What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 216 added, 173 removed, 532 unchanged (42% of the section changed)

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Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.

As of March 31, 2024, we were invested in:

As of June 30, 2024, we were invested in:

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

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

During the periods presented in this Quarterly Report, we also invested in:

• to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS.

Treasury securities;

• other real estate-related financing arrangements in the form of unconsolidated ventures.

During the periods presented in this Quarterly Report, we also invested in U.S.

Treasury securities and other real estate-related financing arrangements in the form of unconsolidated ventures.

We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification.

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Macroeconomic factors that affect our business include interest rates, interest rate volatility, spread premiums, fiscal and monetary policy, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.

Of these macroeconomic factors, government policy initiatives, inflation, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the first quarter of 2024.

Contributing factors included:

• Financial conditions remained accommodative during the first quarter as credit spreads tightened, equity market valuations increased, and interest rate volatility eased as financial markets reacted favorably despite the higher interest rate environment brought on by shifting expectations for economic growth and monetary policy.

Inflation readings were generally flat during the quarter, remaining stubbornly above the Federal Reserve’s 2% inflation target.

The headline consumer price index (“CPI”) ended the quarter at 3.5%, up from December’s 3.4%, while CPI (ex.

food and energy) fell slightly from 3.9% to 3.8%.

Given these relatively high readings, investors' expectations for future inflation have adjusted upward, as Treasury inflation-protected securities breakeven rates increased.

The two-year breakeven ended the quarter at 2.72% (up from 2.02% at year-end) and the five-year breakeven ended at 2.44% (up from 2.15%)

• Stronger than expected inflation readings, along with continued evidence of robust economic activity, led to sharply higher interest rates across the maturity spectrum during the quarter.

The yield on the two-year Treasury increased by 37 basis points to 4.62%, the yield on the five-year Treasury increased 37 basis points to 4.20% and the yield on the ten-year Treasury finished at 4.19%, up 33 basis points on the quarter.

The stronger than expected economic growth and inflation data also led to a dramatic re-pricing of the market’s expectations of future monetary policy.

These expectations, as seen the through the Federal Funds futures market, adjusted from projecting over six cuts in the

Federal Open Market Committee’s (“FOMC”) benchmark rate during the balance of 2024 to less than three cuts.

Further, the market’s expectation for the beginning of the easing cycle shifted from March to July.

• Higher coupon Agency RMBS outperformed Treasuries while coupons lower in the stack underperformed, given a notable decline in interest rate volatility and improvement in supply and demand dynamics in the first quarter of 2024.

Despite the sharp increase in interest rates, interest rate volatility fell as market expectations for monetary policy converged with official projections by the FOMC, benefiting valuations in higher coupons.

In addition, organic supply remained at very low levels while demand from money managers, commercial banks, and overseas investors broadly outpaced expectations.

• Quantitative tightening continued in the first quarter of 2024, as the Federal Reserve passively reduced the size of their balance sheet through maturities of U.S.

• Financial conditions remained accommodative despite tightening modestly during the second quarter, as strong equity market performance was offset by slightly wider credit spreads and increased interest rate volatility.

Inflation readings trended lower during the quarter, moving closer to the Federal Reserve’s 2% inflation target.

The headline consumer price index (“CPI”) ended the quarter at 3.0%, down from March’s 3.5%, while CPI (ex.

food and energy) fell from 3.8% to 3.3%.

Investors reacted positively to these readings, with expectations for future inflation adjusting lower and Treasury inflation-protected securities breakeven rates decreased.

The two-year breakeven ended the quarter at 2.11% (down from 2.72% at the end of March) and the five-year breakeven ended at 2.28% (down from 2.44%).

• Despite slowing inflation, interest rates continued to increase across the maturity spectrum as investors began to anticipate the possibility of increased Treasury issuance following this November's presidential election.

The yield on the two-year Treasury increased 10 basis points to 4.72%, the yield on the five-year Treasury increased 13 basis points to 4.33% and the yield on the ten-year Treasury finished at 4.34%, up 15 basis points on the quarter.

Cooling inflation and softer employment data led to a re-pricing of the market’s expectations of future monetary policy.

At the end of the second quarter, the Federal Funds futures market reflected an expectation that the first cut of the benchmark rate by the Federal Open Market Committee’s (“FOMC”) would arrive in either September or November, and that the FOMC would reduce its target rate a total of five time through the end of 2025.

• Most Agency RMBS fixed rate coupons underperformed Treasuries during the second quarter, as interest rate volatility increased given market expectations for looser monetary policy and higher uncertainty on the timing of

monetary policy easing.

The increase in volatility led to a softening in demand for Agency RMBS and seasonal effects increased supply in higher coupons.

Coupons at the bottom of the 30-year coupon stack marginally outperformed Treasuries, given their lower sensitivity to increases in interest rate volatility, while 3.5% through 6.5% coupons underperformed.

• Prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates.

• Premiums on higher coupon specified pool collateral decreased modestly given the increase in interest rates.

• Implied financing via the dollar roll market for TBA investments became attractive for select higher coupons at the beginning of the quarter as demand spiked due to CMO issuance.

This specialness proved fleeting, and most dollar rolls ended the quarter relatively unattractive.

• Quantitative tightening continued in the second quarter of 2024, as the Federal Reserve passively reduced the size of its balance sheet through maturities of U.S.

Treasuries and paydowns of Agency RMBS.

