Invesco Mortgage Capital Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. We have evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based upon our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 64 Table of Contents There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Exchange Act, Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. 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, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2023. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, audited the effectiveness of our internal control over financial reporting as of December 31, 2023. Their report dated February 22, 2024, which is included herein, expressed an unqualified opinion on the effectiveness of our internal control over financial reporting. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 65 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. We will provide information that is responsive to certain portions of this Item 10 in our definitive proxy statement or in an amendment to this Report not later than 120 days after the end of the fiscal year covered by this Report, in either case under the captions “Information about Director Nominees,” “Information about the Executive Officers of the Company,” “Corporate Governance,” “Information about the Board and its Committees,” or under captions with similar meanings and possibly elsewhere therein. That information is incorporated into this Item 10 by reference. Each year, the chief executive officer of each company listed on the New York Stock Exchange (“NYSE”) must certify to the NYSE that he or she is not aware of any violation by us of NYSE corporate governance listing standards as of the date of certification, qualifying the certification to the extent necessary. Our chief executive officer submitted this certification to the NYSE in 2023 as required pursuant to Section 303A of the NYSE Listed Company Manual and will submit a similar certification within 30 days of our 2024 annual stockholders’ meeting. In addition, we have filed, as exhibits to this Report, the certifications of our chief executive officer and chief financial officer required under Section 302 and 906 of the Sarbanes-Oxley Act of 2002. Item 11. Executive Compensation. We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an amendment to this Report not later than 120 days after the end of the fiscal year covered by this Report, in either case under the captions “Information About the Board and Its Committees - Director Compensation,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” or under captions with similar meanings and possibly elsewhere therein. That information is incorporated into this Item 11 by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an amendment to this Report not later than 120 days after the end of the fiscal year covered by this Report, in either case under the caption “Security Ownership of Principal Stockholders,” “Security Ownership of Management,” “Executive Compensation,” or under captions with similar meanings and possibly elsewhere therein. That information is incorporated into this Item 12 by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an amendment to this Report not later than 120 days after the end of the fiscal year covered by this Report, in either case under the captions “Corporate Governance,” “Certain Relationships and Related Transactions,” “Information About Director Nominees,” “Related Person Transaction Policy,” or under captions with similar meanings and possibly elsewhere therein. That information is incorporated into this Item 13 by reference. Item 14. Principal Accounting Fees and Services. We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an amendment to this Report not later than 120 days after the end of the fiscal year covered by this Report, in either case under the captions “Fees Paid to Independent Registered Public Accounting Firm,” “Pre-Approval Process and Policy,” or under captions with similar meanings and possibly elsewhere therein. That information is incorporated into this Item 14 by reference. PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements: The financial statements contained herein are set forth on pages 72 - 101 of this Report. (a)(2) Financial Statement Schedules: Refer to Index to Financial Statement Schedules contained herein on page 69 of this Report. (a)(3) Exhibits: Refer to Exhibit Index starting on page 67 of this Report. Item 16. Form 10-K Summary. Not applicable. 66 Table of Contents Exhibit Index Exhibit No. Description 3.1 Articles of Amendment and Restatement of Invesco Mortgage Capital Inc., incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q, filed with the SEC on August 12, 2009. 3.2 Articles Supplementary of 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.3 to our Registration Statement on Form 8-A, filed with the SEC on September 8, 2014. 3.3 Articles Supplementary classifying 1,500,000 shares of the Company's preferred stock as additional Series B Shares, incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K, filed with the SEC on March 19, 2019. 3.4 Articles Supplementary of 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, incorporated by reference to Exhibit 3.4 to our Registration Statement on Form 8-A, filed with the SEC on August 11, 2017. 3.5 Articles Supplementary classifying 4,000,000 shares of the Company's preferred stock as additional Series C Shares, incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K, filed with the SEC on March 19, 2019. 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 our 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 our 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 our 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 Annual Report on Form 10-K filed with the SEC on February 21, 2023. 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. 4.3 Specimen 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock Certificate, incorporated by reference to Exhibit 4.5 to our Registration Statement on Form 8-A, filed with the SEC on August 11, 2017. 4.4 Description of Invesco Mortgage Capital Inc. Securities. 10.1 Management Agreement, dated as of July 1, 2009, among Invesco Advisers, Inc. (formally known as Invesco Institutional (N.A.), Inc.), Invesco Mortgage Capital Inc. and IAS Operating Partnership LP., incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q, filed with the SEC on August 12, 2009. 10.2 Amendment to Management Agreement, dated as of May 24, 2011, among Invesco Advisers, Inc. (formally known as Invesco Institutional (N.A.), Inc.), Invesco Mortgage Capital Inc., IAS Operating Partnership LP., and IAS Asset I LLC, incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2011. 10.3 Second Amendment to Management Agreement, dated as of July 1, 2015, among Invesco Advisers, Inc., Invesco Mortgage Capital Inc., and IAS Operating Partnership LP., incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on August 17, 2015. 10.4 Third Amendment to Management Agreement, dated as of November 6, 2019, among Invesco Advisers, Inc., Invesco Mortgage Capital Inc., and IAS Operating Partnership LP., incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, filed with the SEC on November 7, 2019. § 10.5 Invesco Mortgage Capital Inc. Amended and Restated 2009 Equity Incentive Plan, incorporated by reference to Exhibit 4.3 to our 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. 67 Table of Contents 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. and JonesTrading Institutional Services LLC, incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K, filed with the SEC on March 19, 2019. 10.8 Amendment No. 1 to the Equity Distribution Agreement, among Invesco Mortgage Capital Inc., the Operating Partnership, the Manager and JonesTrading Institutional Services LLC, incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K, filed with the SEC on June 17, 2021. 10.9 Equity distribution agreement, dated February 23, 2023, among Invesco Mortgage Capital Inc., IAS Operating Partnership LP, Invesco Advisers, Inc., Citizens JMP Securities, LLC (formerly JMP Securities LLC) and JonesTrading Institutional Services LLC incorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K, filed with the SEC on February 23, 2023. 19 Insider Trading Policy 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP. 31.1 Certification of John M. Anzalone pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of R. Lee Phegley, Jr. pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of John M. Anzalone pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of R. Lee Phegley, Jr. pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97 Policy for Recoupment of Incentive Compensation. 101 The following series of audited XBRL-formatted documents are collectively included herewith as Exhibit 101. The financial information is extracted from Invesco Mortgage Capital Inc.’s audited consolidated financial statements and notes that are included in this Form 10-K Report. 101.INS XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) § Management contract or compensatory plan or arrangement. (b) Exhibits : Refer to (a)(3) above. (c) Financial Statement Schedules : Refer to (a)(2) above. 