What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-05 · 207 added, 317 removed, 442 unchanged (54% of the section changed)

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Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control.

These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the mortgage-backed securities, residential and commercial real estate markets).

These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the Agency RMBS, Agency CMBS and residential and commercial real estate markets).

When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words.

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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 September 30, 2024, we were invested in:

As of March 31, 2025, we were invested in:

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

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

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

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

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

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

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

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

• 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.

• a real estate-related financing arrangement in the form of an unconsolidated venture.

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

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Market Conditions and Impacts

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

Of these macroeconomic factors, inflation, employment conditions, monetary policy, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the third quarter of 2024.

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 2.4%, down from June’s 3.0%, while CPI (ex.

food and energy) remained flat at 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 1.77% (down from 2.11% at the end of June) and the five-year breakeven ended at 2.09% (down from 2.28%).

Meanwhile, employment data released during the quarter reflected a slowing labor market, as the economy added an average of 152 thousand jobs during July and August.

Following the end of the quarter, the Bureau of Labor Statistics announced the nonfarm payrolls changed to 254 thousand in September.

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

Following the Federal Open Market Committee’s (“FOMC”) 50 basis point reduction of the Federal Funds target rate in September.

In addition, Federal Funds futures market expectations as of September 30, 2024 reflected a further 175 to 200 basis point reduction of the target rate through the end of 2025.

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

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

Of these macroeconomic factors, financial conditions, inflation, employment conditions, monetary policy, public policy, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the first quarter of 2025.

Financial conditions tightened during the first quarter, shifting from a largely accommodative position to more balanced as equity markets, credit spreads and volatility measures all reacted negatively to the potential impacts of significant changes to U.S.

fiscal and trade policies.

Equity markets repriced lower during the first quarter, with the S&P 500 declining 4.6% while the NASDAQ fell 10.4%.

The CBOE SPX Volatility Index (“VIX”) reflected the uncertainty brought on by these policy changes, increasing by over 28% during the quarter.

Credit spreads reacted similarly, with investment grade credit, high yield and emerging markets spreads all materially wider.

While inflation readings trended lower during the quarter, they remained above the Federal Reserve’s 2% inflation target.

The headline consumer price index (“CPI”) ended the quarter 2.4% higher on a year-over-year basis, down from a rate of 2.9% at year end, while the year-over-year change in CPI (excluding food and energy) fell to 2.8% from 3.2%.

Despite the improvement in CPI reports, investors increased expectations for future inflation given concerns about the potential impact of shifting trade policy.

Treasury inflation-protected securities breakeven rates increased during the quarter, with the two-year breakeven ending the quarter at 3.3% (up from 2.5% at year-end) and the five-year breakeven ending at 2.6% (up from 2.4%).

Meanwhile, employment data released during the quarter reflected a slowing labor market, as the economy added an average of 152,000 jobs per month during the first quarter after adding an average of 209,000 jobs during the fourth quarter.

Even as inflation expectations were increasing, softer employment data and fears that the combination of potential trade wars and fiscal austerity would contribute to an economic slowdown led to a re-pricing of the market’s expectations of future monetary policy.

Federal Funds futures market expectations as of March 31, 2025 reflected a further 75 basis point reduction of the target rate through the end of the year.

Quantitative tightening continued in the first quarter of 2025, 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 $17 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 over the next several quarters, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.

Interest rates dropped sharply across the maturity spectrum, as investors reacted to potentially slower economic activity signaled by a weakening labor market.

The yield on the two-year Treasury decreased 107 basis points to 3.65%, the yield on the five-year Treasury decreased 75 basis points to 3.58% and the yield on the ten-year Treasury finished at 3.80%, down 54 basis points on the quarter.

Interest rate volatility increased through August before declining in the wake of the FOMC’s decision to begin easing monetary policy at their September meeting.

Against this macroeconomic backdrop, Agency RMBS outperformed Treasuries during the third quarter.

Lower interest rate volatility increased demand for Agency RMBS, with lower coupons performing better than higher coupons as the sharp decline in interest rates impacted coupons trading at a premium to par.

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 the decrease in interest rates.

Implied financing via the dollar roll market for TBA investments remained relatively unattractive throughout the quarter.

Agency CMBS risk premiums moved modestly wider.

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

At their March meeting, the Federal Reserve announced that they would begin slowing the pace of quantitative tightening by lowering the cap on the amount of Treasuries allowed to mature per month without being reinvested to $5 billion from $25 billion, while leaving the cap on mortgage-backed securities unchanged at $35 billion per month.

Interest rates dropped across the maturity spectrum during the first quarter.

The yield on the two-year Treasury decreased 34 basis points to 3.91%, the yield on the five-year Treasury decreased 41 basis points to 3.98% and the yield on the ten-year Treasury decreased 34 basis points to 4.24%.

Short-dated interest rate volatility increased over the quarter, reflecting the market’s shifting expectations of monetary and trade policy, while longer-dated volatility declined modestly.

Against this macroeconomic backdrop, Agency RMBS performance was relatively consistent with Treasuries during the first quarter, with higher coupons modestly outperforming.

Supply and demand technicals for higher coupon Agency RMBS were supportive as originations remained subdued given slower housing seasonals and elevated mortgage rates, while banks, money managers and mortgage REITs net added exposure during the quarter.

Prepayment speeds remained at low levels given limited purchase and refinancing activity.

However, a notable decline in mortgage rates in the latter half of the quarter should result in faster prepayment speeds in the coming months, as the decline coincided with the seasonal increase in housing activity.