Paydowns of Agency RMBS from the balance sheet added approximately $18 billion of net supply to the market each month, well below the Federal Reserve's monthly cap of $35 billion.

Although quantitative tightening is anticipated to conclude in the second half of 2024, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.

• Prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates.

• Premiums on higher coupon specified pool collateral increased modestly given improvement in supply and demand technicals.

• Implied financing via the dollar roll market for TBA investments remained relatively unattractive, as reduced demand from the Federal Reserve and commercial banks negatively impacted fundamentals, while the increase in loan balances worsened the prepayment profile.

• Agency CMBS risk premiums declined over the quarter as new issuance volumes remained relatively low and higher yields helped drive investor demand for fixed-rate bonds.

March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 One Quarter Change One Year

Although quantitative tightening is anticipated to conclude over the next several quarters, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.

• Agency CMBS risk premiums were unchanged over the quarter as new issuance volumes remained relatively low.

2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30,

2023 One Quarter Change One Year

Interest Rates

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30 Year Treasury 4.50 % 4.34 % 4.02 % 4.71 % 3.85 % 0.16 % 0.65 %

(in basis points) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 One Quarter Change One Year

(in basis points) June 30,

2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30,

2023 One Quarter Change One Year

Swap Spreads (1)

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Treasury security with a similar maturity.

Given the increase in market volatility in April, we remain cautious on the near-term outlook for the Agency RMBS sector as the market adjusts to shifting expectations around the timing of monetary policy adjustments.

Our recent allocation to fixed rate Agency CMBS reduces our exposure to near-term interest rate volatility while providing attractive returns with favorable funding.

Over the longer term, however, the potential normalization of monetary policy and a steeper yield curve should be supportive of Agency RMBS.

We believe Agency RMBS investors stand to benefit from attractive valuations, favorable funding and robust liquidity as the macro environment evolves.

As recent economic data indicated the disinflationary trend has continued, increasing the likelihood of an easing of monetary policy in the latter half of 2024, we are constructive on Agency MBS valuations.

Agency mortgage performance has closely followed changes in expectations regarding monetary policy, outperforming when additional easing is priced in and underperforming when easing is priced out, and this relationship is likely to continue.

Given the investors' expectation for two cuts or more in the Federal Funds target rate during the second half of 2024, we believe higher coupon Agency MBS will benefit from strong demand as the yield curve steepens and interest rate volatility declines.

Investment Activities

The table below shows the composition of our investment portfolio as of March 31, 2024, December 31, 2023 and March 31, 2023.

$ in thousands March 31, 2024 December 31, 2023 March 31, 2023

The table below shows the composition of our investment portfolio as of June 30, 2024, December 31, 2023 and June 30, 2023.

$ in thousands June 30, 2024 December 31, 2023 June 30, 2023

30 year fixed-rate pass-through, at fair value 4,359,796 4,952,474 5,383,997

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We value TBAs on our condensed consolidated balance sheets at net carrying value, which represents the difference between the fair market value and the implied cost basis of the TBAs.

Our TBA dollar roll transactions are a form of off-balance sheet financing.

We view our TBA dollar roll transactions as a form of off-balance sheet financing.

For further information on how management evaluates our at-risk leverage, see Non-GAAP Financial Measures below.

As of March 31, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 93% of our total investment portfolio, including TBAs, versus 98% as of December 31, 2023 and March 31, 2023.

Our 30 year fixed-rate Agency RMBS holdings as of March 31, 2024, December 31, 2023 and March 31, 2023 consisted of specified pools with coupon distributions as shown in the table below.

March 31, 2024 December 31, 2023 March 31, 2023

As of June 30, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 87% of our total investment portfolio, including TBAs, versus 98% as of December 31, 2023 and June 30, 2023.

Our 30 year fixed-rate Agency RMBS holdings as of June 30, 2024, December 31, 2023 and June 30, 2023 consisted of specified pools with coupon distributions as shown in the table below.

June 30, 2024 December 31, 2023 June 30, 2023

$ in thousands Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield

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We seek to capitalize on the impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that optimize borrower incentive to prepay for both our premium and discount priced investments.

The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of March 31, 2024, December 31, 2023 and March 31, 2023.

March 31, 2024 December 31, 2023 March 31, 2023

The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of June 30, 2024, December 31, 2023 and June 30, 2023.

June 30, 2024 December 31, 2023 June 30, 2023

$ in thousands Fair Value Percentage Fair Value Percentage Fair Value Percentage

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Total 30 year fixed-rate Agency RMBS 4,359,796 100.0 % 4,952,474 100.0 % 5,383,997 100.0 %

As of March 31, 2024, our holdings of Agency CMBS represented approximately 5% of our total investment portfolio versus 0% as of December 31, 2023 and March 31, 2023.

As of March 31, 2024, our Agency CMBS holdings were comprised of fixed-rate securities with Fannie Mae DUS representing 74% our holdings and Freddie Mac Multifamily Participation Certificates representing 24% of our holdings.

We invested in Agency CMBS in the first quarter of 2024 because these securities benefit from prepayment protection characteristics and have an attractive return profile.

We resumed investing in fixed-rate Agency CMBS in the first quarter of 2024 because these securities benefit from prepayment protection characteristics and have an attractive return profile.

Further, the hedging costs related to these holdings are economical as they are less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments.

As of March 31, 2024, December 31, 2023 and March 31, 2023, our holdings of non-Agency CMBS and non-Agency RMBS represented less than 1% of our total investment portfolio, including TBAs.

