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Our repurchase agreements are typically short-term in nature and are periodically refinanced at current market rates.
−Removed: We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agre ements and futures contracts.
+Added: We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agre ements and U.S.
+Added: Treasury futures contracts.
Interest Rate Effect on Net Interest Income
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This increase in borrowing costs results in the narrowing of the net interest spread between the related assets and borrowings and may even result in losses.
−Removed: Further, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results.
−Removed: Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities.
−Removed: Hedging techniques are partly based on assumed levels of prepayments of our RMBS.
−Removed: If prepayments are slower or faster than assumed, the life of the RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions.
+Added: Hedging techniques are partly based on assumed levels of prepayments of our Agency RMBS.
+Added: If prepayments are slower or faster than assumed, the life of the Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions.
Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
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Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially.
−Removed: In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the
−Removed: shape of the yield curve, market expectations as to future interest rate changes and other market conditions.
+Added: In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions.
Accordingly, changes in actual interest rates may have a material adverse effect on us.
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In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments.
−Removed: Uncertainty regarding the rate of inflation, fiscal and monetary policy initiatives, elevated interest rate volatility and other factors have made it more difficult to predict prepayment levels for the securities in our portfolio.
+Added: Uncertainty regarding the rate of inflation, fiscal and monetary policy initiatives, elevated interest rate volatility and other factors make it more difficult to predict prepayment levels for the securities in our portfolio.
As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
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However, if prepayment rates decrease in a rising interest rate environment, then the life of the fixed-rate portion of the related assets could extend beyond the term of the swap agreement or other hedging instrument.
−Removed: This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument, while the income earned on the hybrid adjustable-rate assets would remain fixed.
−Removed: This situation may also cause the market value of our hybrid adjustable-rate assets to decline, with little or no offsetting gain from the related hedging transactions.
+Added: This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument, while the income earned on the assets would remain fixed.
+Added: This situation may also cause the market value of our assets to decline, with little or no offsetting gain from the related hedging transactions.
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
Market Value Risk
−Removed: Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income under ASC Topic 320.
−Removed: The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors.
+Added: The estimated fair value of our securities fluctuates due to changes in interest rates and other factors.
Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease;
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When these or similar market conditions are present, margin call risk is elevated and our operating results and financial condition may be materially impacted.
−Removed: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive investments and net interest income, including net interest paid or received under interest rate swaps, as of December 31, 2024 and 2023, assuming a static portfolio and constant financing and credit spreads.
−Removed: When evaluating the impact of changes in interest rates, prepayment
−Removed: assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations.
+Added: The sensitivity analysis table presented below shows the estimated impact of an instantaneous parallel shift in the yield curve, up and down 50 and 100 basis points, on the market value of our interest rate-sensitive instruments and net interest income, including net interest paid or received under interest rate swaps, as of December 31, 2025 and 2024, assuming a static portfolio and constant financing and asset spreads.
+Added: When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations.
The analysis presented utilized assumptions, models and estimates of our Manager based on our Manager’s judgment and experience.
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The interest rate scenarios assume interest rates as of December 31, 2025 and 2024.
−Removed: Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our investment and swap portfolios, which can result in material changes to our interest rate risk profile.
+Added: Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our portfolio, which includes hedging instruments, and that can result in material changes to our interest rate risk profile.
When applicable, our scenario analysis assumes a floor of 0% for U.S.
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Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.
+Added: Liquidity Risk
+Added: We engage in a variety of liquidity management techniques to mitigate the risk of volatility in the marketplace, which may bring significant security price fluctuations, associated margin calls, changing cash needs, and variability in counterparty financing terms.
+Added: We perform statistical analysis to measure and quantify our required liquidity needs under multiple scenarios and time horizons.
+Added: Liquidity in the form of cash, unencumbered assets and future cash flows is consistently monitored and evaluated versus internal targets.
+Added: One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered investments, which consists of cash and cash equivalents as reported in our consolidated balance sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.
+Added: We have previously invested in non-Agency CMBS and non-Agency RMBS and may invest in these types of assets again
+Added: in the future.
+Added: The following sections discuss additional risks associated with credit investments in commercial and residential
+Added: real estate markets.
Real Estate Risk
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and retroactive changes to building or similar codes.
−Removed: In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.
−Removed: We retain the risk of potential credit losses on all of our residential and commercial mortgage investments.
+Added: In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay their loans, which could also cause us to suffer losses.
+Added: We retain the risk of potential credit losses on all of our commercial and residential mortgage investments.
We seek to manage this risk through our pre-acquisition due diligence process.
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Deteriorating fundamentals and tightening lending conditions may cause borrowers to experience difficulties meeting their obligations and refinancing loans upon scheduled maturities.
−Removed: Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.
+Added: Loans may experience increasing delinquency levels and
+Added: eventual defaults, which could impact the performance of the investments.
Rating agencies periodically reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.
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• attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;
−Removed: • exploring options to obtain financing arrangements that are not marked to market;
• using hedging instruments, primarily interest rate swap agreements but also financial futures, options, interest rate cap agreements, floors and forward sales to adjust the interest rate sensitivity of our target assets and our borrowings;
4 unchanged sentences
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.