Invesco Mortgage Capital Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) As of $ in thousands, except share amounts September 30, 2024 December 31, 2023 ASSETS Mortgage-backed securities, at fair value (including pledged securities of $ 5,401,351 and $ 4,712,185 , respectively; net of allowance for credit losses of $ 542 and $ 320 , respectively) 5,873,696 5,045,306 U.S. Treasury securities, at fair value — 11,214 Cash and cash equivalents 48,254 76,967 Restricted cash 120,199 121,670 Investment related receivable 26,739 26,604 Derivative assets, at fair value 12,035 939 Other assets 1,307 1,509 Total assets 6,082,230 5,284,209 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements 5,184,885 4,458,695 Dividends payable 24,292 19,384 Accrued interest payable 10,686 15,787 Collateral held payable 336 2,475 Accounts payable and accrued expenses 1,607 1,296 Due to affiliate 3,421 3,907 Total liabilities 5,225,227 4,501,544 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: 4,247,989 and 4,385,997 shares issued and outstanding, respectively ($ 106,200 and $ 109,650 aggregate liquidation preference, respectively) 102,678 106,014 7.50 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 7,277,523 and 7,545,439 shares issued and outstanding, respectively ($ 181,938 and $ 188,636 aggregate liquidation preference, respectively) 175,995 182,474 Common Stock, par value $ 0.01 per share; 134,000,000 and 67,000,000 shares authorized, respectively; 60,730,287 and 48,460,626 shares issued and outstanding, respectively 607 484 Additional paid in capital 4,119,347 4,011,138 Accumulated other comprehensive income 361 698 Retained earnings (distributions in excess of earnings) ( 3,541,985 ) ( 3,518,143 ) Total stockholders’ equity 857,003 782,665 Total liabilities and stockholders' equity 6,082,230 5,284,209 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, $ in thousands, except share data 2024 2023 2024 2023 Interest income 73,825 75,132 210,436 215,847 Interest expense 66,315 65,701 187,288 174,449 Net interest income 7,510 9,431 23,148 41,398 Other income (loss) Gain (loss) on investments, net 165,168 ( 224,897 ) 53,803 ( 272,620 ) (Increase) decrease in provision for credit losses 80 ( 43 ) ( 222 ) ( 212 ) Equity in earnings (losses) of unconsolidated ventures — 2 ( 193 ) 4 Gain (loss) on derivative instruments, net ( 127,345 ) 151,689 ( 5,922 ) 203,418 Other investment income (loss), net — — — ( 66 ) Total other income (loss) 37,903 ( 73,249 ) 47,466 ( 69,476 ) Expenses Management fee – related party 2,888 3,090 8,694 9,237 General and administrative 1,805 1,691 5,544 5,743 Total expenses 4,693 4,781 14,238 14,980 Net income (loss) 40,720 ( 68,599 ) 56,376 ( 43,058 ) Dividends to preferred stockholders ( 5,474 ) ( 5,772 ) ( 16,567 ) ( 17,474 ) Gain on repurchase and retirement of preferred stock 25 347 426 711 Net income (loss) attributable to common stockholders 35,271 ( 74,024 ) 40,235 ( 59,821 ) Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 0.63 ( 1.62 ) 0.78 ( 1.40 ) Diluted 0.63 ( 1.62 ) 0.78 ( 1.40 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, $ in thousands 2024 2023 2024 2023 Net income (loss) 40,720 ( 68,599 ) 56,376 ( 43,058 ) Other comprehensive income (loss): Unrealized gain (loss) on mortgage-backed securities, net ( 287 ) ( 91 ) ( 639 ) ( 698 ) Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 43 302 212 Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to interest expense — ( 1,810 ) — ( 9,505 ) Currency translation adjustments on investment in unconsolidated venture — — — ( 10 ) Reclassification of currency translation loss on investment in unconsolidated venture to other investment income (loss), net — — — 123 Total other comprehensive income (loss) ( 287 ) ( 1,858 ) ( 337 ) ( 9,878 ) Comprehensive income (loss) 40,433 ( 70,457 ) 56,039 ( 52,936 ) Dividends to preferred stockholders ( 5,474 ) ( 5,772 ) ( 16,567 ) ( 17,474 ) Gain on repurchase and retirement of preferred stock 25 347 426 711 Comprehensive income (loss) attributable to common stockholders 34,984 ( 75,882 ) 39,898 ( 69,699 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the three months ended March 31, 2024; June 30, 2024 and September 30, 2024 (Unaudited) Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Distributions in excess of earnings) Total Stockholders’ Equity Series B Preferred Stock Series C Preferred Stock $ in thousands, except share amounts Common Stock Shares Amount Shares Amount Shares Amount Balance as of 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 Net income (loss) — — — — — — — — 29,122 29,122 Other comprehensive income (loss) — — — — — — — ( 163 ) — ( 163 ) Proceeds from issuance of common stock, net of offering costs — — — — 365,838 4 3,314 — — 3,318 Stock awards — — — — ( 870 ) — — — — — Repurchase and retirement of preferred stock ( 93,347 ) ( 2,256 ) ( 95,917 ) ( 2,320 ) — — — — 193 ( 4,383 ) Common stock dividends — — — — — — — — ( 19,530 ) ( 19,530 ) Preferred stock dividends — — — — — — — — ( 5,585 ) ( 5,585 ) Amortization of equity-based compensation — — — — — — 128 — — 128 Balance as of March 31, 2024 4,292,650 103,758 7,449,522 180,154 48,825,594 488 4,014,580 535 ( 3,513,943 ) 785,572 Net income (loss) — — — — — — — — ( 13,466 ) ( 13,466 ) Other comprehensive income (loss) — — — — — — — 113 — 113 Proceeds from issuance of common stock, net of offering costs — — — — 1,761,155 18 16,034 — — 