68 Table of Contents INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 70 Consolidated Balance Sheets as of December 31, 202 3 and December 31, 202 2 72 Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 and 202 1 73 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 202 3 , 202 2 and 202 1 74 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 3 , 202 2 and 202 1 75 Consolidated Statements of Cash Flows for the years ended December 31, 202 3 , 202 2 and 202 1 76 Notes to Consolidated Financial Statements 77 INDEX TO FINANCIAL STATEMENT SCHEDULES Page Schedule IV - Mortgage Loans on Real Estate as of December 31, 20 2 3 101 69 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Invesco Mortgage Capital Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Invesco Mortgage Capital Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders' equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; 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. 70 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Mortgage-Backed Securities, at fair value As described in Notes 2 and 10 to the consolidated financial statements, the Company’s mortgage-backed securities, at fair value were $5.0 billion as of December 31, 2023. Management determines the fair value of mortgage-backed securities using an independent primary pricing service. If the primary pricing service cannot provide a price, management seeks a value from other pricing services. The pricing service uses two types of valuation approaches to determine the valuation of the Company’s various mortgage-backed securities: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; and an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount. The principal considerations for our determination that performing procedures relating to the valuation of mortgage-backed securities, at fair value is a critical audit matter are the high degree of auditor effort in performing procedures and evaluating audit evidence related to the fair value of the mortgage-backed securities. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of mortgage-backed securities, at fair value. These procedures also included, among others, (i) developing an independent range of prices for the securities by obtaining independent pricing from third party vendors; (ii) comparing management’s estimate of fair value to the independent range of prices to evaluate the reasonableness of management’s estimate; and (iii) testing the completeness and accuracy of the data provided by management. /s/ PricewaterhouseCoopers LLP Atlanta, Georgia February 22, 2024 We have served as the Company’s auditor since 2016. 71 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2023 December 31, 2022 $ in thousands except share amounts ASSETS Mortgage-backed securities, at fair value (including pledged securities of $ 4,712,185 and $ 4,439,583 , respectively, net of allowance for credit losses of $ 320 and $ 0 , respectively) 5,045,306 4,791,893 U.S. Treasury securities, at fair value 11,214 — Cash and cash equivalents 76,967 175,535 Restricted cash 121,670 103,246 Due from counterparties — 1,584 Investment related receivable 26,604 22,744 Derivative assets, at fair value 939 662 Other assets 1,509 1,731 Total assets 5,284,209 5,097,395 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements 4,458,695 4,234,823 Derivative liabilities, at fair value — 2,079 Dividends payable 19,384 25,162 Accrued interest payable 15,787 20,546 Collateral held payable 2,475 4,892 Accounts payable and accrued expenses 1,296 1,365 Due to affiliate 3,907 4,453 Total liabilities 4,501,544 4,293,320 Commitments and contingencies (See Note 14) Stockholders' equity: Preferred Stock, par value $ 0.01 per share; 50,000,000 shares authorized: 7.75 % Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock: 4,385,997 and 4,537,634 shares issued and outstanding, respectively ($ 109,650 and $ 113,441 aggregate liquidation preference, respectively) 106,014 109,679 7.50 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 7,545,439 and 7,816,470 shares issued and outstanding, respectively ($ 188,636 and $ 195,412 aggregate liquidation preference, respectively) 182,474 189,028 Common Stock, par value $ 0.01 per share; 67,000,000 shares authorized, 48,460,626 and 38,710,916 shares issued and outstanding, respectively 484 387 Additional paid in capital 4,011,138 3,901,562 Accumulated other comprehensive income 698 10,761 Retained earnings (distributions in excess of earnings) ( 3,518,143 ) ( 3,407,342 ) Total stockholders’ equity 782,665 804,075 Total liabilities and stockholders' equity 5,284,209 5,097,395 The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2023 2022 2021 $ in thousands except share data Interest income Mortgage-backed and other securities 277,929 192,566 167,056 Commercial loan — 1,947 2,146 Total interest income 277,929 194,513 169,202 Interest expense Repurchase agreements (1) 228,229 51,560 ( 11,290 ) Total interest expense 228,229 51,560 ( 11,290 ) Net interest income 49,700 142,953 180,492 Other income (loss) Gain (loss) on investments, net ( 107,280 ) ( 1,079,339 ) ( 366,509 ) (Increase) decrease in provision for credit losses ( 320 ) — 1,768 Equity in earnings (losses) of unconsolidated ventures ( 1 ) ( 407 ) 870 Gain (loss) on derivative instruments, net 61,838 559,007 122,611 Other investment income (loss), net ( 66 ) 186 1 Total other income (loss) ( 45,829 ) ( 520,553 ) ( 241,259 ) Expenses Management fee — related party 12,290 16,906 21,080 General and administrative 7,440 8,418 8,153 Total expenses 19,730 25,324 29,233 Net income (loss) ( 15,859 ) ( 402,924 ) ( 90,000 ) Dividends to preferred stockholders ( 23,153 ) ( 28,218 ) ( 37,795 ) Gain on repurchase and retirement of preferred stock 1,471 14,179 — Issuance and redemption costs of redeemed preferred stock — — ( 4,682 ) Net income (loss) attributable to common stockholders ( 37,541 ) ( 416,963 ) ( 132,477 ) Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic ( 0.85 ) ( 12.21 ) ( 4.82 ) Diluted ( 0.85 ) ( 12.21 ) ( 4.82 ) Weighted average number of shares of common stock: Basic 44,073,815 34,160,080 27,513,223 Diluted 44,073,815 34,160,080 27,513,223 (1) Negative interest expense on repurchase agreements in 2021 is due to amortization of net deferred gains on de-designated interest rate swaps that exceeded current period interest expense on repurchase agreements. 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” . The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Years Ended December 31, 2023 2022 2021 $ in thousands Net income (loss) ( 15,859 ) ( 402,924 ) ( 90,000 ) Other comprehensive income (loss): Unrealized gain (loss) on mortgage-backed securities, net ( 91 ) ( 6,280 ) 756 Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses 320 — — Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense ( 10,405 ) ( 19,708 ) ( 22,000 ) Currency translation adjustments on investment in unconsolidated venture ( 10 ) ( 537 ) ( 75 ) Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net 123 — — Total other comprehensive income (loss) ( 10,063 ) ( 26,525 ) ( 21,319 ) Comprehensive income (loss) ( 25,922 ) ( 429,449 ) ( 111,319 ) Dividends to preferred stockholders ( 23,153 ) ( 28,218 ) ( 37,795 ) Gain on repurchase and retirement of preferred stock 1,471 14,179 — Issuance and redemption costs of redeemed preferred stock — — ( 4,682 ) Comprehensive income (loss) attributable to common stockholders ( 47,604 ) ( 443,488 ) ( 153,796 ) The accompanying notes are an integral part of these consolidated financial statements. 74 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY $ in thousands except share amounts Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Distributions in Excess of Earnings) Total Stockholders’ Equity Shares Amount Shares Amount Shares Amount Shares Amount 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 Net income (loss) — — — — — — — — — — ( 90,000 ) ( 90,000 ) Other comprehensive income (loss) — — — — — — — — — ( 21,319 ) — ( 21,319 ) Proceeds from issuance of common stock, net of offering costs — — — — — — 12,646,902 126 429,378 — — 429,504 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 ) Preferred stock dividends — — — — — — — — — — ( 37,795 ) ( 37,795 ) Amortization of equity-based compensation — — — — — — — — 616 — — 616 Balance at December 31, 2021 — — 6,200,000 149,860 11,500,000 278,108 32,987,478 330 3,819,375 37,286 ( 2,882,824 ) 1,402,135 Net income (loss) — — — — — — — — — — ( 402,924 ) ( 402,924 ) Other comprehensive income (loss) — — — — — — — — — ( 26,525 ) — ( 26,525 ) Proceeds from issuance of common stock, net of offering costs — — — — — — 5,686,598 57 81,575 — — 81,632 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 ) Amortization of equity-based compensation — — — — — — — — 613 — — 613 Balance at December 31, 2022 — — 4,537,634 109,679 7,816,470 189,028 38,710,916 387 3,901,562 10,761 ( 3,407,342 ) 804,075 Net income (loss) — — — — — — — — — — ( 15,859 ) ( 15,859 ) Other comprehensive income (loss) — — — — — — — — — ( 10,063 ) — ( 10,063 ) Proceeds from issuance of common stock, net of offering costs — — — — — — 9,699,471 97 109,007 — — 109,104 Stock awards — — — — — — 50,239 — — — — — Repurchase and retirement of preferred stock — — ( 151,637 ) ( 3,665 ) ( 271,031 ) ( 6,554 ) — — — — 1,471 ( 8,748 ) Common stock dividends — — — — — — — — — — ( 73,260 ) ( 73,260 ) Preferred stock dividends — — — — — — — — — — ( 23,153 ) ( 23,153 ) Amortization of equity-based compensation — — — — — — — — 569 — — 569 Balance at December 31, 2023 — — 4,385,997 106,014 7,545,439 182,474 48,460,626 484 4,011,138 698 ( 3,518,143 ) 782,665 The accompanying notes are an integral part of these consolidated financial statements. 