Premiums on specified pool collateral were largely unchanged during the quarter as the move lower in mortgage rates led to support for prepayment protection.

Additionally, Agency CMBS risk premiums increased during the first quarter, reflecting weakness in broader fixed income markets.

March 31, 2025 December 31, 2024 September 30, 2024 June 30,

2024 March 31, 2024 One Quarter Change One Year

Interest Rates

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30 Year Treasury 4.61 % 4.78 % 4.13 % 4.50 % 4.34 % (0.17) % 0.27 %

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

(in basis points) March 31, 2025 December 31, 2024 September 30, 2024 June 30,

2024 March 31, 2024 One Quarter Change One Year

Swap Spreads (1)

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FNMA 6.0% 146 140 129 158 156 6 (10)

FNMA 6.5% 118 135 109 164 160 (17) (42)

10 Year Agency CMBS Spreads vs.

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Treasury security with a similar maturity.

The recent disinflationary trend in economic data suggests that the Federal Reserve may continue to ease monetary policy in the coming months as the need for restrictive monetary policy declines.

This easing should lead to a steeper yield curve and lower interest rate volatility, creating a favorable environment for Agency RMBS investments.

However, if the disinflationary trend reverses and the labor market and economic growth improve, expectations for monetary policy could shift, posing a near-term risk.

Additionally, short-term funding pressures into year end could reduce investor interest in the sector.

Despite these near-term risks, we are constructive on the sector, as Agency mortgage performance stands to benefit from normalization of monetary policy given attractive valuations and supportive supply and demand technicals.

We also remain constructive on Agency CMBS, as we expect a gradual increase in new issuance to be met with adequate investor demand, as the sector offers value relative to other fixed income investments, given its attractive prepayment protection and return profiles.

Recently proposed changes to U.S.

fiscal and trade policy have negatively impacted financial markets and could result in slower economic growth, higher inflation and further market volatility.

As such, we remain cautious on the near-term outlook for Agency RMBS.

However, our long-term outlook for Agency RMBS is favorable, as we expect demand to improve in higher coupons given attractive valuations, an eventual decline in interest rate volatility and a steeper yield curve.

Lastly, while Agency CMBS risk premiums may remain elevated until sentiment in the broader fixed income market improves, limited issuance, strong fundamental performance and stable cash flow profiles should provide favorable support for this sector.

Investment Activities

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

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

The table below shows the composition of our investment portfolio as of March 31, 2025, December 31, 2024 and March 31, 2024.

$ in thousands March 31, 2025 December 31, 2024 March 31, 2024

30 year fixed-rate pass-through, at fair value 4,974,663 4,541,525 4,649,052

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Non-Agency RMBS, at fair value 7,215 7,224 7,651

Treasury securities, at fair value — 11,214 —

Investments in unconsolidated ventures — 500 505

Total investment portfolio 5,945,789 5,445,508 5,007,104

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

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

September 30, 2024 December 31, 2023 September 30, 2023

As of March 31, 2025, our holdings of 30 year fixed-rate Agency RMBS represented approximately 84% of our total investment portfolio versus 83% as of December 31, 2024 and 93% as of March 31, 2024.

Our 30 year fixed-rate Agency RMBS holdings as of March 31, 2025, December 31, 2024 and March 31, 2024 consisted of specified pools with coupon distributions as shown in the table below.

March 31, 2025 December 31, 2024 March 31, 2024

$ 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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6.0% 1,471,826 29.6 % 5.97 % 1,481,454 32.7 % 5.97 % 996,925 21.4 % 6.03 %

6.5% 436,908 8.8 % 6.16 % — — % — % — — — %

Total 30 year fixed-rate Agency RMBS 4,974,663 100.0 % 5.61 % 4,541,525 100.0 % 5.50 % 4,649,052 100.0 % 5.35 %

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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 September 30, 2024, December 31, 2023 and September 30, 2023.

September 30, 2024 December 31, 2023 September 30, 2023

The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of March 31, 2025, December 31, 2024 and March 31, 2024.

March 31, 2025 December 31, 2024 March 31, 2024

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

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Total 30 year fixed-rate Agency RMBS 4,974,663 100.0 % 4,541,525 100.0 % 4,649,052 100.0 %

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.

As of March 31, 2025, our holdings of Agency CMBS represented approximately 15% of our total investment portfolio versus 15% as of December 31, 2024 and 5% as of March 31, 2024.

Our Agency CMBS 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 September 30, 2024, our holdings of Agency CMBS represented approximately 11% of our total investment portfolio, and approximately 74% of our Agency CMBS were Fannie Mae DUS and 26% were Freddie Mac Multifamily Participation Certificates.

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

Approximately 68% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of September 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.

As of March 31, 2025, approximately 81% of our Agency CMBS were Fannie Mae DUS and 19% were Freddie Mac Multifamily Participation Certificates.

As of March 31, 2025, December 31, 2024 and March 31, 2024, our holdings of non-Agency securities represented less than 1% of our total investment portfolio.

In the first quarter of 2025, we sold our remaining non-Agency CMBS investment.

Financing and Other Liabilities

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Maximum balance (2)

September 30, 2023 4,987,006 4,902,400 4,987,006

December 31, 2023 4,458,695 3,736,432 4,458,695

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

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September 30, 2024 5,184,885 5,004,504 5,184,885

December 31, 2024 4,893,958 4,865,582 4,943,054

March 31, 2025 5,354,561 4,930,237 5,354,561

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

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Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR.

To a lesser extent, we have also used interest rate swap agreements whereby we make floating interest rate payments indexed to SOFR and receive fixed interest rate payments as part of our overall risk management strategy.

