and TBAs having the characteristics of derivatives are accounted for at fair value with such changes recognized in gain (loss) on derivative instruments, net in the consolidated statements of operations.

The fair value of these swaptions, currency forward contracts and TBAs is included in derivative assets or derivative liabilities on the consolidated balance sheets.

We elected to be taxed as a REIT commencing with our taxable year ended December 31, 2009.

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REIT taxable income will generally differ from net income because the determination of REIT taxable income is based on tax regulations and not financial accounting principles.

We have elected to treat two of our subsidiaries as taxable REIT subsidiaries (“TRSs”).

In general, TRSs may hold assets and engage in activities that we cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.

TRSs are subject to U.S.

We have elected to treat one of our subsidiaries as taxable REIT subsidiaries (“TRS”).

In general, a TRS may hold assets and engage in activities that we cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.

A TRS is subject to U.S.

federal, state and local corporate income taxes.

Our TRSs did not generate material taxable income for the years ended December 31, 2021, 2020 and 2019.

Our TRS did not generate material taxable income for the years ended December 31, 2022, 2021 and 2020.

We do not have any accruals for uncertain tax positions.

We would recognize interest and penalties related to uncertain tax positions, if any, as income tax expense, which would be included in general and administrative expenses.

Accounting Pronouncements Recently Adopted

In January 2021, the Financial Accounting Standards Board (“FASB”) 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 new guidance can be applied through December 31, 2022.

In the fourth quarter of 2021, we transitioned our interest rate swaps that were indexed to LIBOR to interest rate swaps that are indexed to the Secured Overnight Financing Rate (“SOFR”) in a manner that allowed us to qualify for contract modification relief and maintain the same accounting for and presentation of interest rate swaps that was in place prior to modification.

The modifications did not have a material effect on our financial statements.

We have an investment in a commercial loan indexed to LIBOR that is scheduled to mature in 2022.

In addition, our 7.75 % Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock and our 7.50 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock each become callable at the time the stock begins to pay a LIBOR-based rate.

Our Series B and Series C Preferred Stock are governed by New York state law that provides for U.S.

dollar LIBOR-linked contracts to transition to an alternative reference rate.

We do not currently intend to amend our Series B or Series C Preferred Stock to change the existing LIBOR cessation fallback language.

Note 3 – Variable Interest Entities (“VIEs”)

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Refer to Note 4 - “Mortgage-Backed and Credit Risk Transfer Securities” and Note 5 - “Other Assets” for additional details regarding these investments.

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Note 4 – Mortgage-Backed and Credit Risk Transfer Securities

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Value Period-

30 year fixed-rate 7,514,229 246,183 7,760,412 ( 58,889 ) 7,701,523 2.07 %

Total Agency RMBS pass-through 7,514,229 246,183 7,760,412 ( 58,889 ) 7,701,523 2.07 %

30 year fixed-rate Agency RMBS 4,722,768 ( 115,365 ) 4,607,403 54,334 4,661,737 5.26 %

Agency-CMO (2)

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(1) Period-end weighted average yield is based on amortized cost as of December 31, 2022 and incorporates future prepayment and loss assumptions.

(2) All Agency collateralized mortgage obligation (“Agency-CMO”) are interest-only securities (“Agency IO”).

(3) Non-Agency RMBS is 35.6 % variable rate, 63.5 % fixed rate and 0.9 % floating rate based on fair value.

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

(3) Non-Agency RMBS is 68.6 % fixed rate, 30.6 % variable rate and 0.8 % floating rate based on fair value.

Coupon payments on variable rate investments are based upon changes in the underlying hybrid adjustable-rate mortgage (“ARM”) loan coupons, while coupon payments on floating rate investments are based upon a spread to a reference index.

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(Discount) Amortized

Cost Allowance for Credit Losses Unrealized

Cost Unrealized

(Loss), net Fair Value Period-

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

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

30 year fixed-rate Agency RMBS 7,514,229 246,183 7,760,412 ( 58,889 ) 7,701,523 2.07 %

Agency-CMO (2)

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

(2) All Agency-CMO are interest-only securities Agency IO.

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

(2) All Agency-CMO are Agency IO.

(3) Non-Agency RMBS is 63.5 % fixed rate, 35.6 % 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.

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Fair Value Available-for-sale Securities Securities under Fair Value Option Total

30 year fixed-rate — 7,701,523 7,701,523 — 8,050,866 8,050,866

Total Agency RMBS pass-through — 7,701,523 7,701,523 — 8,050,866 8,050,866

30 year fixed-rate Agency RMBS — 4,661,737 4,661,737 — 7,701,523 7,701,523

Agency-CMO — 84,956 84,956 — 30,757 30,757

2 unchanged sentences

Total 42,454 4,749,439 4,791,893 70,197 7,734,062 7,804,259

Table of Conten t s

The components of the carrying value of our MBS portfolio at December 31, 2022 and 2021 are presented below.

Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our consolidated balance sheets, was $ 21.3 million at December 31, 2022 (December 31, 2021:

$ 16.6 million).

December 31, 2022 December 31, 2021

3 unchanged sentences

Unamortized discount ( 126,112 ) ( 831,308 ) ( 957,420 ) ( 11,902 ) ( 582,553 ) ( 594,455 )

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

Gross unrealized gains (1)

21 unchanged sentences

Losses Number of Securities

30 year fixed-rate 6,838,999 ( 60,741 ) 54 — — — 6,838,999 ( 60,741 ) 54

Total Agency RMBS pass-through (1)

30 year fixed-rate Agency RMBS (1)

929,292 ( 7,060 ) 7 — — — 929,292 ( 7,060 ) 7

1 unchanged sentence

25,417 ( 1,645 ) 6 2,934 ( 496 ) 1 28,351 ( 2,141 ) 7

Non-Agency CMBS (2)

26,592 ( 439 ) 2 — — — 26,592 ( 439 ) 2

Non-Agency RMBS (3)

2 unchanged sentences

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

(2) Includes non-Agency IO with fair value of $ 1.7 million for which the fair value option has been elected.

Such securities have unrealized losses of $ 2.1 million.

The remaining $ 136,000 of unrealized losses on non-Agency RMBS are included in accumulated other comprehensive income.

(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) Includes non-Agency IO with fair value of $ 1.4 million for which the fair value option has been elected.

Such securities have unrealized losses of $ 561,000 .

Table of Conten t s

December 31, 2021 Less than 12 Months 12 Months or More Total

6 unchanged sentences

Losses Number of Securities

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

Total Agency RMBS pass-through (1)

30 year fixed-rate Agency RMBS (1)

6,838,999 ( 60,741 ) 54 — — — 6,838,999 ( 60,741 ) 54

Non-Agency CMBS (2)

Agency-CMO (1)

21,810 ( 1,389 ) 5 — — — 21,810 ( 1,389 ) 5

2 unchanged sentences

Total 6,861,576 ( 63,262 ) 64 1,042 ( 1,073 ) 9 6,862,618 ( 64,335 ) 73

(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.

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

(2) Includes non-Agency IO with a fair value of $ 1.7 million for which the fair value option has been elected.

Such securities have unrealized losses of $ 2.1 million.

The remaining $ 136,000 of unrealized losses on non-Agency RMBS 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.

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 December 31, 2020, we had recorded an allowance for credit losses of $ 1.8 million on a single non-Agency CMBS on our consolidated balance sheet.

We recorded a $ 1.8 million decrease in the provision for credit losses on our consolidated statement of operations during the year ended December 31, 2021.

As of December 31, 2021, we do no t have an allowance for credit losses recorded on our consolidated balance sheet.

During the year ended December 31, 2020, we recorded impairments of $ 94.1 million on our 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.

As of December 31, 2022 and 2021, we did no t have an allowance for credit losses recorded on our consolidated balance sheet.

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

2 unchanged sentences

Additions to the allowance for credit losses on securities for which credit losses were not previously recorded — ( 1,768 )

Additional increases or decreases in the allowance for credit losses on securities that had an allowance recorded in a previous period 1,768 —

Decreases in the allowance for credit losses on securities that had an allowance recorded in a previous period 1,768 —

Ending allowance for credit losses — ( 1,768 )

Before 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 is assessed, the impairment is 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 represents OTTI included in earnings for the year ended December 31, 2019.

Year Ended December 31,

$ in thousands 2019

RMBS interest-only securities 6,707

Non-Agency RMBS (1)

(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 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 years ended December 31, 2022, 2021 and 2020.

1 unchanged sentence

$ in thousands 2022 2021 2020

Gross realized gains on sale of investments 3,297 656,915 24,721

Gross realized losses on sale of investments ( 284,521 ) ( 1,020,696 ) ( 16,682 )

Gross realized gains on sale of MBS and GSE CRT 5,348 3,297 656,915

Gross realized losses on sale of MBS and GSE CRT ( 1,169,258 ) ( 284,521 ) ( 1,020,696 )

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 — — ( 101,138 )

Other-than-temporary impairment losses — — ( 7,731 )

Net unrealized gains (losses) on MBS and GSE CRT accounted for under the fair value option 118,365 ( 85,702 ) ( 492,047 )

Net unrealized gains (losses) on commercial loan 404 417 ( 1,164 )

Net realized gains (losses) on U.S.

