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What changed in Invesco Mortgage Capital Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Invesco Mortgage Capital Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+367 added−372 removedSource: 10-K (2025-02-20) vs 10-K (2024-02-22)

Top changes in Invesco Mortgage Capital Inc.'s 2024 10-K

367 paragraphs added · 372 removed · 270 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeElevated inflation, monetary policy tightening by the Federal Open Market Committee (“FOMC”) and concerns around the health of the regional banking system have impacted and may continue to impact credit spreads. 6 Table of Contents Credit Risk We believe that our investment strategy will generally keep our credit losses and financing costs low.
Biggest changeInflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility may have an impact on spreads. Credit Risk We believe that our investment strategy will generally keep our credit losses and financing costs low. However, we retain the risk of potential credit losses on all of our residential and commercial mortgage investments.
We may utilize various derivative financial instruments including puts and calls on securities or indices of securities, futures, interest rate swaps and swaptions, interest rate caps, interest rate floors, exchange-traded derivatives, U.S. Treasury securities and options on U.S. Treasury securities to hedge all or a portion of the interest rate risk associated with the financing of our investment portfolio.
We may utilize various derivative financial instruments including puts and calls on securities or indices of securities, futures contracts, interest rate swaps, interest rate caps, interest rate floors, exchange-traded derivatives, U.S. Treasury securities and options on U.S. Treasury securities to hedge all or a portion of the interest rate risk associated with the financing of our investment portfolio.
The principal may be prepaid at any time due to prepayments or defaults on the underlying mortgage loans. These differences can result in significantly greater price and yield volatility than is the case with other fixed-income securities.
The principal may be repaid at any time due to prepayments or defaults on the underlying mortgage loans. These differences can result in significantly greater price and yield volatility than is the case with other fixed-income securities.
Under repurchase agreement financing arrangements, certain buyers require us to provide additional cash collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing. 5 Table of Contents Leverage We use leverage on our assets to achieve our return objectives, which are adjusted as our investment and financing opportunities change.
Under repurchase agreement financing arrangements, certain buyers require us to provide additional cash collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing. Leverage We use leverage on our assets to achieve our return objectives, which are adjusted as our investment and financing opportunities change.
The mortgage loan collateral for non-Agency RMBS generally consists of residential mortgage loans that do not conform to U.S. government agency or federally chartered corporation underwriting guidelines due 4 Table of Contents to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.
The mortgage loan collateral for non-Agency RMBS generally consists of residential mortgage loans that do not conform to U.S. government agency or federally chartered corporation underwriting guidelines due to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.
Agency RMBS Agency RMBS are residential mortgage-backed securities issued by a U.S. government agency such as Ginnie Mae, or a federally chartered corporation such as Fannie Mae or Freddie Mac (Government Sponsored Enterprises or “GSEs”) that are 3 Table of Contents secured by a collection of mortgages.
Agency RMBS Agency RMBS are residential mortgage-backed securities issued by a U.S. government agency such as Ginnie Mae, or a federally chartered corporation such as Fannie Mae or Freddie Mac (Government Sponsored Enterprises or “GSEs”) that are secured by a collection of mortgages.
The rate of prepayments on underlying mortgages will affect the price and volatility of Agency RMBS and may have the effect of shortening or extending the duration of the security beyond what was anticipated at the time of purchase.
The rate of prepayments on underlying mortgages will affect the price and volatility of 4 Table of Contents Agency RMBS and may have the effect of shortening or extending the duration of the security beyond what was anticipated at the time of purchase.
Liquidity in the form of cash, unencumbered assets and future cash inflows is consistently monitored and evaluated versus internal targets.
Liquidity in the form of cash, unencumbered assets and future cash flows is consistently monitored and evaluated versus internal targets.
It also reviews its compliance with our investment policies and procedures, including our investment guidelines, and our Manager provides our board of directors an investment performance report at the end of each quarter in conjunction with its review of our quarterly results. 7 Table of Contents Investment Process Our Manager’s investment team has a strong focus on asset selection and on the relative value of various sectors within the mortgage market.
It also reviews its compliance with our investment policies and procedures, including our investment guidelines, and our Manager discusses investment performance with our Board of Directors at the end of each quarter in conjunction with its review of our quarterly results. 3 Table of Contents Investment Process Our Manager’s investment team has a strong focus on asset selection and on the relative value of various sectors within the mortgage market.
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 balances sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.
One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered 7 Table of Contents 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.
Foreign Exchange Rate Risk We had an investment in an unconsolidated joint venture whose net assets and results of operations were exposed to foreign currency translation risk when translated in U.S. dollars upon consolidation. We historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.
Foreign Exchange Rate Risk During the periods presented in this Report, we had an investment in an unconsolidated joint venture whose net assets and results of operations were exposed to foreign currency translation risk when translated in U.S. dollars upon consolidation. We historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.
As of December 31, 2023, we were invested in: • residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”); • commercial mortgage-backed securities (“CMBS”) that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”); • RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”); • U.S.
As of December 31, 2024, we were invested in: • residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”); • commercial mortgage-backed securities ("CMBS") that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively “Agency CMBS”); • CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”); and • RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”).
In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as gross domestic product, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.
We seek to manage this risk in part 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 gross domestic product, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.
Unconsolidated Ventures During the periods presented in this Report, we have invested in unconsolidated ventures. In circumstances where we have a non-controlling interest but we are deemed to be able to exert significant influence over the affairs of the enterprise, we utilize the equity method of accounting.
In circumstances where we have a non-controlling interest but we are deemed to be able to exert significant influence over the affairs of the enterprise, we utilize the equity method of accounting.
Our Manager also develops a macro outlook with respect to each target asset class by examining factors in the broader economy such as gross domestic product, interest rates, unemployment rates and availability of credit, among other factors.
Our Manager also develops a macro outlook with respect to each target asset class by examining factors in the broader economy such as gross domestic product, interest rates, unemployment rates and availability of credit, among other factors. These macro decisions guide our Manager’s assumptions regarding model inputs and portfolio allocations among target assets.
Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings and decreased for cash distributions and a proportionate share of the entity’s losses.
Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings and decreased for cash distributions and a proportionate share of the entity’s losses. TBAs TBAs are forward contracts to purchase or sell Agency RMBS.
We conduct our business through our wholly-owned subsidiary, IAS Operating Partnership L.P. (the “Operating Partnership”). We are externally managed and advised by Invesco Advisers, Inc. (our “Manager”), an indirect wholly-owned subsidiary of Invesco Ltd. (“Invesco”).
We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification. We conduct our business through our wholly-owned subsidiary, IAS Operating Partnership L.P. (the “Operating Partnership”). We are externally managed and advised by Invesco Advisers, Inc. (our “Manager”), an indirect wholly-owned subsidiary of Invesco Ltd. (“Invesco”).
Our Competitive Advantages We believe that our competitive advantages include the following: Significant Experience of Our Senior Management and Our Manager Our senior management and the structured investments team of our Manager have a long track record and broad experience in managing residential and commercial mortgage-related assets through a variety of credit and interest rate environments and have demonstrated the ability to generate attractive risk-adjusted returns under different market conditions and cycles.
Our Manager invests significantly in talent development, health and welfare programs, technology and other resources that support its employees in developing their full potential both personally and professionally. 2 Table of Contents Our Competitive Advantages We believe that our competitive advantages include the following: Significant Experience of Our Senior Management and Our Manager Our senior management and the structured investments team of our Manager have a long track record and broad experience in managing residential and commercial mortgage-related assets through a variety of credit and interest rate environments and have demonstrated the ability to generate attractive risk-adjusted returns under different market conditions and cycles.
Market conditions may attract more competitors, which may increase the competition for sources of financing. An increase in the competition for sources of financing could adversely affect the availability and cost of financing. We have access to our Manager’s professionals and their industry expertise, which we believe provides us with a competitive advantage.
An increase in the competition for sources of financing could adversely affect the availability and cost of financing. We have access to our Manager’s professionals and their industry expertise, which we believe provides us with a competitive advantage. These professionals help us assess investment risks and determine appropriate pricing for certain potential investments.
We take these factors into account when we make investments. Substantially all of our current investments in Agency RMBS are FRMs. Non-Agency CMBS Non-Agency CMBS are commercial mortgage-backed securities that are not issued or guaranteed by a U.S. government agency or federally chartered corporation.
We take these factors into account when we make investments. Substantially all of our current investments in Agency RMBS are FRMs. Agency CMBS Agency CMBS are structured pass-through certificates representing interests in pools of commercial loans that are secured by commercial property and issued by a U.S. government agency or federally chartered corporation.
We include a table that shows the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio (a non-GAAP financial measure of leverage) in Part II. Item 7. “Management's Discussion and Analysis of Financial Conditions and Results of Operations” of this Report.
We include a table that shows our debt-to-equity ratio and our economic debt-to-equity ratio (a non-GAAP financial measure of leverage) in Part II. Item 7.
Our investment portfolio has also historically included, and may in the future include Agency CMBS, credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”), residential mortgage loans, commercial mortgage loans, TBAs and other real estate-related investments. We refer to all of these investment types collectively as our target assets. We have also purchased U.S.
Our current investment portfolio includes Agency RMBS, Agency CMBS, non-Agency CMBS and non-Agency RMBS. Our investment portfolio has also historically included, and may in the future include TBAs, credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises, residential mortgage loans, commercial mortgage loans and other real estate-related investments.
Given deteriorating fundamentals and tightening lending conditions, borrowers may 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.
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.
These professionals help us assess investment risks and determine appropriate pricing for certain potential investments. These relationships enable us to compete more effectively for attractive investment opportunities. Despite certain competitive advantages, we may not be able to achieve our business goals or expectations due to the competitive risks that we face.
These relationships enable us to compete more effectively for attractive investment opportunities. Despite certain competitive advantages, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, refer to Item 1A. “Risk Factors — Risks Related to Our Investments”.
Interest Rate Risk We engage in a variety of interest rate management techniques that seek to mitigate the influence of interest rate changes on the costs of liabilities and help us achieve our risk management objectives.
Our Manager’s risk management tools include software and services licensed or purchased from third parties, in addition to proprietary analytical methods developed by Invesco. Interest Rate Risk We engage in a variety of interest rate management techniques that seek to mitigate the influence of interest rate changes on the costs of liabilities and help us achieve our risk management objectives.
Our Manager analyzes fundamental trends in the relevant target asset class sector to adjust or maintain its outlook for that particular target asset class. These macro decisions guide our Manager’s assumptions regarding model inputs and portfolio allocations among target assets.
Our Manager analyzes fundamental trends in the relevant target asset class sector to adjust or maintain its outlook for that particular target asset class.
Many of our competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can.
In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can. Market conditions may attract more competitors, which may increase the competition for sources of financing.
We capitalize on the market knowledge and ready access to data across our target markets that our Manager and its affiliates obtain through their established platforms.
Access to Our Manager’s Sophisticated Analytical Tools, Infrastructure and Expertise Our Manager has created and maintains analytical and portfolio management capabilities to aid in asset selection and risk management. We capitalize on the market knowledge and ready access to data across our target markets that our Manager and its affiliates obtain through their established platforms.
Financing Strategy We have historically used repurchase agreements to finance the majority of our target assets and expect to continue to use repurchase agreements to finance Agency investments in the future.
They generally permit prepayments before final maturity but may require the payment to the lender of yield maintenance or prepayment penalties. Financing Strategy We have historically used repurchase agreements to finance the majority of our target assets and expect to continue to use repurchase agreements to finance Agency investments in the future.
We believe this strategy and our commitment to capital preservation provide us with a competitive advantage when operating in a variety of market conditions. Investment Strategy We have invested in a diversified pool of mortgage assets that generate attractive risk-adjusted returns. Our current investment portfolio includes Agency RMBS, non-Agency RMBS and non-Agency CMBS.
We believe this strategy and our commitment to capital preservation provide us with a competitive advantage when operating in a variety of market conditions.
Additionally, our Manager conducts extensive diligence with respect to each target asset class by, among other things, examining and monitoring the capabilities and financial wherewithal of the parties responsible for the origination, administration and servicing of relevant target assets. Competition Our net income depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs.
Additionally, our Manager conducts extensive diligence with respect to each target asset class by, among other things, examining and monitoring the capabilities and financial wherewithal of the parties responsible for the origination, administration and servicing of relevant target assets. Investment Strategy We have invested in a diversified pool of mortgage assets that generate attractive risk-adjusted returns.
We believe having in-house access to these resources and expertise provides us with a competitive advantage over other companies investing in our target assets who have less internal resources and expertise. Access to Our Manager’s Sophisticated Analytical Tools, Infrastructure and Expertise Our Manager has created and maintains analytical and portfolio management capabilities to aid in asset selection and risk management.
We have real time access to research and data on the mortgage and real estate industries. We believe having in-house access to these resources and expertise provides us with a competitive advantage over other companies investing in our target assets who have less internal resources and expertise.
Treasury securities; and • a real estate-related financing arrangement. During the periods presented in this Report, we also invested in: • to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS; and • a commercial mortgage loan. We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification.