Approximately 70% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of March 31, 2024.

As of June 30, 2024, our holdings of Agency CMBS represented approximately 8% of our total investment portfolio.

Approximately 71% of our Agency CMBS were Fannie Mae DUS and 29% were Freddie Mac Multifamily Participation Certificates.

As of June 30, 2024, December 31, 2023 and June 30, 2023, our holdings of non-Agency CMBS and non-Agency RMBS represented less than 1% of our total investment portfolio, including TBAs.

Approximately 70% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of June 30, 2024.

In the first quarter of 2024, we received a final distribution from our sole remaining unconsolidated venture.

Following this distribution, we no longer have any investments in unconsolidated ventures.

We resumed investing in TBAs during the second quarter of 2024 as returns in the Agency RMBS TBA dollar roll market became more attractive for certain coupons at the beginning of the quarter.

We invest in TBAs as an alternative means of investing in and financing Agency RMBS.

As of June 30, 2024, our TBA holdings were comprised of 5.5% coupons in Ginnie Mae collateral and represented 4% of our investment portfolio.

Financing and Other Liabilities

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Maximum balance (2)

March 31, 2023 4,814,700 4,734,819 4,814,700

June 30, 2023 4,959,388 4,791,720 4,959,388

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March 31, 2024 4,393,908 4,419,757 4,531,261

June 30, 2024 4,260,475 4,251,953 4,269,254

(1) Average quarterly balance for each period is based on month-end balances.

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We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes.

During the three months ended March 31, 2024, we entered into interest rate swaps with a notional amount of $1.3 billion and terminated existing interest rate swaps with a notional amount of $1.1 billion.

Daily variation margin payment for interest rate

swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations.

During the six months ended June 30, 2024, we entered into interest rate swaps with a notional amount of $1.9 billion and terminated existing interest rate swaps with a notional amount of $2.0 billion.

Daily variation margin payment for interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations.

Capital Activities

As of March 31, 2024, we may sell up to 5,934,691 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.

During the three months ended March 31, 2024, we sold 365,838 shares of common stock under our equity distribution agreement for proceeds of $3.3 million, net of approximately $43,000 in commissions and fees.

During the three months ended March 31, 2023, we sold 2,930,069 shares of common stock under an equity distribution agreement for proceeds of $35.8 million, net of approximately $482,000 in commissions and fees.

For information on dividends declared during the three months ended March 31, 2024 and 2023, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I.

During the three months ended June 30, 2024, we sold 1,761,155 shares of common stock under our equity distribution agreement for proceeds of $16.1 million, net of approximately $210,000 in commissions and fees.

During the six months ended June 30, 2024, we sold 2,126,993 shares of common stock under our equity distribution agreement for proceeds of $19.4 million, net of approximately $254,000 in commissions and fees.

During the three months ended June 30, 2023, we sold 2,888,639 shares of common stock under an equity distribution agreement for proceeds of $31.0 million, net of approximately $421,000 in commissions and fees.

During the six months ended June 30, 2023, we sold 5,818,708 shares of common stock under our equity distribution agreement for proceeds of $66.8 million, net of approximately $903,000 in commissions and fees.

As of June 30, 2024, we had 4,173,536 shares of our common stock remaining available for sale under our current equity distribution agreement, all of which were sold in July 2024.

For information on dividends declared during the six months ended June 30, 2024 and 2023, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I.

Item 1 of this report on Form 10-Q.

During the three months ended March 31, 2024, we did not repurchase any shares of our common stock.

During the six months ended June 30, 2024, we did not repurchase any shares of our common stock.

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

During the three months ended March 31, 2024, we repurchased and retired 93,347 shares of Series B Preferred Stock and 95,917 shares of Series C Preferred Stock.

During the three months ended March 31, 2023, we did not repurchase any shares of preferred stock.

As of March 31, 2024, we had authority to repurchase 1,092,650 additional shares of our Series B Preferred Stock and 949,522 additional shares of our Series C Preferred Stock under the current share repurchase program.

During the three and six months ended June 30, 2024, we repurchased and retired 44,661 and 138,008 shares of Series B Preferred Stock, respectively, and 105,492 and 201,409 shares of Series C Preferred Stock, respectively.

During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock.

As of June 30, 2024, we had authority to repurchase 1,047,989 additional shares of our Series B Preferred Stock and 844,030 additional shares of our Series C Preferred Stock under the current share repurchase program.

Book Value per Common Share

We calculate book value per common share as follows.

In thousands except per share amounts March 31, 2024 December 31, 2023

In thousands except per share amounts June 30, 2024 December 31, 2023

Numerator (adjusted equity):

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Book value per common share 9.27 10.00

Our book value per common share increased 0.8% as of March 31, 2024 compared to December 31, 2023 as our higher coupon Agency RMBS performed well relative to interest rate swap hedges, despite a notable increase in interest rates during the quarter.

Strong performance in higher coupons was driven by a meaningful decline in interest rate volatility given market expectations for monetary policy easing in the first half of 2024.

Our book value per common share decreased 7.3% as of June 30, 2024 compared to December 31, 2023 as Agency RMBS modestly underperformed interest rate swaps.

Significant changes in expectations for near term monetary policy led to persistently elevated interest rate volatility, as higher than expected inflation at the beginning of 2024 delayed the anticipated start of the easing cycle as priced in the Federal Funds futures market.

Refer to Item 3.

