Invesco Mortgage Capital Inc
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
IVR$5.41-0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0001437071-24-000016
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001437071-24-000027
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 184 previous paragraphs and 185 current paragraphs.
119 unchanged; 57 reworded; 7 added; 6 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 28 previous and 32 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
•Despite slowing inflation, interest rates continued to increase across the maturity spectrum as investors began to anticipate the possibility of increased Treasury issuance following this November's presidential election. The yield on the two-year Treasury increased 10 basis points to 4.72%, the yield on the five-year Treasury increased 13 basis points to 4.33% and the yield on the ten-year Treasury finished at 4.34%, up 15 basis points on the quarter. Cooling inflation and softer employment data led to a re-pricing of the market’s expectations of future monetary policy. At the end of the second quarter, the Federal Funds futures market reflected an expectation that the first cut of the benchmark rate by the Federal Open Market Committee’s (“FOMC”) would arrive in either September or November, and that the FOMC would reduce its target rate a total of five time through the end of 2025.
Current report
•Most Agency RMBS fixed rate coupons underperformed Treasuries during the second quarter, as interest rate volatility increased given market expectations for looser monetary policy and higher uncertainty on the timing of monetary policy easing. The increase in volatility led to a softening in demand for Agency RMBS and seasonal effects increased supply in higher coupons. Coupons at the bottom of the 30-year coupon stack marginally outperformed Treasuries, given their lower sensitivity to increases in interest rate volatility, while 3.5% through 6.5% coupons underperformed.
Current report
•Implied financing via the dollar roll market for TBA investments became attractive for select higher coupons at the beginning of the quarter as demand spiked due to CMO issuance. This specialness proved fleeting, and most dollar rolls ended the quarter relatively unattractive.
Current report
As recent economic data indicated the disinflationary trend has continued, increasing the likelihood of an easing of monetary policy in the latter half of 2024, we are constructive on Agency MBS valuations. Agency mortgage performance has closely followed changes in expectations regarding monetary policy, outperforming when additional easing is priced in and underperforming when easing is priced out, and this relationship is likely to continue. Given the investors' expectation for two cuts or more in the Federal Funds target rate during the second half of 2024, we believe higher coupon Agency MBS will benefit from strong demand as the yield curve steepens and interest rate volatility declines.
Current report
We resumed investing in TBAs during the second quarter of 2024 as returns in the Agency RMBS TBA dollar roll market became more attractive for certain coupons at the beginning of the quarter. We invest in TBAs as an alternative means of investing in and financing Agency RMBS. As of June 30, 2024, our TBA holdings were comprised of 5.5% coupons in Ginnie Mae collateral and represented 4% of our investment portfolio.
Current report
During the six months ended June 30, 2024, we did not repurchase any shares of our common stock.
Current report
Our net interest income, which equals total interest income less total interest expense, totaled $8.6 million and $15.6 million for the three and six months ended June 30, 2024, respectively (June 30, 2023: $12.4 million and $32.0 million). The decrease in net interest income for the three months ended June 30, 2024 was due to lower average earning assets, which was partially offset by our rotation into higher yielding Agency RMBS. The decrease in net interest income for the six months ended June 30, 2024 was due to a decrease in amortization of net deferred gains on de-designated interest rate swaps, increases in the Federal Funds target rate and lower average earnings assets, which were partially offset by lower average borrowings and our rotation into higher yielding Agency RMBS.
Removed paragraphs (6)
Previous report
•U.S. Treasury securities; and
Previous report
•Stronger than expected inflation readings, along with continued evidence of robust economic activity, led to sharply higher interest rates across the maturity spectrum during the quarter. The yield on the two-year Treasury increased by 37 basis points to 4.62%, the yield on the five-year Treasury increased 37 basis points to 4.20% and the yield on the ten-year Treasury finished at 4.19%, up 33 basis points on the quarter. The stronger than expected economic growth and inflation data also led to a dramatic re-pricing of the market’s expectations of future monetary policy. These expectations, as seen the through the Federal Funds futures market, adjusted from projecting over six cuts in the
Previous report
Federal Open Market Committee’s (“FOMC”) benchmark rate during the balance of 2024 to less than three cuts. Further, the market’s expectation for the beginning of the easing cycle shifted from March to July.
