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What changed in Invesco Mortgage Capital Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Invesco Mortgage Capital Inc.'s 2024 and 2025 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 2025 report.

+424 added−446 removedSource: 10-K (2026-02-23) vs 10-K (2025-02-20)

Top changes in Invesco Mortgage Capital Inc.'s 2025 10-K

424 paragraphs added · 446 removed · 347 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSubstantially 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.
Biggest changeDuring the periods presented in this Report, we also invested in: • 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”); • to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS; • real estate-related financing arrangements in the form of unconsolidated ventures; and • 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.
Our current investment portfolio includes Agency RMBS and Agency CMBS. Our investment portfolio has also historically included, and may in the future include, non-Agency CMBS, non-Agency RMBS, TBAs, credit risk transfer securities that are unsecured obligations issued by government sponsored enterprises (“GSEs”), residential mortgage loans, commercial mortgage loans and other real estate-related investments.
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.
Under repurchase agreement financing arrangements, certain buyers require us to provide additional 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.
We have elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually.
We elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986. To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually.
We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields. These characteristics assist us in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.
We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields. These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.
We 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.
We refer to all of these investment types collectively as our target assets. We have also historically 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.
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”).
Treasury securities. 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”).
Mortgage pass-through certificates, collateralized mortgage obligations (“CMOs”), Freddie Mac Gold Certificates, Fannie Mae Certificates and Ginnie Mae Certificates are types of Agency RMBS that are collateralized by either fixed-rate mortgage loans (“FRMs”), adjustable-rate mortgage loans (“ARMs”), or hybrid ARMs. FRMs have an interest rate that is fixed for the term of the loan and do not adjust.
Mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”) that are guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae are types of Agency RMBS that are collateralized by either fixed-rate mortgage loans (“FRMs”), adjustable-rate mortgage loans (“ARMs”), or hybrid ARMs. FRMs have an interest rate that is fixed for the term of the loan and do not adjust.
Our investment process includes sourcing and screening investment opportunities, assessing investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure and servicer and originator information and investment structuring, as appropriate, to ensure an attractive return commensurate with the risk we are bearing.
Our investment process includes sourcing and screening investment opportunities, considering investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure, analyzing servicer and originator information and assessing investment structuring, as appropriate, to ensure an attractive return commensurate with the risk we are bearing.
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.
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 the investments. Rating agencies periodically reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.
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.
The rate of prepayments on underlying mortgages will affect the price and volatility of 6 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.
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.
One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered investments, which consists of cash and cash equivalents as reported in our consolidated balance sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.
The information on our website is not intended to form a part of or be incorporated by reference into this Report. 8 Table of Contents
The information on our website is not intended to form a part of or be incorporated by reference into this Report. 10 Table of Contents
Human Capital As previously discussed, we do not have any employees. Instead, under our management agreement, our Manager is responsible for providing us with our management team. Our executive officers may also serve as officers of our Manager. For additional information, refer to Item 13 — “Certain Relationships and Related Transactions, and Director Independence”.
Human Capital As previously discussed, we do not have any employees. Instead, under our management agreement, our Manager is responsible for providing us with our management team. Our executive officers may also serve as officers of our Manager. For additional information, refer to Item 13. “Certain Relationships and Related Transactions, and Director Independence” in Part III of this Report.
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.
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. This outlook guides our Manager’s assumptions regarding model inputs and portfolio allocations among target assets.
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”.
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 Investment and Portfolio Management Activities”.
We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and maintaining adequate liquidity. Changes in spreads impact our book value per common share and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value per common share.
We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and seeking to maintain adequate liquidity. Changes in spreads impact our book value and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value.
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”).
As of December 31, 2025, we were invested in: • residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S. government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”) (collectively “Agency RMBS”); and • commercial mortgage-backed securities (“CMBS”) that are guaranteed by a U.S. government agency such as Ginnie Mae or a federally chartered corporation such as Fannie Mae or Freddie Mac (collectively “Agency CMBS”).
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.
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. 9 Table of Contents Our Corporate Information Our principal executive offices are located at 1331 Spring Street, N.W., Suite 2500, Atlanta, Georgia 30309.
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.
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. 5 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.
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.
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 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.
In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.
We 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.
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.
Our Manager is not obligated to dedicate any of its employees exclusively to us, and our Manager and its employees are not obliga ted to dedicate any specific portion of time to our business.
Each of our officers is an employee of our Manager or one of its affiliates. We do not have any employees. Our Manager is not obligated to dedicate any of its employees exclusively to us, and our Manager and its employees are not obliga ted to dedicate any specific portion of time to our business.
Spread Risk We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads. We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value per common share and our liquidity to help us achieve our investment objectives.
We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.
The investment committee periodically reviews our investment portfolio for risk characteristics, investment performance, liquidity, portfolio composition, leverage and other applicable items.
The investment committee periodically reviews our investment portfolio for risk characteristics, investment performance, liquidity, portfolio composition, leverage and other applicable items. It also reviews its compliance with our investment policies and procedures, including our investment guidelines.
We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the 1940 Act. Our Manager Our Manager provides us with our management team, including our officers and appropriate support personnel. Each of our officers is an employee of our Manager or one of its affiliates. We do not have any employees.
We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the Investment Company Act of 1940, as amended (the “1940 Act”). Our Manager Our Manager provides us with our management team, including our officers and appropriate support personnel.
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.
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. “Management's Discussion and Analysis of Financial Conditions and Results of Operations” of this Report. Risk Management Strategy Market Risk Management Risk management is an integral component of our strategy.
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.
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.
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.
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.
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.
We accept credit and spread risk to earn income and manage our interest rate risk exposure through our hedge portfolio. 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 (GSEs) that are secured by a collection of mortgages.
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.
Invesco believes that an employee community that is diverse and inclusive, engaged in their communities and invested in employee well-being will drive positive outcomes for its clients and shareholders. 4 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.
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.
Like non-Agency CMBS, the credit quality of non-Agency RMBS depends on the securitization structure and the characteristics of the underlying mortgage loans. 7 Table of Contents TBAs TBAs are forward contracts to purchase or sell Agency RMBS.
Our Manager's long-term success depends on its ability to engage, attract, develop and retain top talent.
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, employee benefit programs, technology and other resources that support its employees in developing their full potential.
Inflation, 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.
Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility may have an impact on spreads. Credit Risk We have previously invested in non-Agency RMBS, non-Agency CMBS and residential and commercial mortgage loans and may invest in these types of assets again in the future.
Removed
We accept credit and spread risk to earn income and manage our interest rate risk exposure through our hedge portfolio.
Added
Our Manager’s risk management tools include software and services licensed or purchased from third parties, in addition to proprietary analytical methods developed by our Manager.
Removed
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.
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Treasury securities to hedge all or a portion of the interest rate risk associated with the financing of our investment portfolio. 8 Table of Contents Spread Risk We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.
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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.
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We retain the risk of potential credit losses on all of our commercial and residential mortgage investments. We seek to manage this risk through our pre-acquisition due diligence process.
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Commercial Mortgage Loans Commercial mortgage loans are mortgage loans secured by first or second liens on commercial properties such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities. These loans, which tend to range in term from two to ten years, can carry either fixed or floating interest rates.
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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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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeGeneral 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.
Biggest changeRisks Related to Our Investment and Portfolio Management Activities Fluctuations in interest rates could adversely affect the value of our investments and derivative financial instruments and cause our interest expense to increase. This could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
Interest rates are highly sensitive to many factors beyond our control, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors.
The lenders are obligated to resell the same securities back to us at the end of the term of the transaction.
