IVR 10-K & 10-Q changes, risk factors and insider trading
Invesco Mortgage Capital Inc. (also IVR-PC) · NYSE · Real Estate Investment Trusts · CIK 1437071 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Interest rate volatility represents significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our ability to manage risks effectively.”
New heading “Future issuances of equity securities may dilute your ownership in us and may also negatively affect the market price of our common stock.”
Removed heading “Risk Factor Summary”
Removed heading “Risks Related to Financing and Hedging”
Removed heading “Risks Related to Our Business”
Removed heading “Risks Related to Our Relationship with Our Manager”
Removed heading “Risks Related to Our Capital Stock”
Removed heading “Risks Related to Our Organization and Structure”
Removed heading “General Risk Factors”
Removed heading “Risks Related to Our Investments”
Removed heading “Common stock eligible for future sale may have adverse effects on our share price.”
Largest changes
Our Manager or its or our third-party vendors, clients or counterparties havesee in full comparisondeveloped,developed and may continue to develop or incorporate AI technology in certain business processes, services or products. The development and use of AI presents a number of risks andchallenges.challenges to our business. The legal and regulatory environment relating to AI isuncertain andrapidly evolving, in theU.S.U.S., E.U. and internationally, and includes regulation targeted specifically at AI technology, including the EU AI Act, portions of which have already come into force with more to follow this year and future years, as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AI. Global divergence in AI regulations and evolving standards could create conflicting requirements across jurisdictions, increase compliance costs, and heighten enforcement risk. These evolving laws and regulations could require changes in our Manager’s implementation of AI technology, increase its or our compliance costs and the risk of non-compliance, and restrict or impede its ability to develop, adopt and deploy AI technologies efficiently and effectively. If not appropriately governed, managed and controlled, AI models, particularly generative AI models, may produce output or take action that is incorrect or outdated, that result in the release of personal, confidential or proprietary information, that reflect biases included in the data on which they are trained or introduced during the training or fine tuning process, that infringe on the intellectual property rights of others, or that is otherwise harmful.In addition, theThe complexity and limited transparency of many AI models makes it challenging to understand why theyare generatinggenerate particularoutputs.outputs,Thisincreasinglimited transparency increases the challenges associated with assessing the proper operation of AI technology, understandinggovernance and monitoringtherisks.capabilitiesUse ofthethird-party AItechnologymodelsdevelopedmaybyintroducethirdadditionalparties,risk,and,as we may have limited visibility into their training data, validation processes, and controls tothatpreventextent,unauthorizedareordependentharmful content. This results inpart on the manner in which those third parties develop and train their models, includingpotential risks arising from the inclusion of any unauthorized material in the training data for their models, and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which weor our Managermay have limited visibility. Further, AI tools, whether embedded in third party systems or in tools that we develop, that are used to support our business, such as investment decision making, present unique risks, including errors in algorithms or assumptions, data quality issues, and potential bias, that could adversely affect investment performance and increase business and compliance risks. Any of these risks could exposeour Manager orus to liability or adverse legal or regulatory consequences and harmits orour reputation and the public perception ofits orour business or the effectiveness of our security measures. In addition to ourManager’suse of AI technologies,it andwe are exposed to risks arising from the use of AI technologies by bad actors to commit fraud and misappropriate funds and to facilitate cyberattacks. GenerativeAI,AIifmayusedbe exploited toperpetratecreatefraudsophisticated phishing schemes, ransomware attacks, orlaunchothercyberattacks,cyber threats, which could result in financial losses, liquidity outflows, orothersystemicadversemarketeffects at a particular financial institution or exchange.disruptions. If ourManager’sor our Manager's use of AI becomes controversial,it orwe may experience brand or reputational harm, competitive harm, or legal liability.
“Interest rate volatility represents significant risks to our business, potentially affecting our liquidity, increasing our costs, and impacting our ability to manage risks effectively.”see in full comparison
“Interest rate volatility can materially and adversely impact our business, financial condition, and operating results. Elevated volatility amplifies market risks that affect the value of our assets and liabilities and can reduce earnings stability. Increased volatility also heightens our exposure to margin calls, including higher risk-based margin requirements, which may require us to post additional collateral, thereby reducing our unencumbered liquidity, limiting resources available for operational needs and further margin obligations. …”see in full comparison
Our borrowings or future borrowings under repurchase agreements for our target assets may qualify for special treatment under the U.S. Bankruptcy Code. This would give our lenders the ability to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to take possession of and liquidate the assets that we have pledged under their repurchase agreements, without delay, if we file for bankruptcy. Furthermore,see in full comparisonthe special treatment of repurchase agreements under the U.S. Bankruptcy Code may make it difficult for us to recover our pledged assets ifwere a lender party tosucha repurchase agreementfilesto file forbankruptcy.bankruptcy or a similar insolvency proceeding, such insolvency event may result in a disruption to our financing capitalization structure, including due to premature termination of such repurchase agreement and/or potential delays in regaining control over collateral in the possession or control of such lender party.
“Future issuances of equity securities may dilute your ownership in us and may also negatively affect the market price of our common stock.”see in full comparison
“Common stock eligible for future sale may have adverse effects on our share price.”see in full comparison
Full comparison: every changed paragraph (128)
Risk Factor Summary
Risks Related to Our InvestmentsInvestment and Portfolio Management Activities
•The U.S. Federal Reserve’s participation in the Agency RMBS market could have an adverse effect on our Agency RMBS investments.
•We may lose profits if our assets experience periods of illiquidity.
•Our investments may be concentrated and subject to risk of default.
•There could be adverse impacts to our results and dividends resulting from fluctuations in interest rates and increases in interest rates.
•Spread risk is inherent to our business as a levered investor in our target assets.
•Premium securities may be subject to more risk than par value securities.
•Prepayment rates may adversely affect the value of our investment portfolio.
•Market conditions may upset the historical relationship between interest rate changes and prepayment trends, which would make it more difficult for us to analyze our investment portfolio.
•The Federal conservatorship of and changes in laws affecting Fannie Mae and Freddie Mac may adversely affect our business.
•Competition may limit our ability to acquire desirable investments.
•There is risk of losses associated with our investments.
•We are dependent on third-party service providers, whose actions we may not control.
•A decline in the market value of our MBS may adversely affect our results of operations and financial condition.
Risks Related to Financing and Hedging
•Our strategy involves the use of significant leverage, which increases the risk that we may incur substantial losses.
•We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business.
•The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions.
•The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired.
•A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us.
•Our use or future use of repurchase agreements to finance our target assets may give our lenders greater rights if either we or a lender files for bankruptcy.
•We enter into hedging transactions that could expose us to contingent liabilities in the future.
•Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
•Our hedging strategies may be ineffective.
•Clearing facilities or exchanges may increase the margin requirements we are required to post when entering into derivative instruments, which may negatively impact our ability to hedge and our liquidity.
•We may enter into derivative contracts that expose us to risks and contingent liabilities, and those contingent liabilities may not appear on our balance sheet.
•It may be uneconomical to “roll” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations.
Risks Related to Our Business
•Our business may be adversely affected by unfavorable or changing economic, market, and political conditions.
•Maintaining 1940 Act exclusions for our subsidiaries imposes limits on our operations, and failure to maintain an exclusion could have a material negative impact on our operations.
•We are highly dependent on information systems and systems failures or cyber-attacks could significantly disrupt our business, which may, in turn, negatively affect the market price of our capital stock and our ability to pay dividends.
•The recent advancements in and increased use of artificial intelligence (“AI”) present risks and challenges that may adversely impact our business.
•Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis, which may contain errors.
•We may repurchase shares of our common stock and preferred stock from time to time, which may negatively impact our compliance with covenants in our financing agreements and regulatory requirements and our ability to invest in our target assets in the future.
•There are risks associated with accounting estimates, judgments and assumptions in the preparation of our financial statements, and changes in the fair value of our derivatives may result in volatility in our U.S. GAAP earnings.
