What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-08 compared with 2025-05-07 · 257 added, 184 removed, 465 unchanged (49% of the section changed)

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Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Executive Summary

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

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

As of June 30, 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”).

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

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

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

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

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

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

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

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We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the 1940 Act.

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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, 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.

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

Financial conditions were quite volatile during the second quarter.

They tightened sharply in the first week of April following the initial tariff announcements on April 2 nd , which triggered a broad repricing across risk markets.

Despite the early turbulence, financial conditions ended the quarter modestly accommodative, supported by the subsequent delay in tariff implementation.

Equity markets, which experienced declines of over 10% in the immediate aftermath of April 2 nd , rebounded strongly.

The S&P 500 finished the quarter up 10.6%, while the NASDAQ posted a gain of 17.7%.

Credit markets followed a similar trajectory, with spreads in investment grade, high yield and emerging market debt all widening materially in early April before tightening by quarter end.

Inflation remained relatively stable during the quarter, though it continued to exceed the Federal Reserve’s 2% target.

The headline consumer price index (“CPI”) rose to 2.7%, up from 2.4% at the end of March.

Core CPI, which excludes food and energy, increased modestly to 2.9% year-over-year, compared to 2.8% previously.

Despite these increases, investor expectations for future inflation declined, reflecting concerns about the potential impact of fiscal and trade policies on long-term economic growth.

Breakeven rates on Treasury inflation-protected securities moved lower during the quarter.

The two-year breakeven fell to 2.5% from 3.3%, while the five-year breakeven declined to 2.3% from 2.6%.

Meanwhile, labor market data pointed to continued stability.

After revisions, the economy added an average of 64,000 jobs per month during the second quarter, down from an average of 111,000 jobs in the first quarter.

The headline unemployment rate decreased slightly during the second quarter, dropping to 4.1% from 4.2%.

Prior to the revisions to the employment data, stable employment data and declining recession risks led to a moderation in market expectations for near-term monetary policy action.

Federal Funds futures market expectations at the end of June 2025 reflected expectations for an additional 50 to 75 basis points of rate cuts by year end, down from 100 basis points at the end of April.

Quantitative tightening continued at a slower pace in the second quarter, as the Federal Reserve reduced the monthly runoff of U.S.

Treasuries on its balance sheet to $5 billion, down from $25 billion, while maintaining the $35 billion cap on Agency MBS runoff.

Interest rates declined across the front end of the Treasury yield curve during the second quarter, while long-end rates moved higher.

This reflected market expectations for more accommodative policy from the FOMC, alongside concerns about a potential increase in Treasury issuance over the coming years.

The yield on the two-year Treasury fell 19 basis points to 3.72%, the five-year Treasury yield declined 19 basis points to 3.79% and the yield on the ten-year Treasury decreased 1 basis point to 4.23%.

In contrast, the yield on the 30-year Treasury increased 16 basis points to 4.77%.

Interest rate volatility spiked in early April as the market digested the potential impact of the April 2 nd tariff announcements but quickly subsided.

By quarter end, both long and short-dated volatility had declined.

As a result of the spike in interest rate volatility and broad selloff in risk assets, Agency RMBS sharply underperformed Treasuries in early April.

However, the 90-day pause in tariff implementation announced on April 9 th provided support for financial markets, benefiting the Agency MBS sector.

Performance was relatively consistent across the 30-year conventional coupon stack, with coupons ranging from 2.5% to 6.5%, outperforming their Treasury hedges by 20 to 30 basis points.

Supply and demand technicals for higher coupon Agency RMBS were supportive despite muted demand from banks and overseas investors.

A modest seasonal uptick in origination activity was more than offset by strong inflows into fixed income funds, with money managers allocating a significant portion of these flows to the sector given its attractive relative value.

Prepayment speeds increased during the quarter due to the combination of higher refinancing activity related to the decline in mortgage rates earlier in the year and the seasonal increase in housing turnover.

However, premiums on specified pool collateral were largely unchanged during the quarter with mortgage rates relatively stable since March.