The lenders are obligated to resell the same securities back to us at the end of the transaction term.
Our Manager or its or our third-party vendors, clients or counterparties have developed, and may continue to develop or incorporate AI technology in certain business processes, services or products. The development and use of AI presents a number of risks and challenges.
Our Manager or its or our third-party vendors, clients or counterparties have developed and may continue to develop or incorporate AI technology in certain business processes, services or products. The development and use of AI presents a number of risks and challenges to our business.
Hedging may fail to protect or could adversely affect our earnings because, among other things: • interest rate and/or currency hedging can be expensive, particularly during periods of volatile markets; • available interest rate hedges 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 liabilities; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code or that are done through a taxable REIT subsidiary (“TRS”)) to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; • the credit quality of the hedging counterparty owing money 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 hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
Hedging may fail to protect or could adversely affect our earnings because, among other things: • interest rate hedging can be expensive, particularly during periods of volatile markets; • available interest rate hedges 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 liabilities; • the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Internal Revenue Code or that are done through a taxable REIT subsidiary (“TRS”)) to offset interest rate losses is limited by U.S. federal tax provisions governing REITs; • the credit quality of the hedging counterparty owing money 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 hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
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, future issuances and sales of preferred stock on parity with 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.
Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency mortgage-backed security less an implied financing cost. Consequently, dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and increase our “at risk” leverage.
Accordingly, TBA dollar roll income generally represents the economic equivalent of the interest income earned on the underlying Agency mortgage-backed security less an implied financing cost. Consequently, dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and increase our “at risk” leverage.
Our subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss. We may invest in certain tranches of MBS that are only entitled to a portion of the principal and interest payments made on mortgage loans underlying the securities issued by the trust.
Subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss. We may invest in certain tranches of MBS that are only entitled to a portion of the principal and interest payments made on mortgage loans underlying the securities issued by the trust.
Any of these events could cause us to incur losses and negatively affect the value of our capital stock, the sustainability of our business model, and our ability to pay dividends, which could have an adverse effect on our business and the market price for our shares of capital stock.
Any of these events could cause us to incur losses and negatively affect our book value, the sustainability of our business model, and our ability to pay dividends, which could have an adverse effect on our business and the market price for our shares of capital stock.
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.
With respect to equity investments, we have made in partnerships managed by an affiliate of our Manager, our Manager agreed to waive base management fees at the equity investment level to avoid duplication of fees.
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.
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 in that capacity.
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.
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.
Although our Manager takes protective measures, including measures to effectively secure information through system security technology, has many controls, processes, digital backup and recovery processes in place, and seeks to continually monitor and develop its systems to protect its and our technology infrastructure and data from misappropriation or corruption, our Manager’s technology systems may still be vulnerable to unauthorized access as a result of an external attack, actions by its employees or vendors with access to its systems, computer malware or other events that have a security impact and that result in the disclosure or release of confidential information inadvertently or through malfeasance, or result in the loss (temporarily or permanently) of data, applications or systems.
Although our Manager takes protective measures, including measures to effectively secure information through system security technology, has many controls, processes, digital backup and recovery processes in place, and seeks to continually monitor and develop its systems to protect its and our technology infrastructure and data from misappropriation or corruption, our Manager’s technology systems may still be 21 Table of Contents vulnerable to unauthorized access as a result of an external attack, actions by its employees or vendors with access to its systems, computer malware or other events that have a security impact and that result in the disclosure or release of confidential information inadvertently or through malfeasance, or result in the loss (temporarily or permanently) of data, applications or systems.
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.
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 paid at the time of the prepayment. • Adjustable-rate RMBS may bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
There can be no assurance that our due diligence process will uncover all relevant facts or that any asset acquisition will be successful, which could lead to losses in the value of our portfolio. We depend on third-party service providers, including mortgage servicers, for a variety of services related to our RMBS.
There can be no assurance that our due diligence process will uncover all relevant facts or that any asset acquisition will be successful, which could lead to losses in the value of our portfolio. We depend on third-party service providers, including mortgage servicers, for a variety of services related to our investments.
The level of demand may be impacted by, among other things, interest rates, capital flows, economic conditions, and government policies and actions, such as purchases and sales by the Federal Reserve. Changes in the market values of these assets impact our stockholders’ equity and declines in market value adversely affect our book value per common share.
The level of demand may be impacted by, among other things, interest rates, capital flows, economic conditions, and government policies and actions, such as purchases and sales by the Federal Reserve or the GSEs. Changes in the market values of these assets impact our stockholders’ equity and declines in market value adversely affect our book value per common share.
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.
Share repurchases also may negatively impact our ability to invest in our target assets in the future. As of December 31, 2025, 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.
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 believe that a change in any one of the following factors and 25 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.
Elevated inflation, interest rate volatility, a recessionary period, adverse trends in employment levels, pandemics or endemics, geopolitical instability or conflicts, trade or supply chain disruptions, economic or other sanctions, uncertainty regarding the breach of the U.S. debt ceiling or a sustained capital market correction could have an adverse effect on our business, including on the value of our investments and collateral securing our financing, which can impact our liquidity.
Elevated inflation, interest rate volatility, a recessionary period, adverse trends in employment levels, pandemics or endemics, geopolitical instability or armed conflicts, trade policy, tariffs, or supply chain disruptions, economic or other sanctions, uncertainty regarding the breach of the U.S. debt ceiling or a sustained capital market correction could have an adverse effect on our business, including on the value of our investments and collateral securing our financing, which can impact our liquidity.
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.
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, 2025, we do not hold any mortgage loans secured by residential property.
To the extent that our portfolio is concentrated in any one region or type of security, downturns relating generally to such region or type of security may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our capital stock and accordingly reduce our ability to pay dividends to our stockholders, which could have an adverse impact on our results of operations, financial condition and business.
To the extent that our portfolio is concentrated in any one region or type of security, downturns relating generally to such region or type of security may result in defaults on a number of our investments within a short time period, which may reduce our net income and book value and accordingly reduce our ability to pay dividends to our stockholders, which could have an adverse impact on our results of operations, financial condition and business.
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.
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.
A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us, and any future financings may require us to provide additional collateral or pay down debt.
A failure to comply with covenants in our repurchase agreements and other financing and hedging arrangements would have a material adverse effect on us, and any future financing may require us to provide additional collateral or pay down debt.
We rely on the mortgage servicers who service the mortgage loans backing our RMBS to, among other things, collect principal and interest payments and administer escrow accounts on the underlying mortgages and perform loss mitigation services.
We rely on the mortgage servicers who service the mortgage loans backing our investments to, among other things, collect principal and interest payments and administer escrow accounts on the underlying mortgages and perform loss mitigation services.
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.
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.
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.
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, 2025, we do not hold any commercial mortgage loans.
Our hedging strategies may be ineffective. We attempt to limit, or hedge against, the adverse effect of changes in interest rates on the value of our assets and financing costs, subject to complying with REIT tax requirements. Hedging strategies are complex and do not fully protect against adverse changes under all circumstances.
Our hedging strategies may be ineffective. We attempt to limit, or hedge against, the adverse effect of changes in interest rates on the value of our assets and financing costs, subject to complying with REIT tax requirements. Hedging strategies are complex and do not fully protect 18 Table of Contents against adverse changes under all circumstances.
Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.
Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves 20 Table of Contents investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.
Additionally, we will be subject to a 4% nondeductible excise tax on any amount by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years.
Additionally, we will be subject to a 4% nondeductible excise tax on any amount by which dividends paid by us in 28 Table of Contents any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from previous years.