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

During the nine months ended September 30, 2024, we entered into interest rate swaps with a notional amount of $2.6 billion and terminated existing interest rate swaps with a notional amount of $2.9 billion.

During the third quarter of 2024, we began entering into futures contracts comprised of short positions in Ultra 10 year U.S.

Treasury Notes as an alternative way to help mitigate the potential impact of changes in interest rates on our performance.

During the quarter, we entered into futures contracts with a notional amount of $750.0 million and terminated existing futures contracts with a notional amount of $260.0 million.

During the three months ended March 31, 2025, we entered into interest rate swaps with a notional amount of $725.0 million and terminated existing interest rate swaps with a notional amount of $350.0 million.

We also use futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance.

During the three months ended March 31, 2025, we entered into futures contracts with a notional amount of $1.4 billion and terminated existing futures contracts with a notional amount of $1.9 billion.

Daily variation margin for interest rate swaps and futures contracts 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 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.

The table below shows sales of our common stock under equity distribution agreements during the three and nine months ended September 30, 2024 and 2023.

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

As of March 31, 2025, we had 6,883,504 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.

The table below shows sales of our common stock under equity distribution agreements during the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

Shares in ones, $ in thousands 2025 2024

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Commissions and other costs 569 43

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

For information on dividends declared during the three months ended March 31, 2025 and 2024, see Note 10 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I.

Item 1 of this report on Form 10-Q.

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

During the three months ended March 31, 2025, 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 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.

On November 5, 2024, we announced our intention to redeem all outstanding shares of our Series B Preferred Stock on December 27, 2024 for a cash redemption price of $25.00 per share, plus accrued and unpaid dividends.

The redemption of the Series B Preferred Stock will help optimize our capital structure and reduce our dividend obligations moving forward.

During the three months ended March 31, 2025, we repurchased and retired 90,146 shares of 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.

We redeemed all outstanding shares of our Series B Preferred Stock in December 2024.

As of March 31, 2025, we had authority to repurchase 616,513 additional shares of our Series C Preferred Stock under the current preferred stock share repurchase program.

Book Value per Common Share

We calculate book value per common share as follows.

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

In thousands except per share amounts March 31, 2025 December 31, 2024

Numerator (adjusted equity):

Total equity 759,166 730,729

Liquidation preference of Series B Preferred Stock (106,200) (109,650)

Liquidation preference of Series C Preferred Stock (177,913) (180,166)

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Book value per common share 8.81 8.92

Our book value per common share decreased 6.3% as of September 30, 2024 compared to December 31, 2023.

The decrease in our book value per common share occurred during the first half of 2024 as Agency RMBS modestly underperformed interest rate swaps.

Our book value per common share rebounded slightly during the third quarter of 2024 as interest rates declined sharply and Agency RMBS outperformed interest rate swaps.

Our book value per common share decreased 1.2% as of March 31, 2025 compared to December 31, 2024.

The decrease in our book value per common share was primarily due to losses on derivative instruments, dividends declared and expenses, which were partially offset by net interest income and gains on investments.

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 and nine months ended September 30, 2024 and 2023.

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

The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands, except share data 2025 2024

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Gain (loss) on derivative instruments, net (76,679) 93,161

Other investment income (loss), net — — — (66)

Total other income (loss) 5,479 26,776

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Dividends to preferred stockholders (3,341) (5,585)

Gain on repurchase and retirement of preferred stock 25 347 426 711

Gain (loss) on repurchase and retirement of preferred stock (11) 193

Net income (loss) attributable to common stockholders 16,289 23,730

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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 and nine months ended September 30, 2024 and 2023.

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

The table below presents information related to our average earning assets and earning asset yields for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

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All yields are annualized.

Total average earning assets increased $68.0 million and decreased $213.9 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively.

Total average earning assets increased $450.3 million for the three months ended March 31, 2025 compared to the same period in 2024.

Changes in our average earning assets are a factor of our total stockholders' equity and our desired leverage levels.

Average earning asset yields decreased 16 basis points and increased 8 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively.

Changes in our average earning assets yields are driven by our coupon allocation to Agency RMBS and the book prices of our securities.

We earned total interest income of $73.8 million and $210.4 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023:

$75.1 million and $215.8 million).

Average earning asset yields decreased 7 basis points for the three months ended March 31, 2025 compared to the same period in 2024.

Changes in our average earning asset yields are driven by the composition of our investments, amortized cost of our securities and prepayment rates.

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

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

Three Months Ended March 31,

$ in thousands 2025 2024

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Total interest income 73,846 68,583

Our interest income was relatively flat for the three months ended September 30, 2024 compared to the same period in 2023 as a decrease in average earning asset yields was largely offset by an increase in average earning assets.

Our interest income decreased $5.4 million for the nine months ended September 30, 2024 compared to the same period in 2023 as a decrease in average earning assets was partially offset by an increase in average earning asset yields.

Our interest income increased for the three months ended March 31, 2025 compared to the same period in 2024 due to an increase in average earning assets.

Prepayment Speeds

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For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur.

For those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on a quarterly basis.

For those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on at least a quarterly basis.

If the actual prepayment speed during the period is faster than estimated, the amortization on securities purchased at a premium to par value will be accelerated, resulting in lower interest income recognized.

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 and nine months ended September 30, 2024 and 2023.

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

The following table presents net (premium amortization) discount accretion recognized for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

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Net (premium amortization) discount accretion 210 1,141

Net discount accretion decreased for three months ended September 30, 2024 compared to the same period in 2023 as our portfolio was repositioned into securities with higher book prices.