Previous report
•Higher coupon Agency RMBS outperformed Treasuries while coupons lower in the stack underperformed, given a notable decline in interest rate volatility and improvement in supply and demand dynamics in the first quarter of 2024. Despite the sharp increase in interest rates, interest rate volatility fell as market expectations for monetary policy converged with official projections by the FOMC, benefiting valuations in higher coupons. In addition, organic supply remained at very low levels while demand from money managers, commercial banks, and overseas investors broadly outpaced expectations.
Previous report
•Implied financing via the dollar roll market for TBA investments remained relatively unattractive, as reduced demand from the Federal Reserve and commercial banks negatively impacted fundamentals, while the increase in loan balances worsened the prepayment profile.
Previous report
Given the increase in market volatility in April, we remain cautious on the near-term outlook for the Agency RMBS sector as the market adjusts to shifting expectations around the timing of monetary policy adjustments. Our recent allocation to fixed rate Agency CMBS reduces our exposure to near-term interest rate volatility while providing attractive returns with favorable funding. Over the longer term, however, the potential normalization of monetary policy and a steeper yield curve should be supportive of Agency RMBS. We believe Agency RMBS investors stand to benefit from attractive valuations, favorable funding and robust liquidity as the macro environment evolves.
Reworded paragraphs (57)
Previous wording
•CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”); and
Current wording
•CMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency CMBS”);
Previous wording
•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”).
Current wording
•RMBS that are not guaranteed by a U.S. government agency or a federally chartered corporation (“non-Agency RMBS”); and
Previous wording
•other real estate-related financing arrangements in the form of unconsolidated ventures.
Current wording
During the periods presented in this Quarterly Report, we also invested in U.S. Treasury securities and other real estate-related financing arrangements in the form of unconsolidated ventures.
Previous wording
Of these macroeconomic factors, government policy initiatives, inflation, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the first quarter of 2024. Contributing factors included:
Current wording
Of these macroeconomic factors, government policy initiatives, inflation, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the second quarter of 2024. Contributing factors included:
Previous wording
•Financial conditions remained accommodative during the first quarter as credit spreads tightened, equity market valuations increased, and interest rate volatility eased as financial markets reacted favorably despite the higher interest rate environment brought on by shifting expectations for economic growth and monetary policy. Inflation readings were generally flat during the quarter, remaining stubbornly above the Federal Reserve’s 2% inflation target. The headline consumer price index (“CPI”) ended the quarter at 3.5%, up from December’s 3.4%, while CPI (ex. food and energy) fell slightly from 3.9% to 3.8%. Given these relatively high readings, investors' expectations for future inflation have adjusted upward, as Treasury inflation-protected securities breakeven rates increased. The two-year breakeven ended the quarter at 2.72% (up from 2.02% at year-end) and the five-year breakeven ended at 2.44% (up from 2.15%)
Current wording
•Financial conditions remained accommodative despite tightening modestly during the second quarter, as strong equity market performance was offset by slightly wider credit spreads and increased interest rate volatility. Inflation readings trended lower during the quarter, moving closer to the Federal Reserve’s 2% inflation target. The headline consumer price index (“CPI”) ended the quarter at 3.0%, down from March’s 3.5%, while CPI (ex. food and energy) fell from 3.8% to 3.3%. Investors reacted positively to these readings, with expectations for future inflation adjusting lower and Treasury inflation-protected securities breakeven rates decreased. The two-year breakeven ended the quarter at 2.11% (down from 2.72% at the end of March) and the five-year breakeven ended at 2.28% (down from 2.44%).