Substantially all of our investments as of December 31, 2024 were in Agency MBS. During the periods presented in this Report, we also invested in: • to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS; • a commercial mortgage loan; • real estate-related financing arrangements in the form of unconsolidated ventures; and • U.S. Treasury securities.
In addition, because we employ financial leverage in funding our investment portfolio, mismatches in the maturities of our assets and liabilities can create the need to continually renew or otherwise refinance our liabilities. Our results are dependent upon a positive spread between the returns on our asset portfolio and our overall cost of funding.
Because we invest in MBS, investment losses from prepayment, interest rate volatility or other risks can meaningfully impact our earnings and our dividends to stockholders. In addition, because we employ financial leverage in funding our investment portfolio, mismatches in the maturities of our assets and liabilities can create the need to continually renew or otherwise refinance our liabilities.
For additional information concerning these competitive risks, refer to Item 1A. “Risk Factors — Risks Related to Our Investments”. We operate in a highly competitive market for investment opportunities. Competition may limit our ability to acquire desirable investments in our target assets, and could also affect the pricing of these securities.
We operate in a highly competitive market for investment opportunities. Competition may limit our ability to acquire desirable investments in our target assets, and could also affect the pricing of these securities. Our Corporate Information Our principal executive offices are located at 1331 Spring Street, N.W., Suite 2500, Atlanta, Georgia 30309. Our telephone number is (404) 892-0896.
In acquiring our investments, we compete with other REITs, specialty finance companies, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. In addition, there are numerous REITs with similar asset acquisition objectives. These other REITs increase competition for the available supply of mortgage assets suitable for purchase.
Competition Our net income depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs. In acquiring our investments, we compete with other REITs, specialty finance companies, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities.
Our Corporate Information Our principal executive offices are located at 1331 Spring Street, N.W., Suite 2500, Atlanta, Georgia 30309. Our telephone number is (404) 892-0896. We file current and periodic reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and other information at www.sec.gov.
We file current and periodic reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and other information at www.sec.gov.
Treasury securities and, in addition to direct purchases of our target assets, invested in ventures managed by an affiliate of our Manager, which, in turn, invested in our target assets. We accept varying levels of interest rate risk by managing our hedge portfolio and accept certain levels of credit and spread risk to earn income.
We refer to all of these investment types collectively as our target assets. We have also purchased U.S. Treasury securities and, in addition to direct purchases of our target assets, invested in ventures managed by an affiliate of our Manager, which, in turn, invested in our target assets.
Our Manager's long-term success depends on its ability to retain, develop, engage and attract top talent. Our Manager invests significantly in talent development, health and welfare programs, technology and other resources that support its employees in developing their full potential both personally and professionally. Our Manager believes that diversity and inclusion are good for business.
Our Manager's long-term success depends on its ability to engage, attract, develop and retain top talent.
To minimize the risks to our portfolio, we actively employ portfolio-wide and security-specific risk measurement and management processes in our daily operations. Our Manager’s risk management tools include software and services licensed or purchased from third parties, in addition to proprietary software and analytical methods developed by Invesco.
Our results are dependent upon a positive spread between the returns on our asset portfolio and our overall cost of funding. To minimize the risks to our portfolio, we actively employ portfolio-wide and security-specific risk measurement and management processes in our daily operations.
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Our Manager is committed to further strengthening diversity at all levels and in all functions across its global business. Increasing representation of women and diverse employees remains a focus for our Manager, as does building a more inclusive work environment. All employees are required to take periodic unconscious bias training.
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We accept credit and spread risk to earn income and manage our interest rate risk exposure through our hedge portfolio.
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Employees are also encouraged to participate in any of our Manager’s various employee resource groups where employees with diverse backgrounds, experiences and perspectives can connect. Our 2 Table of Contents Manager’s various employee resource groups are sponsored by its senior leaders and are designed by employees, for employees .
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Types of Agency CMBS include Fannie Mae DUS (Delegated Underwriting and Servicing), Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools and CMOs structured from such collateral. The U.S. government agency or federally chartered corporation sources these loans from a network of approved multifamily sellers/servicers and guarantees the timely payment of interest and principal on these investments.
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In addition, we benefit from the insight and capabilities of Invesco’s real estate team, through which we have access to broad and deep teams of experienced investment professionals in real estate and distressed investing. Through these teams, we have real time access to research and data on the mortgage and real estate industries.
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Unlike single family residential mortgages in which the borrower, generally, can prepay at any time, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection.
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As of December 31, 2023, our one remaining unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible. TBAs TBAs are forward contracts to purchase or sell Agency RMBS.
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Common restrictions include yield maintenance (a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date) and prepayment penalties. Non-Agency CMBS Non-Agency CMBS are commercial mortgage-backed securities that are not issued or guaranteed by a U.S. government agency or federally chartered corporation.
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They generally permit prepayments before final maturity but may require the payment to the lender of yield maintenance or prepayment penalties. First lien loans represent the senior lien on a property while second lien loans or second mortgages represent a subordinate or second lien on a property.
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Like non-Agency CMBS, the credit quality of non-Agency RMBS depends on the securitization structure and the characteristics of the underlying mortgage loans. 5 Table of Contents Unconsolidated Ventures During the periods presented in this Report, we have invested in unconsolidated ventures.
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Mezzanine Loans Mezzanine loans are generally structured to represent a senior position in the borrower’s equity in a property, and are subordinate to a first mortgage loan. These loans are generally secured by pledges of ownership interests, in whole or in part, in entities that directly or indirectly own the real property.
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“Management's Discussion and Analysis of Financial Conditions and Results of Operations” of this Report. 6 Table of Contents Risk Management Strategy Market Risk Management Risk management is an integral component of our strategy to deliver returns to our stockholders.
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At times, mezzanine loans may be secured by additional collateral, including letters of credit, personal guarantees, or collateral unrelated to the property.
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In addition, there are numerous REITs with similar asset acquisition objectives. These other REITs increase competition for the available supply of mortgage assets suitable for purchase. Many of our competitors are significantly larger than we are, have access to greater capital and other resources and may have other advantages over us.
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Mezzanine loans may be structured to carry either fixed or floating interest rates as well as carry a right to participate in a percentage of gross revenues and a percentage of the increase in the fair market value of the property securing the loan.
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Mezzanine loans may also contain prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns to the lender. Mezzanine loans usually have maturities that match the maturity of the related mortgage loan but may have shorter or longer terms.
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Risk Management Strategy Market Risk Management Risk management is an integral component of our strategy to deliver returns to our stockholders. Because we invest in MBS, investment losses from prepayment, interest rate volatility or other risks can meaningfully impact our earnings and our dividends to stockholders.
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However, we retain the risk of potential credit losses on all of our residential and commercial mortgage investments. We seek to manage this risk in part through our pre-acquisition due diligence process.
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We also expect credit rating agencies to continue to reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Financing and Hedging • We use leverage in executing our business strategy, which may adversely affect the return on our assets, reduce cash available for distribution to our stockholders and/or increase losses when economic conditions are unfavorable. • We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business. • The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions. • The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired. • A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us. • Our use or future use of repurchase agreements to finance our target assets may give our lenders greater rights if either we or a lender files for bankruptcy. • We enter into hedging transactions that could expose us to contingent liabilities in the future. • Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. • We may enter into derivative contracts that expose us to risks and contingent liabilities, and those contingent liabilities may not appear on our balance sheet. • It may be uneconomical to “roll” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations.
Biggest changeRisks Related to Financing and Hedging • Our strategy involves the use of significant leverage, which increases the risk that we may incur substantial losses. • We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business. • The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions. • The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired. • A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us. • Our use or future use of repurchase agreements to finance our target assets may give our lenders greater rights if either we or a lender files for bankruptcy. • We enter into hedging transactions that could expose us to contingent liabilities in the future. • Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. • Our hedging strategies may be ineffective. • Clearing facilities or exchanges may increase the margin requirements we are required to post when entering into derivative instruments, which may negatively impact our ability to hedge and our liquidity. • We may enter into derivative contracts that expose us to risks and contingent liabilities, and those contingent liabilities may not appear on our balance sheet. • It may be uneconomical to “roll” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations. 9 Table of Contents Risks Related to Our Business • Our business may be adversely affected by unfavorable or changing economic, market, and political conditions. • Maintaining 1940 Act exclusions for our subsidiaries imposes limits on our operations, and failure to maintain an exclusion could have a material negative impact on our operations. • We are highly dependent on information systems and systems failures or cyber-attacks could significantly disrupt our business, which may, in turn, negatively affect the market price of our capital stock and our ability to pay dividends. • The recent advancements in and increased use of artificial intelligence (“AI”) present risks and challenges that may adversely impact our business. • Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis, which may contain errors. • We may repurchase shares of our common stock and preferred stock from time to time, which may negatively impact our compliance with covenants in our financing agreements and regulatory requirements and our ability to invest in our target assets in the future. • There are risks associated with accounting estimates, judgments and assumptions in the preparation of our financial statements, and changes in the fair value of our derivatives may result in volatility in our U.S.
It may be uneconomical to “ roll ” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations. We invest in Agency MBS TBA securities as an alternate means of gaining exposure to the Agency MBS market.
It may be uneconomical to “ roll ” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations. We may invest in Agency MBS TBA securities as an alternate means of gaining exposure to the Agency MBS market.
If we fail to qualify as a REIT in any tax year, then: • we would be taxed as a regular domestic corporation, which under current laws would result in, among other things, means being unable to deduct dividends paid to stockholders in computing taxable income and being subject to federal and applicable state and local income tax on our taxable income at regular corporate income tax rates; • any resulting tax liability could be substantial and could have a material adverse effect on our book value; • unless we were entitled to relief under applicable statutory provisions, we would be required to pay taxes, and therefore, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT and for which we had taxable income; and • we generally would not be eligible to re-elect to be taxed as a REIT for the subsequent four full taxable years.
If we fail to qualify as a REIT in any tax year, then: • we would be taxed as a regular domestic corporation, which under current laws would result in, among other things, being unable to deduct dividends paid to stockholders in computing taxable income and being subject to federal and applicable state and local income tax on our taxable income at regular corporate income tax rates; • any resulting tax liability could be substantial and could have a material adverse effect on our book value; • unless we were entitled to relief under applicable statutory provisions, we would be required to pay taxes, and therefore, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT and for which we had taxable income; and • we generally would not be eligible to re-elect to be taxed as a REIT for the subsequent four full taxable years.
The change of control conversion feature of our Series B Preferred Stock and Series C Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain change of control transactions under circumstances that otherwise could provide the holders of our common stock, Series B Preferred Stock and Series C Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that stockholders may otherwise believe is in their best interests.
The change of control conversion feature of our Series C Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain change of control transactions under circumstances that otherwise could provide the holders of our common stock and Series C Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that stockholders may otherwise believe is in their best interests.
In addition, future issuances and sales of preferred stock on parity to our Series B Preferred Stock or the Series C Preferred Stock, or the perception that such issuances and sales could occur, may also cause prevailing market prices for the Series B Preferred Stock, Series C Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
In addition, future issuances and sales of preferred stock on parity to our Series C Preferred Stock, or the perception that such issuances and sales could occur, may also cause prevailing market prices for the Series C Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.
In addition, our bylaws require us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan, limited liability company or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service 25 Table of Contents in that capacity.
In addition, our bylaws require us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse 26 Table of Contents reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan, limited liability company or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.
If we roll our TBA dollar roll positions when they have a negative carry, the positions would decrease net income and amounts available for distributions to stockholders. There may be situations in which we are unable or unwilling to roll our TBA dollar roll positions.
If we roll our TBA dollar roll positions when they have a negative carry, the positions would decrease net income and amounts available for distributions to stockholders. There may be situations in which we are unable or unwilling to roll or sell our TBA dollar roll positions.
Future offerings of debt or equity securities that would rank senior to our common stock may adversely affect the market price of our common stock. We have shares of Series B Preferred Stock and Series C Preferred Stock issued and outstanding.
Future offerings of debt or equity securities that would rank senior to our common stock may adversely affect the market price of our common stock. We have shares of Series C Preferred Stock issued and outstanding.
If we were to fail to so qualify, amounts received by a non-U.S. stockholder on certain dispositions of shares of our stock would be subject to tax under FIRPTA, unless (1) our shares of stock were regularly traded on an established securities market and (2) the non-U.S. stockholder did not, at any time during a specified testing period, hold more than 10% of our stock.
If we were to fail to so qualify, amounts received by a non-U.S. stockholder on certain dispositions of shares of our stock could be subject to tax under FIRPTA, unless (1) our shares of stock were regularly traded on an established securities market and (2) the non-U.S. stockholder did not, at any time during a specified testing period, hold more than 10% of our stock.
The “control share” provisions of the MGCL provide that “control shares” of a Maryland corporation (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding control shares) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquiror of control shares, officers of the corporation and employees of the corporation who are also directors.