Agency CMBS risk premiums increased with broader financial markets during April before improving in May and June.

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

2024 June 30, 2024 One Quarter Change One Year

Interest Rates

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30 Year Treasury 4.77 % 4.61 % 4.78 % 4.13 % 4.50 % 0.16 % 0.27 %

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

2024 March 31, 2024 One Quarter Change One Year

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

2024 June 30, 2024 One Quarter Change One Year

Swap Spreads (1)

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Treasury security with a similar maturity.

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.

We remain cautious on the near-term outlook for Agency RMBS, reflecting our belief that elevated near-term uncertainty regarding trade, fiscal and monetary policy warrants a modestly more defensive posture.

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

Lastly, we remain positive on Agency CMBS as limited issuance, strong fundamental performance and stable cash flow profiles should provide favorable support for this sector.

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Investment Activities

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

The table below shows the composition of our investment portfolio as of June 30, 2025, December 31, 2024 and June 30, 2024.

$ in thousands June 30, 2025 December 31, 2024 June 30, 2024

30 year fixed-rate pass-through, at fair value 4,222,203 4,541,525 4,359,796

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Non-Agency RMBS, at fair value — 7,224 7,463

Subtotal 5,185,559 5,445,508 4,836,827

TBAs, at implied market value (1)

Total investment portfolio 5,185,559 5,445,508 5,035,247

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

(1) Our presentation of TBAs in the table above represents management's view of our investment portfolio and does not reflect how we record TBAs on our condensed consolidated balance sheets under U.S.

GAAP, we record TBAs that we do not intend to physically settle on the contractual settlement date as derivative financial instruments.

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

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

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

As o f June 30, 2025, our holdings of 30 year fixed-rate Agency RMBS represented approximately 81% of our total investment portfolio versus 83% as of December 31, 2024 and 87% as of June 30, 2024.

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

June 30, 2025 December 31, 2024 June 30, 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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Total 30 year fixed-rate Agency RMBS 4,222,203 100.0 % 5.58 % 4,541,525 100.0 % 5.50 % 4,359,796 100.0 % 5.40 %

Our purchases of Agency RMBS have been primarily focused on specified pools with attractive prepayment profiles.

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Our holdings of Agency RMBS are primarily focused on specified pools with attractive prepayment profiles.

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

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

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

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

June 30, 2025 December 31, 2024 June 30, 2024

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

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Low credit score 1,386,976 32.8 % 1,328,867 29.3 % 1,166,486 26.8 %

Investment property 57,800 1.4 % — — % — — %

Total 30 year fixed-rate Agency RMBS 4,222,203 100.0 % 4,541,525 100.0 % 4,359,796 100.0 %

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.

As of June 30, 2025, our holdings of Agency CMBS represented approximately 17% of our total investment portfolio versus 15% as of December 31, 2024 and 8% as of June 30, 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 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.

As of June 30, 2025, approximately 81% of our Agency CMBS were Fannie Mae DUS and 19% were Freddie Mac Multifamily Participation Certificates.

We sold our remaining investments in non-Agency securities during 2025.

As of December 31, 2024 and June 30, 2024, our holdings of non-Agency securities represented less than 1% of our total investment portfolio.

Financing and Other Liabilities

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Maximum balance (2)

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

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

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

June 30, 2025 4,635,881 4,577,566 4,635,881

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

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

During the three months ended March 31, 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.

During the six months ended June 30, 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 $485.0 million.

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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.

During the six months ended June 30, 2025, we entered into futures contracts with a notional amount of $2.9 billion and terminated existing futures contracts with a notional amount of $3.5 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.

Additionally, we have used and may in the future use short positions in TBAs to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations.

Capital Activities

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,

As of June 30, 2025, we had 6,600,754 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 six months ended June 30, 2025 and 2024.

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

Shares in ones, $ in thousands 2025 2024 2025 2024

Shares sold 282,750 1,761,155 4,494,807 2,126,993

Net proceeds 35,956 3,318

Commissions and other costs 569 43

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.