•Our reported U.S. GAAP financial results differ from our REIT taxable income, which impacts our dividend distribution requirements. Therefore, our U.S. GAAP results may not be an accurate indicator of future taxable income and dividend distributions.
Risks Related to Our Relationship with Our Manager
•We are dependent on our Manager and its key personnel for our success.
•There are conflicts of interest in our relationship with our Manager and Invesco, which could result in decisions that are not in the best interests of our stockholders.
Risks Related to Our Capital Stock
•We have not established a minimum dividend payment level, and we cannot assure our stockholders of our ability to pay dividends in the future.
•Future offerings of debt or equity securities that would rank senior to our common stock may adversely affect the market price of our common stock.
Risks Related to Our Organization and Structure
•Certain provisions of Maryland law and in our organizational documents could inhibit changes in control.
•We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership.
Tax Risks
•Investment in our capital stock has various U.S. federal income tax risks, and there are risks involved with the requirements associated with our REIT qualification.
General Risk Factors
•Our business is subject to extensive regulation.
•We may be adversely affected by the current and future economic, regulatory and other actions of government bodies and their agencies.
•We may change any of our strategies, policies or procedures without stockholder consent.
•We may enter into transactions and take certain actions in connection with such transactions, and there are certain other factors, that could affect the price of our common stock.
Risks Related to Our Investments
Fluctuations in interest rates could adversely affect the value of our investments and derivative financial instruments and cause our interest expense to increase,increase. whichThis could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders.
Interest rates are highly sensitive to many factors,factors beyond our control, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.factors.
Interest rate fluctuations present avarious varietyrisks, ofsuch risks including the risk ofas a narrowing of the difference between asset yields and borrowing rates, a decline in the yield on adjustable-rate investments, and a detrimental impact on prepayment ratesrates. andThese risks may adversely affect our income and thebook value of our assets and capital stock.value.
We may invest in RMBS, CMBS, mortgage loans and other financing arrangements that are subject to risks related to interest rate fluctuations.risks. Fluctuations in short- or long-term interest rates could haveadversely adverse effects onaffect our operations and financial condition, which may negatively affectreduce cash available for distribution to our stockholders. Fluctuations in interest rates could impact us as followsSpecifically:
•If short-term interest rates increase significantly the amount ofsignificantly, interest owed on the repurchase agreements we enter intoused to finance the purchase of our investments would increase, whichpotentially may reducereducing our net income.
•If long-term interest rates increase significantly, the market value of our fixed-rate investments would decline, and the duration and weighted average life of thethese investments may increase.increase, Wepotentially couldresulting realizein arealized losslosses if thethese securities were sold.
Management's Discussion & Analysis (MD&A)
Removed heading “Other Investment Income (Loss), net”
Largest changes
“Interest income on our MBS where we may not recover substantially all of our initial investment is based on estimated future cash flows. We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price. Over the life of the investments, we update these estimated future cash flows and compute a revised yield based on the current amortized cost of the investment, unless those changes will be reflected in an allowance for credit losses. …”see in full comparison
“Strong labor markets, inflation persistently higher than the FOMC’s target of 2% and uncertainty about the impact of future policy action led to a re-pricing of the market’s expectations of future monetary policy. Following the 100 basis point reduction in the Federal Funds target rate over the course of the third and fourth quarters, Federal Funds futures market expectations as of year-end 2024 reflected only one to two additional cuts in the target rate through the end of 2025. This compares to an expectation of ten cuts through the end of 2025 priced in as recently as mid-September 2024. …”see in full comparison
Inflation readings trended modestly lower duringsee in full comparison2024.2025 but continued to exceed the Federal Reserve’s 2% target. The headline consumer price index (“CPI”) ended the year at2.9%,2.7%, down from3.4%2.9% in Decemberof2024.2023, whileCore CPI (ex.CPI excluding food and energy) declined from3.9%3.2% to3.2%.2.6%. The disinflationary trendstalledwasduringalso evident in the fourth quarter,however,as headline CPIincreaseddecreased from2.4%3.0% to2.9%2.7% and core CPI(ex. food and energy)declined modestly from3.3%3.0% to3.2%.2.6%. Investors responded to thestalledimprovedprogress,inflationalong with fresh uncertainty regarding the potential impacts of future fiscal and trade policies,readings byadjustinglowering expectations for futureinflation sharply higher. This was reflectedinflation, most directly reflected in Treasury inflation-protected securities breakeven rates. The two-year breakeven ended the year at2.54%2.30% (updown from1.77%2.63% at the end ofSeptember,September andup from 2.02%2.54% in Decemberof 20232024) and the five-year breakeven ended at2.39%2.27% (updown from2.09%2.45% in September and2.15%2.39% last December). Theemploymentlaborpicturemarketwasweakenedstronginthroughout2025,2024, withas the economyaddingaddeda181,000totaljobsofcomparedoverto2.21.5 millionjobs.jobs in 2024. This weakening trend continued during the fourth quarter, as the economyaddedlostan51,000average of 170,000 jobs per month.jobs.
“Interest rates declined across the U.S. Treasury yield curve in 2025, reflecting market expectations for a more accommodative monetary policy stance and continued weakness in the labor market. The two-year U.S. Treasury security yield fell 78 basis points to 3.47%, the five-year yield declined 68 basis points to 3.71% and the ten-year yield decreased by 43 basis points to 4.15%. Interest rates were little changed during the fourth quarter, as the yield on two-year U.S. Treasury securities decreased by 13 basis points, while the yields on five- and ten-year U.S. …”see in full comparison
“•our counterparty in the hedging transaction may default on its obligation to pay;”see in full comparison
Full comparison: every changed paragraph (125)
We are a Maryland corporation primarily focused on investing in, financing and managing mortgage-backed securities (“MBS”) and other mortgage-related assets. Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.
Our operating results can be affected by a number of factors and primarily depend on the level of our net interest income and the market value of our assets. Our net interest income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates and prepayment speeds, as measured by the constant prepayment rate (“CPR”) on our assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. The market value of our assets can be impacted by credit spread premiums (yield advantage over U.S. Treasury notes)spreads and the supply of, and demand for, assets in which we invest.
Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, public policy, fiscal and monetary policy, interest rates, interest rate volatility, fiscal and monetary policy, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer spending, personal income and spending and corporate earnings. Of these macroeconomic factors, financial conditions, inflation, employment conditions, monetary policy, interest rates and interest rate volatility had the most direct impactsimpact on our performance and financial condition during 2024.2025.
Financial conditions ended 2025 slightly improved, falling sharply after elevated uncertainty around U.S. trade policy in April before rebounding over the remainder of the year. Conditions remained accommodative in the fourth quarter as the Federal Open Market Committee (“FOMC”) reduced rates twice, volatility measures remained subdued and equity markets performed well. During the fourth quarter, the S&P 500 Index and the NASDAQ continued their strong performance, posting gains of 2.3% and 2.6%, respectively. For 2025, the S&P 500 gained 16.4% and the NASDAQ was up 20.4%. Credit market valuations improved over the course of 2025 and ended the fourth quarter largely unchanged, despite experiencing a period of notable deterioration driven primarily by uncertainty regarding U.S. trade policy.
Financial conditions were predominantly accommodative throughout 2024, buoyed by strong equity market performance, tightening spreads across investment grade, high yield and emerging market bonds, declining interest rate volatility and the start of the Federal Open Market Committee’s (“FOMC”) easing cycle. The fourth quarter saw these trends continue following the resolution of the US elections, despite sharply higher interest rates in the intermediate and long end of the yield curve.
