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What changed in Orchid Island Capital, Inc.'s 10-K — 2023 vs 2024

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

+269 added−287 removedSource: 10-K (2025-02-21) vs 10-K (2024-02-23)

Top changes in Orchid Island Capital, Inc.'s 2024 10-K

269 paragraphs added · 287 removed · 208 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

64 edited+9 added−14 removed329 unchanged
Biggest changeIn addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our investment under a repurchase agreement or to be compensated for any damages resulting from the lender’s insolvency may be further limited by those statutes. 20 Table of Contents If our lenders default on their obligations to resell the Agency RMBS back to us at the end of the repo transaction term, or if the value of the Agency RMBS has declined by the end of the repo transaction term or if we default on our obligations under the repo transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Biggest changeIn addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our investment under a repurchase agreement or to be compensated for any damages resulting from the lender’s insolvency may be further limited by those statutes.
Our portfolio includes Agency RMBS backed by ARMs, hybrid ARMs and fixed-rate mortgages, and the mix of these securities in the portfolio may be increased or decreased over time. Additionally, the interest rates on ARMs and hybrid ARMs may vary over time based on changes in a short-term interest rate index, of which there are many.
Our portfolio includes or may include Agency RMBS backed by fixed-rate mortgages, ARMs and hybrid ARMs and the mix of these securities in the portfolio may be increased or decreased over time. Additionally, the interest rates on ARMs and hybrid ARMs may vary over time based on changes in a short-term interest rate index, of which there are many.
Using this business model, we are particularly susceptible to the effects of an inverted yield curve, where short-term rates are higher than long-term rates. Although rare in a historical context, the U.S. and many countries in Europe have experienced inverted yield curves.
Using this business model, we are particularly susceptible to the effects of an inverted yield curve, where short-term rates are higher than long-term rates. Although rare in a historical context, the U.S. and many countries in Europe have recently experienced inverted yield curves.
Some of the factors that could negatively affect the share price or trading volume of our common stock include: 27 Table of Contents ● actual or anticipated variations in our operating results or distributions; ● changes in our earnings estimates or publication of research reports about us or the real estate or specialty finance industry; ● the market valuations of Agency RMBS; ● increases in market interest rates that lead purchasers of our common stock to expect a higher dividend yield; ● government action or regulation; ● changes in our book value; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● a change in our Manager or additions or departures of key management personnel; ● actions by institutional stockholders; ● speculation in the press or investment community; and ● general market and economic conditions.
Some of the factors that could negatively affect the share price or trading volume of our common stock include: ● actual or anticipated variations in our operating results or distributions; ● changes in our earnings estimates or publication of research reports about us or the real estate or specialty finance industry; ● the market valuations of Agency RMBS; ● increases in market interest rates that lead purchasers of our common stock to expect a higher dividend yield; ● government action or regulation; ● changes in our book value; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● a change in our Manager or additions or departures of key management personnel; ● actions by institutional stockholders; ● speculation in the press or investment community; and ● general market and economic conditions.
As of December 31, 2023, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity. We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
As of December 31, 2024, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity. We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have in recent years lowered or threatened to lower the long-term sovereign credit rating on the United States.
Rising interest rates generally reduce the demand for consumer credit, including mortgage loans, due to the higher cost of borrowing. A reduction in the volume of mortgage loans may affect the volume of Agency RMBS available to us, which could affect our ability to acquire assets that satisfy our investment objectives.
Rising interest rates or high interest rates generally reduce the demand for consumer credit, including mortgage loans, due to the higher cost of borrowing. A reduction in the volume of mortgage loans may affect the volume of Agency RMBS available to us, which could affect our ability to acquire assets that satisfy our investment objectives.
The occurrence of similar crises in the future could cause increased volatility in the economies and financial markets of countries throughout a region, or even globally. 22 Table of Contents Competition might prevent us from acquiring Agency RMBS at favorable yields, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
The occurrence of similar crises in the future could cause increased volatility in the economies and financial markets of countries throughout a region, or even globally. Competition might prevent us from acquiring Agency RMBS at favorable yields, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
As conservator, the FHFA has assumed all the powers of the shareholders, directors and officers of the Enterprises with the goal of preserving and conserving their assets. At various times since implementation of the conservatorship, Congress has considered structural changes to the Enterprises. The U.S.
As conservator, the FHFA has assumed all the powers of the shareholders, directors and officers of the Enterprises with the goal of preserving and conserving their assets. At various times since implementation of the conservatorship, Congress has considered structural changes to the Enterprises.
Given the volatile nature of the U.S. economy and potential future increases in short-term interest rates, there can be no guarantee that the yield curve will not become and/or remain inverted.
Given the volatile nature of the U.S. economy and potential future increases in short-term interest rates, there can be no guarantee that the yield curve will not become inverted.
No strategy can completely insulate us from prepayment or other such risks. 15 Table of Contents Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
No strategy can completely insulate us from prepayment or other such risks. Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Any losses we incur on our repo transactions could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. If we default on one of our obligations under a repo transaction, the counterparty can terminate the transaction and cease entering into any other repo transactions with us.
Any losses we incur on our repo transactions could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 20 Table of Contents If we default on one of our obligations under a repo transaction, the counterparty can terminate the transaction and cease entering into any other repo transactions with us.
In addition, as a result of the relationship with our Manager, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our Manager. We have no employees and our Manager is responsible for making all of our investment decisions.
In addition, as a result of the relationship with our Manager, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement because of our desire to maintain our ongoing relationship with our Manager. 23 Table of Contents We have no employees and our Manager is responsible for making all of our investment decisions.
Additionally, our charter will prohibit beneficial or constructive ownership of our stock that would otherwise result in our failure to qualify as a REIT. The ownership rules in our charter are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be owned by one individual or entity.
Additionally, our charter prohibits beneficial or constructive ownership of our stock that would otherwise result in our failure to qualify as a REIT. The ownership rules in our charter are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be owned by one individual or entity.
These provisions may increase the effective cost to us of electing to not renew the management agreement, thereby adversely affecting our inclination to end our relationship with our Manager even if we believe our Manager’s performance is unsatisfactory. Our Manager ’ s management fee is payable regardless of our performance.
These provisions may increase the effective cost to us of electing to not renew the management agreement, thereby adversely affecting our inclination to end our relationship with our Manager even if we believe our Manager’s performance is unsatisfactory. 25 Table of Contents Our Manager ’ s management fee is payable regardless of our performance.
In that event, we may be required to use cash reserves, incur debt, sell assets, make taxable distributions of our stock or debt securities or liquidate non-cash assets at rates or at times that we regard as unfavorable to satisfy the distribution requirement and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax in that year.
If we have non-cash taxable income in a taxable year, we may be required to use cash reserves, incur debt, sell assets, make taxable distributions of our stock or debt securities or liquidate non-cash assets at rates or at times that we regard as unfavorable to satisfy the distribution requirement and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax in that year.
Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our common stock to decline. In addition, we experienced an increase in haircuts on financings we have rolled.
Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our common stock to decline. In addition, we have in the past experienced an increase in haircuts on financings we have rolled, and may again in the future.
While it is very difficult to predict the impact of a continuing Fed portfolio runoff or potential sales of Agency RMBS on the supply, prices and liquidity of Agency RMBS, returns on Agency RMBS may be adversely affected. 14 Table of Contents Short-term interest rates are currently higher than long-term interest rates.
While it is very difficult to predict the impact of a continuing Fed portfolio runoff or potential sales of Agency RMBS on the supply, prices and liquidity of Agency RMBS, returns on Agency RMBS may be adversely affected. 14 Table of Contents Short-term interest rates have recently been higher than long-term interest rates.
Concerns over rising interest rates, growing inflation, economic recession, geopolitical issues including events such as the COVID-19 pandemic or other global pandemics, the wars in Ukraine and Israel, policy priorities of a new U.S. presidential administration, trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.
Concerns over rising or high interest rates, inflation, economic recession, geopolitical issues including events such as global pandemics, the wars in Ukraine and Israel, policy priorities of a new U.S. presidential administration, tariffs or trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.
In general, dealers and pricing services heavily disclaim their valuations. Additionally, dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability for any direct, incidental or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any warranty.
Additionally, dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability for any direct, incidental or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any warranty.
Certain provisions of the Maryland General Corporation Law (the “MGCL”), may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: ● “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder, and thereafter require two supermajority stockholder votes to approve any such combination; and ● “control share” provisions that provide that a holder of “control shares” of the Company (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the acquiror 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 ownership or control of issued and outstanding “control shares,” subject to certain exceptions) generally has no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. 30 Table of Contents We have elected to opt-out of these provisions of the MGCL, in the case of the business combination provisions, by resolution of our Board of Directors (provided that such business combination is first approved by our Board of Directors, including a majority of our directors who are not affiliates or associates of such person), and in the case of the control share provisions, pursuant to a provision in our bylaws.
Certain provisions of the Maryland General Corporation Law (the “MGCL”), may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: ● “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder, and thereafter require two supermajority stockholder votes to approve any such combination; and ● “control share” provisions that provide that a holder of “control shares” of the Company (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the acquiror 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 ownership or control of issued and outstanding “control shares,” subject to certain exceptions) generally has no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics or whose values are particularly sensitive to various factors.
All valuation models rely on correct market data input. If incorrect market data is entered into even a well-founded valuation model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, “model prices” will often differ substantially from market prices, especially for securities with complex characteristics or whose values are particularly sensitive to various factors.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and less reliable. 19 Table of Contents All valuation models rely on correct market data input.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and less reliable.
If such support is modified or withdrawn, if the U.S. Treasury fails to inject new capital as needed, or if the Enterprises are released from conservatorship, the market value of Agency RMBS could significantly decline, making it difficult for us to obtain repurchase agreement financing and could force us to sell assets at substantial losses.
Treasury fails to inject new capital as needed, or if the Enterprises are released from conservatorship, the market value of Agency RMBS could significantly decline, making it difficult for us to obtain repurchase agreement financing and could force us to sell assets at substantial losses.
To the extent that our pass-through Agency RMBS are carried at a premium to par, faster-than-expected prepayments could also materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders in various ways, including the following: ● A portion of our pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
To the extent that our pass-through Agency RMBS are carried at a premium to par, faster-than-expected prepayments could also materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders in various ways, including the following: ● We could realize the loss of the premium paid on the Agency RMBS. ● We may have to reinvest the capital from the prepayments at lower prevailing interest rates. ● Pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
We have claimed the relief afforded by the above-described no-action letter. Consequently, we will be restricted to operating within the parameters discussed in the no-action letter and will not enter into hedging transactions covered by the no-action letter if they would cause us to exceed the limits set forth in the no-action letter.
Consequently, we will be restricted to operating within the parameters discussed in the no-action letter and will not enter into hedging transactions covered by the no-action letter if they would cause us to exceed the limits set forth in the no-action letter.
The net effect of these factors would be to lower our net interest income. If we fail to qualify for an exemption from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described herein.
If we fail to qualify for an exemption from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described herein.
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including business combination provisions, supermajority vote and cause requirements for removal of directors, provisions that vacancies on our Board of Directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred, the power of our Board of Directors to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock, to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval, the restrictions on ownership and transfer of our stock and advance notice requirements for director nominations and stockholder proposals. 29 Table of Contents To assist us in qualifying as a REIT, among other purposes, ownership of our stock by any person will generally be limited to 9.8% in value or number of shares, whichever is more restrictive, of any class or series of our stock.
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including business combination provisions, supermajority vote and cause requirements for removal of directors, provisions that vacancies on our Board of Directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred, the power of our Board of Directors to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock, to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval, the restrictions on ownership and transfer of our stock and advance notice requirements for director nominations and stockholder proposals.
The Fed owns approximately $2.4 trillion of Agency RMBS as of December 31, 2023.
The Fed owns approximately $2.2 trillion of Agency RMBS as of December 31, 2024.
However, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter saying, although it believes that mortgage REITs are properly considered commodity pools, it would not recommend that the CFTC take enforcement action against the operator of a mortgage REIT who does not register as a CPO if, among other things, the mortgage REIT limits the initial margin and premiums required to establish its swaps, futures and other commodity interest positions to not more than five percent (5%) of its total assets, the mortgage REIT limits the net income derived annually from those commodity interest positions which are not qualifying hedging transactions to less than five percent (5%) of its gross income and interests in the mortgage REIT are not marketed to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures, commodity options or swaps markets.
However, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter saying, although it believes that mortgage REITs are properly considered commodity pools, it would not recommend that the CFTC take enforcement action against the operator of a mortgage REIT who does not register as a CPO if, among other things, the mortgage REIT limits the initial margin and premiums required to establish its swaps, futures and other commodity interest positions to not more than five percent (5%) of its total assets, the mortgage REIT limits the net income derived annually from those commodity interest positions which are not qualifying hedging transactions to less than five percent (5%) of its gross income and interests in the mortgage REIT are not marketed to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures, commodity options or swaps markets. 28 Table of Contents We use hedging instruments in conjunction with our investment portfolio and related borrowings to reduce or mitigate risks associated with changes in interest rates, mortgage spreads, yield curve shapes and market volatility.