Net discount accretion was relatively flat for nine months ended September 30, 2024 compared to the same period in 2023 as higher discount accretion in the earlier part of 2024 was offset by our portfolio repositioning into securities with higher book prices.

Net discount accretion decreased for three months ended March 31, 2025 compared to the same period in 2024 as we have repositioned a portion of our investment portfolio into higher coupon securities that have higher amortized costs relative to principal value.

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 and nine months ended September 30, 2024 and 2023.

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

The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

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(2) Amount represents the maximum borrowings at month-end during each of the respective periods.

(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 increased $102.1 million and decreased $250.8 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively.

(3) Average cost of funds is calculated by dividing annualized interest expense by our average borrowings.

Total average borrowings increased $510.5 million for the three months ended March 31, 2025 compared to the same period in 2024.

Changes in our average borrowings are a factor of our total stockholders' equity and our desired leverage levels.

Our average cost of funds decreased 6 basis points and increased 65 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively.

Changes in our costs of funds are substantially driven by the Federal Funds target rate, which the FOMC raised from a range of 4.25% to 4.50% as of January 1, 2023 to a maximum of 5.25% to 5.50%, before lowering the target rate to 4.75% to 5.00% in September 2024.

Our cost of funds for the three and nine months ended September 30, 2024 was also significantly impacted by a decrease in amortization of net deferred gains on de-designated interest rate swaps.

The amortization of these gains ended in December 2023.

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

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

Our average cost of funds decreased 111 basis points for the three months ended March 31, 2025 compared to the same period in 2024.

Changes in our costs of funds are substantially driven by the Federal Funds target rate, which the FOMC lowered from a range of 5.25% to 5.50% as of January 1, 2024 to 4.25% to 4.50% as of March 31, 2025.

The table below presents the components of interest expense for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

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Interest expense on repurchase agreement borrowings 55,025 61,580

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (1,810) — (9,505)

Total interest expense 55,025 61,580

Our interest expense was relatively flat for the three months ended September 30, 2024 compared to the same period in 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 $12.8 million for the nine months ended September 30, 2024 compared to the same period in 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in borrowing rates 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.

Our interest expense decreased for the three months ended March 31, 2025 compared to the same period in 2024 due to a lower cost of funds, which was partially offset by an increase in average borrowings.

Net Interest Income

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

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

The table below presents the components of net interest income for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

1 unchanged sentence

Interest expense 55,025 61,580

Interest expense on repurchase agreement borrowings 66,315 67,511 187,288 183,954

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (1,810) — (9,505)

Total interest expense 66,315 65,701 187,288 174,449

Net interest income 18,821 7,003

Net interest rate margin 0.99 % (0.05) %

Our net interest income, which equals total interest income less total interest expense, totaled $7.5 million and $23.1 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023:

$9.4 million and $41.4 million).

The decrease in net interest income for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to lower average earning asset yields, which was partially offset by higher average earning assets.

The decrease in net interest income for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in the Federal Funds target rate, which were partially offset by lower average borrowings.

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 months ended September 30, 2024 compared the same period in 2023 due to decreases in average earning asset yields.

Our net interest rate margin decreased in the nine months ended September 30, 2024 due to increases in the Federal Funds target rate and decreases in amortization of net deferred gains on de-designated interest rate swaps.

Our net interest income, which equals total interest income less total interest expense, and our net interest rate margin, which equals the yield on our average earning assets for the period less the average cost of funds, increased for the three months ended March 31, 2025 compared to the same period in 2024 due to a lower cost of funds.

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 and nine months ended September 30, 2024 and 2023.

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

The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

$ in thousands 2025 2024

6 unchanged sentences

Total gain (loss) on investments, net 82,158 (66,153)

During the three and nine months ended September 30, 2024, we sold MBS and realized net gains of $5.0 million and net losses of $4.8 million, respectively (September 30, 2023:

net losses of $33.2 million and $57.4 million).

Net realized gains and losses during the three and nine months ended September 30, 2024 primarily 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 nine months ended September 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.

During the three months ended March 31, 2025, we sold MBS and realized net losses of $5.5 million (March 31, 2024:

$3.2 million).

Net realized losses during the three months ended March 31, 2025 reflect sales of 4.0% coupon Agency RMBS.

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.

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

1 unchanged sentence

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

As of September 30, 2024, $5.9 billion (December 31, 2023:

As of March 31, 2025, $5.9 billion (December 31, 2024:

$5.4 billion) or 99.9% (December 31, 2024:

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

We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $160.2 million and $59.0 million in the three and nine months ended September 30, 2024 compared to net unrealized losses of $191.8 million and $215.2 million in the three and nine months ended September 30, 2023.

Net unrealized gains in the three and nine months ended September 30, 2024 were due to lower interest rates during the third quarter resulting in improved valuations on Agency RMBS and Agency CMBS.

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

We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $87.6 million in the three months ended March 31, 2025 compared to net unrealized losses of $62.5 million in the three months ended March 31, 2024.

Net unrealized gains in the three months ended March 31, 2025 resulted from a sharp decline in interest rates during the quarter, as valuations on fixed-rate securities increased as interest rates fell.

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.

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

Treasury securities in the nine months ended September 30, 2024.

We sold the security during the first quarter of 2024.

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

We did not hold any U.S.

Treasury securities during the three months ended March 31, 2025.

(Increase) Decrease in Provision for Credit Losses

As of September 30, 2024, $15.4 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023:

As of March 31, 2025, $5.1 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2024:

$15.0 million).