16,052 Stock awards — — — — 50,855 — — — — — Repurchase and retirement of preferred stock ( 44,661 ) ( 1,080 ) ( 105,492 ) ( 2,551 ) — — — — 208 ( 3,423 ) Common stock dividends — — — — — — — — ( 20,255 ) ( 20,255 ) Preferred stock dividends — — — — — — — — ( 5,508 ) ( 5,508 ) Amortization of equity-based compensation — — — — — — 131 — — 131 Balance as of June 30, 2024 4,247,989 102,678 7,344,030 177,603 50,637,604 506 4,030,745 648 ( 3,552,964 ) 759,216 Net income (loss) — — — — — — — — 40,720 40,720 Other comprehensive income (loss) — — — — — — — ( 287 ) — ( 287 ) Proceeds from issuance of common stock, net of offering costs — — — — 10,084,138 101 88,445 — — 88,546 Stock awards — — — — 8,545 — — — — — Repurchase and retirement of preferred stock — — ( 66,507 ) ( 1,608 ) — — — — 25 ( 1,583 ) Common stock dividends — — — — — — — — ( 24,292 ) ( 24,292 ) Preferred stock dividends — — — — — — — — ( 5,474 ) ( 5,474 ) Amortization of equity-based compensation — — — — — — 157 — — 157 Balance as of September 30, 2024 4,247,989 102,678 7,277,523 175,995 60,730,287 607 4,119,347 361 ( 3,541,985 ) 857,003 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the three months ended March 31, 2023; June 30, 2023 and September 30, 2023 (Unaudited) Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Distributions in excess of earnings) Total Stockholders’ Equity Series B Preferred Stock Series C Preferred Stock $ in thousands, except share amounts Common Stock Shares Amount Shares Amount Shares Amount Balance as of 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) — — — — — — — — 21,463 21,463 Other comprehensive income (loss) — — — — — — — ( 4,857 ) — ( 4,857 ) Proceeds from issuance of common stock, net of offering costs — — — — 2,930,069 29 35,763 — — 35,792 Stock awards — — — — 6,259 — — — — — Common stock dividends — — — — — — — — ( 16,658 ) ( 16,658 ) Preferred stock dividends — — — — — — — — ( 5,862 ) ( 5,862 ) Amortization of equity-based compensation — — — — — — 162 — — 162 Balance as of March 31, 2023 4,537,634 109,679 7,816,470 189,028 41,647,244 416 3,937,487 5,904 ( 3,408,399 ) 834,115 Net income (loss) — — — — — — — — 4,078 4,078 Other comprehensive income (loss) — — — — — — — ( 3,163 ) — ( 3,163 ) Proceeds from issuance of common stock, net of offering costs — — — — 2,888,639 29 30,939 — — 30,968 Stock awards — — — — 43,980 — — — — — Repurchase and retirement of preferred stock ( 37,788 ) ( 913 ) ( 42,696 ) ( 1,033 ) — — — — 364 ( 1,582 ) Common stock dividends — — — — — — — — ( 17,833 ) ( 17,833 ) Preferred stock dividends — — — — — — — — ( 5,840 ) ( 5,840 ) Amortization of equity-based compensation — — — — — — 141 — — 141 Balance as of June 30, 2023 4,499,846 108,766 7,773,774 187,995 44,579,863 445 3,968,567 2,741 ( 3,427,630 ) 840,884 Net income (loss) — — — — — — — — ( 68,599 ) ( 68,599 ) Other comprehensive income (loss) — — — — — — — ( 1,858 ) — ( 1,858 ) Proceeds from issuance of common stock, net of offering costs — — — — 3,880,763 39 42,305 — — 42,344 Repurchase and retirement of preferred stock ( 34,432 ) ( 832 ) ( 92,563 ) ( 2,238 ) — — — — 347 ( 2,723 ) Common stock dividends — — — — — — — — ( 19,384 ) ( 19,384 ) Preferred stock dividends — — — — — — — — ( 5,772 ) ( 5,772 ) Amortization of equity-based compensation — — — — — — 133 — — 133 Balance as of September 30, 2023 4,465,414 107,934 7,681,211 185,757 48,460,626 484 4,011,005 883 ( 3,521,038 ) 785,025 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, $ in thousands 2024 2023 Cash Flows from Operating Activities Net income (loss) 56,376 ( 43,058 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of premiums and (discounts), net ( 9,943 ) ( 4,412 ) Realized and unrealized (gain) loss on derivative instruments, net 135,363 ( 13,391 ) (Gain) loss on investments, net ( 53,803 ) 272,620 Increase (decrease) in provision for credit losses 222 212 (Gain) loss from investments in unconsolidated ventures in excess of distributions received 193 ( 4 ) Other amortization 417 ( 9,069 ) Loss on foreign currency translation — 123 Changes in operating assets and liabilities: (Increase) decrease in operating assets ( 2,091 ) ( 3,106 ) Increase (decrease) in operating liabilities ( 5,429 ) 6,200 Net cash provided by (used in) operating activities 121,305 206,115 Cash Flows from Investing Activities Purchase of mortgage-backed securities ( 1,912,509 ) ( 4,522,098 ) Purchase of U.S. Treasury securities — ( 48,672 ) Distributions from investments in unconsolidated ventures, net 307 41 Principal payments from mortgage-backed securities 261,933 260,942 Proceeds from sale of mortgage-backed securities 887,185 3,339,830 Proceeds from sale of U.S. Treasury securities 10,755 48,977 Settlement (termination) of swaps, TBAs, futures and forwards, net ( 146,459 ) 19,611 Net change in due from counterparties and collateral held payable on derivative instruments — 1,584 Net cash provided by (used in) investing activities ( 898,788 ) ( 899,785 ) Cash Flows from Financing Activities Proceeds from issuance of common stock 108,062 109,104 Repurchase of preferred stock ( 9,389 ) ( 4,305 ) Proceeds from repurchase agreements 31,557,925 28,937,349 Principal repayments of repurchase agreements ( 30,831,316 ) ( 28,185,166 ) Net change in due from counterparties and collateral held payable on repurchase agreements ( 2,139 ) ( 4,892 ) Payments of deferred costs ( 108 ) ( 329 ) Payments of dividends ( 75,736 ) ( 77,127 ) Net cash provided by (used in) financing activities 747,299 774,634 Net change in cash, cash equivalents and restricted cash ( 30,184 ) 80,964 Cash, cash equivalents and restricted cash, beginning of period 198,637 278,781 Cash, cash equivalents and restricted cash, end of period 168,453 359,745 Supplement Disclosure of Cash Flow Information Interest paid 192,389 177,748 Non-cash Investing and Financing Activities Information Net change in unrealized gain (loss) on mortgage-backed securities classified as available-for-sale 337 486 Dividends declared not paid 24,292 19,384 Net change in investment related receivable (payable) ( 1,772 ) 80 Net change in foreign currency translation adjustment recorded in accumulated other comprehensive income — ( 113 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents INVESCO MORTGAGE CAPITAL INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 September 30, 2024, 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 guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively "Agency CMBS"); • CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”); and • RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”). During the periods presented in these condensed consolidated financial statements, we also invested in U.S. Treasury securities and real estate-related financing arrangements in the form of unconsolidated ventures. 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 Certain disclosures included in our Annual Report on Form 10-K are not required to be included on an interim basis in our quarterly reports on Form 10-Q. We have condensed or omitted these disclosures. Therefore, this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023. Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and consolidate the financial statements of the Company and its controlled subsidiaries. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. In the opinion of management, the condensed 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 condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Examples of estimates include, but are not limited to, estimates of the fair values of financial instruments, interest income on mortgage-backed securities and allowances for credit losses. Actual results may differ from those estimates. 7 Table of Contents Significant Accounting Policies There have been no changes to our accounting policies included in Note 2 to the consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31, 2023 other than as detailed below. Futures Contracts We account for our futures contracts as derivative financial instruments. Futures contracts are recorded on our condensed consolidated balance sheets at fair value, and changes in fair value are recorded within gain (loss) on derivative instruments, net on our condensed consolidated statements of operations. Our futures contracts are exchange-traded and valued under the market approach using quoted prices for identical instruments in active markets. 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. Note 3 – Variable Interest Entities ("VIEs") Our maximum risk of loss in VIEs in which we are not the primary beneficiary as of September 30, 2024 is presented in the table below. $ in thousands Carrying Amount Company's Maximum Risk of Loss Non-Agency CMBS 9,936 9,936 Non-Agency RMBS 7,673 7,673 Total 17,609 17,609 Refer to Note 4 - "Mortgage-Backed Securities" for additional details regarding these investments. Note 4 – Mortgage-Backed Securities The following tables summarize our MBS portfolio by asset type as of September 30, 2024 and December 31, 2023. As of September 30, 2024 $ 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) Agency RMBS: 30 year fixed-rate pass-through 5,066,865 ( 105,046 ) 4,961,819 — 145,995 5,107,814 5.43 % Agency-CMO (2) 539,741 ( 470,393 ) 69,348 — 3,851 73,199 9.91 % Agency CMBS 664,661 ( 5,342 ) 659,319 — 15,755 675,074 4.64 % Non-Agency CMBS 11,000 — 11,000 ( 542 ) ( 522 ) 9,936 8.91 % Non-Agency RMBS (3)(4)(5) 253,758 ( 246,927 ) 6,831 — 842 7,673 9.31 % Total 6,536,025 ( 827,708 ) 5,708,317 ( 542 ) 165,921 5,873,696 5.41 % (1) Period-end weighted average yield is based on amortized cost as of September 30, 2024 and incorporates future prepayment and loss assumptions when appropriate. Total represents period-end weighted average yield of all mortgage-backed securities. (2) All Agency collateralized mortgage obligations (“Agency-CMO”) are interest-only securities (“Agency IO”). (3) Non-Agency RMBS is 66.1 % fixed rate, 33.2 % 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 96.7 % of principal/notional balance, 34.4 % of amortized cost and 30.9 % of fair value. 8 Table of Contents 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) Agency RMBS: 30 year fixed-rate pass-through 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. Total represents period-end weighted average yield of all mortgage-backed securities. (2) All Agency-CMO are 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 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 96.9 % of principal/notional balance, 37.6 % of amortized cost and 31.7 % of fair value. The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of September 30, 2024 and December 31, 2023. We have elected the fair value option for our MBS purchased on or after September 1, 2016 and all of our RMBS interest-only securities. As of September 30, 2024 and December 31, 2023, approximately 99.7 % of our MBS were accounted for under the fair value option. As of September 30, 2024 December 31, 2023 $ 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 Agency RMBS: 30 year fixed-rate pass-through — 5,107,814 5,107,814 — 4,952,474 4,952,474 Agency-CMO — 73,199 73,199 — 74,758 74,758 Agency CMBS — 675,074 675,074 — — — Non-Agency CMBS 9,936 — 9,936 9,935 — 9,935 Non-Agency RMBS 5,439 2,234 7,673 5,743 2,396 8,139 Total 15,375 5,858,321 5,873,696 15,678 5,029,628 5,045,306 9 Table of Contents The components of the carrying value of our MBS portfolio as of September 30, 2024 and December 31, 2023 are presented below. Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our condensed consolidated balance sheets, was $ 25.7 million as of September 30, 2024 (December 31, 2023: $ 22.3 million). As of September 30, 2024 December 31, 2023 $ in thousands MBS Interest-Only Securities Total MBS Interest-Only Securities Total Principal/notional balance 5,750,928 785,097 6,536,025 5,025,062 839,751 5,864,813 Unamortized premium 17,355 — 17,355 5,061 — 5,061 Unamortized discount ( 131,667 ) ( 713,396 ) ( 845,063 ) ( 169,342 ) ( 762,114 ) ( 931,456 ) Allowance for credit losses ( 542 ) — ( 542 ) ( 320 ) — ( 320 ) Gross unrealized gains (1) 163,888 6,501 170,389 107,899 3,523 111,422 Gross unrealized losses (1) ( 1,835 ) ( 2,633 ) ( 4,468 ) ( 393 ) ( 3,821 ) ( 4,214 ) Fair value 5,798,127 75,569 5,873,696 4,967,967 77,339 5,045,306 (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 three and nine months ended September 30, 2024 and 2023 is provided below in this Note 4. The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of September 30, 2024 and December 31, 2023 . As of $ in thousands September 30, 2024 December 31, 2023 Less than one year — — Greater than one year and less than five years 1,970,485 189,845 Greater than or equal to five years 3,903,211 4,855,461 Total 5,873,696 5,045,306 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 as of September 30, 2024 and December 31, 2023. As of September 30, 2024 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 RMBS: 30 year fixed-rate pass-through (1) 137,867 ( 570 ) 1 — — — 137,867 ( 570 ) 1 Agency-CMO (1) 5,030 ( 344 ) 1 14,312 ( 2,054 ) 4 19,342 ( 2,398 ) 5 Agency CMBS (1) 138,300 ( 732 ) 6 — — — 138,300 ( 732 ) 6 Non-Agency CMBS (2) 9,936 ( 522 ) 1 — — — 9,936 ( 522 ) 1 Non-Agency RMBS (3) — — — 1,384 ( 246 ) 9 1,384 ( 246 ) 9 Total 291,133 ( 2,168 ) 9 15,696 ( 2,300 ) 13 306,829 ( 4,468 ) 22 (1) Fair value option has been elected for all Agency securities in an unrealized loss position. (2) Unrealized losses on non-Agency CMBS are recorded 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 $ 1.1 million for which the fair value option has been elected. Such securities have unrealized losses of $ 235,000 . 10 Table of Contents 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 RMBS: 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 . We recorded an $ 80,000 decrease in the provision for credit losses during the three months ended September 30, 2024 and a $ 222,000 increase in the provision during the nine months ended September 30, 2024 on a single non-Agency CMBS (three and nine months ended September 30, 2023: $ 43,000 and $ 212,000 increase in the provision, respectively). The following table presents a roll-forward of our allowance for credit losses. Three Months Ended September 30, Nine Months Ended September 30, $ in thousands 2024 2023 2024 2023 Beginning allowance for credit losses ( 622 ) ( 169 ) ( 320 ) — Additions to the allowance for credit losses on securities for which credit losses were not previously recorded — — — ( 212 ) Additional (increases) decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period 80 ( 43 ) ( 222 ) — Ending allowance for credit losses ( 542 ) ( 212 ) ( 542 ) ( 212 ) The following table summarizes the components of our total gain (loss) on investments, net for the three and nine months ended September 30, 2024 and 2023. Three Months Ended September 30, Nine Months Ended September 30, $ in thousands 2024 2023 2024 2023 Gross realized gains on sale of MBS 4,963 — 5,111 5,363 Gross realized losses on sale of MBS — ( 33,157 ) ( 9,898 ) ( 62,769 ) Net unrealized gains (losses) on MBS accounted for under the fair value option 160,205 ( 191,752 ) 59,048 ( 215,226 ) Net unrealized gains (losses) on U.S. Treasury securities — — ( 372 ) — Net realized gains (losses) on U.S. Treasury securities — 12 ( 86 ) 12 Total gain (loss) on investments, net 165,168 ( 224,897 ) 53,803 ( 272,620 ) 11 Table of Contents The following tables present components of interest income recognized for the three and nine months ended September 30, 2024 and 2023. For the three months ended September 30, 2024 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 66,337 1,298 67,635 Agency CMBS 5,286 168 5,454 Non-Agency CMBS 125 114 239 Non-Agency RMBS 264 ( 103 ) 161 Other (inclusive of interest earned on cash balances) 336 — 336 Total interest income 72,348 1,477 73,825 For the three months ended September 30, 2023 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 70,754 2,465 73,219 Non-Agency CMBS 437 301 738 Non-Agency RMBS 285 ( 126 ) 159 U.S. Treasury Securities — 292 292 Other (inclusive of interest earned on cash balances) 724 — 724 Total interest income 72,200 2,932 75,132 For the nine months ended September 30, 2024 