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Results of Operations

The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The table below presents information from our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands, except share data 2024 2023 2024 2023

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Interest Income and Average Earning Asset Yields

The table below presents information related to our average earning assets and earning asset yields for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The table below presents information related to our average earning assets and earning asset yields for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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All yields are annualized.

Total average earning assets decreased $273.0 million for the three months ended March 31, 2024 compared to 2023.

We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average earnings assets for the three months ended March 31, 2024 compared to 2023.

Average earning asset yields increased for the three months ended March 31, 2024 compared to 2023 due to our rotation into higher yielding Agency RMBS.

We earned total interest income of $68.6 million for the three months ended March 31, 2024 (March 31, 2023:

$69.3 million).

Total average earning assets decreased $438.7 million and $356.0 million for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, due to modest declines in stockholders' equity and lower leverage.

Average earning asset yields increased for the three and six months ended June 30, 2024 compared to 2023 due to our rotation into higher yielding Agency RMBS.

We earned total interest income of $68.0 million and $136.6 million for the three and six months ended June 30, 2024, respectively (June 30, 2023:

$71.4 million and $140.7 million).

Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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Total interest income 68,028 71,428 136,611 140,715

Interest income was relatively unchanged for the three months ended March 31, 2024 compared to 2023 as a decrease in average earning assets was largely offset by an increase in average earning asset yields.

Interest income decreased slightly for the three and six months ended June 30, 2024 compared to 2023 as a decrease in average earning assets was largely offset by an increase in average earning asset yields.

Prepayment Speeds

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Conversely, for securities purchased at a discount to par value, interest income will be reduced in periods where prepayment speeds were slower than expected.

The following table presents net (premium amortization) discount accretion recognized for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The following table presents net (premium amortization) discount accretion recognized for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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Net (premium amortization) discount accretion 1,780 1,309 2,923 1,480

Net discount accretion was $1.1 million for the three months ended March 31, 2024 compared to $171,000 in 2023.

The increase in net discount accretion for the three months ended March 31, 2024 compared to 2023 was the result of repositioning our Agency RMBS portfolio into securities with lower book prices and slightly faster prepayment rates.

The increase in net discount accretion for the three and six months ended June 30, 2024 compared to 2023 was driven by higher discount accretion on securities with lower book prices and slightly faster prepayment rates.

Our interest income is subject to interest rate risk.

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Interest Expense and Cost of Funds

The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The table below presents information related to our borrowings and cost of funds for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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(3) Average cost of funds is calculated by dividing annualized interest expense including amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.

Total average borrowings decreased $317.7 million for the three months ended March 31, 2024 compared to 2023.

We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average borrowings for the three months ended March 31, 2024 compared to 2023.

Our average cost of funds increased 137 basis points for the three months ended March 31, 2024 compared to 2023 as the FOMC has raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a range of 5.25% to 5.50% as of March 31, 2024.

The table below presents the components of interest expense for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

Total average borrowings decreased $539.8 million and $428.9 million for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, due to modest declines in stockholders' equity and lower leverage.

Our average cost of funds increased 66 and 102 basis points for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, as the FOMC has raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a range of 5.25% to 5.50% as of June 30, 2024.

The table below presents the components of interest expense for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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Total interest expense 59,393 59,022 120,973 108,748

Our interest expense increased $11.9 million for the three months ended March 31, 2024 compared to 2023 as increases in our cost of funds more than offset decreases in our average borrowings.

Our interest expense as reported in our condensed consolidated statement of operations includes amortization of net deferred gains and losses on de-designated interest rate swaps as summarized in the table above.

Amortization of net deferred gains on de-designated interest rate swaps decreased our total interest expense by $4.5 million during the three months ended March 31, 2023.

Our interest expense was relatively flat for the three months ended June 30, 2024 compared to 2023 as a decrease in contractual interest expense on our repurchase agreements was offset by a decrease in amortization of net deferred gains on de-designated interest rate swaps.

Our interest expense increased $12.2 million for the six months ended June 30, 2024 compared to 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in our cost of funds that more than offset decreases in our average borrowings.

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 the condensed 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.

As of March 31, 2024 and December 31, 2023, there were no net deferred gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income.

As of December 31, 2023, there were no net deferred gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income.

Net Interest Income

The table below presents the components of net interest income for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The table below presents the components of net interest income for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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Net interest rate margin 0.02 % 0.48 % (0.02) % 0.78 %

Our net interest income, which equals total interest income less total interest expense, totaled $7.0 million for the three months ended March 31, 2024 (March 31, 2023:

$19.6 million).

The decrease in net interest income and net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds, for three months ended March 31, 2024 compared to 2023 was due to higher interest expense related to increases in the Federal Funds target rate.

Our net interest income, which equals total interest income less total interest expense, totaled $8.6 million and $15.6 million for the three and six months ended June 30, 2024, respectively (June 30, 2023:

$12.4 million and $32.0 million).

The decrease in net interest income for the three months ended June 30, 2024 was due to lower average earning assets, which was partially offset by our rotation into higher yielding Agency RMBS.

The decrease in net interest income for the six months ended June 30, 2024 was due to a decrease in amortization of net deferred gains on de-designated interest rate swaps, increases in the Federal Funds target rate and lower average earnings assets, which were partially offset by lower average borrowings and our rotation into higher yielding Agency RMBS.

