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 March 31, 2025 December 31, 2024 ASSETS Mortgage-backed securities, at fair value (including pledged securities of $ 5,616,874 and $ 5,129,486 , respectively; net of allowance for credit losses of $ 0 and $ 654 , respectively) 5,945,789 5,445,508 Cash and cash equivalents 42,894 73,403 Restricted cash 138,611 137,478 Due from counterparties 251 580 Investment related receivable 27,315 24,870 Derivative assets, at fair value 2,931 5,033 Other assets 973 1,162 Total assets 6,158,764 5,688,034 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements 5,354,561 4,893,958 Derivative liabilities, at fair value 1,767 627 Dividends payable 22,420 24,692 Accrued interest payable 14,273 32,711 Collateral held payable 1,526 — Accounts payable and accrued expenses 1,418 1,619 Due to affiliate 3,633 3,698 Total liabilities 5,399,598 4,957,305 Commitments and contingencies (See Note 12): Stockholders' equity: Preferred Stock, par value $ 0.01 per share; 50,000,000 shares authorized: 7.50 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock: 7,116,513 and 7,206,659 shares issued and outstanding, respectively ($ 177,913 and $ 180,166 aggregate liquidation preference, respectively) 172,101 174,281 Common Stock, par value $ 0.01 per share; 134,000,000 shares authorized; 65,942,495 and 61,729,693 shares issued and outstanding, respectively 659 617 Additional paid in capital 4,163,897 4,127,807 Accumulated other comprehensive income 789 173 Retained earnings (distributions in excess of earnings) ( 3,578,280 ) ( 3,572,149 ) Total stockholders’ equity 759,166 730,729 Total liabilities and stockholders' equity 6,158,764 5,688,034 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 March 31, $ in thousands, except share data 2025 2024 Interest income 73,846 68,583 Interest expense 55,025 61,580 Net interest income 18,821 7,003 Other income (loss) Gain (loss) on investments, net 82,158 ( 66,153 ) (Increase) decrease in provision for credit losses — ( 39 ) Equity in earnings (losses) of unconsolidated ventures — ( 193 ) Gain (loss) on derivative instruments, net ( 76,679 ) 93,161 Total other income (loss) 5,479 26,776 Expenses Management fee – related party 2,996 2,861 General and administrative 1,663 1,796 Total expenses 4,659 4,657 Net income (loss) 19,641 29,122 Dividends to preferred stockholders ( 3,341 ) ( 5,585 ) Gain (loss) on repurchase and retirement of preferred stock ( 11 ) 193 Net income (loss) attributable to common stockholders 16,289 23,730 Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 0.26 0.49 Diluted 0.26 0.49 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 March 31, $ in thousands 2025 2024 Net income (loss) 19,641 29,122 Other comprehensive income (loss): Unrealized gain (loss) on mortgage-backed securities, net 500 ( 202 ) Reclassification of unrealized (gain) loss on sale of mortgage-backed securities to gain (loss) on investments, net 116 — Reclassification of unrealized loss on available-for-sale securities to (increase) decrease in provision for credit losses — 39 Total other comprehensive income (loss) 616 ( 163 ) Comprehensive income (loss) 20,257 28,959 Dividends to preferred stockholders ( 3,341 ) ( 5,585 ) Gain (loss) on repurchase and retirement of preferred stock ( 11 ) 193 Comprehensive income (loss) attributable to common stockholders 16,905 23,567 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 (Unaudited) Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Distributions in excess of earnings) Total Stockholders’ Equity Series C Preferred Stock $ in thousands, except share amounts Common Stock Shares Amount Shares Amount Balance as of December 31, 2024 7,206,659 174,281 61,729,693 617 4,127,807 173 ( 3,572,149 ) 730,729 Net income (loss) — — — — — — 19,641 19,641 Other comprehensive income (loss) — — — — — 616 — 616 Proceeds from issuance of common stock, net of offering costs — — 4,212,057 42 35,914 — — 35,956 Stock awards — — 745 — — — — — Repurchase and retirement of preferred stock ( 90,146 ) ( 2,180 ) — — — — ( 11 ) ( 2,191 ) Common stock dividends — — — — — — ( 22,420 ) ( 22,420 ) Preferred stock dividends — — — — — — ( 3,341 ) ( 3,341 ) Amortization of equity-based compensation — — — — 176 — — 176 Balance as of March 31, 2025 7,116,513 172,101 65,942,495 659 4,163,897 789 ( 3,578,280 ) 759,166 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 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 CASH FLOWS (Unaudited) Three Months Ended March 31, $ in thousands 2025 2024 Cash Flows from Operating Activities Net income (loss) 19,641 29,122 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of premiums and (discounts), net ( 2,020 ) ( 3,163 ) Realized and unrealized (gain) loss on derivative instruments, net 104,758 ( 47,874 ) (Gain) loss on investments, net ( 82,158 ) 66,153 Increase (decrease) in provision for credit losses — 39 (Gain) loss from investments in unconsolidated ventures in excess of distributions received — 193 Other amortization 176 128 Changes in operating assets and liabilities: (Increase) decrease in operating assets ( 2,247 ) 1,573 Increase (decrease) in operating liabilities ( 18,804 ) 11,328 Net cash provided by (used in) operating activities 19,346 57,499 Cash Flows from Investing Activities Purchase of mortgage-backed securities ( 884,448 ) ( 390,380 ) Distributions from investments in unconsolidated ventures, net — 307 Principal payments from mortgage-backed securities 95,314 71,212 Proceeds from sale of mortgage-backed securities 373,626 296,535 Proceeds from sale of U.S. Treasury securities — 10,755 Settlement (termination) of swaps, TBAs and futures, net ( 101,516 ) 48,682 Net change in due from counterparties and collateral held payable on derivative instruments 525 — Net cash provided by (used in) investing activities ( 516,499 ) 37,111 Cash Flows from Financing Activities Proceeds from issuance of common stock 36,068 3,318 Repurchase of preferred stock ( 2,191 ) ( 4,383 ) Proceeds from repurchase agreements 12,336,920 8,762,735 Principal repayments of repurchase agreements ( 11,876,317 ) ( 8,827,103 ) Net change in due from counterparties and collateral held payable on repurchase agreements 1,330 ( 2,063 ) Payments of deferred costs — ( 277 ) Payments of dividends ( 28,033 ) ( 24,969 ) Net cash provided by (used in) financing activities 467,777 ( 92,742 ) Net change in cash, cash equivalents and restricted cash ( 29,376 ) 1,868 Cash, cash equivalents and restricted cash, beginning of period 210,881 198,637 Cash, cash equivalents and restricted cash, end of period 181,505 200,505 Supplement Disclosure of Cash Flow Information Interest paid 73,463 50,381 Non-cash Investing and Financing Activities Information Dividends declared not paid 22,420 19,530 Unsettled receivables recorded within investment related receivable 21 109 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 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 March 31, 2025, 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”); 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 CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”), U.S. Treasury securities and a real estate-related financing arrangement in the form of an unconsolidated venture. We conduct our business through IAS Operating Partnership L.P. (the “Operating Partnership”) and have one operating segment. Refer to Note 13 - “Segment Information” of our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 for additional information on our 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, 2024. 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. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. 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. 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, 2024. 