Inflation readings trended modestly lower during 2024.2025 but continued to exceed the Federal Reserve’s 2% target. The headline consumer price index (“CPI”) ended the year at 2.9%,2.7%, down from 3.4%2.9% in December of2024. 2023, whileCore CPI (ex.CPI excluding food and energy) declined from 3.9%3.2% to 3.2%.2.6%. The disinflationary trend stalledwas duringalso evident in the fourth quarter, however, as headline CPI increaseddecreased from 2.4%3.0% to 2.9%2.7% and core CPI (ex. food and energy) declined modestly from 3.3%3.0% to 3.2%.2.6%. Investors responded to the stalledimproved progress,inflation along with fresh uncertainty regarding the potential impacts of future fiscal and trade policies,readings by adjustinglowering expectations for future inflation sharply higher. This was reflectedinflation, most directly reflected in Treasury inflation-protected securities breakeven rates. The two-year breakeven ended the year at 2.54%2.30% (updown from 1.77%2.63% at the end of September,September and up from 2.02%2.54% in December of 20232024) and the five-year breakeven ended at 2.39%2.27% (updown from 2.09%2.45% in September and 2.15%2.39% last December). The employmentlabor picturemarket wasweakened strongin throughout2025, 2024, withas the economy addingadded a181,000 totaljobs ofcompared overto 2.21.5 million jobs.jobs in 2024. This weakening trend continued during the fourth quarter, as the economy addedlost an51,000 average of 170,000 jobs per month.jobs.
Despite inflation remaining above the Federal Reserve’s 2% target, the FOMC responded to the weakening job market by lowering its benchmark Federal Funds target rate by 25 basis points on three occasions during 2025, including at both meetings in the fourth quarter. By year-end, Federal Funds futures priced in expectations for an additional 50 basis points of rate cuts by the end of 2026, reflecting investor anticipation of a more accommodative Federal Reserve moving forward. The FOMC ended its program of quantitative tightening during the fourth quarter after reducing its portfolio of U.S. Treasury securities and Agency MBS by over $2.2 trillion since June 2022.
Interest rates declined across the U.S. Treasury yield curve in 2025, reflecting market expectations for a more accommodative monetary policy stance and continued weakness in the labor market. The two-year U.S. Treasury security yield fell 78 basis points to 3.47%, the five-year yield declined 68 basis points to 3.71% and the ten-year yield decreased by 43 basis points to 4.15%. Interest rates were little changed during the fourth quarter, as the yield on two-year U.S. Treasury securities decreased by 13 basis points, while the yields on five- and ten-year U.S. Treasury securities fell by two basis points and remained unchanged, respectively. Despite increasing significantly in April after the U.S. trade policy announcements, interest rate volatility declined notably throughout the remainder of the year. This decline reflected market expectations for an accommodative Federal Reserve, which were confirmed when the FOMC lowered its benchmark rate by 25 basis points at each of the last three meetings of 2025.
Against this macroeconomic backdrop, Agency RMBS delivered robust performance during the fourth quarter, capping an exceptional year for the sector. Relative to U.S. Treasury securities, 2025 marked the strongest calendar-year performance for Agency RMBS since 2010, which is particularly notable given the ongoing runoff in Agency RMBS from the Federal Reserve’s balance sheet and the continued lack of meaningful demand from commercial banks. Three key themes emerged in the second half of the year that supported valuations following the sector’s underperformance amid April’s trade policy-related instability: a sharp decline in interest rate volatility, significant inflows into fixed income funds and mortgage REITs, and the unexpected emergence of Fannie Mae and Freddie Mac as additional sources of demand. With organic net supply totaling just $164 billion for the year, money manager, mortgage REIT and GSE demand drove higher valuations. As a result, the sector outperformed investment grade corporates relative to U.S. Treasury securities for the first time since 2018. Prepayment speeds increased modestly but remained low, constrained by subdued housing activity and mortgage rates that, despite falling nearly 100 basis points over the year, remain elevated. Premiums on higher coupon specified pool collateral were well supported by the decline in mortgage rates, improving notably in the second half of the year.
Agency CMBS risk premiums finished 2025 largely unchanged, retracing the spread widening seen in April amid heightened U.S. trade policy uncertainties. The rebound in valuations began in mid-to-late April and continued through the fourth quarter, supported by improving clarity in trade relations and growing confidence in the path toward monetary policy easing. Additionally, slightly higher issuance levels relative to the prior year were well absorbed due to money manager inflows and continued bank demand for stable cash flow profiles.
Strong labor markets, inflation persistently higher than the FOMC’s target of 2% and uncertainty about the impact of future policy action led to a re-pricing of the market’s expectations of future monetary policy. Following the 100 basis point reduction in the Federal Funds target rate over the course of the third and fourth quarters, Federal Funds futures market expectations as of year-end 2024 reflected only one to two additional cuts in the target rate through the end of 2025. This compares to an expectation of ten cuts through the end of 2025 priced in as recently as mid-September 2024. Quantitative tightening continued in the fourth quarter of 2024, as the Federal Reserve passively reduced the size of its balance sheet through maturities of U.S. Treasuries and paydowns of Agency RMBS. Paydowns of Agency RMBS from the balance sheet added approximately $16 billion of net supply to the market each month, well below the Federal Reserve's monthly cap of $35 billion. Although quantitative tightening is anticipated to conclude over the next several quarters, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.
Interest rates were quite volatile during 2024, with rates falling for the first three quarters of the year on expectations of future policy action by the FOMC before sharply reversing during the fourth quarter as the market priced the majority of those cuts out. Over the year, the yield on the two-year Treasury was flat at 4.25%, the yield on the five-year Treasury increased 56 basis points to 4.39% and the yield on the ten-year Treasury finished at 4.58%, up 72 basis points on the year. During the fourth quarter interest rates were higher across the board, with the two-year, five-year and ten-year Treasury yields up 60 basis points, 81 basis points and 78 basis points, respectively. Short-dated interest rate volatility reflected the market’s shifting expectations of both monetary and potential fiscal policy, increasing ahead of the U.S. elections and FOMC meeting in November before settling in December to end the year slightly lower.
Against this macroeconomic backdrop, Agency RMBS underperformed Treasuries during the fourth quarter while still ending the year with modest outperformance. Underperformance during the quarter primarily took place in lower coupons, as the sharp move higher in interest rates limited demand for deep discount securities. Although interest rate volatility moved higher during the quarter, supply and demand technicals for higher coupon Agency RMBS were supportive as supply was limited while bank and overseas demand improved. Prepayment speeds largely remained at low levels given limited housing activity and elevated mortgage rates, but recently originated loans did display significant responsiveness to the short-lived notable decline in mortgage rates in the third quarter. Premiums on higher coupon specified pool collateral declined modestly given the increase in interest rates but remain relatively well-supported as implied financing via the dollar roll market for TBA investments remained largely unattractive throughout the quarter.
Agency CMBS risk premiums contracted notably during the fourth quarter and throughout 2024 given increased optimism regarding eventual monetary policy normalization, money manager inflows, renewed bank demand for stable cash flow profiles amidst elevated interest rate volatility and relatively modest new issuance.
Given the meaningful decline in interest rate volatility, we remain constructive on Agency RMBS, though we view near-term risks as balanced following the sector's strong performance, reinforced by the recent announcements that Fannie Mae and Freddie Mac will purchase $200 billion in Agency RMBS. In addition, Agency CMBS continues to offer attractive risk-adjusted yields and diversification benefits given its stable cash flow profile and lower sensitivity to interest rate fluctuations.
Longer term, the environment for Agency MBS investments is likely to remain favorable given reduced interest rate volatility and expectations for broadening investor demand and a steeper yield curve.
In the near-term, we remain cautious on Agency RMBS as shifting expectations for monetary and fiscal policy may result in elevated interest rate volatility, reducing investor demand. Our long-term outlook for Agency RMBS is favorable, however, as we expect demand to improve in higher coupons given attractive valuations, an eventual decline in interest rate volatility, and a steeper yield curve. Lastly, we expect a gradual increase in Agency CMBS new issuance to be met with robust investor demand, as the sector continues to offer value relative to other fixed income investments due to its prepayment protection and attractive risk-adjusted return profiles.
As of December 31, 20242025 and 2023,2024, our holdings of 30 year fixed-rate Agency RMBS represented 83%approximately 85% and 98%83% of our total investment portfolio, respectively. Our 30 year fixed-rate Agency RMBS holdings as of December 31, 20242025 and 20232024 consisted of specified pools with coupon distributions as shown in the table below.