During the three and nine months ended September 30, 2024, we recorded a decrease of $80,000 and an increase of $222,000 in the provision for credit losses, respectively, on a single non-Agency CMBS.

We recorded a $43,000 and $212,000 increase in the provision for credit losses during the three and nine months ended September 30, 2023, respectively, on the same security.

Increases and decreases in the provision are based on a comparison of the security's amortized cost basis to discounted expected cash flows.

During the three months ended March 31, 2025, we sold the only security for which we had recorded an allowance for credit losses.

We recorded a $39,000 increase in the provision for credit losses during the three months ended March 31, 2024 on the same security based on a comparison of the security's amortized cost basis to discounted expected cash flows.

Equity in Earnings (Losses) of Unconsolidated Ventures

For the nine months ended September 30, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (three and nine months ended September 30, 2023:

equity in earnings of $2,000 and $4,000, respectively).

For the three months ended March 31, 2024, we recorded equity in losses of $193,000.

We received a final distribution from our sole remaining unconsolidated venture during the first quarter of 2024, and the venture was dissolved in April 2024.

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$ in thousands

Three months ended September 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 (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

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

Three months ended March 31, 2025

not designated as

5 unchanged sentences

$ in thousands

Nine months ended September 30, 2023

Three months ended March 31, 2024

not designated as

1 unchanged sentence

Interest Rate Swaps 48,682 45,287 (808) 93,161

Currency Forward Contracts (18) — — (18)

TBAs (1,880) — 1,438 (442)

Total 48,682 45,287 (808) 93,161

We recorded net losses of $119.1 million and net gains of $3.3 million on interest rate swaps for the three and nine months ended September 30, 2024, respectively, (September 30, 2023:

net gains of $151.7 million and $203.9 million) primarily due to changes in forward interest rate expectations.

As of September 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 September 30, 2024 As of December 31, 2023

As of March 31, 2025 and December 31, 2024, 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, 2025 As of December 31, 2024

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

Interest Rate Swaps 3,640,000 1.29 % 4.41 % 6.4 3,265,000 0.97 % 4.49 % 5.3

As of September 30, 2024, we had $5.2 billion of repurchase agreement borrowings with a weighted average remaining maturity of 32 days.

We recorded net losses of $47.6 million on interest rate swaps for the three months ended March 31, 2025 (March 31, 2024:

net gains of $93.2 million) primarily due to changes in interest rate expectations.

As of March 31, 2025, we had $5.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 25 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.

During the third quarter of 2024, we began using futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance.

During the three and nine months ended September 30, 2024, we entered into futures contracts with a notional amount of $750.0 million and terminated existing futures contracts with a notional amount of $260.0 million.

We recognized net losses of $9.9 million on futures contracts during the three and nine months ended September 30, 2024 due to changes in forward interest rate expectations.

As of March 31, 2025 and December 31, 2024, we held the following futures contracts.

March 31, 2025 December 31, 2024

$ in thousands Notional Amount - Short Notional Amount - Short

Treasury futures 400,000 136,000

Ultra 10 year U.S.

Treasury futures 315,000 1,057,000

Treasury futures 187,500 209,000

Total 902,500 1,402,000

We use futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance.

We recognized net losses of $32.9 million on futures contracts during the three months ended March 31, 2025 due to changes in interest rate expectations.

We did not hold any futures contracts during the three months ended March 31, 2024.

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 recorded net gains of $1.6 million and $621,000 on TBAs during the three and nine months ended September 30, 2024, respectively (nine months ended September 30, 2023:

net losses of $442,000).

Other Investment Income (Loss), net

Our other investment income (loss), net during the nine months ended September 30, 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 and $8.7 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023:

$3.1 million and $9.2 million).

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

We recorded net gains of $3.8 million on TBAs during the three months ended March 31, 2025 due to a sharp decline in interest rates.

We did not hold any TBAs during the three months ended March 31, 2024.

We incurred management fees of $3.0 million for the three months ended March 31, 2025 (March 31, 2024:

$2.9 million).

Management fees increased for the three months ended March 31, 2025 compared to the same period in 2024 due to higher average stockholders' equity.

Refer to Note 9 – "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 and $5.5 million for the three and nine months ended September 30, 2024, respectively (September 30, 2023:

$1.7 million and $5.7 million).

Our general and administrative expenses not covered under our management agreement amounted to $1.7 million for the three months ended March 31, 2025 (March 31, 2024:

$1.8 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.

Gain on Repurchase and Retirement of Preferred Stock

Gain (Loss) on Repurchase and Retirement of Preferred Stock

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

During the three months ended March 31, 2025, we repurchased and retired 90,146 shares of 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.

Gains and losses 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 September 30, 2024, our net income attributable to common stockholders was $35.3 million (September 30, 2023:

net loss of $74.0 million) or $0.63 basic and diluted net income per average share available to common stockholders (September 30, 2023:

$1.62 net loss per share).

The change in net income (loss) attributable to common stockholders was primarily due to (i) net gains on investments of $165.2 million in the 2024 period compared to net losses on investments of $224.9 million in the 2023 period;

For the three months ended March 31, 2025, our net income attributable to common stockholders was $16.3 million (March 31, 2024:

$23.7 million) or $0.26 basic and diluted net income per average share available to common stockholders (March 31, 2024:

The change in net income attributable to common stockholders was primarily due to (i) net gains on investments of $82.2 million in the 2025 period compared to net losses on investments of $66.2 million in the 2024 period;

(ii) net losses on derivative instruments of $76.7 million in the 2025 period compared to net gains on derivatives of $93.2 million in the 2024 period;

and (iii) a $1.9 million decrease in net interest income.