Previous wording
•Premiums on higher coupon specified pool collateral increased modestly given improvement in supply and demand technicals.
Current wording
•Premiums on higher coupon specified pool collateral decreased modestly given the increase in interest rates.
Previous wording
•Quantitative tightening continued in the first quarter of 2024, as the Federal Reserve passively reduced the size of their balance sheet through maturities of U.S. Treasuries and paydowns of Agency RMBS. Paydowns of Agency RMBS from the balance sheet added approximately $14.5 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 in the second half of 2024, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.
Current wording
•Quantitative tightening continued in the second 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 $18 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.
Previous wording
•Agency CMBS risk premiums declined over the quarter as new issuance volumes remained relatively low and higher yields helped drive investor demand for fixed-rate bonds.
Current wording
•Agency CMBS risk premiums were unchanged over the quarter as new issuance volumes remained relatively low.
Previous wording
(1)Our presentation of TBAs in the table above represents management's view of our investment portfolio and does not reflect how we record TBAs on our condensed consolidated balance sheets under U.S. GAAP. Under U.S. GAAP, we record TBAs that we do not intend to physically settle on the contractual settlement date as derivative financial instruments. We value TBAs on our condensed consolidated balance sheets at net carrying value, which represents the difference between the fair market value and the implied cost basis of the TBAs. Our TBA dollar roll transactions are a form of off-balance sheet financing. For further information on how management evaluates our at-risk leverage, see Non-GAAP Financial Measures below.
Current wording
(1)Our presentation of TBAs in the table above represents management's view of our investment portfolio and does not reflect how we record TBAs on our condensed consolidated balance sheets under U.S. GAAP. Under U.S. GAAP, we record TBAs that we do not intend to physically settle on the contractual settlement date as derivative financial instruments. We value TBAs on our condensed consolidated balance sheets at net carrying value, which represents the difference between the fair market value and the implied cost basis of the TBAs. We view our TBA dollar roll transactions as a form of off-balance sheet financing. For further information on how management evaluates our at-risk leverage, see Non-GAAP Financial Measures below.
Previous wording
As of March 31, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 93% of our total investment portfolio, including TBAs, versus 98% as of December 31, 2023 and March 31, 2023. Our 30 year fixed-rate Agency RMBS holdings as of March 31, 2024, December 31, 2023 and March 31, 2023 consisted of specified pools with coupon distributions as shown in the table below.
Current wording
As of June 30, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 87% of our total investment portfolio, including TBAs, versus 98% as of December 31, 2023 and June 30, 2023. Our 30 year fixed-rate Agency RMBS holdings as of June 30, 2024, December 31, 2023 and June 30, 2023 consisted of specified pools with coupon distributions as shown in the table below.
Previous wording
As of March 31, 2024, our holdings of Agency CMBS represented approximately 5% of our total investment portfolio versus 0% as of December 31, 2023 and March 31, 2023. As of March 31, 2024, our Agency CMBS holdings were comprised of fixed-rate securities with Fannie Mae DUS representing 74% our holdings and Freddie Mac Multifamily Participation Certificates representing 24% of our holdings. We invested in Agency CMBS in the first quarter of 2024 because these securities benefit from prepayment protection characteristics and have an attractive return profile. Further, the hedging costs related to these holdings are economical as they are less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments.
Current wording
We resumed investing in fixed-rate Agency CMBS in the first quarter of 2024 because these securities benefit from prepayment protection characteristics and have an attractive return profile. Further, the hedging costs related to these holdings are economical as they are less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments. As of June 30, 2024, our holdings of Agency CMBS represented approximately 8% of our total investment portfolio. Approximately 71% of our Agency CMBS were Fannie Mae DUS and 29% were Freddie Mac Multifamily Participation Certificates.