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 193,715 4,028 197,743 Agency CMBS 10,046 338 10,384 Non-Agency CMBS 376 372 748 Non-Agency RMBS 818 ( 338 ) 480 U.S. Treasury securities 22 ( 1 ) 21 Other (inclusive of interest earned on cash balances) 1,060 — 1,060 Total interest income 206,037 4,399 210,436 For the nine months ended September 30, 2023 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 206,804 3,616 210,420 Non-Agency CMBS 1,404 888 2,292 Non-Agency RMBS 865 ( 384 ) 481 U.S. Treasury Securities — 292 292 Other (inclusive of interest earned on cash balances) 2,362 — 2,362 Total interest income 211,435 4,412 215,847 12 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. We sold the security during the first quarter of 2024. We did not hold any U.S. Treasury securities as of September 30, 2024. As of $ in thousands December 31, 2023 Principal balance 10,000 Unamortized premium 842 Amortized cost 10,842 Unrealized gain (loss), net 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 September 30, 2024. The following tables summarize certain characteristics of our borrowings as of September 30, 2024 and December 31, 2023. Refer to Note 7 - "Collateral Positions" for collateral pledged and held under our repurchase agreements. As of $ in thousands September 30, 2024 December 31, 2023 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 4,535,956 5.15 % 33 4,458,695 5.53 % 20 Repurchase Agreements - Agency CMBS 648,929 5.16 % 25 — N/A N/A Total Borrowings 5,184,885 5.15 % 32 4,458,695 5.53 % 20 13 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 futures contracts as of September 30, 2024 and December 31, 2023. Refer to Note 2 - "Summary of Significant Accounting Policies - Fair Value Measurements" of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 and Note 2 of these condensed consolidated financial statements for a description of how we determine fair value. Agency RMBS and Agency CMBS collateral pledged is included in mortgage-backed securities on our condensed consolidated balance sheets. Cash collateral pledged on centrally cleared interest rate swaps and futures contracts is classified as restricted cash on our condensed consolidated balance sheets. Cash collateral held that is not restricted for use is included in cash and cash equivalents on our condensed consolidated balance sheets and the liability to return the collateral is included in collateral held payable. Non-cash collateral held is only recognized if the counterparty defaults or if we sell the pledged collateral. As of September 30, 2024 and December 31, 2023, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets. $ in thousands As of Collateral Pledged September 30, 2024 December 31, 2023 Repurchase Agreements: Agency RMBS 4,726,277 4,712,185 Agency CMBS 675,074 — Total repurchase agreements collateral pledged 5,401,351 4,712,185 Derivative Instruments: Restricted cash 120,199 121,670 Total derivative instruments collateral pledged 120,199 121,670 Total Collateral Pledged: Mortgage-backed securities 5,401,351 4,712,185 Restricted cash 120,199 121,670 Total Collateral Pledged 5,521,550 4,833,855 As of Collateral Held September 30, 2024 December 31, 2023 Repurchase Agreements: Cash 336 2,475 Non-cash collateral 1,481 39,130 Total repurchase agreements collateral held 1,817 41,605 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 any reasonably anticipated margin calls. The ratio of our total repurchase agreements collateral pledged to our total repurchase agreements outstanding was 104 % as of September 30, 2024 (December 31, 2023: 106 %) based on the fair value of the securities as reported in our condensed consolidated balance sheets. Interest Rate Swaps As of September 30, 2024 and December 31, 2023, 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 14 Table of Contents 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 condensed consolidated statements of operations. Certain of our FCM agreements include cross default provisions. Futures Contracts We are required to pledge initial margin and daily variation margin for our futures contracts that is based on the fair value of our contracts as determined by our FCM. The daily variation margin payment for our futures contracts is characterized as settlement of the futures contract itself rather than collateral and is recorded as gain (loss) on derivative instruments, net in our condensed consolidated statement of operations. Note 8 – Derivatives and Hedging Activities The following table summarizes changes in the notional amount of our derivative instruments during 2024. $ in thousands Notional Amount as of December 31, 2023 Additions Settlement, Termination, Expiration or Exercise Notional Amount as of September 30, 2024 Interest Rate Swaps 4,065,000 2,640,000 ( 2,915,000 ) 3,790,000 Futures Contracts — 750,000 ( 260,000 ) 490,000 TBA Purchase Contracts — 1,100,000 ( 1,100,000 ) — TBA Sale Contracts — ( 1,100,000 ) 1,100,000 — Total 4,065,000 3,390,000 ( 3,175,000 ) 4,280,000 Refer to Note 7 - "Collateral Positions" for further information regarding our collateral pledged to and received from our derivative counterparties. Interest Rate Swaps 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 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 have also used 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. In 2013, we discontinued cash flow hedge accounting for our interest rate swaps. 