75 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS $ in thousands Years Ended December 31, 2023 2022 2021 Cash Flows from Operating Activities Net income (loss) ( 15,859 ) ( 402,924 ) ( 90,000 ) 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 ( 14,380 ) ( 1,118 ) 37,397 Realized and unrealized (gain) loss on derivative instruments, net 177,170 ( 472,135 ) ( 138,414 ) (Gain) loss on investments, net 107,280 1,079,339 366,509 Increase (decrease) in provision for credit losses 320 — ( 1,768 ) (Gain) loss from investments in unconsolidated ventures in excess of distributions received 1 45 9 Other amortization ( 9,836 ) ( 19,095 ) ( 21,383 ) Loss on foreign currency translation 123 — — Changes in operating assets and liabilities: (Increase) decrease in operating assets ( 1,977 ) ( 5,230 ) ( 1,166 ) Increase (decrease) in operating liabilities ( 5,055 ) 17,201 1,108 Net cash provided by (used in) operating activities 237,787 196,083 152,292 Cash Flows from Investing Activities Purchase of mortgage-backed securities ( 5,933,598 ) ( 25,723,584 ) ( 17,132,975 ) Purchase of U.S. Treasury securities ( 59,514 ) ( 502,290 ) — Distributions from (contributions to) investments in unconsolidated ventures, net 41 11,342 3,848 Principal payments from mortgage-backed securities 348,547 403,327 825,189 Proceeds from sale of mortgage-backed securities 5,236,686 27,281,250 16,273,956 Proceeds from sale of U.S. Treasury securities 48,977 468,051 — Settlement (termination) of forwards, swaps, swaptions and TBAs, net ( 179,526 ) 459,466 156,160 Net change in due from counterparties and collateral held payable on derivative instruments 1,584 2,594 ( 5,430 ) Principal payments from commercial loan held-for-investment — 23,917 — Net cash provided by (used in) investing activities ( 536,803 ) 2,424,073 120,748 Cash Flows from Financing Activities Proceeds from issuance of common stock 109,104 81,899 430,496 Redemption of preferred stock — — ( 140,038 ) Repurchase of preferred stock ( 8,748 ) ( 115,082 ) — Cash paid in lieu of fractional shares in connection with one-for-ten reverse stock split — ( 1 ) — Proceeds from repurchase agreements 41,084,893 66,872,266 82,347,113 Principal repayments of repurchase agreements ( 40,861,440 ) ( 69,625,277 ) ( 82,587,978 ) Net change in due from counterparties and collateral held payable on repurchase agreements ( 2,417 ) 8,419 ( 4,743 ) Payments of deferred costs ( 329 ) ( 351 ) ( 354 ) Payments of dividends ( 102,191 ) ( 140,300 ) ( 133,068 ) Net cash provided by (used in) financing activities 218,872 ( 2,918,427 ) ( 88,572 ) Net change in cash, cash equivalents and restricted cash ( 80,144 ) ( 298,271 ) 184,468 Cash, cash equivalents and restricted cash, beginning of period 278,781 577,052 392,584 Cash, cash equivalents and restricted cash, end of period 198,637 278,781 577,052 Supplement Disclosure of Cash Flow Information Interest paid 243,394 51,892 10,363 Non-cash Investing and Financing Activities Information Net change in unrealized gain (loss) on mortgage-backed securities classified as available-for-sale ( 229 ) ( 6,280 ) 756 Dividends declared not paid 19,384 25,162 29,689 Net change in investment related receivable (payable) 1,706 ( 707 ) 46 Net change in foreign currency translation adjustment recorded in accumulated other comprehensive income ( 113 ) 537 75 Offering costs not paid 10 144 527 The accompanying notes are an integral part of these consolidated financial statements. 76 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Organization and Business Operations Invesco Mortgage Capital Inc. (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. As of December 31, 2023, we were invested 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 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”); • U.S. Treasury securities; and • a real estate-related financing arrangement. During the periods presented in these consolidated financial statements, we also invested in a commercial mortgage loan. 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. federal income tax purposes under the provisions of the Internal Revenue Code of 1986. 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, as amended (the “1940 Act”). Note 2 – Summary of Significant Accounting Policies 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 its controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair statement of our financial condition and results of operations for the periods presented. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our 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. Translation of Foreign Currencies The functional currency of the Company and its subsidiaries is U.S. dollars. Transactions in foreign currencies are recorded at the rates of exchange prevailing on the date of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are remeasured at the rates prevailing at the balance sheet date. Gains and losses arising on revaluation are included in other investment income (loss), net on the consolidated statements of operations. 77 Table of Contents Our reporting currency is U.S. dollars. Upon consolidation, the assets and liabilities of our investment in an unconsolidated venture whose functional currency is the Euro is translated to U.S. dollars using the period-end exchange rates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year, which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. 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 have historically hedged foreign currency exposure with derivative financial instruments. Refer to Note 8 - “Derivatives and Hedging Activities” for further information. Fair Value Measurements We report our MBS and derivative assets and liabilities at fair value as determined by an independent pricing service. We generally obtain one price per instrument from our primary pricing service. If the primary pricing service cannot provide a price, we will seek a value from other pricing services. The pricing service uses two types of valuation approaches to determine the valuation of our various mortgage-backed and credit risk transfer securities: a market approach, which uses observable prices and other relevant information that is generated by market transactions involving identical or comparable assets or liabilities; and an income approach, which uses valuation techniques to convert future amounts to a single, discounted present value amount. In instances where sufficient market activity may not exist, the pricing service may utilize proprietary valuation models that may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or market characteristics to estimate relevant cash flows, which are then discounted to calculate the fair values. Observable inputs may include a combination of benchmark yields, executed trades, broker/dealer quotes, issuer spreads, bids, offers and benchmark securities. In addition, the valuation models utilized by pricing services may consider additional pool level information such as prepayment speeds, default frequencies and default severities, if applicable. 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, currency forward contracts, U.S. Treasury securities 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. Examples of instances that would cause an override include if we recently traded the same security or there is an indication of market activity that would cause the pricing service price to no longer be indicative of fair value. In the rare instance where a price is adjusted, we have a control process to monitor the reason for such adjustment. To gain comfort that pricing service prices are representative of current market information, we compare the transaction prices of security purchases and sales to the valuation levels provided by the pricing services. Price differences exceeding pre-defined tolerance levels are identified and investigated and may be challenged. Trends are monitored over time and if there are indications that the valuations are not comparable to market activity, the pricing services are asked to provide detailed information regarding their methodology and inputs. 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, 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. Based on our findings, the primary pricing service may be challenged, or in rare cases, overridden with an alternate pricing source. In addition, we perform due diligence procedures on all pricing services on at least an annual basis. A questionnaire is sent to pricing services which requests information such as changes in methodologies, business recovery preparedness, internal controls and confirmation that evaluations are generated based on market data. 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. If the price of a security is readily available, meaning that it is a quoted price in an active market for identical assets, the security is classified as a level 1 security. If the price of a security is obtained from quoted prices in inactive markets for similar instruments, or whose values are model-derived but the inputs are observable either directly or indirectly, the security is classified as a level 2 security. If the inputs appear to be not observable, and reflect judgment about assumptions used to value the asset, the security would be classified as a level 3 security. Transfers between levels, if any, are determined at the end of the reporting period. 