Although we have not detected a breach to date, financial services institutions have reported breaches of their systems, some of which have been significant. Even with all reasonable security efforts, not every breach can be prevented or even detected.
We rely heavily on our Manager’s financial, accounting and other data processing systems. Although we have not detected a breach to date, financial services institutions have reported breaches of their systems, some of which have been significant. Even with all reasonable security efforts, not every breach can be prevented or even detected.
We intend to continue to make monthly distributions to our stockholders in amounts such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments. We have not established a minimum distribution payment level, and our ability to make distributions might be harmed by the risk factors described herein.
We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future. We intend to continue to make monthly distributions to our stockholders in amounts such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments.
Cauley and Haas may have a conflict of interest with respect to actions by our Board of Directors that relate to Bimini or our Manager. 25 Table of Contents As of February 23, 2024, Bimini owned approximately 1.1% of our outstanding shares of common stock.
Cauley and Haas may have a conflict of interest with respect to actions by our Board of Directors that relate to Bimini or our Manager. As of February 21, 2025, Bimini owned approximately 0.7% of our outstanding shares of common stock.
If prepayment rates are lower than expected, we will not receive principal payments as quickly as we anticipated and, therefore, our expected returns on these securities will be adversely affected, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
If prepayment rates are lower than expected, we will not receive principal payments as quickly as we anticipated and, therefore, our expected returns on these securities will be adversely affected, which, in turn, could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 15 Table of Contents While we seek to minimize prepayment risk, we must balance prepayment risk against other risks and the potential returns of each investment.
Furthermore, any policy changes to the relationship between the Enterprises and the U.S. government may create market uncertainty and have the effect of reducing the actual or perceived credit quality of securities issued by the Enterprises.
Furthermore, any policy changes to the relationship between the Enterprises and the U.S. government may create market uncertainty and have the effect of reducing the actual or perceived credit quality of securities issued by the Enterprises. It may also interrupt the cash flow received by investors on the underlying Agency RMBS.
While in many cases our determination of the fair value of our assets is based on valuations provided by third-party dealers and pricing services, we can and do value assets based upon our judgment, and such valuations may differ from those provided by third-party dealers and pricing services. Valuations of certain assets are often difficult to obtain or are unreliable.
As a result, the values of some of our assets are uncertain. While in many cases our determination of the fair value of our assets is based on valuations provided by third-party dealers and pricing services, we can and do value assets based upon our judgment, and such valuations may differ from those provided by third-party dealers and pricing services.
Upon the expiration of any automatic renewal term, our Manager may elect not to renew the management agreement without cause, and without penalty, on 180-days’ prior written notice to us.
Our management agreement is automatically renewed in accordance with the terms of the agreement, each year, on February 20. Upon the expiration of any automatic renewal term, our Manager may elect not to renew the management agreement without cause, and without penalty, on 180-days’ prior written notice to us.
To the extent that climate change impacts changes in weather patterns, our headquarters and our Manager could experience severe weather, including hurricanes and coastal flooding due to increases in storm intensity and rising sea levels. Such weather events could disrupt our operations or damage our headquarters.
Our headquarters and our Manager have experienced and may in the future experience severe weather, including hurricanes and coastal flooding due to increases in storm intensity and rising sea levels. Such weather events could disrupt our operations or damage our headquarters.
Alternatively, if we fail to qualify for this exemption, we may have to register under the Investment Company Act and we could become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters. 28 Table of Contents We may be required at times to adopt less efficient methods of financing certain of our securities, and we may be precluded from acquiring certain types of higher yielding securities.
Alternatively, if we fail to qualify for this exemption, we may have to register under the Investment Company Act and we could become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters.
With prepayments slowing in response to rising mortgage rates, Agency RMBS runoffs may not reduce the Fed’s balance sheet quickly enough to meet its stated policy goals, raising the possibility of the Fed selling Agency RMBS outright. These actions by the Fed to date, along with interest rate increases, have adversely impacted the prices and returns of Agency RMBS.
With prepayments slowing in response to rising and/or high mortgage rates, Agency RMBS runoffs may not reduce the Fed’s balance sheet quickly enough to meet its stated policy goals, raising the possibility of the Fed selling Agency RMBS outright.
These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities.
These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities. 29 Table of Contents Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors or officers and could discourage lawsuits against us and our directors and officers.
However, our Board of Directors may by resolution elect to repeal the foregoing opt-out from the business combination provisions of the MGCL, and we may, by amendment to our bylaws, opt-in to the control share provisions of the MGCL in the future. 30 Table of Contents Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors or officers and could discourage lawsuits against us and our directors and officers.
As haircuts are increased, we are required to post additional collateral. We may also be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity. As a result of the COVID-19 pandemic, we experienced margin calls in 2020 well beyond historical norms.
As haircuts are increased, we are required to post additional collateral. We may also be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity.
The investments we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal.
The investments we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal. Our investments may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.
In addition, our charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to qualify as a REIT.
Furthermore, a change in our asset allocation could result in our allocating assets in a different manner than as described in this Report. 21 Table of Contents In addition, our charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interests to qualify as a REIT.
To the extent that we generate such non-cash taxable income in a taxable year, we may incur U.S. federal corporate income tax and the 4% nondeductible excise tax on that income if we do not distribute such income to stockholders in that year.
To the extent that we distribute less than 100% of our taxable income in a taxable year to our stockholders, whether due to non-cash taxable income or otherwise, we may incur U.S. federal corporate income tax and the 4% nondeductible excise tax on that income.
If we are not able to renew our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets. 21 Table of Contents Issues related to financing are exacerbated in times of significant dislocation in the financial markets, for example, such as those experienced related to the COVID-19 pandemic.
If we are not able to renew our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets.
It may also interrupt the cash flow received by investors on the underlying Agency RMBS. 23 Table of Contents All of the foregoing could materially adversely affect the availability, pricing, liquidity, market value and financing of our assets and materially adversely affect our business, operations and financial condition and our ability to pay distributions to our stockholders.
All of the foregoing could materially adversely affect the availability, pricing, liquidity, market value and financing of our assets and materially adversely affect our business, operations and financial condition and our ability to pay distributions to our stockholders.
Any failure or interruption of these systems could cause delays or other problems in our securities trading activities, including Agency RMBS trading activities, which could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Any failure or interruption of these systems could cause delays or other problems in our securities trading activities, including Agency RMBS trading activities, which could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 22 Table of Contents Computer malware, ransomware, viruses, and computer hacking and phishing attacks have become more prevalent in the financial services industry and may occur on our or certain of our third party service providers' systems in the future.
Additionally, revisions to these laws, regulations or administrative or judicial interpretations could cause us to change our investments. We could be materially adversely affected by any such change to any existing, or any new, law, regulation or administrative or judicial interpretation, which could reduce the market price of our common stock.
We could be materially adversely affected by any such change to any existing, or any new, law, regulation or administrative or judicial interpretation, which could reduce the market price of our common stock. In addition, at any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended.
It is possible our lenders will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed.
Issues related to financing are exacerbated in times of significant dislocation in the financial markets, for example, such as those experienced related to the COVID-19 pandemic. It is possible our lenders will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed.
Because many of our targeted assets are typically available only in specified quantities and because many of our targeted assets are also targeted assets for Bimini and may be targeted assets for other accounts our Manager may manage in the future, neither Bimini nor our Manager may be able to buy as much of any given asset as required to satisfy the needs of Bimini, us and any other account our Manager may manage in the future.
Bimini and our Manager make available to us opportunities to acquire assets that they determine, in their reasonable and good faith judgment, based on our objectives, policies and strategies, and other relevant factors, are appropriate for us in accordance with the Investment Allocation Agreement. 24 Table of Contents Because many of our targeted assets are typically available only in specified quantities and because many of our targeted assets are also targeted assets for Bimini and may be targeted assets for other accounts our Manager may manage in the future, neither Bimini nor our Manager may be able to buy as much of any given asset as required to satisfy the needs of Bimini, us and any other account our Manager may manage in the future.
Accordingly, no assurance can be given as to: ● the likelihood that an actual market for our common stock will continue; ● the liquidity of any such market; ● the ability of any holder to sell shares of our common stock; or ● the prices that may be obtained for our common stock.
Accordingly, no assurance can be given as to: ● the likelihood that an actual market for our common stock will continue; ● the liquidity of any such market; ● the ability of any holder to sell shares of our common stock; or ● the prices that may be obtained for our common stock. 27 Table of Contents Risks Related to Our Organization and Structure Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to pay distributions to our stockholders.
However, such hedges may not be adequate to protect our interest income in the future, adversely affecting our financial condition, results of operations and our ability to pay dividends to our stockholders.
As a result, our net interest income has declined. We have employed various hedging strategies to off-set the phenomenon. However, such hedges may not be adequate to protect our interest income if the yield curve inverts again in the future, adversely affecting our financial condition, results of operations and our ability to pay dividends to our stockholders.
Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. As a result, the values of some of our assets are uncertain.
If our market data inputs are incorrect or our model prices differ substantially from market prices, our business, financial condition and results of operations and our ability to make distributions to our stockholders could be materially adversely affected. 19 Table of Contents Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed.
We do not currently engage in any speculative derivatives activities or other non-hedging transactions using swaps, futures or options on futures. We do not use these instruments for the purpose of trading in commodity interests, and we do not consider the Company or its operations to be a commodity pool as to which CPO registration or compliance is required.
We do not use these instruments for the purpose of trading in commodity interests, and we do not consider the Company or its operations to be a commodity pool as to which CPO registration or compliance is required. We have claimed the relief afforded by the above-described no-action letter.
As of February 23, 2024, Bimini owns 569,071 shares of our common stock. If Bimini sells a large number of our securities in the public market, the sale could reduce the market price of our common stock and could impede our ability to raise future capital.
If Bimini sells a large number of our securities in the public market, the sale could reduce the market price of our common stock and could impede our ability to raise future capital. 26 Table of Contents We may be subject to adverse legislative or regulatory changes that could reduce the market price of our common stock.
This phenomenon, typically referred to as an inverted U.S. Treasury or yield curve, occurred during 2022 and 2023, and may continue well into the future. Under such conditions our funding costs may equal or exceed yields available on our assets, adversely impacting our financial condition and results of operations and our ability to pay dividends to our stockholders.
Under such conditions our funding costs may equal or exceed yields available on our assets, adversely impacting our financial condition and results of operations and our ability to pay dividends to our stockholders. As the Fed began to increase over-night funding rates during 2022, short-term interest rates began to rise faster than longer-term interest rates and eventually the U.S.
Additionally, because we are affiliated with Bimini, we may be negatively impacted by an event or factors that negatively impacts or could negatively impact Bimini’s business or financial condition. 24 Table of Contents Our management agreement is automatically renewed in accordance with the terms of the agreement, each year, on February 20.
Our management agreement does not require our Manager to dedicate specific personnel to our operations or a specific amount of time to our business. Additionally, because we are affiliated with Bimini, we may be negatively impacted by an event or factors that negatively impacts or could negatively impact Bimini’s business or financial condition.
In addition, the markets for RMBS and derivatives, including interest rate swaps, have been the subject of intense scrutiny in recent years. We cannot predict when or if any new law, regulation or administrative or judicial interpretation, or any amendment to any existing law, regulation or administrative or judicial interpretation, will be adopted or promulgated or will become effective.
At any time, laws or regulations, or the administrative or judicial interpretations of those laws or regulations, which impact our business and Maryland corporations may be amended. In addition, the markets for RMBS and derivatives, including interest rate swaps, have been the subject of intense scrutiny in recent years.
As the Fed began to increase over-night funding rates during 2022 short-term interest rates began to rise faster than longer-term interest rates and eventually the U.S. Treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates. This condition continued into 2023 and 2024, and may continue into the future.
Treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates. This condition continued into 2023 and through the majority of 2024, and may occur again in the future. Consistent with this development, funding costs associated with our borrowings have increased relative to yields on our Agency RMBS securities.
However, our Board of Directors may by resolution elect to repeal the foregoing opt-out from the business combination provisions of the MGCL, and we may, by amendment to our bylaws, opt-in to the control share provisions of the MGCL in the future.
We have elected to opt-out of these provisions of the MGCL, in the case of the business combination provisions, by resolution of our Board of Directors (provided that such business combination is first approved by our Board of Directors, including a majority of our directors who are not affiliates or associates of such person), and in the case of the control share provisions, pursuant to a provision in our bylaws.
Our investments may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance. 26 Table of Contents We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future.
We have not established a minimum distribution payment level, and our ability to make distributions might be harmed by the risk factors described herein.
Events related to the COVID-19 pandemic and the associated economic slowdown raised concerns at the FHFA that the Enterprises may need additional capital in order to meet their obligations as guarantors on trillions of dollars of Agency RMBS. The market value of Agency RMBS today is highly dependent on the continued support of the Enterprises by the U.S. government.
The market value of Agency RMBS today is highly dependent on the continued support of the Enterprises by the U.S. government. If such support is modified or withdrawn, if the U.S.