The “control share” provisions of the MGCL provide that “control shares” of a Maryland corporation (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share 25 Table of Contents acquisition” (defined as the direct or indirect acquisition of issued and outstanding control shares) have no voting rights except to the extent approved by stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquiror of control shares, officers of the corporation and employees of the corporation who are also directors.
Furthermore, certain of the Operating Partnership’s current subsidiaries and subsidiaries that we may form in the future intend to rely upon an exception from the definition of investment company under 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 19 Table of Contents exception generally requires that at least 55% of a subsidiary’s portfolio must be comprised of qualifying assets and at least 80% of its portfolio must be comprised of qualifying assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).
Furthermore, certain of the Operating Partnership’s current subsidiaries and subsidiaries that we may form in the future intend to rely upon an exception from the definition of investment company under 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 exception generally requires that at least 55% of a subsidiary’s portfolio must be comprised of qualifying assets and at least 80% of its portfolio must be comprised of qualifying assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).
If the RMBS is prepaid in whole or in part before its maturity date, however, we may be required to expense the premium that was prepaid at the time of the prepayment. • A substantial portion of our adjustable-rate RMBS may bear interest rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
If the RMBS is prepaid in whole or in part before its maturity date, however, we may be required to expense the premium that was prepaid at the time of the prepayment. • Our adjustable-rate RMBS may bear interest rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
Our board of directors approved very broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager. Our Manager is authorized to follow very broad investment guidelines.
Our board of directors approved broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager. Our Manager is authorized to follow broad investment guidelines.
We believe that a change in any one of the following factors and 23 Table of Contents other factors described in the risk factors in this Report could adversely affect our results of operations and impair our ability to pay dividends to our stockholders: • our ability to make profitable investments; • margin calls or other expenses that reduce our cash flow; • defaults in our asset portfolio or decreases in the value of our portfolio; and • the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
We believe that a change in any one of the following factors and other factors described in the risk factors in this Report could adversely affect our results of operations and impair our ability to pay dividends to our stockholders: • our ability to make profitable investments; • margin calls or other expenses that reduce our cash flow; • defaults in our asset portfolio or decreases in the value of our portfolio; and • the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
We could realize a loss if the securities were sold. • If short-term or long-term interest rates fall, we may recognize losses on our derivative financial instruments that are not offset by gains on our investments, which may adversely affect our liquidity and financial position. 11 Table of Contents • If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs may increase more rapidly than the interest income earned on our investments.
We could realize a loss if the securities were sold. • If short-term or long-term interest rates fall, we may recognize losses on our derivative financial instruments that are not offset by gains on our investments, which may adversely affect our liquidity and financial position. • If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs may increase more rapidly than the interest income earned on our investments.
A number of factors over which we have no control may impair a borrower’s ability to repay a mortgage loan secured by a residential property, including the income and assets of the borrower. As of December 31, 2023, we do not hold any mortgage loans secured by residential property.
A number of factors over which we have no control may impair a borrower’s ability to repay a mortgage loan secured by a residential property, including the income and assets of the borrower. As of December 31, 2024, we do not hold any mortgage loans secured by residential property.
For non-Agency CMBS assets, losses on a mortgaged property securing a mortgage loan included in a securitization will typically be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan or B-Note, if any, then by the “first loss” subordinated security holder (generally, the “B-Piece” buyer) and then by the holder of a more senior security.
For non-Agency CMBS assets, losses on a mortgaged property securing 14 Table of Contents a mortgage loan included in a securitization will typically be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan or B-Note, if any, then by the “first loss” subordinated security holder (generally, the “B-Piece” buyer) and then by the holder of a more senior security.
The price difference between those two contracts is commonly referred to as the “drop” and is a reflection of 18 Table of Contents the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, which would be foregone as a result of settling the contract in the later month rather than in the earlier month.
The price difference between those two contracts is commonly referred to as the “drop” and is a reflection of the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, which would be foregone as a result of settling the contract in the later month rather than in the earlier month.
However, for taxable years through the taxable year ending December 31, 2025, non-corporate U.S. taxpayers may be entitled to claim a deduction in determining their taxable income of up to 20% of “qualified REIT dividends” (dividends not designated as capital gain dividends or qualified dividend income), subject to certain limitations.
However, for taxable years through the taxable year ending December 31, 2025, non-corporate U.S. 30 Table of Contents taxpayers may be entitled to claim a deduction in determining their taxable income of up to 20% of “qualified REIT dividends” (dividends not designated as capital gain dividends or qualified dividend income), subject to certain limitations.
Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders 30 Table of Contents that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool.
Certain categories of stockholders, however, such as foreign stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to the taxable mortgage pool.
Government, GSEs could default on their guarantee obligations which would materially and adversely affect the value of our Agency MBS. Accordingly, if these government actions are inadequate in the future and the GSEs were to suffer losses, be significantly reformed, or cease to exist, our business, operations and financial condition could be materially and adversely affected.
Government, GSEs could default on their guarantee obligations which would materially and adversely affect the value of our Agency MBS. Accordingly, if these government actions are inadequate in the future and the GSEs were 13 Table of Contents to suffer losses, be significantly reformed, or cease to exist, our business, operations and financial condition could be materially and adversely affected.
Any attempt to own or transfer shares of our common stock or capital stock in excess of the Ownership Limits without the consent of our board of directors will result either in the shares in 27 Table of Contents excess of the limit being transferred by operation of our charter to a charitable trust, and the person who attempted to acquire such excess shares not having any rights in such excess shares, or in the transfer being void.
Any attempt to own or transfer shares of our common stock or capital stock in excess of the Ownership Limits without the consent of our board of directors will result either in the shares in excess of the limit being transferred by operation of our charter to a charitable trust, and the person who attempted to acquire such excess shares not having any rights in such excess shares, or in the transfer being void.
Spreads may widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary policy actions by U.S. and foreign central banks, market liquidity or changes in investor return requirements and sentiment. Wider spreads can also occur independent of moves in interest rates.
Spreads may widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary policy actions by U.S. and foreign central banks, market liquidity or changes in investor return requirements and sentiment. Wider spreads can also occur 11 Table of Contents independent of moves in interest rates.
If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. As of December 31, 2023, we do not hold any commercial mortgage loans.
If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. As of December 31, 2024, we do not hold any commercial mortgage loans.
We also may decide to retain net capital gain we earn from the sale or other disposition of 28 Table of Contents our investments and pay income tax directly on such income. In that event, we could elect to cause our stockholders to be treated as if they earned that income and paid the tax we paid.
We also may decide to retain net capital gain we earn from the sale or other disposition of our investments and pay income tax directly on such income. In that event, we could elect to cause our stockholders to be treated as if they earned that income and paid the tax we paid.
In the event of such transactions, we could: • use a significant portion of our available cash; • issue equity securities, which would dilute the current percentage ownership of our stockholders; 33 Table of Contents • incur substantial debt; • incur or assume contingent liabilities, known or unknown; and • incur amortization expenses related to intangibles.
In the event of such transactions, we could: • use a significant portion of our available cash; • issue equity securities, which would dilute the current percentage ownership of our stockholders; • incur substantial debt; • incur or assume contingent liabilities, known or unknown; and • incur amortization expenses related to intangibles.
Changes in the fair value of our derivatives are recorded in our consolidated statement of operations as “gain (loss) on derivative instruments, net” and may result in volatility in our U.S. GAAP earnings. The total changes in fair value may exceed 21 Table of Contents our consolidated net income in any period or for a full year.
Changes in the fair value of our derivatives are recorded in our consolidated statement of operations as “gain (loss) on derivative instruments, net” and may result in volatility in our U.S. GAAP earnings. The total changes in fair value may exceed our consolidated net income in any period or for a full year.
Therefore, we may compete for investment or financing opportunities sourced by our Manager and, as a result, we may either not be presented with the opportunity or have to compete with other clients and fund products of our Manager or clients and fund products of Invesco and its subsidiaries to acquire these investments or have access to these sources of financing.
Therefore, we may compete for investment or financing opportunities sourced by our Manager and, as a result, we may either not be presented with 23 Table of Contents the opportunity or have to compete with other clients and fund products of our Manager or clients and fund products of Invesco and its subsidiaries to acquire these investments or have access to these sources of financing.
The change of control conversion feature of our Series B Preferred Stock and Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us.
The change of control conversion feature of our Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us.
Any such taxes could adversely affect our business, results of operations, cash flows or financial condition, and our cash available for distribution to our stockholders will be reduced by any such foreign income taxes. We may incur tax liabilities that would reduce our cash available for distribution to you.
Any such taxes could adversely affect our business, results of operations, cash flows or financial condition, and our cash available for distribution to our stockholders will be reduced by any such foreign income taxes. 29 Table of Contents We may incur tax liabilities that would reduce our cash available for distribution to you.
Finally, if any debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular instrument are not made when due, we may nonetheless be required to continue to 31 Table of Contents recognize the unpaid interest as taxable income as it accrues, despite doubt as to its ultimate collectability.
Finally, if any debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular instrument are not made when due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income as it accrues, despite doubt as to its ultimate collectability.
You are urged to consult with your tax advisor regarding the effect of this change on your effective tax rate with respect to REIT dividends. 29 Table of Contents The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
You are urged to consult with your tax advisor regarding the effect of this change on your effective tax rate with respect to REIT dividends. The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in Part II of this Report for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our business, financial condition and results of operations.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in Part II of this Report for a discussion of the accounting estimates, judgments and 22 Table of Contents assumptions that we believe are the most critical to an understanding of our business, financial condition and results of operations.
A projection of, or an actual, economic downturn could cause a decline in the value of lower credit quality securities because the ability of obligors of mortgages underlying MBS to make principal and 14 Table of Contents interest payments may be impaired.
A projection of, or an actual, economic downturn could cause a decline in the value of lower credit quality securities because the ability of obligors of mortgages underlying MBS to make principal and interest payments may be impaired.
In that event, we may be required to recognize taxable gain to the extent the principal amount of the modified instrument exceeds our adjusted tax basis in the unmodified instrument, even if the value of the instrument or the payment expectations have not changed.
In that event, 32 Table of Contents we may be required to recognize taxable gain to the extent the principal amount of the modified instrument exceeds our adjusted tax basis in the unmodified instrument, even if the value of the instrument or the payment expectations have not changed.
If the IRS were to successfully challenge the opinion 32 Table of Contents of counsel, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.
If the IRS were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.
We may incur a loss on a repurchase 16 Table of Contents transaction if the value of the underlying securities has declined as of the end of the transaction term, as we would have to repurchase the securities for their initial value but would receive securities worth less than that amount.
We may incur a loss on a repurchase transaction if the value of the underlying securities has declined as of the end of the transaction term, as we would have to repurchase the securities for their initial value but would receive securities worth less than that amount.
Risks Related to Accounting The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate. Financial statements prepared in accordance with U.S. GAAP require the use of estimates, judgments and assumptions that affect the reported amounts.
The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate. Financial statements prepared in accordance with U.S. GAAP require the use of estimates, judgments and assumptions that affect the reported amounts.
Share repurchases also may negatively impact our ability to invest in our target assets in the future. As of December 31, 2023, 1,816,398 shares of common stock were available under our Board-authorized share repurchase program. In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock.
Share repurchases also may negatively impact our ability to invest in our target assets in the future. As of December 31, 2024, 1,816,359 shares of common stock were available under our Board-authorized share repurchase program. In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock.
In addition, losses in our taxable REIT subsidiary will generally not provide any tax benefit, except for being carried forward against future taxable income in the taxable REIT subsidiary. The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
In addition, losses in our taxable REIT subsidiary will generally not provide any tax benefit, except for being carried forward against future taxable income in the taxable REIT subsidiary. 31 Table of Contents The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
Risks Related to Our Investments The U.S. Federal Reserve’s or FDIC’s par ticipation in the Agency RMBS market could have an adverse effect on our Agency RMBS investments. The U.S. Federal Reserve’s participation in the Agency RMBS market can materially impact the available supply, price and returns on Agency RMBS.
Federal Reserve’s or FDIC’s par ticipation in the Agency RMBS market could have an adverse effect on our Agency RMBS investments. The U.S. Federal Reserve’s participation in the Agency RMBS market can materially impact the available supply, price and returns on Agency RMBS. The U.S.
Any issuance of more specific or different guidance relating to the relevant exemptions and exceptions from the definition of an investment company under the 1940 Act could similarly affect or inhibit our operations.
Any issuance of more specific or different guidance relating to the relevant exemptions and exceptions from the definition of an investment company under the 20 Table of Contents 1940 Act could similarly affect or inhibit our operations.
With respect to equity investments, we have made in partnerships managed by an affiliate of our Manager, our Manager has agreed to waive base 22 Table of Contents management fees at the equity investment level to avoid duplication of fees.
With respect to equity investments, we have made in partnerships managed by an affiliate of our Manager, our Manager has agreed to waive base management fees at the equity investment level to avoid duplication of fees.
Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in our best interests and in the best interests of our stockholders.
Our board of directors has duties to us and could only cause such changes in our tax treatment if it determines in good faith that such changes are in our best interests.
Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinions.
Opinions of counsel are not binding on the IRS, and no assurance can be 33 Table of Contents given that the IRS will not successfully challenge the conclusions set forth in such opinions.
While we seek to diversify our portfolio of investments, we are not required to observe any specific diversification criteria, except as may be set forth in the investment guidelines and Investment Company Act of 1940 Compliance Policy adopted by our board of directors.
Our investments may be concentrated and will be subject to risk of default. While we seek to diversify our portfolio of investments, we are not required to observe any specific diversification criteria, except as may be set forth in the investment guidelines and Investment Company Act of 1940 Compliance Policy adopted by our board of directors.
Our charter contains a provision whereby we have elected 24 Table of Contents to be subject to the provision of Subtitle 8 relating to the filling of vacancies on our board of directors.
Our charter contains a provision whereby we have elected to be subject to the provision of Subtitle 8 relating to the filling of vacancies on our board of directors.
There can be no assurance that our board of directors, as permitted in the charter, will not decrease these Ownership Limits in the future.
There can be no assurance that our board of directors, as permitted in the 28 Table of Contents charter, will not decrease these Ownership Limits in the future.
Our substantial RMBS holdings have given us room to make investments that may not qualify, all or in part, as real estate assets or that may generate income that may not qualify, all or in part, under one or both of the gross income tests. Reductions in our RMBS holdings have reduced our room for non-qualifying assets and income.
Our substantial RMBS holdings have given us room to make investments that may not qualify, all or in part, as real estate assets or that may generate income that may not qualify, all or in part, under one or both of the gross income tests. Any reduction in our RMBS holdings may reduce our room for non-qualifying assets and income.
FIRPTA gains must be reported on U.S. federal income tax returns and are subject to tax at regular U.S. federal income tax rates.
Subject to certain exceptions, FIRPTA gains must be reported on U.S. federal income tax returns and are taxable at regular U.S. federal income tax rates.
Given the U.S. Federal Reserve’s historic 10 Table of Contents participation and the current scale of its balance sheet holdings, the effects of a shift in monetary policy may be material and are difficult to predict, and we may be unable to mitigate potentially adverse effects on our portfolio and financial condition.
Federal Reserve’s historic participation and the current scale of its balance sheet holdings, the effects of a shift in monetary policy may be material and are difficult to predict, and we may be unable to mitigate potentially adverse effects on our portfolio and financial condition.
As of December 31, 2023, we have no outstanding credit default swaps.
As of December 31, 2024, we have no outstanding credit default swaps.
Changing the nature of our assets may complicate our ability to satisfy the REIT gross income and asset tests. We have large holdings of RMBS that are qualifying assets for purposes of the REIT asset tests and generate interest income that is qualifying income for purposes of the REIT gross income tests, but substantially decreased such holdings in 2020.
Changing the nature of our assets may complicate our ability to satisfy the REIT gross income and asset tests. We have large holdings of RMBS that are qualifying assets for purposes of the REIT asset tests and generate interest income that is qualifying income for purposes of the REIT gross income tests.
A breach of our Manager's technology systems could damage our reputation and cause delays or other problems in our securities trading activities and financial, accounting and other data processing activities; breach and termination of client 20 Table of Contents contracts; liability for stolen assets, information or identity; remediation costs to repair damage caused by the breach, including damage to systems and recovery of lost data; additional security costs to mitigate against future incidents; regulatory actions (including fines and penalties, which could be material) and litigation costs resulting from the incident.
A breach of our Manager's technology systems could damage our reputation and could result in unauthorized disclosure or modification or loss of sensitive or confidential information (including client data); unauthorized disclosure, modification or loss of proprietary information relating to our business; delays or other problems in our securities trading activities and financial, accounting and other data processing activities; breach and termination of client contracts; liability for stolen assets, information or identity; remediation costs to repair damage caused by the breach, including damage to systems and recovery of lost data; additional security costs to mitigate against future incidents; regulatory actions (including fines and penalties, which could be material) and litigation costs resulting from the incident.
As of December 31, 2023, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $39.1 million, or 5% of our stockholders’ equity.
As of December 31, 2024, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $36.5 million, or 5% of our stockholders’ equity.
For example, actions by the Federal Reserve in 2022 and 2023 to taper its purchases of Agency RMBS and to reduce its balance sheet resulted in a widening of credit spreads and lower Agency RMBS valuations, impacting our tangible net book value. Our use of leverage creates the likelihood of greater book value and common stock dividend distribution volatility.
For example, actions by the Federal Reserve in 2022 and 2023 to taper its purchases of Agency RMBS and to reduce its balance sheet resulted in a widening of credit spreads and lower Agency RMBS valuations, impacting our tangible net book value.
Such economic losses would be reflected in our results of operations, and our ability 17 Table of Contents to fund these obligations would depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.
Such economic losses would be reflected in our results of operations, and our ability to fund these obligations would depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition. 17 Table of Contents Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
We may not have sufficient funds or alternative financing sources available to settle such obligations. Counterparties may also make margin calls as the value of a generic TBA-eligible security (and therefore the value of the TBA contract) declines. Margin calls on TBA positions, or failure to roll TBA positions, could have the effects described in the liquidity risks described above.
We may not have sufficient funds or alternative financing sources available to settle such obligations. Counterparties may also make margin calls as the value of a generic TBA-eligible security (and therefore the value of the TBA contract) declines.
An increase in interest rates may cause a decrease in the availability of certain of our target assets which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends.
Elevated interest rates may cause a decrease in the availability of certain of our target assets which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends. Elevated interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing.
In addition, any insurance we maintain against the risk of this type of loss may not be sufficient to cover all actual losses or may not apply to circumstances relating to any particular breach or other cyber incident.
In addition, any insurance we maintain against the risk of this type of loss may not be sufficient to cover all actual losses or may not apply to circumstances relating to any particular breach or other cyber incident. The recent advancements in and increased use of AI present risks and challenges that may adversely impact our business.
Our hedging activity varies in scope based on the level and volatility of interest rates, currency exchange rates, the type of assets held and other changing market conditions.
We pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates on our liabilities and currency exchange rates. Our hedging activity varies in scope based on the level and volatility of interest rates, currency exchange rates, the type of assets held and other changing market conditions.
Further, if we default on one of our obligations under a repurchase transaction, the lender can terminate the transaction and refrain from entering into any other repurchase transactions with us. Some of our repurchase agreements contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.
Further, if we default on one of our obligations under a repurchase transaction, the lender can terminate the transaction and refrain from entering into any other repurchase transactions with us.
You are urged to consult with your tax advisor with respect to the impact of these legislative changes on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. 26 Table of Contents To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions.
You are urged to consult with your tax advisor with respect to the impact of 27 Table of Contents these legislative changes on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.
Our Manager has great latitude within the broad parameters of our investment guidelines in determining the types and amounts of target assets and financing arrangements it may decide are attractive investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results.
Our Manager has great latitude within the broad parameters of our investment guidelines in determining the types and amounts of target assets and financing arrangements it may decide are attractive investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results. 24 Table of Contents Risks Related to Our Capital Stock We have not established a minimum dividend payment level, and we cannot assure our stockholders of our ability to pay dividends in the future.
Therefore, our U.S. GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
GAAP earnings. • Our reported U.S. GAAP financial results differ from our REIT taxable income, which impacts our dividend distribution requirements. Therefore, our U.S. GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
General Risk Factors • Our business is subject to extensive regulation. • We may be adversely affected by the current and future economic, regulatory and other actions of government bodies and their agencies. • We may change any of our strategies, policies or procedures without stockholder consent. • We may enter into transactions and take certain actions in connection with such transactions, and there are certain other factors, that could affect the price of our common stock.
General Risk Factors • Our business is subject to extensive regulation. • We may be adversely affected by the current and future economic, regulatory and other actions of government bodies and their agencies. • We may change any of our strategies, policies or procedures without stockholder consent. • We may enter into transactions and take certain actions in connection with such transactions, and there are certain other factors, that could affect the price of our common stock. 10 Table of Contents Risks Related to Our Investments Fluctuations in interest rates could adversely affect the value of our investments and derivative financial instruments and cause our interest expense to increase, which could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders.
The failure of our management to make investments that meet our investment criteria could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to pay dividends to our stockholders and could cause the value of our capital stock to decline.
The failure of our management to make investments that meet our investment criteria could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to pay dividends to our stockholders and could cause the value of our capital stock to decline. 34 Table of Contents We may enter into transactions and take certain actions in connection with such transactions that could affect the price of our common stock.
Any losses we incur on our repurchase transactions could adversely affect our earnings and thus our cash available for distribution to our stockholders. The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired.
The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired.
Our business strategy is dependent upon our ability to use leverage to finance our assets through borrowings from repurchase agreements and other secured and unsecured forms of borrowing.
Our business strategy is dependent upon our ability to use leverage to finance our assets through borrowings from repurchase agreements and other secured and unsecured forms of borrowing We expect our leverage to vary with market conditions and our assessment of the tradeoffs between risk and return on investments.
Risks Related to Our Capital Stock We have not established a minimum dividend payment level, and we cannot assure our stockholders of our ability to pay dividends in the future. We pay quarterly dividends to our stockholders in an amount such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments.
We pay quarterly dividends to our stockholders in an amount such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments.
If we experience a decline in the fair value of our investments as a result of future uncertain market conditions, it could materially and adversely affect our business, results of operations, financial condition, stock price, liquidity and ability to make distributions to our stockholders. 15 Table of Contents Risks Related to Financing and Hedging We use leverage in executing our business strategy, which may adversely affect the return on our assets, reduce cash available for distribution to our stockholders and/or increase losses when economic conditions are unfavorable.
If we experience a decline in the fair value of our investments as a result of future uncertain market conditions, it could materially and adversely affect our business, results of operations, financial condition, stock price, liquidity and ability to make distributions to our stockholders.
If Fannie Mae or Freddie Mac were eliminated or their structures were to change, limiting or removing the guarantee obligation, we could be unable to acquire additional Agency MBS and our existing Agency MBS could be materially and adversely impacted. 13 Table of Contents All of the foregoing could negatively affect the availability and value of Agency MBS; our ability to obtain financing on our Agency MBS; or our ability to maintain our compliance with the terms of any financing transactions, which could adversely impact our results of operations, financial condition and business.
All of the foregoing could negatively affect the availability and value of Agency MBS; our ability to obtain financing on our Agency MBS; or our ability to maintain our compliance with the terms of any financing transactions, which could adversely impact our results of operations, financial condition and business.
We will pay any costs and expenses relating to our leverage. A portion of our RMBS portfolio consists of premium securities. Premium securities may be subject to more risk than par value securities. Premium securities have market values that exceed their unpaid principal balance.
Our profitability and financial condition including our liquidity may be adversely affected if we are unable to obtain cost-effective financing for our investments. A portion of our RMBS portfolio consists of premium securities. Premium securities may be subject to more risk than par value securities. Premium securities have market values that exceed their unpaid principal balance.
The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
For a discussion of how we determine our provision for credit losses, see Note 2 - “Summary of Significant Accounting Policies” of our consolidated financial statements in Part IV of this Report. 15 Table of Contents The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
To qualify as a REIT, we generally must distribute annually to our stockholders dividends equal to a minimum of 90% of our net taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains. We will be subject to regular corporate income taxes on any undistributed REIT taxable income, including undistributed net capital gain, each year.
To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions. To qualify as a REIT, we generally must distribute annually to our stockholders dividends equal to a minimum of 90% of our net taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains.
Proposed Treasury Regulations issued on December 29, 2022 (the “Proposed Regulations”) would modify the existing Treasury Regulations relating to the determination of whether we are a domestically controlled REIT by providing a look through rule for our stockholders that are non-publicly traded partnerships, REITs, regulated investment companies or domestic “C” corporations owned 25% or more directly or indirectly by foreign persons (“foreign owned domestic corporations”) and by treating “qualified foreign pension funds” as foreign persons for this purpose.
The Final Regulations provide a look-through rule for our stockholders that are non-publicly traded partnerships, non-public REITs, non-public regulated investment companies, or non-public domestic C corporations owned more than 50% directly or indirectly by foreign persons (“foreign-controlled domestic corporations”) and treat “qualified foreign pension funds” as foreign persons.
As of December 31, 2023, we had authority to purchase 1,185,997 additional shares of our Series B Preferred Stock and 1,045,439 additional shares of our Series C Preferred Stock under the current share repurchase program.
During the year ended December 31, 2024, we repurchased and retired 138,008 shares of our Series B Preferred Stock (prior to redemption) and 338,780 shares of our Series C Preferred Stock. As of December 31, 2024, we had authority to purchased 706,659 additional shares of our Series C Preferred Stock under the current share repurchase program.
Risks Related to Our Business Our business may be adversely affected by unfavorable or changing economic, market, and political conditions.
Margin calls on TBA positions, or failure to roll TBA positions, could have the effects described in the liquidity risks described above. 19 Table of Contents Risks Related to Our Business Our business may be adversely affected by unfavorable or changing economic, market, and political conditions.