78 Table of Contents Mortgage-Backed and Credit Risk Transfer Securities We record our purchases of MBS 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 $ 5.0 billion or 99.7 % of our MBS are accounted for under the fair value option as of December 31, 2023 (December 31, 2022: $ 4.7 billion or 99.1 %). Under the fair value option, we recognize changes in fair value in our consolidated statements of operations as unrealized gains and losses. In our view, this election more appropriately reflects the results of our operations because fair value changes are accounted for in the same manner as fair value changes in our economic hedging instruments. We elected the fair value option for all MBS purchased on or after September 1, 2016 and all RMBS interest-only securities. We classify the remaining balance of our MBS as available-for-sale ($ 15.7 million or 0.3 % as of December 31, 2023; $ 42.5 million or 0.9 % as of December 31, 2022). Unrealized gains or losses on available-for-sale securities are recorded in accumulated other comprehensive income, a separate component of stockholders' equity, until sale or disposition of the investment. Upon sale or disposition, the cumulative gain or loss previously reported in stockholders' equity is recognized in income. Realized gains and losses from sales of MBS are determined based upon the specific identification method. Our interest income recognition policies for MBS is described below in the Interest Income Recognition section of this Note 2 to our consolidated financial statements. 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 supportable 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. 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 the allowance for credit losses as the difference between the investment's amortized cost basis 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 consolidated balance sheets and a provision for credit losses in the consolidated statements of operations. Credit losses are accreted into earnings over time at the effective interest rate used to recognize interest income. Subsequent 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. Recoveries of amounts previously written off relating to improvements in cash flows are recognized in earnings when received. We record provisions for credit losses, reductions in provisions for credit losses, accretion of credit losses, and recoveries of amounts previously written off within (increase) decrease in provision for credit losses in our 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 within (increase) decrease in provision for credit losses on our consolidated statements of operations and write down of the available-for-sale security within gain (loss) on investments, net in our consolidated statements of operations. We present accrued interest receivable separately from our investment portfolio on our 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. U.S. Treasury Securities U.S. 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. 79 Table of Contents 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 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, unless those changes are reflected in an allowance for credit losses. 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, including write-offs of amortized cost when certain amounts are deemed uncollectible. 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 are reflected in an allowance for credit losses, and the security's yield is revised prospectively. For Agency RMBS 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. Commercial and Other Loans We recognized interest income from commercial and other loans when earned and deemed collectible, or until a loan became past due based on the terms of the loan agreement. U.S. Treasury Securities Coupon interest income on U.S. Treasury securities 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. Cash and Cash Equivalents We consider all highly liquid investments that have original or remaining maturity dates of three months or less when purchased to be cash equivalents. At December 31, 2023, we had cash and cash equivalents in excess of the FDIC deposit insurance limit of $ 250,000 per institution. We mitigate our risk of loss by actively monitoring our counterparties. Restricted Cash Restricted cash represents cash posted with counterparties as collateral for various derivative instruments. Cash posted with counterparties as collateral is not available for general corporate purposes. Due from Counterparties / Collateral Held Payable Due from counterparties represents cash posted with our counterparties as collateral for our derivatives and repurchase agreements. Collateral held payable represents cash posted with us by counterparties as collateral under our derivatives and repurchase agreements. If we receive collateral other than cash from our counterparties, such assets are not included in our consolidated balance sheets. If we either sell such assets or pledge the assets as collateral under a repurchase agreement, the cash received and the corresponding liability is reflected on the consolidated balance sheets . 80 Table of Contents Investment Related Receivable / Investment Related Payable 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. Investment related payable consists of liabilities for mortgage-backed securities that we have purchased but have not settled with the seller. Investments in Unconsolidated Ventures Our non-controlling investments in unconsolidated ventures are included in other assets in our consolidated balance sheets and are accounted for under the equity method. Capital contributions, distributions, profits and losses of the entities are allocated in accordance with the terms of the entities’ operating agreements. Such allocations may differ from the stated percentage interests, if any, as a result of preferred returns and allocation formulas as described in the entities' operating agreements. 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. Dividends Payable Dividends payable represent dividends declared at the balance sheet date that are payable to common stockholders and preferred stockholders. Earnings (Loss) per Share We calculate basic earnings (loss) per share by dividing net income (loss) attributable to common stockholders for the period by the weighted-average number of shares of our common stock outstanding for that period. Diluted earnings per share takes into account the effect of dilutive instruments, such as unvested restricted stock awards, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. Share-Based Compensation 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. Compensation related to stock awards is recognized in the consolidated financial statements based on the fair value of the equity or liability instruments issued on the date of grant. Underwriting Commissions and Offering Costs Underwriting commissions and direct costs incurred in connection with our common and preferred stock offerings are recorded as a reduction of additional paid in capital and preferred stock, respectively. Comprehensive Income Our comprehensive income consists of net income, as presented in the consolidated statements of operations, adjusted for unrealized gains and losses on MBS purchased before September 1, 2016, reclassification of unrealized losses on available-for-sale securities to (increase) decrease in provision for credit losses; reclassification of amortization of net deferred gains and losses on de-designated interest rate swaps to repurchase agreements interest expense and currency translation adjustments on an investment in an unconsolidated venture. Unrealized gains and losses on our MBS purchased before September 1, 2016 are reclassified into net income upon their sale. 81 Table of Contents Accounting for Derivative Financial Instruments We record all derivatives on our consolidated balance sheets at fair value. At the inception of a derivative contract, we determine whether the instrument will be part of a qualifying hedge accounting relationship or whether we will account for the contract as a trading instrument. We have elected not to apply hedge accounting to all new derivative contracts entered into after January 1, 2014. Changes in the fair value of our derivatives are recorded in gain (loss) on derivative instruments, net in our consolidated statements of operations. Net interest paid or received under our interest rate swaps is also recognized in gain (loss) on derivative instruments, net in our consolidated statements of operations. Cash receipts or payments that are attributed to contractual interest earned or incurred on interest rate swaps are classified as cash flows from operating activities in our consolidated statements of cash flows. All other cash flows from derivatives are generally recorded as investing cash flows in our consolidated statements of cash flows. Before 2014, we applied hedge accounting to our interest rate swap agreements. Effective December 31, 2013, we voluntarily discontinued hedge accounting for our interest rate swap agreements by de-designating the interest rate swaps as cash flow hedges. Amounts recorded in accumulated other comprehensive income (loss) (“AOCI”) before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on repurchase agreements on the consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining original life of the interest rate swap agreements. 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. GAAP. 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. Income Taxes We elected to be taxed as a REIT commencing with our taxable year ended December 31, 2009. Accordingly, we will generally not be subject to U.S. federal and applicable state and local corporate income tax to the extent that we make qualifying distributions to our stockholders, and provided we satisfy on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If we fail to qualify as a REIT and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which we lost our REIT qualification. Accordingly, our failure to qualify as a REIT could have a material adverse impact on our results of operations and amounts available for distribution to stockholders. Our dividends paid deduction for qualifying dividends to our stockholders is computed using our REIT taxable income as opposed to net income reported on the consolidated financial statements. 