Similarly, if we acquire REMIC residual interests (or equity interests in taxable mortgage pools in a manner consistent with our REIT qualification) and generate “excess inclusion income,” a portion of our dividends received by a tax-exempt stockholder will be treated as unrelated business taxable income.
Similarly, if we acquire REMIC residual interests (or equity interests in taxable mortgage pools in a manner consistent with our REIT qualification) and generate “excess inclusion income,” a portion of our dividends received by a tax-exempt stockholder will be 32 Table of Contents treated as unrelated business taxable income.
Future adverse economic developments or market uncertainty and any proposed new reporting requirements by self-regulatory 18 Table of Contents authorities and Congress, may result in increased margin requirements for our hedging instruments, which may have a material adverse effect on our liquidity, financial condition and results of operations.
Future adverse economic developments or market uncertainty and any proposed new reporting requirements by self-regulatory authorities and Congress may result in increased margin requirements for our hedging instruments, which may have a material adverse effect on our liquidity, financial condition and results of operations.
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.
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.
The laws, rules and regulations comprising this regulatory framework change frequently, as can the interpretation and enforcement of existing laws, rules, and regulations. From time to time, we may receive requests from federal and state agencies for records, documents, and information regarding our policies, procedures, and practices regarding our business activities.
The laws, rules and 34 Table of Contents regulations comprising this regulatory framework change frequently, as can the interpretation and enforcement of existing laws, rules, and regulations. From time to time, we may receive requests from federal and state agencies for records, documents, and information regarding our policies, procedures, and practices regarding our business activities.
Any of these risks could expose our Manager or us to liability or adverse legal or regulatory consequences and harm its or our reputation and the public perception of its or our business or the effectiveness of our security measures.
Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
In addition to our Manager’s use of AI technologies, it and we are exposed to risks arising from the use of AI technologies by bad actors to commit fraud and misappropriate funds and to facilitate cyberattacks.
In addition to our use of AI technologies, we are exposed to risks arising from the use of AI technologies by bad actors to commit fraud and misappropriate funds and to facilitate cyberattacks.
As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership.
As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. 27 Table of Contents We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership.
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.
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 taxes we pay directly or indirectly will reduce our cash available for distribution to you. Restrictions on the deduction of all of our interest expense could prevent us from satisfying the REIT distribution requirements and avoiding the incurrence of income or excise taxes.
Any taxes we pay directly or indirectly will reduce our cash available for distribution to you. 30 Table of Contents Restrictions on the deduction of all of our interest expense could prevent us from satisfying the REIT distribution requirements and avoiding the incurrence of income or excise taxes.
This would give our lenders the ability to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to take possession of and liquidate the assets that we have pledged under their repurchase agreements, without delay, if we file for bankruptcy. Furthermore, the special treatment of repurchase agreements under the U.S.
This would give our lenders the ability to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to take possession of and liquidate the assets that we have pledged under their repurchase agreements, without delay, if we file for bankruptcy.
We are, therefore, subject to the risks associated with third-party service providers. We depend on a variety of services provided by third-party service providers related to our RMBS.
We are, therefore, subject to the risks associated with third-party service providers. We depend on a variety of services provided by third-party service providers related to our assets.
“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.
“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.
To address any potential conflict of interest, we require the terms of any equity investment managed by our Manager to be approved by our audit committee consisting of our independent directors. However, there can be no assurance that all conflicts of interest will be eliminated.
To address any potential conflict of interest, we 24 Table of Contents require the terms of any equity investment managed by our Manager to be approved by our audit committee consisting of our independent directors. However, there can be no assurance that all conflicts of interest will be eliminated.
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.
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 artificial intelligence (“AI”) present risks and challenges that may adversely impact our business.
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.
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.
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.
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.
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.
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.
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.
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.
Additionally, regulations adopted by the CFTC could adversely affect our ability to engage in derivative transactions or impose increased margin requirements and require additional operational and compliance costs. Consequently, our hedging strategies may fail to protect us from loss and could even result in greater losses than if we had not entered in the hedge transaction.
Additionally, regulations adopted by the Commodity Futures Trading Commission could adversely affect our ability to engage in derivative transactions or impose increased margin requirements and require additional operational and compliance costs. Consequently, our hedging strategies may fail to protect us from loss and could even result in greater losses than if we had not entered in the hedge transaction.
Volatility in our net income may adversely affect the price of our capital stock. 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.
Volatility in our net income may adversely affect the market price of our capital stock. 23 Table of Contents 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.
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.
Our board of directors has duties to us under Maryland law and could only cause such changes in our tax treatment if it determines in good faith that such changes are in our best interests.
Treasury, SEC and other U.S. and foreign governmental and regulatory bodies have taken a number of economic actions and regulatory initiatives from time-to-time designed to stabilize and stimulate the economy and the financial markets, and additional actions and initiatives may occur in the future.
Treasury, FHFA, SEC and other U.S. and foreign governmental and regulatory bodies have taken a number of economic actions and regulatory initiatives from time-to-time designed to stabilize and stimulate the economy and the financial markets, and to address housing needs. Additional actions and initiatives may occur in the future.
Any such margin call or increased collateral requirements could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to pay dividends to our stockholders, and could cause the value of our capital stock to decline.
Any such margin call or increased collateral requirements could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to pay dividends to our stockholders, and could cause our book value to decline.
As a result, we may not be able to leverage our assets as fully as desired, which could reduce our return on stockholders' equity. If we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.
As a result, we may not be able to leverage our assets as fully as desired, which could reduce our 17 Table of Contents return on stockholders' equity. If we are unable to meet these collateral obligations, our financial condition could deteriorate rapidly.
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.
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.
Leverage also exposes us to the risk of margin calls and defaults under our funding agreements, which may result in forced sales of assets in adverse market conditions. The risks associated with leverage are more acute during volatile market environments and periods of reduced market liquidity. Because of our leverage, we may incur substantial losses.
Leverage also exposes us to the risk of margin calls and defaults under our funding agreements, which may result in forced sales of assets in adverse market conditions. The risks associated with leverage are more acute during volatile market environments and periods of reduced market liquidity.
We have operated and expect to continue to operate so as to qualify to be taxed as a REIT under the Code. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only a limited number of judicial or administrative interpretations exist.
We have operated and expect to continue to operate so as to qualify to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “ Code ” ). However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only a limited number of judicial or administrative interpretations exist.
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.
There can be no assurance that our board of directors, as permitted in the charter, will not decrease these Ownership Limits in the future.
For example, our preferred shares have a preference on liquidating distributions and a preference on dividend payments that could limit our ability to make a distribution to the holders of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities.
For example, our Series C Preferred Stock has a preference on liquidating distributions and a preference on dividend payments that could limit our ability to make a distribution to the holders of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities.
Any exemptions to the Ownership Limits granted in the future may limit our board of directors’ power to increase the Ownership Limits or grant further exemptions.
Any exemptions to the Ownership 29 Table of Contents Limits granted in the future may limit our board of directors’ power to increase the Ownership Limits or grant further exemptions.
Government-sponsored entities, or GSEs, but their guarantees are not backed by the full faith and credit of the United States (although the FHFA largely controls their actions through its conservatorship of the two GSEs). Ginnie Mae is part of a U.S. Government agency and its guarantees are backed by the full faith and credit of the United States.
Government-sponsored entities, or GSEs, but their guarantees are not backed by the full faith and credit of the United States (although the Federal Housing Finance Administration (“FHFA”) largely controls their actions through its conservatorship of the two GSEs). Ginnie Mae is part of a U.S.
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.
As of December 31, 2025, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than 5% of our stockholders’ equity.