Cash proceeds, net of fees paid to placement agents 2,163 16,059 38,231 19,378

Fees paid to placement agents 27 204 484 246

For information on dividends declared during the six months ended June 30, 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 three months ended March 31, 2025, we did not repurchase any shares of our common stock.

During the six months ended June 30, 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 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.

During the three and six months ended June 30, 2025, we repurchased and retired 96,803 and 186,949 and shares of Series C Preferred Stock, respectively.

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

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.

As of June 30, 2025, we had authority to repurchase 519,710 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 March 31, 2025 December 31, 2024

In thousands except per share amounts June 30, 2025 December 31, 2024

Numerator (adjusted equity):

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Book value per common share 8.05 8.92

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

Our book value per common share decreased 9.8% as of June 30, 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.

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“Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value.

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Critical Accounting Policies and Estimates

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Results of Operations

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

Three Months Ended March 31,

The table below presents information from our condensed consolidated statements of operations for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands, except share data 2025 2024 2025 2024

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Diluted 66,006,135 49,364,751 64,433,710 48,949,615

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Interest Income and Average Earning Asset Yields

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

Three Months Ended March 31,

The table below presents information related to our average earning assets and earning asset yields for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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All yields are annualized.

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

Total average earning assets increased $231.8 million and $340.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

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

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

Average earning asset yields decreased 5 basis points and 6 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

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 March 31,

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

$ in thousands 2025 2024 2025 2024

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Total interest income 70,624 68,028 144,470 136,611

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.

Our interest income increased for the three and six months ended June 30, 2025 compared to the same periods in 2024 due to higher average earning assets.

Prepayment Speeds

Our RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income.

Our Agency RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income.

Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate.

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

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

Three Months Ended March 31,

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The following table presents net (premium amortization) discount accretion recognized for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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Net (premium amortization) discount accretion (356) 1,780 (144) 2,923

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.

Net premium amortization was $356,000 for the three months ended June 30, 2025 compared to net discount accretion of $1.8 million for the same period in 2024.

Net premium amortization was $144,000 for the six months ended June 30, 2025 compared to net discount accretion of $2.9 million for the same period in 2024.

The change in net (premium amortization) discount accretion for the three and six months ended June 30, 2025 compared to the same periods in 2024 was primarily a result of repositioning 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 months ended March 31, 2025 and 2024.

Three Months Ended March 31,

The table below presents information related to our borrowings and cost of funds for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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(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.

Total average borrowings increased $325.6 million and $417.1 million for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

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

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,

Our average cost of funds decreased 97 basis points and 104 basis points for the three and six months ended June 30, 2025 compared to the same periods in 2024, respectively.

The table below presents the components of interest expense for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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Total interest expense 52,895 59,393 107,920 120,973

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.

Our interest expense decreased $6.5 million and $13.1 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024 due to a lower cost of funds, which was partially offset by an increase in average borrowings.

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Net Interest Income

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,

The table below presents the components of net interest income for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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Net interest rate margin 0.94 % 0.02 % 0.96 % (0.02) %

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 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 and six months ended June 30, 2025 compared to the same periods 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 months ended March 31, 2025 and 2024.

Three Months Ended March 31,

The table below summarizes the components of gain (loss) on investments, net for the three and six months ended June 30, 2025 and 2024.

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

$ in thousands 2025 2024 2025 2024

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Total gain (loss) on investments, net (5,268) (45,212) 76,890 (111,365)

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.

Before September 1, 2016, we had also elected the fair value option for our non-Agency RMBS interest-only securities.

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

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 $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 three months ended March 31, 2024.

During the three and six months ended June 30, 2025, we sold MBS and realized net gains of $1.8 million and net losses of $3.6 million, respectively (June 30, 2024:

net losses of $6.5 million and $9.8 million).

Net realized gains during the three months ended June 30, 2025 primarily reflect sales of Agency RMBS during the period of heightened market volatility experienced early in the second quarter.