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 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 TRS did not generate material taxable income for the years ended December 31, 2023, 2022 and 2021. 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. Recently Issued Accounting Pronouncements In November 2023, the Financial Standards Accounting Board issued an accounting standards update intended to improve reportable segment disclosure requirements on an annual and interim basis. The amendments require, among other items, enhanced disclosures around significant segment expenses regularly provided to the chief operating decision maker (“CODM”), as well as the CODM's title and position. Additionally, the amendments expand the scope of all segment reporting disclosure requirements to include those entities with only a single operating segment, such as us. We are required to implement the amendments in our consolidated financial statements for the year ended December 31, 2024 and for interim periods thereafter. The amendments must be applied on a retrospective basis and early adoption is permitted. We are currently evaluating the impact of these amendments on our disclosures. 82 Table of Contents Note 3 – Variable Interest Entities (“VIEs”) Our maximum risk of loss in VIEs in which we are not the primary beneficiary at December 31, 2023 is presented in the table below. $ in thousands Carrying Amount Company's Maximum Risk of Loss Non-Agency CMBS 9,935 9,935 Non-Agency RMBS 8,139 8,139 Investment in unconsolidated venture 500 500 Total 18,574 18,574 Refer to Note 4 - “Mortgage-Backed Securities” for additional details regarding our non-Agency CMBS and non-Agency RMBS. Note 4 – Mortgage-Backed Securities The following tables summarize our MBS portfolio by asset type at December 31, 2023 and 2022. As of December 31, 2023 $ in thousands Principal/ Notional Balance Unamortized Premium (Discount) Amortized Cost Allowance for Credit Losses Unrealized Gain/ (Loss), net Fair Value Period- end Weighted Average Yield (1) 30 year fixed-rate Agency RMBS 5,005,512 ( 159,924 ) 4,845,588 — 106,886 4,952,474 5.33 % Agency-CMO (2) 573,240 ( 498,355 ) 74,885 — ( 127 ) 74,758 9.74 % Non-Agency CMBS 11,000 ( 372 ) 10,628 ( 320 ) ( 373 ) 9,935 9.58 % Non-Agency RMBS (3)(4)(5) 275,061 ( 267,744 ) 7,317 — 822 8,139 9.10 % Total 5,864,813 ( 926,395 ) 4,938,418 ( 320 ) 107,208 5,045,306 5.42 % (1) Period-end weighted average yield is based on amortized cost as of December 31, 2023 and incorporates future prepayment and loss assumptions when appropriate. (2) All Agency collateralized mortgage obligations (“Agency-CMO”) are interest-only securities (“Agency IO”). (3) Non-Agency RMBS is 66.8 % fixed rate, 32.5 % variable rate and 0.7 % 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. (4) Of the total discount in non-Agency RMBS, $ 2.1 million is non-accretable calculated using the principal/notional balance and based on estimated future cash flows of the securities. (5) Non-Agency RMBS includes interest-only securities (“non-Agency IO”) which represent 96.9 % of principal/notional balance, 37.6 % of amortized cost and 31.7 % of fair value. As of December 31, 2022 $ in thousands Principal/ Notional Balance Unamortized Premium (Discount) Amortized Cost Unrealized Gain/ (Loss), net Fair Value Period- end Weighted Average Yield (1) 30 year fixed-rate Agency RMBS 4,722,768 ( 115,365 ) 4,607,403 54,334 4,661,737 5.26 % Agency-CMO (2) 619,069 ( 536,376 ) 82,693 2,263 84,956 9.09 % Non-Agency CMBS 38,652 ( 1,472 ) 37,180 ( 393 ) 36,787 8.35 % Non-Agency RMBS (3)(4)(5) 307,016 ( 299,012 ) 8,004 409 8,413 8.33 % Total 5,687,505 ( 952,225 ) 4,735,280 56,613 4,791,893 5.35 % (1) Period-end weighted average yield is based on amortized cost as of December 31, 2022 and incorporates future prepayment and loss assumptions when appropriate. (2) All Agency-CMO are 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 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 and based on estimated future cash flows of the securities. (5) Non-Agency RMBS includes non-Agency IO which represent 97.1 % of principal/notional balance, 41.6 % of amortized cost and 35.3 % of fair value. 83 Table of Contents 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 December 31, 2023 and December 31, 2022. 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 December 31, 2023 and December 31, 2022, approximately 99.7 % and 99.1 % of our MBS are accounted for under the fair value option, respectively. As of December 31, 2023 December 31, 2022 $ in thousands Available-for-sale Securities Securities under Fair Value Option Total Fair Value Available-for-sale Securities Securities under Fair Value Option Total Fair Value 30 year fixed-rate Agency RMBS — 4,952,474 4,952,474 — 4,661,737 4,661,737 Agency-CMO — 74,758 74,758 — 84,956 84,956 Non-Agency CMBS 9,935 — 9,935 36,787 — 36,787 Non-Agency RMBS 5,743 2,396 8,139 5,667 2,746 8,413 Total 15,678 5,029,628 5,045,306 42,454 4,749,439 4,791,893 The components of the carrying value of our MBS portfolio at December 31, 2023 and 2022 are presented below. Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our consolidated balance sheets, was $ 22.3 million at December 31, 2023 (December 31, 2022: $ 21.3 million). As of December 31, 2023 December 31, 2022 $ in thousands MBS Interest-Only Securities Total MBS Interest-Only Securities Total Principal/notional balance 5,025,062 839,751 5,864,813 4,770,175 917,330 5,687,505 Unamortized premium 5,061 — 5,061 5,195 — 5,195 Unamortized discount ( 169,342 ) ( 762,114 ) ( 931,456 ) ( 126,112 ) ( 831,308 ) ( 957,420 ) Allowance for credit losses ( 320 ) — ( 320 ) — — — Gross unrealized gains (1) 107,899 3,523 111,422 62,245 4,605 66,850 Gross unrealized losses (1) ( 393 ) ( 3,821 ) ( 4,214 ) ( 7,535 ) ( 2,702 ) ( 10,237 ) Fair value 4,967,967 77,339 5,045,306 4,703,968 87,925 4,791,893 (1) Gross unrealized gains and losses includes gains (losses) recognized in net income for securities accounted for under the fair value option as well as gains (losses) for available-for-sale securities which are recognized as adjustments to other comprehensive income. Realization occurs upon sale or settlement of such securities. Further detail on the components of our total gains (losses) on investments, net for the years ended December 31, 2023 and 2022 is provided below within this Note 4. The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of December 31, 2023 and 2022. As of $ in thousands December 31, 2023 December 31, 2022 Less than one year — 26,593 Greater than one year and less than five years 189,845 10,194 Greater than or equal to five years 4,855,461 4,755,106 Total 5,045,306 4,791,893 84 Table of Contents 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 December 31, 2023 and 2022. As of December 31, 2023 Less than 12 Months 12 Months or More Total $ in thousands Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Agency-CMO (1) 17,486 ( 849 ) 3 21,664 ( 2,574 ) 6 39,150 ( 3,423 ) 9 Non-Agency CMBS (2) 9,935 ( 373 ) 1 — — — 9,935 ( 373 ) 1 Non-Agency RMBS (3) — — — 1,462 ( 418 ) 9 1,462 ( 418 ) 9 Total 27,421 ( 1,222 ) 4 23,126 ( 2,992 ) 15 50,547 ( 4,214 ) 19 (1) Fair value option has been elected for all Agency securities 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) Includes non-Agency IO with a fair value of $ 1.2 million for which the fair value option has been elected. Such securities have unrealized losses of $ 399,000 . As of December 31, 2022 Less than 12 Months 12 Months or More Total $ in thousands Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities 30 year fixed-rate Agency RMBS (1) 929,292 ( 7,060 ) 7 — — — 929,292 ( 7,060 ) 7 Agency-CMO (1) 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) 349 ( 36 ) 2 1,411 ( 561 ) 9 1,760 ( 597 ) 11 Total 981,650 ( 9,180 ) 17 4,345 ( 1,057 ) 10 985,995 ( 10,237 ) 27 (1) Fair value option has been elected for all Agency securities 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) Includes non-Agency IO with a fair value of $ 1.4 million for which the fair value option has been elected. Such securities have unrealized losses of $ 561,000 . We recorded a $ 320,000 provision for credit losses on a single non-Agency CMBS during the year ended December 31, 2023. The following table presents a roll-forward of our allowance for credit losses. $ in thousands Years Ended December 31, 2023 2022 2021 Beginning allowance for credit losses — — ( 1,768 ) Additions to the allowance for credit losses on securities for which credit losses were not previously recorded ( 320 ) — — 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 ( 320 ) — — 85 Table of Contents The following table summarizes the components of our total gain (loss) on investments, net for the years ended December 31, 2023, 2022 and 2021. Years Ended December 31, $ in thousands 2023 2022 2021 Gross realized gains on sale of MBS 5,363 5,348 3,297 Gross realized losses on sale of MBS ( 163,391 ) ( 1,169,258 ) ( 284,521 ) Net unrealized gains (losses) on MBS accounted for under the fair value option 50,364 118,365 ( 85,702 ) Net unrealized gains (losses) on commercial loan — 404 417 Net unrealized gains (losses) on U.S. Treasury securities 372 — — Net realized gains (losses) on U.S. Treasury securities 12 ( 34,198 ) — Total gain (loss) on investments, net ( 107,280 ) ( 1,079,339 ) ( 366,509 ) The following tables present components of interest income recognized on our mortgage-backed and other securities portfolio for the years ended December 31, 2023, 2022 and 2021. For the Year ended December 31, 2023 $ in thousands Coupon Interest Net (Premium