Removed
This, combined with the Fed’s aggressive hikes to the Fed Funds rate in an effort to curb inflation, has resulted in a net supply of Agency RMBS, an increase in interest rates and a current inversion of the yield curve that has negatively impacted the market value of Agency RMBS.
Added
These actions by the Fed to date, along with interest rate increases, have adversely impacted the prices and returns of Agency RMBS.
Removed
Consistent with this development, funding costs associated with our borrowings have increased relative to yields on our Agency RMBS securities. As a result, our net interest income has declined. We have employed various hedging strategies to off-set the phenomenon.
Added
This phenomenon, typically referred to as an inverted U.S. Treasury or yield curve, occurred during 2022 through the majority of 2024, and may occur again in the future.
Removed
While we seek to minimize prepayment risk, we must balance prepayment risk against other risks and the potential returns of each investment.
Added
Valuations of certain assets are often difficult to obtain or are unreliable. In general, dealers and pricing services heavily disclaim their valuations.
Removed
If our market data inputs are incorrect or our model prices differ substantially from market prices, our business, financial condition and results of operations and our ability to make distributions to our stockholders could be materially adversely affected.
Added
If our lenders default on their obligations to resell the Agency RMBS back to us at the end of the repo transaction term, or if the value of the Agency RMBS has declined by the end of the repo transaction term or if we default on our obligations under the repo transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Removed
Furthermore, a change in our asset allocation could result in our allocating assets in a different manner than as described in this Report.
Added
As of February 21, 2025, Bimini owns 569,071 shares of our common stock.
Removed
Computer malware, ransomware, viruses, and computer hacking and phishing attacks have become more prevalent in the financial services industry and may occur on our or certain of our third party service providers' systems in the future. We rely heavily on our Manager’s financial, accounting and other data processing systems.
Added
We cannot predict when or if any new law, regulation or administrative or judicial interpretation, or any amendment to any existing law, regulation or administrative or judicial interpretation, will be adopted or promulgated or will become effective. Additionally, revisions to these laws, regulations or administrative or judicial interpretations could cause us to change our investments.
Removed
Treasury published the Treasury Housing Reform Plan in 2019 outlining proposed changes to the U.S. housing finance system, which could lead to the release of the Enterprises from conservatorship. Furthermore, the FHFA released its Strategic Plan in October 2019, which included in part an outline for the Enterprises exiting conservatorship.
Added
We may be required at times to adopt less efficient methods of financing certain of our securities, and we may be precluded from acquiring certain types of higher yielding securities. The net effect of these factors would be to lower our net interest income.
Removed
Our management agreement does not require our Manager to dedicate specific personnel to our operations or a specific amount of time to our business.
Added
These hedging instruments may include interest rate swaps, interest rate futures and options on interest rate futures. We do not currently engage in any speculative derivatives activities or other non-hedging transactions using swaps, futures or options on futures.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed23 unchanged
Biggest changeAt least annually, our Manager has its information technology team make a formal presentation to our Audit Committee and the Board to keep them apprised of the level of cybersecurity that exists to protect our financial information, training of the Company’s officers and the Manager’s employees, and the latest threats that have emerged, including a presentation from the third-party security firm.
Biggest changeAt least annually, our Manager has its information technology team and its third-party security firm make a formal presentation to our Audit Committee and the Board to keep them apprised of the level of cybersecurity that exists to protect our financial information, training of the Company’s officers and the Manager’s employees, and the latest threats that have emerged.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−0 removed14 unchanged
Biggest changeIn addition, our Board of Directors may change our distribution policy in the future. 40 Table of Contents Performance Graph Set forth below is a graph comparing the yearly percentage change in the cumulative total return on our common stock, with the cumulative total return of the S&P 500 Total Return Index, the FTSE NAREIT Mortgage REIT Index and an index of selected issuers in our Agency REIT Peer Group (composed of AGNC Investment Corp., Annaly Capital Management, Inc., ARMOUR Residential REIT, Inc., Cherry Hill Mortgage Investment Corporation and Dynex Capital, Inc.) for the period beginning December 31, 2018, and ending December 31, 2023, assuming the investment of $100 on December 31, 2018 and the reinvestment of dividends.
Biggest changeIn addition, our Board of Directors may change our distribution policy in the future. 40 Table of Contents Performance Graph Set forth below is a graph comparing the yearly percentage change in the cumulative total return on our common stock through December 31, 2024, with the cumulative total return of the S&P 500 Total Return Index and the FTSE NAREIT Mortgage REIT Index.
Unregistered Sales of Equity Securities The Company did not issue or sell equity securities that were not registered under the Securities Act during the year ended December 31, 2023. Issuer Purchases of Equity Securities On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 400,000 shares of the Company's common stock.
Unregistered Sales of Equity Securities The Company did not issue or sell equity securities that were not registered under the Securities Act during the year ended December 31, 2024. 41 Table of Contents Issuer Purchases of Equity Securities On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 400,000 shares of the Company's common stock.
Unless modified or revoked by the Board, the authorization does not expire. 41 Table of Contents The table below presents the Company's share repurchase activity for the three months ended December 31, 2023.
Unless modified or revoked by the Board, the authorization does not expire. The table below presents the Company's share repurchase activity for the three months ended December 31, 2024.
Maximum Number of Shares Shares That Total Weighted- Purchased as May Yet Be Number Average Part of Publicly Repurchased of Shares Price Paid Announced Under the Repurchased (1) Per Share Programs Authorization October 1, 2023 - October 31, 2023 - $ - - 4,928,350 November 1, 2023 - November 30, 2023 - $ - - 4,928,350 December 1, 2023 - December 31, 2023 700,691 $ 7.81 699,748 4,228,602 Totals / Weighted Average 700,691 $ 7.81 699,748 4,228,602 (1) Includes 943 shares of the Company’s common stock acquired by the Company in connection with the satisfaction of tax withholding obligations on vested employment related awards under equity incentive plans.
Maximum Number of Shares Shares That Total Weighted- Purchased as May Yet Be Number Average Part of Publicly Repurchased of Shares Price Paid Announced Under the Repurchased (1) Per Share Programs Authorization October 1, 2024 - October 31, 2024 - $ - - 3,832,361 November 1, 2024 - November 30, 2024 - $ - - 3,832,361 December 1, 2024 - December 31, 2024 1,920 $ 7.87 - 3,832,361 Totals / Weighted Average 1,920 $ 7.87 - 3,832,361 (1) Includes 1,920 shares of the Company’s common stock acquired by the Company in connection with the satisfaction of tax withholding obligations on vested employment related awards under equity incentive plans.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock trades on the NYSE under the symbol “ORC.” As of February 23, 2024, we had 51,303,301 shares of common stock issued and outstanding which were held by 13 stockholders of record and approximately 57,500 beneficial owners whose shares were held in “street name” by brokers and depository institutions.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock trades on the NYSE under the symbol “ORC.” As of February 21, 2025, we had 93,293,628 shares of common stock issued and outstanding which were held by 12 stockholders of record and approximately 69,600 beneficial owners whose shares were held in “street name” by brokers and depository institutions.
The historical information set forth below is not necessarily indicative of future performance. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Orchid Island Capital, Inc. 100.00 106.86 112.47 112.63 62.93 61.01 Agency REIT Peer Group 100.00 102.20 90.93 92.41 73.83 80.55 NAREIT Mortgage REIT TRR Index 100.00 121.33 98.56 113.97 83.64 96.48 S&P 500 Total Return Index 100.00 131.49 155.68 200.37 164.08 207.21 Securities Authorized for Issuance under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans required for this Item 5 is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2024 annual meeting of stockholders.
The historical information set forth below is not necessarily indicative of future performance. 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Orchid Island Capital, Inc. 100.00 105.25 105.40 58.89 57.09 62.76 NAREIT Mortgage REIT TRR Index 100.00 81.23 93.93 68.94 79.52 79.80 S&P 500 Total Return Index 100.00 118.40 152.39 124.79 157.59 197.02 Securities Authorized for Issuance under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans required for this Item 5 is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2025 annual meeting of stockholders.
Added
The performance graph was prepared based on the following assumptions: (i) $100 was invested in the Company's common stock, the S&P 500 Total Return Index and the FTSE NAREIT Mortgage REIT Index on December 31, 2019, and (ii) dividends were reinvested on the relevant payment dates.

Item 7. Management's Discussion & Analysis

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

122 edited+50 added−65 removed91 unchanged
Biggest change($ in thousands) Average Yield on Interest Expense Average Cost of Funds RMBS Interest Average Average GAAP Economic GAAP Economic Held (1) Income RMBS Borrowings (1) Basis Basis (2) Basis Basis (3) Three Months Ended December 31, 2023 $ 4,207,118 $ 49,539 4.71 % $ 4,066,298 $ 52,325 $ 27,164 5.15 % 2.67 % September 30, 2023 4,447,098 50,107 4.51 % 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 4,186,939 39,911 3.81 % 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,769,954 38,012 4.03 % 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,370,608 31,897 3.79 % 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,571,037 35,611 3.99 % 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,260,727 35,268 3.31 % 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,545,844 41,857 3.02 % 5,354,107 2,655 4,260 0.20 % 0.32 % December 31, 2021 6,056,259 44,421 2.93 % 5,728,988 2,023 10,084 0.14 % 0.70 % September 30, 2021 5,136,331 34,169 2.66 % 4,864,287 1,570 2,888 0.13 % 0.24 % June 30, 2021 4,504,887 29,254 2.60 % 4,348,192 1,556 6,742 0.14 % 0.62 % March 31, 2021 4,032,716 26,856 2.66 % 3,888,633 1,941 6,106 0.20 % 0.63 % Years Ended December 31, 2023 $ 4,152,777 $ 177,569 4.28 % $ 3,985,037 $ 201,918 $ 109,624 5.07 % 2.75 % December 31, 2022 4,187,054 144,633 3.45 % 4,042,056 61,708 48,140 1.53 % 1.19 % December 31, 2021 4,932,548 134,700 2.73 % 4,707,525 7,090 25,820 0.15 % 0.55 % 50 Table of Contents ($ in thousands) Net Interest Income Net Interest Spread GAAP Economic GAAP Economic Basis Basis (2) Basis Basis (4) Three Months Ended December 31, 2023 $ (2,786 ) $ 22,375 (0.44 )% 2.04 % September 30, 2023 (8,598 ) 15,842 (0.93 )% 1.33 % June 30, 2023 (8,760 ) 14,722 (1.07 )% 1.28 % March 31, 2023 (4,205 ) 15,006 (0.69 )% 1.46 % December 31, 2022 2,385 11,799 0.16 % 1.32 % September 30, 2022 14,250 18,404 1.51 % 1.99 % June 30, 2022 27,088 28,693 2.51 % 2.67 % March 31, 2022 39,202 37,597 2.82 % 2.70 % December 31, 2021 42,398 34,337 2.79 % 2.23 % September 30, 2021 32,599 31,281 2.53 % 2.42 % June 30, 2021 27,698 22,512 2.46 % 1.98 % March 31, 2021 24,915 20,750 2.46 % 2.03 % Years Ended December 31, 2023 $ (24,349 ) $ 67,945 (0.79 )% 1.53 % December 31, 2022 82,925 96,493 1.92 % 2.26 % December 31, 2021 127,610 108,880 2.58 % 2.18 % (1) Portfolio yields and costs of borrowings presented in the tables above and the tables on pages 51 and 52 are calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented.
Biggest changeThe tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income (expense) and net interest spread for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022 on both a GAAP and economic basis. 49 Table of Contents ($ in thousands) Average Yield on Interest Expense Average Cost of Funds RMBS Interest Average Average GAAP Economic GAAP Economic Held (1) Income RMBS Borrowings (1) Basis Basis (2) Basis Basis (3) Three Months Ended December 31, 2024 $ 5,348,057 $ 71,996 5.38 % $ 5,128,207 $ 63,853 $ 36,071 4.98 % 2.81 % September 30, 2024 4,984,279 67,646 5.43 % 4,788,287 67,306 35,382 5.62 % 2.96 % June 30, 2024 4,203,416 53,064 5.05 % 4,028,601 53,761 24,302 5.34 % 2.41 % March 31, 2024 3,887,545 48,871 5.03 % 3,708,573 51,361 23,774 5.54 % 2.56 % December 31, 2023 4,207,118 49,539 4.71 % 4,066,298 52,325 27,164 5.15 % 2.67 % September 30, 2023 4,447,098 50,107 4.51 % 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 4,186,939 39,911 3.81 % 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,769,954 38,012 4.03 % 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,370,608 31,897 3.79 % 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,571,037 35,611 3.99 % 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,260,727 35,268 3.31 % 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,545,844 41,857 3.02 % 5,354,107 2,655 4,260 0.20 % 0.32 % Years Ended December 31, 2024 $ 4,605,824 $ 241,577 5.25 % $ 4,413,417 $ 236,281 $ 119,529 5.35 % 2.71 % December 31, 2023 4,152,777 177,569 4.28 % 3,985,037 201,918 109,624 5.07 % 2.75 % December 31, 2022 4,187,054 144,633 3.45 % 4,042,056 61,708 48,140 1.53 % 1.19 % ($ in thousands) Net Interest Income Net Interest Spread GAAP Economic GAAP Economic Basis Basis (2) Basis Basis (4) Three Months Ended December 31, 2024 $ 8,143 $ 35,925 0.40 % 2.57 % September 30, 2024 340 32,264 (0.19 )% 2.47 % June 30, 2024 (697 ) 28,762 (0.29 )% 2.64 % March 31, 2024 (2,490 ) 25,097 (0.51 )% 2.47 % December 31, 2023 (2,786 ) 22,375 (0.44 )% 2.04 % September 30, 2023 (8,598 ) 15,842 (0.93 )% 1.33 % June 30, 2023 (8,760 ) 14,722 (1.07 )% 1.28 % March 31, 2023 (4,205 ) 15,006 (0.69 )% 1.46 % December 31, 2022 2,385 11,799 0.16 % 1.32 % September 30, 2022 14,250 18,404 1.51 % 1.99 % June 30, 2022 27,088 28,693 2.51 % 2.67 % March 31, 2022 39,202 37,597 2.82 % 2.70 % Years Ended December 31, 2024 $ 5,296 $ 122,048 (0.10 )% 2.54 % December 31, 2023 (24,349 ) 67,945 (0.79 )% 1.53 % December 31, 2022 82,925 96,493 1.92 % 2.26 % (1) Portfolio yields and costs of borrowings presented in the tables above and on pages 51 and 52 are calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented.