In response to market disruptions resulting from the COVID-19 pandemic, the U.S. Federal Reserve significantly increased its acquisition of Agency RMBS. Beginning in 2022, in response to inflation running well above its long-run target, the U.S. Federal Reserve then began a passive contraction of its balance sheet by ceasing reinvestments of proceeds from maturing Agency RMBS portfolio repayments.
Federal Reserve has continued its passive contraction of its balance sheet by ceasing reinvestments of proceeds from maturing Agency RMBS portfolio repayments. Given the U.S.
We may enter into transactions and take certain actions in connection with such transactions that could affect the price of our common stock. We may conduct transactions (including acquisitions) that would offer business and strategic opportunities.
We may conduct transactions (including acquisitions) that would offer business and strategic opportunities.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

5 edited+1 added−1 removed5 unchanged
Biggest changeOur Manager’s information security program is led by its Chief Information Security Officer (“CISO”) who reports directly to the GCSO and has extensive experience in specializing in information security and risk management.
Biggest changeThis structure supports a more comprehensive, holistic approach to keeping our and Invesco clients, employees, and critical assets safe, upholding privacy rights and enabling a secure and resilient business. Our Manager’s information security program is led by its Chief Information Security Officer (“CISO”) who reports directly to the GCSO and has extensive experience in information security and risk management.
Our Manager's cybersecurity program includes the following: • Proactive assessments of technical infrastructure and security resilience are performed on a regular basis which include penetration testing, offensive testing and maturity assessments. • Conducting due diligence on third-party service providers regarding cybersecurity risks prior to on-boarding, periodic assessment of cybersecurity risks for third-party service providers and continuous monitoring for new third-party cybersecurity incidents. • An incident response program that includes periodic testing and is designed to restore business operations as quickly and as orderly as possible in the event of a cybersecurity incident at Invesco or third-party incident. • Mandatory annual employee security awareness training, which focuses on cyber threats and security in general. • Regular cyber phishing tests throughout the year to measure and raise employee awareness against cyber phishing threats.
Our Manager's cybersecurity program includes the following: • Proactive assessments of technical infrastructure and security resilience are performed on a regular basis which include penetration testing, offensive testing and maturity assessments. • Conducting due diligence on third-party service providers regarding cybersecurity risks prior to on-boarding, periodic assessment of cybersecurity risks for existing third-party service providers and continuous monitoring for new third-party cybersecurity incidents. • An incident response program that includes periodic testing and is designed to restore business operations as quickly and as orderly as possible in the event of a cybersecurity incident at Invesco or a third-party. • Mandatory annual employee security awareness training, which focuses on cyber threats and security in general. • Regular cyber phishing tests throughout the year to measure and raise employee awareness of cyber phishing threats.
To mitigate risk from cyber threats, our Manager has a designated Global Chief Security Officer (“GCSO”) who leads the global security department that is responsible for identifying, assessing, and managing cybersecurity threats. The GCSO has experience in the public and private sectors, specializing in security, investigations, and incident response.
To mitigate risk from cyber threats, our Manager has a designated Global Chief Security Officer (“GCSO”) who leads its global security department that is responsible for identifying, assessing, and managing cybersecurity threats. The GCSO has experience in the public and private sectors, specializing in security, investigations, and incident response.
As of December 31, 2023, we have not experienced any cyber incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition.
As of December 31, 2024, we have not experienced any cyber incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition.
Our Manager’s information security program is designed to oversee all aspects of information security risk and seeks to ensure the 34 Table of Contents confidentiality, integrity, and availability of information assets, including the implementation of controls aligned with industry guidelines and applicable statutes and regulations to identify threats, detect attacks and protect its and our information assets.
Our Manager’s information security program is designed to oversee all aspects of information security risk and seeks to ensure the confidentiality, integrity, and availability of information assets, including the implementation of controls aligned with industry guidelines and applicable statutes and regulations to identify threats, detect attacks and protect its and our information assets.
Removed
The global security department oversees the following groups across Invesco: Information Security, Global Privacy, Business Continuity & Crisis Management, Resilience and Corporate Security. This converged security structure supports a more comprehensive, holistic approach to keeping our and Invesco clients, employees, and critical assets safe, upholding privacy rights, while enabling a secure and resilient business.
Added
The global security 35 Table of Contents department oversees the following groups across Invesco: Information Security, Strategic Intelligence, Corporate Security, Business Continuity, Crisis Management, Global Privacy Office, Business Security, Projects and Strategy.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−2 removed9 unchanged
Biggest changeDuring the quarter ended December 31, 2023, we did not repurchase any shares of our common stock. 37 Table of Contents Repurchases of Preferred Equity Securities The following tables sets forth information with respect to our repurchases of Series B Preferred Stock during the three months ended December 31, 2023.
Biggest changeRepurchases of Preferred Equity Securities The following tables sets forth information with respect to our repurchases of Series C Preferred Stock during the three months ended December 31, 2024.
No cash dividends can be paid on our common stock unless we have paid full cumulative dividends on our preferred stock. From the date of issuance of our preferred stock through December 31, 2023, we have paid full cumulative dividends on our preferred stock.
No cash dividends can be paid on our common stock unless we have paid full cumulative dividends on our preferred stock. From the date of issuance of our preferred stock through December 31, 2024, we have paid full cumulative dividends on our preferred stock.
Repurchases of Common Equity Securities In December 2011, our board of directors approved a share repurchase program with no stated expiration date. As of December 31, 2023, there were 1,816,398 common shares available for repurchase under the program.
Repurchases of Common Equity Securities In December 2011, our board of directors approved a share repurchase program with no stated expiration date. As of December 31, 2024, there were 1,816,359 common shares available for repurchase under the program.
Performance Graph The following graph compares the cumulative 5-year total return of holders of Invesco Mortgage Capital Inc.'s common stock with the cumulative total returns of the S&P 500 index and the FTSE NAREIT Mortgage REITs index.
Holders As of February 18, 2025, there were 130 common stockholders of record. 37 Table of Contents Performance Graph The following graph compares the cumulative 5-year total return of holders of Invesco Mortgage Capital Inc.'s common stock with the cumulative total returns of the S&P 500 index and the FTSE NAREIT Mortgage REITs index.
Month Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number at end of period of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2023 to October 31, 2023 49,603 19.12 49,603 1,131,608 November 1, 2023 to November 30, 2023 53,767 20.04 53,767 1,077,841 December 1, 2023 to December 31, 2023 32,402 21.18 32,402 1,045,439 135,772 19.98 135,772 (1) In May 2022, our board of directors approved a share repurchase program under which we may purchase up to 3,000,000 shares of our Series B Preferred Stock and 5,000,000 shares of our Series C Preferred Stock with no stated expiration date.
Month Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number at end of period of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2024 to October 31, 2024 29,743 24.46 29,743 747,780 November 1, 2024 to November 30, 2024 19,697 24.19 19,697 728,083 December 1, 2024 to December 31, 2024 21,424 23.96 21,424 706,659 70,864 24.24 70,864 (1) In May 2022, our board of directors approved a share repurchase program under which we may purchase up to 3,000,000 shares of our Series B Preferred Stock and 5,000,000 shares of our Series C Preferred Stock with no stated expiration date.
For information about our recent dividend payments, please see Note 12 - “Stockholders' Equity” of our consolidated financial statements in Part IV of this Report. Holders As of February 20, 2024, there were 131 common stockholders of record.
For information about our recent dividend payments, please see Note 11 - “Stockholders' Equity” of our consolidated financial statements in Part IV of this Report.
The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules.
The manner, price, number and timing of share repurchases are subject to a variety of factors, including market conditions and applicable SEC rules. We redeemed all outstanding shares of our Series B Preferred Stock in December 2024.
The manner, price, number and timing of share repurchases will be subject to a variety of factors, including market conditions and applicable SEC rules.
The 38 Table of Contents manner, price, number and timing of share repurchases will be subject to a variety of factors, including market conditions and applicable SEC rules. During the quarter ended December 31, 2024, we did not repurchase any shares of our common stock.
Removed
The graph assumes that the value of the investment in our common stock and in each of the indices (including reinvestment of dividends) was $100 on December 31, 2018 and tracks it through December 31, 2023. 36 Table of Contents Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Invesco Mortgage Capital Inc. 100.00 128.97 31.82 28.85 15.99 13.71 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 FTSE NAREIT Mortgage REITs 100.00 121.33 98.56 113.97 83.64 96.48 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Added
The graph assumes that the value of the investment in our common stock and in each of the indices (including reinvestment of dividends) was $100 on December 31, 2019 and tracks it through December 31, 2024.
Removed
Month Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number at end of period of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2023 to October 31, 2023 27,434 20.67 27,434 1,237,980 November 1, 2023 to November 30, 2023 31,554 22.20 31,554 1,206,426 December 1, 2023 to December 31, 2023 20,429 22.66 20,429 1,185,997 79,417 21.79 79,417 The following tables sets forth information with respect to our repurchases of Series C Preferred Stock during the three months ended December 31, 2023.
Added
Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Invesco Mortgage Capital Inc. 100.00 24.67 22.37 12.40 10.63 11.59 S&P 500 100.00 118.40 152.39 124.79 157.59 197.02 FTSE NAREIT Mortgage REITs 100.00 81.23 93.93 68.94 79.52 79.80 The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

121 edited+45 added−60 removed80 unchanged
Biggest changeNet interest paid or received under our interest rate swaps is also recognized in gain (loss) on derivative instruments, net in our consolidated statements of operations. 50 Table of Contents The tables below summarize the components of our gain (loss) on derivative instruments, net for the years ended December 31, 2023, 2022 and 2021: $ in thousands Year ended December 31, 2023 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps (177,628) 239,008 918 62,298 Currency Forward Contracts (18) — — (18) TBAs (1,880) — 1,438 (442) Total (179,526) 239,008 2,356 61,838 $ in thousands Year ended December 31, 2022 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps 593,035 86,872 11,426 691,333 Currency Forward Contracts 919 — (271) 648 TBAs (134,488) — 1,514 (132,974) Total 459,466 86,872 12,669 559,007 $ in thousands Year ended December 31, 2021 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps 185,232 (15,803) (5,869) 163,560 Interest Rate Swaptions (553) — — (553) Currency Forward Contracts 209 — 970 1,179 TBAs (28,731) — (12,844) (41,575) Total 156,157 (15,803) (17,743) 122,611 During the year ended December 31, 2023, we entered into interest rate swaps with a notional amount of $3.5 billion and terminated existing interest rate swaps with a notional amount of $7.6 billion (December 31, 2022: $10.0 billion of additions and $10.1 billion of terminations).
Biggest changeThe tables below summarize the components of our gain (loss) on derivative instruments, net for the years ended December 31, 2024, 2023 and 2022. $ in thousands Year ended December 31, 2024 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps (47,581) 161,762 610 114,791 Futures Contracts 58,000 — 3,463 61,463 TBAs 986 — (606) 380 Total 11,405 161,762 3,467 176,634 $ in thousands Year ended December 31, 2023 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps (177,628) 239,008 918 62,298 Currency Forward Contracts (18) — — (18) TBAs (1,880) — 1,438 (442) Total (179,526) 239,008 2,356 61,838 $ in thousands Year ended December 31, 2022 Derivative not designated as hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net Interest Rate Swaps 593,035 86,872 11,426 691,333 Currency Forward Contracts 919 — (271) 648 TBAs (134,488) — 1,514 (132,974) Total 459,466 86,872 12,669 559,007 As of December 31, 2024 and 2023, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR. $ in thousands As of December 31, 2024 As of December 31, 2023 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 3,265,000 0.97 % 4.49 % 5.3 4,065,000 1.10 % 5.38 % 6.6 During the year ended December 31, 2024, we entered into interest rate swaps with a notional amount of $2.6 billion and terminated or settled existing interest rate swaps with a notional amount of $3.4 billion (December 31, 2023: $3.5 billion of additions and $7.6 billion of terminations or settlements).
Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on repurchase agreements on the consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements.
Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on the consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements.
Because we view earnings available for distribution as a consistent measure of our investment portfolio's ability to generate income for distribution to common 53 Table of Contents stockholders, earnings available for distribution is one metric, but not the exclusive metric, that our board of directors uses to determine the amount, if any, and the payment date of dividends on our common stock.
Because we view earnings available for 53 Table of Contents distribution as a consistent measure of our investment portfolio's ability to generate income for distribution to common stockholders, earnings available for distribution is one metric, but not the exclusive metric, that our board of directors uses to determine the amount, if any, and the payment date of dividends on our common stock.
Realized net losses during the year ended December 31, 2023 and 2022 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.
Net realized losses during the year ended December 31, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.
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.
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 agreements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital.
Accordingly, under different conditions, we could report materially different amounts. For Agency RMBS that cannot be prepaid in such a way that we would not recover substantially all of our initial investment, interest income recognition is based on contractual cash flows. We do not estimate prepayments in applying the effective interest method.