Amortization)/ Discount Accretion Interest Income Agency RMBS 266,193 5,160 271,353 Non-Agency CMBS 1,597 1,101 2,698 Non-Agency RMBS 1,132 ( 479 ) 653 U.S. Treasury securities 31 291 322 Other (inclusive of interest earned on cash balances) 2,903 — 2,903 Total 271,856 6,073 277,929 For the Year ended December 31, 2022 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 191,898 ( 6,755 ) 185,143 Non-Agency CMBS 2,366 1,624 3,990 Non-Agency RMBS 1,223 ( 552 ) 671 U.S. Treasury securities 1,773 ( 41 ) 1,732 Other (inclusive of interest earned on cash balances) 1,030 — 1,030 Total 198,290 ( 5,724 ) 192,566 For the Year ended December 31, 2021 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 201,694 ( 41,881 ) 159,813 Non-Agency CMBS 3,841 2,695 6,536 Non-Agency RMBS 1,950 ( 1,264 ) 686 Other (inclusive of interest earned on cash balances) 21 — 21 Total 207,506 ( 40,450 ) 167,056 86 Table of Contents Note 5 – U.S. Treasury Securities The following table presents the components of the carrying value of our U.S. Treasury security as of December 31, 2023. The security is classified as a trading security and matures in 2053. We did not hold any U.S. Treasury securities as of December 31, 2022. As of $ in thousands December 31, 2023 Principal balance 10,000 Unamortized premium 842 Amortized cost 10,842 Unrealized gain (loss) 372 Fair value 11,214 Note 6 – Borrowings We finance the majority of our investment portfolio through repurchase agreements. Our repurchase agreements bear interest at a contractually agreed upon rate and generally have maturities ranging from one to six months . We account for our repurchase agreements as secured borrowings since we maintain effective control of the financed assets. Our repurchase agreements are subject to certain financial covenants. We were in compliance with all of these covenants as of December 31, 2023. The following tables summarize certain characteristics of our repurchase agreements at December 31, 2023 and 2022. Refer to Note 7 - “Collateral Positions” for collateral pledged and held under our repurchase agreements. As of December 31, 2023 December 31, 2022 $ in thousands Amount Outstanding Weighted Average Interest Rate Weighted Average Remaining Maturity (days) Amount Outstanding Weighted Average Interest Rate Weighted Average Remaining Maturity (days) Repurchase Agreements - Agency RMBS 4,458,695 5.53 % 20 4,234,823 4.24 % 28 Total Borrowings 4,458,695 5.53 % 20 4,234,823 4.24 % 28 87 Table of Contents Note 7 – Collateral Positions The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements, interest rate swaps and TBAs as of December 31, 2023 and 2022. Refer to Note 2 - “Summary of Significant Accounting Policies - Fair Value Measurements” for a description of how we determine fair value. Agency RMBS collateral pledged is included in mortgage-backed securities on our consolidated balance sheets. Cash collateral pledged on centrally cleared interest rate swaps is classified as restricted cash on our consolidated balance sheets. Cash collateral pledged on repurchase agreements and TBAs accounted for as derivatives is classified as due from counterparties on our consolidated balance sheets. Cash collateral held that is not restricted for use is included in cash and cash equivalents on our 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 December 31, 2023 and 2022, we did not recognize any non-cash collateral held on our consolidated balance sheets. $ in thousands As of Collateral Pledged December 31, 2023 December 31, 2022 Repurchase agreements: Agency RMBS 4,712,185 4,439,583 Total repurchase agreements collateral pledged 4,712,185 4,439,583 Derivative instruments: Cash — 1,584 Restricted cash 121,670 103,246 Total derivative instruments collateral pledged 121,670 104,830 Total collateral pledged: Agency RMBS 4,712,185 4,439,583 Cash — 1,584 Restricted cash 121,670 103,246 Total collateral pledged 4,833,855 4,544,413 As of Collateral Held December 31, 2023 December 31, 2022 Repurchase agreements: Cash 2,475 4,892 Non-cash collateral 39,130 7,216 Total repurchase agreements collateral held 41,605 12,108 88 Table of Contents Repurchase Agreements Collateral pledged with our repurchase agreement counterparties is segregated in our books and records. The repurchase agreement counterparties have the right to resell and repledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral if agreed to by us, upon maturity of the repurchase agreement. 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 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. The ratio of our total repurchase agreements collateral pledged to our total repurchase agreements outstanding was 106 % as of December 31, 2023 (December 31, 2022: 105 %) based on the fair value of the securities as reported in our consolidated balance sheets. Interest Rate Swaps As of December 31, 2023 and 2022, 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. Certain of our FCM agreements include cross default provisions. TBAs Our TBAs provide for bilateral collateral pledging based on market value as determined by our counterparties. Collateral pledged with our TBA 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 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 Risk Management Objective of Using Derivatives We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, credit and foreign exchange rate risk primarily by managing the amount, sources, and duration of our investments, borrowings, and the use of derivative financial instruments. Specifically, we use derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates or foreign exchange rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our investments and borrowings. The following table summarizes changes in the notional amount of our derivative instruments during 2023: $ in thousands Notional Amount as of December 31, 2022 Additions Settlement, Termination, Expiration or Exercise Notional Amount as of December 31, 2023 Interest Rate Swaps (1)(2) 8,150,000 3,525,000 ( 7,610,000 ) 4,065,000 TBA Purchase Contracts 400,000 1,150,000 ( 1,550,000 ) — TBA Sale Contracts ( 400,000 ) ( 1,150,000 ) 1,550,000 — Total 8,150,000 3,525,000 ( 7,610,000 ) 4,065,000 (1) Does not include interest rate swaps with forward start dates until the date they begin to bear interest. See below for additional detail on our interest rate swaps with forward start dates. (2) Notional amount as of December 31, 2023 includes $ 4.1 billion of interest rate swaps whereby we pay interest at a fixed rate and receive interest at a floating rate. 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. Refer to Note 7 - “Collateral Positions” for further information regarding our collateral pledged to and received from our derivative counterparties. 89 Table of Contents Interest Rate Swaps Our repurchase agreements are usually settled on a short-term basis ranging from one month to six months . At each settlement date, we typically refinance each repurchase agreement at the market interest rate at that time. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposures to interest rate movements. 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 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 accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on repurchase agreements on the consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. We reclassified $ 10.4 million as a decrease to interest expense for the year ended December 31, 2023 (2022: $ 19.7 million as a decrease; 2021: $ 22.0 million as a decrease). As of December 31, 2023, there were no net unrealized gains on discontinued cash flow hedges (2022: $ 10.4 million) included in accumulated other comprehensive income. As of December 31, 2023 and 2022, 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, 2023 Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Less than 3 years 950,000 2.55 % 5.38 % 1.6 3 to 5 years 1,375,000 0.29 % 5.38 % 3.8 5 to 7 years 1,150,000 0.55 % 5.38 % 6.6 Greater than 10 years 590,000 1.75 % 5.38 % 21.4 Total 4,065,000 1.10 % 5.38 % 6.6 $ in thousands As of December 31, 2022 Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Less than 3 years 1,550,000 0.09 % 4.30 % 2.2 3 to 5 years 1,475,000 0.27 % 4.30 % 4.7 5 to 7 years 850,000 0.38 % 4.30 % 6.2 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 As of December 31, 2022, we held $ 975.0 million notional amount of SOFR-based pay fixed and receive floating interest rate swaps with forward start dates that had a weighted average maturity of 16.5 years and a weighted average fixed pay rate of 0.89 %. We did not have any interest rate swaps with forward start dates as of December 31, 2023. As of December 31, 2022, 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. We did not have any pay floating and receive fixed interest rate swaps as of December 31, 2023. 90 Table of Contents $ in thousands As of December 31, 2022 Maturities Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity Less than 3 years 100,000 4.30 % 4.90 % 0.9 3 to 5 years 550,000 4.30 % 2.74 % 4.0 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 As of December 31, 2022, we held $ 275.0 million notional amount of SOFR-based pay floating and receive fixed interest rate swaps with forward start dates that had a weighted average maturity of 16.0 years and a weighted average fixed receive rate of 2.63 %. We did not have any interest rate swaps with forward start dates as of December 31, 2023. 