Previous wording
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the three months ended March 31, 2024, we entered into interest rate swaps with a notional amount of $1.3 billion and terminated existing interest rate swaps with a notional amount of $1.1 billion. Daily variation margin payment for interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations.
Current wording
We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes. During the six months ended June 30, 2024, we entered into interest rate swaps with a notional amount of $1.9 billion and terminated existing interest rate swaps with a notional amount of $2.0 billion. Daily variation margin payment for interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations.
Previous wording
As of March 31, 2024, we may sell up to 5,934,691 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents. During the three months ended March 31, 2024, we sold 365,838 shares of common stock under our equity distribution agreement for proceeds of $3.3 million, net of approximately $43,000 in commissions and fees. During the three months ended March 31, 2023, we sold 2,930,069 shares of common stock under an equity distribution agreement for proceeds of $35.8 million, net of approximately $482,000 in commissions and fees.
Current wording
During the three months ended June 30, 2024, we sold 1,761,155 shares of common stock under our equity distribution agreement for proceeds of $16.1 million, net of approximately $210,000 in commissions and fees. During the six months ended June 30, 2024, we sold 2,126,993 shares of common stock under our equity distribution agreement for proceeds of $19.4 million, net of approximately $254,000 in commissions and fees. During the three months ended June 30, 2023, we sold 2,888,639 shares of common stock under an equity distribution agreement for proceeds of $31.0 million, net of approximately $421,000 in commissions and fees. During the six months ended June 30, 2023, we sold 5,818,708 shares of common stock under our equity distribution agreement for proceeds of $66.8 million, net of approximately $903,000 in commissions and fees. As of June 30, 2024, we had 4,173,536 shares of our common stock remaining available for sale under our current equity distribution agreement, all of which were sold in July 2024.
Previous wording
For information on dividends declared during the three months ended March 31, 2024 and 2023, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I. Item 1 of this report on Form 10-Q.
Current wording
For information on dividends declared during the six months ended June 30, 2024 and 2023, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I. Item 1 of this report on Form 10-Q.
Previous wording
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the three months ended March 31, 2024, we repurchased and retired 93,347 shares of Series B Preferred Stock and 95,917 shares of Series C Preferred Stock. During the three months ended March 31, 2023, we did not repurchase any shares of preferred stock. As of March 31, 2024, we had authority to repurchase 1,092,650 additional shares of our Series B Preferred Stock and 949,522 additional shares of our Series C Preferred Stock under the current share repurchase program.
Current wording
In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock. During the three and six months ended June 30, 2024, we repurchased and retired 44,661 and 138,008 shares of Series B Preferred Stock, respectively, and 105,492 and 201,409 shares of Series C Preferred Stock, respectively. During the three and six months ended June 30, 2023, we repurchased and retired 37,788 shares of Series B Preferred Stock and 42,696 shares of Series C Preferred Stock. As of June 30, 2024, we had authority to repurchase 1,047,989 additional shares of our Series B Preferred Stock and 844,030 additional shares of our Series C Preferred Stock under the current share repurchase program.
Previous wording
Our book value per common share increased 0.8% as of March 31, 2024 compared to December 31, 2023 as our higher coupon Agency RMBS performed well relative to interest rate swap hedges, despite a notable increase in interest rates during the quarter. Strong performance in higher coupons was driven by a meaningful decline in interest rate volatility given market expectations for monetary policy easing in the first half of 2024. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value.
Current wording
Our book value per common share decreased 7.3% as of June 30, 2024 compared to December 31, 2023 as Agency RMBS modestly underperformed interest rate swaps. Significant changes in expectations for near term monetary policy led to persistently elevated interest rate volatility, as higher than expected inflation at the beginning of 2024 delayed the anticipated start of the easing cycle as priced in the Federal Funds futures market. Refer to Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for interest rate risk and its impact on fair value.
Previous wording
The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.
Current wording
The table below presents information from our condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023.