Net realized losses during the six months ended June 30, 2025 primarily reflect sales of lower coupon Agency RMBS during the first quarter.

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

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

As of June 30, 2025, all of our MBS were accounted for under the fair value option (December 31, 2024:

$5.4 billion or 99.7%).

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $7.1 million in the three months ended June 30, 2025 as the heightened market volatility that negatively impacted valuations in April largely subsided prior to quarter end.

We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $80.5 million in the six months ended June 30, 2025 primarily due to a sharp decline in interest rates during the first quarter of the year, as valuations on fixed-rate securities increased as interest rates fell.

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $38.7 million and $101.2 million in the three and six months ended June 30, 2024, respectively, due to higher interest rates and wider spreads on fixed-rate Agency RMBS as valuations declined given an increase in interest rates and elevated interest rate volatility.

We did not hold any U.S.

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

Treasury securities during the three and six months ended June 30, 2025 or the three months ended June 30, 2024.

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

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

(Increase) Decrease in Provision for Credit Losses

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 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.

We recorded a $263,000 and $302,000 increase in the provision for credit losses during the three and six months ended June 30, 2024, respectively, on a single security based on a comparison of the security's amortized cost basis to discounted

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expected cash flows.

We sold the security in 2025 and no longer own any securities that are classified as available-for-sale and, therefore, subject to evaluation for credit losses.

Equity in Earnings (Losses) of Unconsolidated Ventures

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

For the six months ended June 30, 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 March 31, 2025

Three months ended June 30, 2025

not designated as

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$ in thousands

Three months ended March 31, 2024

Three months ended June 30, 2024

not designated as

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

TBAs 527 — (1,525) (998)

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

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

$ in thousands

Six months ended June 30, 2025

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 (112,575) 56,710 (7,943) (63,808)

Futures Contracts (38,516) — (7,844) (46,360)

TBAs 1,967 — 606 2,573

Total (149,124) 56,710 (15,181) (107,595)

$ in thousands

Six months ended June 30, 2024

not designated as

hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net

Interest Rate Swaps 25,811 88,558 8,052 122,421

TBAs 527 — (1,525) (998)

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

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As of June 30, 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 June 30, 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 3,505,000 1.19 % 4.45 % 6.3 3,265,000 0.97 % 4.49 % 5.3

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 recorded net losses of $16.2 million and $63.8 million on interest rate swaps for the three and six months ended June 30, 2025, respectively, due to notably tighter swap spreads during the second quarter and a sharp decline in interest rates during the first six months of the year.

We recorded net gains of $29.3 million and $122.4 million for the three and six months ended June 30, 2024 primarily due to changes in interest rate expectations.

As of June 30, 2025, we had $4.6 billion of repurchase agreement borrowings with a weighted average remaining maturity of 24 days.

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

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

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

March 31, 2025 December 31, 2024

As of June 30, 2025 and December 31, 2024, we held the following futures contracts.

June 30, 2025 December 31, 2024

$ in thousands Notional Amount - Short Notional Amount - Short

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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 $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.

During the six months ended June 30, 2025, we entered into futures contracts with a notional amount of $2.9 billion and terminated existing futures contracts with a notional amount of $3.5 billion.

We recognized net losses of $13.5 million and $46.4 million on futures contracts during the three and six months ended June 30, 2025, respectively, due to changes in interest rate expectations.

We did not hold any futures contracts during the three and six months ended June 30, 2024.

We primarily use TBAs that we do not intend to physically settle on the contractual settlement date in long positions as an alternative means of investing in and financing Agency RMBS.

During the second quarter of 2025, we used short positions in TBAs in response to heightened market volatility to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations.

We recorded net losses of $1.2 million and net gains of $2.6 million on TBAs during the three and six months ended June 30, 2025, respectively (three and six months ended June 30, 2024:

net losses of $998,000).

We incurred management fees of $2.8 million and $5.8 million for the three and six months ended June 30, 2025, respectively (June 30, 2024:

$2.9 million and $5.8 million).