Our purchasesholdings of Agency RMBS have beenare primarily focused on specified pools with attractive prepayment profiles. We seek to capitalize on the impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that optimize borrower incentive to prepay for both our premium and discount priced investments. The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of December 31, 20242025 and 2023.2024.
WeAs resumedof investingDecember in31, 2025 and 2024, our holdings of Agency CMBS inrepresented theapproximately first14% quarterand 15% of 2024our becausetotal theseinvestment portfolio, respectively. These securities benefitoffer fromattractive prepaymentrisk-adjusted protection characteristicsyields and havediversification an attractive return profile.benefits. Further, the hedging costs relatedassociated towith these holdings are economical as theyAgency areCMBS is less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments. As of December 31, 2024,2025, approximately 81% of our holdings of Agency CMBS representedholdings approximatelywere 15%Fannie ofMae ourDUS totaland investment19% portfolio.were Freddie Mac Multifamily Participation Certificates.
We sold our remaining investments in non-Agency securities during 2025. As of December 31, 2024, our holdings of non-Agency securities represented less than 1% of our total investment portfolio.
Approximately 79% of our Agency CMBS were Fannie Mae DUS and 21% were Freddie Mac Multifamily Participation Certificates.
As of December 31, 2024 and 2023, our holdings of non-Agency CMBS and non-Agency RMBS represented less than 1% of our total investment portfolio. In the first quarter of 2024, we received a final distribution from our sole remaining unconsolidated venture. Following this distribution, we no longer have any investments in unconsolidated ventures.
We finance the majority of our investment portfolio through repurchase agreements. Repurchase agreements are generally settled on a short-term basis, usually from one to six months, and bear interest at rates that are expected to move in close relationship to SOFR.the secured overnight financing rate (“SOFR”).
We generally hedge as much of our interest rate and foreign exchange risk as we deem prudent because of market conditions. No assurance can be given that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Our investment policies do not contain specific requirements as to the percentages or amount of risk that we are required to hedge.
Hedging may fail to protect or could adversely affect us because, among other things:
•available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
•the duration of the hedges may not match the duration of the related liabilities;
•our counterparty in the hedging transaction may default on its obligation to pay;
•the values of derivatives used for hedging are adjusted in accordance with accounting rules to reflect changes in fair value.
We enter into interest rate swap agreements that are designed to mitigate the effects of changes in interest rates for a portion of our borrowings. Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR. To a lesser extent, we have alsoin usedthe past entered into and may in the future enter into interest rate swap agreements whereby we make floating interest rate payments indexed to SOFR and receive fixed interest rate payments as part of our overall risk management strategy.
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the year ended December 31, 2024,2025, we entered into new interest rate swaps with a notional amount of $2.6$1.3 billion and terminated or settled existing interest rate swaps with a notional amount of $3.4$790.0 billion.million.
DuringWe thealso thirduse quarterU.S. of 2024, we began entering intoTreasury futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the year ended December 31, 2024,2025, we entered into U.S. Treasury futures contracts with a notional amount of $2.8$5.6 billion and terminated or settled existingU.S. Treasury futures contracts with a notional amount of $1.4$5.9 billion.
Daily variation margin for interest rate swaps and U.S. Treasury futures contracts is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our consolidated statementstatements of operations.
Additionally, we have used and may in the future use short positions in TBAs to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations.
As of December 31, 2024,2025, we mayhad sell up to 11,095,56119,538,020 shares of our common stock remaining available for sale from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents. The table below shows salesissuances of our common stock under equity distribution agreements during the years ended December 31, 20242025 and 2023.2024.
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the year ended December 31, 2024, we repurchased and retired 138,008 shares of Series B Preferred Stock (prior to the redemption discussed below) and 338,780 shares of Series C Preferred Stock. During the year ended December 31, 2023, we repurchased and retired 151,637 shares of Series B Preferred Stock and 271,031 shares of Series C Preferred Stock. As of December 31, 2024, we had authority to repurchase 706,659 additional shares of our Series C Preferred Stock under the current preferred stock share repurchase program.
On December 27, 2024, we redeemed all issued and outstanding shares of our Series B Preferred Stock for $106.2 million. The cash redemption price for each share of Series B Preferred Stock was $25.00. The excess of the consideration transferred over carrying value was accounted for as a deemed dividend and resulted in a reduction of $3.5 million in net income attributable to common stockholders during the year ended December 31, 2024.
For information on dividends declared and paid during the years ended December 31, 20242025 and 2023,2024, see Note 1110 - “Stockholders' Equity”" of our consolidated financial statements in Part IV, Item 15 of this annual report on Form 10-K.
During the yearyears ended December 31, 2025 and 2024, we did not repurchase any shares of our common stock.
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the year ended December 31, 2025, we repurchased and retired 352,528 shares of Series C Preferred Stock. During the year ended December 31, 2024, we repurchased and retired 138,008 shares of Series B Preferred Stock prior to redemption and 338,780 shares of Series C Preferred Stock. We redeemed all outstanding shares of our Series B Preferred Stock in December 2024. As of December 31, 2025, we had authority to repurchase 354,131 additional shares of our Series C Preferred Stock under the current preferred stock share repurchase program.
Our book value per common share decreased 10.8%2.2% as of December 31, 20242025 compared to December 31, 20232024. The decrease in our book value per common share was primarily due to losses recognized on investmentsderivative instruments, dividends declared and dividends declared,expenses, which were partially offset by net interest income and gains recognized on derivative instruments.investments.
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. All of these estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of these financial statements. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in valuation of our investment portfolio,portfolio allowancesor forderivative credit losses on our available-for-sale MBS,instruments and a change in our interest income recognition among other effects.
Mortgage-Backed Securities. We have elected the fair value option for all of our MBS purchasedheld onas of December 31, 2025 (December 31, 2024: $5.4 billion or after September 1, 2016 and all of our RMBS IOs.99.7%). Under the fair value option, we recognize changes in fair value are recognized in theour consolidated statement of operations. In our view, the fair value option election more appropriately reflects the results of our operations because MBS fair value changes are accounted for in the same manner as fair value changes in economic hedging instruments. As of December 31, 2024, $5.4 billion (December 31, 2023: $5.0 billion) or 99.7% (December 31, 2023: 99.7%) of our MBS are accounted for under the fair value option. We record our MBS purchased before September 1, 2016, as available-for-sale and report these MBS at fair value.
Refer to the preceding discussion under “Market Conditions and Impacts” for information on how conditions in 20242025 impacted valuations of our Agency securities, which constituted substantially all of our investment portfolio during 2024.2025. Additionally, refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for the estimated impact of an instantaneous shift in the yield curve on the market value of our interest rate-sensitive investments.instruments.
Interest income on our MBS where we may not recover substantially all of our initial investment is based on estimated future cash flows. We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price. Over the life of the investments, we update these estimated future cash flows and compute a revised yield based on the current amortized cost of the investment, unless those changes will be reflected in an allowance for credit losses. In situations where an allowance for credit losses is limited by the fair value of the investment, we compute the yield as the rate that equates expected future cash flows to the current fair value of the investment. In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments (prepayments, repurchases, defaults and liquidations), the pass through or coupon rate, and interest rate fluctuations. These uncertainties and contingencies are difficult to predict and are subject to future events that may impact our estimate and our interest income. Changes in our original or most recent cash flow projections may result in a prospective change in interest income recognized on these securities, or the amortized cost of these securities. For non-Agency RMBS not of high credit quality, when actual cash flows vary from expected cash flows, the difference is recorded as an adjustment to the amortized cost of the security, unless those changes will be reflected in an allowance for credit losses, and the security's yield is revised prospectively.
One of the most significant factors impacting our projected cash flows is changes in long-term interest rates. When interest rates fall, prepayments will generally increase and when interest rates rise, prepayments will generally decrease. However, there are a variety of factors that may impact the rate of prepayments on our securities. Accordingly, under different conditions, we could report materially different amounts.