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 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 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 have historically used 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. We did not have any currency forward contracts outstanding as of December 31, 2023 or December 31, 2022. TBAs 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 December 31, 2022. We did not have any TBAs outstanding as of December 31, 2023. $ in thousands As of December 31, 2022 Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value 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. 91 Table of Contents 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 our consolidated balance sheets as of December 31, 2023 and 2022. $ in thousands Derivative Assets Derivative Liabilities As of December 31, 2023 As of December 31, 2022 As of December 31, 2023 As of December 31, 2022 Balance Sheet Fair Value Fair Value Balance Sheet Fair Value Fair Value Interest Rate Swaps Asset 939 20 Interest Rate Swaps Liability — — TBAs — 642 TBAs — 2,079 Total Derivative Assets 939 662 Total Derivative Liabilities — 2,079 Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement 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, 2023, 2022 and 2021. $ in thousands Year ended December 31, 2023 Derivative 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 ( 177,628 ) 239,008 918 62,298 Currency Forward Contracts ( 18 ) — — ( 18 ) TBAs ( 1,880 ) — 1,438 ( 442 ) Total ( 179,526 ) 239,008 2,356 61,838 $ in thousands Year ended December 31, 2022 Derivative 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 593,035 86,872 11,426 691,333 Currency Forward Contracts 919 — ( 271 ) 648 TBAs ( 134,488 ) — 1,514 ( 132,974 ) Total 459,466 86,872 12,669 559,007 $ in thousands Year ended December 31, 2021 Derivative 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 185,232 ( 15,803 ) ( 5,869 ) 163,560 Interest Rate Swaptions ( 553 ) — — ( 553 ) Currency Forward Contracts 209 — 970 1,179 TBAs ( 28,731 ) — ( 12,844 ) ( 41,575 ) Total 156,157 ( 15,803 ) ( 17,743 ) 122,611 92 Table of Contents Note 9 – Offsetting Assets and Liabilities Certain of our repurchase agreements and derivative transactions are governed by underlying agreements that generally provide for a right of offset under master netting arrangements (or similar agreements) in the event of default or in the event of bankruptcy of either party to the transactions. Assets and liabilities subject to such arrangements are presented on a gross basis in the consolidated balance sheets. The following tables present information about the assets and liabilities that are subject to master netting arrangements (or similar agreements) and can potentially be offset on our consolidated balance sheets at December 31, 2023 and December 31, 2022. The daily variation margin payment for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral. Our derivative asset of $ 939,000 at December 31, 2023 (December 31, 2022: asset of $ 20,000 ) 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 December 31, 2023 Gross Amounts Not Offset in the Consolidated Balance Sheets $ in thousands Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets (Liabilities) presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral (Received) Pledged Net Amount Liabilities Repurchase Agreements (1) ( 4,458,695 ) — ( 4,458,695 ) 4,458,695 — — Total Liabilities ( 4,458,695 ) — ( 4,458,695 ) 4,458,695 — — As of December 31, 2022 Gross Amounts Not Offset in the Consolidated Balance Sheets $ in thousands Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Assets (Liabilities) presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral (Received) Pledged Net Amount Assets Derivatives (2) (3) 642 — 642 ( 642 ) — — Total Assets 642 — 642 ( 642 ) — — Liabilities Derivatives (2) (3) ( 2,079 ) — ( 2,079 ) 642 1,297 ( 140 ) Repurchase Agreements (1) ( 4,234,823 ) — ( 4,234,823 ) 4,234,823 — — Total Liabilities ( 4,236,902 ) — ( 4,236,902 ) 4,235,465 1,297 ( 140 ) (1) The fair value of securities pledged against our borrowings under repurchase agreements was $ 4.7 billion as of December 31, 2023 (December 31, 2022: $ 4.4 billion). We held $ 2.5 million of cash collateral under repurchase agreements as of December 31, 2023 (December 31, 2022: $ 4.9 million). (2) Amounts represent derivative assets and derivative liabilities which could potentially be offset against other derivative assets, derivative liabilities and cash collateral pledged or received. (3) Cash collateral pledged by us on our derivatives was $ 121.7 million as of December 31, 2023 (December 31, 2022: $ 104.8 million) of which $ 121.7 million relates to initial margin pledged on centrally cleared interest rate swaps (December 31, 2022: $ 103.2 million). Centrally cleared interest rate swaps are excluded from the tables above. We held no cash collateral on our derivatives as of December 31, 2023 or December 31, 2022. 93 Table of Contents Note 10 – Fair Value of Financial Instruments A three-level valuation hierarchy exists for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. The three levels are defined as follows: • Level 1 Inputs – Quoted prices for identical instruments in active markets. • Level 2 Inputs – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. • Level 3 Inputs – Instruments with primarily unobservable value drivers. The following tables present our assets and liabilities measured at fair value on a recurring basis. As of December 31, 2023 Fair Value Measurements Using: $ in thousands Level 1 Level 2 Level 3 NAV as a practical expedient (3) Total at Fair Value Assets: Mortgage-backed securities (1) — 5,045,306 — — 5,045,306 U.S. Treasury securities (2) — 11,214 — — 11,214 Derivative assets — 939 — — 939 Other assets — — — 500 500 Total assets — 5,057,459 — 500 5,057,959 As of December 31, 2022 Fair Value Measurements Using: $ in thousands Level 1 Level 2 Level 3 NAV as a practical expedient (3) Total at Fair Value Assets: Mortgage-backed securities (1) — 4,791,893 — — 4,791,893 Derivative assets — 662 — — 662 Other assets — — — 552 552 Total assets — 4,792,555 — 552 4,793,107 Liabilities: Derivative liabilities — 2,079 — — 2,079 Total liabilities — 2,079 — — 2,079 (1) For more detail about the fair value of our MBS, refer to Note 4 - “Mortgage-Backed Securities”. (2) For more information on U.S. Treasury securities, refer to Note 5 - “U.S. Treasury Securities”. (3) 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, 2022, we were invested in two unconsolidated ventures that were managed by an affiliate of our Manager. One of the unconsolidated ventures was dissolved during the first quarter of 2023. As of December 31, 2023, the remaining unconsolidated venture was in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. 94 Table of Contents 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. Year Ended $ in thousands December 31, 2022 Beginning balance 23,515 Repayments ( 23,919 ) Total net unrealized gains (losses) included in net income: Unrealized gain (loss) 404 Ending balance — 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 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, 2023 and December 31, 2022: As of December 31, 2023 December 31, 2022 $ in thousands Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Liabilities: Repurchase agreements 4,458,695 4,458,662 4,234,823 4,233,627 Total 4,458,695 4,458,662 4,234,823 4,233,627 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. 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. Each of our officers is an employee of our Manager or one of its affiliates. We do not have any employees. 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. The costs of support personnel provided by our Manager for the year ended December 31, 2023 were $ 1.6 million (2022: $ 1.5 million; 2021: $ 1.1 million). Management Fee We pay our Manager a fee 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. GAAP. Stockholders' equity may exclude one-time events due to changes in U.S. GAAP and certain non-cash items upon approval by a majority of our independent directors. We do not pay any management fees on our investments in unconsolidated ventures that are managed by an affiliate of our Manager. 95 Table of Contents Expense Reimbursement We are required to reimburse our Manager for operating expenses incurred on our behalf, including directors and officers insurance, accounting services, auditing and tax services, legal services, filing fees, and miscellaneous general and administrative costs. 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 years ended December 31, 2023, 2022 and 2021. Years ended December 31, $ in thousands 2023 2022 2021 Incurred costs, prepaid or expensed 6,963 8,085 7,108 Incurred costs, charged or expected to be charged against equity as a cost of raising capital 257 223 692 Total incurred costs, originally paid by our Manager 7,220 8,308 7,800 Termination Fee If we terminate our management agreement, we owe our Manager a termination fee equal to three times the sum of our average annual management fee during the 24 -month period before termination, calculated as of the end of the most recently completed fiscal quarter. Note 12 – Stockholders’ Equity Preferred Stock 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. 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, 2023, we repurchased and retired 151,637 shares of Series B Preferred Stock and 271,031 shares of Series C Preferred Stock and recorded a gain on repurchase and retirement of preferred stock of $ 1.5 million. 