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. We reclassified $ 1.8 million and $ 9.5 million as a decrease to interest expense during the three and nine months ended September 30, 2023, respectively. As of December 31, 2023, there were no gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income. 15 Table of Contents As of September 30, 2024 and December 31, 2023, 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 . $ in thousands As of September 30, 2024 Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Less than 3 years 1,730,000 1.93 % 4.96 % 2.1 3 to 5 years 575,000 0.33 % 4.96 % 3.4 5 to 7 years 950,000 0.54 % 4.96 % 5.8 7 to 10 years 100,000 3.61 % 4.96 % 9.3 Greater than 10 years 435,000 1.84 % 4.96 % 19.0 Total 3,790,000 1.37 % 4.96 % 5.4 $ 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 Futures Contracts We use futures contracts to help mitigate the potential impact of changes in interest rates on our performance. As of September 30, 2024, our futures contracts represented short positions in Ultra 10 year U.S. Treasury Notes. We did not hold any futures contracts as of December 31, 2023. To-Be-Announced Securities Forward Contracts (“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. We did not have any TBAs outstanding as of September 30, 2024 or December 31, 2023. Tabular Disclosure of the Effect of Derivative Instruments on the Balance Sheets The table below presents the fair value of our derivative financial instruments, as well as their classification on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. $ in thousands Derivative Assets Derivative Liabilities As of As of September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Balance Sheets Fair Value Fair Value Balance Sheets Fair Value Fair Value Interest Rate Swaps Asset 9,508 939 Interest Rate Swaps Liability — — Futures Contracts 2,527 — Futures Contracts — — Total Derivative Assets 12,035 939 Total Derivative Liabilities — — 16 Table of Contents The following tables summarize the effect of interest rate swaps, futures contracts, TBAs and currency forward contracts reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023. $ in thousands Three Months Ended September 30, 2024 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 ( 160,472 ) 40,883 517 ( 119,072 ) Futures Contracts ( 12,419 ) — 2,527 ( 9,892 ) TBAs 94 — 1,525 1,619 Total ( 172,797 ) 40,883 4,569 ( 127,345 ) $ in thousands Three Months Ended September 30, 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 84,565 72,126 ( 5,002 ) 151,689 Total 84,565 72,126 ( 5,002 ) 151,689 $ in thousands Nine Months Ended September 30, 2024 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 ( 134,661 ) 129,441 8,569 3,349 Futures Contracts ( 12,419 ) — 2,527 ( 9,892 ) TBAs 621 — — 621 Total ( 146,459 ) 129,441 11,096 ( 5,922 ) $ in thousands Nine Months Ended September 30, 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 21,509 190,027 ( 7,658 ) 203,878 Currency Forward Contracts ( 18 ) — — ( 18 ) TBAs ( 1,880 ) — 1,438 ( 442 ) Total 19,611 190,027 ( 6,220 ) 203,418 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 condensed 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 condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. The daily variation margin payments for centrally cleared interest rate swaps and futures contracts are characterized as settlement of the derivative itself rather than collateral. Our derivative assets of $ 9.5 million related to centrally cleared interest rate swaps and $ 2.5 million related to futures contracts as of September 30, 2024 (December 31, 2023: asset of $ 939,000 related to centrally cleared interest rate swaps) are not included in the table below as a result of this characterization of daily variation margin. 17 Table of Contents As of September 30, 2024 Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets $ in thousands Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Balance Sheets Net Amounts of Assets (Liabilities) Presented in the Balance Sheets Financial Instruments Cash Collateral (Received) Pledged Net Amount Liabilities Repurchase Agreements (1) ( 5,184,885 ) — ( 5,184,885 ) 5,184,885 — — Total Liabilities ( 5,184,885 ) — ( 5,184,885 ) 5,184,885 — — As of December 31, 2023 Gross Amounts Not Offset with Financial Assets (Liabilities) in the Balance Sheets $ in thousands Gross Amounts of Recognized Assets (Liabilities) Gross Amounts Offset in the Balance Sheets Net Amounts of Assets (Liabilities) Presented in the 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 — — (1) The fair value of securities pledged against our borrowings under repurchase agreements was $ 5.4 billion as of September 30, 2024 (December 31, 2023: $ 4.7 billion). We held $ 336,000 of cash collateral under repurchase agreements as of September 30, 2024 (December 31, 2023: $ 2.5 million). Gross amounts not offset are limited to the net amount of repurchase agreement liabilities presented sufficient to reduce the net amount to zero for each counterparty. Accordingly, cash collateral held under repurchase agreements is not shown in the table above, but the obligation to return the cash collateral is separately reported within collateral held payable on the condensed consolidated balance sheets. Cash collateral pledged by us on our derivatives was $ 120.2 million as of September 30, 2024 (December 31, 2023: $ 121.7 million) of which $ 120.2 million relates to initial margin pledged on centrally cleared interest rate swaps and futures contracts (December 31, 2023: $ 121.7 million for centrally cleared interest rate swaps). Centrally cleared interest rate swaps and futures contracts are excluded from the tables above. We held no cash collateral on our derivatives as of September 30, 2024 or December 31, 2023. 