We may invest in RMBS, CMBS, mortgage loans and other financing arrangements that are subject to risks related to interest rate fluctuations. Fluctuations in short- or long-term interest rates could have adverse effects on our operations and financial condition, which may negatively affect cash available for distribution to our stockholders.
We may invest in RMBS, CMBS, mortgage loans and other financing arrangements that are subject to interest rate risks. Fluctuations in short- or long-term interest rates could adversely affect our operations and financial condition, which may reduce cash available for distribution to our stockholders.
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 we experience a decline in the fair value of our investments as a result of future uncertain market conditions, or if we were to sell an asset through a forced liquidation, it could materially and adversely affect our business, results of operations, financial condition, stock price, liquidity and ability to make distributions to our stockholders.
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.
Given the U.S. 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. Furthermore, there is no guarantee the U.S.
AI models, particularly generative AI models, may produce output or take action that is incorrect or outdated, that 21 Table of Contents result in the release of personal, confidential or proprietary information, that reflect biases included in the data on which they are trained or introduced during the training or fine tuning process, that infringe on the intellectual property rights of others, or that is otherwise harmful.
If not appropriately governed, managed and controlled, AI models, particularly generative AI models, may produce output or take action that is incorrect or outdated, that result in the release of personal, confidential or proprietary information, that reflect biases included in the data on which they are trained or introduced during the training or fine tuning process, that infringe on the intellectual property rights of others, or that is otherwise harmful.
Our ability to fund our target assets may be impacted by our ability to secure repurchase agreement financing on acceptable terms. We can provide no assurance that lenders will be willing or able to provide us with sufficient financing.
We use repurchase agreement financing as a strategy to increase the return on our assets. Our ability to fund our target assets may be impacted by our ability to secure repurchase agreement financing on acceptable terms. We can provide no assurance that lenders will be willing or able to provide us with sufficient financing.
Under Section 163(j) of the Code, the deduction for business interest expense may be limited to the amount of the taxpayer’s business interest income plus 30% of the taxpayer’s “adjusted taxable income” unless the taxpayer’s gross receipts do not exceed $25 million per year during the applicable testing period or the taxpayer qualifies to elect and elects to be treated as an “electing real property trade or business.” A taxpayer’s adjusted taxable income will start with its taxable income and add back items of non-business income and expense, business interest income and business interest expense, net operating losses, and any deductions for “qualified business income.” A taxpayer that is exempt from the interest expense limitations as an electing real property trade or business is ineligible for certain expensing benefits and is subject to less favorable depreciation rules for real property.
Under Section 163(j) of the Code, the deduction for business interest expense may be limited to the amount of the taxpayer’s business interest income plus 30% of the taxpayer’s “adjusted taxable income” unless the taxpayer’s gross receipts do not exceed $25 million per year during the applicable testing period or the taxpayer qualifies to elect and elects to be treated as an “electing real property trade or business.” A taxpayer’s adjusted taxable income will start with its taxable income and add back certain items including items of non-business income and expense, business interest income and business interest expense, net operating losses, any deductions for “qualified business income”, and any deductions for depreciation, amortization, or depletion.
We do not control the cyber security plans and systems put in place by our Manager and third-party service providers, and such service providers may have limited indemnification obligations to us or our Manager.
We do not control the cyber security plans and systems put in place by our Manager and third-party service providers, and such service providers may have limited indemnification obligations to us or our Manager in the event a cyber incident causes us to incur loss or damages.
Because we expect our investments, on average, generally will bear interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income.
Since our investments generally bear interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income.
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.
Federal Reserve’s, GSEs’, 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 mortgage market conditions, affecting supply, pricing and returns on Agency RMBS.
Further, certain stock change of ownership tests may limit our ability to raise significant amounts of equity capital or could limit our future use of tax losses to offset income tax obligations, which may adversely affect us or our stockholders.
Certain stock change of ownership tests may limit our ability to raise significant amounts of equity capital or could limit our future use of tax losses to offset income tax obligations, which may adversely affect us or our stockholders. Investing in our capital stock may involve a high degree of risk.
Their value may fluctuate due to a number of factors including, among others, market volatility, geopolitical events and changes in credit spreads, spot and forward interest rates, and actual and anticipated prepayments. They may also fluctuate in value due to increased or reduced demand.
All of our mortgage-backed securities are reported at fair value. Their value may fluctuate due to a number of factors including, among others, market volatility, geopolitical events and changes in spreads, spot and forward interest rates, and actual and anticipated prepayments. They may also fluctuate in value due to increased or reduced demand.
In addition, market values of our investments may decline without any general increase in interest rates for a number of reasons, such as widening of credit spreads, increases or expected increases in defaults, or changes or expected changes in voluntary prepayments for those investments that are subject to prepayment risk, which may negatively affect cash available for distribution to our stockholders.
In addition, market values of our investments may decline without any general increase in interest rates, due to factors such as widening spreads, increases or expected increases in defaults, or changes or expected changes in voluntary prepayments for investments subject to prepayment risk. These factors may negatively affect cash available for distribution to our stockholders.
Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition, results of operations and trading price of our securities. Risk Factor Summary Risks Related to Our Investments • The U.S.
Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition, results of operations and trading price of our securities.
No more than 20% of the value of our total assets may consist of stock or securities of one or more taxable REIT subsidiaries. This requirement limits the extent to which we can conduct our activities through taxable REIT subsidiaries.
No more than 25% (or 20% for taxable years ending on or before December 31, 2025) of the value of our total assets may consist of stock or securities of one or more taxable REIT subsidiaries. This requirement limits the extent to which we can conduct our activities through taxable REIT subsidiaries.
There can be no guarantee that our interest rate risk management will fully mitigate the yield curve flattening and inversion risks described above.
There can be no guarantee that our interest rate risk management strategies will fully mitigate yield curve flattening or inversion risks.
In the case of residential mortgage loans, there are seldom any restrictions on borrowers’ ability to prepay their loans. We generally receive prepayments of principal that are made on these underlying mortgage loans. When borrowers prepay their mortgage loans faster than expected, the prepayments on the RMBS are also faster than expected.
Pools of residential mortgage loans underlie the RMBS that we acquire. In the case of residential mortgage loans, there are seldom any restrictions on borrowers’ ability to prepay their loans. We generally receive prepayments of principal that are made on these underlying mortgage loans.
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.
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.
Interest rate fluctuations present a variety of risks including the risk of a narrowing of the difference between asset yields and borrowing rates, a decline in the yield on adjustable-rate investments, and a detrimental impact on prepayment rates and may adversely affect our income and the value of our assets and capital stock.
Interest rate fluctuations present various risks, such as a narrowing of the difference between asset yields and borrowing rates, a decline in the yield on adjustable-rate investments, and a detrimental impact on prepayment rates. These risks may adversely affect our income and book value.
In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and gross income tests and, if such a challenge were sustained, we could fail to qualify as a REIT.
In the event we own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and gross income tests and, if such a challenge were sustained, we could fail to qualify as a REIT. 31 Table of Contents Our taxable REIT subsidiaries are subject to special rules that may result in increased taxes.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe 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.
Biggest changeThe global security 36 Table of Contents department oversees the following groups across Invesco: Information Security, Strategic Intelligence, Corporate Security, Enterprise Resilience, Business Continuity, Crisis Management, Global Privacy Office, Business Security and Projects & Strategy.
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.
As of December 31, 2025, 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 Board of Directors oversees cybersecurity risk and receives updates, at a minimum, twice a year from the CISO regarding cybersecurity, which updates include a review of our Manager’s global security program and cybersecurity, including risks and protections for us and our Manager.