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, 2023, we had authority to repurchase 1,185,997 additional shares of our Series B Preferred Stock and 1,045,439 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 CME Term SOFR and the applicable credit spread adjustment ( 0.26161 %) plus a spread of 5.18 % of the $ 25.00 liquidation preference per annum. Dividends are cumulative and payable quarterly in arrears. Holders of our Series C Preferred Stock are entitled to receive dividends at an annual rate of 7.50 % of the liquidation preference of $ 25.00 per share or $ 1.875 per share per annum until September 27, 2027. After September 27, 2027, holders are entitled to receive dividends at a floating rate equal to three-month CME Term SOFR and the applicable credit spread adjustment ( 0.26161 %) plus a spread of 5.289 % of the $ 25.00 liquidation preference per annum. Dividends are cumulative and payable quarterly in arrears. 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. Common Stock 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 96 Table of Contents received cash, in lieu of such fractional shares, in an amount determined based on the closing price of our common stock at the 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. As of December 31, 2023, we may sell up to 6,300,529 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). During the year ended December 31, 2023, we sold 9,699,471 shares (2022: 5,686,598 shares) of common stock in at-the-market transactions under our equity distribution agreements for proceeds of $ 109.1 million (2022: $ 81.6 million) net of approximately $ 1.5 million (2022: $ 1.3 million) in commissions and fees. During the years ended December 31, 2023 and December 31, 2022, we did not repurchase any shares of our common stock. As of December 31, 2023, we had authority to purchase 1,816,398 shares of our common stock through our share repurchase program. For the year ended December 31, 2023, we granted 45,567 restricted shares of common stock to our independent directors (December 31, 2022: 33,573 ). Restricted shares 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 The following tables present the components of total other comprehensive income (loss), net and accumulated other comprehensive income (“AOCI”) at December 31, 2023 and December 31, 2022, respectively. The tables exclude gains and losses on MBS that are accounted for under the fair value option. December 31, 2023 $ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total Total other comprehensive income (loss) Unrealized gain (loss) on mortgage-backed securities, net — ( 91 ) — ( 91 ) Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 320 — 320 Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 10,405 ) ( 10,405 ) Currency translation adjustments on investment in unconsolidated venture ( 10 ) — — ( 10 ) Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net 123 — — 123 Total other comprehensive income (loss) 113 229 ( 10,405 ) ( 10,063 ) AOCI balance at beginning of period ( 113 ) 469 10,405 10,761 Total other comprehensive income (loss) 113 229 ( 10,405 ) ( 10,063 ) AOCI balance at end of period — 698 — 698 97 Table of Contents December 31, 2022 $ in thousands Equity method investments Available-for-sale securities Derivatives and hedging Total Total other comprehensive income (loss) 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 ) Currency translation adjustments on investment in unconsolidated venture ( 537 ) — — ( 537 ) Total other comprehensive income (loss) ( 537 ) ( 6,280 ) ( 19,708 ) ( 26,525 ) AOCI balance at beginning of period 424 6,749 30,113 37,286 Total other comprehensive income (loss) ( 537 ) ( 6,280 ) ( 19,708 ) ( 26,525 ) AOCI balance at end of period ( 113 ) 469 10,405 10,761 Amounts recorded in AOCI before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on repurchase agreements on the consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining original life of the interest rate swap agreements. Dividends 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 2023 and 2022: $ in thousands, except per share amounts Dividends Declared Series B Preferred Stock Per Share In Aggregate Date of Payment 2023 November 2, 2023 0.4844 2,131 December 27, 2023 August 2, 2023 0.4844 2,167 September 27, 2023 May 8, 2023 0.4844 2,186 June 27, 2023 February 17, 2023 0.4844 2,198 March 27, 2023 2022 November 1, 2022 0.4844 2,198 December 27, 2022 August 2, 2022 0.4844 2,198 September 27, 2022 May 3, 2022 0.4844 2,991 June 27, 2022 February 16, 2022 0.4844 3,003 March 28, 2022 $ in thousands, except per share amounts Dividends Declared Series C Preferred Stock Per Share In Aggregate Date of Payment 2023 November 2, 2023 0.46875 3,548 December 27, 2023 August 2, 2023 0.46875 3,605 September 27, 2023 May 8, 2023 0.46875 3,654 June 27, 2023 February 17, 2023 0.46875 3,664 March 27, 2023 2022 November 1, 2022 0.46875 3,664 December 27, 2022 August 2, 2022 0.46875 3,664 September 27, 2022 May 3, 2022 0.46875 5,109 June 27, 2022 February 16, 2022 0.46875 5,391 March 28, 2022 98 Table of Contents $ in thousands, except per share amounts Dividends Declared Common Stock Per Share In Aggregate Date of Payment 2023 December 18, 2023 0.40 19,384 January 26, 2024 September 26, 2023 0.40 19,384 October 27, 2023 June 21, 2023 0.40 17,834 July 27, 2023 March 27, 2023 0.40 16,658 April 27, 2023 2022 December 19, 2022 0.65 25,162 January 27, 2023 September 26, 2022 0.65 22,979 October 27, 2022 June 27, 2022 0.90 29,721 July 27, 2022 March 28, 2022 0.90 29,693 April 27, 2022 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, 2023 and 2022. 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 Fiscal Tax Year Dividends Declared in Prior Year and Taxable in Current Year Dividends Declared and Taxable in Current Year Ordinary Dividends Return of Capital Capital Gain Distribution Series B Preferred Stock Dividends Fiscal tax year 2023 — 1.936700 1.936700 — — Fiscal tax year 2022 — 1.936700 1.936700 — — Series C Preferred Stock Dividends Fiscal tax year 2023 — 1.875000 1.875000 — — Fiscal tax year 2022 — 1.875000 1.875000 — — Common Stock Dividends Fiscal tax year 2023 (CUSIP 46131B704) 0.650000 1.600000 2.250000 — — Fiscal tax year 2022 (CUSIP 46131B704) (1) — 1.550000 0.873081 0.676919 — Fiscal tax year 2022 (CUSIP 46131B100) 0.090000 0.090000 0.101390 0.078610 — (1) Excludes common stock dividend of $ 0.65 per share declared on December 19, 2022 that had a record date of January 9, 2023. This dividend is a 2023 dividend for federal income tax purposes. 99 Table of Contents 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 (loss) per share for the years ended December 31, 2023, 2022 and 2021 is computed as follows: In thousands except per share amounts Years Ended December 31, 2023 2022 2021 Numerator (Income) Basic Earnings: Net income (loss) available to common stockholders ( 37,541 ) ( 416,963 ) ( 132,477 ) Denominator (Weighted Average Shares) Basic Earnings: Shares available to common stockholders 44,074 34,160 27,513 Dilutive Shares 44,074 34,160 27,513 Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic ( 0.85 ) ( 12.21 ) ( 4.82 ) Diluted ( 0.85 ) ( 12.21 ) ( 4.82 ) The following potential weighted average common shares were excluded from diluted earnings per share as the effect would be antidilutive: for the year ended December 31, 2023: 944 shares for restricted stock awards. (December 31, 2022: 1,216 for restricted stock awards; December 31, 2021: 1,606 for restricted stock awards). Note 14 – Commitments and Contingencies Commitments and contingencies may arise in the ordinary course of business. Our material off balance sheet commitments and contingencies as of December 31, 2023 are discussed below. We have invested in an unconsolidated venture that is sponsored by an affiliate of our Manager. The unconsolidated venture is structured as a partnership, and we invested in the partnership as a limited partner. The unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. Until the venture completes its liquidation, we are committed to fund $ 2.9 million in additional capital to cover future expenses should they occur. Note 15 – Subsequent Events Dividends We declared the following dividends on February 21, 2024: a Series B Preferred Stock dividend of $ 0.4844 per share payable on March 27, 2024 to our stockholders of record as of March 5, 2024, and a Series C Preferred Stock dividend of $ 0.46875 per share payable on March 27, 2024 to our stockholders of record as of March 5, 2024. 100 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES Schedule IV Mortgage Loans on Real Estate As of December 31, 2023 $ in thousands Reconciliation of Carrying Value of Mortgage Loans on Real Estate: 2023 2022 2021 Beginning balance — 23,515 23,098 Additions: Unrealized gain — 404 417 Deductions: Collection of principal — 23,919 — Unrealized loss — — — Ending balance — — 23,515 101 Table of Contents SIGNATURES 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. Invesco Mortgage Capital Inc. By: /s/ John M. Anzalone John M. Anzalone Chief Executive Officer Date: February 22, 2024 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 Title Date By: /s/ John M. Anzalone Chief Executive Officer February 22, 2024 John M. Anzalone (principal executive officer) By: /s/ R. Lee Phegley, Jr. Chief Financial Officer February 22, 2024 R. Lee Phegley, Jr. (principal financial officer) By: /s/ Roseann M. Perlis Chief Accounting Officer February 22, 2024 Roseann M. Perlis (principal accounting officer) By: /s/ John S. Day Director February 22, 2024 John S. Day By: /s/ Carolyn Gibbs Director February 22, 2024 Carolyn Gibbs By: /s/ Carolyn B. Handlon Director February 22, 2024 Carolyn B. Handlon By: /s/ Katharine W. Kelley Director February 22, 2024 Katharine W. Kelley By: /s/ Don H. Liu Director February 22, 2024 Don H. Liu By: /s/ Dennis P. Lockhart Director February 22, 2024 Dennis P. Lockhart By: /s/ Beth A. Zayicek Director February 22, 2024 Beth A. Zayicek 102