Treasury securities ( 34,198 ) — —

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

Total gain (loss) on investments, net ( 1,079,339 ) ( 366,509 ) ( 961,938 )

The following tables present components of interest income recognized on our MBS and GSE CRT portfolio for the years ended December 31, 2021, 2020 and 2019.

GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option of $ 6.3 million and $ 20.8 million for the years ended December 31, 2020 and 2019, respectively, that was recorded as realized and unrealized credit derivative income (loss), net.

Table of Conten t s

The following tables present components of interest income recognized on our mortgage-backed and other securities portfolio for the years ended December 31, 2022, 2021 and 2020.

GSE CRT interest income excludes coupon interest associated with embedded derivatives not accounted for under the fair value option of $ 6.3 million for the years ended December 31, 2020 that was recorded as realized and unrealized credit derivative income (loss), net.

For the Year ended December 31, 2022

5 unchanged sentences

Non-Agency RMBS 1,223 ( 552 ) 671

Treasury Securities 1,773 ( 41 ) 1,732

Other 1,030 — 1,030

4 unchanged sentences

Agency RMBS 201,694 ( 41,881 ) 159,813

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

Non-Agency CMBS 3,841 2,695 6,536

Non-Agency RMBS 1,950 ( 1,264 ) 686

GSE CRT 10,232 ( 2,560 ) 7,672

Other 21 — 21

17 unchanged sentences

Total 1,731 37,509

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 December 31, 2021 and 2020 and a weighted average coupon rate of 8.60 % as of December 31, 2021 and 8.65 % as of

December 31, 2020.

We recorded unrealized gains of $ 417,000 and unrealized losses of $ 1.2 million on this loan in our consolidated statements of operations during the years ended December 31, 2021 and December 31, 2020, respectively.

In February 2022, we received a request from the borrower to extend the contractual maturity of our commercial loan investment to May 29, 2022.

Refer to Note 15 - "Subsequent Events" for additional information.

Table of Conten t s

Our commercial loan was fully repaid in October 2022.

The loan had a principal balance of $ 23.9 million and a weighted average coupon rate of 8.60 % as of December 31, 2021.

During the year ended December 31, 2022 we recorded unrealized gains of $ 404,000 on our commercial loan (2021:

unrealized gains of $ 417,000 , 2020:

unrealized losses of $ 1.2 million).

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

2 unchanged sentences

Note 6 – Borrowings

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 December 31, 2021 and 2020.

Refer to Note 7 - “Collateral Positions” for collateral pledged and held under our repurchase agreements and secured loans.

We finance the majority of our investment portfolio through repurchase agreements.

The following tables summarize certain characteristics of our repurchase agreements at December 31, 2022 and 2021.

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

December 31, 2022

10 unchanged sentences

Total Borrowings 6,987,834 0.14 % 29

Repurchase Agreements

Our repurchase agreements bear interest at a contractually agreed upon rate.

Agency RMBS repurchase agreements generally have maturities ranging from one to six 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 December 31, 2022.

In the first half of 2020, we experienced unprecedented market conditions as a result of the COVID-19 pandemic.

4 unchanged sentences

Gains and losses associated with the termination of these repurchase agreements during the year ended December 31, 2020 are reported as net gain (loss) on extinguishment of debt in our 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 to six 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 December 31, 2021.

Table of Conten t s

Note 7 – Collateral Positions

1 unchanged sentence

Refer to Note 2 - “Summary of Significant Accounting Policies - Fair Value Measurements” for a description of how we determine fair value.

MBS collateral pledged is included in mortgage-backed securities on our consolidated balance sheets.

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

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

7 unchanged sentences

Agency RMBS 4,439,583 7,326,175

Cash 3,527 700

Total repurchase agreements collateral pledged 4,439,583 7,329,702

13 unchanged sentences

Derivative instruments:

Cash 280 1,630

Total derivative instruments collateral held — 280

3 unchanged sentences

Total collateral held 12,108 528

Table of Conten t s

Repurchase Agreements

23 unchanged sentences

The following table summarizes changes in the notional amount of our derivative instruments during 2022:

$ in thousands Notional Amount as of December 31, 2020 Additions (1)

or Exercise (1)

Notional Amount as

$ in thousands Notional Amount as of December 31, 2021 Additions Settlement,

or Exercise Notional Amount as

of December 31, 2022

1 unchanged sentence

8,050,000 10,075,000 ( 9,975,000 ) 8,150,000

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

Currency Forward Contracts 13,596 23,485 ( 37,081 ) —

2 unchanged sentences

Total 9,663,596 8,498,485 ( 10,012,081 ) 8,150,000

(1) Excludes $ 7.3 billion of additions and terminations related to the transition of our interest rate swaps that were indexed to LIBOR to interest rate swaps that are indexed to SOFR.

These transactions were accounted for under the FASB's reference rate reform relief.