Our net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds, decreased in the three and six months ended June 30, 2024 compared 2023 as increases in the Federal Funds target rate and decreases in amortization of net deferred gains on de-designated interest rate swaps more than offset our rotation into higher yielding Agency RMBS.

Our cost of funds is generally more sensitive to changes in interest rates than the yield on our investment portfolio, which is largely comprised of 30 year fixed-rate Agency RMBS.

Gain (Loss) on Investments, net

The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

The table below summarizes the components of gain (loss) on investments, net for the three and six months ended June 30, 2024 and 2023.

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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Total gain (loss) on investments, net (45,212) (99,679) (111,365) (47,723)

During the three months ended March 31, 2024, we sold MBS and realized net losses of $3.2 million (March 31, 2023:

net losses of $13.8 million).

Net realized losses during the three months ended March 31, 2024 reflect sales of lower coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS.

Net realized losses during the three months ended March 31, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.

During the three and six months ended June 30, 2024, we sold MBS and realized net losses of $6.5 million and $9.8 million, respectively (June 30, 2023:

net losses of $10.5 million and $24.2 million).

Net realized losses during the three and six months ended June 30, 2024 reflect sales of 4.0% to 5.0% coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS.

Net realized losses during the three and six months ended June 30, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.

We have elected the fair value option for all of our MBS purchased on or after September 1, 2016.

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Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, $5.0 billion or 99.7% of our MBS were accounted for under the fair value option.

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $62.5 million in the three months ended March 31, 2024 compared to net unrealized gains of $65.7 million in the three months ended March 31, 2023.

Net unrealized losses in the three months ended March 31, 2024 resulted from higher interest rates during the quarter, as valuations on fixed-rate securities declined as interest rates rose.

Net unrealized gains in the three months ended March 31, 2023 were primarily due to improved Agency RMBS valuations as yields on Treasuries decreased.

As of June 30, 2024, $4.8 billion (December 31, 2023:

$5.0 billion) or 99.7% (December 31, 2023:

99.7%) of our MBS were accounted for under the fair value option.

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $38.7 million and $101.2 million in the three and six months ended June 30, 2024 compared to net unrealized losses of $89.2 million and $23.5 million in the three and six months ended June 30, 2023.

Net unrealized losses in the three and six months ended June 30, 2024 resulted from higher interest rates and wider spreads on fixed-rate Agency RMBS as valuations declined given an increase in interest rates and elevated interest rate volatility.

Net unrealized losses in the three and six months ended June 30, 2023 were primarily due to lower valuations on our Agency RMBS given higher interest rates and wider spreads on our holdings.

We recorded net realized and unrealized losses of $458,000 on U.S.

Treasury securities in the three months ended March 31, 2024.

Treasury securities in the six months ended June 30, 2024.

We did not hold any U.S.

Treasury securities during the three months ended March 31, 2023.

Treasury securities during the three months ended June 30, 2024 and the three and six months ended June 30, 2023.

(Increase) Decrease in Provision for Credit Losses

As of March 31, 2024, $15.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023:

As of June 30, 2024, $15.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023:

$15.7 million).

During the three months ended March 31, 2024, we recorded a $39,000 provision

for credit losses on a single non-Agency CMBS based on a comparison of the security's amortized cost basis to discounted expected cash flows.

We did not record any provisions for credit losses during the three months ended March 31, 2023.

During the three and six months ended June 30, 2024, we recorded a $263,000 and $302,000 provision for credit losses, respectively, on a single non-Agency CMBS.

We recorded a $169,000 provision for credit losses during the three and six months ended June 30, 2023 on the same security.

Equity in Earnings (Losses) of Unconsolidated Ventures

For the three months ended March 31, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (March 31, 2023:

For the six months ended June 30, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (six months ended June 30, 2023:

equity in earnings of $2,000).

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$ in thousands

Three months ended March 31, 2024

Three months ended June 30, 2024

not designated as

1 unchanged sentence

Interest Rate Swaps (22,871) 43,271 8,860 29,260

TBAs 527 — (1,525) (998)

Total (22,344) 43,271 7,335 28,262

$ in thousands

Three months ended March 31, 2023

Three months ended June 30, 2023

not designated as

1 unchanged sentence

Interest Rate Swaps 27,893 63,437 5,312 96,642

Currency Forward Contracts (18) — (18)

TBAs (929) — 929 —

Total 26,946 63,437 6,241 96,624

We recorded net gains of $93.2 million on interest rate swaps for the three months ended March 31, 2024 (March 31, 2023:

net losses of $44.5 million) primarily due to changes in forward interest rate expectations.

As of March 31, 2024, we had $4.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 20 days.

$ in thousands

Six months ended June 30, 2024

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 25,811 88,558 8,052 122,421

TBAs 527 — (1,525) (998)

Total 26,338 88,558 6,527 121,423

$ in thousands

Six months ended June 30, 2023

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 (63,056) 117,901 (2,656) 52,189

Currency Forward Contracts (18) — — (18)

TBAs (1,880) — 1,438 (442)

Total (64,954) 117,901 (1,218) 51,729

We recorded net gains of $29.3 million and $122.4 million on interest rate swaps for the three and six months ended June 30, 2024, respectively, (June 30, 2023:

net gains of $96.6 million and $52.2 million) primarily due to changes in forward interest rate expectations.

As of June 30, 2024, we had $4.3 billion of repurchase agreement borrowings with a weighted average remaining maturity of 19 days.

We typically refinance each repurchase agreement at market interest rates upon maturity.

We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.