6 Table of Contents Note 3 – Mortgage-Backed Securities The following tables summarize our MBS portfolio by asset type as of March 31, 2025 and December 31, 2024. As of March 31, 2025 $ in thousands Principal/ Notional Balance Unamortized Premium (Discount) Amortized Cost Unrealized Gain/ (Loss), net Fair Value Period- end Weighted Average Yield (1) Agency RMBS: 30 year fixed-rate pass-through 4,953,499 ( 42,568 ) 4,910,931 63,732 4,974,663 5.61 % Agency-CMO (2) 518,532 ( 452,800 ) 65,732 7,807 73,539 10.02 % Agency CMBS 898,738 ( 6,667 ) 892,071 ( 1,699 ) 890,372 4.62 % Non-Agency RMBS (3)(4)(5) 243,578 ( 237,116 ) 6,462 753 7,215 11.53 % Total 6,614,347 ( 739,151 ) 5,875,196 70,593 5,945,789 5.51 % (1) Period-end weighted average yield is based on amortized cost as of March 31, 2025 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 67.3 % fixed rate, 32.1 % variable rate, and 0.6 % 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 96.6 % of principal/notional balance, 33.7 % of amortized cost and 30.5 % of fair value. As of December 31, 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 4,626,174 ( 87,357 ) 4,538,817 — 2,708 4,541,525 5.50 % Agency-CMO (2) 529,137 ( 461,674 ) 67,463 — 3,313 70,776 9.20 % Agency CMBS 845,736 ( 5,830 ) 839,906 — ( 23,759 ) 816,147 4.59 % Non-Agency CMBS 11,000 — 11,000 ( 654 ) ( 510 ) 9,836 8.91 % Non-Agency RMBS (3)(4)(5) 248,957 ( 242,334 ) 6,623 — 601 7,224 11.13 % Total 6,261,004 ( 797,195 ) 5,463,809 ( 654 ) ( 17,647 ) 5,445,508 5.42 % (1) Period-end weighted average yield is based on amortized cost as of December 31, 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-CMO are Agency IO. (3) Non-Agency RMBS is 66.4 % fixed rate, 33.0 % variable rate and 0.6 % 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 96.7 % of principal/notional balance, 34.2 % of amortized cost and 31.0 % of fair value. 7 Table of Contents The following table presents the fair value of our available-for-sale securities and securities accounted for under the fair value option by asset type as of March 31, 2025 and December 31, 2024. 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 March 31, 2025 approximately 99.9 % of our MBS were accounted for under the fair value option (December 31, 2024: 99.7 %). As of March 31, 2025 December 31, 2024 $ 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 — 4,974,663 4,974,663 — 4,541,525 4,541,525 Agency-CMO — 73,539 73,539 — 70,776 70,776 Agency CMBS — 890,372 890,372 — 816,147 816,147 Non-Agency CMBS — — — 9,836 — 9,836 Non-Agency RMBS 5,141 2,074 7,215 5,114 2,110 7,224 Total 5,141 5,940,648 5,945,789 14,950 5,430,558 5,445,508 The components of the carrying value of our MBS portfolio as of March 31, 2025 and December 31, 2024 are presented below. Accrued interest receivable on our MBS portfolio, which is recorded within investment related receivable on our condensed consolidated balance sheets, was $ 27.3 million as of March 31, 2025 (December 31, 2024: $ 24.9 million). As of March 31, 2025 December 31, 2024 $ in thousands MBS Interest-Only Securities Total MBS Interest-Only Securities Total Principal/notional balance 5,860,410 753,937 6,614,347 5,491,175 769,829 6,261,004 Unamortized premium 36,907 — 36,907 19,651 — 19,651 Unamortized discount ( 90,031 ) ( 686,027 ) ( 776,058 ) ( 116,744 ) ( 700,102 ) ( 816,846 ) Allowance for credit losses — — — ( 654 ) — ( 654 ) Gross unrealized gains (1) 73,408 8,261 81,669 22,443 5,817 28,260 Gross unrealized losses (1) ( 10,641 ) ( 435 ) ( 11,076 ) ( 43,376 ) ( 2,531 ) ( 45,907 ) Fair value 5,870,053 75,736 5,945,789 5,372,495 73,013 5,445,508 (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 months ended March 31, 2025 and 2024 is provided below in this Note 3. The following table summarizes our MBS portfolio according to estimated weighted average life classifications as of March 31, 2025 and December 31, 2024 . As of $ in thousands March 31, 2025 December 31, 2024 Greater than one year and less than five years 400,765 10,045 Greater than or equal to five years 5,545,024 5,435,463 Total 5,945,789 5,445,508 8 Table of Contents The following tables present the estimated fair