For the nine months ended September 30, 2024, our net income attributable to common stockholders was $40.2 million (September 30, 2023:

net loss of $59.8 million) or $0.78 basic and diluted net income per average share available to common stockholders (September 30, 2023:

$1.40 net loss per share).

The change in net income (loss) attributable to common stockholders was primarily due to (i) net gains on investments of $53.8 million in the 2024 period compared to net losses on investments of $272.6 million in the 2023 period;

(ii) net losses on derivative instruments of $5.9 million in the 2024 period compared to net gains on derivative instruments of $203.4 million in the 2023 period;

and (iii) a $18.3 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 Investments, net”, “Gain (Loss) on Derivative Instruments, net” and “Net Interest Income”.

and (iii) an $11.8 million increase in net interest income.

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

Non-GAAP Financial Measures

19 unchanged sentences

TBA dollar roll income;

gain on repurchase and retirement of preferred stock;

foreign currency (gains) losses, net and amortization of net deferred (gain) loss on de-designated interest rate swaps.

(gain) loss on repurchase and retirement of preferred stock and foreign currency (gains) losses, net.

By excluding the gains and losses discussed above, we believe the presentation of earnings available for distribution provides a consistent measure of operating performance that investors can use to evaluate our results over multiple reporting periods and, to a certain extent, compare to our peer companies.

3 unchanged sentences

GAAP, certain gains and losses are reflected in net income whereas other gains and losses are reflected in other comprehensive income.

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.

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.

12 unchanged sentences

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

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

Three Months Ended March 31,

$ in thousands, except per share data 2025 2024

4 unchanged sentences

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

(4,569) 5,002 (11,096) 6,220

TBA dollar roll income (2)

39 — 1,117 697

Gain on repurchase and retirement of preferred stock (25) (347) (426) (711)

Foreign currency (gains) losses, net (3)

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

— (1,810) — (9,505)

(Gain) loss on repurchase and retirement of preferred stock 11 (193)

Subtotal 23,758 18,086

2 unchanged sentences

Earnings available for distribution per common share (3)

0.68 1.51 2.38 4.46

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

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

Three Months Ended March 31,

$ in thousands 2025 2024

8 unchanged sentences

TBA dollar roll income is a component of gain (loss) on derivative instruments, net on our condensed consolidated statements of operations.

(3) Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the condensed consolidated statements of operations.

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

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

$ in thousands 2024 2023 2024 2023

Interest expense on repurchase agreement borrowings 66,315 67,511 187,288 183,954

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (1,810) — (9,505)

Total interest expense 66,315 65,701 187,288 174,449

(3) Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.

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

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

Three Months Ended March 31,

$ in thousands 2025 2024

9 unchanged sentences

(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 and nine months ended September 30, 2024 compared to the same periods in 2023 due to lower effective net interest income.

Earnings available for distribution decreased during the three months ended March 31, 2025 compared to the same period in 2024 due to lower effective net interest income, which was partially offset by an increase in TBA dollar roll income and

lower preferred dividends due to the redemption of our Series B Preferred Stock in December 2024.

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

1 unchanged sentence

We calculate effective interest expense (and by calculation, effective cost of funds) as U.S.

GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as interest expense.

GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments.

We view our interest rate swaps as an economic hedge against increases in future market interest rates on our borrowings.

1 unchanged sentence

GAAP interest expense because we use interest rate swaps to add stability to interest expense.

We exclude the amortization of net deferred gains (losses) on de-designated interest rate swaps from our calculation of effective interest expense because we do not consider the amortization a current component of our borrowing costs.

We calculate effective net interest income (and by calculation, effective interest rate margin) as U.S.

GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as interest expense.

GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net.

We believe the presentation of effective interest expense, effective cost of funds, effective net interest income and effective interest rate margin measures, when considered together with U.S.

1 unchanged sentence

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 September 30,

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

Total interest expense 66,315 5.30 % 65,701 5.36 %

Amortization of net deferred gain (loss) on de-designated interest rate swaps — — % 1,810 0.15 %

Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (40,883) (3.27) % (72,126) (5.88) %

Effective interest expense 25,432 2.03 % (4,615) (0.37) %

Nine Months Ended September 30,

Three Months Ended March 31,

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

Total interest expense 55,025 4.46 % 61,580 5.57 %

Amortization of net deferred gain (loss) on de-designated interest rate swaps — — % 9,505 0.26 %

Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (28,079) (2.28) % (45,287) (4.10) %

Effective interest expense 26,946 2.18 % 16,293 1.47 %

Our effective interest expense and effective cost of funds increased in the three and nine months ended September 30, 2024 compared to the same periods in 2023 due to decreases in contractual net interest income on interest rate swaps.

Our effective interest expense increased in the three months ended March 31, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps and higher average borrowings, which were partially offset by a lower Federal Funds target rate.

Our effective cost of funds increased in the three months ended March 31, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps, which was partially offset by a lower Federal Funds target rate.

In addition to changes caused by the underlying floating rate index, the amount of contractual net interest income or expense on interest rate swaps that we recognize has changed based on changes in the size and composition of our interest rate swap portfolio.

During the third quarter of 2024, we also began using futures contracts, which do not earn or incur contractual interest, in lieu of certain interest rate swaps as an alternative way to help mitigate the potential impact of changing interest rates on our performance.

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

See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of March 31, 2025 and December 31, 2024.