Our Board of Directors oversees cybersecurity risk and receives updates, generally, twice a year from the CISO (or designee) regarding cybersecurity, which updates include a review of our Manager’s global security program and cybersecurity, including risks and protections for us and our Manager.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases 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.
Biggest changeRepurchases of Common Equity Securities As of December 31, 2025, we had the authority to repurchase 1,816,359 shares of common stock under our current common stock share repurchase program that does not expire.
Market Information Our common stock is traded on the NYSE under the symbol “IVR.” Dividend Information We intend to pay quarterly dividends and to distribute to our stockholders all or substantially all of our taxable income in each year (subject to certain adjustments) consistent with the distribution requirements applicable to REITs, which will enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code.
Market Information Our common stock is traded on the NYSE under the symbol “IVR.” Dividend Information We intend to pay monthly dividends and to distribute to our stockholders all or substantially all of our taxable income in each year (subject to certain adjustments) consistent with the distribution requirements applicable to REITs, which will enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code.
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.
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, 2025, we have paid full cumulative dividends on our preferred stock.
Repurchases 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.
Repurchases 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, 2025.
For information about our recent dividend payments, please see Note 11 - “Stockholders' Equity” of our consolidated financial statements in Part IV of this Report.
For information about our recent dividend payments, please see Note 10 - “Stockholders' Equity” of our consolidated financial statements in Part IV of this Report.
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.
The manner, price, number and timing of share 39 Table of Contents repurchases will be subject to a variety of factors, including market conditions and applicable SEC rules. During the quarter ended December 31, 2025, we did not repurchase any shares of our common stock.
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.
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, 2020 and tracks it through December 31, 2025.
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.
Holders As of February 20, 2026, there were 131 common stockholders of record. 38 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, 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.
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, 2025 to October 31, 2025 31,486 24.54 31,486 399,001 November 1, 2025 to November 30, 2025 21,769 24.60 21,769 377,232 December 1, 2025 to December 31, 2025 23,101 24.60 23,101 354,131 76,356 24.58 76,356 (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.
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.
Index 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Invesco Mortgage Capital Inc. 100.00 90.66 50.26 43.07 46.96 58.64 S&P 500 100.00 128.71 105.40 133.10 166.40 196.16 FTSE NAREIT Mortgage REITs 100.00 115.64 84.86 97.89 98.24 113.98 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

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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).
Biggest changeTreasury 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 Instruments 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 As of December 31, 2025 and 2024, we held the following interest rate swaps whereby we pay fixed interest rates and receive floating interest rates based upon SOFR. $ in thousands As of December 31, 2025 As of December 31, 2024 Derivative instrument Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Interest rate swaps 3,820,000 1.34 % 3.87 % 4.6 3,265,000 0.97 % 4.49 % 5.3 We use interest rate swaps to manage our exposure to changing interest rates and add stability to our borrowings costs.
GAAP net income (loss) attributable to common stockholders adjusted for (gain) loss on investments, net; realized (gain) loss on derivative instruments, net; unrealized (gain) loss on derivative instruments, net; TBA dollar roll income; gain on repurchase and retirement of preferred stock; foreign currency (gains) losses, net and amortization of net deferred (gain) loss on de-designated interest rate swaps.
GAAP net income (loss) attributable to common stockholders adjusted for (gain) loss on investments, net; realized (gain) loss on derivative instruments, net; unrealized (gain) loss on derivative instruments, net; TBA dollar roll income; (gain) loss on repurchase and retirement of preferred stock; foreign currency (gains) losses, net and amortization of net deferred (gain) loss on de-designated interest rate swaps.
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.
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 59 Table of Contents U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test.
However, because not all of our peer companies use identical operating performance measures, our presentation of earnings available for distribution may not be comparable to other similarly titled measures used by our peer companies. We exclude the impact of gains and losses when calculating earnings available for distribution because (i) when analyzed in conjunction with our U.S.
However, because not all of our peer companies use identical operating performance measures, our presentation of earnings available for distribution may not be comparable to other similarly titled measures used by our peer companies. We exclude the impact of gains and losses when calculating earnings available for distribution because, when analyzed in conjunction with our U.S.
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 Agency RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income.
Our primary sources of funds for liquidity consist of the net proceeds from our common and preferred equity offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.
Our primary sources of funds for liquidity consist of the net cash proceeds from our common equity offerings, net cash provided by operating activities, proceeds from repurchase agreements and other financing arrangements and future issuances of equity and/or debt securities.
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.
The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS and a low of 4% to a high of 5% for Agency CMBS. Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements.
Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and fund other general business needs.
Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, purchase investments, repay borrowings and fund other general business needs.
Effects of Margin Requirements, Leverage and Credit Spreads Our securities have values that fluctuate according to market conditions and the market value of our securities will decrease as prevailing interest rates or credit spreads increase.
Effects of Margin Requirements, Leverage and Spreads Our securities have values that fluctuate according to market conditions and the market value of our securities will decrease as prevailing interest rates or spreads increase.
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.
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, 2025 and 2024.
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.
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 2025 impacted valuations of our Agency securities, which constituted substantially all of our investment portfolio during 2025. Additionally, refer to Item 7A.
For additional information regarding the characteristics of our dividends, refer to Note 11 – “Stockholders' Equity” of our consolidated financial statements in Part IV, Item 15 of this Report. Unrelated Business Taxable Income We have not engaged in transactions that would result in a portion of our income being treated as unrelated business taxable income.
For additional information regarding the characteristics of our dividends, refer to Note 10 – “Stockholders' Equity” of our consolidated financial statements in Part IV, Item 15 of this Report. Unrelated Business Taxable Income We have not engaged in transactions that would result in a portion of our income being treated as unrelated business taxable income.
“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 instruments. Interest Income Recognition. Interest income on MBS is accrued based on the outstanding principal or notional balance of the securities and their contractual terms.
We use or have used derivatives to manage interest rate and currency exchange risk and as an alternative means of investing in and financing Agency RMBS. We record all derivatives on our consolidated balance sheets at fair value.
We use or have used derivatives to manage interest rate risk and as an alternative means of investing in and financing Agency RMBS. We record all derivatives on our consolidated balance sheets at fair value.
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.
Market Conditions and Impacts Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, public policy, fiscal and monetary policy, interest rates, interest rate volatility, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer spending, personal income and 40 Table of Contents corporate earnings.
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.
Refer to Note 9 – “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.
We are subject to financial covenants in connection with our lending, derivatives and other agreements we enter into in the normal course of our business. We intend to operate in a manner which complies with all of our financial covenants.
We are subject to financial covenants in connection with our lending, derivatives and other agreements we enter into in the normal course of our business. We intend to operate in a manner that complies with all of our financial covenants.
(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.
(2) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis (none as of December 31, 2025; $606,000 as of December 31, 2024) to total stockholders' equity.
Other Matters We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the “Code”) at the end of each calendar quarter in 2024.
Other Matters We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the “Code”) at the end of each calendar quarter in 2025.
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.
We also met all REIT requirements regarding the stock ownership and distribution of dividends of our taxable income as of December 31, 2025. Therefore, as of December 31, 2025, 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. 45 Table of Contents 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. 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, 2024. Consequently, we believe we met the REIT income and asset test as of December 31, 2024.
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, 2025. Consequently, we believe we met the REIT income and asset test as of December 31, 2025.
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.
Our 30 year fixed-rate Agency RMBS holdings as of December 31, 2025 and 2024 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 2024 and 2023.
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 2025 and 2024.
The TBA settling in the later month typically prices at a discount to the TBA settling in the earlier month. TBA dollar roll income represents the price differential between the TBA price for current month settlement versus the TBA price for forward month settlement.