Accordingly, under different conditions, we could report materially different amounts. For Agency RMBS and Agency CMBS that cannot be prepaid in such a way that we would not recover substantially all of our initial investment, interest income recognition is based on contractual cash flows. We do not estimate prepayments in applying the effective interest method.
As of December 31, 2023, $5.0 billion (December 31, 2022: $4.7 billion) or 99.7% (December 31, 2022: 99.1%) of our MBS are accounted for under the fair value option. We record our MBS purchased before September 1, 2016, as available-for-sale and report these MBS at fair value.
As of December 31, 2024, $5.4 billion (December 31, 2023: $5.0 billion) or 99.7% (December 31, 2023: 99.7%) of our MBS are accounted for under the fair value option. We record our MBS purchased before September 1, 2016, as available-for-sale and report these MBS at fair value.
For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on a quarterly basis.
For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on at least a quarterly basis.
Refer to Note 11 – “Related Party Transactions” of our consolidated financial statements in Part IV, Item 15 of this Report for a discussion of our relationship with our Manager and a description of how our fees are calculated.
Refer to Note 10 – “Related Party Transactions” of our consolidated financial statements in Part IV, Item 15 of this Report for a discussion of our relationship with our Manager and a description of how our fees are calculated.
GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.
GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as interest expense.
GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.
GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as interest expense.
We also met all REIT requirements regarding the stock ownership and distribution of dividends of our taxable income as of December 31, 2023. Therefore, as of December 31, 2023, we believe that we qualified as a REIT under the Code.
We also met all REIT requirements regarding the stock ownership and distribution of dividends of our taxable income as of December 31, 2024. Therefore, as of December 31, 2024, we believe that we qualified as a REIT under the Code.
“Quantitative and Qualitative Disclosures About Market Risk” for an estimate of the percentage change in our net interest income, including interest paid or received under interest rate swaps, caused by an instantaneous 50 and 100 basis points increase or decrease in interest rates. Accounting for Derivative Financial Instruments.
“Quantitative and Qualitative Disclosures About Market Risk” for an estimate of the percentage change in our net interest income, including interest paid or received under interest rate swaps, caused by an instantaneous 50 and 100 basis points increase or decrease in interest rates. 45 Table of Contents Accounting for Derivative Financial Instruments.
We also believe that our revenue qualifies for the 75% source of income test and for the 95% source of income test rules for the year ended December 31, 2023. Consequently, we believe we met the REIT income and asset test as of December 31, 2023.
We also believe that our revenue qualifies for the 75% source of income test and for the 95% source of income test rules for the year ended December 31, 2024. Consequently, we believe we met the REIT income and asset test as of December 31, 2024.
Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. 38 Table of Contents Factors Impacting Our Operating Results Our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets.
Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. Factors Impacting Our Operating Results Our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets.
Our 30 year fixed-rate Agency RMBS holdings as of December 31, 2023 and 2022 consisted of specified pools with coupon distributions as shown in the table below.
Our 30 year fixed-rate Agency RMBS holdings as of December 31, 2024 and 2023 consisted of specified pools with coupon distributions as shown in the table below.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The discussion and analysis disclosed herein apply to material changes in our consolidated financial statements for 2023 and 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The discussion and analysis disclosed herein apply to material changes in our consolidated financial statements for 2024 and 2023.
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 our TBAs at implied cost basis in our measure of leverage because a forward contract to acquire Agency RMBS in the 56 Table of Contents TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities.
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. 49 Table of Contents Gain (Loss) on Investments, net The table below summarizes the components of gain (loss) on investments, net for the years ended December 31, 2023, 2022 and 2021.
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 years ended December 31, 2024, 2023 and 2022.
We calculate that as of December 31, 2023, we conducted our business so as not to be regulated as an investment company under the 1940 Act.
We calculate that as of December 31, 2024, we conducted our business so as not to be regulated as an investment company under the 1940 Act.
“Quantitative and Qualitative Disclosures about Market Risk” for more information relating to interest rate risk and its impact on our operating results. Interest Expense and Cost of Funds The table below presents our average borrowings and cost of funds for the years ended December 31, 2023, 2022 and 2021.
“Quantitative and Qualitative Disclosures about Market Risk” for more information relating to interest rate risk and its impact on our operating results. 48 Table of Contents Interest Expense and Cost of Funds The table below presents our average borrowings and cost of funds for the years ended December 31, 2024, 2023 and 2022.
For the year ended December 31, 2023, our general and administrative expenses not covered under our management agreement amounted to $7.4 million (2022: $8.4 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.
For the year ended December 31, 2024, our general and administrative expenses not covered under our management agreement amounted to $7.2 million (2023: $7.4 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.
Market Conditions and Impacts Macroeconomic factors that affect our business include interest rates, interest rate volatility, spread premiums, fiscal and monetary policy, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.
Market Conditions and Impacts Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, interest rates, interest rate volatility, fiscal and monetary policy, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending and corporate 39 Table of Contents earnings.
Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of “investment company” under 59 Table of Contents Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test.
Additionally, refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for the estimated impact of an instantaneous shift in the yield curve on the market value of our interest rate-sensitive investments. Interest Income Recognition. Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms.
“Quantitative and Qualitative Disclosures About Market Risk” for the estimated impact of an instantaneous shift in the yield curve on the market value of our interest rate-sensitive investments. Interest Income Recognition. Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms.
The table below presents the components of interest expense for the years ended December 31, 2023, 2022 and 2021.
The table below presents the components of interest expense for the years ended December 31, 2024, 2023 and 2022.
For the comparison of 2022 and 2021, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K, filed with the SEC on February 21, 2023.
For the comparison of 2023 and 2022, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2023 Annual Report on Form 10-K, filed with the SEC on February 22, 2024.
We estimate future expected cash flows at the time of purchase and determine the effective interest rate based 44 Table of Contents on these estimated cash flows and our purchase price.
We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price.
We recognized net gains on our interest rate swaps in 2023 primarily due to shifting expectations that interest rates would stay higher for longer. 45 Table of Contents Results of Operations Our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021 are summarized below.
We recognized net gains on our interest rate swaps and futures contracts in 2024 primarily due to shifting expectations that interest rates would stay higher for longer. 46 Table of Contents Results of Operations Our consolidated results of operations for the years ended December 31, 2024, 2023 and 2022 are summarized below.
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 $237.8 million for the year ended December 31, 2023 (2022: $196.1 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 $183.2 million for the year ended December 31, 2024 (2023: $237.8 million).
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 $198.6 million at December 31, 2023 (2022: $278.8 million).
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 $210.9 million at December 31, 2024 (2023: $198.6 million).
Our financing activities provided net cash of $218.9 million for the year ended December 31, 2023 (2022: used net cash of $2.9 billion). Our primary source of cash from financing activities during the year ended December 31, 2023 was net proceeds on our repurchase agreements of $223.5 million and proceeds from issuance of common stock of $109.1 million.
Our financing activities provided net cash of $218.9 million for the year ended December 31, 2023. Our primary source of cash from financing activities during the year ended December 31, 2023 was net proceeds on our repurchase agreements of 57 Table of Contents $223.5 million and proceeds from issuance of common stock of $109.1 million.
As of December 31, 2023, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $39.1 million, or 5% of our stockholders’ equity. The following table summarizes our exposure under repurchase agreements to counterparties by geographic concentration as of December 31, 2023.
As of December 31, 2024, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $36.5 million, or 5% of our stockholders’ equity. The following table summarizes our exposure under repurchase agreements to counterparties by geographic concentration as of December 31, 2024.
Expenses For the year ended December 31, 2023, we incurred management fees of $12.3 million (2022: $16.9 million) that are payable to our Manager under our management agreement. Management fees decreased for the year ended December 31, 2023 compared to 2022 due to a lower stockholders' equity management fee base in 2023. Our management fees are calculated quarterly in arrears.
Expenses For the year ended December 31, 2024, we incurred management fees of $11.9 million (2023: $12.3 million) that are payable to our Manager under our management agreement. Management fees decreased for the year ended December 31, 2024 compared to 2023 due to lower average stockholders' equity. Our management fees are calculated quarterly in arrears.
As of December 31, 2023, approximately 98% of our equity is allocated to Agency RMBS. We present an economic debt-to-equity ratio, a non-GAAP financial measure of leverage that considers the impact of the off-balance sheet financing of our investments in TBAs that are accounted for as derivative instruments under U.S. GAAP.
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. GAAP.
Years Ended December 31, $ in thousands 2023 2022 2021 Net realized gains (losses) on sale of MBS (158,028) (1,163,910) (281,224) Net unrealized gains (losses) on MBS accounted for under the fair value option 50,364 118,365 (85,702) Net unrealized gains (losses) on commercial loan — 404 417 Net unrealized gains (losses) on U.S.
Years Ended December 31, $ in thousands 2024 2023 2022 Net realized gains (losses) on sale of MBS (9,124) (158,028) (1,163,910) Net unrealized gains (losses) on MBS accounted for under the fair value option (124,329) 50,364 118,365 Net unrealized gains (losses) on commercial loan — — 404 Net unrealized gains (losses) on U.S.
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.
GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties.
Years ended December 31, $ in thousands 2023 2022 2021 Average earning assets (1) 5,106,473 5,137,339 8,808,105 Average earning asset yields (2) 5.44 % 3.79 % 1.92 % (1) Average balances for each period are based on weighted month-end balances.
Years ended December 31, $ in thousands 2024 2023 2022 Average earning assets (1) 5,208,204 5,106,473 5,137,339 Average earning asset yields (2) 5.50 % 5.44 % 3.79 % (1) Average balances for each period are based on weighted month-end balances.
The following table presents net (premium amortization) discount accretion recognized on our mortgage-backed and other securities portfolio during 2023, 2022 and 2021. Years Ended December 31, $ in thousands 2023 2022 2021 Agency RMBS 5,160 (6,755) (41,881) Non-Agency CMBS 1,101 1,624 2,695 Non-Agency RMBS (479) (552) (1,264) U.S.
The following table presents net (premium amortization) discount accretion recognized on our mortgage-backed and other securities portfolio during 2024, 2023 and 2022. Years Ended December 31, $ in thousands 2024 2023 2022 Agency RMBS 4,948 5,160 (6,755) Agency CMBS 433 — — Non-Agency CMBS 496 1,101 1,624 Non-Agency RMBS (410) (479) (552) U.S.
As of December 31, 2023, $5.0 billion or 99.7% (December 31, 2022: $4.7 billion or 99.1%) of our MBS are accounted for under the fair value option. We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $50.4 million in 2023 (2022: net unrealized gains of $118.4 million).
As of December 31, 2024, $5.4 billion or 99.7% (December 31, 2023: $5.0 billion or 99.7%) of our MBS were accounted for under the fair value option. We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $124.3 million in 2024 (2023: net unrealized gains of $50.4 million).
For the year ended December 31, 2023, the change in net loss attributable to common stockholders compared to 2022 was primarily due to: (i) net losses on investments of $107.3 million versus $1.1 billion in the 2022 period; (ii) net gains on derivative instruments of $61.8 million versus $559.0 million in the 2022 period and (iii) a $93.3 million decrease in net interest income.
For the year ended December 31, 2024, the change in net income (loss) attributable to common stockholders compared to 2023 was primarily due to: (i) net losses on investments of $133.9 million versus $107.3 million in the 2023 period; (ii) net gains on derivative instruments of $176.6 million versus $61.8 million in the 2023 period and (iii) a $12.9 million decrease in net interest income.
Our commercial loan investment was fully repaid in October 2022 . 47 Table of Contents 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.
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.
GAAP repurchase agreements interest expense on the consolidated statements of operations includes the following components: Years Ended December 31, $ in thousands 2023 2022 2021 Interest expense on repurchase agreements borrowings 238,634 71,268 10,710 Amortization of net deferred (gain) loss on de-designated interest rate swaps (10,405) (19,708) (22,000) Repurchase agreements interest expense 228,229 51,560 (11,290) (5) Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.
Years Ended December 31, $ in thousands 2024 2023 2022 Interest expense on repurchase agreement borrowings 249,719 238,634 71,268 Amortization of net deferred (gain) loss on de-designated interest rate swaps — (10,405) (19,708) Total interest expense 249,719 228,229 51,560 (5) Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.
Years ended December 31, $ in thousands 2023 2022 2021 Total average borrowings (1) 4,540,252 4,495,581 7,892,617 Maximum borrowings during the period (2) 4,987,006 6,636,913 8,708,686 Cost of funds (3) 5.03 % 1.15 % (0.14) % (1) Average borrowings for each period are based on weighted month-end balances.
Years ended December 31, $ in thousands 2024 2023 2022 Total average borrowings (1) 4,637,086 4,540,252 4,495,581 Maximum borrowings during the period (2) 5,184,885 4,987,006 6,636,913 Cost of funds (3) 5.39 % 5.03 % 1.15 % (1) Average borrowings for each period are based on weighted month-end balances.
GAAP) or as an indication of our cash flow from operating activities (determined in accordance with U.S. GAAP), a measure of our liquidity or as an indication of amounts available to fund our cash needs. The table below provides a reconciliation of U.S.