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 September 30,

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

Net interest income 7,510 0.01 % 9,431 0.11 %

Amortization of net deferred (gain) loss on de-designated interest rate swaps — — % (1,810) (0.15) %

Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 40,883 3.27 % 72,126 5.88 %

Effective net interest income 48,393 3.28 % 79,747 5.84 %

Nine Months Ended September 30,

Three Months Ended March 31,

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

Net interest income 18,821 0.99 % 7,003 (0.05) %

Amortization of net deferred (gain) loss on de-designated interest rate swaps — — % (9,505) (0.26) %

Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 28,079 2.28 % 45,287 4.10 %

Effective net interest income 46,900 3.27 % 52,290 4.05 %

Our effective net interest income and effective interest rate margin decreased in the three months ended September 30, 2024 compared to the same period in 2023 due to decreases in contractual net interest income on interest rate swaps.

Our effective net interest income and effective interest rate margin decreased in the nine months ended September 30, 2024 compared to the same period in 2023 due to decreases in contractual net interest income on interest rate swaps and increases in the Federal Funds target rate.

Our effective net interest income and effective net interest rate margin decreased in the three months ended March 31, 2025 compared to the same period in 2024 due to a decrease in contractual net interest income on interest rate swaps, which was partially offset by a lower Federal Funds target rate.

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 September 30, 2024 and December 31, 2023.

The table below shows our debt-to-equity ratio and our economic debt-to-equity ratio as of March 31, 2025 and December 31, 2024.

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 September 30, 2024, approximately 94% 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.

3 unchanged sentences

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 September 30, 2024

$ in thousands Agency

CMBS Credit Portfolio (1)

Mortgage-backed securities 5,181,013 675,074 17,609 5,873,696

Cash and cash equivalents (2)

42,190 6,064 — 48,254

Restricted cash (3)

115,416 4,783 — 120,199

Derivative assets, at fair value (3)

11,556 479 — 12,035

Other assets 25,598 2,448 — 28,046

Total assets 5,375,773 688,848 17,609 6,082,230

Repurchase agreements 4,535,956 648,929 — 5,184,885

Other liabilities 37,289 2,360 693 40,342

Total liabilities 4,573,245 651,289 693 5,225,227

Total stockholders' equity (allocated) 802,528 37,559 16,916 857,003

Debt-to-equity ratio (4)

5.7 17.3 — 6.1

Economic debt-to-equity ratio (5)

5.7 17.3 — 6.1

(1) Investments in non-Agency CMBS and non-Agency RMBS are included in credit portfolio.

(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.

(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 September 30, 2024.

As of December 31, 2023

$ in thousands Agency

RMBS Credit Portfolio (1)

Mortgage-backed securities 5,027,232 18,074 5,045,306

Treasury securities 11,214 — 11,214

Cash and cash equivalents (2)

76,967 — 76,967

Restricted cash (3)

121,670 — 121,670

Derivative assets, at fair value (3)

Other assets 27,480 633 28,113

Total assets 5,265,502 18,707 5,284,209

$ in thousands March 31,

2025 December 31,

Repurchase agreements 5,354,561 4,893,958

Other liabilities 42,117 732 42,849

Total liabilities 4,500,812 732 4,501,544

Total stockholders' equity (allocated) 764,690 17,975 782,665

Total stockholders' equity 759,166 730,729

Debt-to-equity ratio (1)

Economic debt-to-equity ratio (2)

(1) Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.

(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.

(1) 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 December 31, 2023.

(2) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis ($219,000 as of March 31, 2025;

$606,000 as of December 31, 2024) to total stockholders' equity.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and fund other general business needs.

Our primary sources of funds for liquidity consist of the net proceeds from our common and preferred equity offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.

Our primary sources of funds for liquidity consist of the net proceeds from our common equity offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.

We currently believe that we have sufficient liquidity and capital resources available for the acquisition of additional investments, repayments on borrowings, margin requirements and the payment of cash dividends as required for continued qualification as a REIT.

We generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital.

Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our condensed consolidated balance sheets is significantly less important than our potential liquidity available under borrowing arrangements or through the sale of liquid investments.

Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our condensed consolidated balance sheets is

significantly less important than our potential liquidity available under borrowing arrangements or through the sale of liquid investments.

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 $168.5 million as of September 30, 2024 (September 30, 2023:

We held cash, cash equivalents and restricted cash of $181.5 million as of March 31, 2025 (March 31, 2024:

$200.5 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 $121.3 million for the nine months ended September 30, 2024 (September 30, 2023:

Our operating activities provided net cash of approximately $19.3 million for the three months ended March 31, 2025 (March 31, 2024:

$57.5 million).

Our investing activities used net cash of $898.8 million in the nine months ended September 30, 2024 compared to net cash used by investing activities of $899.8 million in the nine months ended September 30, 2023.

Our primary source of cash from investing activities for the nine months ended September 30, 2024 was proceeds from sales of MBS of $887.2 million and proceeds from sales of U.S.

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

$3.3 billion from the sales of MBS).

We also generated $261.9 million from principal payments of MBS during the nine months ended September 30, 2024 (September 30, 2023:

$260.9 million) and used cash of $146.5 million to settle derivative contracts in the nine months ended September 30, 2024 (September 30, 2023:

net cash provided of $19.6 million).

We used cash of $1.9 billion to purchase MBS during the nine months ended September 30, 2024 (September 30, 2023:

$4.5 billion to purchase MBS).