In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing the balance sheet by a maximum of $60 billion of U.S.
In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 billion of U.S.
On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security (“UMBS”) and negatively impacted liquidity and pricing in the market for TBA securities.
On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security and negatively impacted liquidity and pricing in the market for TBA securities.
Average balances for quarterly periods are calculated using two data points, the beginning and ending balances. (2) Economic interest expense and economic net interest income presented in the table above and the tables on page 52 includes the effect of our derivative instrument hedges for only the periods presented.
Average balances for quarterly periods are calculated using two data points, the beginning and ending balances. (2) Economic interest expense and economic net interest income presented in the table above and the table on page 52 includes the effect of our derivative instrument hedges for only the periods presented.
If this were to occur in sufficient magnitude, the loss of liquidity might force us to reduce the size of the levered portfolio, pledge additional structured securities to raise funds or risk operating the portfolio with less liquidity. 59 Table of Contents External Sources of Liquidity Our primary external sources of liquidity are our ability to (i) borrow under master repurchase agreements, (ii) use the TBA security market and (iii) sell our equity or debt securities in public offerings or private placements.
If this were to occur in sufficient magnitude, the loss of liquidity might force us to reduce the size of the levered portfolio, pledge additional structured securities to raise funds or risk operating the portfolio with less liquidity. 58 Table of Contents External Sources of Liquidity Our primary external sources of liquidity are our ability to (i) borrow under master repurchase agreements, (ii) use the TBA security market and (iii) sell our equity or debt securities in public offerings or private placements.
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the years ended December 31, 2023, 2022 and 2021 and each quarter during 2023, 2022 and 2021.
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the years ended December 31, 2024, 2023 and 2022 and each quarter during 2024, 2023 and 2022.
Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2023, 2022 and 2021. 5 Year 10 Year 15 Year 30 Year U.S.
Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2024, 2023 and 2022. 5 Year 10 Year 15 Year 30 Year U.S.
The management agreement has been renewed through February 20, 2025 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company.
The management agreement has been renewed through February 20, 2026 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company.
In consideration for such services, the Company will pay the following fees to the Manager: ● a daily fee equal to the outstanding principal balance of repurchase agreement funding in place as of the end of such day multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance less than or equal to $5 billion, and multiplied by 1.0 basis point for any amount of aggregate outstanding principal balance in excess of $5 billion, and ● a fee for the clearing and operational services provided by personnel of the Manager equal to $10,000 per month.
In consideration for such services, the Company pays the following fees to the Manager: ● a daily fee equal to the outstanding principal balance of repurchase agreement funding in place as of the end of such day multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance less than or equal to $5 billion, and multiplied by 1.0 basis point for any amount of aggregate outstanding principal balance in excess of $5 billion, and ● a fee for the clearing and operational services provided by personnel of the Manager equal to $10,000 per month.
On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Capital Raising Activities On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Management believes that we currently have sufficient liquidity and capital resources available for (a) the acquisition of additional investments consistent with the size and nature of our existing RMBS portfolio, (b) the repayments on borrowings and (c) the payment of dividends to the extent required for our continued qualification as a REIT.
Management believes that we currently have sufficient short-term and long-term liquidity and capital resources available for (a) the acquisition of additional investments consistent with the size and nature of our existing RMBS portfolio, (b) the repayments on borrowings and (c) the payment of dividends to the extent required for our continued qualification as a REIT.
Gains or losses on TBAs are included with gains or losses on other derivative contracts and are not included in interest income for purposes of the discussions below. We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP.
Gains or losses on TBAs are included with gains or losses on other derivative contracts and are not included in interest income for purposes of the discussions below. 47 Table of Contents We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP.
Treasury; ● prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates; and ● other market developments, including bank failures. In addition, a variety of factors relating to our business may also impact our results of operations and financial condition.
Treasury; ● prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates; and ● other market developments, including bank failures. 44 Table of Contents In addition, a variety of factors relating to our business may also impact our results of operations and financial condition.
The reason for the increase in economic cost of funds is primarily due to the higher cost of our borrowings noted above, offset by the positive performance of our hedging activities during the period.
The reason for the decrease in economic cost of funds is primarily due to the positive performance of our hedging activities during the period, offset by the higher cost of our borrowings noted above.
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
The SOFR averages are compounded averages of the SOFR over rolling 30 and 180 calendar day periods. Unrealized Gains and Losses on PT RMBS For the purpose of recording income on the Company’s investments in PT RMBS, interest income is based on the stated interest rate of the security.
The SOFR averages are compounded averages of the SOFR over rolling 30 and 180 calendar day periods. 53 Table of Contents Unrealized Gains and Losses on PT RMBS For the purpose of recording income on the Company’s investments in PT RMBS, interest income is based on the stated interest rate of the security.
The following table summarizes the management fee and overhead allocation expenses for each quarter in 2023, 2022 and 2021 and for the years ended December 31, 2023, 2022 and 2021.
The following table summarizes the management fee and overhead allocation expenses for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022.
The table below presents information about our period end, maximum and average balances of borrowings for each quarter in 2023 and 2022.
The table below presents information about our period end, maximum and average balances of borrowings for each quarter in 2024 and 2023.
For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Fed Funds, SOFR and T-Note futures, and interest rate swaps and swaptions, that pertain to each period presented.
For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Fed Funds, SOFR and T-Note futures, dual digital options, interest rate floors and caps, and interest rate swaps and swaptions, that pertain to each period presented.
For the comparable period ended December 31, 2022, we generated $82.9 million of net interest income, consisting of $144.6 million of interest income from RMBS assets offset by $61.7 million of interest expense on borrowings.
For the year ended December 31, 2022, we generated $82.9 million of net interest income, consisting of $144.6 million of interest income from RMBS assets offset by $61.7 million of interest expense on borrowings.
Throughout the year ended December 31, 2023, haircuts on our pledged collateral remained stable and as of December 31, 2023, our weighted average haircut was approximately 4.5% of the value of our collateral. TBAs represent a form of off-balance sheet financing and are accounted for as derivative instruments.
Throughout the year ended December 31, 2024, haircuts on our pledged collateral remained stable and as of December 31, 2024, our weighted average haircut was approximately 4.3% of the value of our collateral. TBAs represent a form of off-balance sheet financing and are accounted for as derivative instruments.
The table below provides a breakdown of operating expenses for the years ended December 31, 2023, 2022 and 2021.
The table below provides a breakdown of operating expenses for the years ended December 31, 2024, 2023 and 2022.
Our economic leverage at December 31, 2023 was 6.7 to 1, compared to 6.3 to 1 as of December 31, 2022. Our adjusted leverage at December 31, 2023 was 7.9 to 1, compared to 7.7 to 1 as of December 31, 2022. The following table presents information related to our historical leverage.
Our economic leverage at December 31, 2024 was 7.3 to 1, compared to 6.7 to 1 as of December 31, 2023. Our adjusted leverage at December 31, 2024 was 7.5 to 1, compared to 7.9 to 1 as of December 31, 2023. The following table presents information related to our historical leverage.
Treasury securities, interest rate caps, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment.
Treasury securities, interest rate floors and caps, dual digital options, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment.
An effective duration of 4.40 indicates that an interest rate increase of 1.0% would be expected to cause a 4.40% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2023.
An effective duration of 4.200 indicates that an interest rate increase of 1.0% would be expected to cause a 4.200% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2024.
Effective duration quotes for individual investments are obtained from The Yield Book, Inc. 57 Table of Contents The following table presents a summary of portfolio assets acquired during the years ended December 31, 2023 and 2022.
Effective duration quotes for individual investments are obtained from The Yield Book, Inc. The following table presents a summary of portfolio assets acquired during the years ended December 31, 2024 and 2023.
These factors include: ● interest rate trends; ● increases in our cost of funds resulting from increases in the Federal Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2022 and 2023; ● the difference between Agency RMBS yields and our funding and hedging costs; ● competition for, and supply of, investments in Agency RMBS; ● actions taken by the U.S. government, including the presidential administration, the Fed, the Federal Housing Financing Agency (the “FHFA”), the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the “FOMC”) and the U.S.
These factors include: ● interest rate trends; ● changes in our cost of funds, including increases in the Fed Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2022 and 2023, the decreases in the Fed Funds rate in 2024, or potential additional decreases in the Fed Funds rate: ● the difference between Agency RMBS yields and our funding and hedging costs; ● competition for, and supply of, investments in Agency RMBS; ● actions taken by the U.S. government, including the presidential administration, the Fed, the Federal Housing Financing Agency (the “FHFA”), the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the “FOMC”) and the U.S.
The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses. Described below are the Company's results of operations for the years ended December 31, 2023, 2022 and 2021.
The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses. Described below are the Company's results of operations for the years ended December 31, 2024, 2023 and 2022, and for each quarter during 2024, 2023 and 2022.
(3) Interest Income – Inclusive of Premium Amortization/Discount Accretion and Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion are non-GAAP measures. See “—GAAP and Non-GAAP Reconciliations,” for a description of our non-GAAP measures. Expenses Total operating expenses were $18.5 million, $17.5 million and $14.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.
(3) Interest Income – Inclusive of Premium Amortization/Discount Accretion and Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion are non-GAAP measures. See “—GAAP and Non-GAAP Reconciliations,” for a description of our non-GAAP measures. Expenses Total operating expenses were $16.7 million, $18.5 million and $17.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet.
In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet.
An effective duration of 5.58 indicates that an interest rate increase of 1.0% would be expected to cause a 5.58% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2022. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges.
An effective duration of 4.400 indicates that an interest rate increase of 1.0% would be expected to cause a 4.400% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2023. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges.
The average term to maturity of the outstanding repurchase agreements was 26 days at December 31, 2023 and 27 days at December 31, 2022.
The average term to maturity of the outstanding repurchase agreements was 26 days at December 31, 2024 and 26 days at December 31, 2023.
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
(in thousands, except per share amounts) Year Per Share Amount Total 2013 $ 6.975 $ 4,662 2014 10.800 22,643 2015 9.600 38,748 2016 8.400 41,388 2017 8.400 70,717 2018 5.350 55,814 2019 4.800 54,421 2020 3.950 53,570 2021 3.900 97,601 2022 2.475 87,906 2023 1.800 81,127 2024 YTD (1) 0.240 12,362 Totals $ 66.690 $ 620,959 (1) On January 10, 2024, the Company declared a dividend of $0.12 per share to be paid on February 27, 2024.
(in thousands, except per share amounts) Year Per Share Amount Total 2013 $ 6.975 $ 4,662 2014 10.800 22,643 2015 9.600 38,748 2016 8.400 41,388 2017 8.400 70,717 2018 5.350 55,814 2019 4.800 54,421 2020 3.950 53,570 2021 3.900 97,601 2022 2.475 87,906 2023 1.800 81,127 2024 1.440 96,309 2025 YTD (1) 0.240 22,097 Totals $ 68.130 $ 727,003 (1) On January 8, 2025, the Company declared a dividend of $0.12 per share to be paid on February 27, 2025.
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of December 31, 2023, we had cash and cash equivalents of $171.9 million.
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of December 31, 2024, we had cash and cash equivalents of $309.3 million.
On February 14, 2024, the Company declared a dividend of $0.12 per share to be paid on March 26, 2024. The effects of these dividends are included in the table above but are not reflected in the Company’s financial statements as of December 31, 2023. 67 Table of Contents
On February 12, 2025, the Company declared a dividend of $0.12 per share to be paid on March 28, 2025. The effects of these dividends are included in the table above but are not reflected in the Company’s financial statements as of December 31, 2024. 66 Table of Contents
There was a 64 bps increase in the average economic cost of funds to 1.19% for the year ended December 31, 2022 from 0.55% for the year ended December 31, 2021. Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.