Previous wording
The table below presents information related to our average earning assets and earning asset yields for the three months ended March 31, 2024 and 2023.
Current wording
The table below presents information related to our average earning assets and earning asset yields for the three and six months ended June 30, 2024 and 2023.
Previous wording
Total average earning assets decreased $273.0 million for the three months ended March 31, 2024 compared to 2023. We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average earnings assets for the three months ended March 31, 2024 compared to 2023. Average earning asset yields increased for the three months ended March 31, 2024 compared to 2023 due to our rotation into higher yielding Agency RMBS.
Current wording
Total average earning assets decreased $438.7 million and $356.0 million for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, due to modest declines in stockholders' equity and lower leverage. Average earning asset yields increased for the three and six months ended June 30, 2024 compared to 2023 due to our rotation into higher yielding Agency RMBS.
Previous wording
We earned total interest income of $68.6 million for the three months ended March 31, 2024 (March 31, 2023: $69.3 million). Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.
Current wording
We earned total interest income of $68.0 million and $136.6 million for the three and six months ended June 30, 2024, respectively (June 30, 2023: $71.4 million and $140.7 million). Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.
Previous wording
Interest income was relatively unchanged for the three months ended March 31, 2024 compared to 2023 as a decrease in average earning assets was largely offset by an increase in average earning asset yields.
Current wording
Interest income decreased slightly for the three and six months ended June 30, 2024 compared to 2023 as a decrease in average earning assets was largely offset by an increase in average earning asset yields.
Previous wording
The following table presents net (premium amortization) discount accretion recognized for the three months ended March 31, 2024 and 2023.
Current wording
The following table presents net (premium amortization) discount accretion recognized for the three and six months ended June 30, 2024 and 2023.
Previous wording
Net discount accretion was $1.1 million for the three months ended March 31, 2024 compared to $171,000 in 2023. The increase in net discount accretion for the three months ended March 31, 2024 compared to 2023 was the result of repositioning our Agency RMBS portfolio into securities with lower book prices and slightly faster prepayment rates.
Current wording
The increase in net discount accretion for the three and six months ended June 30, 2024 compared to 2023 was driven by higher discount accretion on securities with lower book prices and slightly faster prepayment rates.
Previous wording
The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 2024 and 2023.
Current wording
The table below presents information related to our borrowings and cost of funds for the three and six months ended June 30, 2024 and 2023.
Previous wording
Total average borrowings decreased $317.7 million for the three months ended March 31, 2024 compared to 2023. We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average borrowings for the three months ended March 31, 2024 compared to 2023. Our average cost of funds increased 137 basis points for the three months ended March 31, 2024 compared to 2023 as the FOMC has raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a range of 5.25% to 5.50% as of March 31, 2024.
Current wording
Total average borrowings decreased $539.8 million and $428.9 million for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, due to modest declines in stockholders' equity and lower leverage. Our average cost of funds increased 66 and 102 basis points for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively, as the FOMC has raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a range of 5.25% to 5.50% as of June 30, 2024.
Previous wording
The table below presents the components of interest expense for the three months ended March 31, 2024 and 2023.
Current wording
The table below presents the components of interest expense for the three and six months ended June 30, 2024 and 2023.
Previous wording
Our interest expense increased $11.9 million for the three months ended March 31, 2024 compared to 2023 as increases in our cost of funds more than offset decreases in our average borrowings.
Current wording
Our interest expense was relatively flat for the three months ended June 30, 2024 compared to 2023 as a decrease in contractual interest expense on our repurchase agreements was offset by a decrease in amortization of net deferred gains on de-designated interest rate swaps. Our interest expense increased $12.2 million for the six months ended June 30, 2024 compared to 2023 due to a decrease in amortization of net deferred gains on de-designated interest rate swaps and increases in our cost of funds that more than offset decreases in our average borrowings.
