What changed in this filing

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2026-05-06 compared with 2025-11-05 · 50 added, 53 removed, 49 unchanged (68% of the section changed)

8 unchanged sentences

Our repurchase agreements are typically short-term in nature and are periodically refinanced at current market rates.

We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agree ments and futures contracts.

We typically mitigate this interest rate risk by utilizing derivative contracts, primarily interest rate swap agree ments and U.S.

Treasury futures contracts.

Interest Rate Effect on Net Interest Income

7 unchanged sentences

Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire.

Generally, in a rising interest rate environment, the estimated market value of these securities would be expected to decrease;

conversely, in a falling interest rate environment, the estimated market value of these securities would be expected to increase.

We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments

7 unchanged sentences

Accordingly, changes in actual interest rates may have a material adverse effect on us.

When evaluating the impact of changes in interest rates, prepayment assumptions are adjusted based on our Manager’s expectations.

The analysis presented utilizes assumptions, models and estimates of our Manager based on our Manager’s judgment and experience.

Additionally, we actively manage the size and composition of our portfolio, which includes hedging instruments, which can result in material changes to our interest rate risk profile.

As of March 31, 2026 As of December 31, 2025

Change in Interest Rates Estimated Percentage

Change in Market Value (1)

Estimated Percentage

Change in Book Value per Common Share Estimated Percentage

Change in Market Value (1)

Estimated Percentage

Change in Book Value per Common Share

+1.00% (1.18) % (12.61) % (1.20) % (12.58) %

+0.50% (0.46) % (4.93) % (0.46) % (4.87) %

-0.50% 0.03 % 0.31 % 0.01 % 0.11 %

-1.00% (0.51) % (5.48) % (0.53) % (5.55) %

(1) Estimated percentage change in market value consists of changes in the fair value of MBS, changes in the implied market value of TBAs and changes in the clean price of interest rate swaps and U.S.

Treasury futures contracts.

Certain assumptions have been made in connection with the calculation of the information set forth in the foregoing interest rate sensitivity table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes.

The information set forth in the interest rate sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.

We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.

5 unchanged sentences

Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility may have an impact on spreads.

The sensitivity analysis table presented below shows the estimated impact of an instantaneous change in Agency MBS spreads, up and down 10 and 20 basis points, on the market value of our investments and our book value per common share as of March 31, 2026 and December 31, 2025.

Sensitivity to changes in Agency MBS spreads is derived from models that are dependent on various assumptions.

Our investments' sensitivity to Agency MBS spread changes will vary with changes in interest rates and the size and composition of our investment portfolio.

The estimated impact of changes in spreads is independent of the interest rate sensitivity table presented above.

As of March 31, 2026 As of December 31, 2025

Change in Agency MBS Spreads Estimated Percentage

Change in Market Value (1)

Estimated Percentage

Change in Book Value per Common Share Estimated Percentage

Change in Market Value (1)

Estimated Percentage

Change in Book Value per Common Share

+0.20% (0.98) % (10.04) % (0.95) % (9.54) %

+0.10% (0.49) % (5.04) % (0.48) % (4.79) %

-0.10% 0.50 % 5.09 % 0.48 % 4.83 %

-0.20% 1.00 % 10.22 % 0.97 % 9.71 %

(1) Estimated percentage change in market value consists of changes in the fair value of MBS and changes in the implied market value of TBAs.

The information set forth in the spread sensitivity table above and all related disclosures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

Actual results could differ significantly from those estimated in the foregoing spread sensitivity table.

Prepayment Risk

13 unchanged sentences

In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

Market Value Risk

The estimated fair value of our securities fluctuates primarily 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;

conversely, in a falling interest rate environment, the estimated fair value of these securities would be expected to increase.

Pandemics and other widespread crises, including any related fiscal or monetary policy responses, may cause extreme volatility and illiquidity in fixed income markets.

The amount of financing we receive under our repurchase agreements is directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing.

When these or similar market conditions are present, margin call risk is elevated and our operating results and financial condition may be materially impacted.

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 September 30, 2025 and December 31, 2024, assuming a static portfolio and constant financing and asset spreads.

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.

As of September 30, 2025 As of December 31, 2024

Change in Interest Rates Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value

+1.00% (6.03) % (0.92) % (0.16) % (0.59) %

+0.50% (2.57) % (0.33) % 0.02 % (0.21) %

-0.50% 2.00 % (0.11) % (0.48) % (0.05) %

-1.00% 3.90 % (0.77) % (1.30) % (0.47) %

The interest rate scenarios assume interest rates as of September 30, 2025 and December 31, 2024.

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.

When applicable, our scenario analysis assumes a floor of 0% for U.S.

Treasury yields and, to be consistent, we also apply a floor of 0% for all related funding costs.

The information set forth in the interest rate sensitivity table above and all related disclosures constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table.

We have previously invested in non-Agency CMBS and non-Agency RMBS and may invest in these types of assets again in the future.

The following sections discuss additional risks associated with credit investments in commercial and residential real estate markets.

Real Estate Risk

Residential and commercial property values are subject to volatility and may be adversely affected by a number of factors, including, but not limited to:

national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors);

local real estate conditions (such as the supply of housing stock or other property sectors);

changes or continued weakness in specific industry segments;

construction quality, age and design;

demographic factors;

and retroactive changes to building or similar codes.

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.

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.

In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.

We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields.

These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.

We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections.

This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.

Deteriorating fundamentals and tightening lending conditions may cause borrowers to experience difficulties meeting their obligations and refinancing loans upon scheduled maturities.

Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.

Rating agencies periodically reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.

Risk Management

To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our investment portfolio against the effects of major interest rate changes.

We generally seek to manage this risk by:

• monitoring and adjusting, if necessary, the reset index and interest rate related to our target assets and our financings;

• attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods;

• 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;

• actively managing, on an aggregate basis, the interest rate indices, interest rate adjustment periods, and gross reset margins of our target assets and the interest rate indices and adjustment periods of our financings.

Liquidity Risk

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.

We perform statistical analysis to measure and quantify our required liquidity needs under multiple scenarios and time horizons.

In volatile market conditions, margin call risk is elevated and our operating results and financial condition may be materially impacted.

Liquidity in the form of cash, unencumbered assets and future cash flows is consistently monitored and evaluated versus internal targets.

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.

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 3. Quantitative and Qualitative Disclosures About Market Risk