For Agency RMBS and Agency CMBSMBS that cannot be prepaid in such a way that we would not recover substantially all of our initial investment, interest income recognition is based on contractual cash flows. We do not estimate prepayments in applying the effective interest method.
Interest income on our MBS where we may not recover substantially all of our initial investment is based on estimated future cash flows. We estimate future expected cash flows at the time of purchase and determine the effective interest rate based on these estimated cash flows and our purchase price. Over the life of the investments, we update these estimated future cash flows and compute a revised yield based on the current amortized cost of the investment. In estimating these future cash flows, there are a number of assumptions that are subject to uncertainties and contingencies, including but not limited to the rate and timing of principal payments, the pass through or coupon rate and interest rate fluctuations. These uncertainties and contingencies are difficult to predict and are subject to future events that may impact our estimate and our interest income. Changes in our original or most recent cash flow projections may result in a prospective change in interest income recognized on these securities, or the amortized cost of these securities.
One of the most significant factors impacting our interest income recognition is changes in long-term interest rates. When interest rates fall, prepayments will generally increase and when interest rates rise, prepayments will generally decrease. However, there are a variety of factors that may impact the rate of prepayments on our securities. Accordingly, under different conditions, we could report materially different amounts.
Prepayment rates on our mortgage-backed securities increased modestlyaccelerated in 20242025 compared to 20232024 but remained relatively low given elevatedas interest rates.rates declined. Refer to Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for an estimate of the percentage change in our net interest income, including interest paid or received under interest rate swaps, caused by an instantaneous 50 and 100 basis points increase or decrease in interest rates.
Accounting for Derivative Financial Instruments. We use or have used derivatives to manage interest rate and currency exchange risk and as an alternative means of investing in and financing Agency RMBS. We record all derivatives on our consolidated balance sheets at fair value. Refer to Note 2 - “Summary of Significant Accounting Policies” of our consolidated financial statements included in Part IV, Item 15 of this Report for a description of how we determine the fair value of our U.S. Treasury futures contracts, interest rate swaps and TBAs. As of December 31, 2024,2025, all of our U.S. Treasury futures contracts were exchange-tradedexchange-traded, and all of our interest rate swaps were centrally cleared by a registered clearing organization. Changes in the fair value of our derivatives are recorded in gain (loss) on derivative instruments, net in our consolidated statement of operations. Further information is provided in Note 76 - “Derivatives and Hedging Activities” of our consolidated financial statements included in Part IV, Item 15 of this Report.
The factors that impact valuations of our TBAs are similar to those that impact valuations of our Agency RMBS. Valuations of interestU.S. rate swaps andTreasury futures contracts are mostimpacted significantlyby changes in interest rates. Valuations of interest rate swaps are impacted by changingchanges in swap rates, which includes changes in interest raterates expectations.as well as changes in swap spreads. We recognized net gainslosses on our interest rate swaps and U.S. Treasury futures contracts in 20242025 primarily due to shifting expectations that interestas rates would stay higher for longer.declined.
OurThe table below presents information from our consolidated resultsstatements of operations for the years ended December 31, 2024,2025, 20232024 and 2022 are summarized below.2023.
Average earning asset yields increaseddecreased 67 basis points for the year ended December 31, 20242025 compared to 2023.2024. Changes in our average earning asset yields are driven by the composition of our investments, bookamortized pricescost of our securities and prepayment rates.
We earned total interest income of $286.5 million during 2024 (2023: $277.9 million). Our interest income consists ofincludes coupon interest and net (premium amortization) discount accretion on MBS and other securities as well as interest income on our commercial loan as shown in the table below.
Our interest income increased $8.6$8.7 million for the year ended December 31, 20242025 compared to 20232024 due to higher average earning assetsassets, andwhich was partially offset by lower average earning asset yields.
Our Agency RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income. Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate. In an environment of rising interest rates, prepayment speeds will generally decrease as homeowners are not as incentivized to refinance. For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur. For thoseAgency securitiesRMBS onpurchased whichat wea dosubstantial estimatepremium prepayments,relative to par value, expected future prepayment speeds are estimated on at least a quarterly basis. If the actual prepayment speed during the period is faster than estimated, the amortization on securities purchased at a premium to par value will be accelerated, resulting in lower interest income recognized. Conversely, for securities purchased at a discount to par value, interest income will be reduced in periods where prepayment speeds were slower than expected.
Faster prepayment rates on securities purchased at a premium relative to par value result in higher premium amortization and a decrease in interest income. Conversely, faster prepayment rates on securities purchased at a discount relative to par value result in higher discount accretion and an increase in interest income.
The following table presents net (premium amortization) discount accretion recognized onduring our2025, mortgage-backed2024 and other securities portfolio during 2024, 2023 and 2022.2023.
What changed in the latest 10-Q
Risk Factors
There were no material changes during the periods covered by this Quarterly Report to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on February 23, 2026. Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse effect on our business, financial condition and results of operations.
No wording changes found in this section.
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Management's Discussion & Analysis (MD&A)
Largest changes
“Financial conditions improved during the second quarter of 2026 despite periodic bouts of volatility driven by geopolitical developments in the Middle East, elevated energy prices and shifting expectations for monetary policy. Strong labor market conditions, resilient economic growth and moderating interest rate volatility supported risk assets, while investors navigated uncertainty surrounding inflation and energy prices. …”see in full comparison
“The Federal Open Market Committee (“FOMC”) kept the benchmark Federal Funds target rate unchanged at both meetings during the quarter, citing a balance between the risks of a weakening labor market and persistently elevated inflation. Expectations for future monetary policy action, as reflected in the Fed Funds futures market, were influenced by heightened volatility stemming from increased geopolitical risks related to the conflict in the Middle East. The futures market began the quarter with expectations for two rate cuts by year-end, driven by signs of labor market softness. …”see in full comparison
“Against this macroeconomic backdrop, Agency RMBS delivered mixed performance relative to interest rate hedges during the quarter, as lower coupons performed well while higher coupons underperformed. Excess returns relative to U.S. Treasuries were strong in January as the robust performance in the second half of 2025 carried over into the new year, supported by declining interest rate volatility and the announcement of a $200 billion Agency MBS purchase program by Fannie Mae and Freddie Mac. …”see in full comparison
“Risk sentiment has improved entering the second quarter, supported by a decline in interest rate volatility. A further de‑escalation of the Middle East conflict would likely provide additional support for risk assets. From a supply‑and‑demand perspective, Agency RMBS net issuance is expected to remain manageable, the GSEs continue to provide steady demand and bank participation is likely to increase, supported in part by recent Basel capital framework proposals that improve the relative capital efficiency of high-quality mortgage assets. …”see in full comparison
“Against this macroeconomic backdrop, Agency RMBS performance relative to interest rate hedges was mixed across the coupon stack. Higher coupon securities, which benefitted from improving risk sentiment, declining interest rate volatility and favorable market technicals, generally outperformed lower coupon securities. …”see in full comparison
“The Federal Open Market Committee (“FOMC”) maintained its target range for the Federal Funds rate at 3.50% to 3.75% throughout the second quarter, citing continued economic resilience, a strong labor market and inflation that remained above its long term objective. Expectations for future monetary policy shifted meaningfully during the quarter. Investors entered the period anticipating that moderating inflation and slowing economic growth would eventually lead to policy easing. …”see in full comparison
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The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. We caution you not to rely unduly on any forward-looking statements and urge you to carefully consider the factors described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report and our Annual Report on Form 10-K.10-K for the year ended December 31, 2025 and this Report, which may be updated by subsequently filed quarterly reports on Form 10-Q or current reports on Form 8-K . If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
As of MarchJune 31,30, 2026, we were invested in:
Macroeconomic factors that affect our business include inflation, economic growth, employment conditions, public policy, fiscal and monetary policy, interest rates, interest rate volatility, financial conditions, spread premiums, residential and commercial real estate prices, credit availability, the health of the banking system, consumer spending, personal income and corporate earnings. Of these macroeconomic factors, financial conditions, inflation, employment conditions, monetary policy, interest rates and interest rate volatility had the most direct impact on our performance and financial condition during the firstsecond quarter of 2026.