Previous wording
Our interest expense as reported in our condensed consolidated statement of operations includes amortization of net deferred gains and losses on de-designated interest rate swaps as summarized in the table above. Amortization of net deferred gains on de-designated interest rate swaps decreased our total interest expense by $4.5 million during the three months ended March 31, 2023. Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on the condensed consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. As of March 31, 2024 and December 31, 2023, there were no net deferred gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income.
Current wording
Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on the condensed consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements. As of December 31, 2023, there were no net deferred gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income.
Previous wording
The table below presents the components of net interest income for the three months ended March 31, 2024 and 2023.
Current wording
The table below presents the components of net interest income for the three and six months ended June 30, 2024 and 2023.
Previous wording
Our net interest income, which equals total interest income less total interest expense, totaled $7.0 million for the three months ended March 31, 2024 (March 31, 2023: $19.6 million). The decrease in net interest income and net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds, for three months ended March 31, 2024 compared to 2023 was due to higher interest expense related to increases in the Federal Funds target rate. 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.
Current wording
Our net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds, decreased in the three and six months ended June 30, 2024 compared 2023 as increases in the Federal Funds target rate and decreases in amortization of net deferred gains on de-designated interest rate swaps more than offset our rotation into higher yielding Agency RMBS. 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.
Previous wording
The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 2024 and 2023.
Current wording
The table below summarizes the components of gain (loss) on investments, net for the three and six months ended June 30, 2024 and 2023.
Previous wording
During the three months ended March 31, 2024, we sold MBS and realized net losses of $3.2 million (March 31, 2023: net losses of $13.8 million). Net realized losses during the three months ended March 31, 2024 reflect sales of lower coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS. Net realized losses during the three months ended March 31, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.
Current wording
During the three and six months ended June 30, 2024, we sold MBS and realized net losses of $6.5 million and $9.8 million, respectively (June 30, 2023: net losses of $10.5 million and $24.2 million). Net realized losses during the three and six months ended June 30, 2024 reflect sales of 4.0% to 5.0% coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS. Net realized losses during the three and six months ended June 30, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.
Previous wording
We have elected the fair value option for all of our MBS purchased on or after September 1, 2016. Before September 1, 2016, we had also elected the fair value option for our non-Agency RMBS interest-only securities. Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations. As of March 31, 2024 and December 31, 2023, $5.0 billion or 99.7% of our MBS were accounted for under the fair value option.
Current wording
We have elected the fair value option for all of our MBS purchased on or after September 1, 2016. Before September 1, 2016, we had also elected the fair value option for our non-Agency RMBS interest-only securities. Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations. As of June 30, 2024, $4.8 billion (December 31, 2023: $5.0 billion) or 99.7% (December 31, 2023: 99.7%) of our MBS were accounted for under the fair value option.
Previous wording
We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $62.5 million in the three months ended March 31, 2024 compared to net unrealized gains of $65.7 million in the three months ended March 31, 2023. Net unrealized losses in the three months ended March 31, 2024 resulted from higher interest rates during the quarter, as valuations on fixed-rate securities declined as interest rates rose. Net unrealized gains in the three months ended March 31, 2023 were primarily due to improved Agency RMBS valuations as yields on Treasuries decreased.
Current wording
We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $38.7 million and $101.2 million in the three and six months ended June 30, 2024 compared to net unrealized losses of $89.2 million and $23.5 million in the three and six months ended June 30, 2023. Net unrealized losses in the three and six months ended June 30, 2024 resulted from higher interest rates and wider spreads on fixed-rate Agency RMBS as valuations declined given an increase in interest rates and elevated interest rate volatility. Net unrealized losses in the three and six months ended June 30, 2023 were primarily due to lower valuations on our Agency RMBS given higher interest rates and wider spreads on our holdings.
Previous wording
We recorded net realized and unrealized losses of $458,000 on U.S. Treasury securities in the three months ended March 31, 2024. We did not hold any U.S. Treasury securities during the three months ended March 31, 2023.