Refer to Note 2 - “Summary of Significant Accounting Policies” for additional information.

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

(1) Does not include interest rate swaps with forward start dates.

See below for additional details on our interest rate swaps with forward start dates.

(2) Notional amount as of December 31, 2022 includes $ 5.8 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $ 2.4 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate.

Notional amount as of December 31, 2021 includes $ 6.3 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate and $ 1.8 billion of interest rate swaps whereby we pay interest at a floating rate and receive interest at a fixed rate.

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

Table of Conten t s

Interest Rate Swaps

3 unchanged sentences

To accomplish these objectives, we primarily use interest rate swaps as part of our interest rate risk management strategy.

Under the terms of the majority of our interest rate swap contracts, we make fixed-rate payments to a counterparty in exchange for the receipt of variable-rate amounts over the life of the agreements without exchange of the underlying notional amount.

Under the terms of the majority of our interest rate swap contracts, we make fixed-rate payments to a counterparty in exchange for the receipt of floating-rate amounts over the life of the agreements without exchange of the underlying notional amount.

To a lesser extent, we also enter into interest rate swap contracts whereby we make floating-rate payments to a counterparty in exchange for the receipt of fixed-rate amounts as part of our overall risk management strategy.

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 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 $ 22.0 million as a decrease (2020:

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 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 $ 19.7 million as a decrease to interest expense for the year ended December 31, 2022 (2021:

$ 22.0 million as a decrease;

$ 23.7 million as a decrease) to interest expense for the year ended December 31, 2021.

During the next 12 months, we estimate that $ 19.7 million will be reclassified as a decrease to interest expense, repurchase agreements.

$ 23.8 million as a decrease).

As of December 31, 2022, $ 10.4 million (2021:

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

As of December 31, 2021 and 2020, we had interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate, excluding interest rate swaps with forward start dates, with maturities as shown in the table below.

Floating rate interest on swaps held as of December 31, 2021 was based on SOFR and floating rate interest on swaps held as of December 31, 2020 was based on 1-month LIBOR.

$ 30.1 million) of net unrealized gains on discontinued cash flow hedges are still included in accumulated other comprehensive income.

We expect to reclassify the remaining amount of net unrealized gains recorded in AOCI as a decrease to interest expense on repurchase agreements on the consolidated statements of operations in 2023.

As of December 31, 2022 and 2021, we had interest rate swaps whereby we pay interest at a fixed rate and receive floating interest based on the secured overnight financing rate (“SOFR”) with the following maturities outstand ing, excluding interest rate swaps with forward start dates.

$ in thousands As of December 31, 2022

4 unchanged sentences

7 to 10 years 1,425,000 0.55 % 4.30 % 7.8

Greater than 10 years 500,000 1.92 % 4.30 % 19.2

Total 5,800,000 0.45 % 4.30 % 6.3

1 unchanged sentence

Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity

Less than 3 years 1,000,000 0.06 % 0.05 % 2.6

3 to 5 years 1,250,000 0.12 % 0.05 % 3.6

2 unchanged sentences

Total 6,300,000 0.30 % 0.05 % 5.7

As of December 31, 2021, we held $ 1.3 billion notional amount of interest rate swaps with forward start dates that will receive floating interest based on SOFR with a weighted average maturity of 20.8 years and a weighted average fixed pay rate of 0.99 %.

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

As of December 31, 2021, we had interest rate swaps whereby we pay floating interest based on SOFR and receive interest at a fixed rate with maturities as shown in the table below.

We did not hold any interest rate swaps that paid floating interest as of December 31, 2020.

As of December 31, 2022, we held $ 975.0 million notional amount of interest rate swaps with forward start dates that will receive floating interest based on SOFR (December 31, 2021:

$ 1.3 billion).

As of December 31, 2022, these interest rate swaps had a weighted average maturity of 16.5 years (December 31, 2021:

20.8 years) and a weighted average fixed pay rate of 0.89 % (December 31, 2021:

As of December 31, 2022 and December 31, 2021, we had interest rate swaps whereby we pay floating interest based on SOFR and receive interest at a fixed rate with the following maturities outstanding, excluding interest rate swaps with forward start dates.

Table of Conten t s

$ in thousands As of December 31, 2022

3 unchanged sentences

5 to 7 years 1,125,000 4.30 % 2.66 % 6.0

7 to 10 years 200,000 4.30 % 2.66 % 8.4

Greater than 10 years 375,000 4.30 % 2.67 % 29.5

Total 2,350,000 4.30 % 2.78 % 9.3

Swaptions, Futures and Currency Forward Contracts

$ in thousands As of December 31, 2021

Maturities Notional Amounts Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity

Less than 3 years 1,000,000 0.05 % 0.77 % 2.6

5 to 7 years 500,000 0.05 % 1.26 % 6.9

7 to 10 years 250,000 0.05 % 1.27 % 10.0

Total 1,750,000 0.05 % 0.98 % 4.9

As of December 31, 2022, we held $ 275.0 million notional amount of interest rate swaps with forward start dates that will pay floating interest based on SOFR.