There was a 156 bps increase in the average economic cost of funds to 2.75% for the year ended December 31, 2023 from 1.19% for the year ended December 31, 2022. Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.
On June 22, 2021, we entered into an equity distribution agreement (the “June 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
On an economic basis, our interest expense on borrowings for the years ended December 31, 2023, 2022 and 2021 was $109.6 million, $48.1 million and $25.8 million, respectively, resulting in $68.0 million, $96.5 million and $108.9 million of economic net interest income, respectively.
On an economic basis, our interest expense on borrowings for the years ended December 31, 2024, 2023 and 2022 was $119.5 million, $109.6 million and $48.1 million, respectively, resulting in $122.1 million, $68.0 million and $96.5 million of economic net interest income, respectively.
There was a 138 bps increase in the average cost of funds and an $665.5 million decrease in average outstanding borrowings during the year ended December 31, 2022 as compared to the year ended December 31, 2021. Our economic interest expense was $109.6 million, $48.1 million and $25.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
There was a 354 bps increase in the average cost of funds and an $57.0 million decrease in average outstanding borrowings during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Our economic interest expense was $119.5 million, $109.6 million and $48.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Net Interest Income During the year ended December 31, 2023, we generated $24.4 million of net interest expense, consisting of $177.6 million of interest income from RMBS assets offset by $201.9 million of interest expense on borrowings.
For the comparable period ended December 31, 2023, we incurred $24.4 million of net interest expense, consisting of $177.6 million of interest income from RMBS assets offset by $201.9 million of interest expense on borrowings.
The components of net loss for the years ended December 31, 2023, 2022 and 2021 are presented in the table below: (in thousands) 2023 2022 2021 Interest income $ 177,569 $ 144,633 $ 134,700 Interest expense (201,918 ) (61,708 ) (7,090 ) Net interest income (24,349 ) 82,925 127,610 Gains (losses) on RMBS and derivative contracts 3,654 (323,929 ) (177,504 ) Net portfolio loss (20,695 ) (241,004 ) (49,894 ) Expenses (18,531 ) (17,449 ) (14,866 ) Net loss $ (39,226 ) $ (258,453 ) $ (64,760 ) 45 Table of Contents GAAP and Non-GAAP Reconciliations In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including “Net Earnings Excluding Realized and Unrealized Gains and Losses”, “Economic Interest Expense”, “Economic Net Interest Income,” “Interest Income – Inclusive of Premium Amortization/Discount Accretion” and “Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion.” Net Earnings Excluding Realized and Unrealized Gains and Losses We have elected to account for our Agency RMBS under the fair value option.
The components of net income (loss) for the years ended December 31, 2024, 2023 and 2022 are presented in the table below: (in thousands) 2024 2023 2022 Interest income $ 241,577 $ 177,569 $ 144,633 Interest expense (236,281 ) (201,918 ) (61,708 ) Net interest income 5,296 (24,349 ) 82,925 Gains (losses) on RMBS and derivative contracts 49,110 3,654 (323,929 ) Net portfolio income (loss) 54,406 (20,695 ) (241,004 ) Expenses (16,744 ) (18,531 ) (17,449 ) Net income (loss) $ 37,662 $ (39,226 ) $ (258,453 ) GAAP and Non-GAAP Reconciliations In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including “Net Earnings Excluding Realized and Unrealized Gains and Losses”, “Economic Interest Expense”, “Economic Net Interest Income,” “Interest Income – Inclusive of Premium Amortization/Discount Accretion” and “Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion.” Net Earnings Excluding Realized and Unrealized Gains and Losses We have elected to account for our Agency RMBS under the fair value option.
Securing the repurchase agreement obligations as of December 31, 2023 are RMBS with an estimated fair value, including accrued interest, of approximately $3,900.5 million. Through February 23, 2024, we have been able to maintain our repurchase facilities with comparable terms to those that existed at December 31, 2023 with maturities extending to various dates through July 15, 2024.
Securing the repurchase agreement obligations as of December 31, 2024 are RMBS with an estimated fair value, including accrued interest, of approximately $5,231.9 million. Through February 21, 2025, we have been able to maintain our repurchase facilities with comparable terms to those that existed at December 31, 2024 with maturities extending to various dates through May 19, 2025.
We believe these securities have a lower sensitivity to changes in long-term interest rates than other asset classes. We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT RMBS, particularly PT RMBS backed by fixed-rate mortgages.
We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT RMBS, particularly PT RMBS backed by fixed-rate mortgages.
Results of Operations Described below are the Company’s results of operations for the year ended December 31, 2023, as compared to the Company’s results of operations for the years ended December 31, 2022 and 2021. Net Loss Summary Net loss for the year ended December 31, 2023 was $39.2 million, or $0.89 per share.
Results of Operations Described below are the Company’s results of operations for the year ended December 31, 2024, as compared to the Company’s results of operations for the years ended December 31, 2023 and 2022. Net Income (Loss) Summary Net income for the year ended December 31, 2024 was $37.7 million, or $0.57 per share.
On February 25, 2022, the FHFA published a final rule, effective as of April 26, 2022, amending the Enterprise capital framework established in December 2020 by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures.
Effective April 26, 2022, the FHFA further amended this framework by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures.
The $9.9 million increase in interest income for the year ended December 31, 2022, compared to the year ended December 31, 2021, was due to a 72 bps increase in yield on average RMBS, that was partially offset by a $745.5 million decrease in average RMBS.
The $32.9 million increase in interest income for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due to a 83 bps increase in yield on average RMBS, that was partially offset by a $34.3 million decrease in average RMBS.
Recent Legislative and Regulatory Developments In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S.
Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month.
($ in thousands) 2023 2022 Total Cost Average Price Weighted Average Yield Total Cost Average Price Weighted Average Yield Pass-through RMBS $ 1,521,070 $ 100.27 5.40 % $ 1,004,526 $ 100.03 4.59 % Borrowings As of December 31, 2023, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 21 of these counterparties.
($ in thousands) 2024 2023 Total Cost Average Price Weighted Average Yield Total Cost Average Price Weighted Average Yield Pass-through RMBS $ 2,393,320 $ 102.06 5.70 % $ 1,521,070 $ 100.27 5.40 % Borrowings As of December 31, 2024, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 25 of these counterparties.
On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Capital Expenditures At December 31, 2024, we had no material commitments for capital expenditures. 59 Table of Contents Stockholders ’ Equity On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
As of December 31, 2023, we had obligations outstanding under the repurchase agreements of approximately $3,705.6 million with a net weighted average borrowing cost of 5.55%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 4 to 113 days, with a weighted average remaining maturity of 26 days.
As of December 31, 2024, we had obligations outstanding under the repurchase agreements of approximately $5,025.5 million with a net weighted average borrowing cost of 4.66%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 8 to 139 days, with a weighted average remaining maturity of 26 days.
Treasury Notes (41,583 ) (776,405 ) (203,996 ) Gains (losses) on interest rate futures 32,650 206,907 (1,026 ) Gains on interest rate swaps 19,657 167,641 23,398 Gains (losses) on payer swaptions (short positions) 4,113 (81,050 ) 9,062 (Losses) gains on payer swaptions (long positions) (8,734 ) 152,365 (2,580 ) (Losses) gains on interest rate caps (219 ) 919 - Gains on interest rate floors (long positions) 1,785 - 2,765 Losses on interest rate floors (short positions) (525 ) - - Gains on TBA securities (short positions) 1,370 4,494 3,432 (Losses) gains on TBA securities (long positions) (4,860 ) 1,200 (8,559 ) Total $ 3,654 $ (323,929 ) $ (177,504 ) We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales.
Treasury Notes (84,444 ) (41,583 ) (776,405 ) Gains on interest rate futures 26,638 32,650 206,907 Gains on interest rate swaps 101,151 19,657 167,641 Gains (losses) on payer swaptions (short positions) - 4,113 (81,050 ) (Losses) gains on payer swaptions (long positions) (72 ) (8,734 ) 152,365 Losses on dual digital option (500 ) - - (Losses) gains on interest rate caps - (219 ) 919 Gains on interest rate floors (long positions) - 1,785 - Losses on interest rate floors (short positions) - (525 ) - Gains on TBA securities (short positions) 6,567 1,370 4,494 (Losses) gains on TBA securities (long positions) (230 ) (4,860 ) 1,200 Total $ 49,110 $ 3,654 $ (323,929 ) We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales.
Realized and Unrealized Gains and Losses - Reclassification of Derivative Transaction Expenses (in thousands, except per share data) Net Earnings (Loss) Excluding Realized and Unrealized Realized and Unrealized Gains and Losses Gains and Losses Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ 38,389 $ (1,662 ) $ 36,727 $ (3,463 ) $ (1,662 ) $ (1,801 ) September 30, 2022 (93,544 ) (889 ) (94,433 ) 9,031 (889 ) 9,920 June 30, 2022 (82,282 ) (391 ) (82,673 ) 22,143 (391 ) 22,534 March 31, 2022 (183,232 ) (318 ) (183,550 ) 34,505 (318 ) 34,823 December 31, 2021 (82,597 ) (112 ) (82,709 ) 38,033 (112 ) 38,145 September 30, 2021 (2,887 ) (70 ) (2,957 ) 28,925 (70 ) 28,995 June 30, 2021 (40,844 ) (82 ) (40,926 ) 23,979 (82 ) 24,061 March 31, 2021 (50,791 ) (121 ) (50,912 ) 21,422 (121 ) 21,543 Per Share Three Months Ended December 31, 2022 $ 1.04 $ (0.04 ) $ 1.00 $ (0.09 ) $ (0.04 ) $ (0.05 ) September 30, 2022 (2.66 ) (0.02 ) (2.68 ) 0.26 (0.02 ) 0.28 June 30, 2022 (2.32 ) (0.01 ) (2.33 ) 0.62 (0.01 ) 0.63 March 31, 2022 (5.18 ) (0.01 ) (5.19 ) 0.98 (0.01 ) 0.99 December 31, 2021 (2.46 ) - (2.46 ) 1.13 - 1.13 September 30, 2021 (0.11 ) - (0.11 ) 1.12 - 1.12 June 30, 2021 (2.05 ) (0.01 ) (2.06 ) 1.20 (0.01 ) 1.21 March 31, 2021 (2.98 ) - (2.98 ) 1.26 - 1.26 Economic Interest Expense and Economic Net Interest Income We use derivative and other hedging instruments, specifically Fed Funds, SOFR and T-Note futures contracts, short positions in U.S.
The table below presents the effect of this reclassification for each quarter in 2022. 46 Table of Contents Realized and Unrealized Gains and Losses - Reclassification of Derivative Transaction Expenses (in thousands, except per share data) Net Earnings (Loss) Excluding Realized and Unrealized Realized and Unrealized Gains and Losses Gains and Losses Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ 38,389 $ (1,662 ) $ 36,727 $ (3,463 ) $ (1,662 ) $ (1,801 ) September 30, 2022 (93,544 ) (889 ) (94,433 ) 9,031 (889 ) 9,920 June 30, 2022 (82,282 ) (391 ) (82,673 ) 22,143 (391 ) 22,534 March 31, 2022 (183,232 ) (318 ) (183,550 ) 34,505 (318 ) 34,823 Per Share Three Months Ended December 31, 2022 $ 1.04 $ (0.04 ) $ 1.00 $ (0.09 ) $ (0.04 ) $ (0.05 ) September 30, 2022 (2.66 ) (0.02 ) (2.68 ) 0.26 (0.02 ) 0.28 June 30, 2022 (2.32 ) (0.01 ) (2.33 ) 0.62 (0.01 ) 0.63 March 31, 2022 (5.18 ) (0.01 ) (5.19 ) 0.98 (0.01 ) 0.99 Economic Interest Expense and Economic Net Interest Income We use derivative and other hedging instruments, specifically Fed Funds, SOFR and T-Note futures contracts, short positions in U.S.
During the year ended December 31, 2023, the Company repurchased a total of 1,072,789 shares of its common stock at an aggregate cost of approximately $9.4 million, including commissions and fees, for a weighted average price of $8.79 per share.
During the year ended December 31, 2024, the Company repurchased a total of 396,241 shares of its common stock at an aggregate cost of approximately $3.3 million, including commissions and fees, for a weighted average price of $8.30 per share.
For the year ended December 31, 2021, we had average borrowings of $4,707.5 million and total interest expense of $7.1 million, resulting in an average cost of funds of 0.15%.
For the year ended December 31, 2022, we had average borrowings of $4,042.1 million and total interest expense of $61.7 million, resulting in an average cost of funds of 1.53%.
Our average cost of funds calculated on a GAAP basis was 2 bps below one-month average SOFR and 22 bps above six-month average SOFR for the year ended December 31, 2023. Our average economic cost of funds was 234 bps below one-month average SOFR and 210 bps below six-month average SOFR for the year ended December 31, 2023.