The TBA settling in the later month typically prices at a discount to the TBA settling in the earlier month. TBA dollar roll income represents the price differential between the TBA price for current month settlement compared to the TBA price for forward month settlement.
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.
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 financing arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital.
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.
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, 2025, 2024 and 2023.
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.
We calculate that as of December 31, 2025, we conducted our business so as not to be regulated as an investment company under the 1940 Act.
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Part IV, Item 15 of this Report. Overview We are a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities (“MBS”) and other mortgage-related assets.
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements, which are included in Part IV, Item 15 of this Report. Overview We are a Maryland corporation primarily focused on investing in, financing and managing MBS and other mortgage-related assets.
“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.
“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 information related to our borrowings and cost of funds for the years ended December 31, 2025, 2024 and 2023.
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.
For the year ended December 31, 2025, our general and administrative expenses not covered under our management agreement amounted to $7.3 million (2024: $7.2 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.
Net Interest Income The table below presents the components of net interest income for the years ended December 31, 2024, 2023 and 2022.
Net Interest Income The table below presents the components of net interest income for the years ended December 31, 2025, 2024 and 2023.
In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate, and interest rate fluctuations.
In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments, the pass through or coupon rate and interest rate fluctuations.
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.
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. We also use U.S.
(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.
(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 $311.9 million for the year ended December 31, 2025 compared to 2024.
The table below presents the components of interest expense for the years ended December 31, 2024, 2023 and 2022.
The table below presents the components of interest expense for the years ended December 31, 2025, 2024 and 2023.
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.
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 the secured overnight financing rate (“SOFR”).
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.
For the comparison of 2024 and 2023, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2024 Annual Report on Form 10-K, filed with the SEC on February 20, 2025.
As of December 31, 2024, all of our futures contracts were exchange-traded and all of our interest rate swaps were centrally cleared by a registered clearing organization. Changes in the fair value of our derivatives are recorded in gain (loss) on derivative instruments, net in our consolidated statement of operations.
Treasury futures contracts were exchange-traded, and all of our interest rate swaps were centrally cleared by a registered clearing organization. Changes in the fair value of our derivatives are recorded in gain (loss) on derivative instruments, net in our consolidated statement of operations.
One of the most significant factors impacting our projected cash flows is changes in long-term interest rates. When interest rates fall, prepayments will generally increase and when interest rates rise, prepayments will generally decrease. However, there are a variety of factors that may impact the rate of prepayments on our securities.
One of the most significant factors impacting our interest income recognition is changes in long-term interest rates. When interest rates fall, prepayments will generally increase and when interest rates rise, prepayments will generally decrease. However, there are a variety of factors that may impact the rate of prepayments on our securities.
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.
We include these types of TBAs at implied cost basis in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities.
(2) Average earning asset yields for the period were calculated by dividing interest income, including amortization of premiums and discounts, by average earning assets based on the amortized cost of the investments. All yields are annualized. Total average earning assets increased $101.7 million for the year ended December 31, 2024 compared to 2023.
(2) Average earning asset yields for the period were calculated by dividing interest income, including amortization of premiums and discounts, by average earning assets based on the amortized cost of the investments. All yields are annualized. Total average earning assets increased $231.0 million for the year ended December 31, 2025 compared to 2024.
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).
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 $157.1 million for the year ended December 31, 2025 (2024: $183.2 million).
There can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls or increased collateral requirements. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness.
There can be no assurance that we will maintain sufficient levels of liquidity to meet margin calls or increased collateral requirements. If our haircuts increase, our liquidity will proportionately decrease. In addition, if we increase our borrowings, our liquidity will decrease by the amount of additional haircut on the increased level of indebtedness. Our interest rate swaps and U.S.
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.
Our debt-to-equity ratio is calculated in accordance with U.S. GAAP and is the ratio of total debt to total stockholders' equity. 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.
Refer to Note 2 - “Summary of Significant Accounting Policies” of our consolidated financial statements included in Part IV, Item 15 of this Report for a description of how we determine the fair value of our futures contracts, interest rate swaps and TBAs.
Refer to Note 2 - “Summary of Significant Accounting Policies” of our consolidated financial statements included in Part IV, Item 15 of this Report for a description of how we determine the fair value of our U.S. Treasury futures contracts, interest rate swaps and TBAs. As of December 31, 2025, all of our U.S.
(3) Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the consolidated statements of operations. 54 Table of Contents (4) U.S.
(3) Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the consolidated statements of operations. (4) U.S. GAAP interest expense on the consolidated statements of operations includes the following components.
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.
Exposure to Financial Counterparties We finance a substantial portion of our investment portfolio through repurchase agreements. Under these agreements, we pledge assets from our investment portfolio as collateral. Additionally, certain counterparties may require us to provide additional collateral in the event the market value of the assets declines to maintain a contractual repurchase agreement collateral ratio.
We elected the fair value option for our mortgage-backed securities purchased on or after September 1, 2016, and changes in the valuation of these securities are recorded in other income (loss) in our consolidated statements of operations. In addition, certain gains and losses represent one-time events.
We elected the fair value option for our mortgage-backed securities purchased on or after September 1, 2016, and changes in the valuation of these securities are recorded in other income (loss) in our consolidated statements of operations.
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.
Years Ended December 31, $ in thousands 2025 2024 2023 Realized gain (loss) on derivative instruments, net (217,176) 11,405 (179,526) Unrealized gain (loss) on derivative instruments, net 6 3,467 2,356 Contractual net interest income (expense) on interest rate swaps 112,244 161,762 239,008 Gain (loss) on derivative instruments, net (104,926) 176,634 61,838 (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.
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.
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.
Our financing activities provided net cash of $326.5 million for the year ended December 31, 2024 (2023: $218.9 million). Our primary source of cash from financing activities during the year ended December 31, 2024 was net proceeds on our repurchase agreements of $435.7 million and proceeds from issuance of common stock of $116.5 million.
Our financing activities provided net cash of $691.3 million for the year ended December 31, 2025 (2024: $326.5 million). Our primary source of cash from financing activities during the year ended December 31, 2025 was net proceeds on our repurchase agreements of $725.3 million (2024: $435.7 million) and proceeds from issuance of common stock of $81.6 million (2024: $116.5 million).
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.
Because we view earnings available for 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 is used to determine the amount, if any, of dividends on our common stock.
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.
Years ended December 31, $ in thousands 2025 2024 2023 Average earning assets (1) 5,439,209 5,208,204 5,106,473 Average earning asset yields (2) 5.43 % 5.50 % 5.44 % (1) Average balances for each period are based on weighted month-end balances.
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.
For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For Agency RMBS purchased at a substantial premium relative to par value, expected future prepayment speeds are estimated on at least a quarterly basis.
Changes in our average earning assets are a factor of our total stockholders' equity and our desired leverage levels. 47 Table of Contents Average earning asset yields increased 6 basis points for the year ended December 31, 2024 compared to 2023.
Changes in our average earning assets are a factor of our total stockholders' equity and our desired leverage levels. Average earning asset yields decreased 7 basis points for the year ended December 31, 2025 compared to 2024.
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.
Years ended December 31, $ in thousands 2025 2024 2023 Total average borrowings (1) 4,948,937 4,637,086 4,540,252 Maximum borrowings during the period (2) 5,619,255 5,184,885 4,987,006 Cost of funds (3) 4.44 % 5.39 % 5.03 % (1) Average borrowings for each period are based on weighted month-end balances.
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).
However, there can be no assurance that we will maintain sufficient levels of liquidity to meet margin calls. We held cash, cash equivalents and restricted cash of $166.4 million as of December 31, 2025 (2024: $210.9 million).