GAAP) or as an indication of our cash flow from operating activities (determined in accordance with U.S. GAAP), a measure of our liquidity or as an indication of amounts available to fund our cash needs. 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.
GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods: Years Ended December 31, $ in thousands, except per share data 2023 2022 2021 Net income (loss) attributable to common stockholders (37,541) (416,963) (132,477) Adjustments: (Gain) loss on investments, net 107,280 1,079,339 366,509 Realized (gain) loss on derivative instruments, net (1) 179,526 (459,466) (156,157) Unrealized (gain) loss on derivative instruments, net (1) (2,356) (12,669) 17,743 TBA dollar roll income (2) 697 28,843 40,058 (Gain) on repurchase and retirement of preferred stock (1,471) (14,179) — Foreign currency (gains) losses, net (3) 66 (186) (1) Amortization of net deferred (gain) loss on de-designated interest rate swaps (4) (10,405) (19,708) (22,000) Subtotal 273,337 601,974 246,152 Earnings available for distribution 235,796 185,011 113,675 Basic earnings (loss) per common share (0.85) (12.21) (4.82) Earnings available for distribution per common share (5) 5.35 5.42 4.13 (1) U.S.
Years Ended December 31, $ in thousands, except per share data 2024 2023 2022 Net income (loss) attributable to common stockholders 34,763 (37,541) (416,963) Adjustments: (Gain) loss on investments, net 133,911 107,280 1,079,339 Realized (gain) loss on derivative instruments, net (1) (11,405) 179,526 (459,466) Unrealized (gain) loss on derivative instruments, net (1) (3,467) (2,356) (12,669) TBA dollar roll income (2) 1,366 697 28,843 (Gain) on repurchase and retirement of preferred stock (427) (1,471) (14,179) Foreign currency (gains) losses, net (3) (2) 66 (186) Amortization of net deferred (gain) loss on de-designated interest rate swaps (4) — (10,405) (19,708) Subtotal 119,976 273,337 601,974 Earnings available for distribution 154,739 235,796 185,011 Basic earnings (loss) per common share 0.65 (0.85) (12.21) Earnings available for distribution per common share (5) 2.88 5.35 5.42 (1) U.S.
We also paid $179.5 million to settle derivative contracts during the year ended December 31, 2023. We received proceeds from the sale of MBS of $5.2 billion and proceeds from the sale of U.S. Treasury securities of $49.0 million during the year ended December 31, 2023.
We received proceeds from the sale of MBS of $5.2 billion and proceeds from the sale of U.S. Treasury securities of $49.0 million during the year ended December 31, 2023. We also generated $348.5 million from principal payments of MBS during the year ended December 31, 2023.
GAAP gain (loss) on derivative instruments, net on the consolidated statements of operations includes the following components: Years Ended December 31, $ in thousands 2023 2022 2021 Realized gain (loss) on derivative instruments, net (179,526) 459,466 156,157 Unrealized gain (loss) on derivative instruments, net 2,356 12,669 (17,743) Contractual net interest income (expense) on interest rate swaps 239,008 86,872 (15,803) Gain (loss) on derivative instruments, net 61,838 559,007 122,611 (2) A TBA dollar roll is a series of derivative transactions where TBAs with the same specified issuer, term and coupon but different settlement dates are simultaneously bought and sold.
Years Ended December 31, $ in thousands 2024 2023 2022 Realized gain (loss) on derivative instruments, net 11,405 (179,526) 459,466 Unrealized gain (loss) on derivative instruments, net 3,467 2,356 12,669 Contractual net interest income (expense) on interest rate swaps 161,762 239,008 86,872 Gain (loss) on derivative instruments, net 176,634 61,838 559,007 (2) A TBA dollar roll is a series of derivative transactions where TBAs with the same specified issuer, term and coupon but different settlement dates are simultaneously bought and sold.
For information on dividends declared and paid during the years ended December 31, 2023 and 2022, see Note 12 - “Stockholders' Equity” of our consolidated financial statements in Part IV, Item 15 of this report on Form 10-K.
For information on dividends declared and paid during the years ended December 31, 2024 and 2023, see Note 11 - “Stockholders' Equity” of our consolidated financial statements in Part IV, Item 15 of this report on Form 10-K. During the year ended December 31, 2024, we did not repurchase any shares of our common stock.
Other investment income (loss) for the year ended December 31, 2023 also includes the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.
Other Investment Income (Loss), net Our other investment income (loss), net for the year ended December 31, 2023 consisted of foreign currency transaction gains and losses and the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture.
Economic Debt-to-Equity Ratio The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of December 31, 2023 and December 31, 2022. Our debt-to-equity ratio is calculated in 56 Table of Contents accordance with U.S. GAAP and is the ratio of total debt to total stockholders' equity.
Economic Debt-to-Equity Ratio The table below shows our debt-to-equity ratio and our economic debt-to-equity ratio as of December 31, 2024 and December 31, 2023. Our debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt to total stockholders' equity.
Additionally, certain counterparties may require us to provide cash collateral in the event the market value of the assets declines to maintain a contractual repurchase agreement collateral ratio.
Under these agreements, we pledge assets from our investment portfolio as collateral. Additionally, certain counterparties may require us to provide cash collateral in the event the market value of the assets declines to maintain a contractual repurchase agreement collateral ratio.
It is possible that changes in these inputs could change the valuation estimate and lead us to establish allowances for credit losses on our available-for-sale MBS. Refer to the preceding discussion under “Market Conditions and Impacts” for information on how conditions in 2023 impacted valuations of our Agency RMBS, which constituted substantially all of our investment portfolio during 2023.
It is possible that changes in these inputs could change the valuation estimate. Refer to the preceding discussion under “Market Conditions and Impacts” for information on how conditions in 2024 impacted valuations of our Agency securities, which constituted substantially all of our investment portfolio during 2024. Additionally, refer to Item 7A.
Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that are expected to move in close relationship to SOFR.
Financing and Other Liabilities We finance the majority of our investment portfolio through repurchase agreements. Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that are expected to move in close relationship to SOFR.
Treasury securities 372 — — Net realized gains (losses) on U.S. Treasury securities 12 (34,198) — Total gain (loss) on investments, net (107,280) (1,079,339) (366,509) During the year ended December 31, 2023, we sold MBS for cash proceeds of $5.2 billion (2022: MBS of $27.3 billion; and realized net losses of $158.0 million (2022: net losses of $1.2 billion).
Treasury securities (372) 372 — Net realized gains (losses) on U.S. Treasury securities (86) 12 (34,198) Total gain (loss) on investments, net (133,911) (107,280) (1,079,339) During the year ended December 31, 2024, we sold MBS and realized net losses of $9.1 million (2023: net losses of $158.0 million).
Hedging may fail to protect or could adversely affect us because, among other things: • available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; 42 Table of Contents • the duration of the hedges may not match the duration of the related liabilities; • our counterparty in the hedging transaction may default on its obligation to pay; • the credit quality of our counterparty on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the value of derivatives used for hedging may be adjusted from time-to-time in accordance with accounting rules to reflect changes in fair value.
Hedging may fail to protect or could adversely affect us because, among other things: • available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; • the duration of the hedges may not match the duration of the related liabilities; • our counterparty in the hedging transaction may default on its obligation to pay; • the values of derivatives used for hedging are adjusted in accordance with accounting rules to reflect changes in fair value.
We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity. Repurchase agreement borrowings that are not refinanced upon maturity are typically repaid through the use of cash on hand or proceeds from sales of securities.
Repurchase agreement borrowings that are not refinanced upon maturity are typically repaid through the use of cash on hand or proceeds from sales of securities.
Refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties.
Refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value. 44 Table of Contents Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S.
(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity.
(2) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis ($606,000 as of December 31, 2024; none as of December 31, 2023) to total stockholders' equity.
The components of earnings available for distribution for the years ended December 31, 2023, 2022 and 2021 were: Years Ended December 31, $ in thousands 2023 2022 2021 Effective net interest income (1) 278,303 210,117 142,689 TBA dollar roll income 697 28,843 40,058 Equity in earnings (losses) of unconsolidated ventures (1) (407) 870 (Increase) decrease in provision for credit losses (320) — 1,768 Total expenses (19,730) (25,324) (29,233) Subtotal 258,949 213,229 156,152 Dividends to preferred stockholders (23,153) (28,218) (37,795) Issuance and redemption costs of redeemed preferred stock — — (4,682) Earnings available for distribution 235,796 185,011 113,675 (1) See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.
Years Ended December 31, $ in thousands 2024 2023 2022 Effective net interest income (1) 198,589 278,303 210,117 TBA dollar roll income 1,366 697 28,843 Equity in earnings (losses) of unconsolidated ventures (193) (1) (407) (Increase) decrease in provision for credit losses (458) (320) — Total expenses (19,019) (19,730) (25,324) Subtotal 180,285 258,949 213,229 Dividends to preferred stockholders (22,011) (23,153) (28,218) Issuance and redemption costs of redeemed preferred stock (3,535) — — Earnings available for distribution 154,739 235,796 185,011 (1) See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.
Our investing activities used net cash of $536.8 million for the year ended December 31, 2023 (2022: provided net cash of $2.4 billion). Our primary use of cash from investing activities during the year ended December 31, 2023 was $5.9 billion to purchase MBS and $59.5 million to purchase U.S. Treasury securities.
Our investing activities used net cash of $497.4 million for the year ended December 31, 2024 (2023: $536.8 million). Our primary use of cash from investing activities during the year ended December 31, 2024 was $2.2 billion to purchase MBS. We received proceeds from the sale of MBS of $1.3 billion and proceeds from the sale of U.S.
Capital Activities As of December 31, 2023, we may sell up to 6,300,529 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents.
Capital Activities As of December 31, 2024, we may sell up to 11,095,561 shares of our common stock 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 years ended December 31, 2024 and 2023.
Investment Activities The table below shows the composition of our investment portfolio as of December 31, 2023 and 2022. $ in thousands As of December 31, 2023 2022 Agency RMBS: 30 year fixed-rate, at fair value 4,952,474 4,661,737 Agency CMO, at fair value 74,758 84,956 Non-Agency CMBS, at fair value 9,935 36,787 Non-Agency RMBS, at fair value 8,139 8,413 U.S.
Investment Activities The table below shows the composition of our investment portfolio as of December 31, 2024 and 2023. $ in thousands As of December 31, 2024 2023 Agency RMBS: 30 year fixed-rate pass-through, at fair value 4,541,525 4,952,474 Agency CMO, at fair value 70,776 74,758 Agency CMBS, at fair value 816,147 — Non-Agency CMBS, at fair value 9,836 9,935 Non-Agency RMBS, at fair value 7,224 8,139 U.S.
Years ended December 31, $ in thousands 2023 2022 2021 Interest Expense Interest expense on repurchase agreement borrowings 238,634 71,268 10,710 Amortization of net deferred (gain) loss on de-designated interest rate swaps (10,405) (19,708) (22,000) Repurchase agreements interest expense 228,229 51,560 (11,290) Total interest expense 228,229 51,560 (11,290) Our interest expense on repurchase agreement borrowings increased $167.4 million for the year ended December 31, 2023 compared to 2022 due to a higher cost of funds.
Years ended December 31, $ in thousands 2024 2023 2022 Interest Expense Interest expense on repurchase agreement borrowings 249,719 238,634 71,268 Amortization of net deferred (gain) loss on de-designated interest rate swaps — (10,405) (19,708) Total interest expense 249,719 228,229 51,560 Our interest expense increased $21.5 million for the year ended December 31, 2024 compared to 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in total average borrowings and borrowing rates.
In addition to changes caused by the underlying floating rate index, the amount of contractual net interest income or expense on interest swaps that we recognize may change materially from period to period based on changes in the size and composition of our interest rate swap portfolio, which are generally broadly aligned with changes in our repurchase agreement borrowings.
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.
Our average cost of funds increased 388 basis points in 2023 compared to 2022 as the FOMC has raised the Federal Funds target rate from a range of 0.0% to 0.25% as of January 1, 2022 to a range of 5.25% to 5.50% as of December 31, 2023.
Our average cost of funds increased 36 basis points for the year ended December 31, 2024 compared to 2023 as the FOMC raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a maximum of 5.25% to 5.50% before lowering the target rate in the second half of 2024.
See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of December 31, 2023 and December 31, 2022.
See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of December 31, 2024 and December 31, 2023. 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.
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.
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 December 31, 2024 and 2023.
Years Ended December 31, $ in thousands 2023 2022 2021 Interest Income Mortgage-backed and other securities - coupon interest 271,856 198,290 207,506 Mortgage-backed and other securities - net (premium amortization) discount accretion 6,073 (5,724) (40,450) Mortgage-backed and other securities - interest income 277,929 192,566 167,056 Commercial loan — 1,947 2,146 Total interest income 277,929 194,513 169,202 Mortgage-backed and other securities interest income increased $85.4 million for the year ended December 31, 2023 compared to 2022 due to a 165 basis point increase in average earning asset yields.