Our average cost of funds calculated on a GAAP basis was 26 bps above one-month average SOFR and 6 bps above six-month average SOFR for the year ended December 31, 2024. Our average economic cost of funds was 238 bps below one-month average SOFR and 258 bps below six-month average SOFR for the year ended December 31, 2024.
Treasury and the FHFA suspended certain policy provisions in the January agreement, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties.
Treasury and the FHFA suspended certain policy provisions in the Enterprise capital framework established in December 2020, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties (the "September 2021 Provisions").
U.S Fixed-Rate Fixed-Rate 90 Day Treasury Treasury Mortgage Mortgage Average Rate (1) Rate (1) Rate (2) Rate (2) SOFR (3) December 31, 2023 3.84 % 3.87 % 5.93 % 6.61 % 5.36 % September 30, 2023 4.61 % 4.57 % 6.72 % 7.31 % 5.27 % June 30, 2023 4.13 % 3.82 % 6.06 % 6.71 % 5.00 % March 31, 2023 3.61 % 3.49 % 5.56 % 6.32 % 4.51 % December 31, 2022 4.00 % 3.88 % 5.68 % 6.42 % 3.62 % September 30, 2022 4.04 % 3.80 % 5.96 % 6.70 % 2.13 % June 30, 2022 3.00 % 2.97 % 4.83 % 5.70 % 0.70 % March 31, 2022 2.42 % 2.33 % 3.83 % 4.67 % 0.09 % December 31, 2021 1.26 % 1.51 % 2.33 % 3.11 % 0.05 % September 30, 2021 1.00 % 1.53 % 2.28 % 3.01 % 0.05 % June 30, 2021 0.87 % 1.44 % 2.34 % 3.02 % 0.02 % March 31, 2021 0.94 % 1.75 % 2.45 % 3.17 % 0.04 % (1) Historical 5 and 10 Year U.S.
U.S Fixed-Rate Fixed-Rate 90 Day Treasury Treasury Mortgage Mortgage Average Rate (1) Rate (1) Rate (2) Rate (2) SOFR (3) December 31, 2024 4.38 % 4.57 % 6.00 % 6.85 % 4.69 % September 30, 2024 3.58 % 3.80 % 5.16 % 6.08 % 5.31 % June 30, 2024 4.33 % 4.34 % 6.16 % 6.86 % 5.35 % March 31, 2024 4.22 % 4.21 % 6.11 % 6.79 % 5.35 % December 31, 2023 3.84 % 3.87 % 5.93 % 6.61 % 5.36 % September 30, 2023 4.61 % 4.57 % 6.72 % 7.31 % 5.27 % June 30, 2023 4.13 % 3.82 % 6.06 % 6.71 % 5.00 % March 31, 2023 3.61 % 3.49 % 5.56 % 6.32 % 4.51 % December 31, 2022 4.00 % 3.88 % 5.68 % 6.42 % 3.62 % September 30, 2022 4.04 % 3.80 % 5.96 % 6.70 % 2.13 % June 30, 2022 3.00 % 2.97 % 4.83 % 5.70 % 0.70 % March 31, 2022 2.42 % 2.33 % 3.83 % 4.67 % 0.09 % (1) Historical 5 and 10 Year U.S.
This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls.
When the market causes these short positions to decline in value we are required to meet margin calls with cash. This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls.
Gains (Losses) on Derivative Instruments (in thousands) Economic Hedges Recognized in Attributed to Attributed to Income TBA Securities Gain (Loss) Current Future Statement Short Long Period Periods (GAAP) Positions Positions (Non-GAAP) (Non-GAAP) Three Months Ended December 31, 2023 $ (149,016 ) $ (29,750 ) $ (2,262 ) $ 25,161 $ (142,165 ) September 30, 2023 142,042 21,511 (2,024 ) 24,440 98,115 June 30, 2023 93,367 15,599 (574 ) 23,482 54,860 March 31, 2023 (41,156 ) (5,990 ) - 19,211 (54,377 ) December 31, 2022 (12,319 ) (9,700 ) - 9,414 (12,033 ) September 30, 2022 183,930 10,642 106 4,154 169,028 June 30, 2022 103,367 1,013 1,067 1,605 99,682 March 31, 2022 177,498 2,539 27 (1,605 ) 176,537 December 31, 2021 10,833 2,568 - (8,061 ) 16,326 September 30, 2021 5,305 (2,306 ) - (1,318 ) 8,929 June 30, 2021 (34,997 ) (5,963 ) - (5,186 ) (23,848 ) March 31, 2021 45,351 9,133 (8,559 ) (4,165 ) 48,942 Years Ended December 31, 2023 $ 45,237 $ 1,370 $ (4,860 ) $ 92,294 $ (43,567 ) December 31, 2022 452,476 4,494 1,200 13,568 433,214 December 31, 2021 26,492 3,432 (8,559 ) (18,730 ) 50,349 48 Table of Contents The table below presents the effect of the reclassification of derivative expenses discussed above for each quarter in 2022 and 2021.
Gains (Losses) on Derivative Instruments (in thousands) Economic Hedges Recognized in Attributed to Attributed to Income TBA Securities Gain (Loss) Current Future Statement Short Long Period Periods (GAAP) Positions Positions (Non-GAAP) (Non-GAAP) Three Months Ended December 31, 2024 $ 160,412 $ 9,937 $ (683 ) $ 27,782 $ 123,376 September 30, 2024 (140,825 ) (16,315 ) 348 31,924 (156,782 ) June 30, 2024 26,068 3,042 - 29,459 (6,433 ) March 31, 2024 87,899 9,903 105 27,587 50,304 December 31, 2023 (149,016 ) (29,750 ) (2,262 ) 25,161 (142,165 ) September 30, 2023 142,042 21,511 (2,024 ) 24,440 98,115 June 30, 2023 93,367 15,599 (574 ) 23,482 54,860 March 31, 2023 (41,156 ) (5,990 ) - 19,211 (54,377 ) December 31, 2022 (12,319 ) (9,700 ) - 9,414 (12,033 ) September 30, 2022 183,930 10,642 106 4,154 169,028 June 30, 2022 103,367 1,013 1,067 1,605 99,682 March 31, 2022 177,498 2,539 27 (1,605 ) 176,537 Years Ended December 31, 2024 $ 133,554 $ 6,567 $ (230 ) $ 116,752 $ 10,465 December 31, 2023 45,237 1,370 (4,860 ) 92,294 (43,567 ) December 31, 2022 452,476 4,494 1,200 13,568 433,214 The table below presents the effect of the reclassification of derivative expenses discussed above for each quarter in 2022.
Our average cost of funds was 5.07% for the year ended December 31, 2023, compared to 1.53% for the comparable period in 2022. There was a $57.0 million decrease in average outstanding borrowings during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Our average cost of funds was 5.35% for the year ended December 31, 2024, compared to 5.07% for the comparable period in 2023. There was a $428.4 million increase in average outstanding borrowings during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
(in thousands) 2023 2022 2021 Realized losses on sales of RMBS $ (22,642 ) $ (133,695 ) $ (5,542 ) Unrealized losses on RMBS and U.S. Treasury Notes (18,941 ) (642,710 ) (198,454 ) Total losses on RMBS and U.S.
(in thousands) 2024 2023 2022 Realized losses on sales of RMBS $ (4,602 ) $ (22,642 ) $ (133,695 ) Unrealized losses on RMBS and U.S. Treasury Notes (79,842 ) (18,941 ) (642,710 ) Total losses on RMBS and U.S.
($ in thousands) Average Interest Expense Average Cost of Funds Balance of GAAP Economic GAAP Economic Borrowings Basis Basis Basis Basis Three Months Ended December 31, 2023 $ 4,066,298 $ 52,325 $ 27,164 5.15 % 2.67 % September 30, 2023 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,354,107 2,655 4,260 0.20 % 0.32 % December 31, 2021 5,728,988 2,023 10,084 0.14 % 0.70 % September 30, 2021 4,864,287 1,570 2,888 0.13 % 0.24 % June 30, 2021 4,348,192 1,556 6,742 0.14 % 0.62 % March 31, 2021 3,888,633 1,941 6,106 0.20 % 0.63 % Years Ended December 31, 2023 $ 3,985,037 $ 201,918 $ 109,624 5.07 % 2.75 % December 31, 2022 4,042,056 61,708 48,140 1.53 % 1.19 % December 31, 2021 4,707,525 7,090 25,820 0.15 % 0.55 % 52 Table of Contents Average GAAP Cost of Funds Average Economic Cost of Funds Relative to Average Relative to Average Average SOFR One-Month Six-Month One-Month Six-Month One-Month Six-Month SOFR SOFR SOFR SOFR Three Months Ended December 31, 2023 5.34 % 5.35 % (0.19 )% (0.20 )% (2.67 )% (2.68 )% September 30, 2023 5.32 % 5.17 % 0.12 % 0.27 % (2.14 )% (1.99 )% June 30, 2023 5.07 % 4.78 % (0.19 )% 0.10 % (2.54 )% (2.25 )% March 31, 2023 4.63 % 4.09 % 0.09 % 0.63 % (2.06 )% (1.52 )% December 31, 2022 4.06 % 2.89 % (0.43 )% 0.74 % (1.59 )% (0.42 )% September 30, 2022 2.47 % 1.43 % 0.01 % 1.05 % (0.47 )% 0.57 % June 30, 2022 1.09 % 0.39 % (0.29 )% 0.41 % (0.45 )% 0.25 % March 31, 2022 0.16 % 0.07 % 0.04 % 0.13 % 0.16 % 0.25 % December 31, 2021 0.05 % 0.05 % 0.09 % 0.09 % 0.65 % 0.65 % September 30, 2021 0.05 % 0.03 % 0.08 % 0.10 % 0.19 % 0.21 % June 30, 2021 0.03 % 0.03 % 0.11 % 0.11 % 0.59 % 0.59 % March 31, 2021 0.01 % 0.06 % 0.19 % 0.14 % 0.62 % 0.57 % Years Ended December 31, 2023 5.09 % 4.85 % (0.02 )% 0.22 % (2.34 )% (2.10 )% December 31, 2022 1.94 % 1.20 % (0.41 )% 0.33 % (0.75 )% (0.01 )% December 31, 2021 0.04 % 0.04 % 0.11 % 0.11 % 0.51 % 0.51 % Gains or Losses The table below presents our gains or losses for the years ended December 31, 2023, 2022 and 2021.
The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and one-month average and six-month average SOFR rates for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022 on both a GAAP and economic basis. 51 Table of Contents ($ in thousands) Average Interest Expense Average Cost of Funds Balance of GAAP Economic GAAP Economic Borrowings Basis Basis Basis Basis Three Months Ended December 31, 2024 $ 5,128,207 $ 63,853 $ 36,071 4.98 % 2.81 % September 30, 2024 4,788,287 67,306 35,382 5.62 % 2.96 % June 30, 2024 4,028,601 53,761 24,302 5.34 % 2.41 % March 31, 2024 3,708,573 51,361 23,774 5.54 % 2.56 % December 31, 2023 4,066,298 52,325 27,164 5.15 % 2.67 % September 30, 2023 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,354,107 2,655 4,260 0.20 % 0.32 % Years Ended December 31, 2024 $ 4,413,417 $ 236,281 $ 119,529 5.35 % 2.71 % December 31, 2023 3,985,037 201,918 109,624 5.07 % 2.75 % December 31, 2022 4,042,056 61,708 48,140 1.53 % 1.19 % Average GAAP Cost of Funds Average Economic Cost of Funds Relative to Average Relative to Average Average SOFR One-Month Six-Month One-Month Six-Month One-Month Six-Month SOFR SOFR SOFR SOFR Three Months Ended December 31, 2024 4.53 % 5.03 % 0.45 % (0.05 )% (1.72 )% (2.22 )% September 30, 2024 5.16 % 5.37 % 0.46 % 0.25 % (2.20 )% (2.41 )% June 30, 2024 5.34 % 5.39 % 0.00 % (0.05 )% (2.93 )% (2.98 )% March 31, 2024 5.32 % 5.39 % 0.22 % 0.15 % (2.76 )% (2.83 )% December 31, 2023 5.34 % 5.35 % (0.19 )% (0.20 )% (2.67 )% (2.68 )% September 30, 2023 5.32 % 5.17 % 0.12 % 0.27 % (2.14 )% (1.99 )% June 30, 2023 5.07 % 4.78 % (0.19 )% 0.10 % (2.54 )% (2.25 )% March 31, 2023 4.63 % 4.09 % 0.09 % 0.63 % (2.06 )% (1.52 )% December 31, 2022 4.06 % 2.89 % (0.43 )% 0.74 % (1.59 )% (0.42 )% September 30, 2022 2.47 % 1.43 % 0.01 % 1.05 % (0.47 )% 0.57 % June 30, 2022 1.09 % 0.39 % (0.29 )% 0.41 % (0.45 )% 0.25 % March 31, 2022 0.16 % 0.07 % 0.04 % 0.13 % 0.16 % 0.25 % Years Ended December 31, 2024 5.09 % 5.29 % 0.26 % 0.06 % (2.38 )% (2.58 )% December 31, 2023 5.09 % 4.85 % (0.02 )% 0.22 % (2.34 )% (2.10 )% December 31, 2022 1.94 % 1.20 % (0.41 )% 0.33 % (0.75 )% (0.01 )% 52 Table of Contents Gains or Losses The table below presents our gains or losses for the years ended December 31, 2024, 2023 and 2022.