Financial conditions improved during the second quarter of 2026 despite periodic bouts of volatility driven by geopolitical developments in the Middle East, elevated energy prices and shifting expectations for monetary policy. Strong labor market conditions, resilient economic growth and moderating interest rate volatility supported risk assets, while investors navigated uncertainty surrounding inflation and energy prices. Against this backdrop, equity markets generated strong returns during the quarter, with broad market indices recovering from periods of volatility and ending the quarter at or near record highs. Credit markets also performed well, as risk premiums across investment grade, high yield and securitized bonds generally tightened amid improving investor confidence and continued demand for income-oriented assets.
Following a strong recovery in the second half of 2025 and impressive start to the new year, financial conditions deteriorated in the latter half of the first quarter, initially weakening as market volatility rose amid signs of a softening labor market. The decline accelerated following the outbreak of conflict in the Middle East toward the end of February to end the quarter notably weaker. Against this backdrop of heightened geopolitical risk, equity markets reacted negatively with the S&P 500 and NASDAQ declining 4.6% and 7.1%, respectively. Credit markets followed a similar trajectory, as valuations across investment-grade credit, high yield bonds and emerging market debt came under pressure amid the sharp increase in volatility.
Inflation readingsremained trended mostly higher during the first quarter, remainingnotably above the Federal Reserve’s 2% target.target throughout the quarter. The year-over-year increase in the headline consumer price index (“CPI”) endedincreased during the quarterquarter, at 3.3%, uprising from 2.7%approximately 3.3% in December,March to 3.5% by quarter end, reflecting athe sharpimpact riseof higher energy prices and broader inflationary pressures. The year-over-year increase in energy and commodity prices stemming from the outbreak of conflict in the Middle East. Corecore CPI, which excludes food and energy, remainedwas steadyunchanged from the beginning of the quarter at 2.6%. Amid heightenedDespite uncertainty around energy prices, investors revised their inflation expectations higher,lower, most clearly reflected in Treasury inflation-protected securities breakeven rates. The two-year breakeven rosedeclined sharply higherto to2.00% at quarter end from 3.25% at quarter-end,the upend fromof 2.30%the atfirst year-end,quarter, while the five-year breakeven increaseddecreased to 2.27% from 2.60%.
The Federal Open Market Committee (“FOMC”) maintained its target range for the Federal Funds rate at 3.50% to 3.75% throughout the second quarter, citing continued economic resilience, a strong labor market and inflation that remained above its long term objective. Expectations for future monetary policy shifted meaningfully during the quarter. Investors entered the period anticipating that moderating inflation and slowing economic growth would eventually lead to policy easing. However, stronger than expected economic data, elevated energy prices and a modest reacceleration in inflation prompted market participants to reassess this outlook. By quarter end, Federal Funds futures reflected growing expectations that the FOMC's next move would be a hike rather than a cut.
The Federal Open Market Committee (“FOMC”) kept the benchmark Federal Funds target rate unchanged at both meetings during the quarter, citing a balance between the risks of a weakening labor market and persistently elevated inflation. Expectations for future monetary policy action, as reflected in the Fed Funds futures market, were influenced by heightened volatility stemming from increased geopolitical risks related to the conflict in the Middle East. The futures market began the quarter with expectations for two rate cuts by year-end, driven by signs of labor market softness. However, as commodity and energy prices surged, those expectations reversed, with futures markets subsequently indicating that the FOMC is likely to maintain its current policy stance through the remainder of 2026.
Interest rates increased across the U.S. Treasury yield curve during the quarter,quarter reflectingas investors reassessed the outlook for inflation and monetary policy amid resilient economic growth, a strong labor market expectations for higher inflation asand elevated energy prices continued to work their way through the economy.prices. The two-year U.S. Treasury yield increased by 3337 basis points to 3.80%,4.17%, the five-year yield rose by 2329 basis points to 3.94%4.23% and the ten-year yield rose by 16 basis points to 4.31%.4.47%. Interest rate volatility alsoremained movedrelatively higherwell contained during the quarter,quarter despite periodic bouts of market uncertainty driven by risinggeopolitical concernsdevelopments aroundin athe weakeningMiddle labor marketEast and increasingevolving geopoliticalpolicy risks.expectations.
Against this macroeconomic backdrop, Agency RMBS performance relative to interest rate hedges was mixed across the coupon stack. Higher coupon securities, which benefitted from improving risk sentiment, declining interest rate volatility and favorable market technicals, generally outperformed lower coupon securities. Demand from banks, asset managers, mortgage REITs and other institutional investors remained robust throughout the quarter, while net supply was readily absorbed despite elevated gross issuance activity, underscoring the sector's resilience amid elevated inflation and evolving monetary policy expectations. Attractive carry, strong investor demand and favorable relative valuations versus other high-quality fixed-income sectors continued to support investor interest in Agency RMBS throughout the period.
During the quarter, Agency CMBS risk premiums remained relatively unchanged as supply was readily absorbed by continued institutional demand from banks, insurance companies and asset managers seeking high-quality spread assets. Supported by stable cash flows and attractive risk-adjusted yields relative to other spread sectors, Agency CMBS remained well positioned within the fixed income market.
Against this macroeconomic backdrop, Agency RMBS delivered mixed performance relative to interest rate hedges during the quarter, as lower coupons performed well while higher coupons underperformed. Excess returns relative to U.S. Treasuries were strong in January as the robust performance in the second half of 2025 carried over into the new year, supported by declining interest rate volatility and the announcement of a $200 billion Agency MBS purchase program by Fannie Mae and Freddie Mac. Following the initial post-announcement surge of demand, however, performance languished, as profit-taking and uncertainty regarding the implementation of the purchase program emerged alongside a modest move higher in interest rate volatility. Underperformance accelerated in March at the onset of the geopolitical turmoil in the Middle East, as interest rate volatility rose sharply given higher interest rates and increased expectations for tighter monetary policy. Although lower coupon performance remained positive throughout the quarter, higher coupons were negatively impacted by rising prepayment concerns in the beginning of the quarter and their elevated sensitivity to increased interest rate volatility in the latter half of the quarter. In addition, swap spreads tightened notably during the quarter, negatively impacting Agency RMBS hedged with swaps relative to those hedged with U.S. Treasuries.
Despite elevated market volatility, heightened geopolitical concerns and relatively elevated supply, Agency CMBS risk premiums contracted during the first quarter as issuance was met with continued investor demand, particularly from banks and money managers attracted to the sector’s high-quality collateral, stable cash flows and relative value versus other spread products.
Our outlook for Agency RMBS and Agency CMBS remains constructive. While uncertainty surrounding monetary policy and geopolitical developments persists, we believe valuations remain compelling as interest rate volatility and inflation expectations have moderated from their first quarter peaks. Supply and demand dynamics remain favorable, as net issuance is expected to be contained, and broad-based investor demand remains supportive. Agency CMBS is also well positioned, supported by its attractive risk-adjusted yields, relatively low sensitivity to interest rate fluctuations, and diversification benefits. Taken together, these macroeconomic and market technical factors create a favorable backdrop for our investment strategy as we enter the second half of 2026.
Risk sentiment has improved entering the second quarter, supported by a decline in interest rate volatility. A further de‑escalation of the Middle East conflict would likely provide additional support for risk assets. From a supply‑and‑demand perspective, Agency RMBS net issuance is expected to remain manageable, the GSEs continue to provide steady demand and bank participation is likely to increase, supported in part by recent Basel capital framework proposals that improve the relative capital efficiency of high-quality mortgage assets. Together, these macro and technical factors create a more constructive backdrop for our Agency RMBS holdings, particularly as wider spread levels relative to the prior quarter offer more attractive entry points. In addition, despite elevated supply, our Agency CMBS continues to offer attractive risk‑adjusted yields and diversification benefits, given its stable cash flow profile and lower sensitivity to interest rate fluctuations.
The table below shows the composition of our investment portfolio including TBAs as of MarchJune 31,30, 2026, December 31, 2025 and MarchJune 31,30, 2025.