Years Ended December 31, $ in thousands 2024 2023 2022 Interest Income Mortgage-backed and other securities - coupon interest 281,080 271,856 198,290 Mortgage-backed and other securities - net (premium amortization) discount accretion 5,466 6,073 (5,724) Mortgage-backed and other securities - interest income 286,546 277,929 192,566 Commercial loan — — 1,947 Total interest income 286,546 277,929 194,513 Our interest income increased $8.6 million for the year ended December 31, 2024 compared to 2023 due to higher average earning assets and average earning asset yields.
As of December 31, 2023, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.6% for Agency RMBS. The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS. Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements.
The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS and Agency CMBS. Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements.
As of December 31, 2023 2022 $ in thousands Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield 4.0% 876,337 17.7 % 4.65 % — — % — % 4.5% 1,017,191 20.5 % 4.95 % 1,392,304 29.9 % 4.93 % 5.0% 1,028,036 20.8 % 5.34 % 1,694,939 36.4 % 5.27 % 5.5% 1,016,707 20.5 % 5.59 % 1,574,494 33.7 % 5.53 % 6.0% 1,014,203 20.5 % 6.03 % — — % — % Total 30 year fixed-rate Agency RMBS 4,952,474 100.0 % 5.33 % 4,661,737 100.0 % 5.26 % Our purchases of Agency RMBS have been primarily focused on specified pools with attractive prepayment profiles.
As of December 31, 2024 2023 $ in thousands Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield 4.0% 369,321 8.1 % 4.67 % 876,337 17.7 % 4.65 % 4.5% 658,218 14.5 % 4.95 % 1,017,191 20.5 % 4.95 % 5.0% 836,197 18.4 % 5.35 % 1,028,036 20.8 % 5.34 % 5.5% 1,196,335 26.3 % 5.59 % 1,016,707 20.5 % 5.59 % 6.0% 1,481,454 32.7 % 5.97 % 1,014,203 20.5 % 6.03 % Total 30 year fixed-rate Agency RMBS 4,541,525 100.0 % 5.50 % 4,952,474 100.0 % 5.33 % Our purchases of Agency RMBS have been primarily focused on specified pools with attractive prepayment profiles.
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: Years Ended December 31, 2023 2022 2021 $ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Net interest income 49,700 0.41 % 142,953 2.64 % 180,492 2.06 % Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps (10,405) (0.23) % (19,708) (0.44) % (22,000) (0.28) % Add (Less): Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 239,008 5.26 % 86,872 1.93 % (15,803) (0.20) % Effective net interest income 278,303 5.44 % 210,117 4.13 % 142,689 1.58 % Our effective net interest income and effective interest rate margin increased for the year ended December 31, 2023 compared to 2022 due to higher interest income resulting from our rotation into higher yielding Agency RMBS.
Years Ended December 31, 2024 2023 2022 $ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Net interest income 36,827 0.11 % 49,700 0.41 % 142,953 2.64 % Less: Amortization of net deferred (gain) loss on de-designated interest rate swaps — — % (10,405) (0.23) % (19,708) (0.44) % Add: Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 161,762 3.49 % 239,008 5.26 % 86,872 1.93 % Effective net interest income 198,589 3.60 % 278,303 5.44 % 210,117 4.13 % Our effective net interest income and effective interest rate margin decreased for the year ended December 31, 2024 compared to 2023 primarily due to a decrease in contractual net interest income on interest rate swaps.
We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.
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.
Years Ended December 31, $ in thousands except share data 2023 2022 2021 Interest income Mortgage-backed and other securities 277,929 192,566 167,056 Commercial loan — 1,947 2,146 Total interest income 277,929 194,513 169,202 Interest expense Repurchase agreements (1) 228,229 51,560 (11,290) Total interest expense 228,229 51,560 (11,290) Net interest income 49,700 142,953 180,492 Other income (loss) Gain (loss) on investments, net (107,280) (1,079,339) (366,509) (Increase) decrease in provision for credit losses (320) — 1,768 Equity in earnings (losses) of unconsolidated ventures (1) (407) 870 Gain (loss) on derivative instruments, net 61,838 559,007 122,611 Other investment income (loss), net (66) 186 1 Total other income (loss) (45,829) (520,553) (241,259) Expenses Management fee — related party 12,290 16,906 21,080 General and administrative 7,440 8,418 8,153 Total expenses 19,730 25,324 29,233 Net income (loss) (15,859) (402,924) (90,000) Dividends to preferred stockholders (23,153) (28,218) (37,795) Gain on repurchase and retirement of preferred stock 1,471 14,179 — Issuance and redemption costs of redeemed preferred stock — — (4,682) Net income (loss) attributable to common stockholders (37,541) (416,963) (132,477) Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic (0.85) (12.21) (4.82) Diluted (0.85) (12.21) (4.82) Weighted average number of shares of common stock: Basic 44,073,815 34,160,080 27,513,223 Diluted 44,073,815 34,160,080 27,513,223 (1) Negative interest expense on repurchase agreements in 2021 is due to amortization of net deferred gains on de-designated interest rate swaps that exceeds current period interest expense on repurchase agreements.
Years Ended December 31, $ in thousands except share data 2024 2023 2022 Interest income Mortgage-backed and other securities 286,546 277,929 192,566 Commercial loan — — 1,947 Total interest income 286,546 277,929 194,513 Interest expense 249,719 228,229 51,560 Net interest income 36,827 49,700 142,953 Other income (loss) Gain (loss) on investments, net (133,911) (107,280) (1,079,339) (Increase) decrease in provision for credit losses (458) (320) — Equity in earnings (losses) of unconsolidated ventures (193) (1) (407) Gain (loss) on derivative instruments, net 176,634 61,838 559,007 Other investment income (loss), net 2 (66) 186 Total other income (loss) 42,074 (45,829) (520,553) Expenses Management fee — related party 11,866 12,290 16,906 General and administrative 7,153 7,440 8,418 Total expenses 19,019 19,730 25,324 Net income (loss) 59,882 (15,859) (402,924) Dividends to preferred stockholders (22,011) (23,153) (28,218) Gain on repurchase and retirement of preferred stock 427 1,471 14,179 Issuance and redemption costs of redeemed preferred stock (3,535) — — Net income (loss) attributable to common stockholders 34,763 (37,541) (416,963) Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 0.65 (0.85) (12.21) Diluted 0.65 (0.85) (12.21) Weighted average number of shares of common stock: Basic 53,773,405 44,073,815 34,160,080 Diluted 53,775,143 44,073,815 34,160,080 Interest Income and Average Earning Asset Yields The table below presents information related to our average earning assets and earning asset yields for the years ended December 31, 2024, 2023 and 2022.
Prepayment rates on our mortgage-backed securities remained moderately low throughout 2023 given elevated mortgage rates. Refer to Item 7A.
Prepayment rates on our mortgage-backed securities increased modestly in 2024 compared to 2023 but remained relatively low given elevated interest rates. Refer to Item 7A.
Our lending and derivative agreements provide that we may be declared in default of our obligations if our leverage ratio exceeds certain thresholds and we fail to maintain stockholders’ equity or market value above certain thresholds over specified time periods. 59 Table of Contents Forward-Looking Statements Regarding Liquidity As of December 31, 2023, we held $4.7 billion of Agency securities that are financed by repurchase agreements.
Our lending and derivative agreements provide that we may be declared in default of our obligations if our leverage ratio exceeds certain thresholds and we fail to maintain stockholders’ equity or market value above certain thresholds over specified time periods.
(3) Average cost of funds is calculated by dividing annualized interest expense, including amortization of net deferred gain (loss) on de-designated interest rate swaps, by our average borrowings. 48 Table of Contents Total average borrowings were relatively unchanged for the year ended December 31, 2023 compared to 2022.
(2) Amount represents the maximum borrowings at month-end during each of the respective periods. (3) Average cost of funds is calculated by dividing annualized interest expense, including amortization of net deferred gain (loss) on de-designated interest rate swaps, by our average borrowings. Total average borrowings increased $96.8 million for the year ended December 31, 2024 compared to 2023.
(Increase) Decrease in Provision for Credit Losses As of December 31, 2023, approximately $15.7 million of our $5.0 billion of MBS are classified as available-for-sale and subject to evaluation for credit losses.
(Increase) Decrease in Provision for Credit Losses As of December 31, 2024, $15.0 million of our $5.4 billion of MBS are classified as available-for-sale and subject to evaluation for credit losses. We recorded a provision for credit losses of $458,000 on a single non-Agency CMBS for the year ended December 31, 2024 (2023: $320,000).
Equity in Earnings (Losses) of Unconsolidated Ventures For the year ended December 31, 2023, we recorded equity in losses of unconsolidated ventures of $1,000 (2022: equity in losses of $407,000). Earnings and losses of unconsolidated ventures are driven primarily by the underlying portfolio investments.
Equity in Earnings (Losses) of Unconsolidated Ventures For the year ended December 31, 2024, we recorded equity in losses of unconsolidated ventures of $193,000 (2023: equity in losses of $1,000).
Years ended December 31, $ in thousands 2023 2022 2021 Interest Income Mortgage-backed and other securities 277,929 192,566 167,056 Commercial loan — 1,947 2,146 Total interest income 277,929 194,513 169,202 Interest Expense Interest expense on repurchase agreement borrowings 238,634 71,268 10,710 Amortization of net deferred (gain) loss on de-designated interest rate swaps (10,405) (19,708) (22,000) Repurchase agreements interest expense 228,229 51,560 (11,290) Total interest expense 228,229 51,560 (11,290) Net interest income 49,700 142,953 180,492 Net interest rate margin 0.41 % 2.64 % 2.06 % Our net interest income, which equals total interest income less total interest expense, totaled $49.7 million for the year ended December 31, 2023 (2022: $143.0 million).
Years ended December 31, $ in thousands 2024 2023 2022 Interest Income Mortgage-backed and other securities 286,546 277,929 192,566 Commercial loan — — 1,947 Total interest income 286,546 277,929 194,513 Interest Expense Interest expense on repurchase agreement borrowings 249,719 238,634 71,268 Amortization of net deferred (gain) loss on de-designated interest rate swaps — (10,405) (19,708) Total interest expense 249,719 228,229 51,560 Net interest income 36,827 49,700 142,953 Net interest rate margin 0.11 % 0.41 % 2.64 % 49 Table of Contents Our net interest income, which equals total interest income less total interest expense, decreased $12.9 million for the year ended December 31, 2024 compared to 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps, a higher average Federal Funds target rate and higher average borrowings, which were partially offset by higher average earning assets and average earning asset yields.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIn general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments. 62 Table of Contents 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.
Biggest changeUncertainty 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. As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
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 agre ements.
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 agre ements and futures contracts.
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, 2023 and 2022, assuming a static portfolio and constant financing and credit spreads.
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.
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; • 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; and • 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.
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; • 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; and 62 Table of Contents • 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.
The interest rate scenarios assume interest rates as of December 31, 2023 and 2022. 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.
The interest rate scenarios assume interest rates as of December 31, 2024 and 2023. 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.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. 61 Table of Contents For additional discussion of market risk, see Item Part I.
While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and we seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake. For additional discussion of market risk, see Item Part I.
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.
In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the 60 Table of Contents 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.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments. Conversely, discounts on such investments are accreted into interest income.
In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the investments. Conversely, discounts on such investments are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments.
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.
When evaluating the impact of changes in interest rates, prepayment 61 Table of Contents 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.
Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility have impacted and may continue to impact credit spreads. Prepayment Risk As we receive prepayments of principal on our investments, premiums or discounts on these investments are amortized against interest income.
Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility may have an impact on spreads. Prepayment Risk As we receive prepayments of principal on our investments, premiums or discounts on these investments are amortized against interest income.
As of December 31, 2023 As of December 31, 2022 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% (1.04) % (0.76) % (2.97) % (1.15) % +0.50% (0.41) % (0.23) % (1.54) % (0.48) % -0.50% 0.27 % (0.13) % 1.56 % 0.22 % -1.00% 0.93 % (0.68) % 2.90 % 0.13 % 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.
As of December 31, 2024 As of December 31, 2023 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% (0.16) % (0.59) % (1.04) % (0.76) % +0.50% 0.02 % (0.21) % (0.41) % (0.23) % -0.50% (0.48) % (0.05) % 0.27 % (0.13) % -1.00% (1.30) % (0.47) % 0.93 % (0.68) % 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.
Actual results could differ significantly from those estimated in the foregoing interest rate sensitivity table. 63 Table of Contents 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.
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.
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.
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.
Given deteriorating fundamentals and tightening lending conditions, borrowers may 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.
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.
As a result, it is possible that realized prepayment behavior will be materially different from our expectations. Extension Risk We compute the projected weighted average life of our investments based upon assumptions regarding the rate at which the borrowers will prepay the underlying mortgages.
Extension Risk We compute the projected weighted average life of our investments based upon assumptions regarding the rate at which the borrowers will prepay the underlying mortgages.
We also expect credit rating agencies to continue to 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.
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.

Other IVR 10-K year-over-year comparisons