As of December 31, 2022, these interest rate swaps had a weighted average maturity of 16.0 years and a weighted average fixed receive rate of 2.63 %.

We did not hold any such interest rate swaps as of December 31, 2021.

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”).

5 unchanged sentences

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 purchase or sell 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 of futures contracts in gain (loss) on derivative instruments, net in our consolidated statements of operations.

We did not have any futures contracts outstanding as of December 31, 2021 and December 31, 2020.

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 consolidated statements of operations.

As of December 31, 2021, we had $ 13.6 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.

We did not have any currency forward contracts outstanding as of December 31, 2022.

As of December 31, 2021 we had $ 13.6 million of notional amount of currency forward contracts related to an investment in an unconsolidated venture denominated in euro.

Credit Derivatives

1 unchanged sentence

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

We did not hold any GSE CRTs that were accounted for as hybrid financial instruments as of December 31, 2021 and 2020.

We sold all of our GSE CRT investments that were accounted for as hybrid financial instruments in 2020.

Table of Conten t s

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.

3 unchanged sentences

TBA purchase contracts (1)

400,000 404,144 402,237 ( 1,907 )

TBA sales contracts (2)

( 400,000 ) ( 402,707 ) ( 402,237 ) 470

Net TBA derivatives — 1,437 — ( 1,437 )

(1) Net carrying value of TBA purchase contracts includes $ 1.9 million of derivative liabilities.

(2) Net carrying value of TBA sales contract includes $ 642,000 of derivative assets and $ 172,000 of derivative liabilities.

$ in thousands As of December 31, 2021

13 unchanged sentences

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

The tables below present the effect of our credit derivatives on our consolidated statements of operations for the years ended December 31, 2020 and 2019.

$ in thousands Year ended December 31, 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 )

The tables below present the effect of our credit derivatives on our consolidated statements of operations for the year ended December 31, 2020.

$ in thousands Year Ended December 31, 2020

3 unchanged sentences

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

The following tables summarize the effect of interest rate swaps, swaptions, futures contracts, currency forward contracts and TBAs reported in gain (loss) on derivative instruments, net on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019.

Table of Conten t s

The following tables summarize the effect of interest rate swaps, interest rate swaptions, currency forward contracts and TBAs reported in gain (loss) on derivative instruments, net on the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020.

$ in thousands Year ended December 31, 2022

4 unchanged sentences

Interest Rate Swaps 593,035 86,872 11,426 691,333

Interest Rate Swaptions ( 553 ) — — ( 553 )

Currency Forward Contracts 919 — ( 271 ) 648

7 unchanged sentences

Interest Rate Swaps 185,232 ( 15,803 ) ( 5,869 ) 163,560

Interest Rate Swaptions ( 553 ) — — ( 553 )

Currency Forward Contracts 209 — 970 1,179

7 unchanged sentences

Interest Rate Swaps ( 857,753 ) 8,047 ( 24,068 ) ( 873,774 )

Futures Contracts ( 157,929 ) — 7,836 ( 150,093 )

Currency Forward Contracts ( 1,301 ) — ( 345 ) ( 1,646 )

TBAs 14,477 — 9,893 24,370

Total ( 844,577 ) 8,047 ( 14,520 ) ( 851,050 )

4 unchanged sentences

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

Our derivative liability of $ 11.4 million at December 31, 2021 (December 31, 2020:

Our derivative asset of $ 20,000 at December 31, 2022 (December 31, 2021:

liability of $ 11.4 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.

Table of Conten t s

As of December 31, 2022

39 unchanged sentences

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 $ 1.6 million as of December 31, 2021 and December 31, 2020, respectively.

(3) The fair value of securities pledged against our borrowing under repurchase agreements was $ 7.3 billion and $ 7.6 billion at December 31, 2021 and December 31, 2020, respectively.

We pledged cash collateral of $ 3.5 million and $ 700,000 under repurchase agreements as of December 31, 2021 and December 31, 2020, respectively.

We held no cash collateral and $ 1.9 million of cash collateral under repurchase agreements as of December 31, 2021 and December 31, 2020, respectively.

We held no cash collateral on our derivatives as of December 31, 2022 and $ 280,000 as of December 31, 2021.

(3) The fair value of securities pledged against our borrowings under repurchase agreements was $ 4.4 billion and $ 7.3 billion as of December 31, 2022 and December 31, 2021, respectively.