As of March 31, 2024 and December 31, 2023, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.

$ in thousands As of March 31, 2024 As of December 31, 2023

As of June 30, 2024 and December 31, 2023, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.

$ in thousands As of June 30, 2024 As of December 31, 2023

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

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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.

As of March 31, 2024 and December 31, 2023, we had no investments in TBAs.

We recorded $442,000 of net realized and unrealized losses on TBAs during the three months ended March 31, 2023.

We recorded net realized and unrealized losses of $998,000 on TBAs during the three and six months ended June 30, 2024 (six months ended June 30, 2023:

Other Investment Income (Loss), net

Our other investment income (loss), net during the three months ended March 31, 2023 consisted of foreign currency transaction gains and losses and the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.

We incurred management fees of $2.9 million for the three months ended March 31, 2024 (March 31, 2023:

$3.0 million).

Management fees decreased for the three months ended March 31, 2024 compared to the same period in 2023 due to a lower stockholders' equity management fee base.

Our other investment income (loss), net during the three and six months ended June 30, 2023 consisted of foreign currency transaction gains and losses.

Other investment income (loss) for the six months ended June 30, 2023 also included the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.

We incurred management fees of $2.9 million and $5.8 million for the three and six months ended June 30, 2024, respectively (June 30, 2023:

$3.2 million and $6.1 million).

Management fees decreased for the three and six months ended June 30, 2024 compared to the same period in 2023 due to a lower stockholders' equity management fee base.

Refer to Note 11 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.

Our general and administrative expenses not covered under our management agreement amounted to $1.8 million for the three months ended March 31, 2024 (March 31, 2023:

$2.1 million).

Our general and administrative expenses not covered under our management agreement amounted to $1.9 million and $3.7 million for the three and six months ended June 30, 2024, respectively (June 30, 2023:

$2.0 million and $4.1 million).

General and administrative expenses not covered under our management agreement primarily consist of directors and officers insurance, legal costs, accounting, auditing and tax services, filing fees and miscellaneous general and administrative costs.

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

During the three months ended March 31, 2024, we repurchased and retired 93,347 shares of Series B Preferred Stock and 95,917 shares of Series C Preferred Stock.

During the three months ended March 31, 2023, we did not repurchase any shares of preferred stock.

During the three and six months ended June 30, 2024, we repurchased and retired 44,661 shares and 138,008 shares of Series B Preferred Stock, respectively, and 105,492 and 201,409 shares of Series C Preferred Stock, respectively.

During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock.

Gains on repurchases and retirements of preferred stock represent the difference between the consideration transferred and the carrying value of the preferred stock.

Net Income (Loss) attributable to Common Stockholders

For the three months ended March 31, 2024, our net income attributable to common stockholders was $23.7 million (March 31, 2023:

$15.6 million) or $0.49 basic and diluted net income per average share available to common stockholders (March 31, 2023:

The change in net income attributable to common stockholders was primarily due to (i) net gains on derivative instruments of $93.2 million in the 2024 period compared to net losses on derivative instruments of $44.9 million in the 2023 period;

(ii) net losses on investments of $66.2 million in the 2024 period compared to net gains on investments of $52.0 million in the 2023 period;

For the three months ended June 30, 2024, our net loss attributable to common stockholders was $18.8 million (June 30, 2023:

$1.4 million) or $0.38 basic and diluted net loss per average share available to common stockholders (June 30, 2023:

The change in net loss attributable to common stockholders was primarily due to (i) net gains on derivative instruments of $28.3 million in the 2024 period compared to $96.6 million in the 2023 period;

(ii) net losses on investments of $45.2 million in the 2024 period compared to $99.7 million in the 2023 period;

and (iii) a $3.8 million decrease in net interest income.

For the six months ended June 30, 2024, our net income attributable to common stockholders was $5.0 million (June 30, 2023:

$14.2 million) or $0.10 basic and diluted net income per average share available to common stockholders (June 30, 2023:

The change in net income attributable to common stockholders was primarily due to (i) net losses on investments of $111.4 million in the 2024 period compared to $47.7 million in the 2023 period;

(ii) net gains on derivative instruments of $121.4 million in the 2024 period compared to $51.7 million in the 2023 period;

and (iii) a $16.3 million decrease in net interest income.

For further information on the changes in net gain (loss) on derivative instruments, net gain (loss) on investments and changes in net interest income, see preceding discussion under “Gain (Loss) on Derivative Instruments, net”, “Gain (Loss) on Investments, net” and “Net Interest Income”.

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For example, a portion of our mortgage-backed securities are classified as available-for-sale securities, and we record changes in the valuation of these securities in other comprehensive income on our condensed consolidated balance sheets.

We elected the fair value option for our mortgage-backed securities purchased on or after September 1, 2016, and changes in the valuation of these securities are recorded in other income (loss) in our condensed consolidated statements of operations.

consolidated statements of operations.

In addition, certain gains and losses represent one-time events.

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GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands, except per share data 2024 2023 2024 2023

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Unrealized (gain) loss on derivative instruments, net (1)

(7,335) (6,241) (6,527) 1,218

TBA dollar roll income (2)

1,078 — 1,078 697

Gain on repurchase and retirement of preferred stock (208) (364) (401) (364)

1 unchanged sentence

Amortization of net deferred (gain) loss on de-designated interest rate swaps (4)

— (3,201) — (7,695)

Subtotal 61,091 62,900 79,177 106,599

2 unchanged sentences

Earnings available for distribution per common share (5)

0.86 1.45 1.72 2.95

GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following components.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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GAAP interest expense on the condensed consolidated statements of operations includes the following components.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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The table below shows the components of earnings available for distribution for the following periods.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

$ in thousands 2024 2023 2024 2023

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(1) See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.