Our management fees are determined by our 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 $1.7 million for the three months ended March 31, 2025 (March 31, 2024:

$1.8 million).

Our general and administrative expenses not covered under our management agreement amounted to $2.0 million and $3.7 million for the three and six months ended June 30, 2025, respectively (June 30, 2024:

$1.9 million and $3.7 million).

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

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

During the three months ended March 31, 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.

During the three and six months ended June 30, 2025, we repurchased and retired 96,803 and 186,949 shares of Series C Preferred Stock, respectively.

During the three and six months ended June 30, 2024, we repurchased and retired 44,661 and

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138,008 shares of Series B Preferred Stock, respectively, and 105,492 and 201,409 shares of Series C Preferred Stock, respectively.

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 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;

For the three months ended June 30, 2025, our net loss attributable to common stockholders was $26.6 million (June 30, 2024:

$18.8 million) or $0.40 basic and diluted net loss per average share available to common stockholders (June 30, 2024:

The change in net loss attributable to common stockholders was primarily due to (i) net losses on investments of $5.3 million in the 2025 period compared to net losses on investments of $45.2 million in the 2024 period;

(ii) net losses on derivative instruments of $30.9 million in the 2025 period compared to net gains on derivatives of $28.3 million in the 2024 period;

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

and (iii) a $9.1 million increase in net interest income.

For the six months ended June 30, 2025, our net loss attributable to common stockholders was $10.3 million (June 30, 2024:

net income of $5.0 million) or $0.16 basic and diluted net loss per average share available to common stockholders (June 30, 2024:

net income per share of $0.10).

The change in net income (loss) attributable to common stockholders was primarily due to (i) net gains on investments of $76.9 million in the 2025 period compared to net losses on investments of $111.4 million in the 2024 period;

(ii) net losses on derivative instruments of $107.6 million in the 2025 period compared to net gains on derivatives of $121.4 million in the 2024 period;

and (iii) a $20.9 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”.

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unrealized (gain) loss on derivative instruments, net;

TBA dollar roll income;

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

TBA dollar roll income and (gain) loss on repurchase and retirement of preferred stock.

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.

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We exclude the impact of gains and losses when calculating earnings available for distribution because (i) when analyzed in conjunction with our U.S.

GAAP results, earnings available for distribution provides additional detail of our investment portfolio’s earnings capacity and (ii) gains and losses are not accounted for consistently under U.S.

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.

GAAP results, earnings available for distribution provides additional detail of our investment portfolio’s earnings capacity and (ii) gains and losses have not been accounted for consistently under U.S.

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

For example, a portion of our mortgage-

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backed securities were historically classified as available-for-sale securities, and changes in the valuation of these securities were recorded 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.

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GAAP), a measure of our liquidity or as an indication of amounts available to fund our cash needs.

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The table below provides a reconciliation of U.S.

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

Three Months Ended March 31,

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

$ in thousands, except per share data 2025 2024 2025 2024

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

11,939 (7,335) 15,181 (6,527)

TBA dollar roll income (2)

— 1,078 1,147 1,078

(Gain) loss on repurchase and retirement of preferred stock (57) (208) (46) (401)

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Earnings available for distribution per common share (3)

0.58 0.86 1.21 1.72

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

Three Months Ended March 31,

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

$ in thousands 2025 2024 2025 2024

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

Three Months Ended March 31,

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

$ in thousands 2025 2024 2025 2024

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

Earnings available for distribution decreased during the three months ended March 31, 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.

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Earnings available for distribution decreased during the three and six months ended June 30, 2025 compared to the same periods in 2024 due to lower effective net interest income, which was partially offset by 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.

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

Three Months Ended March 31,

Three Months Ended June 30,

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

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Effective interest expense 24,264 2.12 % 16,122 1.52 %

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.

Six Months Ended June 30,

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

Total interest expense 107,920 4.54 % 120,973 5.58 %

Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (56,710) (2.39) % (88,558) (4.08) %

Effective interest expense 51,210 2.15 % 32,415 1.50 %

Our effective interest expense increased in the three and six months ended June 30, 2025 compared to the same periods 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 and six months ended June 30, 2025 compared to the same periods 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 March 31, 2025 and December 31, 2024.