18 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 September 30, 2024 Fair Value Measurements Using: $ in thousands Level 1 Level 2 Level 3 Total at Fair Value Assets: Mortgage-backed securities (1) — 5,873,696 — 5,873,696 Derivative assets 2,527 9,508 — 12,035 Total assets 2,527 5,883,204 — 5,885,731 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 (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) Our investment in an unconsolidated venture was valued using the net asset value (“NAV”) as a practical expedient and was not subject to redemption, although investors could sell or transfer their interest at the approval of the general partner of the underlying funds. The unconsolidated venture made its final distribution in the first quarter of 2024. The following table presents the carrying value and estimated fair value of our financial instruments that are not carried at fair value on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. As of September 30, 2024 December 31, 2023 $ in thousands Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Liabilities Repurchase agreements 5,184,885 5,185,346 4,458,695 4,458,662 Total 5,184,885 5,185,346 4,458,695 4,458,662 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. 19 Table of Contents 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 three and nine months ended September 30, 2024 reimbursed or reimbursable by us were $ 494,000 and $ 1.1 million, respectively (September 30, 2023: $ 397,000 and $ 1.3 million, respectively). 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. During the periods presented in these condensed consolidated financial statements, we did not pay any management fees on our investments in unconsolidated ventures that are managed by an affiliate of our Manager. 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 during the three and nine months ended September 30, 2024 and 2023. Three Months Ended September 30, Nine Months Ended September 30, $ in thousands 2024 2023 2024 2023 Incurred costs, prepaid or expensed 2,420 2,442 5,308 5,130 Incurred costs, charged or expected to be charged against equity as a cost of raising capital 108 — 108 257 Total incurred costs, originally paid by our Manager 2,528 2,442 5,416 5,387 Note 12 – Stockholders’ Equity Preferred 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 and nine months ended September 30, 2024, we repurchased and retired no shares and 138,008 shares of Series B Preferred Stock, respectively, and 66,507 and 267,916 shares of Series C Preferred Stock, respectively. During the three and nine months ended September 30, 2023, we repurchased and retired 34,432 and 72,220 shares of Series B Preferred Stock, respectively, and 92,563 and 135,259 shares of Series C Preferred Stock, respectively. As of September 30, 2024, we had authority to repurchase 1,047,989 additional shares of our Series B Preferred Stock and 777,523 additional shares of our Series C Preferred Stock under the current preferred stock 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 on or after December 27, 2024 and shares of our Series C Preferred Stock on or 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 20 Table of Contents 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. On November 5, 2024, we announced our intention to redeem all outstanding shares of our Series B Preferred Stock on December 27, 2024. Refer to Note 15 - “Subsequent Events” for additional information. Common Stock In August 2024, the Company filed an Articles of Amendment to increase the number of shares of common stock, par value $ 0.01 per share, that the Company has authority to issue. Effective upon filing, the Articles of Amendment amended the Charter of the Company to increase the total authorized number of shares of common stock of the Company from 67,000,000 to 134,000,000 . As of September 30, 2024, we had 12,089,398 shares of our common stock remaining available for sale 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 three months ended September 30, 2024, we sold 10,084,138 shares of common stock under our equity distribution agreements for proceeds of $ 88.5 million, net of approximately $ 1.3 million in commissions and fees. During the nine months ended September 30, 2024, we sold 12,211,131 shares of common stock under our equity distribution agreements for proceeds of $ 107.9 million, net of approximately $ 1.5 million in commissions and fees. During the three months ended September 30, 2023, we sold 3,880,763 shares of common stock under an equity distribution agreement for proceeds of $ 42.3 million, net of approximately $ 575,000 in commissions and fees. During the nine months ended September 30, 2023, we sold 9,699,471 shares of common stock under an equity distribution agreement for proceeds of $ 109.1 million, net of approximately $ 1.5 million in commissions and fees. During the three and nine months ended September 30, 2024 and 2023, we did not repurchase any shares of our common stock. As of September 30, 2024, we had authority to repurchase 1,816,359 shares