As of MarchJune 31,30, 2026, our holdings of 30 year fixed-rate Agency RMBS represented approximately 70%73% of our total investment portfolio including TBAs, compared to 85% as of December 31, 2025 and 84%81% as of MarchJune 31,30, 2025. Our 30 year fixed-rate Agency RMBS holdings as of MarchJune 31,30, 2026, December 31, 2025 and MarchJune 31,30, 2025 consisted of specified pools with coupon distributions as shown in the table below.
Our holdings of 30 year fixed-rate Agency RMBS are focused in specified pools with attractive prepayment profiles. We seek to capitalize on the impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that optimize borrower incentive to prepay for both our premium and discount priced investments. The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of MarchJune 31,30, 2026, December 31, 2025 and MarchJune 31,30, 2025.
As of MarchJune 31,30, 2026, our holdings of TBAs represented approximately 17%15% of our total investment portfolio. We increased our allocation to TBAs during the first quarterhalf of 2026 given attractive implied financing rates in the Agency RMBS TBA dollar roll market. As of MarchJune 31,30, 2026, our holdings of TBAs consisted of 4.5%5.0% to 5.5%6.0% couponscoupon in Ginnie Mae collateral.securities.
As of MarchJune 31,30, 2026, our holdings of Agency CMBS represented approximately 12%11% of our total investment portfolio including TBAs, compared to 14% as of December 31, 2025 and 15%17% as of MarchJune 31,30, 2025. These securities offer attractive risk-adjusted yields and diversification benefits. Further, the hedging costs associated with these holdings are economical as Agency CMBS is less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments. As of MarchJune 31,30, 2026, approximately 80%81% of our Agency CMBS holdings were Fannie Mae DUS and 20%19% were Freddie Mac Multifamily Participation Certificates.
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the threesix months ended MarchJune 31,30, 2026, we entered into interest rate swaps with a notional amount of $1.0$1.9 billion and terminated or settled interest rate swaps with a notional amount of $730.0$930.0 million.
We also use U.S. Treasury futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the threesix months ended MarchJune 31,30, 2026, we entered into U.S. Treasury futures contracts with a notional amount of $1.3$2.7 billion and terminated or settled U.S. Treasury futures contracts with a notional amount of $1.4$2.5 billion.
As of MarchJune 31,30, 2026, we had 36,840,41121,992,905 shares of our common stock remaining available for sale from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents. The table below shows issuances of our common stock under equity distribution agreements during the three and six months ended MarchJune 31,30, 2026 and 2025.
For information on dividends declared during the three months ended March 31, 2026 and 2025, see Note 10 - “Stockholders' Equity” of our condensed consolidated financial statements in Part I. Item 1 of this quarterly report on Form 10-Q.
(1)During the three and six months ended MarchJune 31,30, 2026, we didalso notpaid repurchaseother any sharescosts of our$139,000 related to issuances of common stock.
For information on dividends declared during the three and six months ended June 30, 2026 and 2025, see Note 10 - “Stockholders' Equity” of our condensed consolidated financial statements in Part I. Item 1 of this quarterly report on Form 10-Q.
During the six months ended June 30, 2026, we did not repurchase any shares of our common stock.
In May 2022, our board of directors approved a share repurchase program for our Series C Preferred Stock. During the three and six months ended MarchJune 31,30, 2026, we repurchased and retired 64,68847,222 and 111,910 of Series C Preferred StockStock, respectively (three and six months ended MarchJune 31,30, 2025: 90,14696,803 and 186,949 shares). As of MarchJune 31,30, 2026, we had authority to repurchase 289,443242,221 additional shares of our Series C Preferred Stock under the current preferred stock share repurchase program.
We calculate book value per common share as follows.follows:
Our book value per common share decreased 7.3%7.9% as of MarchJune 31,30, 2026 compared to December 31, 2025. The decrease in our book value per common share was primarily due to unrealized losses on investments, dividends declared and expenses, which were partially offset by net interest income and gains on derivative instruments.
The table below presents information from our condensed consolidated statements of comprehensive income (loss) for the three and six months ended MarchJune 31,30, 2026 and 2025.
The table below presents information related to our average earning assets and earning asset yields for the three and six months ended MarchJune 31,30, 2026 and 2025.
Average earning assets increased $523.9$1.6 millionbillion and $1.0 billion for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods in 2025. Changes in our average earning assets are a factor of our total stockholders' equity, our desired leverage levels and our allocation to TBAs.
Average earning asset yields decreased 941 and 25 basis points for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods in 2025. Changes in our average earning asset yields are driven by the composition of our investments, amortized cost of our securities and prepayment rates.
Our interest income increased $5.8$14.8 million and $20.6 million for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods in 2025 due to an increase in average earning assets, which was partially offset by a decrease inlower average earning asset yields.
The following table presents net (premium amortization) discount accretion recognized for the three and six months ended MarchJune 31,30, 2026 and 2025.
The changeincrease in net (premium amortization) discount accretion for the three and six months ended MarchJune 31,30, 2026 compared to the same periodperiods in 2025 was thedue resultto of an increasechanges in the amortizedsize costsand composition of our investment portfolio, including the purchase price of the securities relative to par valuevalue, and faster prepayment ratesspeeds on higher-coupon,higher-coupon premium-pricedsecurities. securities,Net whichpremium amortization for the three and six months ended June 30, 2026 was partially offset by our rotation out of 6.5% coupon Agency RMBS and, solely with respect to the six months ended June 30, 2026, the acceleration of discount accretion on certain Agency CMBS that fully repaid during the period.first quarter of 2026.
The table below presents information related to our borrowings and cost of funds for the three and six months ended MarchJune 31,30, 2026 and 2025.
Average borrowings increased $437.2$1.4 billion and $896.2 million for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods in 2025. Changes in our average borrowings are a factor of our total stockholders' equity, our desired leverage levels and our allocation to TBAs.
Cost of funds decreased 5489 and 72 basis points for the three and six months ended MarchJune 31,30, 20262026, respectively, compared to the same periodperiods in 2025. Changes in our cost of funds are substantially driven by the Federal Funds target rate, which was set at a range of 3.50% to 3.75% during the threesix months ended MarchJune 31,30, 2026 and a range of 4.25% to 4.50% during the threesix months ended MarchJune 31,30, 2025.
The table below presents the components of interest expense for the three and six months ended MarchJune 31,30, 2026 and 2025.
Our interest expense decreasedincreased $2.4 million for three months ended MarchJune 31,30, 2026 compared to the same period in 2025 due to an increase in average borrowings, which was partially offset by a lower cost of funds,funds. whichOur interest expense was partiallyrelatively unchanged for the six months ended June 30, 2026 compared to the same period in 2025 as a lower cost of funds was offset by an increase in average borrowings.
The table below presents the components of net interest income for the three and six months ended MarchJune 31,30, 2026 and 2025.
Our net interest income, which equals total interest income less total interest expense, increased for the three and six months ended MarchJune 31,30, 2026 compared to the same periodperiods in 2025 due to higher average earning assets and a lower cost of funds and higher average earning assets,funds, which were partially offset by higher average borrowings and lower average earning asset yields.
Our net interest rate margin, which equals the yield on our average earning assets for the period less the average cost of funds, increased for the three and six months ended MarchJune 31,30, 2026 compared to the same periodperiods in 2025 due to a lower cost of funds, which was partially offset by lower average earning asset yields. Our cost of funds is generally more sensitive to changes in interest rates than the yield on our investment portfolio, which is largely comprised of 30 year fixed-rate Agency RMBS.
The table below summarizes the components of gain (loss) on investments, net for the three and six months ended MarchJune 31,30, 2026 and 2025.
During the threesix months ended MarchJune 31,30, 2026, we sold our holdings of 6.5% coupon Agency RMBS and realized net gains of $443,000. NetDuring the three and six months ended June 30, 2025 we realized net gains of $1.8 million and net losses of $5.5$3.6 millionmillion, respectively. Net realized gains during the three months ended MarchJune 31,30, 2025 primarily reflect sales of 4.0%Agency couponRMBS during the period of heightened market volatility experienced early in the second quarter. Net realized losses during the six months ended June 30, 2025 primarily reflect sales of lower-coupon Agency RMBS.RMBS during the first quarter.
Under the fair value option, changes in fair value are recognized in income on the condensed consolidated statements of comprehensive income (loss). As of MarchJune 31,30, 2026 and December 31, 2025, all of our MBS were accounted for under the fair value option. We recorded net unrealized losses of $55.4$21.2 million onand our$76.6 MBSmillion during the three and six months ended MarchJune 31,30, 20262026, respectively, due to an increase in interest rates and wider spreads.rates. We recorded net unrealized gains of $87.6 millionlosses on our MBS portfolio accounted for under the fair value option duringof $7.1 million in the three months ended MarchJune 31,30, 2025 as the heightened market volatility that negatively impacted valuations in April 2025 largely subsided prior to quarter end. We recorded net unrealized gains on our MBS portfolio accounted for under the fair value option of $80.5 million in the six months ended June 30, 2025 primarily due to a sharp decline in interest rates.rates during the first quarter.
The tables below summarize the components of our gain (loss) on derivative instruments, net for the following periods.periods:
As of MarchJune 31,30, 2026 and December 31, 2025, we held the following interest rate swaps whereby we pay fixed interest rates and receive floating interest rates based uponon SOFR.SOFR:
We use interest rate swaps to manage our exposure to changing interest rates and add stability to our borrowing costs. During the threesix months ended MarchJune 31,30, 2026, we entered into interest rate swaps with a notional amount of $1.0$1.9 billion and terminated or settled existing interest rate swaps with a notional amount of $730.0$930.0 million. We recorded net gains of $17.5$30.1 million and $47.6 million on interest rate swaps for the three monthsand ended March 31, 2026 (threesix months ended MarchJune 31,30, 2026, respectively (three and six months ended June 30, 2025: net losses of $47.6$16.2 million and $63.8 million). Net gains during the three and six months ended MarchJune 31,30, 2026 were due to an increase in swap rates.
As of MarchJune 31,30, 2026 and December 31, 2025, we held the following U.S. Treasury futures contracts.contracts:
We use U.S. Treasury futures contracts as an alternative way to help mitigate the potential impact of changes in interest rates on our performance. During the threesix months ended MarchJune 31,30, 2026, we entered into U.S. Treasury futures contracts with a notional amount of $1.3$2.7 billion and terminated or settled existing U.S. Treasury futures contracts with a notional amount of $1.4$2.5 billion. We recognized net gains of $4.3$3.3 million and $7.7 million on U.S. Treasury futures contracts during the three monthsand ended March 31, 2026 (threesix months ended MarchJune 31,30, 2026, respectively (three and six months ended June 30, 2025: net losses of $32.9$13.5 million and $46.4 million). Net gains during the three and six months ended MarchJune 31,30, 2026 were due to an increase in interest rates.
We primarily use TBAslong positions in long positionsTBAs as an alternative means of investing in and financing Agency RMBS. Additionally, we have used and may induring the futuresecond usequarter of 2025, we used short positions in TBAs in response to heightened market volatility to manage risk and economically hedge a portion of our exposure to changes in Agency RMBS valuations. We recorded net losses of $9.0$1.8 million and $10.8 million on TBAs during the three monthsand ended March 31, 2026 (threesix months ended MarchJune 31,30, 2026, respectively (three and six months ended June 30, 2025: net losses of $1.2 million and net gains of $3.8$2.6 million). Net losses on TBAs during the three and six months ended MarchJune 31,30, 2026 were due to an increase in interest rates and widening spreads.rates.
We incurred management fees of $3.0$3.3 million and $6.3 million for the three monthsand ended March 31, 2026 (threesix months ended MarchJune 31,30, 2026, respectively (three and six months ended June 30, 2025: $3.0$2.8 million and $5.8 million). Our management fees are determined by our average stockholders' equity. Refer to Note 9 – “Related Party Transactions” of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.
Our general and administrative expenses not covered under our management agreement amounted to $1.9$2.1 million and $4.0 million for the three monthsand ended March 31, 2026 (threesix months ended MarchJune 31,30, 2026, respectively (three and six months ended June 30, 2025: $1.7$2.0 million and $3.7 million). General and administrative expenses not covered under our management agreement primarily consist of directors and officers insurance, legal costs, accounting, auditing and tax services, filing fees and miscellaneous general and administrative costs.
In May 2022, our board of directors approved a share repurchase program for our Series C Preferred Stock. During the three and six months ended MarchJune 31,30, 2026, we repurchased and retired 64,68847,222 and 111,910 shares of Series C Preferred StockStock, respectively (three and six months ended MarchJune 31,30, 2025: 90,14696,803 and 186,949 shares). Gains and losses on repurchases and retirements of preferred stock represent the difference between the consideration transferred and the carrying value of the preferred stock.
For the three months ended MarchJune 31,30, 2026, our net lossincome attributable to common stockholders was $23.1$31.8 million (three months ended MarchJune 31,30, 2025: net incomeloss of $16.3$26.6 million) or $0.28$0.34 basic and diluted net lossincome per average share available to common stockholders (three months ended MarchJune 31,30, 2025: $0.26$0.40 net incomeloss per share). The change in net income (loss) attributable to common stockholders was primarily due to (i) net losses on investments of $54.9$21.2 million in the 2026 period compared to net gainslosses on investments of $82.2$5.3 million in the 2025 period; (ii) net gains on derivative instruments of $12.9$31.6 million in the 2026 period compared to net losses on derivatives of $76.7$30.9 million in the 2025 period; and (iii) a $8.2$12.4 million increase in net interest income.
For the six months ended June 30, 2026, our net income attributable to common stockholders was $8.7 million (six months ended June 30, 2025: net loss of $10.3 million) or $0.10 basic and diluted net income per average share available to common stockholders (six months ended June 30, 2025: $0.16 net loss per share). The change in net income (loss) attributable to common stockholders was primarily due to (i) net losses on investments of $76.2 million in the 2026 period compared to net gains on investments of $76.9 million in the 2025 period; (ii) net gains on derivative instruments of $44.5 million in the 2026 period compared to net losses on derivatives of $107.6 million in the 2025 period; and (iii) a $20.6 million increase in net interest income.
The table below provides a reconciliation of U.S. GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods.periods:
IVR insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 1 Form 4 filing (1 insider, 1 trade date, 1,750 shares, about $14.1K) and open-market sales in 0 filings. Net open-market shares: 1,750 (purchases minus sales); net value about $14.1K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-15 | Graham Peter M |
Grant/award | 10,653 | — | — |
| 2026-05-15 | Day John |
Disposition to issuer | 5,026 | — | — |
| 2026-05-15 | Mcmullan Wes |
Grant/award | 13,157 | — | — |
| 2026-05-15 | Liu Don H |
Grant/award | 13,157 | — | — |
| 2026-05-15 | Kelley Katharine |
Grant/award | 13,157 | — | — |
| 2026-05-15 | Fleshman Robert L |
Grant/award | 13,157 | — | — |
| 2026-05-05 | Gregson Mark William |
Open-market purchase | 1,750 | $8.03 | $14.1K |
Well-known investors holding IVR (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Two Sigma Investments | 2026-06-30 | 1,296,579 | $10.2M | 0.01% | Reduced 41% |
| D. E. Shaw & Co. | 2026-06-30 | 1,010,427 | $8.0M | 0.0% | Reduced 5% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 712,061 | $5.6M | 0.0% | Added 111% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 472,427 | $3.8M | — | Sold out |
| Renaissance Technologies | 2026-06-30 | 288,700 | $2.3M | 0.0% | Reduced 57% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 221,066 | $1.7M | 0.0% | Added 1350% |
| Millennium Management (Israel Englander) | 2026-06-30 | 174,277 | $1.4M | 0.0% | Reduced 22% |