Non-GAAP Financial Measures The table below shows the non-GAAP financial measures we use to analyze our operating results and the most directly comparable U.S. GAAP measures. We believe these non-GAAP measures are useful to investors in assessing our performance as discussed further below. Non-GAAP Financial Measure Most Directly Comparable U.S.
GAAP measures. We believe these non-GAAP measures are useful to investors in assessing our performance as discussed further below. Non-GAAP Financial Measure Most Directly Comparable U.S.
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.
Years Ended December 31, $ in thousands 2025 2024 2023 Effective net interest income (1) 187,666 198,589 278,303 TBA dollar roll income 1,147 1,366 697 Equity in earnings (losses) of unconsolidated ventures — (193) (1) (Increase) decrease in provision for credit losses — (458) (320) Total expenses (18,561) (19,019) (19,730) Subtotal 170,252 180,285 258,949 Dividends to preferred stockholders (13,120) (22,011) (23,153) Issuance and redemption costs of redeemed preferred stock — (3,535) — Earnings available for distribution 157,132 154,739 235,796 (1) See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.
Forward-Looking Statements Regarding Liquidity As of December 31, 2024, we held $5.1 billion of Agency securities that are financed by repurchase agreements. We also had approximately $316.0 million of unencumbered investments and unrestricted cash of $73.4 million as of December 31, 2024.
Forward-Looking Statements Regarding Liquidity As of December 31, 2025, we held $5.9 billion of Agency securities that are financed by repurchase agreements. We also had approximately $397.3 million of unencumbered investments and unrestricted cash of $56.0 million as of December 31, 2025.
As of December 31, 2024, our known contractual obligations primarily consist of $4.9 billion of repurchase agreement borrowings with a weighted average remaining maturity of 29 days. We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity.
As of December 31, 2025, our known contractual obligations primarily consisted of $5.6 billion of repurchase agreement borrowings with a weighted average remaining maturity of 23 days. We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity.
The cash redemption price for each share of Series B Preferred Stock was $25.00. The excess of the consideration transferred over carrying value was accounted for as a deemed dividend and resulted in a reduction of $3.5 million in net income attributable to common stockholders during the year ended December 31, 2024.
The excess of the consideration transferred over carrying value was accounted for as a deemed dividend and resulted in a reduction of $3.5 million in net income attributable to common stockholders during the year ended December 31, 2024.
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 2025 2024 2023 Interest expense on repurchase agreement borrowings 219,865 249,719 238,634 Amortization of net deferred (gain) loss on de-designated interest rate swaps — — (10,405) Total interest expense 219,865 249,719 228,229 (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. 54 Table of Contents The table below shows the components of earnings available for distribution for the following periods.
Net realized losses during the year ended December 31, 2024 primarily reflect sales of 4.0% to 5.0% coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS.
Net realized losses during the year ended December 31, 2025 primarily reflect sales of Agency RMBS during the first quarter as we rotated the portfolio into higher coupons. Net realized losses during the year ended December 31, 2024 primarily reflect sales of 4.0% to 5.0% coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS.
We redeemed all outstanding shares of our Series B Preferred Stock for $106.2 million during the year ended December 31, 2024. We also paid dividends of $105.5 million and used $11.1 million to repurchase Series B (prior to redemption) and Series C Preferred Stock during the year ended December 31, 2024.
We also paid dividends of $106.9 million (2024: $105.5 million) and used $8.5 million to repurchase Series C Preferred Stock during the year ended December 31, 2025 (2024: $11.1 million to repurchase Series B Preferred Stock prior to redemption and Series C Preferred Stock).
In our view, the fair value option election more appropriately reflects the results of our operations because MBS fair value changes are accounted for in the same manner as fair value changes in economic hedging instruments.
In our view, the fair value option election more appropriately reflects the results of our operations because MBS fair value changes are accounted for in the same manner as fair value changes in economic hedging instruments. We determine the fair value of our MBS by obtaining valuations from an independent source.
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.
Years Ended December 31, $ in thousands, except per share data 2025 2024 2023 Net income (loss) attributable to common stockholders 88,173 34,763 (37,541) Adjustments: (Gain) loss on investments, net (149,344) 133,911 107,280 Realized (gain) loss on derivative instruments, net (1) 217,176 (11,405) 179,526 Unrealized (gain) loss on derivative instruments, net (1) (6) (3,467) (2,356) TBA dollar roll income (2) 1,147 1,366 697 (Gain) loss on repurchase and retirement of preferred stock (14) (427) (1,471) Foreign currency (gains) losses, net (3) — (2) 66 Amortization of net deferred (gain) loss on de-designated interest rate swaps (4) — — (10,405) Subtotal 68,959 119,976 273,337 Earnings available for distribution 157,132 154,739 235,796 Basic earnings (loss) per common share 1.32 0.65 (0.85) Earnings available for distribution per common share (5) 2.35 2.88 5.35 (1) U.S.
Further information is provided in Note 7 - “Derivatives and Hedging Activities” of our consolidated financial statements included in Part IV, Item 15 of this Report. The factors that impact valuations of our TBAs are similar to those that impact valuations of our Agency RMBS.
Further information is provided in Note 6 - “Derivatives and Hedging Activities” of our consolidated financial statements included in Part IV, Item 15 of this Report. The factors that impact valuations of our TBAs are similar to those that impact valuations of our Agency RMBS. Valuations of U.S. Treasury futures contracts are impacted by changes in interest rates.
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.
As of December 31, 2025, one counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than 5% of our stockholders’ equity. The following table summarizes our exposure to counterparties by geographic concentration as of December 31, 2025. The information is based on the geographic headquarters of the counterparty or counterparty's parent company.
During the year ended December 31, 2024, we entered into new 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.
During the year ended December 31, 2025, we entered into interest rate swaps with a notional amount of $1.3 billion and terminated or settled interest rate swaps with a notional amount of $790.0 million (2024: $2.6 billion of additions and $3.4 billion of terminations or settlements).
As of $ in thousands December 31, 2024 December 31, 2023 Repurchase agreements 4,893,958 4,458,695 Total stockholders' equity 730,729 782,665 Debt-to-equity ratio (1) 6.7 5.7 Economic debt-to-equity ratio (2) 6.7 5.7 (1) Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.
As of $ in thousands December 31, 2025 December 31, 2024 Repurchase agreements 5,619,255 4,893,958 Total stockholders' equity 797,544 730,729 Debt-to-equity ratio (1) 7.0 6.7 Economic debt-to-equity ratio (2) 7.0 6.7 (1) Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.
If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in valuation of our investment portfolio, allowances for credit losses on our available-for-sale MBS, and a change in our interest income recognition among other effects. Mortgage-Backed Securities.
If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in valuation of our investment portfolio or derivative instruments and a change in our interest income recognition among other effects. 45 Table of Contents Mortgage-Backed Securities.
We enter into interest rate swap agreements that are designed to mitigate the effects of changes in interest rates for a portion of our borrowings. Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR.
(2) Amount represents the maximum borrowings at month-end during each of the respective periods. Hedging Instruments We enter into interest rate swap agreements that are designed to mitigate the effects of changes in interest rates for a portion of our borrowings. Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR.
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) 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. 53 Table of Contents The table below provides a reconciliation of U.S.
Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. The market value of our assets can be impacted by credit spread premiums (yield advantage over U.S.
Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. The market value of our assets can be impacted by spreads and the supply of, and demand for, assets in which we invest.
If interest rates increase as a result of a yield curve shift or for another reason or if credit spreads widen, then the prices of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will seek to use our liquidity to meet the margin calls.