We pledged no cash collateral and $ 3.5 million of cash collateral under repurchase agreements as of December 31, 2022 and December 31, 2021, respectively.

We held cash collateral of $ 4.9 million and no cash collateral under repurchase agreements as of December 31, 2022 and December 31, 2021, respectively.

Table of Conten t s

Note 10 – Fair Value of Financial Instruments

15 unchanged sentences

Other assets — — — 552 552

— — 23,515 12,476 35,991

Total assets — 4,792,555 — 552 4,793,107

3 unchanged sentences

Fair Value Measurements Using:

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

$ in thousands Level 1 Level 2 Level 3 (3)

NAV as a practical expedient (2)

Mortgage-backed securities (1)

2 unchanged sentences

Other assets — — 23,515 12,476 35,991

— — 23,098 16,408 39,506

Total assets — 7,804,529 23,515 12,476 7,840,520

1 unchanged sentence

Total liabilities — 14,356 — — 14,356

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

(1) For more detail about the fair value of our MBS, refer to Note 4 - “Mortgage-Backed 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 December 31, 2021, both of the unconsolidated ventures are in liquidation and plan to sell or settle their remaining investments as expeditiously as possible.

(3) Includes $ 23.5 million and $ 23.1 million of a commercial loan investment as of December 31, 2021 and 2020, respectively.

We elected the fair value option for our commercial loan investment as of January 1, 2020 and valued the loan based on a third party appraisal as of December 31, 2021 and 2020.

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

$ in thousands December 31, 2020

Beginning balance 10,281

Sales and settlements 31,354

Total net credit derivative gains (losses) included in net income:

Realized credit derivative gains (losses), net ( 31,354 )

Unrealized credit derivative gains (losses), net ( 10,281 )

Ending balance —

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

$ in thousands December 31, 2020

Beginning balance 44,654

Purchases/Advances —

Repayments ( 19,269 )

Sales ( 21,577 )

Total net gains (losses) included in net income:

Realized losses ( 3,808 )

Ending balance —

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

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

As of December 31, 2022, our unconsolidated ventures were in liquidation and plan to sell or settle their remaining investments as expeditiously as possible.

(3) We used an independent third party appraisal to value our commercial loan investment.

Table of Conten t s

The following table shows a reconciliation of the beginning and ending fair value measurements of our commercial loan investment, which we valued utilizing Level 3 inputs.

$ in thousands December 31, 2022 December 31, 2021

Beginning balance 23,515 23,098

Cumulative effect of adoption of new accounting principle — 342

Repayments ( 23,919 ) —

2 unchanged sentences

Ending balance — 23,515

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

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

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

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

2 unchanged sentences

Commercial Loan 23,515 Discounted Cash Flow Discount rate 18.8 %

Fair Value at Valuation Unobservable

$ in thousands December 31, 2020 Technique Input Rate

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

The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the consolidated balance sheets at December 31, 2022 and December 31, 2021:

7 unchanged sentences

Total 4,234,823 4,233,627 6,987,834 6,987,806

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

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

8 unchanged sentences

$ 1.1 million;

$ 917,000 ) for costs of support personnel.

We 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 consolidated balance sheets as they are highly liquid and have original or remaining maturities of three months or less when purchased.

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

During the year ended December 31, 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.

$ 1.1 million) for costs of support personnel.

Management Fee

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We do not pay any management fees on our investments in unconsolidated ventures that are managed by an affiliate of our Manager.

Table of Conten t s

Expense Reimbursement

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Preferred Stock

On June 16, 2021, we redeemed all issued and outstanding shares of our Series A Preferred Stock for $ 140.0 million plus accrued and unpaid dividends.

The cash redemption price for each share of Series A Preferred Stock was $ 25.00 .

In June 2021, we redeemed all issued and outstanding shares of our Series A Preferred Stock for $ 140.0 million plus accrued and unpaid dividends.

The excess of the consideration transferred over carrying value was accounted for as a deemed dividend and resulted in a reduction of $ 4.7 million in net income (loss) attributable to common stockholders during the year ended December 31, 2021.

Prior to redemption, holders of our Series A Preferred Stock were entitled to receive dividends at an annual rate of 7.75 % of the liquidation preference of $ 25.00 per share or $ 1.9375 per share per annum.

Dividends were cumulative and payable quarterly in arrears.

In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock.

During the year ended December 31, 2022, we repurchased and retired 1,662,366 shares of Series B Preferred Stock and 3,683,530 shares of Series C Preferred Stock and recorded a gain on repurchase and retirement of preferred stock of $ 14.2 million.

As of December 31, 2022, we had authority to purchase 1,337,634 additional shares of our Series B Preferred Stock and 1,316,470 additional shares of our Series C Preferred Stock under the current share repurchase program.