Current wording
We recorded net realized and unrealized losses of $458,000 on U.S. Treasury securities in the six months ended June 30, 2024. We did not hold any U.S. Treasury securities during the three months ended June 30, 2024 and the three and six months ended June 30, 2023.
Previous wording
As of March 31, 2024, $15.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023: $15.7 million). During the three months ended March 31, 2024, we recorded a $39,000 provision for credit losses on a single non-Agency CMBS based on a comparison of the security's amortized cost basis to discounted expected cash flows. We did not record any provisions for credit losses during the three months ended March 31, 2023.
Current wording
As of June 30, 2024, $15.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023: $15.7 million). During the three and six months ended June 30, 2024, we recorded a $263,000 and $302,000 provision for credit losses, respectively, on a single non-Agency CMBS. We recorded a $169,000 provision for credit losses during the three and six months ended June 30, 2023 on the same security.
Previous wording
For the three months ended March 31, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (March 31, 2023: equity in earnings of $2,000). We received a final distribution from our sole remaining unconsolidated venture during the first quarter of 2024, and the venture was dissolved in April 2024.
Current wording
For the six months ended June 30, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (six months ended June 30, 2023: equity in earnings of $2,000). We received a final distribution from our sole remaining unconsolidated venture during the first quarter of 2024, and the venture was dissolved in April 2024.
Previous wording
During the three months ended March 31, 2024, we entered into interest rate swaps with a notional amount of $1.3 billion and terminated existing interest rate swaps with a notional amount of $1.1 billion. We recorded net gains of $93.2 million on interest rate swaps for the three months ended March 31, 2024 (March 31, 2023: net losses of $44.5 million) primarily due to changes in forward interest rate expectations.
Current wording
During the six months ended June 30, 2024, we entered into interest rate swaps with a notional amount of $1.9 billion and terminated existing interest rate swaps with a notional amount of $2.0 billion. We recorded net gains of $29.3 million and $122.4 million on interest rate swaps for the three and six months ended June 30, 2024, respectively, (June 30, 2023: net gains of $96.6 million and $52.2 million) primarily due to changes in forward interest rate expectations.
Previous wording
As of March 31, 2024, we had $4.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 20 days. We typically refinance each repurchase agreement at market interest rates upon maturity. We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.
Current wording
As of June 30, 2024, we had $4.3 billion of repurchase agreement borrowings with a weighted average remaining maturity of 19 days. We typically refinance each repurchase agreement at market interest rates upon maturity. We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.
Previous wording
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. As of March 31, 2024 and December 31, 2023, we had no investments in TBAs. We recorded $442,000 of net realized and unrealized losses on TBAs during the three months ended March 31, 2023.
Current wording
We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS. We recorded net realized and unrealized losses of $998,000 on TBAs during the three and six months ended June 30, 2024 (six months ended June 30, 2023: $442,000).
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
For the three months ended June 30, 2024, our net loss attributable to common stockholders was $18.8 million (June 30, 2023: $1.4 million) or $0.38 basic and diluted net loss per average share available to common stockholders (June 30, 2023: $0.03). The change in net loss attributable to common stockholders was primarily due to (i) net gains on derivative instruments of $28.3 million in the 2024 period compared to $96.6 million in the 2023 period; (ii) net losses on investments of $45.2 million in the 2024 period compared to $99.7 million in the 2023 period; and (iii) a $3.8 million decrease in net interest income.
Current report — wording carried from elsewhere
$724.6 million). We also used cash of $50.0 million for the six months ended June 30, 2024 to pay dividends (June 30, 2023: $53.5 million). Proceeds from issuance of common stock provided $19.4 million for the six months ended June 30, 2024 (June 30, 2023: $66.8 million).
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
During the periods presented in this Quarterly Report, we also invested in:
Previous report — wording carried elsewhere
During the three months ended March 31, 2024, we did not repurchase any shares of our common stock.