If interest rates increase or if spreads widen, then the value of our collateral (and our unpledged assets that constitute our liquidity) will decline, we will experience margin calls, and we will seek to use our liquidity to meet the margin calls.
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.
The following table presents net (premium amortization) discount accretion recognized during 2025, 2024 and 2023. Years Ended December 31, $ in thousands 2025 2024 2023 Agency RMBS (1,726) 4,948 5,160 Agency CMBS 444 433 — Non-Agency CMBS — 496 1,101 Non-Agency RMBS (12) (410) (479) U.S.
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.
Years Ended December 31, $ in thousands, except share data 2025 2024 2023 Interest income 295,287 286,546 277,929 Interest expense 219,865 249,719 228,229 Net interest income 75,422 36,827 49,700 Other income (loss) Gain (loss) on investments, net 149,344 (133,911) (107,280) (Increase) decrease in provision for credit losses — (458) (320) Equity in earnings (losses) of unconsolidated ventures — (193) (1) Gain (loss) on derivative instruments, net (104,926) 176,634 61,838 Other investment income (loss), net — 2 (66) Total other income (loss) 44,418 42,074 (45,829) Expenses Management fee — related party 11,295 11,866 12,290 General and administrative 7,266 7,153 7,440 Total expenses 18,561 19,019 19,730 Net income (loss) 101,279 59,882 (15,859) Dividends to preferred stockholders (13,120) (22,011) (23,153) Gain (loss) on repurchase and retirement of preferred stock 14 427 1,471 Issuance and redemption costs of redeemed preferred stock — (3,535) — Net income (loss) attributable to common stockholders 88,173 34,763 (37,541) Earnings (loss) per share: Net income (loss) attributable to common stockholders Basic 1.32 0.65 (0.85) Diluted 1.32 0.65 (0.85) Weighted average number of shares of common stock: Basic 66,881,856 53,773,405 44,073,815 Diluted 66,883,654 53,775,143 44,073,815 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, 2025, 2024 and 2023.
As of December 31, 2024 $ in thousands Notional Amount - Short 10 year U.S. Treasury futures 136,000 Ultra 10 year U.S. Treasury futures 1,057,000 30 year U.S.
As of December 31, 2025 December 31, 2024 $ in thousands Notional Amount - Short Notional Amount - Short 10 year U.S. Treasury futures 420,000 136,000 Ultra 10 year U.S. Treasury futures 455,000 1,057,000 30 year U.S. Treasury futures 215,000 209,000 Total 1,090,000 1,402,000 We use U.S.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

17 edited+6 added−3 removed23 unchanged
Biggest changeInterest Rate Effects on Fair Value Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire. We face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments.
Biggest changeWe face the risk that the market value of our assets will increase or decrease at different rates than those of our liabilities, including our hedging instruments. We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration measures the market price volatility of financial instruments as interest rates change.
In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses. Credit Risk We retain the risk of potential credit losses on all of our residential and commercial mortgage investments.
In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay their loans, which could also cause us to suffer losses. Credit Risk We retain the risk of potential credit losses on all of our commercial and residential mortgage investments.
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. As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
Uncertainty regarding the rate of inflation, fiscal and monetary policy initiatives, elevated interest rate volatility and other factors make it more difficult to predict prepayment levels for the securities in our portfolio. As a result, it is possible that realized prepayment behavior will be materially different from our expectations.
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.
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 U.S. Treasury 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, 2024 and 2023, 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 instruments and net interest income, including net interest paid or received under interest rate swaps, as of December 31, 2025 and 2024, assuming a static portfolio and constant financing and asset spreads.
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.
We generally seek to manage this risk by: • monitoring and adjusting, if necessary, the reset index and interest rate related to our target assets and our financings; • attempting to structure our financing agreements to have a range of different maturities, terms, amortizations and interest rate adjustment periods; • using hedging instruments, primarily interest rate swap agreements but also financial futures, options, interest rate cap agreements, floors and forward sales to adjust the interest rate sensitivity of our target assets and our borrowings; 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.
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.
The interest rate scenarios assume interest rates as of December 31, 2025 and 2024. Furthermore, while the analysis reflects the estimated impact of interest rate increases and decreases on a static portfolio, we actively manage the size and composition of our portfolio, which includes hedging instruments, and that can result in material changes to our interest rate risk profile.
Spread Risk We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads. We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.
We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.
If prepayments are slower or faster than assumed, the life of the RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
Hedging techniques are partly based on assumed levels of prepayments of our Agency RMBS. If prepayments are slower or faster than assumed, the life of the Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions.
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.
When evaluating the impact of changes in interest rates, prepayment assumptions and principal reinvestment rates are adjusted based on our Manager’s expectations.
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.
The analysis presented utilized assumptions, models and estimates of our Manager based on our Manager’s judgment and experience. 61 Table of Contents As of December 31, 2025 As of December 31, 2024 Change in Interest Rates Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value Percentage Change in Projected Net Interest Income Percentage Change in Projected Portfolio Value +1.00% (5.09) % (1.20) % (0.16) % (0.59) % +0.50% (2.07) % (0.46) % 0.02 % (0.21) % -0.50% 1.45 % 0.01 % (0.48) % (0.05) % -1.00% 2.63 % (0.53) % (1.30) % (0.47) % 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.
This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument, while the income earned on the hybrid adjustable-rate assets would remain fixed.
This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument, while the income earned on the assets would remain fixed. This situation may also cause the market value of our assets to decline, with little or no offsetting gain from the related hedging transactions.
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.
Rating agencies periodically reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded. Risk Management To the extent consistent with maintaining our REIT qualification, we seek to manage risk exposure to protect our investment portfolio against the effects of major interest rate changes.
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.
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 62 Table of Contents eventual defaults, which could impact the performance of the investments.
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.
Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially. 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.
We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration values for the same securities.
We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration values for the same securities. The impact of changing interest rates on fair value can change significantly when interest rates change materially.
This situation may also cause the market value of our hybrid adjustable-rate assets to decline, with little or no offsetting gain from the related hedging transactions. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses. Market Risk Market Value Risk The estimated fair value of our securities fluctuates due to changes in interest rates and other factors.
Removed
Further, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Such delinquencies or defaults could also have an adverse effect on the spread between interest-earning assets and interest-bearing liabilities. Hedging techniques are partly based on assumed levels of prepayments of our RMBS.
Added
Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns. Interest Rate Effects on Fair Value Another component of interest rate risk is the effect that changes in interest rates will have on the market value of the assets that we acquire.
Removed
The impact of changing interest rates on fair value can change significantly when interest rates change materially. Therefore, the volatility in the fair value of our assets could increase significantly in the event interest rates change materially.
Added
Accordingly, changes in actual interest rates may have a material adverse effect on us. 60 Table of Contents Spread Risk We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.
Removed
Market Risk Market Value Risk Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income under ASC Topic 320. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors.
Added
Liquidity Risk We engage in a variety of liquidity management techniques to mitigate the risk of volatility in the marketplace, which may bring significant security price fluctuations, associated margin calls, changing cash needs, and variability in counterparty financing terms. We perform statistical analysis to measure and quantify our required liquidity needs under multiple scenarios and time horizons.
Added
Liquidity in the form of cash, unencumbered assets and future cash flows is consistently monitored and evaluated versus internal targets.
Added
One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered investments, which consists of cash and cash equivalents as reported in our consolidated balance sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.
Added
Other Risks We have previously invested in non-Agency CMBS and non-Agency RMBS and may invest in these types of assets again in the future. The following sections discuss additional risks associated with credit investments in commercial and residential real estate markets.

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