Our financing activities provided net cash of $747.3 million for the nine months ended September 30, 2024 compared to net cash provided by financing activities of $774.6 million in the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, we received net cash from proceeds on our repurchase agreements of $726.6 million

(September 30, 2023:

Our investing activities used net cash of $516.5 million in the three months ended March 31, 2025 compared to net cash provided by investing activities of $37.1 million in the three months ended March 31, 2024.

We used cash of $884.4 million to purchase MBS during the three months ended March 31, 2025 (March 31, 2024:

$390.4 million).

We used cash of $75.7 million for the nine months ended September 30, 2024 to pay dividends (September 30, 2023:

Our primary source of cash from investing activities for the three months ended March 31, 2025 was proceeds from sales of MBS of $373.6 million (March 31, 2024:

$296.5 million from the sales of MBS and $10.8 million from the sale of U.S.

Treasury securities).

We also generated $95.3 million from principal payments of MBS during the three months ended March 31, 2025 (March 31, 2024:

$71.2 million) and used cash of $101.5 million to settle derivative contracts in the three months ended March 31, 2025 (March 31, 2024:

net cash received of $48.7 million).

Our financing activities provided net cash of $467.8 million for the three months ended March 31, 2025 compared to net cash used by financing activities of $92.7 million in the three months ended March 31, 2024.

During the three months ended March 31, 2025, we received net cash from proceeds on our repurchase agreements of $460.6 million (March 31, 2024:

$64.4 million cash used for net repayments).

We used cash of $28.0 million for the three months ended March 31, 2025 to pay dividends (March 31, 2024:

$25.0 million).

Proceeds from issuance of common stock provided $108.1 million for the nine months ended September 30, 2024 (September 30, 2023:

Proceeds from issuance of common stock provided $36.1 million for the three months ended March 31, 2025 (March 31, 2024:

$3.3 million).

As of September 30, 2024, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.3% for Agency RMBS and 4.5% 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 5% for Agency CMBS.

As of March 31, 2025, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.5% for Agency RMBS and 4.8% for Agency CMBS.

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

Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements.

An event of default or termination event may give our counterparties the option to terminate all repurchase transactions outstanding with us and require any amount due from us to the counterparties to be payable immediately.

Effects of Margin Requirements, Leverage and Credit Spreads

Our securities have values that fluctuate according to market conditions and the market value of our securities will decrease as prevailing interest rates or credit spreads increase.

Effects of Margin Requirements, Leverage and Spreads

Our securities have values that fluctuate according to market conditions and the market value of our securities will decrease as prevailing interest rates or spreads increase.

When the value of the securities pledged to secure a repurchase loan decreases to the point where the positive difference between the collateral value and the loan amount is less than the haircut, our lenders may issue a “margin call”, which means that the lender will require us to pay cash or pledge additional collateral.

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The level of liquidity we have available to meet margin calls is directly affected by our leverage levels, our haircuts and the price changes on our securities.

If interest rates increase as a result of a yield curve shift or for another reason or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will seek to use our liquidity to meet the margin calls.

If interest rates increase or if spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will seek to use our liquidity to meet the margin calls.

There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls or increased collateral requirements.

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In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.

Our interest rate swaps and futures contracts require us to post initial margin and daily variation margin based on subsequent changes in their fair value.

Daily variation margin requirements also entitle us to receive collateral from our counterparties if the value of amounts owed to us under the derivative agreement exceeds the minimum margin requirement.

We intend to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated margin calls and increased collateral requirements but that also allows us to be substantially invested in securities.

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Forward-Looking Statements Regarding Liquidity

As of September 30, 2024, we held $5.4 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $472.3 million of unencumbered investments and unrestricted cash of $48.3 million as of September 30, 2024.

As of September 30, 2024, our known contractual obligations primarily consisted of $5.2 billion of repurchase agreement borrowings with a weighted average remaining maturity of 32 days.

As of March 31, 2025, we held $5.6 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $328.9 million of unencumbered investments and unrestricted cash of $42.9 million as of March 31, 2025.

As of March 31, 2025, our known contractual obligations primarily consisted of $5.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 25 days.

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

Repurchase agreement borrowings that are not refinanced upon maturity are typically repaid through the use of cash on hand or proceeds from sales of securities.

Based upon our current portfolio and existing borrowing arrangements, we believe that cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, fund our announced redemption of Series B Preferred Stock, pay fees under our management agreement, fund our required distributions to stockholders and fund other general corporate expenses.

Based upon our current portfolio and existing borrowing arrangements, we believe that cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our required distributions to stockholders and fund other general corporate expenses.

Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to obtaining additional debt financing.

We may increase our capital resources by obtaining long-term credit facilities or through public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock, senior or subordinated notes and convertible notes.

Such financing will depend on market conditions for capital raises and our ability to

invest such offering proceeds.

Such financing will depend on market conditions for capital raises and our ability to invest such offering proceeds.

If we are unable to renew, replace or expand our sources of financing on substantially similar terms, it may have an adverse effect on our business and results of operations.

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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 September 30, 2024, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $42.9 million, or 5% of our stockholders' equity.

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

As of March 31, 2025, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $38.0 million, or 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of March 31, 2025.

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

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North America 14 3,228,487 (164,043)

Europe (excluding United Kingdom) 2 675,444 (27,727)

Asia 4 962,929 (47,579)

Europe (excluding United Kingdom) 2 679,084 (33,408)

United Kingdom 1 484,061 (20,853)

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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 September 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.

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, 2025, 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, 2025.

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.

If we were required to register as an investment company, then our use of leverage would be substantially reduced.

Because we are a holding company that

conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S.

Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test.

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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 September 30, 2024, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

We calculate that as of March 31, 2025, 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