Holders of our Series B Preferred Stock are entitled to receive dividends at an annual rate of 7.75 % of the liquidation preference of $ 25.00 per share or $ 1.9375 per share per annum until December 27, 2024.

After December 27, 2024, holders are entitled to receive dividends at a floating rate equal to three-month LIBOR plus a spread of 5.18 % of the $ 25.00 liquidation preference per annum.

After December 27, 2024, holders are entitled to receive dividends at a floating rate equal to three-month London Interbank Offered Rate ("LIBOR") plus a spread of 5.18 % of the $ 25.00 liquidation preference per annum.

Dividends are cumulative and payable quarterly in arrears.

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Dividends are cumulative and payable quarterly in arrears.

The United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it will cease to publish three-month USD LIBOR settings on July 1, 2023.

We do not currently intend to amend our Series B or Series C Preferred Stock to change the existing USD LIBOR cessation fallback language.

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.

As of December 31, 2021, we may sell up to 5,500,000 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 the equity distribution agreement.

In February 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.

In June 2021, we completed a public offering of 43,125,000 shares of common stock at the price of $ 3.39 per share.

Total net proceeds were approximately $ 145.9 million after deducting offering expenses.

As of December 31, 2021, we may sell up to 56,865,980 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents.

These shares are registered

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

In May 2022, our board of directors approved a one-for-ten reverse split of outstanding shares of our common stock.

The reverse stock split was effected following the close of business on June 3, 2022 (the "Effective Time").

At the Effective Time, every ten issued and outstanding shares of our common stock were converted into one share of our common stock.

No fractional shares were issued in connection with the reverse stock split.

Instead, each stockholder holding fractional shares received cash, in lieu of such fractional shares, in an amount determined based on the closing price of our common stock at the

Table of Conten t s

Effective Time.

The reverse stock split applied to all of our outstanding shares of common stock and did not affect any stockholder’s ownership percentage of our common stock, except for changes resulting from the payment of cash for fractional shares.

During the year ended December 31, 2022, we sold 5,686,598 shares (2021:

21,849,740 shares) of common stock under our equity distribution agreements for proceeds of $ 180.5 million (2020:

5,574,402 shares) of common stock in at-the-market transactions under our equity distribution agreements for proceeds of $ 81.6 million (2021:

$ 180.5 million) net of approximately $ 1.3 million (2021:

$ 2.6 million) in commissions and fees.

In May 2021, we granted 127,115 restricted shares of common stock to our independent directors.

The restricted shares will become unrestricted shares of common stock on the first anniversary of the grant date unless forfeited, subject to certain conditions that accelerate vesting.

Share Repurchase Program

We did not have any remaining shares authorized under our at-the-market program as of December 31, 2022.

During the years ended December 31, 2022 and December 31, 2021, we did not repurchase any shares of our common stock.

As of December 31, 2022, we had authority to purchase 1,816,398 shares of our common stock through our share repurchase program.

In May 2022, we granted 32,571 restricted shares of common stock to our independent directors.

The restricted shares will become unrestricted shares of common stock on the first anniversary of the grant date unless forfeited, subject to certain conditions that accelerate vesting.

Accumulated Other Comprehensive Income

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Total other comprehensive income (loss)

Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — 756 — 756

Unrealized gain (loss) on mortgage-backed securities, net — ( 6,280 ) — ( 6,280 )

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 19,708 ) ( 19,708 )

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Total other comprehensive income (loss)

Unrealized gain (loss) on mortgage-backed and credit risk transfer securities, net — ( 223,416 ) — ( 223,416 )

Reclassification of unrealized (gain) loss on sale of mortgage-backed and credit risk transfer securities to gain (loss) on investments, net — 13,940 — 13,940

Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 1,768 — 1,768

Unrealized gain (loss) on mortgage-backed securities, net — 756 — 756

Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 22,000 ) ( 22,000 )

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AOCI balance at end of period 424 6,749 30,113 37,286

Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified

Table of Conten t s

to interest expense on repurchase agreements on the 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.

Dividends declared per share on our common stock have been retroactively adjusted to reflect our one-for-ten reverse stock split that was effected following the close of business on June 3, 2022.

We declared the following dividends during 2022 and 2021:

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

November 5, 2020 0.4844 2,713 January 25, 2021

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

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

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

(1) On June 16, 2021, we paid a final dividend of $ 0.2691 per share ($ 1.5 million in aggregate) in connection with the redemption of our Series A Preferred Stock.

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May 4, 2021 0.4844 3,004 June 28, 2021

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

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

$ in thousands, except per share amounts Dividends Declared

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May 4, 2021 0.46875 5,390 June 28, 2021

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

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

Table of Conten t s

$ in thousands, except per share amounts Dividends Declared

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June 23, 2021 0.90 26,071 July 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.