Earnings available for distribution decreased during the three months ended March 31, 2024 compared to the same period in 2023 due to lower effective net interest income.

Earnings available for distribution decreased during the three and six months ended June 30, 2024 compared to the same periods in 2023 due to lower effective net interest income.

See below for details on the change in effective net interest income.

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The following table reconciles total interest expense to effective interest expense and cost of funds to effective cost of funds for the following periods.

Three Months Ended March 31,

Three Months Ended June 30,

$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds

3 unchanged sentences

Effective interest expense 16,122 1.52 % (1,214) (0.10) %

Our effective interest expense and effective cost of funds increased in the three months ended March 31, 2024 compared to the same period in 2023 due to higher U.S.

GAAP interest expense driven by increases in the Federal Funds target rate and decreases in contractual net interest income on interest rate swaps.

composition of our interest rate swap portfolio, which are generally broadly aligned with changes in our repurchase agreement borrowings.

See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of March 31, 2024 and December 31, 2023.

Six Months Ended June 30,

$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds

Total interest expense 120,973 5.58 % 108,748 4.56 %

Amortization of net deferred gain (loss) on de-designated interest rate swaps — — % 7,695 0.32 %

Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (88,558) (4.08) % (117,901) (4.95) %

Effective interest expense 32,415 1.50 % (1,458) (0.07) %

Our effective interest expense and effective cost of funds increased in the three and six months ended June 30, 2024 compared to the same periods in 2023 due to decreases in contractual net interest income on interest rate swaps and increases in the Federal Funds target rate, which were partially offset by lower average borrowings.

In addition to changes caused by the underlying floating rate index, the amount of contractual net interest income or expense on interest swaps that we recognize may change materially from period to period based on changes in the size and composition of our interest rate swap portfolio, which are generally broadly aligned with changes in our repurchase agreement borrowings.

See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of June 30, 2024 and December 31, 2023.

The following table reconciles net interest income to effective net interest income and net interest rate margin to effective interest rate margin for the following periods.

Three Months Ended March 31,

Three Months Ended June 30,

$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin

3 unchanged sentences

Effective net interest income 51,906 4.09 % 72,642 5.51 %

Our effective net interest income and effective interest rate margin decreased in the three months ended March 31, 2024 compared to the same period in 2023 due to higher U.S.

GAAP interest expense driven by increases in the Federal Funds target rate and decreases in contractual net interest income on interest rate swaps.

Six Months Ended June 30,

$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin

Net interest income 15,638 (0.02) % 31,967 0.78 %

Amortization of net deferred (gain) loss on de-designated interest rate swaps — — % (7,695) (0.32) %

Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 88,558 4.08 % 117,901 4.95 %

Effective net interest income 104,196 4.06 % 142,173 5.41 %

Our effective net interest income and effective interest rate margin decreased in the three and six months ended June 30, 2024 compared to the same periods in 2023 due to decreases in contractual net interest income on interest rate swaps, increases in the Federal Funds target rate and lower average earning assets, which were partially offset by lower average borrowings and our rotation into higher yielding Agency RMBS.

Economic Debt-to-Equity Ratio

The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of March 31, 2024 and December 31, 2023.

The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of June 30, 2024 and December 31, 2023.

Our debt-to-equity ratio is calculated in accordance with U.S.

GAAP and is the ratio of total debt to total stockholders' equity.

As of March 31, 2024, approximately 88% of our equity is allocated to Agency RMBS.

As of June 30, 2024, approximately 86% of our equity is allocated to Agency RMBS.

We present an economic debt-to-equity ratio, a non-GAAP financial measure of leverage that considers the impact of the off-balance sheet financing of our investments in TBAs that are accounted for as derivative instruments under U.S.

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GAAP financial measure of debt-to-equity ratio, provides information that is useful to investors in understanding how management evaluates our at-risk leverage and gives investors a comparable statistic to those of other mortgage REITs who also invest in TBAs and present a similar non-GAAP measure of leverage.

As of March 31, 2024

As of June 30, 2024

$ in thousands Agency

6 unchanged sentences

Derivative assets, at fair value (3)

7,896 1,095 — 8,991

Other assets 35,665 1,474 130 37,269

1 unchanged sentence

Repurchase agreements 3,945,401 315,074 — 4,260,475

Derivative liabilities, at fair value (3)

1,525 — — 1,525

Other liabilities 40,686 3,918 709 45,313

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(2) Cash and cash equivalents is allocated based on our financing strategy for each asset class.

(3) Restricted cash and derivative assets are allocated based on our hedging strategy for each asset class.

(3) Restricted cash and derivative assets and liabilities are allocated based on our hedging strategy for each asset class.

(4) Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.

(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity.

We did not have any TBAs outstanding as of March 31, 2024.

(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis ($199.9 million as of June 30, 2024) to total stockholders' equity.

As of December 31, 2023

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However, there can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls.

We held cash, cash equivalents and restricted cash of $200.5 million as of March 31, 2024 (March 31, 2023:

We held cash, cash equivalents and restricted cash of $183.4 million as of June 30, 2024 (June 30, 2023:

$333.7 million).