In order to protect our net interest margin against increases in short-term interest rates, we may enter into interest rate swaps, which economically convert our floating-rate repurchase agreement debt to fixed-rate debt or utilize other hedging instruments such as Fed Funds, SOFR and T-Note futures contracts or interest rate swaptions.
In order to protect our net interest margin against increases in short-term interest rates, we may enter into interest rate swaps, which economically convert our floating-rate repurchase agreement debt to fixed-rate debt or utilize other hedging instruments such as Fed Funds, SOFR and T-Note futures contracts, dual digital options or interest rate swaptions. 63 Table of Contents Summary The outlook for the fixed income market pivoted early in the fourth quarter of 2024.
Net loss for the year ended December 31, 2022 was $258.5 million, or $6.90 per share. Net loss for the year ended December 31, 2021 was $64.8 million, or $2.67 per share.
Net loss for the year ended December 31, 2023 was $39.2 million, or $0.89 per share. Net loss for the year ended December 31, 2022 was $258.5 million, or $6.90 per share.
There was a 156 bps increase in the average economic cost of funds to 2.75% for the year ended December 31, 2023 from 1.19% for the year ended December 31, 2022.
There was a 4 bps decrease in the average economic cost of funds to 2.71% for the year ended December 31, 2024 from 2.75% for the year ended December 31, 2023.
This stock repurchase program has no termination date. 44 Table of Contents From the inception of the stock repurchase program through December 31, 2023, the Company repurchased a total of 4,748,361 shares at an aggregate cost of approximately $74.2 million, including commissions and fees, for a weighted average price of $15.63 per share.
This stock repurchase program has no termination date. From the inception of the stock repurchase program through December 31, 2024, the Company repurchased a total of 5,144,602 shares at an aggregate cost of approximately $77.5 million, including commissions and fees, for a weighted average price of $15.07 per share.
Dividends In addition to other requirements that must be satisfied to continue to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding any net capital gains.
For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. 65 Table of Contents Dividends In addition to other requirements that must be satisfied to continue to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding any net capital gains.
Changes in fair value of all of our Agency RMBS during the period are recorded in earnings and reported as unrealized gains (losses) on mortgage-backed securities in the accompanying statements of comprehensive income (loss). For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security.
Changes in fair value of all of our Agency RMBS during the period are recorded in earnings and reported as unrealized gains (losses) on mortgage-backed securities in the accompanying statements of comprehensive income (loss).
As a result of accounting for our RMBS under the fair value option, premium or discount present at the date of purchase is not amortized. For IOs, IIOs and CMOs that do not contain principal balances, income is accrued based on the carrying value and the effective yield.
Income on pass-through securities, POs and CMOs that contain principal balances is based on the stated interest rate of the security. As a result of accounting for our RMBS under the fair value option, premium or discount present at the date of purchase is not amortized.
The $54.6 million increase in interest expense for the year ended December 31, 2022 was due to a 138 bps increase in the average cost of funds, partially offset by a $665.5 million decrease in average borrowings.
The $140.2 million increase in interest expense for the year ended December 31, 2023 was due to a 354 bps increase in the average cost of funds, partially offset by a $57.0 million decrease in average borrowings.
The Agency RMBS purchased or sold for a forward settlement date are typically priced at a discount to equivalent securities settling in the current month. Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet financing. These TBAs are accounted for as derivatives and marked to market through the income statement.
Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet financing. These TBAs are accounted for as derivatives and marked to market through the income statement.
Structured PT RMBS RMBS Total Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%) December 31, 2023 5.4 7.9 5.5 September 30, 2023 6.1 5.7 6.0 June 30, 2023 5.6 7.0 5.6 March 31, 2023 3.9 5.7 4.0 December 31, 2022 4.9 6.0 5.0 September 30, 2022 6.1 10.4 6.5 June 30, 2022 8.3 13.7 9.4 March 31, 2022 8.1 19.5 10.7 The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of December 31, 2023 and 2022: ($ in thousands) Weighted Percentage Average of Weighted Maturity Fair Entire Average in Longest Asset Category Value Portfolio Coupon Months Maturity December 31, 2023 Fixed Rate RMBS $ 3,877,082 99.6 % 4.33 % 334 1-Nov-53 Interest-Only Securities 16,572 0.4 % 4.01 % 223 25-Jul-48 Inverse Interest-Only Securities 358 0.0 % 0.00 % 274 15-Jun-42 Total Mortgage Assets $ 3,894,012 100.0 % 4.30 % 331 1-Nov-53 December 31, 2022 Fixed Rate RMBS $ 3,519,906 99.4 % 3.47 % 339 1-Nov-52 Interest-Only Securities 19,669 0.6 % 4.01 % 234 25-Jul-48 Inverse Interest-Only Securities 427 0.0 % 0.00 % 286 15-Jun-42 Total Mortgage Assets $ 3,540,002 100.0 % 3.46 % 336 1-Nov-52 ($ in thousands) December 31, 2023 December 31, 2022 Percentage of Percentage of Agency Fair Value Entire Portfolio Fair Value Entire Portfolio Fannie Mae $ 2,714,192 69.7 % $ 2,320,960 65.6 % Freddie Mac 1,179,820 30.3 % 1,219,042 34.4 % Total Portfolio $ 3,894,012 100.0 % $ 3,540,002 100.0 % December 31, 2023 December 31, 2022 Weighted Average Pass-through Purchase Price $ 104.10 $ 106.41 Weighted Average Structured Purchase Price $ 18.74 $ 18.74 Weighted Average Pass-through Current Price $ 95.70 $ 91.46 Weighted Average Structured Current Price $ 13.51 $ 14.05 Effective Duration (1) 4.40 5.58 (1) Effective duration is the approximate percentage change in price for a 100 bps change in rates.
Structured PT RMBS RMBS Total Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%) December 31, 2024 10.6 7.0 10.5 September 30, 2024 8.8 6.4 8.8 June 30, 2024 7.6 7.1 7.6 March 31, 2024 6.0 5.9 6.0 December 31, 2023 5.4 7.9 5.5 September 30, 2023 6.1 5.7 6.0 June 30, 2023 5.6 7.0 5.6 March 31, 2023 3.9 5.7 4.0 The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of December 31, 2024 and 2023: ($ in thousands) Weighted Percentage Average of Weighted Maturity Fair Entire Average in Longest Asset Category Value Portfolio Coupon Months Maturity December 31, 2024 Fixed Rate RMBS $ 5,237,812 99.7 % 5.03 % 330 1-Nov-54 Interest-Only Securities 15,308 0.3 % 4.01 % 212 25-Jul-48 Inverse Interest-Only Securities 190 0.0 % 0.00 % 261 15-Jun-42 Total Mortgage Assets $ 5,253,310 100.0 % 4.99 % 328 1-Nov-54 December 31, 2023 Fixed Rate RMBS $ 3,877,082 99.6 % 4.33 % 334 1-Nov-53 Interest-Only Securities 16,572 0.4 % 4.01 % 223 25-Jul-48 Inverse Interest-Only Securities 358 0.0 % 0.00 % 274 15-Jun-42 Total Mortgage Assets $ 3,894,012 100.0 % 4.30 % 331 1-Nov-53 ($ in thousands) December 31, 2024 December 31, 2023 Percentage of Percentage of Agency Fair Value Entire Portfolio Fair Value Entire Portfolio Fannie Mae $ 3,693,032 70.3 % $ 2,714,192 69.7 % Freddie Mac 1,560,278 29.7 % 1,179,820 30.3 % Total Portfolio $ 5,253,310 100.0 % $ 3,894,012 100.0 % 56 Table of Contents December 31, 2024 December 31, 2023 Weighted Average Pass-through Purchase Price $ 102.45 $ 104.10 Weighted Average Structured Purchase Price $ 18.74 $ 18.74 Weighted Average Pass-through Current Price $ 96.44 $ 95.70 Weighted Average Structured Current Price $ 14.38 $ 13.51 Effective Duration (1) 4.200 4.400 (1) Effective duration is the approximate percentage change in price for a 100 bps change in rates.
Presenting net earnings excluding realized and unrealized gains and losses allows management to: (i) isolate the net interest income and other expenses of the Company over time, free of all fair value adjustments and (ii) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance.
As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments. 45 Table of Contents Presenting net earnings excluding realized and unrealized gains and losses allows management to: (i) isolate the net interest income and other expenses of the Company over time, free of all fair value adjustments and (ii) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance.
Gains (Losses) on Derivative Instruments - Reclassification of Derivative Transaction Expenses (in thousands) Recognized in Income Statement Attributed to Current Period Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ (10,657 ) $ 1,662 $ (12,319 ) $ 11,076 $ 1,662 $ 9,414 September 30, 2022 184,819 889 183,930 5,043 889 4,154 June 30, 2022 103,758 391 103,367 1,996 391 1,605 March 31, 2022 177,816 318 177,498 (1,287 ) 318 (1,605 ) December 31, 2021 10,945 112 10,833 (7,949 ) 112 (8,061 ) September 30, 2021 5,375 70 5,305 (1,248 ) 70 (1,318 ) June 30, 2021 (34,915 ) 82 (34,997 ) (5,104 ) 82 (5,186 ) March 31, 2021 45,472 121 45,351 (4,044 ) 121 (4,165 ) Economic Interest Expense and Economic Net Interest Income (in thousands) Interest Expense on Borrowings Gains (Losses) on Derivative Instruments Net Interest Income GAAP Attributed Economic GAAP Economic Interest Interest to Current Interest Net Interest Net Interest Income Expense Period (1) Expense (2) Income Income (3) Three Months Ended December 31, 2023 $ 49,539 $ 52,325 $ 25,161 $ 27,164 $ (2,786 ) $ 22,375 September 30, 2023 50,107 58,705 24,440 34,265 (8,598 ) 15,842 June 30, 2023 39,911 48,671 23,482 25,189 (8,760 ) 14,722 March 31, 2023 38,012 42,217 19,211 23,006 (4,205 ) 15,006 December 31, 2022 31,897 29,512 9,414 20,098 2,385 11,799 September 30, 2022 35,611 21,361 4,154 17,207 14,250 18,404 June 30, 2022 35,268 8,180 1,605 6,575 27,088 28,693 March 31, 2022 41,857 2,655 (1,605 ) 4,260 39,202 37,597 December 31, 2021 44,421 2,023 (8,061 ) 10,084 42,398 34,337 September 30, 2021 34,169 1,570 (1,318 ) 2,888 32,599 31,281 June 30, 2021 29,254 1,556 (5,186 ) 6,742 27,698 22,512 March 31, 2021 26,856 1,941 (4,165 ) 6,106 24,915 20,750 Years Ended December 31, 2023 $ 177,569 $ 201,918 $ 92,294 $ 109,624 $ (24,349 ) $ 67,945 December 31, 2022 144,633 61,708 13,568 48,140 82,925 96,493 December 31, 2021 134,700 7,090 (18,730 ) 25,820 127,610 108,880 (1) Reflects the effect of derivative instrument hedges for only the period presented.
Gains (Losses) on Derivative Instruments - Reclassification of Derivative Transaction Expenses (in thousands) Recognized in Income Statement Attributed to Current Period Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ (10,657 ) $ 1,662 $ (12,319 ) $ 11,076 $ 1,662 $ 9,414 September 30, 2022 184,819 889 183,930 5,043 889 4,154 June 30, 2022 103,758 391 103,367 1,996 391 1,605 March 31, 2022 177,816 318 177,498 (1,287 ) 318 (1,605 ) 48 Table of Contents Economic Interest Expense and Economic Net Interest Income (in thousands) Interest Expense on Borrowings Gains (Losses) on Derivative Instruments Net Interest Income GAAP Attributed Economic GAAP Economic Interest Interest to Current Interest Net Interest Net Interest Income Expense Period (1) Expense (2) Income Income (3) Three Months Ended December 31, 2024 $ 71,996 $ 63,853 $ 27,782 $ 36,071 $ 8,143 $ 35,925 September 30, 2024 67,646 67,306 31,924 35,382 340 32,264 June 30, 2024 53,064 53,761 29,459 24,302 (697 ) 28,762 March 31, 2024 48,871 51,361 27,587 23,774 (2,490 ) 25,097 December 31, 2023 49,539 52,325 25,161 27,164 (2,786 ) 22,375 September 30, 2023 50,107 58,705 24,440 34,265 (8,598 ) 15,842 June 30, 2023 39,911 48,671 23,482 25,189 (8,760 ) 14,722 March 31, 2023 38,012 42,217 19,211 23,006 (4,205 ) 15,006 December 31, 2022 31,897 29,512 9,414 20,098 2,385 11,799 September 30, 2022 35,611 21,361 4,154 17,207 14,250 18,404 June 30, 2022 35,268 8,180 1,605 6,575 27,088 28,693 March 31, 2022 41,857 2,655 (1,605 ) 4,260 39,202 37,597 Years Ended December 31, 2024 $ 241,577 $ 236,281 $ 116,752 $ 119,529 $ 5,296 $ 122,048 December 31, 2023 177,569 201,918 92,294 109,624 (24,349 ) 67,945 December 31, 2022 144,633 61,708 13,568 48,140 82,925 96,493 (1) Reflects the effect of derivative instrument hedges for only the period presented.
Net Earnings (Loss) Excluding Realized and Unrealized Gains and Losses (in thousands, except per share data) Per Share Net Net Earnings Earnings (Loss) (Loss) Excluding Excluding Net Realized and Realized and Net Realized and Realized and Income Unrealized Unrealized Income Unrealized Unrealized (Loss) Gains and Gains and (Loss) Gains and Gains and (GAAP) Losses (1) Losses (GAAP) Losses (1) Losses Three Months Ended December 31, 2023 $ 27,127 $ 33,977 $ (6,850 ) $ 0.52 $ 0.65 $ (0.13 ) September 30, 2023 (80,132 ) (66,890 ) (13,242 ) (1.68 ) (1.40 ) (0.28 ) June 30, 2023 10,249 23,828 (13,579 ) 0.25 0.59 (0.34 ) March 31, 2023 3,530 12,739 (9,209 ) 0.09 0.33 (0.24 ) December 31, 2022 34,926 36,727 (1,801 ) 0.95 1.00 (0.05 ) September 30, 2022 (84,513 ) (94,433 ) 9,920 (2.40 ) (2.68 ) 0.28 June 30, 2022 (60,139 ) (82,673 ) 22,534 (1.70 ) (2.33 ) 0.63 March 31, 2022 (148,727 ) (183,550 ) 34,823 (4.20 ) (5.19 ) 0.99 December 31, 2021 (44,564 ) (82,709 ) 38,145 (1.33 ) (2.46 ) 1.13 September 30, 2021 26,038 (2,957 ) 28,995 1.01 (0.11 ) 1.12 June 30, 2021 (16,865 ) (40,926 ) 24,061 (0.85 ) (2.06 ) 1.21 March 31, 2021 (29,369 ) (50,912 ) 21,543 (1.72 ) (2.98 ) 1.26 Years Ended December 31, 2023 $ (39,226 ) $ 3,654 $ (42,880 ) $ (0.89 ) $ 0.08 $ (0.97 ) December 31, 2022 (258,453 ) (323,929 ) 65,476 (6.90 ) (8.65 ) 1.75 December 31, 2021 (64,760 ) (177,504 ) 112,744 (2.67 ) (7.33 ) 4.66 (1) Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments, including net interest income or expense on interest rate swaps. 46 Table of Contents Prior to 2023, we included certain expenses related to our derivative instruments in "Direct REIT operating expenses" in the statements of comprehensive income (loss).
Net Earnings (Loss) Excluding Realized and Unrealized Gains and Losses (in thousands, except per share data) Per Share Net Net Earnings Earnings (Loss) (Loss) Excluding Excluding Net Realized and Realized and Net Realized and Realized and Income Unrealized Unrealized Income Unrealized Unrealized (Loss) Gains and Gains and (Loss) Gains and Gains and (GAAP) Losses (1) Losses (GAAP) Losses (1) Losses Three Months Ended December 31, 2024 $ 5,545 $ 1,759 $ 3,786 $ 0.07 $ 0.02 $ 0.05 September 30, 2024 17,320 21,249 (3,929 ) 0.24 0.29 (0.05 ) June 30, 2024 (4,979 ) 98 (5,077 ) (0.09 ) - (0.09 ) March 31, 2024 19,776 26,004 (6,228 ) 0.38 0.50 (0.12 ) December 31, 2023 27,127 33,977 (6,850 ) 0.52 0.65 (0.13 ) September 30, 2023 (80,132 ) (66,890 ) (13,242 ) (1.68 ) (1.40 ) (0.28 ) June 30, 2023 10,249 23,828 (13,579 ) 0.25 0.59 (0.34 ) March 31, 2023 3,530 12,739 (9,209 ) 0.09 0.33 (0.24 ) December 31, 2022 34,926 36,727 (1,801 ) 0.95 1.00 (0.05 ) September 30, 2022 (84,513 ) (94,433 ) 9,920 (2.40 ) (2.68 ) 0.28 June 30, 2022 (60,139 ) (82,673 ) 22,534 (1.70 ) (2.33 ) 0.63 March 31, 2022 (148,727 ) (183,550 ) 34,823 (4.20 ) (5.19 ) 0.99 Years Ended December 31, 2024 $ 37,662 $ 49,110 $ (11,448 ) $ 0.57 $ 0.75 $ (0.18 ) December 31, 2023 (39,226 ) 3,654 (42,880 ) (0.89 ) 0.08 (0.97 ) December 31, 2022 (258,453 ) (323,929 ) 65,476 (6.90 ) (8.65 ) 1.75 (1) Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments, including net interest income or expense on interest rate swaps.
Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income (loss) and are not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.
Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income (loss) and are not included in interest expense.
On November 30, 2023, the FHFA published a final rule, to become effective April 1, 2024, which will, among other things, reduce the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively; replace the current exposure methodology with the standardized approach for counterparty credit risk as the method for computing exposure and risk-weighted asset amounts for derivatives and cleared transactions; update the credit score assumption to 680 for single-family mortgage exposures originated without a representative credit score; and introduce a risk weight of 20% for guarantee assets. 63 Table of Contents The scope and nature of the actions the U.S. government or the Fed will ultimately undertake are unknown and will continue to evolve.
On November 30, 2023, the FHFA published a final rule, which became effective April 1, 2024, which reduced the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively; replaced the current exposure methodology with the standardized approach for counterparty credit risk as the method for computing exposure and risk-weighted asset amounts for derivatives and cleared transactions; updated the credit score assumption to 680 for single-family mortgage exposures originated without a representative credit score; and introduced a risk weight of 20% for guarantee assets.
We issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8 million, and net proceeds of approximately $149.3 million, after commissions and fees, prior to its termination in March 2023.
We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.
The unrealized gains and losses on RMBS may also include the premium lost as a result of prepayments on the underlying mortgages, decreasing unrealized gains or increasing unrealized losses as prepayment speeds or premiums increase.
Treasuries or swaps, as well as varying levels of demand for RMBS, which affect the pricing of the securities in our portfolio. The unrealized gains and losses on RMBS may also include the premium lost as a result of prepayments on the underlying mortgages, decreasing unrealized gains or increasing unrealized losses as prepayment speeds or premiums increase.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInterest Rate Sensitivity (1) Portfolio Market Book Change in Interest Rate Value (2)(3) Value (2)(4) As of December 31, 2023 -200 Basis Points (2.03 )% (16.78 )% -100 Basis Points (0.54 )% (4.48 )% -50 Basis Points (0.17 )% (1.40 )% +50 Basis Points 0.00 % 0.02 % +100 Basis Points (0.15 )% (1.23 )% +200 Basis Points (0.81 )% (6.70 )% As of December 31, 2022 -200 Basis Points 0.52 % 4.18 % -100 Basis Points 0.61 % 4.92 % -50 Basis Points 0.40 % 3.25 % +50 Basis Points (0.43 )% (3.47 )% +100 Basis Points (1.04 )% (8.38 )% +200 Basis Points (2.51 )% (20.27 )% (1) Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, and assumes there are no changes in mortgage spreads and assumes a static portfolio.
Biggest changeInterest Rate Sensitivity (1) Portfolio Market Book Change in Interest Rate Value (2)(3) Value (2)(4) As of December 31, 2024 -200 Basis Points (1.20 )% (9.41 )% -100 Basis Points (0.06 )% (0.43 )% -50 Basis Points 0.10 % 0.80 % +50 Basis Points (0.35 )% (2.75 )% +100 Basis Points (0.93 )% (7.31 )% +200 Basis Points (2.67 )% (20.99 )% As of December 31, 2023 -200 Basis Points (2.03 )% (16.78 )% -100 Basis Points (0.54 )% (4.48 )% -50 Basis Points (0.17 )% (1.40 )% +50 Basis Points 0.00 % 0.02 % +100 Basis Points (0.15 )% (1.23 )% +200 Basis Points (0.81 )% (6.70 )% (1) Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, and assumes there are no changes in mortgage spreads and assumes a static portfolio.
Our profitability and the value of our investment portfolio (including derivatives used for hedging purposes) may be adversely affected during any period as a result of changing interest rates, including changes in the forward yield curve. Our portfolio of PT RMBS is typically comprised of adjustable-rate RMBS (“ARMs”), fixed-rate RMBS and hybrid adjustable-rate RMBS.
Our profitability and the value of our investment portfolio (including derivatives used for hedging purposes) may be adversely affected during any period as a result of changing interest rates, including changes in the forward yield curve. Our portfolio of PT RMBS is typically comprised of fixed rate RMBS, adjustable-rate RMBS (“ARMs”) and hybrid adjustable-rate RMBS.
Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our stockholders. 69 Table of Contents Prepayment Risk Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated.
Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our stockholders. 68 Table of Contents Prepayment Risk Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated.
Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments. 68 Table of Contents We face the risk that the market value of our PT RMBS assets will increase or decrease at different rates than that of our structured RMBS or liabilities, including our hedging instruments.
Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments. 67 Table of Contents We face the risk that the market value of our PT RMBS assets will increase or decrease at different rates than that of our structured RMBS or liabilities, including our hedging instruments.
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses. 70 Table of Contents Counterparty Credit Risk We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements.
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses. 69 Table of Contents Counterparty Credit Risk We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements.
The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of December 31, 2023 and December 31, 2022, assuming rates instantaneously fall 200 bps, fall 100 bps, fall 50 bps, rise 50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.
The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of December 31, 2024 and December 31, 2023, assuming rates instantaneously fall 200 bps, fall 100 bps, fall 50 bps, rise 50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.
The base interest rate scenario assumes interest rates and prepayment projections as of December 31, 2023 and 2022. Actual results could differ materially from estimates , especially in the current market environment.
The base interest rate scenario assumes interest rates and prepayment projections as of December 31, 2024 and 2023. Actual results could differ materially from estimates , especially in the current market environment.
In general, we use futures contracts and interest rate swaps and swaptions to help manage our funding cost on our investments in the event that interest rates rise. These hedging instruments allow us to reduce our funding exposure on the notional amount of the instrument for a specified period of time.
In general, we use futures contracts, dual digital options and interest rate swaps and swaptions to help manage our funding cost on our investments in the event that interest rates rise. These hedging instruments allow us to reduce our funding exposure on the notional amount of the instrument for a specified period of time.
However, there is no guarantee our efforts to manage counterparty credit risk will be successful, and we could suffer significant losses if unsuccessful. 71 Table of Contents
However, there is no guarantee our efforts to manage counterparty credit risk will be successful, and we could suffer significant losses if unsuccessful. 70 Table of Contents
As of December 31, 2023, we had unrestricted cash and cash equivalents of $171.9 million and unpledged securities of approximately $28.5 million (not including unsettled securities purchases or securities pledged to us) available to meet margin calls on our repurchase agreements and derivative contracts, and for other corporate purposes.
As of December 31, 2024, we had unrestricted cash and cash equivalents of $309.3 million and unpledged securities of approximately $44.2 million (not including unsettled securities purchases or securities pledged to us) available to meet margin calls on our repurchase agreements and derivative contracts, and for other corporate purposes.
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.
If prepayments are slower or faster than assumed, the life of the Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.
Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns. Hedging techniques are also limited by the rules relating to REIT qualification. In order to preserve our REIT status, we may be forced to terminate a hedging transaction at a time when the transaction is most needed.
Hedging techniques are also limited by the rules relating to REIT qualification. In order to preserve our REIT status, we may be forced to terminate a hedging transaction at a time when the transaction is most needed.
We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are futures contracts, interest rate swaps and swaptions, and interest rate caps. These instruments are intended to serve as an economic hedge against future interest rate increases on our repurchase agreement borrowings.
We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are futures contracts, dual digital options, interest rate swaps and swaptions, and interest rate floors and caps.
Consequently, while we use futures contracts and interest rate swaps and swaptions to attempt to protect against moves in interest rates, such instruments typically will not protect our net book value against spread risk. Liquidity Risk The primary liquidity risk for us arises from financing long-term assets with shorter-term borrowings through repurchase agreements.
Consequently, while we use futures contracts, dual digital options, interest rate swaps and swaptions, and interest rate floors and caps to attempt to protect against moves in interest rates, such instruments typically will not protect our net book value against spread risk.
Our assets that are pledged to secure repurchase agreements are Agency RMBS and cash.
Liquidity Risk The primary liquidity risk for us arises from financing long-term assets with shorter-term borrowings through repurchase agreements. Our assets that are pledged to secure repurchase agreements are Agency RMBS and cash.
Added
These instruments are intended to serve as an economic hedge against future interest rate increases on our repurchase agreement borrowings. Hedging techniques are partly based on assumed levels of prepayments of our Agency RMBS.

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