of our common stock through our common stock share repurchase program. Accumulated Other Comprehensive Income The following tables present the components of total other comprehensive income (loss), net and accumulated other comprehensive income (“AOCI”) for the three and nine months ended September 30, 2024 and 2023. The tables exclude gains and losses on MBS that are accounted for under the fair value option. Three Months Ended September 30, 2024 $ 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 — ( 287 ) — ( 287 ) Total other comprehensive income (loss) — ( 287 ) — ( 287 ) AOCI balance at beginning of period — 648 — 648 Total other comprehensive income (loss) — ( 287 ) — ( 287 ) AOCI balance at end of period — 361 — 361 21 Table of Contents Three Months Ended September 30, 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 — 43 — 43 Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to interest expense — — ( 1,810 ) ( 1,810 ) Total other comprehensive income (loss) — ( 48 ) ( 1,810 ) ( 1,858 ) AOCI balance at beginning of period — 31 2,710 2,741 Total other comprehensive income (loss) — ( 48 ) ( 1,810 ) ( 1,858 ) AOCI balance at end of period — ( 17 ) 900 883 Nine Months Ended September 30, 2024 $ 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 — ( 639 ) — ( 639 ) Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 302 — 302 Total other comprehensive income (loss) — ( 337 ) — ( 337 ) AOCI balance at beginning of period — 698 — 698 Total other comprehensive income (loss) — ( 337 ) — ( 337 ) AOCI balance at end of period — 361 — 361 Nine Months Ended September 30, 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 — ( 698 ) — ( 698 ) Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 212 — 212 Reclassification of amortization of net deferred (gain) loss on de-designated interest rate swaps to repurchase agreements interest expense — — ( 9,505 ) ( 9,505 ) 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 ( 486 ) ( 9,505 ) ( 9,878 ) AOCI balance at beginning of period ( 113 ) 469 10,405 10,761 Total other comprehensive income (loss) 113 ( 486 ) ( 9,505 ) ( 9,878 ) AOCI balance at end of period — ( 17 ) 900 883 22 Table of Contents Amounts recorded in AOCI 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 original life of the interest rate swap agreements. Dividends The table below summarizes the dividends we declared during the nine months ended September 30, 2024 and 2023. $ in thousands, except per share amounts Dividends Declared Series B Preferred Stock Per Share In Aggregate Date of Payment 2024 August 7, 2024 0.4844 2,058 September 27, 2024 May 7, 2024 0.4844 2,058 June 27, 2024 February 21, 2024 0.4844 2,086 March 27, 2024 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 $ in thousands, except per share amounts Dividends Declared Series C Preferred Stock Per Share In Aggregate Date of Payment 2024 August 7, 2024 0.46875 3,416 September 27, 2024 May 7, 2024 0.46875 3,450 June 27, 2024 February 21, 2024 0.46875 3,499 March 27, 2024 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 $ in thousands, except per share amounts Dividends Declared Common Stock Per Share In Aggregate Date of Payment 2024 September 24, 2024 0.40 24,292 October 25, 2024 June 24, 2024 0.40 20,255 July 26, 2024 March 26, 2024 0.40 19,530 April 26, 2024 2023 September 26, 2023 0.40 19,384 October 27, 2023 June 21, 2023 0.40 17,833 July 27, 2023 March 27, 2023 0.40 16,658 April 27, 2023 23 Table of Contents Note 13 – Earnings (Loss) per Common Share Earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 is computed as shown in the table below. Three Months Ended September 30, Nine Months Ended September 30, In thousands, except per share amounts 2024 2023 2024 2023 Numerator (Income) Basic Earnings: Net income (loss) available to common stockholders 35,271 ( 74,024 ) 40,235 ( 59,821 ) Denominator (Weighted Average Shares) Basic Earnings: Shares available to common stockholders 56,232 45,747 51,394 42,604 Effect of dilutive securities: Restricted stock awards 1 — 1 — Dilutive Shares 56,233 45,747 51,395 42,604 Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 0.63 ( 1.62 ) 0.78 ( 1.40 ) Diluted 0.63 ( 1.62 ) 0.78 ( 1.40 ) There were no weighted average common shares excluded from diluted earnings per share for the three months ended September 30, 2024 because the effect would be antidilutive (three and nine months ended September 30, 2023: 1,383 and 1,077 excluded for restricted stock awards, respectively). Note 14 – Commitments and Contingencies Commitments and contingencies may arise in the ordinary course of business. As of September 30, 2024, we were not aware of any reported or unreported contingencies. Note 15 – Subsequent Events Dividends We declared the following dividends on November 4, 2024: a Series B Preferred Stock dividend of $ 0.4844 per share payable on December 27, 2024 to our stockholders of record as of December 5, 2024 and a Series C Preferred Stock dividend of $ 0.46875 per share payable on December 27, 2024 to our stockholders of record as of December 5, 2024. Redemption of Series B Preferred Stock On November 5, 2024, we announced that we intend to redeem all 4,247,989 outstanding shares of our 7.75 % Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock on December 27, 2024 for a cash redemption price of $ 25.00 per share, plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date. 24 Table of Contents