See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of June 30, 2025 and December 31, 2024.

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

Three Months Ended March 31,

Three Months Ended June 30,

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

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Effective net interest income 46,360 3.44 % 51,906 4.09 %

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.

Six Months Ended June 30,

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

Net interest income 36,550 0.96 % 15,638 (0.02) %

Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 56,710 2.39 % 88,558 4.08 %

Effective net interest income 93,260 3.35 % 104,196 4.06 %

Our effective net interest income and effective net interest rate margin decreased in the three and six months ended June 30, 2025 compared to the same periods 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 table below shows our debt-to-equity ratio and our economic debt-to-equity ratio as of March 31, 2025 and December 31, 2024.

The table below shows our debt-to-equity ratio and our economic debt-to-equity ratio as of June 30, 2025 and December 31, 2024.

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

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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.

We include our TBAs at implied cost basis in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities.

We include these types of TBAs at implied cost basis in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities.

Similarly, a contract for the forward sale of Agency RMBS has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments.

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

$ in thousands March 31,

$ in thousands June 30,

2025 December 31,

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

(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.

(2) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis (none as of June 30, 2025;

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

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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 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 cash 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 $181.5 million as of March 31, 2025 (March 31, 2024:

We held cash, cash equivalents and restricted cash of $190.5 million as of June 30, 2025 (June 30, 2024:

$183.4 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 $19.3 million for the three months ended March 31, 2025 (March 31, 2024:

Our operating activities provided net cash of approximately $60.0 million for the six months ended June 30, 2025 (June 30, 2024:

$90.5 million).

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:

Our investing activities provided net cash of $191.5 million in the six months ended June 30, 2025 (June 30, 2024:

$133.0 million).

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:

We used cash of $1.1 billion to purchase MBS during the six months ended June 30, 2025 (June 30, 2024:

$624.4 million).

Our primary source of cash from investing activities for the six months ended June 30, 2025 was proceeds from sales of MBS of $1.2 billion (June 30, 2024:

$568.3 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:

We also generated $234.0 million from principal payments of MBS during the six months ended June 30, 2025 (June 30, 2024:

$153.0 million) and used cash of $149.1 million to settle derivative contracts in the six months ended June 30, 2025 (June 30, 2024:

net cash received of $26.3 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:

Our financing activities used net cash of $271.8 million for the six months ended June 30, 2025 (June 30, 2024:

$238.7 million).

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

During the six months ended June 30, 2025, we used cash for net repayments on our repurchase agreements of $258.1 million (June 30, 2024:

$197.8 million).

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.

We used cash of $53.8 million for the six months ended June 30, 2025 to pay dividends (June 30, 2024:

$50.0 million).

Proceeds from issuance of common stock provided $38.2 million for the six months ended June 30, 2025 (June 30, 2024:

$19.4 million).

As of June 30, 2025, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.5% for Agency RMBS and 4.9% for Agency CMBS.

The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS and a low of 4% to a high of 5% for Agency CMBS.

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

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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.

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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.

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Forward-Looking Statements Regarding Liquidity

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.

As of June 30, 2025, we held $4.9 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $302.9 million of unencumbered investments and unrestricted cash of $59.4 million as of June 30, 2025.

As of June 30, 2025, our known contractual obligations primarily consisted of $4.6 billion of repurchase agreement borrowings with a weighted average remaining maturity of 24 days.

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

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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.

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

In addition, 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.

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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 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.

As of June 30, 2025, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of June 30, 2025.

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

6 unchanged sentences

Total 20 4,635,881 (237,587)

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To maintain our qualification as a REIT, U.S.

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Other Matters

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended March 31, 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.

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended June 30, 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.

6 unchanged sentences

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

We calculate that as of March 31, 2025, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

We calculate that as of June 30, 2025, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

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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