value and gross unrealized losses of our MBS by length of time that such securities have been in a continuous unrealized loss position as of March 31, 2025 and December 31, 2024. As of March 31, 2025 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) 608,669 ( 1,447 ) 7 — — — 608,669 ( 1,447 ) 7 Agency-CMO (1) — — — 5,842 ( 244 ) 2 5,842 ( 244 ) 2 Agency CMBS (1) 446,053 ( 9,176 ) 19 — — — 446,053 ( 9,176 ) 19 Non-Agency RMBS (2) 236 ( 2 ) 1 1,071 ( 207 ) 8 1,307 ( 209 ) 9 Total 1,054,958 ( 10,625 ) 27 6,913 ( 451 ) 10 1,061,871 ( 11,076 ) 37 (1) Fair value option has been elected for all Agency securities in an unrealized loss position. (2) Includes non-Agency IO with a fair value of $ 1.1 million for which the fair value option has been elected. Such securities have unrealized losses of $ 192,000 . As of December 31, 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) 2,251,552 ( 18,897 ) 29 — — — 2,251,552 ( 18,897 ) 29 Agency-CMO (1) — — — 18,909 ( 2,300 ) 5 18,909 ( 2,300 ) 5 Agency CMBS (1) 792,031 ( 23,949 ) 49 — — — 792,031 ( 23,949 ) 49 Non-Agency CMBS (2) 9,836 ( 510 ) 1 — — — 9,836 ( 510 ) 1 Non-Agency RMBS (3) — — — 1,322 ( 251 ) 9 1,322 ( 251 ) 9 Total 3,053,419 ( 43,356 ) 79 20,231 ( 2,551 ) 14 3,073,650 ( 45,907 ) 93 (1) Fair value option has been elected for all Agency securities in an unrealized loss position. (2) Unrealized losses on non-Agency CMBS were included in accumulated other comprehensive income. These losses were 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 $ 231,000 . We are required to evaluate our available-for-sale MBS for credit losses. During the three months ended March 31, 2025, we sold our remaining non-Agency CMBS investment for cash proceeds of $ 10.2 million and recognized a loss upon sale of $ 116,000 . This was the only security for which we had recorded an allowance for credit losses. The following table presents a roll-forward of our allowance for credit losses. Three Months Ended March 31, $ in thousands 2025 2024 Beginning allowance for credit losses ( 654 ) ( 320 ) Additional (increases) decreases to the allowance for credit losses on securities that had an allowance recorded in a previous period — ( 39 ) Reductions for securities sold 654 — Ending allowance for credit losses — ( 359 ) 9 Table of Contents The following table summarizes the components of our total gain (loss) on investments, net for the three months ended March 31, 2025 and 2024. Three Months Ended March 31, $ in thousands 2025 2024 Gross realized gains on sale of MBS 923 148 Gross realized losses on sale of MBS ( 6,389 ) ( 3,370 ) Net unrealized gains (losses) on MBS accounted for under the fair value option 87,624 ( 62,473 ) Net unrealized gains (losses) on U.S. Treasury securities — ( 372 ) Net realized gains (losses) on U.S. Treasury securities — ( 86 ) Total gain (loss) on investments, net 82,158 ( 66,153 ) The following tables present components of interest income recognized for the three months ended March 31, 2025 and 2024. For the three months ended March 31, 2025 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 63,267 179 63,446 Agency CMBS 9,877 95 9,972 Non-Agency CMBS 77 — 77 Non-Agency RMBS 250 ( 64 ) 186 Other (inclusive of interest earned on cash balances) 165 — 165 Total interest income 73,636 210 73,846 For the three months ended March 31, 2024 $ in thousands Coupon Interest Net (Premium Amortization)/Discount Accretion Interest Income Agency RMBS 66,131 1,136 67,267 Agency CMBS 504 5 509 Non-Agency CMBS 125 127 252 Non-Agency RMBS 280 ( 126 ) 154 U.S. Treasury Securities 22 ( 1 ) 21 Other (inclusive of interest earned on cash balances) 380 — 380 Total interest income 67,442 1,141 68,583 10 Table of Contents Note 4 – 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 March 31, 2025. The following tables summarize certain characteristics of our borrowings as of March 31, 2025 and December 31, 2024. Refer to Note 5 - "Collateral Positions" for collateral pledged and held under our repurchase agreements. As of $ in thousands March 31, 2025 December 31, 2024 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 4,512,054 4.48 % 24 4,112,219 4.80 % 29 Repurchase Agreements - Agency CMBS 842,507 4.46 % 30 781,739 4.77 % 32 Total Borrowings 5,354,561 4.47 % 25 4,893,958 4.80 % 29 11 Table of Contents Note 5 - Collateral Positions The following table summarizes the fair value of collateral that we pledged and held under our repurchase agreements and derivative instruments as of March 31, 2025 and December 31, 2024. 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, 2024 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 pledged on to-be-announced securities forward contracts (“TBAs”) accounted for as derivatives is classified as due from counterparties 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 March 31, 2025 and December 31, 2024, we did not recognize any non-cash collateral held on our condensed consolidated balance sheets. $ in thousands As of Collateral Pledged March 31, 2025 December 31, 2024 Repurchase Agreements: Agency RMBS 4,726,502 4,323,626 Agency CMBS 890,372 805,860 Total repurchase agreements collateral pledged 5,616,874 5,129,486 Derivative Instruments: Cash 251 580 Restricted cash 138,611 137,478 Total derivative instruments collateral pledged 138,862 138,058 Total Collateral Pledged: Mortgage-backed securities 5,616,874 5,129,486 Cash 251 580 Restricted cash 138,611 137,478 Total Collateral Pledged 5,755,736 5,267,544 As of Collateral Held March 31, 2025 December 31, 2024 Repurchase Agreements: Cash 1,330 — Non-cash collateral 5,855 — Total repurchase agreements collateral held 7,185 — Derivative instruments: Cash 196 — Total derivative instruments collateral held 196 — Total collateral held: Cash 1,526 — Non-cash collateral 5,855 — Total collateral held 7,381 — 12 Table of Contents Repurchase Agreements Collateral pledged with our repurchase agreement counterparties is segregated in our books and records. The repurchase agreement counterparties have the right to resell and repledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral if agreed to by us, upon maturity of the repurchase agreement. Under the repurchase agreements, the respective lender retains the contractual right to mark the underlying collateral to fair value. We would be required to provide additional collateral to fund margin calls if the value of pledged assets declined. We intend to maintain a level of liquidity that will enable us to meet any reasonably anticipated margin calls. The ratio of our total repurchase agreements collateral pledged to our total repurchase agreements outstanding was 105 % as of March 31, 2025 (December 31, 2024: 105 %) based on the fair value of the securities as reported in our condensed consolidated balance sheets. Interest Rate Swaps As of March 31, 2025 and December 31, 2024, all of our interest rate swaps were centrally cleared by a registered clearing organization such as the Chicago Mercantile Exchange (“CME”) through a Futures Commission Merchant (“FCM”). We are required to pledge initial margin and daily variation margin for our centrally cleared interest rate swaps that is based on the fair value of our contracts as determined by our FCM. Collateral pledged with our FCM is segregated in our books and records and can be in the form of cash or securities. Daily variation margin for centrally cleared interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as gain (loss) on derivative instruments, net in our 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. TBAs Our TBAs provide for bilateral collateral pledging based on market value as determined by our counterparties. Collateral pledged with our TBA counterparties is segregated in our books and records and can be in the form of cash or securities. Our counterparties have the right to repledge the collateral posted and have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the contracts changes. Note 6 – Derivatives and Hedging Activities The following table summarizes changes in the notional amount of our derivative instruments during 2025. $ in thousands Notional Amount as of December 31, 2024 Additions Settlement, Termination, Expiration or Exercise Notional Amount as of March 31, 2025 Interest Rate Swaps 3,265,000 725,000 ( 350,000 ) 3,640,000 Futures Contracts 1,402,000 1,402,000 ( 1,901,500 ) 902,500 TBA Purchase Contracts 100,000 1,435,000 ( 1,135,000 ) 400,000 TBA Sale Contracts ( 100,000 ) ( 1,435,000 ) 1,135,000 ( 400,000 ) Total 4,667,000 2,127,000 ( 2,251,500 ) 4,542,500 Refer to Note 5 - "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 well as futures contracts, 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. 13 Table of Contents As of March 31, 2025 and December 31, 2024, 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 March 31, 2025 Maturities Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Less than 3 years 1,480,000 0.54 % 4.41 % 2.3 3 to 5 years 375,000 0.39 % 4.41 % 4.0 5 to 7 years 785,000 0.72 % 4.41 % 5.6 7 to 10 years 555,000 4.14 % 4.41 % 9.8 Greater than 10 years 445,000 1.99 % 4.41 % 19.5 Total 3,640,000 1.29 % 4.41 % 6.4 $ in thousands As of December 31, 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 1.06 % 4.49 % 2.2 3 to 5 years 375,000 0.39 % 4.49 % 4.3 5 to 7 years 750,000 0.57 % 4.49 % 5.8 Greater than 10 years 410,000 1.83 % 4.49 % 18.9 Total 3,265,000 0.97 % 4.49 % 5.3 Futures Contracts We use futures contracts to help mitigate the potential impact of changes in interest rates on our performance. The table below presents certain details of our futures contracts as of March 31, 2025 and December 31, 2024. As of March 31, 2025 December 31, 2024 $ in thousands Notional Amount - Short Notional Amount - Short 10 year U.S. Treasury futures 400,000 136,000 Ultra 10 year U.S. Treasury futures 315,000 1,057,000 30 year U.S. Treasury futures 187,500 209,000 Total 902,500 1,402,000 TBAs We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. The tables below presents certain characteristics of our TBAs accounted for as derivatives as of March 31, 2025 and December 31, 2024. $ in thousands As of March 31, 2025 Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value - Asset (Liability) (1) TBA purchase contracts 400,000 411,610 412,448 838 TBA sales contracts ( 400,000 ) ( 411,391 ) ( 412,448 ) ( 1,057 ) Net TBA derivatives — 219 — ( 219 ) 14 Table of Contents $ in thousands As of December 31, 2024 Notional Amount Implied Cost Basis Implied Market Value Net Carrying Value - Asset (Liability) (1) TBA purchase contracts 100,000 99,800 99,173 ( 627 ) TBA sales contracts ( 100,000 ) ( 99,194 ) ( 99,173 ) 21 Net TBA derivatives — 606 — ( 606 ) (1) Derivative assets and derivative liabilities related to TBAs are presented gross on the condensed consolidated balance sheets. 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 March 31, 2025 and December 31, 2024. $ in thousands Derivative Assets Derivative Liabilities As of As of March 31, 2025 December 31, 2024 March 31, 2025 December 31, 2024 Balance Sheets Fair Value Fair Value Balance Sheets Fair Value Fair Value Interest Rate Swaps Asset 2,093 1,549 Interest Rate Swaps Liability — — Futures Contracts — 3,463 Futures Contracts 710 — TBAs 838 21 TBAs 1,057 627 Total Derivative Assets 2,931 5,033 Total Derivative Liabilities 1,767 627 The following tables summarize the effect of interest rate swaps, futures contracts and TBAs reported in gain (loss) on derivative instruments, net on the condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024. $ in thousands Three Months Ended March 31, 2025 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 ( 76,259 ) 28,079 542 ( 47,638 ) Futures Contracts ( 28,682 ) — ( 4,172 ) ( 32,854 ) TBAs 3,425 — 388 3,813 Total ( 101,516 ) 28,079 ( 3,242 ) ( 76,679 ) $ in thousands Three Months Ended March 31, 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 48,682 45,287 ( 808 ) 93,161 Total 48,682 45,287 ( 808 ) 93,161 Note 7 – 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. 15 Table of Contents 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 March 31, 2025 and December 31, 2024. 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 asset of $ 2.1 million related to centrally cleared interest rate swaps and derivative liability of $ 710,000 related to futures contracts as of March 31, 2025 (December 31, 2024: assets of $ 1.5 million and $ 3.5 million related to centrally cleared interest rate swaps and futures contracts, respectively) are not included in the table below as a result of this characterization of daily variation margin. As of March 31, 2025 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 Assets Derivatives (1) (2) 838 — 838 ( 338 ) ( 196 ) 304 Total Assets 838 — 838 ( 338 ) ( 196 ) 304 Liabilities Derivatives (1) (2) ( 1,057 ) — ( 1,057 ) 338 215 ( 504 ) Repurchase Agreements (3) ( 5,354,561 ) — ( 5,354,561 ) 5,354,561 — — Total Liabilities ( 5,355,618 ) — ( 5,355,618 ) 5,354,899 215 ( 504 ) As of December 31, 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 Assets Derivatives (1) (2) 21 — 21 — — 21 Total Assets 21 — 21 — — 21 Liabilities Derivatives (1) (2) ( 627 ) — ( 627 ) — 580 ( 47 ) Repurchase Agreements (3) ( 4,893,958 ) — ( 4,893,958 ) 4,893,958 — — Total Liabilities ( 4,894,585 ) — ( 4,894,585 ) 4,893,958 580 ( 47 ) (1) Amounts represent derivative assets and derivative liabilities which could potentially be offset against other derivative assets, derivative liabilities and cash collateral pledged or received. (2) Cash collateral pledged by us on our derivatives was $ 138.9 million as of March 31, 2025 (December 31, 2024: $ 138.1 million) of which $ 138.6 million relates to initial margin pledged on centrally cleared interest rate swaps and futures contracts (December 31, 2024: $ 137.5 million). Centrally cleared interest rate swaps and futures contracts are excluded from the tables above. We held $ 196,000 of cash collateral on our derivatives as of March 31, 2025 (December 31, 2024: none ). (3) The fair value of securities pledged against our borrowings under repurchase agreements was $ 5.6 billion as of March 31, 2025 (December 31, 2024: $ 5.1 billion). We held $ 1.3 million of cash collateral under repurchase agreements as of March 31, 2025 (December 31, 2024: none ). 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. 16 Table of Contents Note 8 – 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 March 31, 2025 Fair Value Measurements Using: $ in thousands Level 1 Level 2 Level 3 Total at Fair Value Assets: Mortgage-backed securities (1) — 5,945,789 — 5,945,789 Derivative assets (2) — 2,931 — 2,931 Total assets — 5,948,720 — 5,948,720 Liabilities: Derivative liabilities (2) 710 1,057 — 1,767 Total liabilities 710 1,057 — 1,767 As of December 31, 2024 Fair Value Measurements Using: $ in thousands Level 1 Level 2 Level 3 Total at Fair Value Assets: Mortgage-backed securities (1) — 5,445,508 — 5,445,508 Derivative assets (2) 3,463 1,570 — 5,033 Total assets 3,463 5,447,078 — 5,450,541 Liabilities: Derivative liabilities (2) — 627 — 627 Total liabilities — 627 — 627 (1) For more detail about the fair value of our MBS, refer to Note 3 - “Mortgage-Backed Securities”. (2) Derivative assets and derivative liabilities include futures contracts as Level 1 measurements and interest rate swaps and TBAs as Level 2 measurements. 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 March 31, 2025 and December 31, 2024. As of March 31, 2025 December 31, 2024 $ in thousands Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial Liabilities Repurchase agreements 5,354,561 5,354,554 4,893,958 4,895,017 Total 5,354,561 5,354,554 4,893,958 4,895,017 17 Table of Contents The estimated fair value of repurchase agreements is a Level 3 fair value measurement based on an expected present value technique. This method discounts future estimated cash flows using rates we determined best reflect current market interest rates that would be offered for repurchase agreements with similar characteristics and credit quality. Note 9 – 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 months ended March 31, 2025 reimbursed or reimbursable by us were $ 293,000 (March 31, 2024: $ 231,000 ). 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 months ended March 31, 2025 and 2024. Three Months Ended March 31, $ in thousands 2025 2024 Incurred costs, prepaid or expensed 1,640 1,478 Total incurred costs, originally paid by our Manager 1,640 1,478 Note 10 – 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 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. 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 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 C Preferred Stock are not redeemable, convertible into or exchangeable for any other property or any other securities of the Company before this time, except under circumstances intended to preserve our qualification as a REIT or upon the occurrence of a change in control. Common Stock 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. These shares 18 Table of Contents are registered with the SEC under our shelf registration statement (as amended and/or supplemented). 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 Shares sold 4,212,057 365,838 Net proceeds 35,956 3,318 Commissions and other costs 569 43 During the three months ended March 31, 2025 and 2024, we did not repurchase any shares of our common stock. As of March 31, 2025, we had authority to repurchase 1,816,359 shares of our common stock through our common stock share repurchase program. Accumulated Other Comprehensive Income Our accumulated other comprehensive income and other comprehensive income (loss) relate to gains and losses on MBS that are not accounted for under the fair value option. Gains and losses on MBS that are accounted for under the fair value option are recorded on our condensed consolidated statements of operations within “Gain (loss) on investments, net”. Dividends The table below summarizes the dividends we declared during the three months ended March 31, 2025 and 2024. $ in thousands, except per share amounts Dividends Declared Series B Preferred Stock Per Share In Aggregate Date of Payment 2024 February 21, 2024 0.4844 2,086 March 27, 2024 $ in thousands, except per share amounts Dividends Declared Series C Preferred Stock Per Share In Aggregate Date of Payment 2025 February 19, 2025 0.46875 3,341 March 27, 2025 2024 February 21, 2024 0.46875 3,499 March 27, 2024 $ in thousands, except per share amounts Dividends Declared Common Stock Per Share In Aggregate Date of Payment 2025 March 25, 2025 0.34 22,420 April 25, 2025 2024 March 26, 2024 0.40 19,530 April 26, 2024 19 Table of Contents Note 11 – Earnings (Loss) per Common Share Earnings (loss) per share for the three months ended March 31, 2025 and 2024 is computed as shown in the table below. Three Months Ended March 31, In thousands, except per share amounts 2025 2024 Numerator (Income) Basic Earnings: Net income (loss) available to common stockholders 16,289 23,730 Denominator (Weighted Average Shares) Basic Earnings: Shares available to common stockholders 62,844 48,500 Effect of dilutive securities: Restricted stock awards 1 1 Dilutive Shares 62,845 48,501 Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 0.26 0.49 Diluted 0.26 0.49 There were no potential weighted average common shares excluded from diluted earnings per share for the three months ended March 31, 2025 (March 31, 2024: none ). Note 12 – Commitments and Contingencies Commitments and contingencies may arise in the ordinary course of business. As of March 31, 2025, we were not aware of any reported or unreported contingencies. Note 13 – Subsequent Events Dividends On May 6, 2025, we declared a Series C Preferred Stock dividend of $ 0.46875 per share payable on June 27, 2025 to our stockholders of record as of June 5, 2025. 20 Table of Contents