Stockholders had the opportunity to elect payment of the dividend all in cash or all in common shares, subject to a limit of 10 % or approximately $ 8.2 million of cash in the aggregate (excluding any cash paid in lieu of issuing fractional shares).

On June 30, 2020, we paid the dividend through the issuance of 16,338,511 shares of common stock and the payment of approximately $ 8.2 million in cash.

The number of shares included in the dividend was calculated based on the $ 4.5435 volume weighted average trading price of our common stock on the New York Stock Exchange on June 17, 18 and 19, 2020.

March 26, 2021 0.90 22,176 April 27, 2021

The following table sets forth the dividends declared per share of our preferred and common stock and their related tax characterization for the fiscal tax years ended December 31, 2022 and 2021.

Common stock dividends on CUSIP 46131B100, which were declared and paid prior to our one-for-ten reverse stock split that was effected following the close of business on June 3, 2022, have not been retroactively adjusted in the table below.

Tax Characterization of Dividends

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Fiscal tax year 2021 0.484400 0.484400 0.968800 — —

0.484400 0.484400 0.968800 — —

Fiscal tax year 2020 (1)

0.484400 1.453200 — 1.937600 —

Series B Preferred Stock Dividends

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Common Stock Dividends

Fiscal tax year 2021 (2)

Fiscal tax year 2022 (CUSIP 46131B704) (1)

— 1.550000 0.873081 0.676919 —

Fiscal tax year 2020 (3)

Fiscal tax year 2022 (CUSIP 46131B100)

0.090000 0.090000 0.101390 0.078610 —

(1) Excludes preferred stock dividend of $ 0.4844 per share declared on November 5, 2020 that had a record date of January 1, 2021.

This dividend is a 2021 dividend for federal income tax purposes.

Fiscal tax year 2021 (CUSIP 46131B100) (2)

0.080000 0.270000 — 0.350000 —

(1) Excludes common stock dividend of $ 0.65 per share declared on December 19, 2022 that had a record date of January 9, 2023.

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This dividend is a 2022 dividend for federal income tax purposes.

Note 13 – Earnings per Common Share

Table of Conten t s

Note 13 – Earnings (Loss) per Common Share

Common share amounts and earnings (loss) per share have been retroactively adjusted to reflect our one-for-ten reverse stock split that was effected following the close of business on June 3, 2022.

Earnings per share for the years ended December 31, 2022, 2021 and 2020 is computed as follows:

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Shares available to common stockholders 34,160 27,513 17,373

Effect of dilutive securities:

Restricted stock awards — — 12

Dilutive Shares 34,160 27,513 17,373

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Diluted ( 12.21 ) ( 4.82 ) ( 98.93 )

The following potential weighted average shares were excluded from diluted earnings per share as the effect would be anti-dilutive.

The following potential weighted average common shares were excluded from diluted earnings per share as the effect would be anti-dilutive.

For the year ended December 31, 2022, 1,216 shares for restricted stock awards.

(December 31, 2021:

1,606 for restricted stock awards, December 31, 2020:

1,102 for restricted stock awards).

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a Series B Preferred Stock dividend of $ 0.4844 per share payable on March 27, 2023 to our stockholders of record as of March 5, 2023, and a Series C Preferred Stock dividend of $ 0.46875 per share payable on March 27, 2023 to our stockholders of record on March 5, 2023.

Modification of Commercial Loan Investment

In February 2022, we received a request from the borrower to extend the contractual maturity of our commercial loan investment to May 29, 2022.

We are currently negotiating the terms of the modification and expect to extend the maturity date.

Table of Conten t s

INVESCO MORTGAGE CAPITAL INC.

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$ in thousands

Asset Type Property Type Location Interest Rate Maturity Date Periodic Payment Terms (1)

Prior Liens Face Amount of Mortgages Carrying Amount of Mortgages Principal Amount of Loans Subject to Delinquent Principal or Interest

Mezzanine Loan Hotel TX L+ 8.50 %

2/28/2022 I — 23,919 23,515 —

23,919 23,515 (2) —

(1) Interest (“I”) only until stated maturity of the loan.

(2) The aggregate cost for federal income tax purposes is $ 23.9 million.

Reconciliation of Carrying Value of Mortgage Loans on Real Estate:

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Ending balance — 23,515 23,098

Table of Conten t s

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures (1)

Signatures Title Date

Anzalone Chief Executive Officer February 21, 2023

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Director February 21, 2023

Liu Director February 21, 2023

/s/ Dennis P.

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Zayicek Director February 21, 2023

Liu was appointed to the Board of Directors effective February 16, 2022 and accordingly did not sign this Report.

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-K

Item 9A. Controls and Procedures