Our cash, cash equivalents and restricted cash change due to normal fluctuations in cash balances related to the timing of principal and interest payments, repayments of debt, and asset purchases and sales.

Our operating activities provided net cash of approximately $57.5 million for the three months ended March 31, 2024 (March 31, 2023:

Our operating activities provided net cash of approximately $90.5 million for the six months ended June 30, 2024 (June 30, 2023:

$153.7 million).

Our investing activities provided net cash of $37.1 million in the three months ended March 31, 2024 compared to net cash used by investing activities of $696.9 million in the three months ended March 31, 2023.

Our primary source of cash from investing activities for the three months ended March 31, 2024 was proceeds from sales of MBS of $296.5 million and proceeds from sales of U.S.

Treasury securities of $10.8 million (March 31, 2023:

$783.9 million from the sales of MBS).

We also generated $71.2 million from principal payments of MBS during the three months ended March 31, 2024 (March 31, 2023:

$61.1 million) and received cash of $48.7 million to settle derivative contracts in the three months ended March 31, 2024 (March 31, 2023:

Our investing activities provided net cash of $133.0 million in the six months ended June 30, 2024 compared to net cash used by investing activities of $830.0 million in the six months ended June 30, 2023.

Our primary source of cash from investing activities for the six months ended June 30, 2024 was proceeds from sales of MBS of $568.3 million and proceeds from sales of U.S.

Treasury securities of $10.8 million (June 30, 2023:

$1.5 billion from the sales of MBS).

We also generated $153.0 million from principal payments of MBS during the six months ended June 30, 2024 (June 30, 2023:

$144.5 million) and received cash of $26.3 million to settle derivative contracts in the six months ended June 30, 2024 (June 30, 2023:

net cash used of $65.0 million).

We used cash of $390.4 million to purchase MBS during the three months ended March 31, 2024 (March 31, 2023:

We used cash of $624.4 million to purchase MBS during the six months ended June 30, 2024 (June 30, 2023:

$2.4 billion to purchase MBS).

Our financing activities used net cash of $92.7 million for the three months ended March 31, 2024 compared to net cash provided by financing activities of $579.8 million in the three months ended March 31, 2023.

During the three months ended March 31, 2024, we used cash for net repayments on our repurchase agreements of $64.4 million (March 31, 2023:

provided of $579.9 million).

We also used cash of $25.0 million for the three months ended March 31, 2024 to pay dividends (March 31, 2023:

Our financing activities used net cash of $238.7 million for the six months ended June 30, 2024 compared to net cash provided by financing activities of $731.2 million in the six months ended June 30, 2023.

During the six months ended June 30, 2024, we used cash for net repayments on our repurchase agreements of $197.8 million (June 30, 2023:

net cash provided of

$724.6 million).

Proceeds from issuance of common stock provided $3.3 million for the three months ended March 31, 2024 (March 31, 2023:

We also used cash of $50.0 million for the six months ended June 30, 2024 to pay dividends (June 30, 2023:

$53.5 million).

As of March 31, 2024, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.6% for Agency RMBS and 5.0% for Agency CMBS.

Proceeds from issuance of common stock provided $19.4 million for the six months ended June 30, 2024 (June 30, 2023:

$66.8 million).

As of June 30, 2024, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.5% for Agency RMBS and 5.0% for Agency CMBS.

The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS and a low of 3% to a high of 6% for Agency CMBS.

21 unchanged sentences

Forward-Looking Statements Regarding Liquidity

As of March 31, 2024, we held $4.6 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $390.7 million of unencumbered investments and unrestricted cash of $59.9 million as of March 31, 2024.

As of March 31, 2024, our known contractual obligations primarily consisted of $4.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 20 days.

As of June 30, 2024, we held $4.5 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $386.8 million of unencumbered investments and unrestricted cash of $58.8 million as of June 30, 2024.

As of June 30, 2024, our known contractual obligations primarily consisted of $4.3 billion of repurchase agreement borrowings with a weighted average remaining maturity of 19 days.

We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity.

11 unchanged sentences

If a counterparty were to default on its obligations, we would be exposed to potential losses to the extent the fair value of collateral pledged by us to the counterparty including any accrued interest receivable on such collateral exceeded the amount loaned to us by the counterparty plus interest due to the counterparty.

As of March 31, 2024, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $39.3 million, or 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of March 31, 2024.

As of June 30, 2024, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $38.1 million, or 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of June 30, 2024.

The information is based on the geographic headquarters of the counterparty or counterparty's parent company.

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Other Matters

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended March 31, 2024, and that our proposed method of operation will permit us to satisfy the asset tests, gross income tests, and distribution and stock ownership requirements for our taxable year that will end on December 31, 2024.

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended June 30, 2024, and that our proposed method of operation will permit us to satisfy the asset tests, gross income tests, and distribution and stock ownership requirements for our taxable year that will end on December 31, 2024.

At all times, we intend to conduct our business so that neither we nor our Operating Partnership nor the subsidiaries of our Operating Partnership are required to register as an investment company under the 1940 Act.

7 unchanged sentences

IAS Asset I LLC and certain of the Operating Partnership’s other subsidiaries that we may form in the future rely upon the exclusion from the definition of "investment company" under the 1940 Act provided by Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exclusion generally requires that at least 55% of each subsidiary’s portfolio be comprised of qualifying assets and at least 80% be comprised of qualifying assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).

We calculate that as of March 31, 2024, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

We calculate that as of June 30, 2024, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis