DYNEX CAPITAL INC

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

($s in thousands except per share data)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

($s in thousands except per share data)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

($s in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS

($s in thousands)

NOTE 1 –ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Dynex Capital, Inc. (“Dynex” or the “Company”) is a real estate investment trust (“REIT”) structured to

deliver dividends to shareholders supported by long-term returns from investments in mortgage assets backed by

U.S. housing and commercial real estate. The Company’s common stock and preferred stock trade on the New York

Stock Exchange (“NYSE”). The Company’s common stock trades under the ticker symbol “DX,” and its 6.900%

Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”) and

9.375% Series D Fixed-Rate Cumulative Redeemable Preferred Stock (the “Series D Preferred Stock”) trade under

the ticker symbols “DXPRC” and “DXPRD,” respectively.

The Company is internally managed and primarily earns income from investing in residential and

commercial mortgage-backed securities (“RMBS” and “CMBS”, respectively), which are backed by residential and

commercial mortgage loans, and which are primarily Agency securities guaranteed by U.S. government-sponsored

enterprises (“GSEs”). The Company may also invest in other mortgage-related assets consistent with its objectives.

Dynex actively manages interest rate, prepayment, spread, liquidity, and counterparty risks. The Dynex approach

emphasizes risk management and disciplined capital allocation designed to preserve book value and support

dividends across market cycles.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries

(together, “Dynex” or, as appropriate, the “Company”) have been prepared in accordance with U.S. generally

accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q

and Article 10, Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the

“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial

statements. In the opinion of management, all significant adjustments, consisting of normal recurring accruals,

considered necessary for a fair statement of results for the interim period have been included. All intercompany

accounts and transactions have been eliminated in consolidation. Operating results for thethree and nine months

ended September 30, 2026 are not necessarily indicative of the results that may be expected for any other interim

periods or for the entire year ending December 31, 2026. The unaudited consolidated financial statements included

herein should be read in conjunction with the audited financial statements and notes thereto included in the

Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”) filed with

the SEC.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and

liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the

reported period. Actual results could differ from those estimates. The most significant estimate used by management

relates to the fair value measurement of its investments, including TBA securities accounted for as derivative

instruments, which is discussed further below within this note to the consolidated financial statements. The

Company believes the estimates and assumptions underlying the consolidated financial statements included herein

are reasonable and supportable based on the information available as of September 30, 2026.

Consolidation and Variable Interest Entities

The consolidated financial statements include the accounts of the Company and the accounts of its majority

owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company did not consolidate anyvariable interest entities (“VIEs”) as of September 30, 2026. The

Company consolidates a VIE if the Company is determined to be the VIE’s primary beneficiary, which is defined as

the party that has both (i) the power to control the activities that most significantly impact the VIE’s financial

performance; and (ii) the right to receive benefits or absorb losses that could potentially be significant to the VIE.

The Company reconsiders its evaluation of whether to consolidate a VIE on an ongoing basis, based on changes in

the facts and circumstances pertaining to the VIE. Though the Company invests in Agency and non-Agency MBS

which are generally considered to be interests in VIEs, the Company does not consolidate these entities because it

does not meet the criteria to be deemed the primary beneficiary. The maximum exposure to loss for these VIEs is the

carrying value of the MBS.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the “Tax Code”)

and the corresponding provisions of state law. To qualify as a REIT, the Company must meet certain asset, income,

ownership, and distribution tests. To meet these requirements, the Company’s main source of income is interest

earned from obligations secured by mortgages on real property, and the Company must distribute at least 90% of its

annual REIT taxable income to shareholders. The Company’s income will generally not be subject to federal income

tax to the extent its income is distributed as dividends to shareholders.

The Company assesses its tax positions for all open tax years and determines whether the Company has any

material unrecognized liabilities and records these liabilities, if any, to the extent they are deemed more likely than

not to have been incurred.

Net Income (Loss) Per Common Share

The Company calculates basic net income (loss) per common share by dividing net income (loss) to

common shareholders for the period by weighted-average shares of common stock outstanding for that period.

Please see Note 2 for the calculation of the Company’s basic and diluted net income (loss) per common share for the

periods indicated.

The Company currently has restricted stock, service-based restricted stock units (“RSUs”) and

performance-based stock units (“PSUs”) issued and outstanding. Restricted stock awards issued under the

Company’s 2020 Stock and Incentive Plan (the “2020 Plan”) are considered participating securities and therefore are

included in the computation of basic net income per common share using the two-class method because holders of

unvested shares of restricted stock issued are eligible to receive non-forfeitable dividends. Holders of RSUs and

PSUs issued under the 2020 Plan as well as the Company’s 2025 Stock and Incentive Plan (the “2025 Plan”) accrue

forfeitable dividend equivalent rights ("DERs") over the period outstanding, receiving dividend payments only upon

the settlement date if the requisite service-based and performance-based conditions have been achieved, as

applicable. As such, RSUs and PSUs are excluded from the computation of basic net income per common share but

are included in the computation of diluted net income per common share using the treasury stock method unless the

effect is to reduce a net loss or increase the net income per common share (also known as “anti-dilutive”). Upon

vesting, restrictions on transfer expire on each share of restricted stock, RSU, and PSU, and each such share or unit

becomes one unrestricted share of common stock and is included in the computation of basic net income per

common share.

Because the Company’s Series C Preferred Stock and Series D Preferred Stock are redeemable at the

Company’s option for cash only and convertible into shares of common stock only upon a change of control of the

Company (and subject to other circumstances) as described in Articles IIIC and IIID of the Company’s Restated

Articles of Incorporation, as amended, the effect of those shares and their related dividends is excluded from the

calculation of diluted net income per common share for the periods presented.

Cash and Cash Equivalents

Cash and cash equivalents include unrestricted demand deposits at highly rated financial institutions and

highly liquid investments with original maturities of three months or less. The Company’s cash balances fluctuate

throughout the year and may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits from time to

time. Although the Company bears risk on amounts in excess of those insured by the FDIC, the Company believes

the risk of loss is mitigated by the financial position, creditworthiness, and strength of the depository institutions in

which those deposits are held.

Cash Collateral Posted To/By Counterparties

The Company regularly pledges and receives amounts to cover margin requirements related to the

Company’s financing and derivative instruments. If the amount pledged to a counterparty exceeds the amount

received from a counterparty, the net amount is recorded as an asset within “cash collateral posted to

counterparties,” and if the amount received from a counterparty exceeds the amount pledged to a counterparty, the

net amount is recorded as a liability within “cash collateral posted by counterparties” on the Company’s

consolidated balance sheets.

The following table provides a reconciliation of “cash” and “cash posted to counterparties” reported on the

Company's consolidated balance sheet as of September 30, 2026 presented herein that sum to the total of the same

such amounts shown on the Company’s consolidated statement of cash flows for thenine months ended

Mortgage-Backed Securities

The Company’s MBS are recorded at fair value on the Company’s consolidated balance sheet. Changes in

fair value of MBS purchased prior to January 1, 2021 are designated as available-for-sale (“AFS”) with changes in

fair value reported in other comprehensive income (“OCI”) as an unrealized gain (loss) until the security is sold or

matures. Effective January 1, 2021, the Company elected the fair value option (“FVO”) for all MBS purchased on or

after that date with changes in fair value reported in net income as “unrealized gain (loss) on investments, net” until

the security is sold or matures. Management elected the fair value option so that net income will reflect the changes

in fair value for its future purchases of MBS in a manner consistent with the presentation and timing of the changes

in fair value of its derivative instruments. Upon the sale of an MBS, any unrealized gain or loss within OCI or net

income is reclassified to “realized gain (loss) on sale of investments, net” within net income using the specific

identification method.

Interest Income, Premium Amortization, and Discount Accretion. Interest income on MBS is accrued based

on the outstanding principal balance (or notional balance in the case of IO securities) and the contractual

terms. Premiums or discounts associated with the purchase of MBS are amortized or accreted into interest income

over the life of such securities using the effective interest method, and adjustments to premium amortization and

discount accretion are made for actual cash payments received. On at least a quarterly basis, the Company reviews

and makes any necessary adjustments to its cash flows and updates the yield recognized on these assets.

Determination of MBS Fair Value. The Company estimates the fair value of the majority of its MBS based

upon prices obtained from anindependent third-party pricing service. These prices are assessed for reasonableness

using additional third-party pricing services. Please refer to Note 6 for further discussion of MBS fair value

measurements.

Allowance for Credit Losses. On at least a quarterly basis, the Company evaluates any MBS designated as

AFS with a fair value less than its amortized cost for credit losses. If the difference between the present value of

cash flows expected to be collected on the MBS is less than its amortized cost, the difference is recorded as an

allowance for credit loss through net income up to and not exceeding the amount that the amortized cost exceeds

current fair value. Subsequent changes in credit loss estimates are recognized in earnings in the period in which they

occur. Because the majority of the Company’s investments are higher credit quality and most are guaranteed by a

GSE, the Company has not recorded an allowance for credit losses related to its MBS recorded on its consolidated

balance sheet.

Interest accrued between payment dates on MBS is presented separately from the Company’s investment

portfolio as “accrued interest receivable” on its consolidated balance sheet. The Company does not estimate an

allowance for credit loss for its accrued interest receivable because the interest is generally received within 30 days

and amounts not received when due are written off against interest income.

The Company’s repurchase agreements are used to finance its purchases of MBS. The Company pledges its

securities as collateral to secure a loan, which is equal to a specified percentage of the estimated fair value of the

pledged collateral. The Company retains beneficial ownership of the pledged collateral. Pursuant to Accounting

Standards Codification (“ASC”) Topic 860, the Company accounts for repurchase agreements as collateralized

financing transactions, which are carried at their contractual amounts (cost), plus accrued interest. The interest rates

the Company pays for these borrowings are based on a spread added to the Secured Overnight Financing Rate

(“SOFR”). At the maturity of a repurchase agreement borrowing, the Company is required to repay the loan and

concurrently receives back its pledged collateral from the lender, or, with the consent of the lender, the Company

may renew the agreement at the then prevailing financing rate. A repurchase agreement lender may require the

Company to pledge additional collateral in the event of a decline in the fair value of the collateral

pledged. Repurchase agreement financing is recourse to the Company and the assets pledged. The repurchase

facilities available to the Company are uncommitted with no guarantee of renewal.

Derivative Instruments

Derivative instruments are carried at fair value, and all periodic interest benefits/costs and changes in the

fair value of derivative instruments, including gains and losses realized upon termination, maturity, or settlement,

are recorded in “gain (loss) on derivative instruments, net” on the Company’s consolidated statements of

comprehensive income (loss). Cash receipts and payments related to derivative instruments are classified in the

investing activities section of the consolidated statements of cash flows in accordance with the underlying nature or

purpose of the derivative transactions.

The Company’s U.S. Treasury futures contracts are centrally cleared through the Chicago Mercantile

Exchange (“CME”), which requires the Company to post initial margin as determined by the CME. Daily variation

margin is exchanged, typically in cash, for the changes in the fair value of the futures contracts, which is treated as

legal settlement of the exposure under the related futures contracts as opposed to a pledge of collateral. The effect of

these legal settlements reduces what would have otherwise been reported as the fair value of the futures contracts,

generally to $0. The margin requirement varies based on the market value of the open positions and the equity

retained in the account. Any margin excess or deficit outstanding is recorded as a receivable or payable within “due

from/to counterparties” as of the date of the Company’s consolidated balance sheets. The Company realizes gains or

losses on these contracts upon expiration at an amount equal to the difference between the current fair value of the

underlying asset and the contractual price of the futures contract.

The Company’s interest rate swaps are pay-fixed, which involve the receipt of variable-rate amounts based

on SOFR from a counterparty in exchange for the Company making fixed-rate payments over the life of the interest

rate swap without exchange of the underlying notional amount. The net periodic interest benefit (cost) is recorded in

the period earned (incurred) in “gain (loss) on derivative instruments, net”, but the net receipt (payment) of cash is

exchanged annually, typically on the anniversary of each agreement’s effective date. Similar to the Company’s U.S.

Treasury futures, interest rate swap agreements are centrally cleared through the CME with requirements to post

initial margin and to exchange daily variation margin amounts, which are treated as legal settlements of the

agreements. Any margin excess or deficit outstanding is recorded as a receivable or payable within “due from/to

counterparties” as of the date of the Company’s consolidated balance sheets.

The Company’s interest rate swaptions are SOFR-based and provide the Company the right, but not the

obligation, to enter into an interest rate swap at a predetermined notional amount with a stated term and pay and

receive rates in the future. These agreements are entered into directly with a counterparty (a “bilateral contract”)

with whom we may exchange margin collateral. Because these agreements are not centrally cleared, the Company

has exposure to counterparty risk. The Company records the premium it will pay for the swaption as a derivative

asset on its consolidated balance sheet and adjusts the balance for changes in fair value through “gain (loss) on

derivative instruments” until the swaption is exercised or the contract expires. If the swaption expires unexercised,

the realized loss is limited to the premium paid. If exercised, therealized gain or loss on the swaptions is equal to the

difference between the fair value of the underlying interest rate swap and the premium paid.

The Company may also use options on U.S. Treasury futures, which are initially recorded at the price of the

premium paid at inception. Subsequent changes in fair value are recorded in “gain (loss) on derivative instruments”

until the option is exercised or the contract expires. If the option expires unexercised, the realized loss is limited to

the premium paid at inception. If exercised, the realized gain or loss on the option is equal to the difference between

the fair value of the underlying U.S. Treasury future and the premium paid at inception.

The Company purchases to-be-announced (“TBA”) securities as a means of investing in non-specified

fixed-rate Agency RMBS and may also periodically sell TBA securities as a means of economically hedging its

exposure to Agency RMBS. A TBA security is a forward contract (“TBA contract”) for the purchase (“long

position”) or sale (“short position”) of a non-specified Agency MBS at a predetermined price with certain principal

and interest terms and certain types of collateral, but the particular Agency securities to be delivered are not

identified until shortly before the settlement date. The Company accounts for long and short positions in Agency

RMBS TBAs as derivative instruments in accordance with ASC 815 whenthe Company cannot assert that it is

probable at inception and throughout the term of an individual TBA transaction that its settlement will result in

physical delivery of the underlying Agency RMBS or that the individual TBA transaction will settle in the shortest

time period possible.

Please refer to Note 5 for additional information regarding the Company’s derivative instruments as well as

Note 6 for information on how the fair value of these instruments is calculated.

Share-Based Compensation

The Company’s 2025 Plan reserves for issuance up to 12,000,000 common shares for eligible employees,

non-employee directors, consultants, and advisors to the Company to be granted in the form of stock options,

restricted stock, RSUs, stock appreciation rights, PSUs, and performance-based cash awards (collectively,

“awards”). Awards previously granted under the 2020 Plan will remain outstanding and valid in accordance with

their terms, but no new awards will be granted under the 2020 Plan. As of September 30, 2026, there were 9,455,437

common shares remaining available for issuance under the 2025 Plan.

The Company has issued restricted stock and RSUs that remain outstanding, which are treated as equity

awards and recorded at their fair value using the closing stock price on the grant date. Compensation expense is

generally recognized over a service period specified within each award with a corresponding credit to shareholders’

equity using the straight-line method until the vesting date specified within each award or until the employee

becomes eligible for retirement, if earlier than the vesting date. Compensation expense is recognized immediately

upon the grant date for equity awards granted to an employee who is retirement eligible.

The Company also has issued PSUs that remain outstanding, which are treated as equity awards. The fair

value of PSUs that are subject to Company performance-based conditions is measured using the closing stock price

on the grant date multiplied by the number of units expected to vest based on an assessment of the probability of

achievement of the Company performance-based conditions as of the grant date. The grant date fair value is

recognized as expense using the straight-line method until the earlier of the vesting date specified within each award

or the date the employee becomes eligible for retirement. Adjustments are made, if necessary, based on any change

in probability of achievement which is re-assessed as of each reporting date and on at least a quarterly basis. The

Company does not have any PSUs outstanding with market-based performance conditions.

The Company does not estimate forfeitures for any of its share-based compensation awards but adjusts for

actual forfeitures in the periods in which they occur. Because RSUs and PSUs have forfeitable DERs, which are paid

in cash only upon settlement, any accrued DERs on forfeited units are reversed with a corresponding credit to

“Compensation and benefits” expense.

Please see Note 7 for additional information about the Company’s share-based compensation awards.

Contingencies

From time to time, the Company may be involved in various claims and legal actions arising in the ordinary

course of its business. In the opinion of management, the Company did not have any material pending lawsuits,

claims, or other contingencies as of September 30, 2026 or December 31, 2025.

Recently Issued Accounting Pronouncements

The Company evaluates Accounting Standards Updates (“ASU”) issued by the Financial Accounting

Standards Board on at least a quarterly basis to evaluate applicability and significance of any impact on its financial

condition and results of operations. There areno new accounting pronouncements which are not yet effective that

are expected to have a significant impact on our consolidated financial statements upon adoption.

NOTE 2 –NET INCOME (LOSS) PER COMMON SHARE

Please refer to Note 1 for information regarding the Company’s treatment of its preferred stock and stock

awards in the calculation of its basic and diluted net income or loss per common share and to Note 7 for information

regarding the Company’s stock award activity for the periods presented. The following table presents the

computations of basic and diluted net income or loss per common share for the periods indicated:

The calculation of diluted net loss per common share for the three andnine months ended September 30,

2026 excludes unvested RSUs and PSUs of 1,110,881 and 1,041,255, respectively, which would have been anti-

dilutive for those periods.

NOTE 3 – MORTGAGE-BACKED SECURITIES

The following tables provide details on the Company’s MBS by investment type as of the dates indicated:

The majority of the Company’s MBS are pledged as collateral for the Company’s repurchase agreements,

which are disclosed in Note 4. Actual maturities of MBS are affected by the contractual lives of the underlying

mortgage collateral, scheduled payments, and unscheduled prepayments of principal, and the payment priority

structure of the security; therefore, actual maturities are generally shorter than the securities' stated contractual

maturities.

The following table presents information regarding unrealized gains and losses on investments reported

within net income (loss) on the Company’s consolidated statements of comprehensive income (loss) for the periods

indicated:

The following table presents information regarding realized gains and losses on sales of MBS reported in

the Company’s consolidated statements of comprehensive income (loss) for the periods indicated:

The following table presents certain information for MBS designated as AFS that were in an unrealized loss

position as of the dates indicated:

The unrealized loss positions on the Company’s MBS designated as AFS as of September 30, 2026 and

December 31, 2025 were the result of higher interest rates and wider spreads to U.S. Treasuries compared to at the

time of purchase. The unrealized loss positions are not credit related; therefore, the Company didnot recordan

allowance for credit losses as of September 30, 2026 or December 31, 2025. The Company has the ability and intent

to hold any MBS with an unrealized loss until the recovery in its value. This assessment is based on the amount of

the unrealized loss and significance of the related investment as well as the Company’s leverage and liquidity

position. In addition, for its non-Agency MBS, which are not guaranteed by a GSE, the Company reviews the credit

ratings, the credit characteristics of the mortgage loans collateralizing these securities, and the estimated future cash

flows including projected collateral losses.

NOTE 4 –REPURCHASE AGREEMENTS

The Company’s repurchase agreements outstanding as of September 30, 2026 and December 31, 2025 are

summarized in the following tables:

(1) Amounts disclosed for fair value of collateral pledged include amounts pledged to cover margin calls, which may differ in

collateral type from the initial collateral type pledged.

The Company’s equity at risk did not exceed 10% with any single counterparty as of September 30, 2026.

The following table provides information on the remaining term to maturity and original term to maturity

for the Company’s repurchase agreements as of the dates indicated:

The Company’s accrued interest payable related to its repurchase agreement borrowings increased to$137

million as of September 30, 2026 from$95 million as of December 31, 2025.

The Company’s counterparties, as set forth in the master repurchase agreement with each counterparty,

require the Company to comply with various customary operating and financial covenants, including, but not limited

to, minimum net worth, maximum declines in net worth in a given period, and maximum leverage requirements as

well as maintaining the Company’s REIT status. In addition, some of the agreements contain cross default features,

whereby default under an agreement with one lender simultaneously causes default under agreements with other

lenders. To the extent that the Company fails to comply with the covenants contained in these financing agreements

or is otherwise found to be in default under the terms of such agreements, the counterparty has the right to accelerate

amounts due under the master repurchase agreement. The Company believes it was in full compliance with all

covenants in master repurchase agreements under which there were amounts outstanding as of September 30, 2026.

The Company's repurchase agreements are subject to underlying agreements with master netting or similar

arrangements, which provide for the right of set off in the event of default or in the event of bankruptcy of either

party to the transactions. The Company reports its repurchase agreements to these arrangements on a gross basis.

The following table presents information regarding the Company's repurchase agreements as if the Company had

presented them on a net basis as of September 30, 2026 and December 31, 2025:

(1)Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up to

and not exceeding the net amount of the repurchase agreement liability presented in the balance sheet. The fair value of the

total collateral received by or posted to the same counterparty may exceed the amounts presented. Please refer to the

consolidated balance sheets for the total fair value of financial instruments pledged as collateral for derivatives and

repurchase agreements, which is shown parenthetically, and the total cash pledged or received as collateral, which is

disclosed as “cash collateral posted to/by counterparties.”

Please see Note 5 for information related to the Company’s derivatives, which are also subject to

underlying agreements with master netting or similar arrangements.

NOTE 5 –DERIVATIVES

Types and Uses of Derivative Instruments

Interest Rate Derivatives. The Company frequently changes the type of derivative instruments it uses to

mitigate the impact of changing interest rates on its repurchase agreement financing costs and the fair value of its

investments. Please refer to Note 1 for descriptions of these instruments and how the Company accounts for them.

TBA Transactions. The Company purchases TBA securities as a means of investing in non-specified fixed-

rate Agency RMBS and may also periodically sell TBA securities as a means of economically hedging its exposure

to Agency RMBS. Please refer to Note 1 for more information about these securities.

The table below provides detail of the Company’s gains and losses by type of derivative instrument for the

periods indicated:

The table below provides the carrying amount by type of derivative instrument comprising the Company’s

derivative assets and liabilities on its consolidated balance sheets as of the dates indicated:

The Company’s U.S. Treasury futures and interest rate swaps have a carrying value of$0 on the

Company’s consolidated balance sheets because the daily margin exchanged for these instruments is considered

legal settlement of the derivatives as opposed to a pledge of collateral. The Company’s U.S. Treasury futures,

excluding the recognition of variation margin settlements, were in a netasset position of$240 million as of

September 30, 2026 and a net asset position of$22 million as of December 31, 2025, and its interest rate swaps were

in a net asset position of $947 million as of September 30, 2026 and net liability position of$(46) million as of

December 31, 2025. The amount of cash posted by the Company to cover required initial margin for its U.S.

Treasury futures and its interest rate swaps was$737 million as of September 30, 2026 and$392 million as of

December 31, 2025, which was recorded within “cash collateral posted to counterparties.” The Company had a

margin receivable of$52 million as of September 30, 2026 and$17 million as of December 31, 2025 recorded

within “due from counterparties.”

The table below presents information regarding the Company’s short positions in SOFR-based interest rate

swaps held as of the dates indicated:

The table below presents information regarding the short positions in U.S. Treasury futures held as of the

dates indicated:

The table below presents information regarding the long positions in SOFR-based interest rate swaptions

and options on U.S. Treasury futures held by the Company as of the dates indicated:

(1)The Company pays the premium for its interest rate swaptions at the end of the option period, so the carrying value on the

Company's consolidated balance sheets is fair value, net of the payable for the unpaid premium as of the periods indicated.

The Company pays the premium for its options on U.S. Treasury futures at inception, so the carrying value is equal to the

fair value as of the periods indicated.

The following table summarizes information about the notional amounts of the Company's long positions in

TBA securities as of the dates indicated:

(1)Implied market value represents the estimated fair value of the underlying Agency MBS as of the dates indicated.

(2)Implied cost basis represents the forward price to be paid for the underlying Agency MBS as of the dates indicated.

(3)Net carrying value represents the difference between the implied market value and the implied cost basis of the Company’s

TBA securities as of the dates indicated. The total shown is the net amount included on the consolidated balance sheets as

derivative assets of$— and derivative liabilities of$78,100 as of September 30, 2026 and $7,841 and$785, respectively, as

of December 31, 2025.

Volume of Activity

The table below summarizes changes in the Company’s derivative instruments for thenine months ended

Offsetting

The Company's derivatives are subject to underlying agreements with master netting or similar

arrangements, which provide for the right of set off in the event of default or in the event of bankruptcy of either

party to the transactions. The Company reports its derivative assets and liabilities subject to these arrangements on a

gross basis. Please see Note 4 for information related to the Company’s repurchase agreements, which are also

subject to underlying agreements with master netting or similar arrangements. The following tables present

information regarding those derivative assets and liabilities subject to such arrangements as if the Company had

presented them on a net basis as of September 30, 2026 and December 31, 2025:

(1)Amounts disclosed for collateral received by or posted to the same counterparty include cash and the fair value of MBS up

to and not exceeding the net amount of the derivative asset or liability presented in the balance sheet. The fair value of the

total collateral received by or posted to the same counterparty may exceed the amounts presented. Please refer to the

consolidated balance sheets for the total fair value of financial instruments pledged as collateral for derivatives and

repurchase agreements, which is shown parenthetically, and the total cash pledged or received as collateral which is

disclosed as “cash collateral posted to/by counterparties.”

NOTE 6 –FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. Fair value is based on the assumptions

market participants would use when pricing an asset or liability and also considers all aspects of nonperformance

risk, including the entity’s own credit standing, when measuring fair value of a liability. ASC Topic 820 established

a valuation hierarchy of three levels as follows:

•Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities as of

the measurement date.

•Level 2 – Inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in

inactive markets for identical or similar assets or liabilities; or inputs either directly observable or

indirectly observable through correlation with market data at the measurement date and for the duration

of the instrument’s anticipated life.

•Level 3 – Unobservable inputs are supported by little or no market activity. The unobservable inputs

represent management’s best estimate of how market participants would price the asset or liability at

the measurement date. Consideration is given to the risk inherent in the valuation technique and the

risk inherent in the inputs to the model.

The following table presents the Company’s financial instruments that are measured at fair value on the

Company’s consolidated balance sheet by their valuation hierarchy levels as of the dates indicated:

(1)TBA securities are reflected on the consolidated balance sheet as derivative assets or liabilities at their implied fair value,

net of implied cost basis. Please refer to Note 5 for additional information.

(2)Mortgage loans are included on the consolidated balance sheets as a component of other assets.

(3)Interest rate swaptions are reflected on the consolidated balance sheet as derivative assets or liabilities at their fair value,

net of cost. Please refer to Note 5 for additional information.

The fair value measurements for the Company’s TBA securities and its MBS are considered Level 2

because there are substantially similar securities actively trading or for which there has been recent trading activity

in their respective markets. Fair value for Agency MBS and TBA securities is based on prices received from an

independent third-party pricing service. In valuing a security, the pricing service primarily uses a market approach,

which uses observable prices and other relevant information that is generated by market transactions of identical or

similar securities, but may use an income approach, which uses valuation techniques such as discounted cash flow

modeling. Examples of the observable inputs and assumptions used in the valuation techniques include market

interest rates, credit spreads, and projected prepayment speeds, among other things. The Company reviews the prices

it receives from the pricing service for reasonableness using other third-party pricing services. If the fair value of a

security is not available from a third-party pricing service, the Company may estimate the fair value of the security

through a variety of methods using observable market data.

The Company's mortgage loans held for investment are single-family mortgage loans, which were

originated or purchased by the Company prior to 2000, and for which the Company has elected the fair value option.

The fair value measurements for these mortgage loans are considered Level 3 because there has been no recent

trading activity of similar instruments upon which their fair value can be measured. The fair value for these Level 3

assets is measured by discounting the estimated future cash flows derived from cash flow models using certain

inputs such as the security’s credit rating, coupon rate, estimated prepayment speeds, expected weighted average

life, collateral composition, and expected credit losses as well as certain other relevant information. The Company

used a constant prepayment rate assumption of 10%, default rate of 2%, loss severity of 20%, and a discount rate of

10% in measuring the fair value of its Level 3 assets as of September 30, 2026 and as of December 31, 2025.

The Company’s U.S. Treasury futures contracts are valued based on exchange pricing and are classified

accordingly as Level 1 measurements. Interest rate swaps are valued using the daily settlement price, or fair value,

determined by the clearing exchange based on a pricing model that references observable market inputs, including

current benchmark rates and the forward yield curve, and thus their fair values are considered Level 2

measurements. The carrying value of the U.S. Treasury futures contracts and interest rate swaps on the Company’s

consolidated balance sheets is$0 because the instruments require daily margin exchanges, which are considered by

the settlement agent to represent legal settlement of the contracts on a daily basis. Please see Note 1 and Note 5 for

additional information regarding the fair value of the Company’s derivative instruments.

The fair value measurement of interest rate swaptions is considered Level 2 because it is based on the fair

value of the underlying interest rate swap and time remaining until its expiration and is carried on the balance sheet

net of any deferred premium to be paid upon exercise or expiration. The fair value measurement of options on U.S.

Treasury futures is considered Level 1 because they are valued based on closing exchange prices on these contracts.

Options on U.S. Treasury futures are initially recorded on the balance sheet at the contract price paid and

subsequently adjusted for changes in fair value until exercise or expiration.

The Company’s repurchase agreements are reported at cost, which approximates fair value. Given their

short-term nature (less than one year) and the interest rates on outstanding amounts, which largely correspond to

prevailing rates observed in the repurchase agreement market, their inputs are considered Level 2.

NOTE 7 – SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Preferred Stock. The Company's articles of incorporation authorize the issuance of up to 50,000,000 shares

of preferred stock. During the three months ended September 30, 2026, the Company’s Board of Directors

designated 5,520,000 shares for issuance of 9.375% Series D Fixed-Rate Cumulative Redeemable Preferred Stock

and subsequently sold 4,800,000 shares through a public offeringfor which it received proceeds of$116 million, net

of$4 million in broker commissions and other expenses. The Series D Preferred Stock has no stated maturity, is not

subject to any sinking fund or mandatory redemption, and will remain outstanding indefinitely unless redeemed,

repurchased, or converted into common stock pursuant to the terms of the Series D Preferred Stock. On or after

October 15, 2031, the Series D Preferred Stock may be redeemed at any time and from time to time at the

Company's option at a cash redemption price of$25.00 per share plus any accumulated and unpaid dividends. The

Series D Preferred Stock will pay a quarterly cumulative cash dividend of 9.375% of its$25.00 liquidation value per

share beginning on January 15, 2027.

The Company’s Board of Directors has designated 6,600,000 shares of the Company’s preferred stock for

issuance as Series C Preferred Stock, of which the Company has 4,460,000 of such shares outstanding as of

September 30, 2026. The Series CPreferred Stock has no stated maturity, is not subject to any sinking fund or

mandatory redemption, and will remain outstanding indefinitely unless redeemed, repurchased, or converted into

common stock pursuant to the terms of the Series C Preferred Stock. As of April 15, 2025, the Series C Preferred

Stock may be redeemed at any time and from time to time at the Company's option at a cash redemption price of

$25.00 per share plus any accumulated and unpaid dividends. In addition, the Series C Preferred Stock now pays a

quarterly cumulative cash dividend at a percentage of its$25.00 liquidation value per share equal to 3-month term

SOFR plus the statutorily prescribed tenor spread adjustment of 0.26161% in addition to the spread pursuant to the

terms of the Series C Preferred Stock of 5.461% for a total spread of 5.723%. The Company paid a quarterly

dividend of$0.60793 per share of Series C Preferred Stock on October 15, 2026 to shareholders of record as of

October 1, 2026.

Common Stock. During thenine months ended September 30, 2026, the Company issued 83,119,388 shares

of its common stock through its at-the-market (“ATM”) program at an aggregate value of$1.1 billion, net of broker

commissions and fees. The Company declared monthly dividends on its common stock totaling$0.51 for the three

months ended September 30, 2026. The Company’s timing, frequency, and amount of dividends declared on its

common stock are determined by its Board of Directors. When declaring dividends, the Board of Directors considers

the Company’s taxable income, management’s view on long-term returns, the REIT distribution requirements of the

Tax Code, and maintaining compliance with dividend requirements of the Series C Preferred Stock and Series D

Preferred Stock, along with other factors that the Board of Directors may deem relevant from time to time.

Share-Based Compensation. The following table presents a rollforward of share-based awards for the

periods indicated:

(1)The number of RSUs shown represent the target number of awards. Actual number of shares that will potentially settle may

range from 0% if the recipient’s service-based vesting condition is not met to 100% if the service-based vesting condition is

met.

(2)The number of PSUs shown represent the target number of awards. Actual number of shares that will potentially settle may

range from 0% to 200% based on the achievement of the performance goals defined in each grant award.

Restricted stock granted to employees generally vests in equal installments over a period of 3 years. RSUs

generally vest in equal installments over a period of 3 years if granted to employees andone year if granted to a non-

employee director. PSUs cliff vest based on performance results measured over a period of 3 years. The Company

expects 89% of the remaining target PSUs outstanding as of September 30, 2026 will be settled on their vesting

dates compared to 134% as of June 30, 2026. As a result, the Company recorded a net credit of$(2) million to

share-based compensation expense for the three months ended September 30, 2026. Total share-based compensation

expense for the three months ended September 30, 2025 was$3 million. Total share-based compensation expense

was$8 million for the nine months ended September 30, 2026 and September 30, 2025. The following table

discloses the Company’s remaining compensation expense related to stock awards it has granted as of September 30,

2026, which will be amortized over the period disclosed:

The following table discloses the dividends payable to the Company’s shareholders for common and

preferred stock as well as to its employees and directors for DERs related to its outstanding RSUs and PSUs as of

the dates indicated:

NOTE 8 - SEGMENT REPORTING

The Company’s operations consist ofone reportable segment which involves investing in MBS and funding

these investments with repurchase agreements and equity. Because the Company’s investment portfolio and

financings are subject to market risks, primarily interest rate risk, management seeks to offset a portion of its market

value exposure and financing costs through its interest rate derivative instruments (“hedging portfolio”). The

Company’s investment and hedging portfolios are managed together.

The Company’s revenue is derived from its investment portfolio, which currently consists of primarily

Agency RMBS. The Company’s chief operating decision maker (“CODM”) is its Co-CEO and President. Segment

performance is measured by and resource allocation decisions are based on “comprehensive income (loss) to

common shareholders.” The segment’s significant expense categories as shown on the Company’s consolidated

statement of comprehensive income are regularly provided to the CODM for review and are also used to make

resource allocation decisions. Segment assets are total assets as shown on the Company’s consolidated balance

sheet.